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Bar on Class Actions Harmed Consumers

AT&T's Forced Arbitration System Illegal, Appeals Court Says

SAN FRANCISCO, CA -- February 21, 2003 -- Portions of AT&T's contracts that force long distance consumers to submit claims to arbitration rather than to the courts are illegal, according to a ruling by the U.S. Court of Appeals for the Ninth Circuit (Darcy Ting et al. v. AT&T). The AT&T contracts, which effect 7 million California customers, violate the state's Consumer Legal Remedies Act.

In upholding a lower court decision, the Appeals Court also agreed that the following contract provisions unfairly harm telephone consumers:

  • a bar on class actions;
  • a fee scheme that requires customers to split the arbitrator's fees with AT&T;
  • secrecy rules that require customers to keep quiet about their disputes with AT&T; and
  • liability protection for willful misconduct by AT&T.

The Court of Appeals explained that the contract clause banning class actions was one-sided because it would make it difficult for consumers to bring claims. The split fee scheme violates state consumer protection laws because it would require customers bringing claims against AT&T to pay costs that are greater than those they would have to pay if they had brought their claims in court. A secrecy or gag order also favors AT&T, allowing the company to know about many related arbitrations but not allowing consumers to discover that information.

"The Court of Appeals made clear that corporations like AT&T cannot enforce abusive arbitration clauses that make it impossible for consumers to enforce their rights under consumer protection laws," said Paul Bland, an attorney for the plaintiffs (Press Release, February 11, 2003). "AT&T cannot evade laws that protect consumers by sneaking in an unfair and one-sided fine-print arbitration clause that most long distance customers won't read or understand."

Consumer Action and Trial Lawyers for Public Justice (TLPJ) filed the AT&T action on behalf of telephone customers. The law firm of Brayton Purcell supports the principles espoused by TLPJ in this case. Alan Brayton, the founding and senior partner of the firm, sits on TLPJ's Board of Governors and Executive Committee.

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