Supreme Court to rule on arbitration clauses, class-action lawsuits

U.S. Supreme Court building

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Kai Ryssdal:The Supreme Court's going to get down in the fine print tomorrow. Contract law, specifically. Fine print, quite literally. The justices are going to hear a case about those arbitration clauses that are in a lot of the contracts customers sign. Clauses that say disputes have to be resolved by a third party arbitrator.

Arbitration clauses also seem to rule out class-action lawsuits as a consumer remedy against corporations, and that is the interpretation that's at the heart of the case to be heard tomorrow.

Marketplace's John Dimsdale reports.


John Dimsdale: All sorts of contracts -- from credit cards to car leases and even stays at nursing homes -- have an arbitration clause. You have to read the contract closely to find it.

AT&T wireless customers Vincent and Liza Concepcion discovered theirs when they challenged a $30 sales tax on a phone the company gave them for free. When they banded together with others to bring a class-action suit, AT&T tried to block it. The company said the arbitration clause precluded litigation. But citing California state law, lower courts let the case proceed. AT&T appealed to the Supreme Court.

Los Angeles resident Marlon Campbell sympathizes with the Concepcions. He says his cell phone company, Nextel, tried to rip him off.

Marlon Campbell: I had to call them almost on a monthly base to let them know there was an error in my bill.

Campbell joined a class-action suit with more than 24,000 other Nextel customers -- and that resulted in judgment against Nextel. Campbell got $1,500.

Campbell: It wouldn't make any sense for me to hire an attorney to go back and claim $65 or $70. It wouldn't be worth it for the attorney. It's like you're helpin' each other. One person can't get it done on its own. It has to be done by multiple people.

Federal law, though, says arbitration clauses preclude class-action suits. And the cell phone industry argues federal law should preempt the states. Banks and credit card companies agree.

Alan Kaplinsky, represents several financial trade associations as friends of the court. He says studies show arbitration gives consumers a fair break.

Alan Kaplinksy: They recover amounts that are very often higher than what they can get in court. Most importantly, they're able to get a much quicker resolution.

As for class-action lawsuits, Kaplinsky says consumers are often paid with discount coupons instead of cash.

Kaplinsky: They're essentially worthless to consumers. Who benefits from class actions? Class-action lawyers.

But polls show 59 percent of Americans oppose binding arbitration because decisions favor corporations. Marlon Campbell, for example, got cash out of his class-action settlement. Consumer advocates say class-action lawsuits are the best way to hold companies accountable for small grievances.

Harvey Rosenfield is with Consumer Watchdog.

Harvey Rosenfield: The only way you can really get a day in court is by getting a whole bunch of other consumers who've been abused just like you, finding a lawyer who will take the case on behalf of hundreds of thousands of people and then bring that as a class action in the courts, where you have rules that allow for the full prosecution of the case.

A ruling in AT&T's favor would mean nothing less than the end of a consumer's right to join a class-action case anywhere in the U.S., says Robert Weissman of Public Citizen.

Robert Weissman: It's going to give free hands to corporations to engage in a variety of either deceptive or misleading practices -- small charges, small fees, small rip-offs, small defects.

Weissman and other consumer advocates fear the Supreme Court will vote against consumers. He says lower courts have consistently backed state laws protecting consumer-class actions. And if the Supreme Court justices agreed, they would have never accepted AT&T's appeal.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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