Supreme Court Says Contracts Can Forbid Class Action Suits

The Supreme Court said today that contracts requiring arbitration for disputes can prohibit people from taking collective legal action, even if state laws allow it. California law says that contracts cannot negate the right to file class action suits, but the Supreme Court said, in a 5-4 decision, that the Federal Arbitration Act preempts the state law.

The case was brought by the Concepcions, a California couple who objected to AT&T charging them sales tax on phones advertised as free. Because the dollar amounts in question were small, the Concepcions wanted to bring a class action lawsuit with other plaintiffs who had the same claim, but AT&T argued that the contract the Concepcions and others had signed allowed AT&T to send the case to an arbitrator for decisions on an individual basis.

A lower court had found in favor of the Concepcions, saying the cases should go to arbitration, but as a group. The Ninth Circuit, in a decision supported by four of the Justices today, said that the California law was consistent with the Federal Arbitration Act, but Justice Antonin Scalia, writing for five members of the Court, declared that the Federal Arbitration Act was a deliberate move by Congress to favor arbitration according to the terms of the contracts, and therefore state laws that invalidate portions of the contract cannot be enforced.

The U.S. Supreme Court ruled on Wednesday for an AT&T Inc (T.N) unit seeking to require arbitration for a dispute over cell-phone taxes rather than allowing customer claims to be brought together in a class-action lawsuit.