Supreme Court to consider limits on class-action suits

Class-action lawsuits have long been a battleground between consumer lawyers and attorneys representing cell-phone companies, banks, and other large businesses that deal with millions of customers. On Tuesday, the battle will play out before the U.S. Supreme Court.

The court is scheduled to hear arguments in a case pitting AT&T Mobility L.L.C. against a group of California consumers - a case that first arose over a $30.22 dispute but could have huge impact on consumers' and workers' access to the courts.

Plaintiffs' attorneys say they worry that an increasingly business-friendly high court could issue a sweeping decision similar to its unexpectedly broad ruling in January's Citizens United case, which ended long-standing restrictions on corporate political spending. They say such a ruling could undermine their ability to address corporate wrongdoing that falls through the cracks because it causes only a small amount of harm to each of a large number of customers.

Attorneys for AT&T and its allies say consumer class actions and similar cases cost companies billions of dollars in litigation expenses and lead to small payments to class members but large fees for their attorneys. As an alternative, they have crafted language in customer contracts that require arbitration for individual disputes and bar class-wide arbitrations or class-action lawsuits.

Such a contract is at issue in the AT&T Mobility case. The court has been asked to decide whether the Federal Arbitration Act, designed to ease pressure on the courts by encouraging alternative forms of dispute resolution, preempts state laws allowing consumers to band together in class actions.

AT&T has argued that its arbitration clause is more consumer-friendly than other versions imposed since the 1990s.

For example, AT&T's arbitration provision says that if a consumer wins an arbitrator's award for an amount larger than AT&T's final offer, that consumer is entitled to a $7,500 bonus payment. And if the consumer is represented by a lawyer in the arbitration, the lawyer is entitled to twice his or her ordinary fees.

"There's a great deal of incentive for AT&T to resolve these disputes sooner rather than later, so they don't risk having to pay the premium on something that might just run $25, $75, or $100," said Alan S. Kaplinsky, a partner at Philadelphia's Ballard Spahr L.L.P. who pioneered the use of mandatory arbitration in financial contracts.

Kaplinsky says that, according to the court record, AT&T paid out $1.3 billion in refunds or credits during a single year after it introduced the arbitration incentives. Companies such as AT&T "have bent over backward to create consumer-friendly programs," said Kaplinsky, who coauthored a friend-of-the-court brief in the AT&T case on behalf of the American Bankers Association and others in the finance industry.

"The only people who lose - and there are losers here, so let's put it on the table - are the plaintiffs' class-action lawyers," Kaplinsky said. "It puts a significant crimp in the way that they've been able to make money."

Michael D. Donovan, a class-action lawyer and partner at Philadelphia's Donovan Searles L.L.C., said the Supreme Court's decision to hear the case, AT&T Mobility L.L.C. v. Vincent and Liza Concepción, has deeply worried consumer groups and others who believe that customer and employee class actions provide crucial protection against corporate power.

"The concern on the part of consumer groups is that the court will reach beyond the specific facts of the case and issue a sweeping decision that will effectively bar all class actions by consumers, employees, victims of civil-rights violations - anyone covered by mandatory arbitration clauses," Donovan said.

Donovan also coauthored a friend-of-the-court brief in the case, on behalf of the Legal Aid Society of the District of Columbia and 11 consumer groups, including AARP, the Center for Responsible Lending, and the Consumer Federation of America.

Among the cases his brief cites is a 2007 ruling that dates back to when AT&T Mobility was called Cingular Wireless, and was accused of mischarging consumers $1 to $45 a month for roaming costs and other fees. Washington state's Supreme Court allowed the case to proceed despite a class-action ban.

Donovan said the $7,500 bonus offered by AT&T was misleading because the company never actually had to pay it.

"If you claim that you were overcharged by $30, they'll offer you $30" to end the case before arbitration, Donovan said. He said the result was that only the most motivated or annoyed consumers get their money back, while bad practices continue to snare others.

"AT&T knows it stands to profit if it can keep even a small percentage of the illegal charges it imposes on people," Donovan said. "At least in my estimation, it's a conscious business tactic to allow it to steal a small amount of money from a large group of customers."