The NAM and 5 other business groups filed an amicus brief 5/5/06 supporting Cingular’s appeal of an adverse decision from a California court involving arbitration of cell phone contract disputes. The issue on appeal was whether the Federal Arbitration Act (FAA) preempts two state rules that (1) refuse to recognize arbitration provisions that prohibit resolution of disputes by class action, and (2) refuse to allow arbitration of claims for “public injunctive relief.” On June 5, 2006, the Court declined to hear the appeal.The lower court decision means that, for consumer products, manufacturers will not be able to avoid class actions and “public injunction” actions through arbitration clauses. Cingular bent over backwards to provide consumers with an inexpensive way to resolve problems with their wireless phones through arbitration, yet the plaintiffs insisted on ignoring the contract and using the expensive and oppressive class action vehicle instead. The lower court ruled that consumer contracts with such an arbitration clause are unconscionable. This decision benefits no one but class action lawyers, while harming consumers by reducing their access to low-cost resolution of disputes.
The case raised an important question whether the FAA preempts this restrictive California interpretation. Most preemption cases involve discrete interpretations of statutes that affect one sector of the economy, but the FAA applies across-the-board to any industry that wants to include arbitration in its contracts. While this case arises in the context of a cell phone dispute, the principle will apply to virtually any consumer product sold in California (home to 1/8 of the U.S. population) with a contract or warranty that includes arbitration.
We have long supported the ability of manufacturers to use the FAA to resolve disputes. We also support the validity of contractual obligations and remedies. Joining in the brief were The American Bankers Association, the American Financial Services Association, CTIA – The Wireless Association, the National Cable & Telecommunications Association, and the United States Telecom Association.