The U.S. Supreme Court ruled Wednesday for an AT&T Inc. unit seeking to require arbitration for a dispute over cell-phone taxes rather than allowing customer claims to be brought together in a class-action lawsuit.
By a 5-4 vote, the justices overturned a ruling by a U.S. appeals court that declared unenforceable under California law a provision in AT&T Mobility's customer contracts that required all disputes to be settled by arbitration and that prevented the pooling of claims in a class-action lawsuit.
The plaintiffs, Vincent and Liza Concepcion, filed their class-action lawsuit in 2006 and claimed they were improperly charged about $30 in sales taxes on cell phones that the AT&T wireless unit had advertised as free.
AT&T, the No. 2 U.S. mobile service, was backed in the case by a number of other companies and by the U.S. Chamber of Commerce business group while consumer and civil rights groups supported the California couple.
Companies generally prefer arbitration as a less expensive way of settling consumer disputes, as opposed to costly class-action lawsuits, which allow customers to band together and can result in large awards of money.
Customer arbitration agreements are widely used by cell- phone carriers, cable providers, credit card companies, stock brokerage firms and other businesses.
AT&T had defended its arbitration agreements as fair. It said they required it to pay at least $7,500 if the arbitrator awarded more than the company's final settlement offer and to pay all arbitration costs for nonfrivolous claims.
AT&T had argued that a federal law that encourages the use of arbitration, the Federal Arbitration Act (FAA), trumped a California consumer protection law at issue in the case.
In its ruling, the Supreme Court majority agreed.
"The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly preempted," Justice Antonin Scalia said for the majority in reading his opinion from the bench.
The court's four liberal justices dissented.
The Supreme Court case is AT&T Mobility v. Concepcion, No. 09-893.
