Tuesday, October 10, 2006

Illinois Supreme Court Strikes Class-Action Waiver from Arbitration Agreement

Cingular_logo In this consumer arbitration case, a consumer sought to challenge Cingular’s imposition of a $150 early-termination fee.  The service contract, however, required the consumer to pay a $125 arbitration fee to resolve any disputes.  When the consumer filed a class action suit challenging the fees, Cingular moved to compel arbitration of the consumer’s individual claims, pointing to a class-action waiver in the service contract.  Cingular also offered to waive the consumer’s individual arbitration fee.

The consumer opposed arbitration, arguing the class-action waiver was unconscionable.  The Illinois Supreme Court agreed.  This arbitration agreement was procedurally unconscionable because it did not put the consumer on notice of the arbitration fee – the agreement merely stated that fee information was available “upon request,” and even this was buried “in fine print near the bottom of an 8 by 14 inch page that was filled, from margin to margin, with text.”  The arbitration agreement was substantively unconscionable because the cost of pursuing a claim would have approximated the amount of recovery, thus leaving the consumer with no effective remedy in any forum.  The court rejected Cingular’s argument that it had offered to waive the individual consumer’s arbitration fee, holding that  analysis of whether the arbitration fee was unconscionable should focus on the arbitration agreement as-written, not on an after-the-fact effort to improve the company’s litigation posture.  The court held that the arbitration agreement should be enforced without the class action waiver.

The court emphasized, however, that it was not ruling that class action waivers were per se unconscionable; instead, the court ruled, such waivers should be considered on a case-by-case basis.  Bizarrely, the court cited an article by Jean Sternlight and Elizabeth Jensen for the proposition that “consumers may benefit from reduced costs if companies are allowed to [limit their exposure to class arbitration or litigation]”.  Somehow, the court missed the article’s conclusion that

[t]hese prohibitions are detrimental not only to potential class members but also to the public at large in that they are preventing the law from being adequately enforced . . . .  Thus, as a matter of fairness, efficiency, and justice, Congress should prevent companies from exempting themselves from class action liability.

Like any good academics, Sternlight and Jansen considered -- and rejected -- counter-arguments to their thesis, but the court disingenuously cited only to the counterarguments themselves.

The Illinois case is Kinkel v. Cingular Wireless LLC, ___ N.E.2d ___, 2006 WL 2828664 (Ill. 10/5/06).  The article is Jean R. Sternlight and Elizabeth J. Jensen, Using Arbitration to Eliminate Consumer Class Actions: Efficient Business Practice or Unconscionable Abuse?, 67 Law & Contemp. Problems 75 (2005).

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