Articles Posted in Arbitration

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As Matter of First Impression, District Court Erred in Antitrust Class Action in Compelling Arbitration Pursuant to Mandatory Arbitration Clause in Commercial Contract and Enforcing Class Action Waiver because Absent Class Action Relief it was Unlikely Merchants would seek Redress for Alleged Wrong Second Circuit Holds

Several class action lawsuits were filed by various merchants against American Express alleging violations of federal antitrust laws in the form of a “tying arrangement” between its charge cards and credit cards; the first of these class actions was filed in August 2003 in the Northern District of California, but in December 2004 the district court granted a motion filed by defense attorneys to transfer the class actions, pursuant to 28 U.S.C. § 1404(a), to the Southern District of New York, where it was consolidated with several class actions against Amex pending in that district. In re American Express Merchants’ Litig., ___ F.3d ___, 2009 WL 214525, *2, *5-*6 (2d Cir. January 30, 2009). According to the allegations underlying the class action, Amex “is the leading issuer of general purpose and corporate charge cards to consumers and businesses in the United States and throughout the world. It is also the leading provider of charge card services to merchants.” Id., at *3. The class action plaintiffs are “(1) California and New York corporations which operate businesses which have contracted with Amex and (2) the National Supermarkets Association, Inc. (‘NSA’), ‘a voluntary membership-based trade association that represents the interests of independently owned supermarkets.’” Id. The Card Acceptance Agreement entered into by the merchants-plaintiffs provided, in pertinent part, that any dispute was subject to a broad and mandatory arbitration clause, which was governed by the Federal Arbitration Act (FAA) and which contained a class action waiver provision. See id., at *3-*5. Defense attorneys moved to compel arbitration and to enforce the class action waiver provision, id., at *6. The district court granted the motion, finding that the arbitration clause was broad enough to govern the dispute. Id. With respect to whether the matter could proceed as a class action, the district court suggested that enforcement of the class action waiver would not preclude individual merchants from enforcing their rights because the Section 4 of the Clayton Act allows for recovery of treble damages, costs of suit and attorney fees, but deferred the issue of enforceability of the class action waiver to the arbitrator. Id. The Second Circuit reversed.

The Circuit Court explained that it was “consider[ing] here only the narrow question of whether the class action waiver provision contained in the contract between the parties should be enforced,” In re American Express, at *3. The Court began by noting that it “frequently enforces mandatory arbitration clauses contained in commercial contracts,” but that this case presented a case of first impression in the Ninth Circuit as it dealt with the enforceability of a class action waiver in the context of a commercial contract with a mandatory arbitration clause. Id., at *1. And the court summarized the countervailing arguments surrounding the enforceability of class action waivers, see id., at *1-*2. Ultimately, the Ninth Circuit concluded that the class action waiver was unenforceable under the facts of this case “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” Id., at *2.

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Class Action Waiver in Payday Loan Agreement Containing Mandatory Arbitration Clause was Unconscionable and Trial Court did not Err in Severing Class Action Waiver, Compelling Arbitration, and Allowing Arbitrator to Determine Whether Matter should Proceed as Class Action Missouri State Appellate Court Holds

Plaintiff filed a class action against QC Financial, a payday lender, from whom plaintiff had borrowed money several times; the class action complaint alleged that defendant violated various Missouri state laws governing payday lenders. Woods v. QC Financial Services, Inc. d/b/a Quik Cash., ___ S.W.2d ___ (Mo.App. December 23, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action and to compel plaintiff to arbitrate the dispute individually; the motion was premised on an arbitration clause with a class action waiver that was contained in the payday loan documents. Id., at 1-2. Each loan agreement contained a mandatory arbitration clause that provided in pertinent part that the borrower is (1) waiving their right to a jury trial, (2) waiving their right to any court proceeding (other than small claims), and (3) waving the right to “SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY, AND/OR TO PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS, IN ANY LAWSUIT FILED AGAINST US AND/OR RELATED THIRD PARTIES.” Id., at 2. The arbitration clause further provided that “all disputes including any Representative Claims against us…shall be resolved by binding arbitration only on an individual basis with you” and precluded the arbitrator from allowing any dispute to proceed as a class action, id. Plaintiff moved for declaratory judgment, seeking to hold the class action waiver unconscionable; the trial court granted plaintiff’s motion and severed the provisions of the arbitration clause prohibiting class actions. Id. At the same time, the trial court denied the defense motion to compel plaintiff “to participate in individual arbitration,” but granted the defense motion to dismiss in part, in that the matter was ordered to arbitration for the arbitrator to decide whether the litigation could proceed as a class action. Id. Defendant appealed, and the Missouri Court of Appeal affirmed.

