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Top Court Hears Dispute Over Sales Tax on 'Free' Phone

The Supreme Court seemed wary about a business-backed challenge that could make it almost impossible for consumers to band together to make claims against their cell phone carriers, cable providers and credit card companies.

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The court heard argument Tuesday in a dispute between wireless provider AT&T Mobility and a California couple who objected to being charged around $30 in sales tax for what they were told was a free cell phone.

Like many such contracts, the fine print of the agreement between AT&T and Liza and Vincent Concepcion calls for all disputes to be settled by arbitration and prohibits customers from joining forces in a class-action. The federal appeals court in San Francisco said that ban is unenforceable under California law.

The case is important because if the court rules for AT&T, it could greatly restrict the use of class actions, in which a party represents a much larger group, in disputes over contracts. AT&T is backed by an array of business interests, while consumer groups and the NAACP Legal Defense and Educational Fund are among supporters of the Concepcions.

Business interests generally oppose class actions because they are costly to litigate and can result in massive payouts.

Andrew Pincus, AT&T's lawyer, said companies prefer arbitration with individuals. But he said they dislike arbitration with multiple parties because they can't be appealed and afford less protections than federal courts.

Deepak Gupta, representing the Concepcions, told the justices that a decision in AT&T's favor, would "gut the state's consumer protection laws."

Although the high court has issued several business-friendly arbitration rulings in recent years, the justices appeared less ready to embrace AT&T's position Tuesday. "Are we going to tell the state of California what is has" to do in this situation, Justice Antonin Scalia asked.

Chief Justice John Roberts and Justice Samuel Alito appeared most ready to accept AT&T's claim that the main federal law encouraging the use of arbitration as a faster and less expensive way to settle disputes trumps California law.

On the other hand, Roberts recently acknowledged his own frustration with the fine print that is a part of many user agreements, contracts and, in his example, medication packages.

"You open the thing and a folder falls out," he told an audience at Canisius College in Buffalo, N.Y., in October. "The smallest type you can imagine and you unfold it like a map."

Roberts continued, "It is a problem because the legal system obviously is to blame for that."

A decision should come before summer.