AT&T Arbitration Clause Ruled Unconscionable

Tech.Luver writes to tell us the Consumerist is reporting that a small clause in AT&T contracts has been ruled "unconscionable" by the 9th circuit court of appeals. The clause in question stated that if you use AT&T service you surrender your right to class action lawsuits and instead have to participate in mandatory binding arbitration.

Comments

Old news

[Zatchmort]

Well, this is nothing new. Most "contracts" are just waiving the consumer's rights. On the other hand, I'm glad somebody finally called them on it, since this is so blatantly obvious.

all fine print

[seanadams.com]

"unconscionable" basically means that no person of sound mind could have been expected to accept the contract at the time the contract was signed.

Seem to me like that should apply to all EULAS, click-through terms of service, notice of terms after the fact, etc. No person should be expected to wade through such a contract for such trifling matters as purchasing a telephone, installing some software, etc.

Re:all fine print

[kimvette]

Well, where software is concerned, EULAs are moot. You see the EULA after you make the purchase and open the package. Open the package, the store will refuse to accept it. Your right of first sale (it's a commodity good, NOT a work for hire) allows you to use it for its intended purpose without restriction. You are still of course bound by patents and copyrights, but not to use the package for its advertised purpose, or even to resell it to someone else when you're finished with it.

With AT&T, you're buying a service; it amounts to a work for hire, in essence. As such, they can require you to agree to certain terms, but not ones which would restrict you from certain rights, e.g., if they work with the government to subert your constitutional rights (e.g., engaged in wiretapping without a warrant), engage in fraud and charge you for services you do not receive, or falsely advertise their services (advertising them as unlimited), and so forth, it is unreasonable for a court to accept that waiver of such rights is valid or even possible.

Re:all fine print

[Anonymous Coward]

No, binding arbitration is NOT of benefit to both sides of this particular contract, nor of many similar contracts.

For most consumer services, such as those offered by AT&T, the amount of any dispute is likely to be too small to make it worth anybody's while to go to arbitration. Yes, it would cost even more to go to court, but the fact is that the consumer isn't going to recover enough to cover the costs of arbitration, any more than she would recover the costs of litigation.

Therefore, even if a consumer can afford it, the only way she is going to bring up such a dispute is as a matter of principle... and there's not even any incentive to do THAT, because the point of bringing up a matter of principle is to punish somebody for wrongdoing, and the amount recovered by arbitrating a single dispute would mean nothing to a huge player like AT&T unless many, many people went to arbitration, which everybody knows they won't... especially since AT&T's costs for arbitrating thousands of nearly identical cases are far lower than consumers' costs for arbitrating those same cases one-by-one.

Forcing everything to be arbitrated on a case-by-case basis would mean that the cost to consumers of recovering whatever they've been screwed out of was hundreds or thousands of times the amount recovered. Which means that nobody would actually get compensated, nor would AT&T (or whoever) ever suffer enough costs to deter bad behavior.

That's why there are class actions... they're there so that the larger party in this sort of situation can't just change the rules at will, ignore the other terms of the contract, screw over the other parties, and suffer no consequences whatsoever.

So, basically, to be opposed in principle to class actions is to say that people screwed over by large corporations should get no recourse at all. Maybe the corporation has to worry about its reputation, but it will never be FORCED by law to live up to its contracts the way you or I would be.

That is unconscionable. It puts large players above the law, it is basically a return to feudalism, and it is repugnant to any decent person.

Fuck you, you corporate cocksmoker.

Re:all fine print

[Kadin2048]

In fact, almost all contracts these days include binding arbitration clauses. This is a good thing, because it helps to reduce the number of frivolous lawsuits clogging up the court. You seem to assume that all lawsuits are frivolous. This is dumb -- if that was true, we should just eliminate the entire legal system and let people work everything out mano y mano.

Allowing monopolists to force consumers to give up their rights is obviously wrong and subverts centuries of jurisprudence.

Re:all fine print

[Guppy06]

"Literally the only people this ruling benefits are class action vulture attorneys, who sue, cost a company millions of dollars, and get those actually effected small coupons to buy more of the defective product."

Considering this is AT&T we're talking about, I'm sure this is also a win for civil liberties groups looking to actually take AT&T to court for their warrantless wiretaps.

Re:all fine print

[jhp64]

I've also heard the critique that arbitrators may not be completely impartial. I think they are not randomly assigned, like judges can be, but instead are hired by the parties. Now consider: big companies try to use arbitrators a lot, while any given individual will rarely if ever use one. If you're an arbitrator who rules against a big company, how much business is that company going to give to you in the future? If you rule against an individual, how much does that hurt you?

Therefore in the arbitration system, there is an incentive for arbitrators to rule against individuals and in favor of big corporations.

