To put it simply, laws are designed to stop or discourage behavior that society deems to be “bad.” Murder and theft are illegal, so is speeding, and so is the sale of onion futures. Each of these acts are unlawful because they harm someone (onion futures were made illegal after market manipulation so severely reduced the price of onions that farmers were going out of business).
Laws have built-in enforcement mechanisms–for instance, if you steal, the government (the enforcer) can send you to jail. You can’t opt out of a law; if people could do that, we would have anarchy (I would love to opt out of the tax code).
Class actions are very valuable in our society. They allow people with small claims to get together and be the enforcers of laws that otherwise would not be enforced. For instance, if a large phone company is systematically overcharging its customers by only a few dollars here and there–say, by adding an improper 50 cent charge to each bill–nobody in their right mind would spend the amount of time and money that it takes to go to court and get that money back. In the meantime, the phone company can “earn” millions of dollars from such a scheme. If a class action is brought by one person who has been overcharged by 50 cents, then, with all claims aggregated, the phone company is “on the hook” for a much larger amount of money and is much more likely to take the claim seriously.
But what if the phone company could opt out of class action lawsuits? That question is not rhetorical because there is an answer: the company is free to do so. And all it has to do is add a clause to your contract, at any time, that says you can’t bring a class action. You are not free to call the phone company and ask them to take that clause out of your contract–if you don’t like it, then you can get a contract with another phone company. Of course, they all prohibit class actions, so you can’t really choose between them on that basis.
The reason this is all so easy (for the companies, not you) is because of a recent Supreme Court decision, AT&T Mobility v. Concepcion. In that case, the Supreme Court said that companies are free to insert “class action waivers” into their take-it-or-leave-it contracts, and courts cannot invalidate those waivers on the ground that they are unfair. In other words, companies are free to prohibit you from bringing a class action against them. Period.
Here’s a real world example of the magic powers large corporations now have: This past summer, Sony’s Playstation video gaming network was the victim of a cyber attack. The vandals made off with the customer data of 77 million Sony customers, Playstation went offline for a few days and nobody knew why, and finally Sony came clean about what had happened. Then, a few days later, Sony was attacked again and more information was taken. Birth dates, gender, email addresses, phone numbers, usernames, passwords, and even some credit card numbers were stolen. It turned out that Sony had not encrypted this sensitive information.
Such a failure could quite easily result in a class action for violation of privacy laws. Coincidentally, however, last week, Sony added an arbitration clause and class action waiver to its form agreement with its customers. The clause prohibits customers from participating in any class action lawsuit filed against Sony on or after August 20, 2011. If customers don’t agree to waive the right to bring a class action, then their Playstation won’t be able to go online (in other words, their playstation loses much of their functionality). And just like that, Sony has taken away the right of its customers to band together and take action. Although consumers can still bring individual claims against Sony, what is the likelihood they will actually do it? Thanks to the Supreme Court, Sony, and countless other corporations can now effectively opt out of the laws that protect consumers.
With all of that said, we at Abbey Spanier have a few tricks up our sleeve. We’re coming up with new ways to defeat class action waivers. Some courts are on our side, and we fully support the Arbitration Fairness Act of 2011.
Have you been the victim of a crooked corporate practice, only to find that your contract had a class action waiver? If so, tell us your story.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.