One Year Later: The Consequences of AT&T Mobility v. Concepcion

Douglas Bellows was illegally harassed by a debt collector, but he will never have his day in court. Lourdes Cruz was charged fees for unwanted services by AT&T, but she will never have her day in court. Mack Green was cheated out of wages and benefits by his employer, but he will never have his day in court. Nor will the numerous other individuals with legitimate claims that Bellows, Cruz, and Green each sought to represent. All thanks to the Supreme Court’s decision AT&T Mobility v. Concepcion, which was issued one year ago today.

On April 27, 2011, the Court’s decision brought one chapter in the Concepcions’ legal saga to an end, but for the millions of Americans who are bound by take-it-or-leave-it contracts with cell phone companies and credit card companies, and with their corporate employers, the profound implications of the decision remained to be seen at that point. Now, a year later, it has become clear that the Court’s decision in Concepcion has had a dramatic effect on everyday Americans’ ability to access justice through the courts.

The Court held in Concepcion that the Federal Arbitration Act (“FAA”)’s favorable treatment of contractual arbitration clauses preempts state laws aimed at protecting consumers and employees from unconscionable class action waivers. As a result, AT&T was able to avoid the legal and financial consequences of defrauding thousands of customers out of $30 for supposedly “free” phones, simply by including a provision in their service contracts that mandated arbitration and forbade class actions. The ruling left customers with no real recourse to recover their money from the company, because no one could reasonably be expected to bring an individual claim to recoup $30.

As feared, the case has had wide-ranging effects on the ability of consumers and employees to vindicate their rights in court and recoup ill-gotten gains from companies. The impact has been felt particularly in the financial services, telecommunications, auto sales, and employment contexts.

For instance, Douglas Bellows filed a class action against Midland Credit Management, a debt collector, alleging the use of harassing and abusive tactics to collect a debt in violation of the Fair Debt Collection Practices Act. After Concepcion, Bellows was forced into individual arbitration based on a clause in his take-it-or-leave-it credit card agreement.

Lourdes Cruz filed a class action against AT&T Wireless for charging $2.99 per month for “roadside assistance service,” although she had never requested or consented to such a service, under Florida’s unfair trade practices law. The Eleventh Circuit held that in light of Concepcion, Florida law was preempted by federal law and Cruz was forced into individual arbitration.

Mack Green and fellow shuttle bus drivers sued SuperShuttle for misclassifying them as franchisees rather than employees, thereby denying them benefits and overtime pay to which they were entitled, while charging them illegal “franchise fees.” After Concepcion, the Eighth Circuit forced the drivers into individual arbitration by upholding the class action waiver and mandatory arbitration clauses in their employment contracts, which the drivers alleged were unconscionable under state law.

These are just a few of the scores of suits (.pdf download) that have been dismissed by the lower courts in the twelve months since Concepcion was decided.

Of course, Concepcion was not written in a vacuum. Over the past several years, the Roberts Court has issued decision after decision forcing litigants into arbitration, in circumstances far afield from what Congress had in mind when it passed the FAA in 1925. The FAA was intended to counteract judicial hostility toward arbitration, by placing arbitration agreements “upon the same footing as other contracts.” The assumption was that the agreements would exist in negotiated contracts between parties with relatively equal bargaining power.

However, beginning in the 1980s and picking up significantly under the leadership of Chief Justice Roberts, the Supreme Court has radically expanded its interpretation of the FAA, applying it to take-it-or-leave-it (or “adhesion”) contracts in the consumer and employment contexts. Furthermore, rather than treating arbitration agreements as no less valid than other contracts, the Court has privileged arbitration agreements as super contracts not susceptible to ordinary contract defenses (such as unconscionability).

Continuing this trend, in January, the Court upheld the arbitration clause that the so-called credit repair company CompuCredit inserted into its take-it-or-leave-it contracts with consumers, thereby preventing consumers from filing a class action lawsuit in court. This decision, Compucredit v. Greenwood, was particularly outrageous because the statute at issue, the Credit Repair Organization Act (“CROA”), specifically requires companies like CompuCredit to inform their customers: “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” Nonetheless, the Court found that this provision of the CROA only creates the right to receive the statement, not an underlying right to sue. As Justice Ginsburg wrote in dissent, in a statute designed to prevent credit repair organizations from unfair and deceptive practices, Congress certainly did not intend to allow those organizations to deceive consumers by telling them they had a right that they do not have – i.e., the right to sue.