Re:all fine print

[ObsessiveMathsFreak]

Please understand that attorney advertising was an ethical violation in all 50 states until the bizarre Supreme Court ruling that it was an issue of "commercial free speech," and understand that attorneys are overwhelmingly opposed to it and embarrassed by the ambulance chasers who have destroyed our profession.

Please.

The ambulance chasers are only one symptom of the omnipresent rot in the legal profession. That your industry has escaped much needed regulation and oversight is a testament to just how much undue power and influence lawyers have on our society, laws and governments.

In a country where anyone can, without qualification, defend themselves in court, the entire concept of a bar associations is a joke to begin with. They exist for one purpose; to line the pockets of their members. How many US bar associations really protested against Guantanamo? How many stand against illegal wiretapping? Shouldn't the legal profession be at the forefront in defending the attack on legal rights. Instead they're more likely to be found in positions of power, leading that same attack.

Your profession is pretty much rotten to the core. Personally, I would just get rid of bar associations and the like and subject the whole lot of you to the harsh winds of the free market and watch your tear yourselves apart. But that's never going to happen is it? You're the ones that end up drafting all the laws after all.

Re:Article or link?

[Constantine XVI]

http://consumerist.com/consumer/victories/cingular s-class-arbitration-waiver-ruled-unconscionable-by -9th-circuit-court-of-appeals-290806.php
It was edited out of the Firehose entry (by mistake, I assume)

Re:Article or link?

[Constantine XVI]

It's actually Sunday.

Isn't this is most or all credit card agreements?

[Etherwalk]

Isn't this in most or all credit card agreements?

Out of hand

[WwWonka]

I am glad this got struck down. We are seeing more and more of corporate America using these so called "to smart for the normal guy" contracts that really are never read,signed, or agreed to in a "normal" manner. Hell, recently I got a postcard from Sprint saying that my monthly web service was going to rise a few dollars a month and that by paying my next bill I agree to their service and conditions and the raise. What the f&*k? Of course I am going to have to pay my bill or else they would shut my service off, give me a bad credit mark, and then go to collections on me. A no-win situation.

I keep asking myself, what the f$*k is going on in America lately?

Re:Out of hand

[Technician]

Hell, recently I got a postcard from Sprint saying that my monthly web service was going to rise a few dollars a month and that by paying my next bill I agree to their service and conditions and the raise.

Enclose a photocopy of the postcard with your bill and without a check and send it in with a note.

"Please contact me regarding the rejection of your new rate offer, my contract and payment of this bill."

See what happens.

Where's the FTC?

[schwit1]

Unconscionable terms are in most consumer contracts today, whether it be a product or a service. That's what happens when big business owns the government. AT&T has more influence with my elected representatives because of campaign finance rules, legalized influence pedaling and lobbyists.

This won't change until campaign contributions are limited to registered voters.

...and in Canada

[Hemogoblin]

Michael Geist recently wrote on his website about this topic and how it applies in Canada. Unfortunately, the Supreme Court of Canada concluded that the arbitration clause was enforceable and that the use of a hyperlink was sufficient.

Re:9th Circuit == Pretty Liberal

[Registered Coward v2]

It's really no surprise. The 9th circuit's one of the most liberal courts in the country and so people looking for them to assert the right to liberal activities usually try and sue through them, and class action lawsuits are about as liberal as you can get.

Regardless of the 9th CC's viewpoint; a class action lawsuit is neither liberal or conservative; rather it adds a level of certainty to the legal landscape. Rather than face potentially hundreds of expensive lawsuits all around the country; class actions allow corporations to resolve liability issues once and in a final manner; while allowing individuals to sue when it would be too expensive to try to sue individually. I would expect the business community to prefer class actions suits to the alternative of defending themselves everywhere over small amounts; even though the likelihood of such cases is much smaller since the payouts probably
wouldn't cover the lawyers fees. Still the certainty of class actions is better than uncertainty of individual actions since you at least have some control over teh cost of defense and ultimate liability.

Re:Article or link?

[xouumalperxe]

Neither. Slashdot has just passed the denial stage regarding its readers ever reading TFA.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Re:Unconscienable == invalid & unenforceable

[clearreality]

The 9th Circuit's decision on this one seems to be well-reasoned. You can read the decision here.(PDF)

They basically state that the contact in question for this type of case must be a contract of adhesion, and they clearly define what that means. A contract of adhesion is defined as a contract between a party of greater bargaining power and a party of weaker power (ie, AT&T and a wireless subscriber), and the contract must be standardized for use with all equivalent parties of weaker power (ie, all wireless subscribers), and the presentation of that contract must be "take it or leave it" (ie, no chance to negotiate).

It is good to note that the ability to walk away from a contract does not change that the contract is a contract of adhesion, even if you accept that contract instead of walking away.

The court also adequately addresses the issue of marketplace alternatives, specifically stating that even if meaningful alternative services exist (ie, Verizon, Sprint, T-Mobile, etc), that this does not change the fact that the contract may be procedurally unconsionable (a "contract of adhesion" is also stated as being automatically procedurally unconsionable to some degree).

