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ECommerceTimes.com

A Lot Hinges on SC's Ruling in $30 Cellphone Sales Tax Case

By Erika Morphy
Nov 10, 2010 11:00 AM PT

The Supreme Court heard arguments Tuesday in AT&T v. Concepcion -- a case that could decide whether the arbitration clauses companies routinely insert in sales contracts can ban class actions.

A Lot Hinges on SC's Ruling in $30 Cellphone Sales Tax Case

The case stems from a suit brought by Vincent and Liza Concepcion, who signed up for cellphone service from AT&T Mobility in Southern California. The offer included a free Nokia phone -- but they were charged a sales tax of US$30.32. They filed a complaint and sought class action status, which AT&T's arbitration clause banned.

"Basically, what this fight is about is whether a company can be allowed to eliminate class action as an option for consumers," Christine Hines, consumer and civil justice counsel for Public Citizen, told the E-Commerce Times. Public Citizen is representing the Concepcions in the case.

California courts have already found that whether class action bans are included in arbitration agreements or not, they are unfair to consumers in certain circumstances, and they have refused to enforce them. In 2005, the California Supreme Court ruled in Discover Bank v. Superior Court of Los Angeles that it was unconscionable to support a class action ban in the case of a company scheming "to deliberately cheat large numbers of consumers out of individually small sums of money," because consumers would have no practical remedy.

The courts cited that case in AT&T v. Concepcion as it made its way through the legal system.

The Federal Piece

AT&T, however -- along with other service providers that use arbitration clauses, such as utilities and banks -- pointed to the Federal Arbitration Act, which provides broad support for this private-sector dispute resolution remedy. The Act does not mention class action bans, but AT&T argues that the specific inclusion of the ban in its arbitration clause should pre-empt California contract law.

A conflict between state and federal laws occur more often than might be expected, said Peter S. Vogel, a trial partner at Gardere Wynne Sewell.

"Most states have adopted their own state arbitration acts as to how arbitration will be handled in their jurisdiction," he told the E-Commerce Times. "One does not necessarily pre-empt the other right now -- a lot of times it depends on the facts of the particular case."

If a plaintiff and a defendant were both based in the same state, for example, the federal law would not apply at all, Vogel said.

Still, there is a presumption on the part of U.S. courts that if a consumer and company enter into an agreement to submit disputes to arbitration, then that agreement would be enforceable, he continued. States tend to interfere only when they view it as best for public policy.

Finally, Pre-emption?

AT&T v. Concepcion will decide whether a states's contract law can be pre-empted by federal law.

Based on their questioning, it appears that some of the justices have their doubts about class action bans but are loath to interfere in states' business laws.

"Who are we to say that the state is wrong about that?" Justice Elena Kagan asked.

Justice Samuel A. Alito and Chief Justice John G. Roberts Jr. pointed to the federal legislation and also took on conservatives' favorite whipping boy: lawyers and class action suits.

"Why are they (the Concepcions) better off with class adjudication?" Alito asked.

Alito also asked whether the Supreme Court's role was to tell the state of California what it had to consider unconscionable.

Andrew Pincus, the lawyer for AT&T, fielded that question by noting the definition of unconscionable was to "shock the conscience" -- which AT&T's class action ban does not do.

AT&T did not respond to the E-Commerce Times' request for comment by press time.

More Hidden Charges?

Consumers have a big stake in this case and its seemingly arcane legal principles, said Brian Kabateck, managing partner of Kabateck Brown Kellner.

One check and balance companies take seriously is the possibility of class action suits that punish them for small wrongs or abuses. Individuals -- and lawyers, for that matter -- are not too inclined to pursue a company for a small billing complaint (such as a few dollars charged to a credit card for a fee never agreed to) or to resolve a minor dispute (such as a phone service provider not letting a consumer out of a contract even after the phone stopped working).

"If the Court finds that a bar to class action litigation in a consumer preprinted contract is enforceable," said Kabateck, "expect more hidden charges -- because there will be no one to stop these corporations."


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