{"id":978,"date":"2011-03-10T19:00:26","date_gmt":"2011-03-11T00:00:26","guid":{"rendered":"http:\/\/journals.law.harvard.edu\/hblr\/?p=978"},"modified":"2016-07-04T21:55:14","modified_gmt":"2016-07-05T01:55:14","slug":"injury-or-deterrence-the-end-of-class-action-litigation-and-its-benefit-to-consumers","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/hblr\/injury-or-deterrence-the-end-of-class-action-litigation-and-its-benefit-to-consumers\/","title":{"rendered":"Injury or Deterrence: The End of Class-Action Litigation and Its Benefit to Consumers"},"content":{"rendered":"

Download PDF<\/a><\/p>\n

Jason Sherman*<\/a><\/p>\n

On November 8, The Wall Street Journal<\/em> asked, \u201cIs D-Day Approaching For Class-Actions Lawsuits?\u201d\u00a0 The next day, the Supreme Court heard oral arguments for AT&T Mobility v. Concepcion<\/em>. The lower courts held AT&T Mobility\u2019s (\u201cATTM\u201d) adhesion contract\u2019s arbitration clause unconscionable because it prevented class actions through either litigation or arbitration. However, the Federal Arbitration Act, as argued by ATTM, may preempt the finding by the lower courts, ultimately allowing corporations to use \u201cno class action\u201d clauses to shield themselves from class action litigation or arbitration. The media has mostly predicted that the case will be resolved in favor of ATTM, and as Professor Brian Fitzpatrick said, \u201cit could end class-action litigation in American as we know it.\u201d Many believe this lack of access to class action will \u201chave harmful public policy consequences\u201d[1]<\/a><\/span> that \u201cwould cut off the only meaningful method to redress widespread discrimination, fraud, or other violations of the law.\u201d[2]<\/a><\/span><\/p>\n

But Justice Alito asks the hinging question, \u201cWhy are these people better off with class rights than not?\u201d Class-action rights are an important tool for deterring corporate exploitation, but a ruling for ATTM effectively destroys arbitration\u2014an important tool for consumers to efficiently recover for their injuries without costly litigation expenses.<\/p>\n

ATTM argued that without the class action waiver in contracts, companies would likely stop using arbitration altogether. The Chamber of Commerce similarly argues that businesses will stop opting for arbitration without the class action waiver because class arbitration doesn\u2019t share the advantages of individual arbitration. Instead, a single class arbitrator deals with sometimes thousands of disputes leading to time-consuming, procedurally complex, and expensive suits\u2014even more so than the traditional class litigation due to the lack of access to appellate review and complex class arbitration rules.<\/p>\n

Despite the focus on the advantages of class actions, consumers individually benefit more from the one-on-one non-aggregated arbitration. While a simplification of the class arbitration rules by Congress is ultimately advantageous, that is arguably a slow process. In the meantime, preserving the bilateral arbitration as alternative means of dispute resolution provides consumers access to a neater, cleaner, cheaper, and faster way of solving disputes.[3]<\/a><\/span> Studies have also shown that consumers prevail against businesses more often in arbitration[4]<\/a><\/span> and the average duration of the claim is only 8.6 months compared to 2.5 years in litigation.[5]<\/a><\/span> Arbitration allows consumers to bring claims for significantly smaller damage amounts into court because of the decreased costs of resolution. Additionally, 82% of people would choose arbitration over litigation to sue a corporation,[6]<\/a><\/span> and many individual-to-individual contracts including property and second-hand car sales almost always require arbitration. Thus, consumers not only benefit from arbitration, but prefer it to resolve their legal disputes.<\/p>\n

Admittedly, truly small claims are still expensive to resolve through basic arbitration, but a private competitive marketplace forces most corporations to make adjustments to contracts that make arbitration more attractive to consumers with smaller monetary claims. ATTM\u2019s contract, for instance, includes many consumer friendly features to encourage consumer arbitration of even small amounts including a $7,500 minimum recovery if the arbitral award is greater than ATTM\u2019s last settlement offer and double attorney fees and expenses which ATTM states it similarly will not seek for itself.[7]<\/a><\/span> These provisions allow consumers, such as the Concepcion\u2019s, to use arbitration for almost any monetary claim. The district court (which held against ATTM) even agreed that these provisions \u201csufficiently incentivize consumers\u201d to pursue \u201csmall dollar\u201d claims and \u201cprompts\u201d ATTM to make favorable offers \u201ceven for claims of questionable merit.\u201d Also, Professor Robert Mnookin of Harvard Law School states, \u201cThe question to ask is why an individual AT&T customer would not be better, should she have a dispute . . . with the waiver and the provision with the $7,500 kicker.\u201d[8]<\/a><\/span> In a competitive market, such as mobile phone coverage, companies will respond to the consumer pressure to litigate small claims through the inclusion of consumer friendly contractual provisions.<\/p>\n

In summation, if the primary goal of dispute resolution is injury recovery for consumers and not private deterrence, arbitration clauses with provisional incentives for small monetary claims benefit the individual even with the class-action waiver. Without discussing the merits of class-action lawsuits, legal theorists mostly agree that the monetary receivers of class action litigation are normally the plaintiffs\u2019 attorneys and rarely do consumers receive any of the injury compensation. While this private deterrence mechanism may be seen as important, the individual seeking recovery for injuries inflicted on them<\/em> will benefit from a ruling for ATTM by the Supreme Court in the spring.<\/p>\n

