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A California Court of Appeal found class waiver language unconscionable under the Discover Bank standard—reasoning that the claim sizes were small enough that consumers would be precluded from bringing individual arbitration claims—even though each plaintiff’s damages potentially exceeded $1000.
In Cohen v. DirecTV, Inc., No. B184630, 2006 WL 2664199 (Cal. App. 2 Dist. Sept. 18, 2006), a California Court of Appeal refused to compel arbitration of a subscriber’s claims against DirecTV, his satellite television provider. DirecTV requested arbitration after Cohen sued on behalf of a putative class, alleging that DirecTV violated California law by broadcasting a poorer quality signal than advertised.
Both procedural and substantive unconscionability are required for a court to invalidate an arbitration agreement under California law. The Court found DirecTV’s arbitration agreement procedurally unconscionable because the company had amended the agreement with a “bill stuffer” adding class waiver language. While parties need not renegotiate or sign each step of an evolving agreement, California courts had previously acknowledged an “element of procedural unconscionability” when consumer agreements are modified using “bill stuffers.” Discover Bank v. Superior Court, 113 P.3d 1100, 1108 (Cal. 2005), citing Szetela v. Discover Bank, 118 Cal. Reptr.2d 862 (Cal.App. 4 Dist. 2002).
Next, relying largely on a comparison with the facts of Discover Bank, the Court determined that DirecTV’s agreement was also substantively unconscionable. The court in Discover Bank concluded that the class waiver language prevented consumers who had lost “individually small sums of money” from pursuing legal remedies. As a result, in California, class waivers contained in consumer contracts of adhesion become substantively unconscionable when they preclude certain types of small claims that individual litigants are unlikely to pursue in individual adjudication.
Yet, Discover Bank clearly stated that not all class action waivers are unconscionable, and other class waivers with characteristics similar to the DirecTV waiver have been upheld in opinions issued subsequent to Discover Bank. For example, Provencher v. Dell, Inc., 409 F.Supp.2d 1196 (C.D. Cal., Jan. 3, 2006) found no evidence of substantive unconscionability where a consumer purchased a computer for $1,600 and had the option of rejecting the arbitration clause by returning the computer within 30 days. The Provencher court found that a $1,600 investment was sufficient to encourage individual consumers to pursue their claims.
When class action waivers are “clearly meant to prevent customers…from seeking redress for relatively small amounts of money,” Discover Bank may require a finding of substantive unconscionability. However, Provencher and Cohen illustrate that California courts have not yet agreed as to at what point monetary damages amounts rise above the “relatively small amounts” cited by Discover Bank.
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