Absence of Ability to Recover Attorney Fees Rendered Class Action Waiver and Arbitration Clause Unconscionable Because it would Effectively Insulate Company from Liability for Small-Value Claims Eleventh Circuit Holds
Plaintiffs filed a class action lawsuit in Georgia federal court against their cable television provider, Comcast, alleging violations of the federal Cable Communications Policy Act of 1984 (Cable Act), 47 U.S.C. § 521 et seq., by miscalculating the “pass-through” franchise fees charged customers. Dale v. Comcast Corp., 498 F.3d 1216, 2007 WL 2471222, *1 (11th Cir. 2007). Defense attorneys moved to dismiss the class the action and compel arbitration based on the arbitration clause contained in the subscriber agreements; the district court granted the motion and dismissed the class action. Id. The Eleventh Circuit reversed, concluding the arbitration agreement and class action waiver provision to be unenforceable.
Defense attorneys argued that the class action had to be dismissed because in 2004, either in the “welcome kit” given new subscribers or with the December invoice of existing subscribers, each customer received a “Policies and Procedures” notice that contained a mandatory arbitration clause. Dale, at *1. The arbitration clause contained a class action waiver provision, id., and “Comcast argued the subscribers accepted the Arbitration Provision, including the class action waiver, by their continued subscription to Comcast’s services after receiving the notices,” id., at *2. Plaintiffs argued that the damages suffered by the class in this case were $0.66 every three months, or a total of $10.56 over the four-year class period, and so the class action waiver was substantively unconscionable because “if Comcast’s class action waiver is held valid, they will effectively be denied any remedy.” Id., at *3. Plaintiffs also challenged the arbitration fee structure imposed under the subscriber agreement, which placed on subscribers the financial burden of attorney fees and all costs incurred in the arbitration other than the filing fee and arbitrator’s costs. Id. The district court rejected plaintiffs’ argument that the class action waiver was unconscionable, dismissed the class action, and compelled arbitration of the dispute. Id., at *2.
The Eleventh Circuit held that it reviews de novo district court orders granting motions to compel arbitration and dismiss, and explained that whether the class action waiver is unconscionable is determined by reference to Georgia state law even though the arbitration clause itself was governed by the Federal Arbitration Act (FAA). Dale, at *2. Defense attorneys argued that Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005), was dispositive and compelled a finding that the class action waiver and arbitration clause were enforceable, id., at *3-*4. The Circuit Court disagreed, explaining at page *4 that Caley “did not consider a factual scenario in which a remedy was effectively foreclosed because of the negligible amount of recovery when compared to the cost of bringing an arbitration action.” This same reasoning applied to two other Eleventh Circuit opinions, as the Circuit Court found a fundamental difference in cases where plaintiffs were entitled to recover attorney fees if they prevailed in arbitration versus a case like the one at bar, where “the subscribers cannot recover attorneys’ fees under the cable Act for the specific violations alleged.” Id., at *5.
Put simply, the Eleventh Circuit concluded that “[t]he cost of vindicating an individual subscriber’s claim, when compared to his or her potential recovery, is too great.” Dale, at *6. Absent the ability to recover attorney fees, “it will be difficult for a single subscriber to obtain representation.” Id. The Circuit Court found that this would “allow Comcast to engage in unchecked market behavior that may be unlawful,” and that companies may not use class action waivers “to exculpate themselves from liability for small-value claims.” Id. In sum, the Eleventh Circuit concluded at page *7 that Comcast’s class action waiver is unconscionable and that the entire arbitration clause failed because the class action waiver provision cannot be severed from the subscriber agreement. Accordingly, it reversed the district court order dismissing the class action and compelling arbitration. Id.
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