CT Blue

Every once in a while a case comes along that reveals a lot about the Supreme Court’s priorities. Such a case was argued yesterday.

The case pits states rights against corporate interest. Which will win? And should it even be close?

The case involves a class action brought by a California couple who are suing AT&T for fraud. Buried in the fine print of their contract with AT&T is a provision that requires them to arbitrate any dispute they may have against AT&T. The provision also states that they must bring their claim individually, and cannot bring it as a class action. This is a typical provision buried in the boilerplate of thousands of consumer contracts.

The purpose of such provisions is fairly clear. They allow the corporations to engage in profitable small scale consumer fraud while depriving the affected consumers any meaningful remedy. In this case, AT&T told its customers it would give them a free cell phone if they signed a contract, then charged them a $30.00 sales tax for the phone. Only a lawyer could argue that it’s still a free cell phone that way, but that doesn’t mean that every judge will agree.

Federal law encourages arbitration, but there is no law that says you can’t bring an arbitration claim as a class action. AT&T argues:

In its main brief in the case, AT&T Mobility v. Concepcion, 09-893, the company said “no rational business will agree” to class-wide arbitration, which it called “a lose-lose proposition” with all the cost and risk of litigation but none of the procedural protections and appellate oversight.

Let me translate. AT&T is saying that they would have no incentive to arbitrate a class action because they can’t game the system. They like the system that makes it utterly impracticable for a consumer to bring a claim, which that consumer will likely lose in arbitration anyway. Right now they have a “win-win” situation, with them on both sides of the dash.

Now, California courts have ruled that restricting the class action remedy in a consumer contract is unconscionable as a matter of state law. Unconscionable clauses are non-enforceable. The California courts have not declared arbitration clauses in consumer contracts to be unconscionable (which they are) because that would run afoul of a federal statute passed at the behest of the AT&Ts of the world by a compliant Congress, which “favors” arbitration. But the corporations didn’t think to legalize contract clauses that limit class actions. Since there is no federal law on that subject, state law should apply.

So, the California couple argued (and have so far prevailed) that the class action restriction voided the entire clause, and they were free to go to court and bring a class action, which they did.

Now, it should be a non-controversial principle of law that a state court, absent explicit federal legislation pre-empting the question, has the right to determine what is and what is not unconscionable. A real fan of states rights and “limited federal government” would do all he or she could to protect the state’s right to determine its own laws. In other words, the “conservative”, “strict constructionist” response to this case should be clear. AT&T should lose. That happens to also be the liberal response, but of course, we don’t count.

But what if the state’s laws interfere with a corporation’s desire to cheat the American public? Ah! There’s the rub. Many members of the court feel AT&T’s pain, particularly Alito and Scalia, who were, after all, appointed for their pro-corporate, and not their anti-abortion, credentials. So now we will see. When conservative theory conflicts with corporate interests, which wins? Once again, it will likely be all up to Kennedy, because I’m fairly certain we’ll see the true stripes of the other four when this one gets decided.