The following contribution to our arbitration symposium is written by Jean R. Sternlight, the Michael and Sonja Saltman Professor of Law as well as the Director of the Saltman Center for Conflict Resolution at the University of Nevada-Las Vegas Boyd School of Law.  Frequently cited by courts and the media, Professor Sternlight is the co-author of multiple books and has published in numerous journals.

When the Supreme Court handed down its decision in AT&T Mobility v. Concepcion, commentators expressed concern that the decision might effectively bring an end to many consumer and employment class actions.  The five-four decision held that courts' use of California's Discover Bank test for whether an arbitral class action waiver is unconscionable was preempted by the Federal Arbitration Act.  The Court explained that the Discover Bank rule, which would classify as unconscionable those class action waivers contained in consumer contracts of adhesion that would insulate companies from claims that they cheated large numbers of consumers out of individually small sums of money, effectively requires "the availability of classwide arbitration" and thereby "interferes  with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."

Although it has been just a few months since the Court issued its decision in Concepcion, results are coming in, and they do not look promising for the future of consumer and employment class actions.   Some lawyers and commentators have suggested ways lower courts might distinguish Concepcion, and continue to void unfair class action waivers.  Courts might, for example, find that Concepcion only preempted the essentially per se rule in Discover Bank,  and allow consumers or employees to challenge class action prohibitions using evidence and a more traditional unconscionability analysis.  Or, courts might limit Concepcion to the preemption of the particular unconscionability attack and allow other attacks on class action waiver based on public policy or inability to enforce the relevant federal or state statutes.   However, it turns out that most courts are rejecting these and other proposed distinctions and applying Concepcion broadly as a "get out of class actions free" card.

In case after case, courts are now refusing to void arbitral class action waivers, and sending consumers' and employees' claims for fraud, unfair business practices, wage and hour violations,  discrimination, and other matters to individual arbitration. Courts are even permitting company defendants to raise the arbitration defense in cases that have been pending for several years, reasoning that Concepcion's dramatic change in the law voids plaintiffs' claim that defendants waived the arbitral defense.   The Eleventh Circuit's August decision in Cruz v. Cingular Wireless exemplifies many courts' broad interpretation of Concepcion.  In Cruz, the plaintiffs "“ who were AT&T customers  and covered by the same arbitration clause discussed in Concepcion "“  brought a class action consumer fraud claim regarding small hidden charges.  The plaintiffs sought to distinguish Concepcion, arguing that unlike the Concepcion plaintiffs, they had specific evidence showing they would be unable to vindicate their rights absent a class action.  The Eleventh Circuit rejected the argument, finding that even assuming it were true that the class action waiver would result in small-value claims going undetected and unprosecuted,  the Supreme Court had already considered and rejected the significance of this argument.

A few decisions have bucked the general trend, for example refusing to apply Concepcion to prevent plaintiffs from bringing a Title VII pattern and practice claim collectively  or holding that claims brought under California's Private Attorney General Act are  not enforceable, notwithstanding Concepcion. However, even these cases have not permitted unconscionability attacks on class action waivers in the consumer context.

Right now, all companies that had the foresight to impose arbitral class action waivers on their consumers and employees are raising the defense to defeat current class actions.  In the future we can expect that far more companies will impose arbitral class action waivers as a means to insulate themselves from class actions.   Companies that fear being sued in class actions can easily enough insert class action waivers into small print documents or on-line provisions that they send to their customers or employees.  Under the Federal Arbitration Act, an arbitration clause need not even be signed to be valid, so long as it is written.   Thus, we may soon see the possibility of class actions only in the rare contexts in which the company and potential plaintiffs do not have a prior relationship.

Concepcion and its progeny will not only require named plaintiffs to pursue their claim in arbitration, rather than litigation, but far more critically they will altogether eliminate the claims of absent class members unless they can somehow suddenly and timely bring their own individual claims.  Everyone knows this is not going to happen.  Thus, whereas a report by the Federal Judicial Center showed that in 2007 more than 1500 labor class actions (mostly Fair Labor Standards Act) and consumer fraud class actions were filed in or removed to federal court, making up 67.7% of the federal class action docket, unless something changes we can expect to see few such claims in the future.