Defense attorneys raised several issues on appeal: (1) that plaintiff failed to prove procedural unconscionability; (2) that the arbitration clause was not procedurally unconscionable “because the font size used complies with statute and [plaintiff] signed the contract without any misrepresentations, hurry, or duress from [defendant]”; (3) that the arbitration clause was not substantively unconscionable, in part because the Federal Arbitration Act (FAA) “preempts the trial court’s holding as Missouri law does not bar class action waivers in all consumer contracts”; (4) that the class action waiver was an “essential “ part of the loan agreement, which does not contain a severance clause, so the trial court erred in severing the class action waiver from the arbitration clause; and (5) that the trial court erred in granting plaintiff’s request for declaratory judgment because it was not properly presented. Woods, at 3-4. The appellate court began by addressing the fifth point, quickly rejecting the defense characterization of the trial court’s action as one of “granting summary judgment,” and holding that the court granted declaratory judgment only to the extent that the mandatory arbitration clause precluded class action relief and only after hearing argument and testimony. Id., at 4-5. The Court of Appeal concluded that there was nothing improper in this aspect of the court’s ruling, id., at 5.

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District Court Order in Unfair Competition Law (UCL) Class Action Dismissing Class Action Complaint and Compelling Arbitration of Plaintiff’s Individual Claims Reversed and Remanded for Further Consideration because District Court’s Analysis of Whether South Dakota Law or California Law Applied was Flawed Ninth Circuit Holds

Plaintiff filed a class action against Citibank in California state court alleging violations of the state’s Unfair Competition Law (UCL); specifically, the class action “alleged that Citibank increased the class members’ interest rates retroactively, without advance notice, resulting in additional lump sum finance charges being improperly imposed.” Hoffman v. Citibank (South Dakota), N.A., 546 F.3d 1078 (9th Cir. 2008) [Slip Opn., at 14492]. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint and to compel arbitration of plaintiff’s individual claims. Id., at 14893. The district court concluded that the choice of law provision was enforceable, that South Dakota law governed the agreement, and that under South Dakota law “the class arbitration waiver was not unconscionable and was enforceable.” Id. Accordingly, the district court granted the defense motion, dismissed the class action, and ordered plaintiff to arbitrate her claims “on an individual, non-class basis.” Id. The district court certified its order for immediate appeal, and the Ninth Circuit reversed.

We do not here summarize the history of the plaintiff’s credit card account or the changes to the written credit card agreement, including the addition of a binding arbitration clause. See Hoffman, at 14489-90. We note only that the arbitration agreements including a class-action waiver provision. See id., at 14489-92. In analyzing the district court’s order, the Ninth Circuit noted that it reviews orders compelling arbitration de novo, and that “[a]n arbitration agreement governed by the Federal Arbitration Act is presumed to be valid and enforceable.” Id., at 14493 (citation omitted). It noted further the well-settled rule that “applicable state law controls whether an arbitration agreement is unconscionable and, therefore, unenforceable.” Id. The Ninth Circuit also noted that it “agree[d] with the district court’s conclusion that Citibank’s class arbitration waiver is not procedurally unconscionable under South Dakota law and therefore is enforceable if South Dakota law controls.” Id., at 14495 n.2. However, the Circuit Court held that the trial court erred in determining that South Dakota law applied, because “[f]ederal courts sitting in diversity look to the law of the forum state when making choice of law determinations,” id., at 14494, and the district court failed to examine under California law whether South Dakota or California law applied, id., at 14494-95. Accordingly, it remanded the action to the district court so that it could reexamine the issue. Id., at 14495.

