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FAA Class Action Defense Cases–Kaltwasser v. Cingular Wireless: California Federal Court Refuses To Enforce Class Action Arbitration Wavier Or Arbitration Clause In Wireless Service Agreement Holding It Unconscionable Under California Law

Defense Motion to Compel Individual Arbitration of Class Action Claims under Wireless Service Contract Denied because Arbitration Agreement, which Included Class Action Waiver, was Unconscionable California Federal Court Holds

Plaintiff filed a putative class action against Cingular Wireless alleging violations of the California’s Business and Professions Code and Consumer Legal Remedies Act, and for breach of contract; specifically, the class action complaint alleged that plaintiff signed up for wireless service with Cingular, and renewed his service based “on advertising that identified Cingular as the wireless service with the fewest dropped calls,” but that this representation is untrue. Kaltwasser v. Cingular Wireless LLC, 543 F.Supp.2d 1124, 1126-27 (N.D. Cal. 2008). Defense attorneys moved to compel arbitration pursuant to the Federal Arbitration Act (FAA). Id. The arbitration clause in plaintiff’s wireless service contract provided that the parties “agree to arbitrate all disputes and claims arising out of or relating to this Agreement for Equipment or services between Cingular and you” and contained a class action waiver. Id., at 1127. Cingular modified the arbitration clause so as to state in part, “Cingular and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to: claims arising out of or relating to any aspect of the relationship between us …; claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising); claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and claims that may arise after the termination of this agreement.” Id. The district court denied the motion.

The district court began its analysis by observing that the FAA applies “to all written contracts involving interstate or foreign commerce” and was “enacted to overcome longstanding judicial reluctance to enforce agreements to arbitrate.” Kaltwasser, at 1127. On the other hand, the FAA does not “entirely displace[]” state law. Id., at 1128. The court recognized that the FAA governed the dispute, so the question is whether the contract was enforceable under state law. Id. The first question was one of choice of law. The contract defined the governing law as that of “the state of your billing address”; but plaintiff’s address was in California when he entered into the contract and in Virginia when he filed suit. Id., at 1128. The district court held that California law governed the contract. Id., at 1128-30.

With respect to the unconscionability factor, the federal court noted that this inquiry presents a question of law and that “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Kaltwasser, at 1130 (citation omitted). Here, Cingular plainly had superior bargaining power, and it “drafted the Wireless Service Agreement and presented it to Kaltwasser in a take-it-or-leave-it format, with no opportunity for negotiation, while retaining the unilateral right to amend its terms.” Id. Under California law, the fact that the agreement was likely to be enforced only by Cingular is indicative that it is one-sided and, under the facts of this case, substantively unconscionable. Id., at 1131 (citations omitted). Accordingly, the district court denied the motion to compel arbitration. Id.

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