AT&T MOBILITY LLC v. CONCEPCION

Arbitration, Legal Fees and Class Actions

I don’t generally blog about arbitration cases and law; while arbitration is certainly an Alternative Dispute Resolution technique – one of the earlier and most successful forms of ADR in the US -- there is a lot of commentary about arbitration and I haven’t had much to add.

That changed with the recent decision by the Supreme Court in the AT&T Mobility v. Concepcion case (563 U. S. ____, April 27, 2011.

The Supreme Court, in a 5 to 4 decision by Justice Scalia, struck down as a violation of the Federal Arbitration Act (FAA) a California statute that, as interpreted by the California Supreme Court (the Discover Bank rule), prohibits consumer arbitration contracts that condition the enforceability of those contracts on the availability of class action arbitration procedures if those contracts are:

[1] found in a consumer contract of adhesion[1];

[2] in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and

[3] when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.

(See Discover Bank v. Superior Court, 30 Cal Rptr.3d 76 (2005))

I won’t go into all of the details of the case. The arbitration agreement under consideration provided that AT&T would arbitrate and pay the costs of the arbitration for any non-frivolous claim brought pursuant to the “agreement.” I put the word agreement in quotes because in this case it was really not an agreement between the parties, but a contract of adhesion. If consumers wished to do business with AT&T, they had to sign a contract that included the arbitration clause.

The dissent by Justice Breyer notes that, according to the FAA, an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U. S. C. §2 (emphasis added), and that the Discover Bank rule in California establishes circumstances in which “class action waivers” in any contract are unenforceable. In the view of the dissenters, “…the Court is wrong to hold that the Federal Act pre-empts the rule of state law.” Id.

My problem with this case is that the dissent has the better arguments on the legal reasoning of the case while the majority has the better arguments on the economic merits of the case.

While the individual consumer claims are small, the AT&T dispute arbitration clause virtually guaranteed the claimants 100% of their claim, even on “iffy” claims. As Phil Loree points out in his analysis of the case in a post on the LinkedIn Commercial and Industry Arbitration and Mediation Group:

…class action arbitration/litigation virtually guarantees that the claimant will get but a few cents on the dollar on even reasonably good claims. As you know, most class action settlements are paid out to the lawyer for the class, and companies have a very large economic incentive to settle even "iffy" claims. Class counsel therefore have a very significant corresponding economic incentive to assert and litigate "iffy" claims. Some will argue that this economic advantage works a public good in that it provides a very powerful disincentive for companies to do anything that might be construed as a violation of consumer protection laws. The reality is that, no matter how hard companies may try, the risk they will nevertheless have to pay large settlements in "iffy" class actions outweighs -- and probably dilutes the value of -- the deterrence benefit. Class proceedings results increase the costs of doing business, which ultimately raises the costs of goods and services.

As Loree notes, these types of class action lawsuits are “really a transfer of wealth from consumers to large companies, who, in turn, transfer the bulk of it to another powerful (and understandably) wealthy group of individuals and firms: class action plaintiff's counsel. And…to another group of relatively wealthy and powerful individuals and firms: class action defense counsel. There, again, the transfer is from consumers to corporations to lawyers.”:

Any system that benefits both companies and consumers by reducing the transaction costs -- the fees paid to both plaintiff and defense lawyers -- makes a lot of sense.

Assuming Loree is correct, as I do, should not the majority have pointed out the economic facts of class-action arbitration and called on Congress to change the law?

Why did a conservative majority so willingly strike down a state statute even if the Court was right about the economic effect of the law?

Perhaps this is an example of the Court majority ignoring judicial restraint in order to achieve the desired result?

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[1] i.e., a contract that that is overtly biased in one party’s favor to the disadvantage of the other party, suggesting that the terms were not freely bargained at arms’ length. A good example is the contract at the heart of Discover case, in that it is basically a “take it or leave it” proposition.

Environmental Standing Law in Maryland

On January 1, 2010, legislation amending the Maryland Code took effect that alters the Maryland permit appeals procedure and the standards (standing) regarding who can appeal. The legislation eliminated the contested administrative hearings process for many State air, water and waste permits and licenses that had been in effect in Maryland since the early 1990s.

Before this amendment, permit challenges were generally limited to parties having direct financial interests. Now, Maryland follows the more lenient federal standing rules and allows any party (including citizens’ groups and nonprofit associations) that, “participated in a public participation process through the submission of written or oral comments” to request a judicial review of a final agency determination in the Maryland Circuit Court in the county where the proposed activity will occur within 30 days of the decision.

