Supreme Court Sides With AT&T, Overturns Class Action Lawsuit

The 5-4 decision, written by Judge Antonin Scalia, said the company's customers are covered by arbitration agreements in the contracts that customers sign for service, so are ineligible to file class action suits.

The decision overturned a California ruling that allowed a class action for AT&T customers who were disputing being charge $30 in sales taxes for a phone that was advertised as free.

Lower courts had rejected AT&T's argument that customers Vincent and Liza Conception were bound by the arbitration requirement in their contract, which declines the right to participate in a class action lawsuit.

In this case, the lower California court held that if a consumer must sign a contract for service, and if the dispute involves small amounts of damages, then consumers are entitled to file class action lawsuits -- a decision intended to protect large numbers of consumers who might be defrauded of small amounts.

The Supreme Court disagreed, and pointed to the Federal Arbitration Act in its decision that the often unknowingly signed arbitration agreement is valid and enforceable, and that companies can compel customers to use arbitration to settle disputes.

Consumer advocates criticized the decision, pointing out that those who feel cheated out of a small amount of money will be unlikely, as a lone individual, to get an attorney to take their case. If large numbers of consumers can't cooperatively bring a complaint, it would give corporations less incentive to improve their practices.

Recent cases such as the issue of early termination fees, which forced all four nationwide carriers to pay back millions to their customers and restructure their programs, and resolution of Verizon's inadvertent data charges, totaling $90 million, which was refunded to customers, might not have been allowed under this new decision.

While the Supreme Court handed business a powerful shield against consumer class actions in this case, there are other avenues consumer rights groups are exploring, such as legislation.

"In arbitration, there is no transparency, nor is there an independent arbitrator," said Senator Patrick Leahy (D-Vt) who has held hearings on consumer arbitration, and is calling on Congress to respond with legislation to clarify the original intent of the Federal Arbitration Act.

Scalia's opinion for the majority's decision included statistics showing individual disputes handled through arbitration were resolved in six months or less, while class actions took much longer.

Class arbitration, according to the Justice's decision, greatly increases the risks for business and could unfairly pressure them into settling questionable claims.

In a dissenting opinion, Justice Stephen Breyer wrote that the California law was not an attack on arbitration and upheld the state's traditional authority over contract law.