But lawyers on both sides argued on Tuesday that the court’s ruling in the case could radically reshape the handling of disputes that arise when consumers sign standard contracts that require disputes to be settled through arbitration.
Deepak Gupta, a lawyer for a California couple who filed a class-action lawsuit against AT&T Mobility accusing it of fraud over the $30 charge, said a ruling for the company would spell the end of class actions in all sorts of cases.
“If you preclude class-wide relief,” he told the justices, “that will gut the state’s substantive consumer protection law because people will, in the context of small frauds, not be able to bring those cases.”
Andrew J. Pincus, a lawyer for the company, said a ruling against his client would sound a different sort of death knell, this one for the arbitration provisions that were common in many standard-form contracts.
Recent Supreme Court decisions have generally favored the enforcement of arbitration agreements and have been wary of aspects of class-action litigations.
But it was hardly clear at Tuesday’s arguments that those two trends would continue in the latest case.
That was because it included a third, confounding element. To rule for the company, the justices would have to reject a decision of the California Supreme Court. That court said that class-action waivers in standard-form contracts, whether applicable to arbitration or litigation, were unconscionable under state law.
“Are we going to tell the State of California what it has to consider unconscionable?” Justice Antonin Scalia asked.
The contract agreed to by the couple, Vincent and Liza Concepcion, required them to resolve their disputes through the informal mechanism of arbitration and barred them from banding together with others to seek class-action treatment, whether in arbitration or in traditional litigation in court.
Applying the California Supreme Court’s decision, federal courts in California allowed the Concepcions’ lawsuit to proceed as a class action in court.
The company appealed to the United States Supreme Court, arguing that the effect of the class-action ruling was to discriminate against arbitrations in violation of the Federal Arbitration Act, which generally overrides state laws unfavorable to arbitration and requires courts to enforce arbitration agreements unless a given state law limitation applies to all kinds of contracts.
Much of Tuesday’s argument revolved around a semantic point: Is a state law prohibiting class-action waivers one that applies to all contracts or one that specially disfavors arbitration contracts?
Justice Elena Kagan said the state’s approach appeared neutral. “Its rule applied both in the arbitration sphere and the litigation sphere,” she said of the California Supreme Court decision.
Justices Ruth Bader Ginsburg and Stephen G. Breyer seemed to agree. “The rule is the same whether it’s litigation or arbitration,” Justice Ginsburg said.
Justice Breyer added: “Those principles apply to litigation. They apply to arbitration. So what’s the problem?”
Mr. Pincus said the state’s approach had a disproportionate effect on arbitrations, particularly in light of a Supreme Court decision in April that class-wide arbitrations could not be compelled unless arbitration agreements expressly contemplated them.
Neutrality as between arbitration and litigation is, Mr. Pincus said, a “gerrymandered category.”
Justice Breyer acknowledged the existence of such categories, using a colorful example.
“I would guess it’s like Switzerland having a law saying we only buy milk from cows who are in pastures higher than 9,000 feet,” he said. “That discriminates against milk from the rest of the continent.”
“But to say we want cows that have passed the tuberculin test doesn’t,” he added. “So I guess we have to look at the particular case.”
Here, he said, “class arbitration exists,” meaning that a state law requiring that class actions be available across the board does not specially affect arbitrations.
“So where is the 9,000-foot cow, or whatever it is?” Justice Breyer asked. “Where is the discrimination?”
In its main brief in the case, AT&T Mobility v. Concepcion, 09-893, the company said “no rational business will agree” to class-wide arbitration, which it called “a lose-lose proposition” with all the cost and risk of litigation but none of the procedural protections and appellate oversight.
Mr. Pincus added that his client’s arbitration agreement was unusually generous, a point acknowledged by the courts, and that the Concepcions would have recovered all they had lost and perhaps more in arbitration. He added that the lower courts were wrong to allow a class action in the case on the theory that it was needed to vindicate the rights of consumers other than the Concepcions.
That point seemed to resonate with Justice Samuel A. Alito Jr.
“Traditional unconscionability in California and elsewhere focuses on unfairness to the party who is before the tribunal,” Justice Alito said. “So here it would be unfairness to the Concepcions, rather than unfairness to other members of the class who are not before the court.”
Justice Kagan responded that the state’s approach might be curious but was still neutral.
“It may be a good unconscionability doctrine or it may be a bad
unconscionability doctrine, but it’s the state’s unconscionability
doctrine.”