ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, August 30, 2008

Washington Supremes Hold that AT&T's Class Action Waiver is Unconscionable

Flag_sealTwo days ago, the Supreme Court of Washington upheld a decision that AT&T's class action waiver in the arbitration clause of its Consumer Services Agreement is unconscionable. Despite a clause choosing New York law, the court applied Washington law based on public policy. The substantive unconscionability analysis began:

This issue was largely, but not entirely, decided by Scott. Scott, 160 Wn.2d at 847. In Scott, we held that a class action waiver in an arbitration agreement was substantively unconscionable. Id. In so holding, we relied on several crucial facts. First, the individual claims at issue were very small (between $1 and around $45 per month), but the plaintiffs alleged that in the aggregate, Cingular had overcharged the public very large sums of money. Id. at 847-48. We found that without class action suits, the public’s ability to act as “private attorneys general,”as intended in the ConsumerProtection Act, was eviscerated. Id. at 854. We therefore concluded the class action waiver was unconscionably in violation of public policy. Id.

We also found the agreement substantively unconscionable because it effectively, if not explicitly, exculpated Cingular for potentially widespread misconduct. Id. at 855. We found that when wrongs are small but widespread, class actions are often the only effective way to address them. Id. We rejected Cingular’s argument that relief was practically available because it promised to pay the costs of individual arbitration and because attorney fees could be awarded to the prevailing party. Id. at 856. We cited the evidence that no attorney would be willing to undertake individual arbitration to recover the trivial amounts of moneyat stake in an individual claim. Id. We also noted that small claims court was not an effective remedy because the amounts at issue were too small to be worth the time and energy, let alone the nominal filing fee. Id. We were concerned that without class actions, many consumers might not even know they had a claim. Id. at 855.

As in Scott, the contractnow before usis a contract for consumer services, and the individual claims here are extremely small, under $2 per month. Without access to class-wide relief, competent counsel would not be
available to redress many meritorious claims. SeeCP at 566-69. The agreement allows for small claims court actions, but even the availability of small claims court or low-cost arbitration does not make it practicable for an individual to pursue such small amounts. See Scott, 160 Wn.2d at 855-56. Indeed, this agreement is less favorable to consumers than the one we struck down in Scott. Cingular’s agreement at issue in Scottprovided that Cingular would pay the attorney fees for aprevailing consumer. Id. at 856. Here, not only does AT&T not pay the consumer’s attorney fees, the agreement prohibits the arbitrator from awarding them unless specifically provided for in a statute. Because the class action waiver in this case is not meaningfully
different from the one we held substantively unconscionable in Scott, we hold that the class action waiver in the AT&T agreement before us is unconscionable.

McKee v. AT&T Corp. (Wash. Aug. 28, 2008).

[Meredith R. Miller]

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