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Class Action Complaint Adequately Alleged Antitrust and Consumer Protection Law Violations Arising out of Marketing and Sale of iPhones, and Class Action Waiver in AT&T Arbitration Agreement was Unconscionable thereby Requiring Denial of Motion to Dismiss Class Action Claims and Compel Arbitration of Individual Claims, California Federal Court Holds

Plaintiffs filed a class action against Apple and AT&T Mobility (ATTM) alleging violations of federal antitrust laws and other consumer protection statutes arising out of the sale of iPhones; the class action complaint alleged that “consumers were offered iPhones only if they signed a two-year service agreement with AT&T Mobility” and that “unknown to consumers, the companies had agreed to technologically restrict voice and data service in the aftermarket for continued voice and data services, i.e., after the initial two-year service period expired.” In re Apple & AT&TM Antitrust Litig., ___ F.R.D. ___ (N.D. Cal. October 1, 2008) [Slip Opn., at 1]. According to plaintiffs’ class action, ATTM entered into a written agreement with Apple to serve as the exclusive provider of wire and data services to iPhone customers for a period of five years, i.e., through 2012. Id., at 2. Under this agreement, until 2012 “iPhone purchasers who want voice and data services must sign a two-year service contract with ATTM.” Id. The Revised Amended Consolidated Class Action Complaint alleged inter alia violations of Section 2 of the Sherman Antitrust Act and breach of warranty under the Magnuson-Moss Warranty Act, id.; an itemized list of the 10 claims for relief may be found at page 5 of the opinion. ATTM’s defense attorneys filed a motion to dismiss the class action and compel arbitration pursuant to the Federal Arbitration Act (FAA), and Apple’s defense attorneys filed a motion to dismiss the class action complaint. Id., at 5-6. The district court denied the motions.

By way of background, the district court explained at page 1: “In the cellular telephone market, it has become a common practice for an equipment manufacturer and a voice and data supply company to join together to introduce a new cellular telephone to the market. Often, to obtain a particular model of telephone at a given price from a given manufacturer, purchasers must sign a contract with the joined service provider for voice and data services of a stated period of time. This case concerns such an arrangement between Apple, Inc. and AT&T Mobility upon the introduction to the market of the iPhone.” But according to the class action complaint, purchasers were not told that iPhone use would be restricted to the AT&T network even after the two-year service period expired. In re Apple, at 1. The class action further alleged (1) Apple and ATTM share revenue arising from iPhone use, (2) iPhone purchasers must use ATTM as their provider for 5 years “despite initially being required to agree to only a two-year contract,” (3) Apple agreed to enforce ATTM’s exclusivity agreement by “locking” iPhones, (4) Apple controlled all modifications to and software for iPhones, (5) ATTM charges an early termination fee even though it does not subsidize iPhone purchases, (6) Apple and ATTM agreed to take prevent people from unlocking iPhones, and (7) Apple agreed to delay developing a CDMA version of the iPhone. Id., at 3. Finally, the class action alleged that, after it was learned that people had successfully unlocked iPhones, Apple issued an “upgrade” of the iPhone’s operating software that was intended to disable iPhones that had been unlocked or on which users had downloaded software that had not been approved by Apple, and that Apple thereafter denied warranty claims on disabled or damaged iPhones on the ground that customers “had breached their warranty agreements by unlocking their phones or by downloading unapproved TPAs.” Id., at 4. The district court was presented with the question of whether these allegations sufficiently alleged claims for relief for violations of the Sherman Act and Magnuson-Moss Warranty Act. Id. The federal court held that class action allegations survived defendants’ motion to dismiss.

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District Court Properly Dismissed Class Action and Granted Defense Motion to Compel Plaintiff to Arbitrate her Claims on an Individual Basis, Rather than as a Class Action, because Class Action Waiver in Arbitration Clause was not Substantively or Procedurally Unconscionable Eighth Circuit Holds

Plaintiff filed a putative class action against American Express Company and American Express Incentive Services (AEIS) alleging violations of the federal Truth in Lending Act (TILA); specifically, the class action complaint alleged that American Express violated TILA by “issuing pre-loaded, stored-value cards without making the disclosures required under the TILA.” Pleasants v. American Express Co., 541 F.3d 853, 855 (8th Cir. 2008). Defense attorneys moved to dismiss American Express Company on the ground that it was not a “creditor” within the meaning of TILA; plaintiff did not oppose the motion and the district court dismissed American Express Company from the putative class action. Id. Defense attorneys then moved to compel arbitration of plaintiff’s claims pursuant to an arbitration provision governed by the Federal Arbitration Act (FAA) that contained a class action waiver, id. The district court rejected plaintiff’s claim that the class action waiver was unconscionable, dismissed the class action and compelled plaintiff to arbitrate her individual claims against AEIS. Id. The Eighth Circuit affirmed.