As others have documented, when individual arbitration is the only path left open to aggrieved consumers and employees, the result is not a whole lot of arbitration – the result is a whole lot of nothing, as few individuals will choose or be able to navigate the unfamiliar terrain of the arbitration system. Meanwhile, corporations are left to operate with impunity, ripping off Americans in ways big and small.

In the end, the losers are the American system of justice and the American people.

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Corporate Court Rules Once Again That Big Business May Force Arbitration

Today the Supreme Court issued its decision in CompuCredit v. Greenwood (.pdf download), ruling once again that corporations may force individual consumers to arbitrate their claims, thereby restricting consumers’ access to the courts.

In an 8-1 opinion written by Justice Scalia, the Court held that the Credit Repair Organizations Act (CROA) is silent on whether or not claims under the Act may be arbitrated, therefore the Federal Arbitration Act (FAA) requires that the arbitration agreement be enforced.

Plaintiff consumers filed a class action lawsuit against CompuCredit and other credit providers after signing up for a credit card that was advertised to consumers with low or weak credit scores as helping to “rebuild your credit, “rebuild poor credit,” and “improve your credit rating.”  Although the credit providers’ promotional materials stated that consumers would immediately receive $300 in available credit, consumers were charged $257 in fees in the first year, plus the interest that would accrue if the fees were not immediately paid.  The consumers sued the companies for their deceitful tactics under the Credit Repair Organization Act (“CROA”) and California’s Unfair Competition Law.  CompuCredit moved to dissolve the class action and force each plaintiff to settle his or her own complaint in binding arbitration.

The Court held today that the arbitration clause in CompuCredit’s take-it-or-leave-it contracts with consumers are enforceable, thereby preventing consumers from filing a class action lawsuit in court.

This conclusion is shocking, considering that Congress specifically required companies like CompuCredit to inform their customers: “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.”  Nonetheless, the Court found that this provision of the CROA only creates the right to receive the statement, not an underlying right to sue. Instead, the Court found that so long as parties could enforce the law in some way – such as arbitration – the CROA is not violated. The Court maintained that the “right to sue” language is “a colloquial method of communicating to consumers that they have the legal right, enforceable in court, to recover damages from credit repair organizations that violate the CROA,” and that “most consumers would understand it this way, without regard to whether the suit in court has to be preceded by an arbitration proceeding.”

In dissent, Justice Ginsburg argued that the majority’s interpretation of the CROA’s “right to sue”  “may be comprehensible to one trained to ‘think like a lawyer.’” However, she points out, Congress enacted the CROA to protect vulnerable consumers of “limited economic means,” who are “likely to read the words ‘right to sue’ to mean the right to litigate in court, not the obligation to submit disputes to binding arbitration.” Particularly in a statute designed to prevent credit repair organizations from unfair and deceptive practices, Justice Ginsburg finds that Congress certainly did not intend to allow those organizations to deceive consumers by telling them they had a right that they do not in fact have – i.e., the right to sue.

By ruling for CompuCredit, the Supreme Court has found yet another way to close the courthouse doors to ordinary Americans. This decision follows on last year’s decision in AT&T v. Concepcion, in which the Court granted companies the right to draft contracts forcing consumers to arbitrate disputes one-by-one, without recourse to banding together in class actions.  By preventing plaintiffs from being able to band together to sue CompuCredit and other credit providers for their deceitful practices, either in court or in arbitration, the Court has ensured that corporate defendants are unlikely to be held accountable for defrauding consumers.

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CompuCredit v. Greenwood: Does a “Right to Sue” Really Mean a Right to Sue?

This morning, the Supreme Court heard oral arguments in CompuCredit v. Greenwood, a case that will decide whether a federal law requiring that consumers be informed of their “right to sue” voids mandatory arbitration clauses in credit repair contracts.

Plaintiffs in this case are a class of consumers who sued CompuCredit for deceitful marketing tactics under the Credit Repair Organization Act (CROA).  These consumers signed up for credit cards which CompuCredit claimed would help them rebuild their credit. Instead, credit card holders were charged $257 per year in undisclosed fees, plus interest, if the fees were not paid.  The credit card agreement also included a mandatory arbitration clause which the consumers now claim is invalidated by the CROA.

