Supreme Court Ruling Undercuts Consumer Protections

Supreme Court Ruling Undercuts Consumer Protections

by / Tuesday, 05 January 2016 / Published in Legal News
Book with Consumer Protection written next to gavel and block

The Supreme Court recently continued a frightening trend relating to consumer affairs, showing a willingness to allow companies to use “forced arbitration” clauses to stave off consumer claims and limit the rights of consumers to take meaningful legal action to protect themselves.

Forced arbitration clauses are found in many consumer contracts and generally force consumers to give up the right to have an unbiased judge rule on the case, putting the fate of the consumer in the hands of someone picked by the company instead. The ruling in the recent case makes it even more difficult for consumers to force companies to act ethically by making it easier to eliminate the threat of a class action lawsuit.

The case of DirecTV v. Imburgia involved two California residents who sued DirecTV claiming that certain charges in DirecTV’s contracts violate California consumer protection laws. These charges are not huge, less than $500 in this case, and customers often have difficulty getting help handling these cases because the amounts in dispute simply aren’t large enough for most lawyers to be willing to help with. The plaintiffs asked a court to allow them and other customers with the same complaint to join together as a “class” and bring a single lawsuit against DirecTV. Adding up all of their individual claims would make it easier to persuade competent attorneys to handle the case since the class could include thousands of people with the same small claims. Without this option, DirecTV would be essentially insulated from small claims, no matter how unfair the contract might be.

The DirecTV contracts in this case contained not only a mandatory arbitration provision, but also a clause requiring only individual arbitrations – no class action suits allowed. Some states have laws making a “no class action” provision unenforceable, so as another way of avoiding class suits, the contracts provide that the contract’s arbitration provision, as a whole, is not enforceable in states that do not allow the prohibition of class actions in a contract. One would think this would allow the class action to go forward – the arbitration provision should be unenforceable because state law specifically allows class actions in arbitration challenges. Unfortunately, this isn’t the case.

The Supreme Court ruled that federal law allows companies to avoid class suits by insisting on individual arbitrations as a part of the contract, period. California’s law that prohibits “no class action” clauses is contrary to the 2011 ruling in AT& T Mobility v. Concepcion decision, and therefore it conflicts with federal law and is meaningless. The upshot is that people disputing the questionable fees can be forced into individual arbitration.

In the Imburgia ruling, the SCOTUS has let Americans know that it will continue to uphold and even expand the reach of arbitration clauses, even if those clauses allow large companies to hide behind forced arbitration as a way to avoid taking responsibility for their unethical actions. This could potentially make it more difficult for consumers impacted by defective products to hold businesses to ethical standards, and the Supreme Court seemingly cannot be counted on to help, if the Imburgia decision is any indication.

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