In ordering arbitration of a banking dispute, a federal court in North Carolina rejected the bank customer's argument that the arbitration agreement's class action waiver was unconscionable under Alabama law and therefore unenforceable. The Court rejected this argument because the bank agreed to pay arbitration costs in excess of $125 and there were no contractual limitations on the customer's recovery of damages.

In Stephens v. Wachovia Corp., No. Civ. 3:06CV246, 2008 WL 686214 (W.D.N.C. Mar. 7, 2008), Stephens, a banking customer of Wachovia, filed a class action suit against them, claiming statutory violations in regards to treatment of her Social Security retirement benefits.

Wachovia moved to compel arbitration pursuant to an arbitration agreement signed by Stephens. In opposing the motion, Stephens argued that the arbitration agreement's class waiver (i.e., a bar on class-wide proceedings) was unconscionable under Alabama law and should be severed from the arbitration agreement.

The Court upheld the waiver because Stephens failed to demonstrate that the class waiver was unconscionable. More specifically, Stephens failed to demonstrate procedural unconscionability because there was no evidence that she tried but failed to open an account at another bank without agreeing to arbitrate on similar terms. In other words, there may have been marketplace alternatives.

On the question of substantive unconscionability, the Court distinguished Leonard v. Terminix Int'l Co., 854 So.2d 529 (Ala. 2002) on two grounds. First, arbitration would not be cost-prohibitive in this case because Wachovia agreed to pay all arbitration fees except for the $125 filing fee. Second, unlike the arbitration agreement in Leonard, the agreement in this case did not limit Stephens' recovery of damages.

Stephens argued that class-wide proceedings were necessary because the underlying statute would not allow her to recover attorney fees incurred in proving the claim. In rejecting this argument, the Court pointed out that court proceedings, like arbitration, would require her to retain an attorney.