AT&T’s promotion promised free phones. But when the Concepcions received their first bill they were charged $30.22 in sales tax based on the phones’ retail value.
Feeling cheated, they filed a lawsuit in federal court. The suit was later consolidated as a class action charging AT&T with false advertising and fraud for charging tax for phones it advertised as free.
AT&T sought to enforce its arbitration requirement, and asked the court to dismiss the case. The federal judge refused and a panel of the Ninth US Circuit Court of Appeals upheld that decision.
At issue before both courts was whether consumers in California could bypass the terms of an arbitration agreement because that agreement had required the arbitration be conducted individually rather than in concert with a class of complaining customers.
The California Supreme Court had earlier ruled that arbitration agreements that require individuals to waive the opportunity for class arbitration are unenforceable because they generally disadvantage one party to the agreement.
The federal judge and the appeals court agreed with this reasoning, ruling in favor of the Concepcions.
AT&T appealed, asking the nation’s highest court to examine the case.
How the Supreme Court ruled
On Wednesday, the US Supreme Court reversed the federal appeals court’s decision, concluding that the California rule is preempted by the Federal Arbitration Act.
The decision means those who sign arbitration agreements calling for individual hearings will be bound by those terms and may not seek recourse in the courts.