United States Supreme Court rules that California’s guarantees of legal access for defrauded consumers are pre-empted by federal law.
AT&T argued that victims of its fraudulent marketing could not bring a class action or class arbitration under California law, because AT&T’s service agreement mandated that all consumer disputes be submitted to individual arbitration. Although the California Supreme Court had previously held that consumer contract provisions requiring parties with less bargaining power to waive their right of collective action were unconscionable, AT&T argued that California law is preempted by the Federal Arbitration Act (FAA), which provides that arbitration clauses in general are valid and enforceable. Both the trial court and the Ninth Circuit Court of Appeals rejected AT&T’s argument, because the FAA includes an exception for cases in which legal grounds exist to revoke the contract. After certiorari was granted by the U.S. Supreme Court, Public Good joined an amicus brief authored by the Legal Aid Society of the District of Columbia defending the right of consumers to aggregate their individual claims into class proceedings. In cases in which large numbers of consumers are defrauded of sums that are too small for individual litigation to be feasible, company-imposed bars on class actions and arbitrations essentially deprive the defrauded consumers of legal recourse, thereby removing a crucial deterrent to corporate wrongdoing. Class proceedings are also important in that they can often alert consumers to violations of their legal rights. In a decision that has already had devastating consequences for consumer rights, the Supreme Court ruled 5-4 in favor of AT&T. This decision is part of a concerning trend in which the U.S. Supreme Court in recent years has increasingly enabled large companies to use their superior bargaining power to make it more difficult for consumers or employees to obtain legal redress in court. (See Stolt-Nielson, below.)
584 F.3d 849 (9th Cir. 2010), and reversed and remanded, 131 S. Ct. 1740 (2011).