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While the majority of courts still rule to the contrary, the Ohio Court of Appeals has held that a class action waiver in a cellular phone contract runs afoul of the state’s public policy regarding consumer protection and is thus substantively unconscionable.
In Schwartz v. Alltel Corporation, No. 86810, 2006 WL 2243649 (Ohio App. 8 Dist., June 29, 2006), Schwartz, a cellular phone consumer, purchased a service contract with Alltel. The agreement included an arbitration clause in small, gray font on the back of the page. When Alltel increased their monthly rates and roaming charges in contradiction to the terms of the contract, Schwartz filed suit and further charged that the agreement was both substantively and procedurally unconscionable. The trial court agreed with Schwartz and invalidated the entire agreement. The Court of Appeals affirmed.
With regards to substantive unconscionability, the court looked to “commercial reasonableness” of the agreement, as well as industry standards and general fairness. Accordingly, the Ohio Court of Appeals held that Alltel’s class waiver provision “prevents the cost effective use of class action litigation that can end abusive practices by large corporations in those instances in which individual claims are ineffective.”
Since a “quantum of both substantive and procedural unconscionability” is necessary to invalidate an arbitration clause, the Court next looked at the procedural aspects of the Alltel contract. See Small v. HCF of Perrysburg, Inc., 823 N.E.2d 19 (Ohio App. 2004). Noting the inherent disparity in bargaining power of Schwartz and Alltel, in addition to the take-it-or-leave-it nature of the agreement, the Court also found that the contract was procedurally unconscionable.
Finally, the Court ignored a severability provision that could have saved the remainder of the arbitration agreement. Citing Scoville v. WSYX/ABC, 425 F.3d 1012 (6th Cir. 2005), the Court refused to sever the offending terms, concluding that the cumulative effect of multiple unenforceable provisions “tainted” the overall agreement.
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