The U.S. Supreme Court ruled on Wednesday for an AT&T Inc unit seeking arbitration for a dispute over cellphone taxes rather than allowing customer claims to be brought together as a group.
By a 5-4 vote, the high court ruled that AT&T Mobility could enforce a provision in its customer contracts requiring individual arbitration and preventing the pooling together of claims into a class-action lawsuit or classwide arbitration.
The plaintiffs, Vincent and Liza Concepcion, filed their class-action lawsuit in 2006, claiming they were improperly charged about $30 in sales taxes on cellphones that the AT&T wireless unit had advertised as free.
AT&T, the No. 2 U.S. mobile service, was backed in the case by a number of other companies and by the U.S. Chamber of Commerce business group, while consumer and civil rights groups supported the California couple.
Companies generally prefer arbitration as a less expensive way of settling consumer disputes, as opposed to costly class actions, which allow customers to band together and can result in large monetary awards.
Customer arbitration agreements are widely used by cellphone carriers, cable providers, credit card companies, stock brokerage firms and other businesses.
Shares of AT&T were up 1.4 percent at $31.37 in afternoon trading.
AT&T DEFENDS ARBITRATION AS FAIR
AT&T praised the ruling, saying the Supreme Court recognized that arbitration often benefits consumers. We value our customers, and AT&T's arbitration program is free, fair, fast, easy to use, and consumer-friendly, the company said.
AT&T said its arbitration agreements required it to pay at least $7,500 if the arbitrator awarded more than the company's final settlement offer and to pay all arbitration costs for nonfrivolous claims.
Deepak Gupta, an attorney at the consumer advocacy group Public Citizen who represented the couple, denounced the decision and said class actions had been an essential tool to achieve justice in U.S. society.
The U.S. Supreme Court dealt a crushing blow to American consumers and employees, ruling that companies can ban class actions in the fine print of contracts, he said.
AT&T had argued that a federal law that encourages the use of arbitration, the Federal Arbitration Act, trumped a California consumer protection law at issue in the case.
In its ruling, the Supreme Court's conservative majority agreed.
The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly preempted, Justice Antonin Scalia said for the majority in reading his opinion from the bench.
In ruling in favor of AT&T Mobility, the Supreme Court upheld the bargain reached by the parties that disputes could not proceed as class actions, said White & Case attorney Jack Pace, who represents clients in class actions and arbitrations.
The court's four liberal justices dissented. The Court is wrong to hold that the federal act pre-empts the rule of state law, Justice Stephen Breyer wrote in dissent.
The Supreme Court case is AT&T Mobility v. Concepcion, No. 09-893.
(Reporting by James Vicini, Editing by Gerald E. McCormick, Maureen Bavdek and Lisa Von Ahn)