The CROA requires that agreements between credit repair companies and consumers must contain the language: “You have the right to sue a credit repair organization that violates the Credit Repair Organization Act.”  The consumer plaintiffs claim that this language voids the mandatory arbitration clause in CompuCredit’s contracts with them, thus giving them an actual, meaningful “right to sue.” CompuCredit argues that consumers must go to arbitration rather than bringing their lawsuit in court because the CROA requires only disclosure of a right to sue and not an actual right to sue.  Both the federal district court and the Ninth Circuit Court of Appeals ruled in favor of the consumers, holding that the CROA voids the arbitration clause.

The argument today found the justices on both sides of the issue. Justice Ginsberg observed that the statute’s language requiring consumers to be notified of a right to sue must include an actual right to sue, as anyone who read the notice would believe.  Likewise, Justice Kagan observed that the CROA “says you have a right to sue, and you [-- CompuCredits’ counsel --] are asking us essentially to read that language as: You have a right to bring a claim in court, but it's probably going to end up in arbitration because of the nature of your form contract.”  Justice Scalia, on the other hand, was open to CompuCredit’s reading of the “right to sue” language as merely providing notice and not a substantive right because the language creating the requirement was not located in the substantive part of the statute.  

This case comes to the Supreme Court at a time when consumers are increasingly being forced from the courts into mandatory arbitration. The Court’s recent cases involving arbitration agreements have held that they are enforceable under the Federal Arbitration Act. 

Last term in AT&T v. Concepcion, the Court upheld a company’s right to include in its standard contract a waiver of the consumer’s right to sue or participate in a class action.  This was devastating for consumers’ rights because an individual consumer will not have the resources or incentive to take on a corporation when they have been cheated out of a small amount of money and must find strength in numbers to bring such a lawsuit. If consumers are not allowed to band together as a group, corporations will not be held accountable for their deceptive or harmful practices.  One of the few remaining exceptions to the rule in AT&T is where federal law provides an express right to sue.

This Thursday, Senators Al Franken and Richard Blumenthal will lead a Senate Judiciary Committee hearing entitled “Arbitration: Is It Fair When Forced?” to address the problems caused by the Supreme Court’s forced arbitration cases.

AFJ released a special report today highlighting how the Corporate Court has used the arbitration system to help businesses evade justice.

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Supreme Court Case Threatens to Further Erode Consumer Rights

This week the Supreme Court agreed to hear CompuCredit Corporation v. Greenwood, which is an appeal of a Ninth Circuit decision voiding a clause in a contract that prohibited consumers from settling disputes in class arbitration or in court. The Court’s decision to hear the case came shortly after the release of the AT&T Mobility v. Concepcion decision, which gave companies a “get out of jail free” card to rip off consumers and then prohibit them from class arbitration. The plaintiff consumers sued CompuCredit and other credit providers after signing up for a credit card that was advertised to consumers with low or weak credit scores as helping to “rebuild your credit, “rebuild poor credit,” and “improve your credit rating.” Although the credit providers’ promotional materials stated that consumers would immediately receive $300 in available credit, the credit providers charged the consumers $257 in fees in the first year.

The consumers sued the company for its deceitful tactics under the Credit Repair Organization Act (“CROA”) and California’s Unfair Competition Law. The credit providers challenged the lawsuit and argued that the fine print of the credit card contract contained a clause requiring consumers to settle all disputes in binding arbitration and prohibiting them from suing. However, the Ninth Circuit upheld the district court’s ruling that CROA voids the arbitration clause because it “specifically prohibits provisions disallowing any waiver of a consumer’s right to sue in court for CROA violations.” The consumers alleged that the deceitful claims violated CROA and argued that the plain language of the statute states that credit card agreements must inform consumers of the following: “You have the right to sue a credit repair organization that violates the Credit Repair Organization Act.” (emphasis added)

The credit providers and the Ninth Circuit dissenters claimed that CROA only requires a disclosure of the right to sue but does not create that right. The majority described the logical absurdity of such an argument: “Under such a reading, Congress, whose purpose in enacting the statute included protecting consumers from misinformation…drafted a statute which requires credit repair organizations to misinform consumers about a fictional right.” The credit providers appealed the decision and the Supreme Court agreed to hear the case.

If the Supreme Court rules in favor of the credit providers, cheated consumers will be denied access to courtroom justice in defiance of the plain language of a law designed to prevent such an outcome.

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