NJ Appellate Court Finds Verizon's Arbitration Provision Unconscionable

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In February, 2022, twenty-eight New Jersey Verizon Wireless customers filed a putative class action against the company, claiming that Verizon's failure to disclose a $1.95 monthly administrative fee violated New Jersey's Consumer Fraud Act and other statutes.  Verizon moved to compel arbitration.  

Verizon's arbitration clause gave customers 180 days to file a claim, limited all claims to direct damages, and prohibited treble damages. In addition, the arbitration provisions prohibited class claims.  Rather, they provided for coordinated "bellwether" proceedings.

If twenty-five or more claimants made "similar claims," the claims would proceed in groups of five until all claims are resolved. Claimants are prohibited from initiating arbitrations of their individual claims until the bellwether proceedings are completed.

Verizon is not hiding the ball; the target of this provision is mass arbitration: "A COURT WILL HAVE AUTHORITY TO ENFORCE THIS CLAUSE, AND IF NECESSARY, TO ENJOIN MASS FILING OF ARBITRATION DEMANDS AGAINST VERIZON." Noting that the average arbitration takes about seven months, plaintiffs' attorneys calculated that, with over 2500 claims already brought, the wait for arbitration of new claims was then 145 years.  

Verizon's contract provides that its arbitration provisions are, for the most part, severable. It also warns customers not to rely on representations of sales or customer service representatives. Again, not hiding the ball: Verizon will exploit the parol evidence rule to evade responsibility for its agents' misrepresentations.The trial court struck the limitation on damages but, noting the severability provision, otherwise granted Verizon's motion to compel arbitration. 

In Achey v. Cellco Partnership, a New Jersey appellate court affirmed the trial court's determination on limitation of damages but also struck Verizon's arbitration clause in its entirety because it was permeated with unconscionability.  In so doing, the court followed a decision from the District Court for the Northern District of California in McClelland v. Cellco P'ship, in which the court identified five unconscionable elements in Verizon's arbitration provisions.

The New Jersey court specifically found Verizon's bellwether provision unconscionable, because it allows Verizon to exercise unlimited discretion as to how the arbitrations can proceed. The court also noted the 180-day, contractually-imposed statute of limitations and the absence of tolling provision in the bellwether process. These features allowed Verizon to argue that all claimants not invited to participate in the very first bellwether proceeding had failed to timely bring their claims.  In addition, the invocation of the parol evidence rule is inconsistent with New Jersey's consumer protection laws.  Finally, the court found that the 180 day limitation on claims was, at least to some degree, substantive unconscionable and violative of New Jersey's public policy in the context of consumer contracting.

Ultimately, the court found that Verizon's arbitration provisions are cumulatively unconscionable and unenforceable for lack of mutual assent. The case is remanded to the trial court for further proceedings.

Thanks, New Jersey.  Take us out, Bruce.