Could Choice of Law and Procedural Unconscionability Provide A Lifeboat For Class Action Plaintiffs After AT&T Mobility v. Concepcion?
Our latest arbitration case out of the Ninth Circuit contains an interesting twist on the analysis of collective-arbitration waivers in consumer contracts. Coneff, et al. v. AT&T Corp., et al., No. No. 09-35563 (9th Cir. March 16, 2012) (Opinion by Judge Graber) (for publication). First, some background.
After the ruling of the United States Supreme Court in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), potential class-action plaintiffs in consumer disputes find themselves aboard the Titanic, in search of a lifeboat. In Concepcion, the Supreme Court considered California’s judge-made rule classifying “most collective-arbitration waivers in consumer contracts as unconscionable,” and held that the Federal Arbitration Act, requiring that arbitration agreements be treated no differently than other contracts, preempts the California rule. Id. at 1746,1753. Because Concepcion is broadly written, it has greatly impacted consumer class actions.
Somewhat lost in the wake of Concepcion (to continue our Titanic metaphor), is the sheer ingenuity of the anonymous attorney who drafted the arbitration clause at issue in that case. Yes, there is a class action waiver. As to the arbitration procedure itself, however, customers can initiate dispute proceedings with a one page Notice form available on AT&T’s Website. If AT&T doesn’t voluntarily settle, the customer may invoke arbitration by filing an arbitration demand, also available on the Web site. AT&T must pay all costs for nonfrivolous claims, and the arbitration takes place in the county where the customer is billed. The arbitration, at the customer’s election, may be in person, by telephone, or based only on submissions. Either party may bring a claim in small claims court in lieu of arbitration. The arbitrator may award any form of relief. AT& T can’t seek reimbursement of its attorney’s fees. And – get this – if the customer receives an award greater than AT&T’s last written settlement offer, AT&T must pay a $7,500 minimum recovery and twice the amount of the claimant's attorney's fees.
Heck, with an arbitration clause like that, I’d like to arbitrate against AT&T. Only, they’re not my carrier. And like many consumers, I wouldn’t want to wait on hold, or go through the tsuris of filing an arbitration demand to recover $32. Obviously, AT&T was willing to go to great creative length in drafting its arbitration provision to scuttle consumer class actions.
Under California law set forth in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), such an arbitration clause was substantively unconscionable (meaning unduly harsh or one-sided), because bilateral arbitration does not provide the same deterrent effect in the consumer context as does a class action. But as we know, a majority of the United States Supreme Court in Concepcion rejected that view, holding that the Supremacy Clause and the Federal Arbitration Act preempted the collective-arbitration waiver.
The minority in Concepcion recognized that such a clause will often be exculpatory, because few people will pursue small consumer claims to a successful conclusion. In other words, the game’s not worth the candle. Other federal judges also recognize the crushing effect of Concepcion on consumer class actions, and the likelihood that small claims will not be pursued by individual consumers, but recognize too that Concepcion is now the law.
This is all by way of a set-up to the latest twist, Coneff v. AT&T Corp., et al.
In Coneff, Plaintiffs, parties to an arbitration agreement with a class action waiver, sued AT&T in federal court. AT&T moved to compel arbitration. Plaintiffs opposed on grounds of both substantive (harsh, one-sided) and procedural (surprise, arbitrary) unconscionability. The district court judge, ruling pre-Concepcion, and applying Washington state law, denied AT&T’s motion, finding the waiver substantively unconscionable.
Here’s the twist. Because the district court judge concluded that substantive unconscionability alone is enough to void a contract under Washington law, he did not rule on the alternative ground of procedural unconscionability. Whether the elements of unconscionability include one or two prongs depends on state law – and thus may vary according to the laws of the fifty states.
The Ninth Circuit in Coneff concluded that Concepcion turned on the issue of substantive unconscionability – and therefore, that it was not binding authority on the issue of procedural unconscionability. From there, you can chart the outcome of Coneff.
The Ninth Circuit reversed as to the district court’s substantive unconscionability ruling and remanded for further proceedings related to Plaintiffs’ procedural unconscionability claims. Because the Plaintiffs come from eight different states, the district court will now need to examine the law of procedural unconscionability in each of those states. And maybe, just maybe, the arbitration provision will fail as procedurally unconscionable under the law of a state, in which the procedural element of unconscionability is enough to void the contract.
Where does the case go from here? If the arbitration clause is void under the law of another state, then theoretically a class action might be brought by at least some consumers under the laws of that state. If the consumers were to prevail on that claim, the case could wend its way to the United States Supreme Court for a re-examination of the application of the Supremacy Clause and Federal Arbitration Act preemption. Déjà vu all over again.
The approach in Coneff won’t help if California state law is applied, because in California, unconscionability has two legs to stand on: to be successfully attacked on grounds of unconscionability, the contract must be both procedurally and substantively unconscionable. So you can knock out one leg of unconscionability in California, and the collective arbitration waiver is still left standing. The Coneff analysis might possibly work to void a collective arbitration waiver, but only where state law gives unconscionability one leg to stand on, and one can break the leg of “procedural unconscionability”. Would the United States Supreme Court then set the fracture?
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