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Court Ruling a Roadblock for Class Action Lawsuits

Court Ruling a Roadblock for Class Action Lawsuits

Matthew Wolf was a captain in the Judge Advocate General Corps of the Army Reserves is 2007 when was called to duty in Afghanistan. He was about a year into his 39-month lease for his Nissan Infiniti and, according to the Servicemembers Civil Relief Act, he was entitled to get back the $400 he’d paid in advance on his future monthly installments.

But Nissan didn’t respond. Wolf’s lawyer filed a lawsuit in 2010 in Federal District Court, New Jersey, on behalf of Wolf and any other service member with a similar claim against Nissan.

However, the lawsuit ran into a roadblock in April 2011, when the Supreme Court ruled in AT&T Mobility v. Concepcion that corporations could issue consumer contracts that blocked class-action lawsuits. The corporations just have to draft a contract that 1.) requires customers to settle disputes through arbitration, and 2.) prohibits customers from arbitrating collectively.

That ruling was cited as a “game changer” and most favorable to business. A report titled “Justice Denied” released in April 2012 by the consumer advocacy group Public Citizen, said that, since Concepcion, the court’s decision had been cited at least 76 times as a reason to prevent potential class-action lawsuits from going forward. And, in some cases, judges were clearly unhappy they were ruling against the class-action suit, explaining that Concepcion made it impossible to reach a different decision.

In Wolf’s situation, the contract he signed with Nissan included a forced arbitration clause along with a class-action ban. His lawyer argued the terms of the lease were “unconscionable.” The judge conceded the attorney’s “argument and authority are persuasive,” but he eventually dismissed the lawsuit, citing Concepcion. An appeal is pending.

Businesses have condemned class-action suits for many years, with arguments based on stories people have all heard of settlements of millions of dollars, in which lawyers take home millions while consumers wind up with diddly squat. No long ago Ferrero U.S.A. settled lawsuits brought by two mothers saying they were deceived by health claims made on jars of the chocolate hazelnut spread Nutella. So is a lawsuit the most efficient way to handle a reportedly misleading health claim? Maybe the Federal Trade Commission would have been a more appropriate recource.

Matt Webb, a senior vice president of the United States Chamber of Commerce’s Institute for Legal Reform, says the class-action system is flawed because it is designed by and for lawyers. Arbitration works better, he said: “If you have a $30 dispute and a good arbitration system in place, one that is administered fairly … you have the ability to get a claim resolved without giving money to a lawyer.”

Taylor Lincoln, a co-author of the Public Citizen study, doesn’t agree. Many well-known arbitration companies have a pro-business bias because they are paid by corporations, he said. But the real agenda, he explained, is to block collective legal action — the kind o bottom line threat that gets a company’s attention. Supreme Court Justice Stephen Breyer said as much in his dissent in the Concepcion case — which split the Court 5 to 4 — when quoting a 2004 decision written by Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

Could a scrupulously fair arbitration system to handle individual cases be an answer? Perhaps in part. But without class actions, many people entitled redress won’t know it. In Wolf’s situation, he didn’t know Nissan was supposed to return his upfront lease money until he found out from a friend and comrade-in-arms during his Afghanistan deployment. Wolf’s lawyer believes there may be thousands of others who don’t know either, and they are unlikely to arbitrate a claim they don’t know they have. The attorne has filed similar lawsuits against Ford and BMW.

Wolf is now back in New Jersey with his legal practice. He still half expects to get a check from Nissan. “I figured the company would step up and refund me and other service members,” he said. “Because there really is no question they owe us this money.”

A Nissan spokesman declined comment, citing the continuing litigation.