A Way Forward for Consumer Class Actions?

by Nicole Flatow

The U.S. Supreme Court’s decision last year in AT&T Mobility v. Concepcion was a major blow to consumers’ ability to file class actions and hold corporations accountable. In the 5-4 decision, the majority rejected a lower court ruling that an arbitration clause was unconscionable because it barred class actions.

But a recent federal appeals court decision that considered Concepcion as precedent may pave a way forward for litigants seeking to challenge corporate action as a class, writes Philadelphia litigator Joshua D. Wolson on The Legal Intelligencer Blog.

In In re American Express Merchants Litig., the Second Circuit held that an arbitration clause containing a class action waiver was unenforceable. The case was twice reversed by the U.S. Supreme Court for reconsideration in light of Concepcion and another limiting Supreme Court precedent, and twice more, the court maintained its holding.

In striking down the class action waiver, the court relied on an affidavit from an economist, which showed that no rational plaintiff would bear the cost alone of winning such a complicated antitrust case, when the potential payout was so comparatively small. 

“The evidence presented by plaintiffs here establishes, as a matter of law, that the cost of plaintiffs' individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws,” the judges wrote.

If plaintiffs can overcome class action bans by providing affidavits from economic experts, perhaps there is a future for consumer class actions, Wolson writes. But, he cautions, “it seems likely that the Supreme Court will have the last word.”

Interestingly, in Justice Stephen Breyer’s dissent in Concepcion, he invoked a similar argument (though perhaps not supported by an affidavit from an economist).

“What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim … ?,” he wrote. “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.'”

In spite of this reasoning, the majority found for AT&T in this case, as they have found for corporations in a number of other cases concerning arbitration agreements over the last several years.

Just this term, in CompuCredit v. Greenwood, the court upheld an arbitration clause that barred lawsuits even though the Credit Repair Organizations Act explicitly says “you have a right to sue.”

The litigants in this case were challenging hidden credit card fees of $257 on a card with a limit of $300 dollars, and they now join the growing number of consumers and employees “stuck in arbitration.” 

In a New York Times op-ed, Stanford law professor Amalia Kessler laments the “growing number of consumers and job seekers” who “discover, when something does go wrong, that they have unknowingly agreed to waive their right to file a lawsuit. Instead, they must submit to arbitration.”

She traces the history of this development:

Until the early 20th century, American courts often refused to enforce agreements to arbitrate, insisting that parties ought to have their day in court. This began to change with the 1925 enactment of the Federal Arbitration Act, which established that agreements to arbitrate were enforceable like any other contract.

While the arbitration act was initially envisioned as applying primarily to disputes between commercial equals, since the 1980s, the United States Supreme Court has interpreted it in ways that have facilitated corporate America’s efforts to force consumers and employees into arbitration. This trend has accelerated in the last few years.

Arbitration agreements have now infiltrated standard contracts that “eager to complete your purchase — or desperate to be hired — you ultimately sign without reading.”

A step in the right direction, she writes, would be the Arbitration Fairness Act of 2011, which would make would make predispute agreements to arbitrate consumer and employment disputes unenforceable.