Consumer class actions largely could be a thing of the past in New England and across the country as a result of a U.S. Supreme Court ruling that gives companies broad authority to compel consumers to arbitrate their disputes individually.

In the highly anticipated AT&T Mobility v. Concepcion, the court found state laws requiring that classwide consumer arbitration proceedings be available are preempted by the Federal Arbitration Act.

W. Scott O’Connell of Boston, chairman of Nixon Peabody’s class action defense department, calls the ruling “extremely significant” and predicts it will lead to a wave of corporation-friendly consumer contracts drafted with the court’s holding in mind.

“It had been unsettled as to whether or not parties could, by contract, get out of class treatment in an arbitration, and now it is pretty clear they can,” he said. “This case means consumer-facing companies can come up with their own standards for arbitration that will not subject them to class treatment, so that is huge.”

O’Connell said consumer class actions have been the single largest growth area for his practice and many other practitioners who handle high-exposure matters.

“This is one significant tool to beat that back,” he said. “It really limits the times when a class action vehicle is appropriate.”

Andre M. Mura of the Center for Constitutional Litigation, who authored an amicus brief in AT&T, said the ruling will make it nearly impossible for consumers bilked out of small monetary amounts — adding up to a collective fortune for companies — to seek redress in court.

“It clearly spells the end of consumer class actions in the sense that corporations won’t want to have them, and the opinion essentially gives them a roadmap of how to avoid [them],” he said.

‘Total loss for consumers and employees’

Given the ubiquity of arbitration clauses in contracts covering a multitude of situations, from cell phone plans to nursing home admissions to employment contracts, critics of the ruling are mourning the loss of what they say is a vital tool for protecting consumers’ and workers’ rights.

“This decision is really a total loss for consumers and employees,” said Julia Duncan, associate director and counsel for federal relations at the trial lawyer industry group American Association for Justice. “The decision essentially says a corporation can avoid accountability by putting forced arbitration clauses into all their take-it-or-leave-it contracts, and that consumers have very little, if any, recourse against the companies.”

As for the majority’s reasoning that the FAA intends for parties to choose the terms of arbitration agreements, Duncan said mandatory arbitration clauses in consumer contracts are not the result of a bargain struck between parties.

“These contracts are presented to consumers with no opportunity to negotiate them,” Duncan said. “Companies retain the right to unilaterally change the terms of the contract at any time. [They] change the terms all the time.”

Patricia A. Sullivan, co-chair of Edwards, Angell, Palmer & Dodge’s antitrust practice group in Providence, R.I., said the ruling will likely dissuade lawyers from taking on plaintiffs’ cases, given that they will be required to litigate them on an individual, as opposed to class, basis.

Sullivan said it will be virtually impossible for any one plaintiff, whose damages may not be significant, to afford the cost of discovery.

“These cases will simply not be brought anymore,” she said. “If a large company perpetrates a fraud that imposes an injury of $10 on 10 million people, figuring out that the $10 is in fact a fraud is something that will simply cost too much money.”

Sullivan said many courts in recent years have moved away from enforcing clauses that strike down class action arbitration waivers.

But to the extent there was uncertainty over whether AT&T would change that trend, the court has clearly held the FAA preempts state law.

“This would seem to signal the end for any state law that bans class action waivers,” she said. “This is a couple more nails in a coffin that was already pretty nicely nailed together.”

Unconscionability test

The case involved a group of consumers, including plaintiffs Vincent and Liza Concepcion, who alleged that they received an offer for a free phone if they signed up for wireless service. The offer turned out to be fraudulent, they claimed, because the company charged sales tax on the retail value of the phone.

The consumer contract accompanying the phone service included a mandatory arbitration clause barring class proceedings.

AT&T sought to force the plaintiffs to arbitrate under that provision.

But a U.S. District Court judge and the 9th U.S. Circuit Court of Appeals, citing a state court ruling that such class action waivers are unconscionable, refused to compel arbitration.

A divided Supreme Court reversed, holding that the FAA preempts such state rules. Justice Antonin Scalia, writing for a five-justice majority, said the purpose of the act was to promote arbitration as an efficient and expedient dispute resolution tool.

“The overarching purpose of the FAA … is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings,” Scalia wrote. “Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”

Allowing the parties to decide the terms of their agreement advances the act’s purpose, Scalia said, and state requirements such as California’s rule interfere with that purpose.

“The point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute,” Scalia said.

In a dissent joined by three other justices, Justice Stephen Breyer disagreed strongly with Scalia’s analysis and statutory interpretation.

“[The] Act says that an arbitration agreement ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,’” Breyer said. “In my view, this rule of [California] state law is consistent with the federal Act’s language and primary objective. It does not ‘stan[d] as an obstacle’ to the Act’s ‘accomplishment and execution.’”

Just hours after the court handed down its ruling, lawmakers vowed to reintroduce legislation that would revive consumer class actions.

The Arbitration Fairness Act, which has been filed in previous sessions of Congress but failed to make it out of committee, would prohibit mandatory binding arbitration clauses in employment, consumer and civil rights cases, while allowing consumers to elect to participate in post-dispute arbitration.

AT&T “is another example of the Supreme Court favoring corporations over consumers,” Sen. Al Franken, D-Minn., said a statement.

Franken will sponsor the bill on the Senate side, with Rep. Hank, Johnson, D-Ga., again sponsoring the House bill.

“The Arbitration Fairness Act would help rectify the Court’s most recent wrong by restoring consumer rights. Consumers play an important role in holding corporations accountable, and this legislation will ensure that consumers … nationwide can continue to play this crucial role,” Franken’s statement continued.

Duncan said congressional action is consumers’ “only recourse.”

“The decision is very clear that [even] where states have a policy against certain practices, in this case California state law, you can ban class actions,” Duncan said. “The only solution is for Congress to state that that is not the intent of the Federal Arbitration Act.”

Lawyers Weekly reporter David E. Frank contributed to this story.