Can companies grant themselves a "get out of jail free" card when you sign their contracts? A lawsuit filed in Seattle against AT&T/Cingular may settle that question.
The nonprofit public advocacy group Public Justice is asking a federal court to set aside a provision in old AT&T wireless contracts that prevents consumers from banding together and filing class action lawsuits against the company. The future of class-action lawsuits might be at stake.
The 22 million customers of AT&T Wireless were given a Hobson’s choice in 2004 when the firm was acquired by Cingular, according to Public Justice. The advocacy group says consumers had three bad options after the merger:
Continue using their old phones and face a new $5 monthly fee and degraded service; switch to Cingular and pay an upgrade fee; or cancel their service and pay a $175 early-termination fee.
"There was no good option for these people," said Public Justice lawyer Leslie Bailey.
In 2006, Public Justice filed a lawsuit seeking refunds for AT&T Wireless customers and sought class-action status.
Cingular/AT&T, which has since adopted the name AT&T, immediately asked a federal judge to dismiss the lawsuit and force the plaintiffs into arbitration, as required by their cell phone contracts.
The contracts signed by AT&T Wireless customers, included this phrase: "You and (AT&T) agree that each may bring claims against the other only in your or its individual capacity, and not as a plaintiff or class member."
Clause portrayed as ‘class-action ban’
Last month, Public Justice filed a motion asking U.S. District Judge Ricardo Martinez to set aside what it calls a "class-action ban." Because the damages for each individual victim are small — ranging from $5 to $175 — few would bother to file an individual case against the firm. Only by banding together in a class-action case could victims get fair compensation, said Bailey.
"These people are affected by what we allege is deception, but it’s unlikely any of these individuals will take on this huge corporation by themselves," she said.
In legal terms, she said, the ban is an exculpatory clause, which effectively frees the firm from any responsibility for its actions. In common language, Bailey said, it amounts to a "get out of jail free card."
"It doesn’t say you can’t sue us no matter what we do to you, but this accomplishes the same thing," she said.
AT&T denied misleading its customers and rejects the idea that the binding arbitration clause is unfair. It said in an e-mail statement that consumers are better served by filing individual arbitration cases or small claims court cases.
"We continue to believe a consumer is better off pursuing a claim under our arbitration clause, rather than pursuing a class action. Arbitration is typically a fast, cost-effective and pro-consumer way to address disputes, and AT&T’s arbitration agreement is among the most consumer-friendly in the nation," the firm said.
‘Fair and in the best interest of our customers’
The statement noted that consumers who use a lawyer and win an arbitration case are entitled to two times their legal fees. "We are confident our approach is both fair and in the best interest of our customers," it concluded.
But Bailey said only a tiny fraction of impacted consumers — there have been 10 cases arbitrated against AT&T/Cingular since October 2006 — have taken advantage of arbitration provisions, and few ever will.
The Foundation for Taxpayer and Consumer Rights, which is helping bring the case against AT&T, says the judge’s ruling could set an important precedent in consumer law and class-action law.
“If the court rules that AT&T and Cingular’s customers cannot join together to sue these companies, then the companies will never be held accountable,” said Harvey Rosenfield, a lawyer with the group.
While judges have previously set aside contract language that would effectively ban all class-action cases, Bailey said lawyers for U.S. corporations are continually revising contract language to create a class-action ban that will withstand scrutiny. AT&T, she said, has altered its phrasing four times since the lawsuit was filed.
Class-action cases haven’t always served consumers’ interests, admits Bailey. In notorious "coupon" settlements, millions of victims get near-worthless service credits or discounts, while lawyers who file the cases get millions in fees.
Despite the abuses — which she says Public Justice opposes – class-action lawsuits are an essential tool in consumer protection, she said. Allowing companies to unilaterally excuse themselves from class-action litigation would spell disaster for consumer rights.
"(Companies) know that if a class-action case can’t be brought against them, they will not have to change their ways," she said. "It’s all the more important in the lax regulatory environment we have, where federal agencies that are supposed to regulate large companies are not doing their jobs."
RED TAPE WRESTLING TIPS
Consumers should look for the binding arbitration clauses that are included in most contracts they sign today, purely as a matter of public awareness. One might be inclined to take a pen and strike the clause, but that rarely works, according to Public Justice. Employees are trained to tell consumers that the contract can’t be changed – it’s offered on a take-it-or-leave-it basis. A few consumers have managed to sign a contract with such a clause removed, but that’s against most firm’s policies, Bailey said.
Consumers who are worried about binding arbitration should do business with firms that don’t require it. That’s not easy, however, as all four major cell phone carriers include arbitration clauses in their contracts, she said.