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A California appellate court denied a wireless provider's motion to compel arbitration, refusing to enforce an arbitration agreement that contained a class action waiver as unconscionable under Discover Bank.
In In re Cingular Cases, No. D047603, 2007 WL 93229 (Cal. App. Jan. 16, 2007), Cingular customers brought a class action alleging that Cingular engaged in a deceptive advertising campaign.
The customers alleged that Cingular was aware that its facilities were insufficient to handle the demand for services that it created. As a result of Cingular's inadequate service, customers would lose calls and incur additional charges when forced to redial.
Cingular filed a motion to compel arbitration, but the customers argued that the arbitration clause in their wireless agreements was unconscionable. Applying Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), the Court agreed with the customers and struck the arbitration clause as unconscionable.
Under Discover Bank and Cal. Civ. Proc. Code § 1668, class action waivers in arbitration agreements are unconscionable when they constitute a "contract which ha[s] for [its] object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of the law," which are against public policy.
The Court noted that allowing small claims litigation or recovery of attorney fees for prevailing customers does not substitute "for the important mechanism of class-wide arbitrations." Additionally, although Cingular argued that the claimed losses of $1,000 to $2,000 are not small, the Court cited Cohen v. DIRECTV, Inc., 48 Cal.Rptr.3d 813 (Cal. App. 2006) in concluding that these amounts were still likely not sufficient to warrant individual litigation.
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