Under the Supremacy Clause of the Constitution, conflicts between valid federal and state laws are resolved in favor of the former. In recent years there has been an important series of cases determining whether rules developed in state legislatures and courts to protect consumers have been "pre-empted" by federal law. This often presents conservatives with a conflict between business interests and placing limits on federal power, and with the occasional exception of Clarence Thomas they not surprisingly tend to favor the former.
A case decided today is a classic case in point. After AT&T charged a couple $30.22 for a phone advertised as "free," the ripped-off consumers joined a class-action arbitration against the company. AT&T challened the action, pointing to language in the contract that required bilateral (i.e. between two parties rather than a class action) arbitration. California law, however. requires prevents agreements for either litigation or arbitration not to exclude class action suits, so AT&T lost in both district and circuit courts. Today, however, a bare majority of the Supreme Court found in favor of the company.
Scalia's argument for the majority is, to put it charitably, a stretch. AT&T's pre-emption claims are based on the Federal Arbitration Act, which holds that arbitration contracts are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The obvious problem with the majority's argument is that the California law is not targeted at arbitration but is applicable to all exclusions of class actions, whether in arbitration or litigation. To get around this, Scalia essentially relies on some highly contestable anti-consumer policy arguments. The key passage is this:
Third, class arbitration greatly increases risks to defendants. Informal procedures do of course have a cost: The absence of multilayered review makes it more likely that errors will go uncorrected. Defendants are willing to accept the costs of these errors in arbitration, since their impact is limited to the size of individual disputes, and presumably outweighed by savings from avoiding the courts. But when damages allegedly owed to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error will often become unacceptable. Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.>
But, of course, this cuts both ways. Excluding class actions severely disadvantages plaintiffs, because the stakes involved are generally too small to make legal representation viable, and hence plaintiffs may decide not to pursue valid claims. As Breyer argues in his devastating dissent, "[w]hat rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?"
Congress is, of course, free to choose to protect businesses instead of consumers. But the statute in question is silent on which policy is preferred; it is the conservatives on the Roberts Court, not Congress, that prefers a policy heavily favorable to business interests. But as Breyer says, given that the legislation does not on its face prohibit California's rules, the decision should be "California’s to make." Today's case is another example of why the Chamber of Commerce is very happy with the Supreme Court's work, as the Court has made it easier for corporations to get away with rip off their customers based on a highly strained reading of federal law.