The Supreme Court on Wednesday ruled that AT&T—and indeed, any company—could block class-action suits arising from disputes with customers and instead force those customers into binding arbitration. The ruling reverses previous lower-court decisions that classified stipulations in AT&T's service contract which barred class arbitration as "unconscionable."

The particular case at hand, AT&T Mobility LLC v. Concepcion, stemmed from a California couple (the Concepcions) that had been charged sales tax on mobile phones that AT&T had advertised as "free." The couple believed the charges were unfair and constituted false advertising and fraud on the part of AT&T. They filed a lawsuit against AT&T, which was later promoted to class-action status. AT&T attempted to have the case dismissed on the grounds that its service contract requires individual arbitration and bars "any purported class or representative proceeding."

AT&T and others have similarly tried to have class-action cases dismissed on these grounds, though state supreme courts in both California and Washington have held that contractual waivers for class arbitration or litigation are "unconscionable" and therefore void based on those states' consumer protection laws. Using this reasoning, courts have allowed class-action lawsuits to proceed despite the contractual requirement for individual arbitration.

AT&T appealed the case to the Ninth Circuit, though the court noted that section 2 of the Federal Arbitration Act states that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Since California consumer protection laws allow "unconscionable" contract clauses to be vacated, and the FAA includes the provision that arbitration agreements could be ruled unenforceable if law provided for the revocation of the contract, the Ninth Circuit ruled that the class-action case could proceed.

In a 5-4 ruling, the Supreme Court disagreed with the lower court's decision. In his majority opinion, Justice Scalia argued that the purpose of the FAA was designed to promote arbitration over more costly and lengthy litigation. Quoting an earlier ruling by the court, Scalia explained that "[a] prime objective of an agreement to arbitrate is to achieve ‘streamlined proceedings and expeditious results,'" and that requiring the class-action litigation to proceed would be at odds with the intent of the FAA and the benefits that arbitration agreements ostensibly provide.

Justice Breyer, in his dissenting opinion, noted that the saving clause in the FAA left ground for individual states to determine how a contract or its clauses may be revoked. "[R]ecognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California's law, not to strike it down," he wrote.

The decision, which fell precisely along ideological lines, could have far-reaching effects on consumers' ability to challenge corporations in court over future disputes. In cases where an unfair practice affects large numbers of customers, AT&T or other companies could quietly settle a few individual claims instead of being faced with larger class-action settlements which might include punitive awards designed to discourage future bad practices.