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Unconscionability: Cingular's Arbitration Clause Passes Muster, DC Federal Court (Web)

In Riensche v. Cingular Wireless LLC, 2006 WL 3827477 (W.D. Wash. Dec. 27, 2006), a federal district court in Washington’s western district denied the defendant cellular telephone provider's motion to compel arbitration, because its consumer contract class-action prohibition, and its limit on the availability of an injunction, were substantively unconscionable under Washington state law.

The court examined the agreement for both procedural and substantive unconscionability. The agreement satisfied case law standards in most instances, and was held not procedurally unconscionable.

But because of the two substantive areas, the arbitration agreement was stricken. Plaintiff Nathan Riensche was still liable to Cingular under the agreement, which is free to litigate the issues involving charges under its contract.

Riensche filed a class action suit against the Cingular Wireless asserting breach of contract and violation under the Washington State Consumer Protection Act, RCW 19.86 et seq., for failure to disclose, and charging tax surcharge to its wireless customers.

In 2004, the plaintiff signed up with the defendant's online. He was given the Terms of Service, but he didn’t read the document. He accepted it, however, by proceeding to online checkout and completing his purchase.

After becoming a customer of the defendant's, the plaintiff received a Welcome Kit, which also included a copy of the service terms. The Terms of Service also contained an arbitration provision.

In 2006, the plaintiff upgraded his service through Cingular’s online store. Once again, he was presented with the Terms of Service and accepted it. The plaintiff also received another Welcome Kit via regular mail with the Terms of Service attached.

The plaintiff stated that he did not recall having received a copy of the Terms of Service when he received the Welcome Kits in 2004 and 2006. Cingular submitted evidence that the Terms of Service were provided in asking the court to compel arbitration.

The plaintiff alleged that there was a lack of agreement since he did not receive or read the Terms of Service. Moreover, Riensche assumed that the arbitration agreement was unenforceable and unconscionable based on his involvement in an earlier suit against AT&T, which was purchased by Cingular.

The court stated that the plaintiff was incorrect in not reading the terms, as it does not absolve him from an obligation to be bound by those terms. Michak v. Transnation Title Ins. Co., 148 Wn.2d 788,799 (2003). The plaintiff's contention that the arbitration clause is unenforceable based on these procedural issues had no basis, the court ruled.

The court, in an order by U.S. District Court Judge Thomas S. Zilly, also held that the defendant did not waive the right to compel arbitration by removing the case to federal court.

Cingular’s case faltered under the substantive unconscionability analysis. And, the opinion notes, “Under Washington law, a contract is unenforceable if it is substantively unconscionable, even if it is procedurally conscionable.”

The opinion found that using American Arbitration Association rules on discovery didn’t make the arbitration clause substantively unconscionable. Neither did the costs to the plaintiff nor the attorneys’ fees provision. Cingular’s ability to change the agreement also passed muster, since Riensche would have the opportunity to reject the change.

But the opinion held that the Cingular arbitration clause’s class-action prohibition is unilateral and excessively favorable to the defendant, and is substantively unconscionable.

The opinion also holds that in the plaintiff’s favor that the arbitration clause unfairly limits the remedies available to consumers, and also is substantively unconscionable.

On the issue of severability, the opinion notes that if it is found that the arbitration agreement is unenforceable, then the entire clause will be null and void.

Therefore, since the class action provision is found to be substantively unconscionable; Judge Zilly concluded that the arbitration clause was null and void, and the defendant's motion to compel arbitration was denied.

–Julie John, CPR Intern