U.S. Supreme Court case could put end to class actions Decision could mean less incentive for attorneys to take on some cases

By David Frank and Kimberly Atkins The Daily Record Newswire PROVIDENCE, RI -- A dispute pending before the U.S. Supreme Court could take away the ability of states court judges across the country to invalidate arbitration agreements, according to several civil litigators familiar with the case. In AT&T Mobility v. Concepcion, which was heard on Nov. 9, the Court is being asked to decide whether the Federal Arbitration Act prevents a state from striking down a class action waiver on unconscionability grounds. Paul Bland, a staff attorney with Public Justice, a national organization that advocates on behalf of consumers, said a decision for AT&T could "literally wipe out" 90 percent of class actions in the U.S. "What AT&T is going for is huge," Bland said. "There are some class action lawyers who think their whole practice is going to disappear." Patricia A. Sullivan, co-chair of Edwards, Angell, Palmer & Dodge's Antitrust Practice Group in Providence, called the case "extremely significant" and noted that federal courts have aggressively enforced arbitration clauses in recent years. Sullivan, who typically represents clients seeking to enforce such provisions, said a ruling in AT&T's favor would make it much less appealing for plaintiffs' counsel to take on such a case. "If the only thing a lawyer can do is arbitrate the individual consumer's specific complaint, it will become almost impossible to create the kind of policy changes that you often see in class action litigation," she said. "That means there is going to be a lot less incentive for an attorney to get involved." As long as a judge finds that the parties knowingly signed an agreement containing a clause agreeing not to bring a class action suit, Sullivan said she would be "shocked" if the U.S. Supreme Court decided not to enforce it. "This court has tended to be very respectful of contractual rights and has consistently held that the right to contract is the right to contract," she said. "If class action killing clauses are not enforceable, then the utility of arbitration agreements in general becomes tricky." Ronald J. Resmini of Providence, who has handled plaintiff class actions in Rhode Island, added that arbitration clauses like the one at issue in AT&T are typically upheld if both parties receive some benefit. "To the extent that two people of sound mind are willing and able to enter into an agreement, ... courts don't like to get into the business of undoing their contracts," he said. Shannon Liss-Riordan, a Massachusetts lawyer who represents class action plaintiffs around the country, called AT&T a "ticking time bomb." "From a plaintiffs' lawyer's perspective, it is quite scary what the Court might do," she said. "If they say states don't have the ability to strike these provisions down, there is nothing stopping employers everywhere from instituting mandatory arbitration clauses that contain class action waivers." Costly phone The case involves a group of customers, including plaintiffs Vincent and Liza Concepcion, who allege that they received an offer to get a free phone if they signed up for wireless service. The offer was fraudulent, they argued, because the company then charged sales tax on the retail value of the phone. AT&T sought to force the plaintiffs to arbitrate the case under a mandatory arbitration provision that barred class actions. A U.S. District Court judge found that the class action waiver was unconscionable under state law and therefore unenforceable. The judge also held that the Federal Arbitration Act did not preempt state law. The 9th U.S. Circuit Court of Appeals agreed that the waiver was unconscionable under state law. Briefs filed by amici noted that the ruling could have an impact far beyond consumer cases. Workplace groups asserted that it could affect matters involving large companies whose employees may not have the means to file individual discrimination suits. Civil rights organizations argued that class actions have historically been used as a vehicle in a variety of discrimination cases. Discriminating against arbitration? At oral arguments, AT&T's Washington D.C. lawyer, Andrew Pincus, claimed that permitting states to invalidate arbitration agreements for failing to allow class action claims would essentially "require arbitration to be a carbon copy of litigation, precisely what the [Federal Arbitration] Act was designed to prevent." But Justice Antonin Scalia and other justices sought to find a rule to determine just how far states can go. "You say [an agreement] has to shock the conscience," Scalia said. "But if a state wants to apply a lesser standard of unconscionability, can we strike that down?" "Absolutely, you can," Pincus said. When Pincus argued that requiring class actions discriminates against arbitration and therefore violates the FAA, Justice Stephen Breyer wondered why. "Class arbitration exists," Breyer noted. "It's not like having a jury trial. You could have it in arbitration. You can have it in litigation....Where is the discrimination?" Although the FAA has a "savings clause" that allows state courts to invalidate arbitration agreements on "grounds as exist at law or in equity for the revocation of any contract," Pincus said the case at issue did not fall into that exception. "They have made up a special rule that is targeted on a special kind of contract," he said. But the consumers' lawyer, Deepak Gupta, a staff attorney at Public Citizen Litigation Group in Washington, countered that contracts can be invalidated if provisions run afoul of public policy. When the Conceptions entered into the contract, they didn't realize how unfair it was, he said. "They don't know whether they will detect this fraud and be able to come forward. And so the question is: is that unconscionable as to them?" Gupta said. "Why are they better off with a class adjudication?" Justice Samuel Alito asked. "A class action incentivizes lawyers and others to detect for this fraud," Gupta replied. "It makes it economically justifiable to come forward with these kinds of claims." A ruling from the Court is expected later this term. Published: Tue, Nov 23, 2010

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