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AT&T Edits Contract to Preclude Class Actions

Move likely to be questioned in court

By Jon Hood
ConsumerAffairs.com

August 11, 2009

The terms of service explicitly prohibit consumers from bringing class actions, even in an arbitration setting: “Any arbitration under this Agreement will take place on an individual basis; class arbitrations and class actions are not permitted.”

The service agreement already precludes any litigation outside of small claims court. Bold-faced type proclaims that, “In the unlikely event that AT&T’s customer service department is unable to resolve a complaint you may have to your satisfaction (or if AT&T has not been able to resolve a dispute it has with you after attempting to do so informally), we each agree to resolve those disputes through binding arbitration or small claims court instead of in courts of general jurisdiction.”

Whether the agreement will stand up in court is an open question. In March the California Court of Appeals found a similar class-action arbitration waiver to be unconscionable and unenforceable. That case materialized when a former garbage truck driver for Athens Disposal Company tried to sue his former employee for denying him breaks during his workday. He also attempted to bring the case on behalf of other employees under the Private Attorneys General Act, or PAGA. The Court found that Athens' arbitration agreement, which both mandated arbitration and precluded class actions, was unconscionable.

With most legal issues, jurisdiction is everything. Washington, like California, recently rejected a class action waiver as unenforceable. A Louisiana court, by contrast, upheld such an agreement.

Despite the increasing use of arbitration agreements, courts have recently been more willing to hold such contracts void as a matter of law. In March the U.S. Supreme Court held that credit-card holders are not always bound by mandatory arbitration included in their contracts.

Of special concern to consumers is the fact that large corporations stand a much better chance of prevailing in an arbitration setting than they do in court. A study by Public Citizen, a consumer advocacy group, found that 94 percent of credit-card cases heard before arbitration panels were decided in the card companies' favor. The study declared arbitration as a business in which “justice is dealt from a deck stacked against consumers.”

Consumers scored a major win last month when the National Arbitration Foundation, a leading arbitration provider, settled a lawsuit with Minnesota Attorney General Lori Swanson. The action accused NAF of concealing close ties with the credit card industry despite handling a large number of credit card-related disputes. NAF not only recruited credit card companies as clients; in some cases it actually helped draft mandatory arbitration clauses that forced consumers to avoid litigation in the first place. As pat of the settlement, NAF agreed to stop handling all consumer credit arbitrations by July 24.

Credit card companies and wireless service providers, both big fans of binding arbitration, attempt to justify the requirements on the ground that they promote efficiency by keeping court dockets clear of frivolous lawsuits. That might sound convincing on paper, but it's likely little comfort to consumers with genuine grievances who don't want to resolve their issues with the deck stacked against them.

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