Note, for a contract or clause of a contract to be unenforceable, it has to be both substantively and procedurally unconsionable to enough of a degree as to be ruled unenforceable. Please read the court's decision and other documents to learn more about legal unconsionability.

On the issue of arbitration, the court seems to treat arbitration with respect, and cites several cases where arbitration was used and also lists some favorable reasons for people and companies to use arbitration. This is clearly not a case of the court dismissing arbitration -- this is a case where the members of the class who want to sue AT&T would be at a severe disadvantage if they were required to use individual arbitration. Note, AT&T stated that they did not want to use class arbitration to resolve the issue, they specifically wanted individual arbitration. The court actually presents opinions supporting class arbitration at one point in the decision.

This decision makes sense, and shows that terms that are included in contracts of adhesion are vulnerable to being ruled unenforceable. This is good news from the consumer standpoint, and does not weaken arbitration or consumer's rights in any way I can see.

I am not a lawyer. I just RTFA.

Re:Article or link?

[Anonymous Coward]

Wait a second. Are you saying that the editors actually did something?

Re:hooray!

[AchiIIe]

Actually, your right online `on second life` had a similar ruling

  Second Life Arbitration Clause Unenforceable
> http://games.slashdot.org/article.pl?sid=07/06/08/ 2017257

I see a trend here. On the other hand, if those contracts were permitted then I'd be having my own that read as follows:

Legal Notice: BY ACCEPTING THIS BRICK THROUGH YOUR WINDOW, YOU ACCEPT IT AS IS AND AGREE TO THE DISCLAIMER OF ALL WARRANTIES, EXPRESSED OR IMPLIED, AS WELL AS DISCLAIMERS OF ALL LIABILITY, DIRECT, INDIRECT, CONSEQUENTIAL OR INCIDENTAL, THAT MAY ARISE FROM THE INSTALLATION OF THIS BRICK INTO YOUR BUILDING.

Re:Article or link?

[Aladrin]

Yes, but they didn't do it right, so all is normal. Don't panic.

It's a California law issue

[Animats]

The key to this is that California law applies. "Under California law, a contract provision is unenforceable due to unconscionability only if it is both procedurally and substantively unconscionable." The "Discover Bank test" applies: "Under this three-part inquiry, courts are required to determine: (1) whether the agreement is " 'a consumer contract of adhesion' " drafted by a party that has superior bargaining power; (2) whether the agreement occurs " 'in a setting in which disputes between the contracting parties predictably involve small amounts of damages' "; and (3) whether " 'it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.' (quoting Discover Bank, 36 Cal. 4th at 162-63)"

Arbitration clauses aren't being disallowed generally. But when, as the court puts it, "the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money", the courts can allow class action suits.

This is a routine decision based on California law; there are about a half dozen cases so far based on Discover Bank. Read the decision.

A blow against corporate rights.

[Jafafa Hots]

Exactly. This is just another step towards letting defenseless multinational corporations be bullied around by individual consumers. Who's next - the members of the RIAA? Someone has to think of the multinationals!

Re:A few other examples

[Anonymous Brave Guy]

I assume we're talking about the situation only in the US here. This problems has been addressed, reasonably successfully, in various other jurisdictions.

For example, in the UK we have a legal requirement that a shop advertising a typical returns policy also has to state clearly that shoppers' statutory rights are not affected. That and things like the Sale of Goods Act and Distance Selling Regulations guarantee shoppers some basic protections regardless of anything a vendor might like to say at sale time.

From a different angle, we have the Unfair Contract Terms Act, which basically says that certain types of contractual clause (things like disclaiming liability even in the case of obvious negligence) are not enforceable.

As a third approach, there is also the point that you have to go into a contract with both sides understanding what's happening and getting something out of it. If you have a contract that is basically a standard issue piece of legalese prepared by the legal department of the big guy, and not effectively negotiable by the little guy, then the courts can strike parts of it if they determine that the imbalance in bargaining power meant the basic properties of a binding contract weren't met.

So through a combination of requiring that those being given information about Ts and Cs also be told that they have other rights, and statute law that renders certain kinds of gross disclaimer explicitly impotent, and the ability for courts to cancel out parts of a contract that weren't negotiated on an equal basis, we have a reasonable degree of protection against the sort of thing you're talking about.

I don't know what the situation is here regarding binding arbitration, though. I've heard of it being used, but from an ethical perspective I tend to think that such terms should automatically be considered unfair in law. We have a legal system to resolve our differences, and allowing a contract to specify that one party may not avail themselves of that system without jumping through hoops is just undermining the legal system. The only reason someone could possibly have for that is if they wanted to pull a fast one that the legal system would not let them get away with. I do appreciate that for two large organisations with effectively equal bargaining power this might not be the case, but I think with things like this it's always best to err on the side of caution.