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Careful what you ask for dept.: AT&T won a decisive victory in April when the U.S. Supreme Court ruled in AT&T vs. Concepcion that its arbitration contracts -- those agreements you increasingly have to sign or click through when you buy a product or service -- can prevent consumer lawsuits. But some enterprising lawyers have figured out how to turn these seemingly bulletproof agreements into an irritating new form of mass litigation.
After AT&T announced a $39 billion takeover of T-Mobile, lawyers at Bursor & Fisher launched a "Fight the Merger" campaign, ostensibly to block the merger because it would raise prices. Most of these cases are shakedowns where the lawyers who so passionately defend the consumer quickly negotiate a settlement when the corporate target agrees to pay them a fee.
Bursor & Fisher partner Scott Bursor says he isn't one of those. His five-member firm has actually taken cases to trial, and won a $299 million jury verdict against Sprint in a California in 2008 (it's still on appeal). And his campaign attracted more than 1,000 people who agreed to file arbitration complaints against AT&T seeking to block the merger. So far the American Arbitration Association, the entity AT&T selected to hear all such cases, has rejected the phone company's request to have the claims dismissed.
AT&T has returned fire, suing the customers in eight different federal districts and accusing the Bursor and Fisher of engineering a brazen scheme to hold up the T-Mobile merger until they get a fee. Instead of filing a class action -- prohibited under the arbitration agreements and AT&T vs. Concepcion -- AT&T says Bursor & Fisher have created its virtual equivalent with the aim of finding at least one arbitrator who is willing to rule in their favor. At least six of the plaintiffs are also lawyers at Faruqi & Faruqi, a New York firm that frequently issues press releases announcing it is "investigating" mergers for a potential lawsuit soon after they are announced.
Although the claim is meritless, the Bursor and Faruqi firms are hoping that thousands of "bites at the same apple" will turn up just one arbitrator willing to entertain it -- and that AT&T Mobile will hedge against that risk by entering into an extortionate settlement.
If that sounds a little hot and bothered, perhaps that's because AT&T is in a jam of its own making here. The AT&T agreement was designed to suck virtually any type of consumer litigation into arbitration and Bursor said he's merely taking advantage of those terms. The agreement ostensibly covers "any aspect of the relationship between us" and Bursor says that includes claims the pending merger will result in higher prices for cellular service.
"If you don’t want to have 1,000 individual arbitrations seeking to enjoin a $39 billion merger, don't write such a sweeping contract," he said. "Once you commit to that you're stuck with it. And now AT&T needs to take its medicine."
Bursor clearly relishes taking on AT&T on these terms. Like most plaintiff lawyers, he mocks the idea that arbitration works for individual consumers, because the filing and legal costs are too high for any lawyer to consider taking on a case where the stakes may be less than $100. Aggregated into a class action, such a case is interesting to a lawyer; on their own, they're a distraction.
But in this case -- sorry, arbitration -- Bursor is demanding that each one proceed as an individual arbitration. I asked him if this was sour grapes because he couldn't follow his usual pattern and file a class action.
"It's not sour grapes, these grapes are delicious," he said. One reason: The arbitration agreement also provides for AT&T to pay filing costs at the outset of an arbitration, Bursor says. Those are $125 for a typical consumer claim but $3,300 when the claim is for injunctive relief. He says AT&T owes him $3 million already, before a single arbitrator hears a case.
In its lawsuits, AT&T accuses Bursor & Fisher of misleading potential claimants by suggesting they can win $10,000 if anybody prevails. (Under a heading "The $10,000 Payment," the firm says customers can win that much "under certain circumstances.")
AT&T also accuses Bursor of recruiting "a familiar cast of characters as the figurehead plaintiffs." Thirteen of the 26 claimants are either Faruqi attorneys or people who have served as plaintiffs in previous Bursor and Faruqi cases. Plaintiff Richard Colosimo, for example, is identified as a former Faruqi attorney who served as a plaintiff in a 2010 class action against AT&T, while Faruqi represented two other plaintiffs in a labor lawsuit against a health club.
Bursor doesn't deny any of it.
The fact that "a handful" of the 1,100 plaintiffs are lawyers "reflects the fact that lawyers are very able to recognize when a merger like this violates the antitrust laws," he said. "They're best able to understand their rights under arbitration agreement."
Even Bursor, who claims to know more about this particular backwater of the law than anybody, couldn't answer whether a federal judge or the Justice Department can step in to derail his class-action-in-disguise. But the U.S. Supreme Court has previously allowed antitrust complaints to proceed under arbitration (Mitsubishi v. Soler Chrysler-Plymouth; I'd be interested if anybody out there feels this only applies to cases with an international complexion). And it offered a full-throated defense of the Federal Arbitration Act in AT&T v. Concepcion as the expression of Congressional support for arbitration as a more efficient way to resolve business disputes
"Arbitration is considered sacrosanct," Bursor said. "So now we’re arbitrating and AT&T is saying 'Make it stop.'"
AT&T, for the record, says this:
This merger will provide tremendous benefits for customers and unleash billions of dollars in badly needed investment, creating many thousands of well-paying jobs that are vitally needed given our weakened economy -- a fact that's been recognized by consumers, public officials and groups of all types. However, the bottom line here is an arbitrator has no authority to block the merger or affect the merger process in any way. AT&T's arbitration agreement with our customers - recently upheld by the Supreme Court - allows individual relief for individual claims. Bursor & Fisher is seeking class-wide relief wrapped in the guise of individual arbitration proceedings, which is specifically prohibited by AT&T's arbitration agreement. Accordingly, the claims are completely without merit. We have filed suit in order to stop this abusive action.
