Class Action Waiver in Arbitration Provision Substantively Unconscionable “to the Extent it Prohibits the Subscribers from Bringing a Class Action Alleging State Law Claims” and Entire Arbitration Clause Fails Because Class Action Waiver “Cannot be Severed from the Agreement” Eleventh Circuit Holds
Plaintiffs filed a class action against their cable television service provider, Comcast, in Georgia state court alleging that it improperly passed through to customers franchise fees based on estimated revenue instead of the actual franchise fees paid local governments as allowed by the Cable Communications Policy Act of 1984, and that these estimates resulted in overcharges to subscribers. Dale v. Comcast Corp., 498 F.3d 1216, 1217-18 (11th Cir. 2007). Defense attorneys removed the class action to federal court, and then moved to compel arbitration and dismiss the class action complaint based on the mandatory arbitration clause (that included a class action waiver) contained in the subscriber agreements, id., at 1218. The “Mandatory & Binding Arbitration” provision permits either party to elect arbitration and “contains a class action waiver clause prohibiting subscribers from bringing claims on a class action or consolidated basis,” expressly providing that “[a]ll parties to the arbitration must be individually named” and that the parties shall have “no right or authority for any claims to be arbitrated or litigated on a class-action or consolidated basis.” Id. Plaintiffs’ lawyer argued that the class action waiver was unconscionable; the district court disagreed and granted the defense motion to compel arbitration and dismiss the class action complaint. Id. The Eleventh Circuit reversed.
It is well established that the enforceability of an arbitration clause is determined based on state law. Dale, at 1219 n.2. This is true because the Federal Arbitration Act (FAA) requires that federal court look to state law governing contracts generally (not arbitration agreements specifically) to determine the validity and enforceability of an arbitration agreement, id., at 1219 (citation omitted). Accordingly, the issue on appeal was “whether the Arbitration Provision’s class action waiver is unconscionable under Georgia law and thus unenforceable as a matter of law.” Id. Georgia law recognizes both procedural and substantive unconscionability, and the Circuit Court focused on substantive unconscionability of the class action waiver. Id.
The Eleventh Circuit recognized that prior decisions by that court had upheld class action arbitration waivers. See, e.g., Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005); Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868 (11th Cir. 2005); Randolph v. Green Tree Fin. Corp.-Ala., 244 F.3d 814 (11th Cir. 2001). It explained, however, that in the prior cases the claimant had the ability to recover attorney fees, see Dale, at 1221-22. The Court “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.” Id., at 1221. The Circuit Court explained at page 1222: “Here, unlike the plaintiffs in Caley, Jenkins, and Randolph, the subscribers cannot recover attorneys’ fees under the Cable Act for the specific violations alleged.” Given these factual differences, the Eleventh Circuit described itself as being in “unchartered territory” so it looked to sister circuits for guidance. Id., at 1223.
In reliance on Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006), where the First Circuit struck down a class action waiver arbitration clause as unconscionable, the Eleventh Circuit held that “the Comcast class action waiver is unconscionable to the extent it prohibits the subscribers from bringing a class action alleging state law claims based on a violation of the Cable Act’s franchise fee provisions” and “[b]ecause the class action waiver cannot be severed from the Agreement, the entire arbitration provision is rendered unenforceable.” Id., at 1224.
NOTE: The Circuit Court found it unnecessary to address plaintiffs’ claim that the arbitration agreement also failed because it was procedurally unconscionable. Dale, at 1220 n.5. Plaintiffs also argued in the district court and on appeal that they were entitled to “a jury trial on the issue of whether each subscriber entered into an arbitration agreement with Comcast”; the Eleventh Circuit found it unnecessary to address this issue because of its holding that the arbitration clause was unconscionable. Id., at 1218 n.1.
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