Summary
The Washington Supreme Court held that a class-action waiver in Cingular Wireless’s arbitration agreement was substantively unconscionable and unenforceable. The waiver effectively prevented consumers from vindicating rights under Washington’s Consumer Protection Act and exculpated Cingular from liability for widespread small-dollar overcharges. Because the agreement provided that an unenforceable class-action waiver rendered the entire arbitration clause void, the court vacated the order compelling arbitration and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether Cingular's class action waiver was substantively unconscionable under Washington law because it prevented consumers from effectively vindicating rights under the Washington Consumer Protection Act.
- Whether the class action waiver effectively exculpated Cingular from liability for widespread wrongful conduct involving small individual claims.
- Whether the Federal Arbitration Act preempted Washington's unconscionability rule as applied to the class action waiver.
- Whether the arbitration clause remained enforceable after the class action waiver was held unenforceable.
Holdings
- A class action waiver is substantively unconscionable and unenforceable when, under the circumstances, it drastically reduces consumers' ability to vindicate rights secured by Washington's Consumer Protection Act, particularly where individual claims are too small to pursue effectively.
- A class action waiver is substantively unconscionable when it effectively exculpates the drafter from liability for a broad range of small but widespread wrongful conduct by making individual recovery impracticable.
- The Federal Arbitration Act does not preempt application of Washington's generally applicable unconscionability principles to invalidate a class action waiver that effectively exculpates the drafter or prevents vindication of statutory rights.
- The entire arbitration clause was void because the agreement expressly provided that if the class action proviso was unenforceable, the entirety of the arbitration clause would be null and void.
Key quotations
“We took direct review and conclude that the class action waiver is unconscionable because it effectively denies large numbers of consumers the protection of Washington’s Consumer Protection Act (CPA), chapter 19.86 RCW, and because it effectively exculpates Cingular from liability for a whole class of wrongful conduct.” (847)
“The FAA favors arbitration, not exculpation.” (859)
“Where many customers of the same company have the same or similar complaint and each is damaged a small amount, class action litigation or arbitration is the only practical remedy available.” (860)
Factual background
The plaintiffs purchased cellular telephones and calling plans from Cingular under standard-form contracts requiring arbitration and prohibiting class actions and class arbitration. Cingular allegedly added unlawful long-distance, roaming, and hidden charges, causing individual consumers to lose between approximately one and forty-five dollars per month. The plaintiffs presented evidence that the claims were too small and factually and legally complex to pursue individually and that private attorneys generally would not accept them. The arbitration clause required individual proceedings but included fee-shifting provisions that did not ensure practical access to counsel or a remedy.
Procedural history
The plaintiffs filed a class action against Cingular alleging that consumers had been overcharged for long-distance and out-of-network roaming calls. Cingular moved to compel individual arbitration under an arbitration clause containing a class action waiver. The trial court granted the motion, finding the agreement procedurally and substantively conscionable. The Washington Supreme Court vacated the order compelling arbitration and remanded.
Remand instructions
The trial court must conduct further proceedings consistent with the opinion after the order compelling arbitration is vacated.