The review is limited to the administrative record and only to objections raised during the public comment period unless the petitioner demonstrates that:

(i) The objections were not reasonably ascertainable during the comment period; or

(ii) grounds for the objections arose after the comment period.

See §1-601 et seq. of the Environmental Article of the Annotated Code of Maryland.

Given the more lenient standing provisions enabled by this amendment, permit applicants should consider how to work with the local citizens and other interested groups before requesting a permit. Working things out with these affected stakeholders can be more cost-effective[1] than litigation and produce better results[2].

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[1] See, for example Communication and Stakeholder Involvement Guidebook for Cement Facilities prepared by the Battelle Memorial Institute and Environmental Resources Management as part of the Sustainable Cement project sponsored by the World Business Council for Sustainable Development and a consortium of international cement companies

[2]“[T]here is evidence that stakeholder participation can enhance the quality of environmental decisions by considering more comprehensive information inputs. However, the quality of decisions made through stakeholder participation is strongly dependent on the nature of the process leading to them. Governance of Environmental risk: New approaches to Managing Stakeholder Involvement in the Journal of Environmental Management, Vol. 90 issue 4 pp. 1567 -1575

Lawyer Jokes.

Here is one that will make everyone laugh - and then shake their heads in dismay. The attorneys for a defendant filed a motion in response to objections from the plaintiffs requesting a delay of a scheduled trial on the basis that the wife of one of the defense lawyers was scheduled to deliver their child during the trial. This request was opposed by counsel for plaintiffs.

The Court’s decision, unsurprisingly, is a pretty hard shot at the plaintiff’s opposition to the motion. The Order granting the motion opens this way:

“He who is his own lawyer has a fool for a client” is one of every lawyer’s favorite proverbs. Among the several reasons why this is undoubtedly true, is that lawyers are trained to handle disputes skillfully but without the emotional rancor that will mask the actual parties’ reason and good sense.

Regrettably, many attorneys lose sight of their role as professionals, and personalize the dispute; converting the parties’ disagreement into a lawyers’ spat. This is unfortunate, and unprofessional, but sadly not uncommon. Before the Court, however, is an uncommon example of this unhappy trend.

See the legal humor blog Lowering the Bar; Legal Humor. Seriously. for the story about this case.

I have blogged repeatedly about New Lawyering and the changes coming in the practice of law. John Lande’s new book Lawyering with Planned Early Negotiation is a great example of the approach attorneys should be taking in representing clients.

This case is an example of Old Lawyering.

I hope the clients don’t have to pay for the costs of the motion.

The New Lawyer and Planned Early Negotiation

Professor John Lande, Director of the Program in Dispute Resolution at the University of Missouri School of Law –ranked by U.S. News as one of the best dispute resolution law school programs in the country -- has written a new book for lawyers entitled Planned Early Negotiation: How You Can Get Good Results for Clients and Make Money.

Professor Lande describes the book on his website as

…written primarily for lawyers who want to improve their effectiveness….This guide shows how you can be more successful using Planned Early Negotiation (PEN). The strategies in this book can help you become a more effective negotiator, which can increase your professional satisfaction, generate good will, relieve stress, and increase your effective billing rates with creative fee arrangements. The book includes advice from interviews of outstanding lawyers who handle all kinds of cases….With PEN, you serve your clients’ interests by planning to negotiate from the outset. Litigation is still possible, but it isn’t the first step.

This book is based on research on mediation and Cooperative and Collaborative Practice. It suggests that lawyers take the initiative to jointly manage their cases. This involves exchanging the information you need to settle instead of waiting to respond to courts or mediators. It suggests procedures to plan constructive negotiations - and deal with problems that commonly arise.

I have previously blogged about the changes coming and why the practice of law is moving from the “lawyer as warrior” paradigm to the much more complex New Lawyer roles of counselor, negotiator, mediator and meta-expert.

Professor Lande has written a “how to” guide for lawyers to assist them to become effective practicing New Lawyers.

The American Bar Association published the book, which includes a CD with practical information and forms. Here are links to the table of contents and a detailed summary of the book. For more information and to order the book, click here.

This is exactly the kind of information the profession needs. I’ve already ordered my copy. Thank you John Lande.