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The Illinois Supreme Court held that a general bar on class-wide proceedings was unconscionable and therefore unenforceable. The Court carefully limited the reach of its holding and said that it would uphold a bar on class-wide proceedings if the party drafting the agreement gave the other party a “meaningful opportunity” to opt out or if the plaintiff had a cost-effective arbitration remedy available.
In Kinkel v. Cingular Wireless LLC, No. 100925, 2006 WL 2828664 (Ill. Oct. 5, 2006), Kinkel brought a class action alleging that Cingular wrongfully imposed a $150 fee for early termination of a two-year agreement for wireless phone service.
Cingular moved to compel arbitration pursuant to the service agreement, which contained an arbitration clause barring class-wide proceedings. In support of its motion, Cingular argued that the court should rule based on a revised arbitration clause even though Kinkel terminated her service agreement prior to any revisions. The revised arbitration clause required Cingular to pay both the costs of arbitration and the attorney fees of a prevailing claimant.
The trial court denied the motion to compel arbitration. On appeal, the Illinois Court of Appeals held that the bar on class-wide proceedings was unconscionable and therefore unenforceable. The Illinois Supreme Court (the Court) granted Cingular’s petition for leave to appeal that decision.
The Court first addressed Cingular’s argument that the Court should focus its inquiry on the revised arbitration clause. In rejecting that argument, the Court cited two reasons for focusing on the original arbitration clause. First, the Court found that “a defendant’s after-the-fact offer to pay the costs of arbitration should not be allowed to preclude consideration of whether the original arbitration agreement is unconscionable.” Second, the Court found that Cingular had no right to modify a service agreement that had already been terminated.
With its focus on the original arbitration clause, the Court held that the bar on class-wide proceedings was unconscionable and therefore unenforceable. The Court found a “degree of procedural unconscionability” because Kinkel was not advised that she would have to pay some of the costs of arbitration. The Court found that the bar on class-wide proceedings was substantively unconscionable for two reasons: (1) it left Kinkel without an effective remedy because her costs and attorney fees would necessarily exceed her claim; and (2) it lacked mutuality insofar as “commercial entities like Cingular do not have occasion to sue their customers as a class.”
The Court carefully limited the reach of its holding. First, the Court “express[ed] no opinion on the enforceability of Cingular’s revised service agreement except to say that the enforceability of a class action waiver . . . must be determined on a case-by-case basis, considering the totality of the circumstances.”
Second, in its attempt to discern a general rule from the case law and to provide guidance for enforceable arbitration agreements, the Court declared that a “class action waiver” will be upheld “if the plaintiff had a meaningful opportunity to reject the contract term or if the agreement containing the waiver is not burdened by other features limiting the ability of the plaintiff to obtain a remedy for the particular claim being asserted in a cost-effective manner.” (Emphasis added.) This holding will assist all parties in knowing what drafting terms will be effective and what provisions and remedies will be supported by the Illinois Supreme Court.
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