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In ordering arbitration of a relatively low-value claim against a wireless service provider, a federal court in Arkansas upheld the arbitration agreement's bar on class-wide proceedings because the agreement permitted the claimant to proceed in small claims court, thus affording her another cost-effective means of obtaining relief.
In Davidson v. Cingular Wireless LLC, No. 2:06CV00133-WRW, 2007 WL 896349 (E.D. Ark. Mar. 23, 2007), Davidson commenced a putative class action against Cingular, her wireless service provider, alleging that Cingular imposed late payment charges in violation of Arkansas' usury laws.
Cingular filed a motion to compel arbitration pursuant to an arbitration agreement in the wireless service contract. The arbitration agreement prohibited class-wide proceedings, and in opposing the motion, Davidson argued that the bar on class-wide proceedings rendered the arbitration agreement unconscionable and therefore unenforceable.
In ruling on the motion to compel, the Court first examined whether the arbitration agreement was procedurally unconscionable. Davidson argued that the arbitration agreement was procedurally unconscionable because the terms were "buried in fine print."
The Court rejected this argument on two grounds. First, the Court cited Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681 (1996) and Iberia Credit Bureau, Inc. v. Cingular Wireless, LLC, 379 F.3d 159 (5th Cir. 2004) for the principle that "[t]he language of an arbitration provision need only be as prominent as the language in the rest of the contract." Second, the arbitration agreement in this case was "not less conspicuous but more prominent."
Having concluded that the arbitration agreement was not procedurally unconscionable, the Court turned to the question of substantive unconscionability. Davidson argued that the arbitration agreement was substantively unconscionable because the bar on class-wide proceedings effectively immunized Cingular from liability for low-value claims.
The Court rejected this argument because the arbitration agreement permitted Davidson to bring an action in small claims court, thus bringing the case within the rule articulated in Kinkel v. Cingular Wireless, LLC, 793 N.E.2d 886 (Ill. 2006) that a class action waiver will be upheld "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."
As this case suggests, small claims court is conducive to the prosecution of low-value claims, but as the Fifth Circuit Court of Appeals noted in Iberia Credit Bureau, arbitration is similarly conducive. Specifically, the court noted: "As the Supreme Court has explained, the fact that certain litigation devices may not be available in an arbitration [e.g., class-wide proceedings] is part and parcel of arbitration's ability to offer 'simplicity, informality, and expedition,' characteristics that generally make arbitration an attractive vehicle for the resolution of low-value claims." 379 F.3d at 174.
In fact, arbitration is even more conducive to the prosecution of minor claims because small claims court typically requires a court appearance whereas arbitration allows for document hearings, see, e.g., Rule 25 of the National Arbitration Forum Code of Procedure, which means an arbitration claimant can recover damages without incurring the expense of missing work or traveling to the courthouse.
Moreover, even if a claimant prevails in a small claims court, the losing party is usually entitled to a trial de novo in regular court. See, e.g., Arkansas District Court Rule 2(b) . This right of appeal deprives small claims court proceedings of the finality that is a hallmark of arbitration and a key component of its efficiency.
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