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California Phone Customers Win Right to Sue Telephone Titan AT&T

U.S. Supreme Court Refuses to Overturn Ruling Rejecting Private Arbitration System as Unfair, One-Sided

"Bakelite 'phone": oil on beeswax painting by Stephen Evans (posted with artist's permission).

California long distance phone customers won the right to challenge phone giant AT&T in court instead of being forced into an unfair, one-sided arbitration system, after the U.S. Supreme Court refused to hear the corporation’s appeal. On October 6, 2003, the Supreme Court let stand Trial Lawyers for Public Justice’s major victory for consumers against AT&T, declining to review a decision by the U.S. Court of Appeals for the Ninth Circuit which held that provisions in AT&T’s standard form contract requiring long distance customers to submit their claims to mandatory arbitration are unconscionable and unenforceable.

The denial of certiorari in Ting v. AT&T finalizes a significant legal victory for seven million California long distance customers of AT&T who filed a class action lawsuit challenging the corporation’s new mandatory arbitration provision. On February 11, 2003, the Court of Appeals struck down provisions in AT&T’s arbitration clause that (a) stripped consumers of the right to file or participate in a class action; (b) stripped consumers of various rights and shielded AT&T from damages for willful misconduct under California’s consumer protection laws; (c) required consumers to pay expensive fees for arbitration; and (d) contained a gag rule requiring consumers to keep secret any dispute they might have against AT&T. The Ninth Circuit’s 40-page opinion concluded by explaining that its holding was not directed at arbitration, “but at the manner in which it was forced upon consumers, the way in which AT&T avoided liability for willful misconduct, and the costs to consumers of vindicating their rights.”

"The Supreme Court’s refusal to overturn a major victory for phone customers shows that corporations like AT&T cannot enforce abusive arbitration clauses that make it impossible for consumers to enforce their rights under consumer protection laws."

“The Supreme Court’s refusal to overturn a major victory for phone customers shows 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 Trial Lawyers for Public Justice Staff Attorney F. Paul Bland, Jr., who argued the Ninth Circuit appeal. “AT&T cannot evade laws that protect consumers by hiding in the fine print of its contracts an unfair and one-sided arbitration clause that most long distance customers won’t read or can’t understand.”

The Court of Appeals held that the provision of AT&T’s arbitration clause banning class actions was unconscionable and “manifestly one-sided” because it would make it harder for consumers to bring claims. It ruled that AT&T’s arbitration clause violates state consumer protection law because it requires consumers 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. It also held that if AT&T “succeeds in imposing a gag order,” such secrecy would favor AT&T because the corporation would know what happened in other arbitrations but consumers would be unable to discover that information.

“AT&T not only tried to force its customers to take their claims to arbitration instead of court, it attempted to rig that forum to strip its customers of all meaningful rights and remedies under California law,” said James Sturdevant, co-lead counsel for the plaintiffs. “The Court of Appeals made clear that courts can and must protect consumers from that kind of abuse.”

TLPJ and The Sturdevant Law Firm filed this California statewide class action against AT&T for attempting to impose mandatory, predispute arbitration on its long distance telephone customers to eliminate customers’ right to their day in court and to shield itself from liability. The lawsuit is the first in the nation to challenge AT&T’s new mandatory arbitration provision. It was filed and certified as a class action on behalf of all AT&T long distance telephone customers in California.

The named plaintiffs in the case are Darcy Ting, an AT&T customer who lives in Berkeley, and Consumer Action, a San Francisco-based, national public interest organization that has previously challenged mandatory arbitration clauses and that conducts an annual survey of long distance rates. The federal magistrate judge who presided at trial declared that AT&T’s mandatory arbitration and limitation of liability provisions are illegal, unconscionable, and unenforceable under California’s Consumer Legal Remedies Act and Unfair Competition Law, and permanently enjoined their enforcement in California.

AT&T argued on appeal that it did not matter whether AT&T had complied with state contract and consumer protection laws because the Federal Communications Act (“FCA”) and the Federal Arbitration Act (“FAA”) supposedly preempted those laws. The Ninth Circuit rejected the argument that the FCA preempts either state contract laws or state consumer protection laws. Although the Court of Appeals agreed with AT&T that the FAA preempts California’s Consumer Legal Remedies Act, it held that California’s contract law was still sufficient to strike down nearly all of the provisions challenged by AT&T’s long distance customers.

In addition to Bland and Sturdevant, the plaintiffs’ legal team includes Karen Hindin of The Sturdevant Law Firm, TLPJ Staff Attorney Michael J. Quirk, and TLPJ Baron-Brayton Fellow Kate Gordon.

Key briefs and the Ninth Circuit ruling in the Ting case are posted on TLPJ’s web site.

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Trial Lawyers for Public Justice is the only national public interest law firm dedicated to using trial lawyers’ skills and resources to advance the public good. Founded in 1982, TLPJ utilizes a nationwide network of more than 3,000 outstanding trial lawyers to pursue precedent-setting and socially significant litigation. It has a wide-ranging litigation docket in the areas of consumer rights, worker safety, civil rights and liberties, toxic torts, environmental protection, and access to the courts. TLPJ is the principal project of The TLPJ Foundation, a not-for-profit membership organization. It has offices in Washington, DC, and Oakland, CA.

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