Class Actions: Pennsylvania Appeals Court Won't Compel Cable Customer Contract Arbitration (Web)

In Philip Thibodeau v Comcast Corp., et al., 2006 PA Super. 346 (Dec. 1, 2006)(available at www.courts.state.pa.us/OpPosting/Superior/out/A23008_06.pdf), a Pennsylvania appeals court upheld a lower court ruling that the arbitration clause in a Comcast's consumer agreement is unconscionable and unenforceable.

The panel quoted at length a trial court opinion that declined to compel arbitration where a consumer filed a class action case over alleged unnecessary, excessive billings for cable boxes. The ruling also incorporates the reasoning of a California Court of Appeals case that refused to enforce arbitration.

The dispute arises out of a customer agreement between with a subscriber. Plaintiff Thibodeau subscribed to AT&T Broadband cable television services in 1998. In 2002 Comcast acquired AT&T, and Comcast’s new customers were mailed a Comcast customer agreement.

The new Comcast agreement was virtually identical to the old one. The only prominent aesthetic difference was the replacement of the AT&T logo with the Comcast icon on the first page.

But there was a significant substantive difference. The new agreement mandated individual arbitration, and precluded class actions by aggrieved customers.

On March 19, 2004, Thibodeau, a Massachusetts resident, filed a class action complaint alleging Comcast customers were billed improperly for cable converter boxes and remote controls under basic service plans in the Philadelphia County Court of Common Pleas. Comcast is a nationwide cable provider based in Philadelphia.

A month later, Comcast filed a notice of removal to the federal district court, but the case was remanded to the Philadelphia County court in Oct. 25, 2004. Comcast filed a petition to compel arbitration and stay litigation two months later, and also filed preliminary objections to Thibodeau's class action and representative claims.

After January 2005, oral arguments, the trial court entered two June 2005, orders, denying Comcast's petition to compel arbitration and its preliminary objections. Comcast appealed the trial court orders.

Addressing Comcast's first appellate argument--that the trial court erroneously interpreted and applied the Federal Arbitration Act and that FAA broadly preempts state law from invalidating arbitration agreement--the unanimous three-judge appellate panel invoked Buckeye Check Cashing Inc. v. Cardegna, 126 S. Ct. 1204, 1208 (2006). It observed, “Challenges to the validity of arbitration agreements governed by the FAA can be classified as one of two types: (1) a challenge specifically to the arbitration clause; or (2) a challenge to the contract as a whole. . . .

This case involves a challenge specifically to the arbitration clause. Consequently, this issue was properly decided by the trial court.”

The opinion discusses numerous cases on the review standard for a state court determination of whether an enforceable arbitration agreement exists, noting that the standard “directs a state court to look to the body of federal arbitration law.”

The opinion notes, “Upon review of the FAA, it is clear that Congress did not intend to occupy the entire field of arbitration agreements. The FAA does not contain any explicit preemptive provisions. Moreover, section 2 of the FAA specifically provides for the application of state law in certain circumstances consistent with the FAA's purpose.”

The panel observed that “the trial court applied general principles of Pennsylvania contract law, applicable to all contracts, when it concluded that the arbitration provision at issue was unconscionable and unenforceable.”

The panel, restating the trial court's opinion that “Pennsylvania law, like the FAA, favors arbitration,” and “where the arbitration clause is contained in an adhesion contract and unfairly favors the drafting party, such clauses are unconscionable and must be deemed unenforceable.”

In addressing the issue of preclusion of class action litigation in consumer adhesion contracts, the decision relied on the California Court of Appeals’ Szetela v. Discover Bank, 97 Cal.App. 4th 1094, 118 Cal.Rptr.2d 862 (2002), where the court held “that forced individual arbitration by precluding class actions is so one-sided as to be ‘blindingly obvious’ and violated ‘fundamental notions of fairness.’” (Quoting the trial court opinion’s analysis in Thibodeau.) The California court also “found that because the effect of the enforcement of the agreement was corporate immunity, preclusion of class action litigation was unconscionable.”

The Pennsylvania appellate opinion examines the nature of class action litigation. It notes that it is “only through the class action vehicle” that small consumer claims can be redressed, like in Thibodeau where the class members allege they have been overcharged $9.60 per month. The appeals court, still quoting the trial court, states that such a claim would have not been litigated or arbitrated individually, considering the cost, fees, time and other expenses involved.

The appellate panel notes that it is contrary to public policy to effectively immunize large companies like Comcast effectively from challenges and minor consumer claims by allowing them to preclude class action litigation or arbitration.

“The preclusion of class wide litigation or class wide arbitration of consumer claims, imposed in a contract of adhesion, is unconscionable and unenforceable,” the court notes, quoting the trial court opinion.

Addressing whether the trial court properly applied the Pennsylvania law rather than Massachusetts law, the appellate court relied on Zapatha v. Dairy Mart Inc., 381 Mass. 284, 292-93 (1980) and stated, “pursuant to Massachusetts law, the application of this arbitration clause would also be determined to be unconscionable. Because no true conflict existed, we conclude that the trial court did not err in applying Pennsylvania law.”

The appeals panel concluded that the arbitration agreement was an unconscionable contract of adhesion, affirmed the trial court order, and relinquished jurisdiction.

--Ongmu Tshering, CPR Intern