Reinsurance Focus

The Ninth Circuit Court of Appeals held that a “new twist” on the previously addressed issue of when an arbitration provision barring aggregation of individual claims is unconscionable did not command a new result. Plaintiffs brought a class action suit in California federal court against AT&T Mobility, LLC, alleging that they were unfairly charged sales tax on the retail price of a new phone that had been offered as “free” with the sign-up of new service. AT&T demanded that the claims be submitted to individual arbitration, as per the arbitration provision of the provider agreement. The plaintiffs pointed to a previous Ninth Circuit decision, Shoyer v. Cingular Wireless Services, Inc., (9th Cir. 2007), which held that a similar arbitration provision was unconscionable in part because it tended to prevent plaintiffs from suing on individual claims due to the disproportionate legal expense of doing so vis-à-vis the small amount of damages at issue. The class action procedure, the Court held in Shoyer, is designed to avoid this problem. However, AT&T’s arbitration clause contained a provision requiring the company to pay $7,500 to any claimant who won an arbitration award in excess of AT&T’s last offer, in order to provide financial incentive for claimants to bring individual claims and to address the inequity identified by the Court in Shoyer. Nevertheless, the Ninth Circuit was not convinced that this new language cured the defect of tending to prevent individual claims from being vindicated, due to the small amount of damages. The Court additionally held that the FAA does not trump California contract law on unconscionability. Laster v. AT&T Mobility, LLC, No. 08-56394 (9th Cir. Oct. 27, 2009).

This post written by John Pitblado.