By Gary S. Graifman*
In its recent decision, AT&T Mobility, LLC v. Concepcion, the Supreme Court has removed from consumers another important arrow from their quiver to defend against companies which use unconscionable or improper retail practices against them. Unfortunately, the number of arrows in that quiver are rapidly shrinking.
Yes, this is not your father’s Supreme Court. Especially if your father happened to live during the heady years of the Warren Court when civil rights, free speech and sanctity of the individual were prominently featured. Those were the days — lest we all forget — when the Court of last resort, the Supreme Court, was the bastion and refuge of the underdog, powerless and downtrodden. As for the others, large corporations and the rich, they had their lobbyists in Congress.
Growing up in the 1950’s and early 1960’s, I recall reading the book, Gideon’s Trumpet, in elementary school. James Gideon’s plight was a clarion call to the concept that one of the Supreme Court’s most important purposes was to serve as that refuge for the rights of the individual — those being discriminated against, those treated unfairly or those subjected to overreaching practices. It was a role taken to heart by the Court. After all, the Supreme Court was and is the one Court which could and would legislate by judicial fiat (notwithstanding attempts by certain Justices — current or former — to suggest otherwise, that is indeed what the Court does best).
Consumers Are Prevented From Bringing Class Actions and Limited to Remedies of Individual Arbitrations Where Their Customer Agreements Require It
In its 5-4 decision in Concepcion, the Court upheld the enforceability of a clause in a consumer contract which required the respective consumer to arbitrate any claim, regardless of how small the claim, and banned the consumer from joining, being part of or starting a class action. The issue was whether such a clause is enforceable or whether it becomes an unconscionable impediment to consumers realistically being able to pursue legitimate claims. The Court held that such a clause, which bans resort to the class action procedure, was enforceable. This is true, according to the Court, even though the Federal Arbitration Act (“FAA”), by its terms, allows one contesting such a clause to assert all of the standard state law defenses to attack its enforceability, including the defense of unconscionability (e.g., the FAA expressly states that an arbitration clause shall be enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract” 9 U.S.C. Sec. 2). That balancing language (or the “savings clause,” as it is known) was previously construed to require that arbitration clauses be fair and not constitute an attempt to prevent a party from being able to realistically avail themselves of the remedy.
In the case of Mr. and Mrs. Concepcion, their loss was $30.32. This small amount, aggregated over thousands of customers, was estimated to be millions of dollars by which AT&T was alleged to have been unjustly enriched. The majority opinion by Justice Scalia (which was joined by Roberts, Ch. J., Thomas, Kennedy and Alito, J.J.), held that the Concepcions were barred from bringing their claim as a class action and were limited by the clause to pursuing their claim solely in an individual arbitration proceeding, even if that resulted, as a practical matter, in the inability to bring the claim at all.
In consumer fraud cases such as this — where only a little money is taken from the pockets of each consumer, but over the length of the practice, the improper transactions occur hundreds or thousands of times, thus allowing corporations to reap unjust benefits at a significant cost to large numbers of consumers — no single consumer could realistically challenge the practice. Not being able to aggregate claims with others who have the same claim means that no one consumer would bring such a claim individually.
The use of the arbitration clause to ban any class action and require only individual arbitration has been seen by other courts as a blatant attempt at “remedy stripping.” The Concepcion majority seemed to recognize this. Justice Scalia stated: “The dissent claims that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system. . . . But States cannot require a procedure that is inconsistent with the FAA even if it is desirable for unrelated purposes.” (Emphasis added). Translation: even though it is unfair to require a consumer to arbitrate, individually, a $30.32 claim, that’s just too bad.
As the dissent reminds us: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” And notes, “The realistic alternative to a class action is not 17 million individual suits but zero individual suits, as only a lunatic or a fanatic sues for $30.” (Breyer, J., writing, with Ginsburg, Sotomayor, and Kagen, J.J., joining). Thus, both the majority and the dissent acknowledged that legitimate claims will be effectively barred by the rule established by the Court.
The Rule Prior to Concepcion Involved a Rational Balancing Test Rather Than a Bright Line Prohibition
Before the Supreme Court’s Concepcion decision, most Circuit Court of Appeals speaking on the issue (those are the Federal Appeals Courts just below the Supreme Court), such as the Third Circuit and Ninth Circuit, have applied a sensible balancing test. Under that test, if the consumer contract clause which contains a class action ban is a contract with no ability to negotiate the terms and very little or no bargaining power by the consumer, and involves predictably small dollar amounts (e.g., typically under a few hundred dollars), then an arbitration clause preventing consumers from joining together is considered a “remedy-stripping” device. Those courts held that to prevent a group from aggregating their small value claims in a class action is to essentially prevent them from having any remedy and that result is unconscionable. In addition, the potential for a class claim also serves an important public policy purpose as a countervailing force against the otherwise tantalizing tendency by unscrupulous retailers to seek profits through sharp or unconscionable practices.
Class actions also serve to promote diligence and fairness in the retail marketplace because of the deterrent effect the potential of such a suit would have. That deterrent has now been removed and one has to wonder if the Supreme Court has declared open season on consumers. As in other areas, private class action litigation is often a more effective deterrent than governmental agency oversight, which tends to be underfunded, under-staffed, moved to enforcement or non-enforcement based on political whims, or spread too thin to be effective (e.g., witness the SEC’s oversight of the financial industry as it expanded into securitization and sale of subprime or junk mortgages).
So What Might the Legacy of This Court Be Concerning Individual Protections?
So here we are, with a Court that seems to find its purpose in removing important protections for the individual or underdog. The decisions of the current Court appear to be forming a pattern that advances corporate America’s agenda in dominating the American landscape over individual rights in the employment arena (e.g., the Lilly Ledbetter v. Goodyear Tire & Rubber Co. case); campaign and election influence ( the Citizens United v. Federal Elections Commission case); and now, with Concepcion, in the consumer marketplace.
In speaking with a number of middle-class people who work in various professions (lawyers, doctors, teachers, accountants) about their perceptions on this subject, and in conducting an informal survey, I have found that the majority seem to agree with the prediction that this country, within the next 20 years, will be controlled to a large degree by corporations. Individuals will have fewer and fewer rights that are not reliant on the benefits that corporations may deign to provide. This is consistent with studies that confirm the middle class is shrinking and the divide between rich and poor in this country is growing.
One can’t help but be reminded of President Eisenhower’s farewell speech warning Americans of the dangers of allowing the “military-industrial complex” (his own term) to become too influential. President Eisenhower was hardly a liberal by any stretch of the imagination. Perhaps the Justices in the majority here missed that speech. In an effort to level the playing field once more, recent articles indicate that Senators Al Franken and Richard Blumenthal and Representative Hank Johnson may aid this effort on behalf of consumers with legislation they have announced, which they intend to introduce to restore consumers rights to seek justice in the courts. In addition, the newly-formed Federal Consumer Bureau may ride to the rescue to implement regulations limiting the use of overreaching arbitration clauses. We can only hope that Congress or the appropriate agencies act to rectify what the Supreme Court has once again wrought in another blow to consumers’ rights.
*Gary S. Graifman is a partner at the firm Kantrowitz Goldhamer & Graifman, P.C., and frequently represents aggrieved consumers in class action litigation and arbitration proceedings. Mr. Graifman was co-counsel for plaintiffs in the matter, Homa v. American Express Corp., 558 F.3d 225 (3d Cir. 2009), in which the U.S. Court of Appeals for the Third Circuit struck as unconscionable an arbitration clause which had sought to ban class action litigation for predictably small dollar amount consumer claims.