Supreme Court Fails Consumers, Upholds Arbitration Clauses

Arbitration clauses are how big businesses escape class action lawsuits that hold them accountable to their customers. Despite ongoing efforts to ban mandatory arbitration clauses and class-arbitration waivers, this month the Supreme Court came out strongly in favor of the practice, upholding a coercive mandatory arbitration provision against consumers.

In DIRECTV, Inc v Imburgia, California residents signed service contracts with DirecTV that contained a mandatory arbitration provision and a class arbitration waiver. The policy said that if the “law of your state” makes class arbitration waivers unenforceable, then the whole arbitration agreement is unenforceable too.

California, at the time, was one of those states with laws making class-action waivers illegal. Specifically, in 2005, the California Supreme Court decided Discover Bank v Superior Court, which called such agreements “consumer contract[s] of adhesion” and “unconscionable under California law [that] should not be enforced.”

In 2008, two consumers sued DirecTV because of illegal early termination fees. The case dragged on in court for three years.

But then, in 2011, the Supreme Court of the United States, in AT&T Mobility LLC v Concepcion, ruled that the Federal Arbitration Act – a national law that directs how and when arbitration clauses may be used – invalidated the Discover Bank ruling. DirecTV asked the judge to send its case to mediation, but the judge refused. DirecTV appealed that decision all the way to the Supreme Court.

Instead of supporting consumers against the “take-it-or-leave-it” tactics of a major corporation, the Supreme Court said Concepcion applied even to contracts written before it was decided and the “law of your state” could only include state laws not later invalidated by the courts.

Justice Ruth Bader Ginsberg's dissent sums up the situation:

“These decisions have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws. . . .
“Today, the court holds that consumers lack not only protection against unambiguous class arbitration bans in adhesion contracts. They lack even the benefit of the doubt when anomalous terms in such contracts reasonably could be construed to protect their rights.”

The Supreme Court's decision gives service providers all the cards when it comes to mandatory arbitration. Together with Concepcion, this case has essentially said that states are not allowed to regulate the arbitration provisions of contracts signed by their citizens.

Companies must not have the power to unilaterally mandate arbitration provisions, and in so doing shield themselves from the corrective power of class action lawsuits. Since the Supreme Court has demonstrated it is unwilling to protect consumers, it will have to fall to Congress to amend the Federal Arbitration Act.

Dani K. Liblang is a consumer protection attorney with The Liblang Law Firm, P.C., in Birmingham, Michigan. She represents consumers in product defect and collections cases. If you are being harassed by debt collectors, contact The Liblang Law Firm, P.C., today for a free consultation.