Friday, April 29, 2011

Supreme Court Allows Contracts That Prohibit Class-Action Arbitration

Businesses may use standard-form contracts to forbid consumers claiming fraud from banding together in a single arbitration, the Supreme Court ruled on Wednesday in a 5-to-4 decision that split along ideological lines.

Though the decision concerned arbitrations, it appeared to provide businesses with a way to avoid class-action lawsuits in court. All they need do, the decision suggested, is use standard-form contracts that require two things: that disputes be raised only through the informal mechanism of arbitration and that claims be brought one by one.

“Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration,” Justice Scalia wrote. He was joined by Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr.

Arbitrators are ill suited to handling sprawling cases, Justice Scalia said, and sensible businesses would not agree to participate in informal proceedings from which very limited appeals are possible when faced “with even a small chance of a devastating loss.”

“We find it hard to believe,” Justice Scalia wrote, “that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.”

Justice Stephen G. Breyer, writing for himself and Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, said the state court decision banning class waivers did not violate the federal law favoring arbitrations.

Class arbitrations, Justice Breyer wrote, are perfectly appropriate ways to resolve claims that are minor individually but significant in the aggregate.

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