Briefly, AEIS sent plaintiff three pre-paid cards, in the amounts of $25, $10, and $5, in return for her participation in online surveys; the cards could be used at any establishment that accepted American Express credit cards. Pleasants, at 855. Along with the cards, AEIS sent plaintiff the “Card Terms and Conditions,” which included a “Participant Agreement” that provided in part that any claims would be resolved by arbitration and that the parties “WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION,” id. A separate provision reiterated that all claims “shall be arbitrated on an individual basis” and that there “shall be no right” for any claims “to be arbitrated on a class action basis,” id., at 855-56. Plaintiff’s class action complaint alleged that at a time when the cards had a combined remaining balance of $25, she used the cards at a restaurant to pay for a $20 meal “but the restaurant processed one or more of the cards for $45 more than their stored value.” Id., at 856. AEIS demanded that plaintiff pay the $45 difference; when she failed to do so, AEIS sent her another letter requesting not only the $45 difference but, pursuant to the terms and conditions of the card usage agreement, a late fee of $10 and a transaction fee of $25. Id. Plaintiff disputed the charge and filed the class action when AEIS continued with collection efforts, id.

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Class Action Complaint Properly Kept in State Court Rather than Referred to Arbitration because Class Action Waiver Provision in Arbitration Clause Rendered Dispute Resolution Provision of Consumer Service Agreement Unenforceable as Unconscionable Washington State Court Holds

Plaintiff filed a class action against AT&T alleging that it wrongly charged him “city utility surcharges and usurious late fees”; specifically, the class action complaint alleged that plaintiff signed up with AT&T for long distance telephone service, and that his monthly bills “included a Wenatchee city utility tax surcharge, even though he lives outside the Wenatchee city limits.” McKee v. AT&T Corp., ___ P.3d ___ (Wash. August 28, 2008) [Slip Opn., at 1-2]. According to the class action, AT&T assessed taxes based on zip codes, and plaintiff’s zip code included not only people who lived in Wenatchee, but also people who lived outside the city limits. Plaintiff’s class action alleged that AT&T collects taxes from its customers “whether the customers owe the tax or not,” and imposes a late fee of 1.5% if the bill is not paid timely. Id., at 2. Defense attorneys removed the class action to federal court on the ground that it raised claims under federal law; plaintiff amended the class action complaint to omit any reference to federal law, and the district court remanded the class action back to state court. Id. Defense attorneys then moved to compel arbitration of the dispute pursuant to the dispute resolution provisions of their long distance service contract. Id., at 1. The dispute resolution provision required arbitration of all disputes and prohibited class actions; it also provides that claims must be brought within two years, and “limits a consumer’s right to collect punitive damages and attorney fees.” Id., at 4. The trial court denied the motion, finding the dispute resolution provision in AT&T’s Consumer Services Agreement to be unconscionable. Id., at 1. The Washington Supreme Court affirmed.

The Supreme Court explained that plaintiff “did not sign any agreement with AT&T” when he accepted AT&T as his long distance provider, and that he did not know whether he received a contract in the mail from AT&T. McKee, at 2-3. Defense attorneys submitted declarations that stated plaintiff received a “specific agreement” as part of his “fulfillment package,” and attached the agreement to their declarations, id., at 3. Plaintiff argued that the agreement was unconscionable: “He claimed he had no meaningful choice and the agreement was overly one-sided and harsh because it prohibited class actions, shortened the statute of limitations, prohibited punitive damages and attorney fees, required arbitration be kept secret, and required application of New York law.” Id., at 5. The trial court agreed with plaintiff: he ruled that the dispute resolution provision of the agreement was substantively unconscionable “because of the provisions prohibiting class actions, shortening the statute of limitations, limiting damages, requiring confidentiality, and” Id., at 5. A few months later, defense attorneys moved for reconsideration based on a new declaration that stated prior information provided under oath was in error because “AT&T had amended its agreement ‘in significant ways, including, for example, the removal of the two-year statute of limitations, the ability of the customer to determine whether the proceedings should be confidential, and specifically allowing consumers to obtain statutory relief—including damages and attorney’s fees—through the arbitration process.’” Id., at 6. The trial court denied the motion, and AT&T appealed. Id., at 7.

