If you believe Forbes, I've got an AT&T cell phone to sell you

Responding to the New York Times’s powerful critique of the Supreme Court’s AT&T Mobility v.Concepcion decision that lets corporations opt out of class action lawsuits by injured consumers, Forbes Magazine’s blog derides the very idea that class actions benefit victims of corporate wrongdoing.

According to Forbes, class actions are no more than ways for attorneys to get rich at the expense of class members. Forbes points to a consumer class action against a company called DirectBuy, in which, it says, attorneys for the class sold out consumers by agreeing to a settlement that provides nothing at all for half the class, and benefits of very little value to the other half. Says Forbes, “Even the consumer watchdogs at Public Citizen”—that’s us!—”found this one impossible to swallow; they’ve filed an objection.”

Forbes’s example proves the opposite of the point they’re trying to make. Yes, we filed an objection in the DirectBuy case, as we often do when we see a class settlement that isn’t fair. A lot of other class members, as well as state attorneys general, also objected. And what happened? The court refused to approve the settlement.

You see, one of the benefits of class actions is that they can’t be settled unless a judge independently looks them over and decides they are fair to class members. And, more and more over the last 20 years as watchdogs like Public Citizen and others have filed objections to bad settlements, courts have made good on their obligation to protect class members. The result? Coupon settlements that benefit corporate defendants and enrich lawyers while giving little or nothing to class members are, increasingly, a thing of the past.

By contrast, judges aren’t even permitted to ensure fair outcomes when individuals are forced into one-on-one arbitration rather than being allowed to join together in class actions. Courts generally overturn an arbitration result only in the rare case when someone can prove an arbitrator was corrupt or deliberately ignored the law. Aside from that, pretty much whatever the arbitrators say goes.

And—you guessed it—it’s the corporate defendants who, through the take-it-or-leave-it “contracts” we have to sign if we want any of the necessities of modern life (a job, a phone, a car, credit), decide which organizations will conduct the arbitration.

Who would you rather have determining the fairness of the way your claim against your friendly cell-phone company, credit-card provider, used-car dealer, payday lender, or employer is resolved: a life-tenured federal judge who has a legal obligation to protect your interests, or a private “dispute resolution service” picked and paid for by the defendant? Talk about a no-brainer.

The hard truth is that arbitration clauses that prohibit class actions and collusive class action settlements are just two sides of the same coin: They’re both ways corporate defendants try to minimize their liability for wrongdoing.

Class-action bans do that by preventing large numbers of people from suing, and making it harder for those who can file on an individual basis to recover for their injuries. Collusive class settlements allow corporations (when they can find class action lawyers who are willing to play ball with them) to cut off the claims of large numbers of people for a fraction of their real value. That’s why watchdog groups like us oppose both banning class actions and abusing them.

But wait, says Forbes, even after Concepcion courts will only enforce arbitration clauses with class-action bans if they are really fair to consumers, in fact better than class actions. Forbes points to some features of the AT&T arbitration clause at issue in the Concepcion case that would provide a consumer a $7500 bonus plus double attorney fees if she won more in arbitration than the company’s last settlement offer.

But the bonus payment—which it appears no consumer has ever succeeded in obtaining—is a sham. The company can always avoid it by offering the consumer the face value of her individual claim. For the Concepcions, that would be about $30. So if consumers like the Concepcions go to the trouble and expense of getting the legal advice needed to learn that they’ve been defrauded and to figure out how to file a claim, at the end of the day the company will offer them their $30 and avoid paying any bonus or legal fees.

As a result, in the typical consumer case where a lot of people (thousands, hundreds of thousands or even millions) have been ripped off by a company for a small amount of money each, the company will come out way ahead even if thousands of people go to the trouble of filing for arbitration to get their $30 back, because thousands more won’t.

And that “even if” is a pretty big one. The fact is that it’s very unlikely that thousands of people will file arbitrations seeking $30, or $50, or even $100 or $500 each, because it won’t be worth the time of any lawyer to help them—unlike in a class action where the small claims of class members can yield a large enough recovery to compensate both class members and their lawyers. And anyway, as Justice Breyer said in dissent in Concepcion, only a lunatic would arbitrate over $30.

In short, the lesson of Concepcion is that an arbitration agreement that bans class actions doesn’t have to be fair to be enforced; at most, it only has to look fair—to someone who can’t, or won’t, look past the window-dressing. And, indeed, we don’t yet know whether courts applying Concepcion will require class-action bans to have even the fairness fig-leaf that the AT&T contract offered.

So don’t be fooled. If corporations really thought consumers would be as likely to get full redress for mass grievances through individual arbitration as through class actions, why would they fight so hard to avoid class actions and steer all claims into arbitration? Because they want to pay legitimate consumer claims more quickly? Right…

In short, if you believe that individual arbitration is just as likely to lead to effective remedies against corporate wrongdoing as class actions, I’ve got an AT&T cell-phone I’d like to sell you.

Scott Nelson is an attorney for Public Citizen