High Court Case Tests Bans On Class-Action Suits

Ever read that long cell phone contract you signed when you enrolled for service? Well, look again. It likely includes a provision requiring all disputes to be resolved by arbitration, and barring class-action suits. So does your credit card or cable -- or maybe even your health insurance, or employment -- agreement.

The U.S. Supreme Court hears arguments Tuesday in a case against AT&T Mobility. A California couple sued the company on behalf of themselves and all others who were charged $30.32 in sales tax for the supposedly free phone they got when they enrolled. If they won, the class action could bring potentially millions of dollars for all those consumers improperly charged. But the cell phone contract barred class actions, meaning that the couple would likely recover only $30.32 for themselves.

The courts ruled the contract illegal under state law, and AT&T Mobility appealed to the Supreme Court, contending that the federal law encouraging arbitration trumps the state law. The company argues that if the high court sides with the consumers in this case, it would be "the death knell" for arbitration in California because no business in its right mind would agree to an arbitration that could cost millions and, if lost, could not be appealed.

Conversely, consumer advocates and civil rights groups contend that if the court OKs a ban on class actions in this case, it would undermine the ability of individuals to band together to win a meaningful remedy for a wrong. An individual arbitration on behalf of one person, in most sex or race discrimination cases, for instance, may yield a relatively small amount, with legal costs eating up most of that. But a class action pools employee resources, provides a bigger payout, and inflicts a greater punishment on a company that discriminates. In addition, civil rights groups like the NAACP argue that class actions are the only way to demonstrate patterns of discrimination and to win class-wide change to end discrimination in mortgage lending, insurance and elsewhere.