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Defense Motion to Compel Individual Arbitration of Class Action Claims under Wireless Service Contract Denied because Arbitration Agreement, which Included Class Action Waiver, was Unconscionable California Federal Court Holds

Plaintiff filed a putative class action against Cingular Wireless alleging violations of the California’s Business and Professions Code and Consumer Legal Remedies Act, and for breach of contract; specifically, the class action complaint alleged that plaintiff signed up for wireless service with Cingular, and renewed his service based “on advertising that identified Cingular as the wireless service with the fewest dropped calls,” but that this representation is untrue. Kaltwasser v. Cingular Wireless LLC, 543 F.Supp.2d 1124, 1126-27 (N.D. Cal. 2008). Defense attorneys moved to compel arbitration pursuant to the Federal Arbitration Act (FAA). Id. The arbitration clause in plaintiff’s wireless service contract provided that the parties “agree to arbitrate all disputes and claims arising out of or relating to this Agreement for Equipment or services between Cingular and you” and contained a class action waiver. Id., at 1127. Cingular modified the arbitration clause so as to state in part, “Cingular and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to: claims arising out of or relating to any aspect of the relationship between us …; claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising); claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and claims that may arise after the termination of this agreement.” Id. The district court denied the motion.

The district court began its analysis by observing that the FAA applies “to all written contracts involving interstate or foreign commerce” and was “enacted to overcome longstanding judicial reluctance to enforce agreements to arbitrate.” Kaltwasser, at 1127. On the other hand, the FAA does not “entirely displace[]” state law. Id., at 1128. The court recognized that the FAA governed the dispute, so the question is whether the contract was enforceable under state law. Id. The first question was one of choice of law. The contract defined the governing law as that of “the state of your billing address”; but plaintiff’s address was in California when he entered into the contract and in Virginia when he filed suit. Id., at 1128. The district court held that California law governed the contract. Id., at 1128-30.

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Trial Court Order in Unfair Business Practice Class Action Against Dell Granting Defense Motion to Stay Class Action and Compel Plaintiff to Arbitration his Individual Claim must be Reversed because New Mexico’s “Fundamental Public Policy” Requires use of Class Action Device in Small Claims Matters New Mexico Supreme Court Holds

Plaintiff filed a putative class action lawsuit in New Mexico state court against Dell Computer alleging inter alia violations of the state’s unfair business practices laws and false advertising; the class action alleged that Dell “systematically misrepresents the memory size of its computers.” Fiser v. Dell Computer Corp., ___ P.3d ___ (N.M. June 27, 2008) [Slip Opn., at 3]. The class action further alleged that the monetary damage suffered by each class member was only $10-$20, id. Defense attorneys moved the trial court to stay the class action and to compel arbitration under the Federal Arbitration Act (FAA) of the plaintiff’s individual claim; the defense motion was premised on the fact that plaintiff purchased his computer online and that the “terms and conditions” applicable to such Dell website purchases required purchasers to individually arbitration their claims and precluded them pursuing a class action. Id., at 3-4. The trial court granted the defense motion, ruling that plaintiff was bound by the arbitration clause and the class action waiver. Id., at 4. The Court of Appeals affirmed, and plaintiff petitioned the New Mexico Supreme Court for a writ of certiorari. Id. The Supreme Court reversed, holding that “the class action ban is contrary to fundamental New Mexico public policy,” id.

Preliminarily, the Supreme Court addressed the question of whether New Mexico or Texas law applied. Fiser, at 4. The Court explained at page 4, “The threshold question in determining the validity of the class action ban is which state’s law must be applied to this potentially multi-state class action that was filed in New Mexico by a New Mexico resident against a defendant that maintains its principal place of business in Texas for damages relating to a contract that contains a choice-of-law clause directing that Texas law be applied.” The resolution of this issue was crucial because “[a]pplication of Texas law to the instant matter would likely require enforcing the class action ban.” Id., at 5. New Mexico law would respect the choice-of-law clause, and apply Texas law, “[u]nless enforcement of the class action ban would run afoul of fundamental New Mexico public policy,” id. The Supreme Court held that “[t]he class action device is critical to enforcement of consumer rights in New Mexico.” Id., at 6. The Court recognized that the state’s Uniform Arbitration Act – which “declares that arbitration clauses that require consumers to decline participation in class actions are unenforceable and voidable,” id., at 6 – “may be preempted by the FAA,” id., at 7. However, it also explained that “the class action functions as a gatekeeper to relief when the cost of bringing a single claim is greater than the damages alleged.” Id., at 7-8. Thus, “a contractual provision that purports to ban class actions for small claims implicates not just the opportunity for a class action but the more fundamental right to a meaningful remedy for one’s claims.” Id., at 8. Under the circumstances of this putative class action, the New Mexico Supreme Court found that, because plaintiff’s actual damages were no more than $20, denying class action relief would “essentially foreclose[] the possibility that Plaintiff may obtain any relief.” Fiser, at 8. And because “New Mexico’s fundamental public policy requires that consumers with small claims have a mechanism for dispute resolution via the class action,” applying Texas law would run contrary to this public policy so New Mexico law governed the dispute. Id., at 9.