Some are not troubled by this new class action-free world.  Indeed, some are thrilled at their success in using arbitration to shield companies from the threat of class actions.  Through the private tool of arbitration, corporate defenders are achieving what they have not been able to achieve through Congress or the federal and state rules committees.   They defend this coup by claiming that class actions are not beneficial for class members, or that arbitration can be structured to ensure perhaps greater access to justice than is provided by class actions.  Yet, both arguments fail.

It is true that class actions are sometimes flawed, and that some class actions serve the interests of plaintiffs' counsel or defendants more than they serve the interests of plaintiffs.  On the other hand it is also true that many class actions serve the interests of both plaintiffs and members of the public, protecting them against illegal and unfair business practices.  Congress and federal and state rules committees have been working hard to revise class action procedures to ensure that class actions function as fairly and effectively as possible.  These groups, rather than companies themselves, are best positioned to weigh the positives and negatives of class actions and refine the rules as needed.  We should not allow companies to shortcut the legislative process by using arbitration to abolish class actions.

As for access to justice, this issue lies at the core of this debate.  Many people assert, and a few may actually believe, that arbitration will afford greater access to justice than litigation, even including class actions.  Asserting that arbitration is quicker and cheaper than litigation, some say that victims of discrimination or consumer fraud will be able to present their claims more effectively in arbitration than they would in litigation.  In Concepcion, the Supreme Court examined an ingenious arbitration clause that had been created to provide the impression that consumers who sought to bring claims against AT&T would be assured access to justice.   The clause provided that AT&T must pay all costs for non-frivolous claims and pay a minimum of $7500 plus double attorneys fees to any claimant who received an arbitration award greater than AT&T's last written settlement offer.   Yet, even as to the individual claimants, the clause sounds better than it is.  What lawyer can afford to take a thirty-dollar claim on the gamble that the defendant would be stupid enough not to settle and risk having to pay $7500 and double attorney fees?  Further, the idea that arbitration is quicker and cheaper than litigation neglects the fact that you get what you pay for.  Litigation is often time consuming and expensive because claimants need representation by attorneys and discovery to prevail on their claims of discrimination or consumer fraud.

Even more significantly, the idea that individual arbitration might adequately replace class actions neglects one of the major but too little discussed virtues of class actions:  they allow people to be represented as to claims they may not have known they had.  Clauses like  AT&T's, which eliminate class actions, cannot help consumers or employees who do not know they have been wronged.  Class actions, in contrast, allow a single knowledgeable victim to bring a lawsuit on behalf of those similarly situated.  In this busy complex world, most of us lack the time or ability to figure out that we are being victimized by fraud, discrimination, negligence, or other misdeeds.  The harm may be very real, but especially when victims are harmed only in small or imperceptible ways "“ inappropriate fees, defective computer software, exposure to toxic substances, denial of overtime pay "“ many victims will simply not realize they have been harmed, much less harmed in violation of a law.  Indeed, even victims of larger or clearer wrongs may lack the knowledge or wherewithal to file claims, whether in litigation or arbitration.

Thus, if we allow lower courts' interpretation of Concepcion to result in the effective elimination of most consumer and employment class actions, we are providing companies with a license to cheat and harm almost at will.  If courts do not suddenly change their approach, and begin to construe Concepcion more narrowly, we will need to look to Congress and the executive branch for alternative solutions to this problem.  These solutions could include new federal legislation restricting uses of mandatory arbitration, or new legislation empowering federal or state agencies to take on a much greater regulatory role to make up for the loss of class actions.  Perhaps, as well, existing regulatory bodies such as the Federal Trade Commission, the Federal Reserve Bank, or the Bureau of Consumer Financial Protection will be able to take some steps, within their respective spheres of influence, to help ensure that all persons have access to justice, even in the wake of AT&T Mobility v. Concepcion.

Posted in Arbitration, Featured

Recommended Citation: Jean Sternlight, Eliminating class actions – a tsunami in the wake of AT&T Mobility v. Concepcion threatens access to justice, SCOTUSblog (Sep. 19, 2011, 9:19 AM), http://www.scotusblog.com/2011/09/eliminating-class-actions-%e2%80%93-a-tsunami-in-the-wake-of-att-mobility-v-concepcion-threatens-access-to-justice/