Before going into the details of this disturbing case, the reader will need to understand what the legal term adhesion contract means. An adhesion contract is a contract that is prepared by one party and which the other party has no opportunity to negotiate or change. The most common adhesion contracts, as in this case, occur when large companies prepare contracts that their customers are required to sign, without negotiation or alteration.
Here’s what happened. AT&T Mobility conducted a promotion offering free phones to customers. As part of the free phone promotion, customers had to sign a contract. The contract was an adhesion contract that required, among other things, that all disputes be resolved by arbitration. AT&T provided free phones but then billed customers “sales tax” on the retail value of the phones. The average customer likely received an unexpected $5 or $10 on his/her bill as a result. A class action suit was initiated alleging false advertising and fraud on the part of AT&T.
Adhesions contracts are generally not favored in the law. Following that reasoning, the California Supreme Court, in the Discover Bank case, found that arbitration clauses in adhesion contracts can be unconscionable if such provisions disallow class proceedings.
The U. S. Supreme Court, in a 5-4 decision along the usual lines, tossed the reasoning of the California Supreme Court, turned the adhesion contract doctrine on its ear, and held that arbitration clauses in such cases are enforceable. Then they went even further. Not only can parties not maintain class action lawsuits in such cases, they cannot even bring class action arbitration claims. Kennedy wrote the majority opinion. Breyer wrote the dissent.
At a practical level this means that each individual affected must demand and pursue separate arbitration. Arbitration, for those who have never been involved in one, usually necessitates the hiring of a lawyer, the payment of often thousands of dollars in arbitration fees, and enormous amounts of personal time and effort to work through the process. In a class proceeding, the individual commitment of time and money is removed. Where each individual’s damage is relatively small, as in this case, class action is often the only realistic way to right a wrong.
By forcing individual arbitration through the device of adhesion contracts, the vast majority of people will opt not to pursue their remedies resulting in a windfall to companies like AT&T Mobility for their illegal conduct. How many of us would go through the legal, personal and financial commitments required for arbitration over $5 or $10 that we were wrongfully billed?
The Robber Barons win again. And, once again, the Roberts Court turns a blind eye to the people, consumers, and to justice.
Contributor, aka tidbits. Retired attorney in complex litigation, death penalty defense and constitutional law. Former Nat’l Board Chair: Alzheimer’s Association. Served on multiple political campaigns, including two for U.S. Senator Mark O. Hatfield (R-OR). Contributing author to three legal books and multiple legal publications.