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In an Unpublished Opinion, California Appellate Court Holds that Trial Court did not Abuse Discretion in Denying Petition to Compel Arbitration of Labor Law Class Action on Ground that Defense Attorneys Failed to Prove that Plaintiffs Signed Arbitration Agreement

Plaintiffs filed a class action lawsuit against their employer, BLH Construction alleging labor law wage and hour claims. Aguilar v. BLH Construction Co., 2007 WL 4418105, *1 (Cal.App. December 19, 2007). Defense attorneys moved to compel arbitration, but the court opinion is silent on the arbitration clause purported to bar class actions or whether the defense sought to enforce a class action arbitration waiver. Id. The trial court denied the motion, finding that plaintiffs had not signed the arbitration agreement, id. The defense appealed, arguing that the trial court abused its discretion “by not continuing the hearing to permit oral testimony and cross-examination of witnesses on the issue.” Id. The Court of Appeal affirmed.

BLH hired plaintiffs as construction workers in February 2005 and, on the day they were hired, provided each plaintiff with an employee handbook, a form entitled “Receipt of Handbook and Acknowledgement of At-Will Employment,” and a form entitled “Mutually Binding Arbitration Agreement.” Aguilar, at *1. “Each form had lines for the employee’s signature and the date of signing.” Id. As part of the petition to compel arbitration, defense attorneys submitted signed copies of the “Mutually Binding Arbitration Agreement.” Id. Plaintiffs, however, insisted that they had not signed this document and by declaration claimed that their signatures had been forged, id. In response, defense attorneys submitted (1) the declaration of a supervisor stating that he had given plaintiffs the employee documents referenced above and that plaintiffs “signed and dated the two signature pages contained within the Employee Handbook,” (2) the declaration of BLH’s chief operations officer stating that plaintiffs had signed the mutually binding arbitration agreement, and (3) the declaration of BLH’s counsel stating that the signed documents had been obtained from the BLH custodian of records, “and that it was BLH’s custom and practice to have each employee sign the arbitration agreement.” Id.

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Class Action Waiver Unconscionable Under Washington State Law and Federal Arbitration Act (FAA) so District Court Properly Denied Defense Motion to Dismiss Class Action Complaint and Order Individual Claims to Arbitration Ninth Circuit Holds

Plaintiffs filed a class action in Washington state court against their cellular telephone service provider, T-Mobile, “alleging that the service provider had improperly charged them for certain fees beyond the advertised price of service, charged them for calls during a billing period other than that in which the calls were made, and charged them for roaming and other services that should have been free.” Lowden v. T-Mobile USA, Inc., 512 F. 3d 1213, 1215 (9th Cir. 2008). The service agreements underlying the class action plaintiffs’ claims contained mandatory arbitration provisions that barred class action litigation, id. Defense attorneys removed the class action to federal court, and then moved the federal court to compel arbitration of the claims on an individual rather than class action basis. Id., at 1214. The district court denied the motion, concluding that the arbitration clauses were unenforceable because the class action waivers and the limitation on punitive damages rendered them substantively unconscionable, id., at 1217. Defense attorneys appealed and the Ninth Circuit affirmed.

The service agreements signed by the class action plaintiffs stated, directly above the signature line, that any disputes would be submitted to mandatory arbitration. Lowden, at 1215-16. The specific language in the two service agreements underlying the class action complaint differed slightly, but the differences did not impact the district court’s decision: each arbitration clause precluded class action litigation. Id. In ruling on T-Mobile’s motion to compel arbitration, the district court concluded that the arbitration provisions were not procedurally unconscionable, but “held that the prohibition on class relief and the limitation on punitive damages, found in both agreements, were each substantively unconscionable.” id., at 1217. The Ninth Circuit defined the issues on appeal as whether T-Mobile’s arbitration provisions “are enforceable under Washington state law and, if not, whether the state law is preempted by the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16.” Lowden, at 1214. It concluded that, in light of the Washington State’s Supreme Court opinion in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), “T-Mobile’s arbitration provision is substantively unconscionable and unenforceable under Washington state law,” and that the FAA did not preempt Washington state law. Lowden, at 1214-15.

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