Supreme Court Watch: Court imposes limits on class actions

WASHINGTON (AP) -- WASHINGTON (AP) -- The Supreme Court on Wednesday made it harder for consumers to band together to fight corporations when they want to dispute their contracts for cell phones, cable television and other services.

In a 5-4 ideological split, the high court said a California law invalidating contracts that ban class-action arbitration with businesses was pre-empted by the Federal Arbitration Act.

Unconscionable contracts are considered invalid, and California law said that arbitration agreements that banned class actions could be considered unconscionable and unenforceable.

The 9th U.S. Circuit Court of Appeals in San Francisco said that did not interfere with the federal law allowing arbitration. But Justice Antonin Scalia, writing for the high court's majority, said the California law went too far.

"The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly pre-empted," he said.

Scalia was joined in the judgment by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito.

The court's four liberal-leaning justices, Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, dissented from the decision. Breyer said the high court should not have interfered with the state law.

"California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the state does not adopt a special rule that disfavors arbitration," Breyer said.

The ruling came in a dispute between wireless provider AT&T Mobility and a California couple who objected to being charged around $30 in sales tax for what they were told was a free cell phone.

Like many such contracts, the fine print of the agreement between AT&T and Liza and Vincent Concepcion calls for all disputes to be settled by arbitration and prohibits customers from joining forces in a class-action.

Business interests generally oppose class actions because they are costly to litigate and can result in massive payouts.

The ruling could greatly restrict the use of class actions, in which a party represents a much larger group, in disputes over contracts. AT&T was backed by an array of business interests, while consumer groups and the NAACP Legal Defense and Educational Fund were among supporters of the Concepcions.

The case is AT&T Mobility v. Concepcion, 09-983.

Published: Thu, Apr 28, 2011

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