Carving out class-action exceptions

In a case that began with a disgruntled cellphone customer, the U.S. Supreme Court has made it harder for groups of consumers or employees to band together to seek damages from corporations. Because the decision involved a federal statute, not the Constitution, Congress can — and should — overrule the court.

Almost a decade ago, Vincent and Liza Concepcion entered into a sales contract with AT&T Mobility that contained an arbitration clause forbidding a customer to join with others in a class-action lawsuit against the company. The Concepcions, who were aggrieved because they were charged $30.22 in sales tax on a supposedly free phone, brought a class-action suit against AT&T anyway two years later. Class actions allow many people who suffer the same harm to join as a “class” to seek compensation.

At first glance, the Concepcions would seem to have no legitimate complaint. After all, they had voluntarily signed a sales contract limiting them to standalone complaints. But the California Supreme Court has held that some contracts barring class actions are “unconscionable” and thus unenforceable. The U.S. 9th Circuit Court of Appeals decided that the AT&T contracts were unconscionable because, among other things, consumers couldn’t negotiate them with AT&T; they were take-it-or-leave-it documents offered by a party with superior bargaining power.

The Federal Arbitration Act allows arbitration agreements to be disregarded if state law allows it. But Justice Antonin Scalia wrote that that exception didn’t apply to the Concepcions’ dispute because breaking their contract with AT&T would frustrate the purpose of the arbitration act.

Underlying this legal debate about the interplay of state and federal law is a real-world concern: that consumers not be exploited by vastly more powerful merchants. Class actions allow injured consumers in California and other states who might not bring an action on their own to combine their claims and receive greater damages. (Opponents of class actions say the principal beneficiaries of such lawsuits are lawyers.)

With its narrow reading of the federal arbitration act, the court has put such remedies out of reach for many consumers. Fortunately, Congress can overrule the decision by amending the act to allow states to declare some arbitration agreements unconscionable. Sen. Al Franken (D-Minn.) is preparing to introduce legislation that would go further by banning binding “pre-dispute” arbitration clauses in consumer, employment and civil rights contracts. It’s not clear that such a drastic remedy is necessary, but at a minimum consumers should be spared the roadblocks that were thrown in the way of the Concepcions.