\n

*<\/a> J.D. Candidate, 2013, Harvard Law School.<\/p>\n

[1]<\/a> Brief of Civil Procedure and Complex Litigation Processors as Amici Curiae in Support of Respondents at 3, AT&T Mobility LLC v. Vincent and Liza Concepcion, 584 F.3d 849 (2010) (No. 09-893).<\/p>\n

[2]<\/a> Public Citizen\u2019s Consumer Justice Project, AT&T Mobility LLC v. Vincent and Liza Concepcion Enforceability of Class-Action Bans in Arbitration Agreements<\/em>, Consumer L. & Pol\u2019y Blog<\/span> (Feb. 11, 2011, 1:49 PM), http:\/\/pubcit.typepad.com\/clpblog\/concepcion\/.<\/p>\n

[3]<\/a> U.S. Chamber Institute for Legal Reform, Arbitration: Simpler, Cheaper, and Faster Than Litigation<\/span> (survey conducted by Harris Interactive, Inc. Apr. 2005), http:\/\/www.adrforum.com\/rcontrol\/documents\/ResearchStudiesAndStatistics\/2005HarrisPoll.pdf.<\/p>\n

[4]<\/a> Ernst & Young LLP, Outcomes of Arbitration<\/span> (2004), http:\/\/www.adrforum.com\/rcontrol\/documents\/ResearchStudiesAndStatistics\/2005ErnstAndYoung.pdf; see also<\/em> Arbitration Better than Court for Consumer Debtors, Study Shows<\/em>. U.S. Chamber Institute for Legal Reform<\/span> (Feb. 11, 2011, 4:02 PM), http:\/\/www.instituteforlegalreform.com\/component\/ilr_media\/30\/pressrelease\/2008\/422.html.<\/p>\n

[5]<\/a> Mark Fellows, The Same Result As in Court, More Efficiently: Comparing Arbitration and Court Litigation Outcomes<\/em>, Metro. Corp. Counsel<\/span>, July 2006, at 32, available at http:\/\/www.adrforum.com\/rcontrol\/documents\/ArticlesByFORUMStaff\/200607FellowsMCC.pdf.<\/p>\n

[6]<\/a> U.S. Institute for Legal Reform, Key Findings From a National Survey of Likely Voters<\/span> (Apr. 2008), http:\/\/www.instituteforlegalreform.com\/issues\/docload.cfm?docId=1092.<\/p>\n

[7]<\/a> Philip J. Loree Jr., AT&T Mobility LLC v. Concepcion: What is the Scope of Federal Preemption in Class Waiver Cases?<\/em>, Loree Reinsurance<\/span> & Arb. L.F. (Feb. 11, 2011, 4:15 PM), http:\/\/loreelawfirm.com\/blog\/att-mobility-llc-v-concepcion-what-is-the-scope-of-federal-preemption-in-class-waiver-cases.<\/strong><\/p>\n

[8]<\/a> Email from Robert H. Mnookin, Samuel Williston Professor of Law, Harvard Law School, to Jason Sherman, J.D. Candidate, 2013, Harvard Law School (Nov. 22, 2011, 19:10 EST) (on file with author)<\/p>\n

Preferred citation: Jason Sherman, Injury or Deterrence: The End of Class-Action Litigation and Its Benefit to Consumers<\/em>, 1\u00a0Harv. Bus. L. Rev. Online\u00a050 <\/span>(2011), https:\/\/journals.law.harvard.edu\/hblr\/\/?p=978.<\/p>\n","protected":false},"excerpt":{"rendered":"

Jason Sherman<\/p>\n

On November 8, The Wall Street Journal asked, \u201cIs D-Day Approaching For Class-Actions Lawsuits?\u201d The next day, the Supreme Court heard oral arguments for AT&T Mobility v. Concepcion. The lower courts held AT&T Mobility\u2019s (\u201cATTM\u201d) adhesion contract\u2019s arbitration clause unconscionable because it prevented class actions through either litigation or arbitration. However, the Federal Arbitration Act, as argued by ATTM, may preempt the finding by the lower courts, ultimately allowing corporations to use \u201cno class action\u201d clauses to shield themselves from class action litigation or arbitration. The media has mostly predicted that the case will be resolved in favor of ATTM, and as Professor Brian Fitzpatrick said, \u201cit could end class-action litigation in American as we know it.\u201d Many believe this lack of access to class action will \u201chave harmful public policy consequences\u201d that \u201cwould cut off the only meaningful method to redress widespread discrimination, fraud, or other violations of the law.\u201d<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22],"tags":[41,75,76,54],"ppma_author":[373],"class_list":["post-978","post","type-post","status-publish","format-standard","hentry","category-home","tag-arbitration","tag-class-action","tag-jason-sherman","tag-u-s-chamber-of-commerce"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/pgKEUK-fM","jetpack-related-posts":[{"id":1135,"url":"https:\/\/journals.law.harvard.edu\/hblr\/the-att-arbitration-clause-as-a-replacement-for-class-action\/","url_meta":{"origin":978,"position":0},"title":"The AT&T Arbitration Clause as a Replacement for Class Action","author":"wpengine","date":"April 9, 2011","format":false,"excerpt":"Michael Springer: Recently, the Supreme Court heard oral arguments in the suit between AT&T and Vincent and Liza Concepcion on whether the Federal Arbitration Act preempts California contract law. 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