Arbitration Clause Barring Class Action Lawsuits in Contract Governed by Federal Arbitration Act (FAA) Valid and Enforceable Georgia Federal Court Holds, Agreeing with Defense that Arbitration Agreement was not Unconscionable
Plaintiffs filed a putative class action in Georgia state court against their cable television company alleging that it overcharged them for cable television services in violation of the federal Cable Communications Policy Act, 47 U.S.C. § 522 et seq. Dale v. Comcast Corp., 453 F.Supp.2d 1367, 1370 (N.D. Ga. 2006). Defense attorneys removed the action to federal court and moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA) that arbitration clause required customers to bring claims only in an individual capacity, thereby precluding participation in class action lawsuits, id., at 1374. Specifically, the arbitration clause provided, ” ALL PARTIES TO THE ARBITRATION MUST BE INDIVIDUALLY NAMED, THERE SHALL BE NO RIGHT OR AUTHORITY FOR ANY CLAIMS TO BE ARBITRATED OR LITIGATED ON A CLASS ACTION OR CONSOLIDATED BASIS OR ON BASIS INVOLVING CLAIMS BROUGHT IN PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE GENERAL PUBLIC (SUCH AS A PRIVATE ATTORNEY GENERAL), OTHER SUBSCRIBERS, OR OTHER PERSONS SIMILARLY SITUATED.” Id. The district court granted the defense motion.
Comcast provides its customers with a “subscriber agreement” at the time it installs service, and “on an annual basis, [it] disseminates notices of its policies and practices to its subscribers by including them in the subscribers’ monthly bills.” Dale, at 1371. Notice of the arbitration clause was provided to customers in December 2004 via “a billing stuffer entitled ‘Important Notices to Our Customers: Your Local Cable Company’s Policies & Practices,'” id., and noted that this complied with federal law, id., at 1372 n.2. For new customers, Comcast provided notice of the arbitration agreement at the time service was installed, and new Comcast customers signed forms agreeing to be bound to the terms of the subscriber agreement. Id., at 1371. The district court found that “plaintiffs were given copies of the Subscriber Agreement containing the arbitration provisions at the time of installation of their service” and that “when defendant amended the Subscriber Agreement, it notified plaintiffs that the changes would not take effect for thirty days and that plaintiffs could cancel their service if they objected to the changes.” Id., at 1377 n.4. Defense attorneys moved to compel arbitration and to dismiss the class action allegations.
In analyzing the defense motion, the federal court held that while it was obligated to determine the validity of the arbitration clause under state contract laws, Dale, at 1371-72, “as the FAA is ‘preemptive of state laws hostile to arbitration,’ the court should take into consideration the federal policy favoring arbitration,” id., at 1372 (citing Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367-68 (11th Cir.2005)). The district court first rejected plaintiffs’ claim that they never entered into an arbitration agreement with Comcast. Id. Comcast established that it sent the notices in the regular course of business, and that plaintiffs’ paid their December 2004 bills evidencing that they received the billing statements. Based on the evidence presented, the federal court concluded “that plaintiffs’ denials and/or conclusory declarations that they do not recall receiving copies of the arbitration provisions are insufficient to defeat defendant’s motion to compel.” Id.
The district court next rejected plaintiffs’ claim that the arbitration agreement did not include the full panoply of theories alleged in the class action complaint; specifically, plaintiffs argued that the claim for theft fell outside the arbitration clause. Dale, at 1374. In considering this claim, the court reiterated that “it must keep in mind the federal policy favoring arbitration.” Id. The federal court then rejected plaintiffs’ argument because the agreement excluded claims for theft of service, not theft of money. Id. The court also held that, under the federal policy favoring arbitration, the class action claims clearly fell within the scope of the agreement. Id., at 1374-75.
Turning to the question of unconscionability, the district court explained that “Georgia law recognizes two types of unconscionability: ‘[p]rocedural unconscionability addresses the process of making the contract, while substantive unconscionability looks to the contractual terms themselves.'” Dale, at 1375 (citation omitted). The district court held that plaintiffs’ procedural unconscionability claims attacked the subscriber agreement as a whole, and thus – based on U.S. Supreme Court and Eleventh Circuit authority – were issues to be resolved by the arbitrator rather than the court. Id., at 1376. To the extent the challenges went to the arbitration clause itself, the court held that “plaintiffs have not presented any evidence that the arbitration agreement was procedurally unconscionable” and expressly found “no indication that plaintiffs have been defrauded or coerced into agreeing to the arbitration provisions contained in the Subscriber Agreement.” Id. On the contrary, the manner in which the information was presented “indicates that it would contain information of significance to subscribers regarding the terms and conditions of their cable service as well as procedures for addressing problems with the service.” Id.
As to substantive unconscionability, the district court refused plaintiffs’ invitation to apply California law finding “class action waivers in consumer contracts of adhesion” unconscionable “in a setting where disputes involved small amounts of damages.” Dale, at 1376 (citing Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005)). California law was not controlling, particularly when “the Eleventh Circuit has upheld arbitration agreements precluding class action relief.” Id. (citations omitted). Indeed, the district court flatly rejected the California Supreme Court’s rationale, explaining at page 1377 that “the simple and expeditious nature of arbitration is precisely what makes it ‘an attractive vehicle for the resolution of low-value claims'” (citation omitted). And the court found support in the fact that it “must take into account the federal policy favoring arbitration as a method for dispute resolution.” Id., at 1376-77 (citations omitted). Accordingly, the district court concluded that the arbitration agreement was not substantively unconscionable. Id., at 1377.
Finally, the district court granted the defense motion to dismiss the complaint, rejecting the argument of plaintiffs’ lawyers that the appropriate course of action was to refer the action to arbitration and stay further proceedings in the federal court pending completion of the arbitration. Dale, at 1378.