NEW YORK, April 29 (Reuters Breakingviews) - It's a joyful spring in corporate America thanks to the U.S. Supreme Court. It has ruled that companies can stop customers or employees from banding together to sue. But as directors celebrate, consumer advocates and trial lawyers are mobilizing to overturn the decision. One of their best hopes of an ally may be Elizabeth Warren's new Bureau of Consumer Financial Protection.
The decision came in a challenge to AT&T's requirement that cellphone customers resolve claims one-by-one in private arbitration. Lower courts struck down the class-action ban, but the high court reversed, saying federal law favors arbitrations over litigation and class actions make them too costly and slow.
The upshot is that companies can not only prevent beefs against them from going to court, they can also keep plaintiffs from uniting in large groups. The decision is a blow to consumers and employees -- and might one day affect shareholders. Owners of publicly traded companies don't enter into contracts with them, so there's no obvious way to bind the investors to an arbitration clause, much less stop their pervasive class-action suits.
Some companies have tried, by putting such clauses in their bylaws or articles of incorporation, contending those documents govern the relationship with shareholders. The approach might have worked had the U.S. Securities and Exchange Commission not vetoed it in 1990 as against public policy. New commissioners might one day conclude differently.
The ruling should nevertheless save businesses from defending lawsuits with hundreds of plaintiffs seeking millions of dollars. But efforts are already under way to find a way to reverse the Supremes. A Congress with a Republican-dominated House is unlikely to back those efforts. But Warren's new agency might help.
Dodd-Frank gives the watchdog power to regulate arbitration in consumer financial-services contracts. It only oversees credit cards, bank accounts and the like, but if the bureau banned anti-class-action clauses as harmful to, say, bank customers, it might strengthen the case against such clauses in other areas.
Of course, Warren already has a full plate. But she has been a bulldog at challenging corporate power. So it seems inevitable that lobbyists will soon test the former Harvard law professor's consumer bona fides -- and the powers of her fledgling bureau.
-- The Supreme Court ruled on April 27 that companies can prohibit customers from pursuing class actions in private arbitrations over claims of consumer fraud.
-- The 5-4 decision means that businesses can, in effect, avoid class-action lawsuits by requiring employees, customers or other businesses to resolve their disputes in arbitration rather than court, and to bring their claims individually.
-- The ruling continues a long line of decisions by the court favoring private arbitration as a faster, more efficient and less costly process than lawsuits.
(By Reynolds Holding, a Reuters Breakingviews columnist. The opinions expressed are his own)