Both AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurants have been accused of bringing about the death of the class action.
Few would question that these opinions have made it more difficult to casually sue cell phone or credit card companies. But past that fairly obvious conclusion, it’s not clear that these cases have done much more than shift some of the terms of early motions practice. Given the promises we have heard that Concepcion in particular spelled the coming demise of the class action, how could this be the case?
Law professors Peter B. "Bo" Rutledge and Christopher R. Drahozal offer up one answer in their paper "Sticky" Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion & Amex. In the paper, they discuss the results of an empirical study into the use of arbitration clauses in franchise agreements, an industry area where commentators had urged parties to begin adopting arbitration clauses in the wake of Concepcion. Their finding?
the use of arbitration clauses in franchise agreements has increased since Concepcion, but not dramatically, and most franchisors have not switched to arbitration.
Professors Rutledge and Drahozal offer number of possible explanations as to why franchisors would not rush to adopt clauses that most experts had deemed class action killers. Their primary explanation (which they concede is likely incomplete) is that contracts are "sticky," that is, once a party has agreed to a contract, it’s tougher to change the terms than one might think. (Many of the reasons for this will sound familiar to followers of behavioral economics.) But they also posit a strategic reason why contracts might be sticky:
By using an arbitration clause, businesses do more than simply contract out of class actions: they contract for a bundle of dispute resolution services, including, for example, a very limited right to appeal.
(Emphasis added.) In other words, businesses care about more than just defending class actions; they care about the core goals of the business. This is hardly a shocking conclusion unless one is reading a law-review article or a plaintiff’s brief. For many businesses that may be at low risk for class action suits (like say some franchises), it may not be worth the sacrifice to adopt an arbitration clause that limits other strategic options. By contrast, companies that had adopted mass "Terms and Conditions" (such as credit card companies and cell phone companies) had already accepted the more limited bundle of options. And those same mass contracts made them particularly vulnerable to "gotcha" class actions. (This explanation has the added benefit of suggesting a reason why Professor Miriam Gilles found that fewer companies than expected had adopted AT&T’s "bulletproof" arbitration clause after Concepcion.)
That’s all a roundabout way of saying that Concepcion didn’t kill the class action so much as it likely culled a number of the less meritorious cases. The class action bar has already found a number of substitutes for those.
Professors Rutledge and Drahozal take an object lesson from their study: courts should not be so quick to credit "parade of horribles" arguments without empirical support. Defense lawyers can take away a second lesson: don’t forget to make sure your litigation strategies serve your client’s overall goals.
Disclaimer: Professor Rutledge was a law school classmate of mine.