Supreme Court Justices Offer Few Hints On Class Action Case

In a case that could determine the future of class action law suits, the Supreme Court Tuesday grappled with the question of how far states can go in putting limits on arbitration clauses. Mandatory arbitration clauses appear in most contracts consumers sign, so the case is expected to have very broad consequences in areas as diverse as consumer protection and civil rights litigation.

In Tuesday’s case before the Supreme Court, Vincent and Liza Concepcion are trying to sue over a cell phone purchase made in 2002. AT&T had advertised a cell phone as free, but in fact AT&T charged customers for tax on the phone’s normal price. Because the amount of dispute was so low, Concepcion tried to bring a class action on behalf of everyone else who had taken advantage of AT&T’s offer, but the AT&T contract Concepcion signed said that all disputes had to go to an arbitrator instead of court, and that class actions were not available.

The Supreme Court Justices tried to balance two competing principles: generally states are left free to pass their own consumer-protection laws (in this case, California had said contracts must allow class action lawsuits), but the Federal Arbitration Act, originally passed by Congress in 1925, said that states must apply the same rules to arbitration as they do to normal court cases.

Several outside groups have filed briefs in the case warning about the wide-ranging consequences if the Court rules in AT&T’s favor. If the Court allows companies to effectively remove the option of class action lawsuits, groups like the NAACP say that it will be very difficult to effectively bring employment or mortgage discrimination lawsuits, since those kinds of suits normally involve large groups of people claiming systemic discrimination but with little injury to each one.

All of the Justices today seemed unsure of how to draw a distinction between neutral laws that apply to both arbitration and court cases, and laws intended to unfairly burden arbitration. Further, the Justices expressed concern that any rule they come up with could make a federal case out of all challenges to arbitration clauses.

The case was AT&T Mobility v. Concepcion, and a decision will likely be handed down in the spring of 2011.