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Recent Supreme Court Decision Limits Class Action Lawsuits

May 9, 2011

The US Supreme Court decision in AT&T Mobility v. Concepcion, released on April 27th, reiterates the importance of contractual dispute resolution terms that are often in the fine print of contracts. The case focused on clauses in some AT&T cell phone service contracts that require disputes under the contract to go through arbitration rather than the courts, and prevents customers from participating as a member of a class in proceedings against AT&T. The Concepcions live in California and entered into a service contract with AT&T. AT&T charged them $30.22 in sales tax for a "free" phone. The Concepcions sued AT&T, and AT&T asked the court to dismiss the suit, alleging that the dispute was subject to the mandatory arbitration provision of the service contract. The trial court sided with the Concepcions, finding that the arbitration clause of the service contract was unconscionable and unenforceable under California law because it disallowed customers from participating in a suit as a member of a class. The 9th Circuit Court of Appeals affirmed the trial court's decision and AT&T asked for review by the United States Supreme Court. The Supreme Court reversed the Court of Appeals decision, finding that the mandatory arbitration and prohibition against class actions provisions within the service contract were valid and enforceable under federal law.  Advocates of class-action lawsuits claim that grouping similarly-situated people together is many times the only way to effectively challenge a company. For instance, AT&T's contract requires individuals like the Concepcions who believe the $30.22 sales tax charged on a "free" phone to sue AT&T individually. The inability of the customers to band together in one group to challenge AT&T's practice significantly decreases the likelihood that the practice will be reviewed. This decision was hotly debated and highly anticipated by both consumers' rights groups and organizations that contract with a large number of people, like service providers and employers. Pursuant to the holding in this case, contracts can include provisions that both compel arbitration and forbid class action lawsuits. Both parties to contractual agreements should carefully consider whether such a provision would be beneficial to their interests in light ofAT&T Mobility v. Concepcion.
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