In another significant decision, the U.S. Supreme Court handed a defeat to T-Mobile USA Inc., rejecting the company’s appeal in three cases involving the legal remedies available in millions of cell phone contracts. The issue in those cases is the same: whether state laws that limit the ability of companies to prohibit consumers from banding together to pursue class action lawsuits are preempted by federal law. This was a very important decision since it dealt with forced arbitration and the banning of class action prohibitions in consumer contracts.

T-Mobile included a prohibition on class actions in a part of its contracts that also required consumers to resolve any complaints through arbitration. The company’s position was that federal law, which generally requires that arbitration clauses be enforced, overrules those state laws that limit the ability of companies to ban class actions. Under contract laws in many states, class-action bans are considered inherently unfair and courts, including those in California, where the dispute originated, can choose to not enforce them. Large companies love arbitration and claim it’s a faster and cheaper way to resolve disputes than is the case with litigation. As we now know – all too well – clauses requiring arbitration are included in millions of consumer contracts issued by credit card, cell phone, cable companies, and many others. In fact, it’s hard to find a consumer contract that doesn’t have an arbitration clause.

A federal appeals court ruled in one of the cases (T-Mobile v. Laster) last October that courts can refuse to enforce arbitration clauses if they include bans on class actions. The Supreme Court’s decision in the Laster case – without comment – lets that decision stand and allows the case to proceed to trial. Consumer groups have correctly stated that class action bans are unfair. That’s because in legal disputes over small amounts of money, individuals may not have the incentive to file a lawsuit. As a result, banning class actions could essentially allow companies to avoid liability for practices that cost large numbers of people small amounts of money. Public Citizen was involved in this case on behalf of American consumers and it had good lawyers working for the public good.

The T-Mobile case began when a woman named Jennifer Laster sued the company after buying a phone and signing up for wireless service in California in 2005. She alleged that T-Mobile engaged in unfair and deceptive business practices by promising free and significantly discounted phones, while charging sales taxes based on the full price of the phone. T-Mobile, which is owned by German telecommunications company Deutsche Telekom AG, responded that it was required to charge sales taxes on the full retail price under California law. There were two companion cases involving T-Mobile that were also decided by the high court in a manner similar to the Laster appeal.

Source: Associated Press

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