Scott v. Cingular Wireless
161 P.3d 1000 (2007)
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Rule of Law:
A class action waiver within a consumer arbitration agreement is substantively unconscionable and unenforceable under Washington law if it effectively denies consumers the ability to vindicate statutory rights under the Consumer Protection Act for small, numerous claims, thereby acting as an exculpatory clause for the drafter from widespread liability.
Facts:
- Doug Scott, Loren and Sandra Tabasinske, and Patrick and Janet Oishi (plaintiffs) purchased cellular telephones and calling plans from Cingular Wireless.
- The standard preprinted contracts they signed included a mandatory arbitration clause.
- This arbitration clause contained a specific provision prohibiting consolidation of cases, class actions, and class arbitration.
- Cingular unilaterally revised the agreement in July 2003, informing customers via a monthly 'bill stuffer,' and the revised arbitration clause continued to prohibit class actions.
- The revised arbitration clause stipulated that arbitration would be conducted according to American Arbitration Association (AAA) rules, Cingular would pay most fees unless the claim was frivolous, and Cingular would reimburse reasonable attorney fees if the customer recovered at least the demand amount.
- The plaintiffs alleged that Cingular improperly billed them for long distance and/or out-of-network 'roaming' calls, resulting in individual customers being overcharged up to $45 per month.
- The plaintiffs claimed that while individual losses were small, the aggregate overcharges to the public were very large sums of money.
- Attorneys declared that such individual claims were 'too small and too complex' to be pursued separately, making it unlikely for private attorneys to take them, and that the state attorney general's office often relied on private class actions to address such practices.
Procedural Posture:
- Doug Scott and other plaintiffs filed a class action lawsuit against Cingular Wireless.
- Cingular Wireless moved the trial court to compel individual arbitration based on the arbitration clause in its standard subscriber contracts.
- The trial court granted Cingular's motion, compelling individual arbitration, finding the contract was a contract of adhesion but not procedurally or substantively unconscionable.
- The Washington Supreme Court accepted direct review of the trial court's order.
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Issue:
Is a class action waiver provision in a mandatory arbitration clause of a consumer contract substantively unconscionable and unenforceable under Washington law when it effectively prevents consumers from pursuing small but widespread claims under the Consumer Protection Act, despite provisions for fee and attorney reimbursement?
Opinions:
Majority - Justice Chambers
Yes, the class action waiver in Cingular's mandatory arbitration clause is substantively unconscionable and unenforceable under Washington law because it effectively prevents consumers from pursuing small but widespread claims under the Consumer Protection Act. The court found that the waiver violates Washington public policy by forestalling attempts to vindicate consumer rights under the Consumer Protection Act (CPA) and effectively exculpates Cingular from liability for a broad class of wrongful conduct. Class actions are deemed a critical tool for enforcing consumer protection laws, especially where individual damages are nominal, allowing consumers to act as 'private attorneys general.' The provisions for Cingular to pay arbitration fees and attorney fees (only if the full demand is recovered) do not sufficiently mitigate this unconscionability, as they still make it impractical for individual consumers to find legal representation for small claims. The Federal Arbitration Act (FAA) does not preempt state contract law grounds for unconscionability, as it aims to place arbitration agreements on the same footing as other contracts, not to grant them special immunity from state contract defenses like unconscionability. Since the arbitration clause itself stipulated that if the class action waiver is unenforceable, the entire clause is void, the court vacated the order compelling arbitration. Justices Alexander, Johnson, Owens, Fairhurst, and Sanders concurred.
Dissenting - Justice Madsen
No, the class action waiver in Cingular's mandatory arbitration clause is not substantively unconscionable under Washington law. Justice Madsen argued that the majority created a new public policy, rather than enforcing existing legislative intent, as the CPA does not explicitly prohibit class action waivers. The dissent emphasized the strong federal and state public policy favoring arbitration, and contended that Cingular's arbitration agreement, which included provisions for Cingular to pay all American Arbitration Association (AAA) filing, administrative, and arbitrator fees (unless the claim is frivolous), and reasonable attorney fees (if the customer recovers at least the demand amount), offered sufficient financial protection for consumers to vindicate their individual rights. It also noted that small claims courts were an available avenue. The dissent believed that the majority departed from a proper case-by-case analysis of unconscionability, instead adopting a sweeping rule. It concluded that the waiver did not act as an exculpatory clause because effective avenues of recourse existed. Justices James M. Johnson and Bobbe J. Bridge concurred with the dissent.
Analysis:
This case significantly reinforces consumer protection in Washington by establishing that class action waivers in consumer contracts can be substantively unconscionable if they undermine statutory rights or effectively shield companies from liability for numerous small-value claims. The ruling highlights the judiciary's role in safeguarding public policy objectives, particularly those embedded in consumer protection statutes, even in the face of federal policies favoring arbitration. It provides a crucial legal tool for challenging contract provisions that, while appearing neutral, practically eliminate meaningful recourse for consumers, likely influencing future contract drafting and litigation concerning arbitration clauses in consumer agreements within the state.
