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Tuesday, March 2, 2010

District Court in West Virginia Enforces Class Action Waiver in Arbitration Clause

At the Contracts Conference at UNLV, there was an exceedingly impressive panel on arbitration.  During the Q&A, Professor Victor Goldberg (Columbia) commented that he was surprised that none of the presenters mentioned the class action waiver.  After all, aren’t many companies using arbitration to avoid class actions?  And, if class action waivers are not enforceable, will they stop opting for pre-dispute arbitration clauses in their contracts? 

I tend to agree that the nub of the whole pre-dispute (“mandatory”) arbitration regime is the class action.  Some courts have specifically invalidated these class action waivers as unconscionable, some courts have generally invalidated the entire arbitration clause as unconscionable based on the class action waiver, and some courts have upheld both the waiver and the arbitration clause more generally.  Recently, in Wince v. Easterbrooke Cellular, the Federal District Court in West Virginia fell into the last camp, concluding that the arbitration clause used by AT&T Mobility (“ATTM”) is valid and enforceable even though it contains a class action waiver.  

The court held that the waiver was not unfair because it was written in a way that did not financially disincetivize plaintiffs from bringing smaller, individual claims.  The court reasoned:

Here, however, each putative class member has incentive to bring his or her claim, regardless of whether classified as “high” or “small” dollar.  This incentive is provided by several provisions of the ATTM arbitration clause.  First, with limited exceptions, ATTM has committed to pay all of the costs of arbitration whether a customer wins or loses.  Second, if a customer prevails in arbitration, he or she may obtain the same remedies-including compensatory, punitive, and statutory damages; injunctive and declaratory relief; and attorneys' fees-that are available in court.  Finally, if the arbitrator awards the customer an amount greater than ATTM's last settlement offer, ATTM must pay him $10,000.00, plus double attorneys' fees.

ATTM certainly figured out how to build the better class action waiver – in the drafting stages, taking aim at some of the policy critiques of the waivers.  It will be interesting to see whether the same clause will hold up in other jurisdictions.

Wince v. Easterbrooke Cellular Corp., --- F.Supp.2d ----, 2010 WL 392975 (N.D.W.Va. Feb 02, 2010) (NO. CIV.A. 2:09-CV-135).

[Meredith R. Miller]

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