Court rejects bans on class-action lawsuits
OLYMPIA – It is “unconscionable” for a company to force unhappy customers, often without their knowledge, to agree not to band together and sue, Washington’s Supreme Court ruled Thursday.
“More and more courts are finding that this stinks,” said Deborah Mathis, a spokeswoman for the Washington, D.C.-based Trial Lawyers for Public Justice. “It’s just an unfair whopping advantage for the company and big business.”
The group is fighting the agreements, which are increasingly common in the documents you sign to get a credit card, health club membership, new home, phone service or new car.
The high court on Tuesday ruled on two closely watched cases, rejecting class-action bans in both:
In Scott v. Cingular Wireless, five customers of the cellular phone service company say they were overcharged $1 to $40 a month in wrongful roaming charges and other fees. But the company pointed to a clause in their cell-phone contracts. All disputes, it said, must go to mandatory arbitration, not a courtroom. Furthermore, a July 2003 flier tucked into the envelope with their monthly bill bans class action complaints.
The second case, Dix v. ICT Group Inc., involves two people who say that America Online wrongly charged them for multiple Internet accounts. When customers complained, the plaintiffs and their lawyers contend, call-center workers from ICT Group were trained “to provide no meaningful assistance” and to rebuff most calls for refunds. So they tried to file a class-action lawsuit, only to discover that their AOL contracts require cases to be filed in Virginia – which doesn’t allow any class-action lawsuits.
In both cases, the court threw out the agreements, sending the cases back to Superior Court judges for trial. Neither ruling bars mandatory arbitration, which many courts have upheld. But Thursday’s rulings said that the companies could not bar consumers from filing group claims.
In a sharply worded dissent, Justice Barbara Madsen called her colleagues’ Cingular ruling “a sweeping rule that will invalidate thousands of arbitration contracts” throughout the state. She said the court is wrongly trying to change the law, which is something best left to state legislators.
The rulings echo recent decisions in California, New Jersey, Illinois and several federal courts, said Leslie Bailey, an attorney for Trial Lawyers for Public Justice.
Spokane attorney Michael Kinkley, one of the lawyers in the Dix case, called the justices’ decisions “probably the most important issue decided in favor of consumers in the last five years.”
Kris Tefft, general counsel for the Association of Washington Business, saw it differently.
It’s a mistake, he said, to favor massive class-action lawsuits over quick, efficient arbitration. In class-action cases, he said, attorneys often get millions while customers get little.
“I think the trial lawyers really end up being the winners in both of today’s decisions,” he said, “although both are dressed up as victories for consumers.” Also, he said, courts are generally good about policing abusive contracts.
Walt Sharp, a spokesman for AT&T, said in an e-mail that the Cingular contract was very consumer-friendly and got even more friendly a year ago. (AT&T in December acquired all of Cingular Wireless Corp. and is phasing out the Cingular name.)
Except in frivolous cases, the company has agreed to pay all costs of arbitration. And under the recent changes, if the company loses, it also pays twice the consumer’s attorney’s fees. In many states, Sharp said, the company’s policy when it loses arbitration is to pay at least $5,000 even for small claims.
“We continue to believe that a consumer is better off pursuing a claim under our arbitration clause, rather than pursuing a class action,” he wrote.
If so, Bailey said, more people would have done it. At the time the case was filed, she said, Cingular had 50 million customers. Yet in the two years prior, only 30 arbitration cases had been launched.
“That does not show that customers are falling all over themselves to use Cingular’s arbitration process,” she said.
Sharp said by phone that he couldn’t comment much on the allegations that the company had overcharged customers. But he noted that Thursday’s ruling didn’t deal with those claims, merely sending the matter back to the original court.
Efforts to contact attorneys in the AOL case were unsuccessful Thursday, and an ICT Group spokeswoman in Pennsylvania didn’t return a call seeking comment on the allegations in the Dix case.
Consumers argue that in small-dollar cases often the only way for wronged people to get good legal help is to gather a large number of consumers into a class-action case.
By making that impossible, Justice Tom Chambers wrote for the majority, the Cingular contract “effectively denies large numbers of consumers the protection of Washington’s Consumer Protection Act.”
“As the ever-inimitable Judge Posner has aptly noted,” Chambers wrote, “the realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”