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A federal district court in Oregon upheld a bar on class-wide proceedings but severed an arbitration rule that would have prevented the arbitrator from awarding attorney fees to the claimant.
In Chalk v. T-Mobile USA, Inc., No. 06-CV-158-BR, 2006 WL 2599506 (D. Or. Sep. 7, 2006), Chalk bought a wireless internet plan and card from T-Mobile. The service agreement provided for arbitration under the American Arbitration Association’s Wireless Industry Arbitration Rules (AAA’s Wireless Rules). The arbitration clause barred class-wide proceedings.
When Chalk could not get the wireless internet card to fit in her laptop, she commenced a putative class action against T-Mobile, alleging a violation of Oregon’s Unlawful Trade Practices Act (UTPA). T-Mobile moved to compel arbitration pursuant to the service agreement.
In opposing the motion, Chalk argued that the bar on class-wide proceedings rendered the arbitration agreement unconscionable and therefore unenforceable. Relying on Horenstein v. Mortgage Market, Inc., 9 Fed. Appx. 618 (9th Cir. 2001), the Court rejected this argument and upheld the bar on class-wide proceedings.
Chalk also argued that the costs of arbitration would be prohibitively expensive and preclude her from vindicating her statutory rights. The Court rejected this argument because Chalk did not present any evidence to support her cost estimates.
The Court did find merit in Chalk’s argument that the arbitration agreement was unconscionable because it would prevent the arbitrator from awarding her attorney fees pursuant to the UTPA. Specifically, Rule 48 of AAA’s Wireless Rules provides, without qualification, that “[e]ach party shall bear the expense of its own counsel.” Instead of invalidating the arbitration agreement, the Court severed those provisions that would prevent the arbitrator from awarding attorney fees to Chalk.
In this case, the severability clause saved the arbitration agreement. However, given the prevalence of fee-shifting provisions in consumer protection statutes, parties should be wary of adopting rules that prevent an arbitrator from awarding attorney fees even where the law allows or requires fee shifting. Rule 37C of the National Arbitration Forum Code of Procedure authorizes an arbitrator to award attorney fees “only as permitted by law.”
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