Further Erosion of State Consumer Protection Remedies for U.S. Telecommunications: Flawed Federal Preemption Under At&T Mobility v. Concepcion

Deregulatory policies have reduced or eliminated industry-specific regulatory power, shifting reliance to economic competition and legal remedies available under other bodies of state and federal law applicable to general businesses. The shift way from industry-specific regulation of telecommunications and broadband access services has created legal gaps, as general antitrust and consumer protection laws did not evolve to address industry-specific problems in telecommunications (Cherry, 2010). Since enactment of the Telecommunications Act of 1996, the legal gaps include loss or uncertainty of remedies under consumer protection law. One of these gaps arises from conflict among the Circuit Courts of Appeals over the continued viability of the filed rate doctrine after detariffing (Cherry, 2010, pp. 14-15). [The filed rate doctrine originated with interpretation of the Interstate Commerce Act of 1887 and was subsequently applied under the Communications Act of 1934. Under the filed rate doctrine, all rates, terms and conditions in tariffs are considered lawful, with no deviation permitted even under legal claims such as fraud.] In cases where the filed rate doctrine is still invoked, state law claims challenging the validity of rates, terms and conditions of service in contracts for interstate telecommunications services are preempted as a matter of law. The scope of available state judicial remedies, under both general consumer protection statutes and the common law, to protect consumers of telecommunications services has been further narrowed by a recent decision of the U.S. Supreme Court in AT&T Mobility v. Concepcion (2011). The Court held that the savings clause in section 2 of the Federal Arbitration Act (FAA) preempts California’s statutory rule classifying most collective-arbitration waivers in consumer contracts as unconscionable. AT&T Mobility, a cellular common carrier, can thus enforce the provision of its consumer contract that requires binding arbitration yet also prohibits arbitration by classes of consumers. This paper explains that, in interpreting the FAA, the Court ignores coexistence of the industry-specific regime of common carriage at the time that the FAA was enacted in 1925 – where there were three mechanisms for consumer remedies (in the courts, through arbitration, or before federal or state commissions) including class actions. By failing to interpret the FAA in the legal context of when it was enacted, the Court fails to recognize both the uniqueness and the severity of the loss of consumers’ legal remedies against common carriers resulting from its decision. Moreover, the Court ignores the institutional context of the contractual relationship between telecommunications carriers and consumers. Consumer contracts are not only standard form contracts drafted by large commercial organizations, but also contracts of adhesion as terms are offered on a take it or leave it basis. Given enormous disparity in bargaining power between the parties, there is an accumulation of seller-protective terms even if the industry is highly competitive (Rakoff, 1983). The reality of the contracting relationship between large commercial entities and individuals is contrary to the assumptions underlying the implicit institutional dynamic of “a dyadic interaction, [where] contracts are assumed to be the product of bargaining and mutual assent” (Rakoff, 2006, p. 1237). The legal enforceability of seller-protective contract terms such as mandatory arbitration, and particularly the prohibition of class arbitrations, greatly advantages the telecommunications carriers as large corporate entities over individual consumers. By prohibiting class arbitrations, consumers are not permitted to aggregate their claims as a counterforce to the inherently greater economic power of telecommunications corporations over individuals. In this respect, AT&T Mobility v. Concepcion is similar to the ahistorical, non-contextual analysis of the U.S. Supreme Court in Citizens United v. FEC (2010), which held that corporations had the same constitutional rights for political speech as individuals. Moreover, as Citizens United v. FEC diminishes the federal government’s ability to protect consumers with regard to potential network neutrality principles (Cherry, 2011), so does AT&T Mobility v. Concepcion disable state governments’ ability to protect consumers of telecommunications services. References in Abstract: Cherry, Barbara A. (2011), “How Elevation of Corporate Free Speech Rights Affects Legality of Network Neutrality Obligations,” 63 Fed. Comm. L. J. 591. Cherry, Barbara A. (2010), “Consumer Sovereignty: New Boundaries for Telecommunications and Broadband Access,” 34 Telecommunications Policy 11. Rakoff, Todd (2006), “The Law and Sociology of Boilerplate,” 104 Mich. L. Rev. 125. Rakoff, Todd (1983), “Contracts of Adhesion: An Essay in Reconstruction,” 96 Harv. L. Rev. 1173. Biography: Barbara A. Cherry is Professor of Telecommunications at Indiana University. Her teaching and research interests integrate experience in industry, academia, and government in applying multidisciplinary analysis of telecommunications public policy issues. Prof. Cherry’s telecommunications policy experience includes: Senior Counsel in the Office of Strategic Planning & Policy Analysis, FCC; Associate Professor and Associate Director of the Quello Center for Telecommunication Management and Law, Michigan State University; Director of Public Policy Studies, Ameritech; and Regional Attorney for State Government Affairs, AT&T. Prof. Cherry received a B.S. in Economics summa cum laude from the University of Michigan, an M.A. in Economics and Law from Harvard University, while recipient of a National Science Foundation Fellowship in Economics, a J.D. from Harvard Law School, and a Ph.D. in Communication Studies from Northwestern University.