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Monday, April 9, 2012

If You Think Class Action Waivers Are Unconscionable, You Have No Concepcion of the State of the Law

In Coneff v. AT&T Corp., AT&T Wireless customers brought a class action suit against AT&T Wireless, Cingular Wireless LLC (“Cingular”) and related companies.   As recounted in the District Court opinion (what is this new trend in the Circuit Courts to provide no recitation of the facts of the case?!?), plaintiffs alleged that, after Cingular bought out AT&T, the company deliberately degraded AT&T Wireless’s network in order to induce AT&T Wireless customers to transfer their plans to the more expensive and less favorable Cingular plans.  Customers who refused to agree to the “upgrade” had to either complete their contract term with a degraded AT&T Wireless service or pay a $175 termination fee to cancel service. 

9th CircuitPlaintiffs asserted claims under the Consumer Protection Acts of 14 different states, the Federal Communications Act, unjust enrichment and breach of contract.  Plaintiffs also sought a declaratory judgment that an arbitration provision contained in their contracts, which included a class-action waiver, was unconscionable and therefore unenforceable.  In response, AT&T filed a motion to compel arbitration, which the District Court denied, finding the class action waiver was substantively unconscionable and therefore unenforceable.  Because the arbitration provision stated that it would be unenforceable in its entirety if the class-action waiver were struck, the District Court invalidated the entire arbitration agreement.   AT&T then appealed to the United States Court of Appeals for the Ninth Circuit. 

At the time the District Court denied AT&T’s Motion to Compel arbitration, the Ninth Circuit had held that the Federal Arbitration Act (“FAA”) did not preempt state unconscionability law pertaining to class-action waivers in arbitration clauses.  However, the Supreme Court reversed that holding in AT&T Mobility LLC v. Concepcion (about which we’ve blogged before), holding that the FAA preempts state, in that case, California’s, rules banning class-action waivers. 

Plaintiffs unsuccessfully attempted to distinguish Concepcion in four ways. 

  1. Concepcion rejected the argument that the cost of arbitration could preclude a litigant from effectively vindicating federal statutory rights in the arbitral forum, and given the various fee-shifting and pro-consumer provisions in the arbitration agreement, this case was not distinguishable from Concepcion in that regard.
  2. The Court rejected plaintiffs’ claim that the Washington’s rule that some class action waivers are unconscionable is distinguishable from the California class-action waiver rule at issue in Concepcion
  3. Plaintiffs attempted to argue that Washington’s class action waiver rule narrowly targeted such waivers that would make it economically absurd for plaintiffs to bring tiny claims via arbitration But, Concepcion specifically forecloses this argument, since it rejected the dissent’s position that “class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system.”  The Ninth Circuit followed the Eleventh Circuit’s approach in Cruz v. Cingular Wireless, LLC (about which we blogged here) which concluded that the argument “goes only to substantiating the very public policy arguments that were expressly rejected by the Court in Concepcion—namely, that the class action waiver will be exculpatory, because most of these small-value claims will go undetected and unprosecuted.” 
  4. The Ninth Circuit also rejected Plaintiffs’ to distinguish Washington’s law on the ground that it would invalidate not only the class action waiver but the entire arbitration agreement observing that “by invalidating arbitration agreements for lacking class action provisions, a court would be doing precisely what the FAA and Concepcion prohibit—leveraging ‘the uniqueness of an agreement to arbitrate’ to achieve a result that the state legislature cannot.”

Some hope remains for Plaintiffs.   The Ninth Circuit remanded the case to the District Court to apply Washington’s choice-of-law rule to Plaintiffs’ claim of procedural unconscionability.  If, under some state  laws, a showing of procedural unconscionability would result in success for those plaintiffs, the District Court must complete a conflict-of-laws analysis and decide which Plaintiffs, if any, may benefit.

[JT & Chrissy Phillips]

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