I thought you might like to read a hot-off-the-presses appellate court decision [PDF] in a case from Washington State, McKee (Michael) v. AT&T Corp., where the court just found certain clauses in AT&T's EULA "unconscionable". I have it as text for you. But what does that mean? This ruling will help you find out. The ruling explains what the term means. And there's a section on choice of law, too, which some of you were asking about the other day, so you can see how the court chose Washington State, despite the AT&T argument that it should be New York. Now that we've decided to follow the Apple v. Psystar case, I was particularly interested in sharing it with you, because this ruling will help you understand one of the affirmative defenses Psystar has raised, claiming that Apple's terms are both substantively and procedurally unconscionable. It's their 13th affirmative defense.
I also want you to see why I always tell you that it's in the court system that the little guy at least has a chance to get a fair shake, no matter how huge and powerful the other side might be.
"Courts, not arbitrators, decide the validity of arbitration agreements," the court wrote, and this one didn't pass the sniff test in all its parts: AT&T's Consumer Services Agreement
is substantively unconscionable and therefore unenforceable to the extent that
it purports to waive the right to class actions, require confidentiality, shorten
the Washington Consumer Protection Act statute of limitations, and limit
availability of attorney fees. We emphasize that these provisions have
nothing to do with arbitration. Arbitrators supervise class actions, conduct open hearings, apply appropriate statutes of limitations, and award
compensatory and punitive damages, as well as attorney fees, where
appropriate. Courts will not be easily deceived by attempts to unilaterally
strip away consumer protections and remedies by efforts to cloak the waiver
of important rights under an arbitration clause. The dispute resolution section
is severable from the balance of the contract. We affirm the trial court in all
respects unless otherwise noted and remand for further proceedings consistent
with this opinion. The ruling doesn't apply in every state, so don't get your hopes up if you live in places like New York, where they allow waivers of class-based relief, for example. But I thought you'd be interested to learn a bit about what can lead a court to decide a EULA or parts of one is unconscionable.
It's a case about a guy, Michael McKee, who thought he was being overcharged by AT&T, but not by much, just a bit each month, for years and years, and when he tried to sue about it, bringing a class action lawsuit, AT&T brought a motion that sought to move the matter to binding arbitration, which it claimed was required under their agreement terms. The agreement also said you couldn't bring a class action lawsuit and required confidentiality regarding the arbitration, as the court describes it: It forbids class actions and requires that all arbitrations be kept
confidential. The agreement also states in relevant part that "[n]o dispute
may be joined with another lawsuit, or in an arbitration with a dispute of any
other person, or resolved on a class-wide basis," and "[a]ny arbitration shall
remain confidential. Neither you nor AT&T may disclose the existence,
content, or results of any arbitration or award, except as may be required by
law or to confirm and enforce an award." CP at 718-19. The dispute
resolution section also provides that any claim must be brought within two
years and limits a consumer's right to collect punitive damages and attorney
fees.
McKee opposed the motion to compel arbitration, on the grounds that the agreement was "substantively and procedurally
unconscionable".
The lower court eventually ruled in his favor, and AT&T appealed. Now the appeals court has upheld the lower court in substantial part. What it ruled is that the particular rights consumers were asked to give up had nothing to do with the purpose of arbitration, which is to speed up justice for the little guy, to make it easier for consumers, not to rob them of rights: Class actions actually promote the prime objective of an agreement
to arbitrate, which is "'streamlined proceedings and expeditious results.'"... Similarly, arbitrations can (and often should) be conducted openly and without secrecy,
apply appropriate statutes of limitations, award damages (both compensatory
and punitive), and award attorney fees. Limiting consumers' rights to open
hearings, shortening statutes of limitations, limiting damages, and awarding
attorney fees have absolutely nothing to do with resolving a dispute by
arbitration. Courts will not be so easily deceived by the unilateral stripping
away of protections and remedies, merely because provisions are disguised as
arbitration clauses.
Substantive and Procedural Unconscionability
Here's how Law.com's legal dictionary defines unconscionable:
unconscionable
adj. referring to a contract or bargain which is so unfair to a party that no reasonable or informed person would agree to it. In a suit for breach of contract, a court will not enforce an unconscionable contract (award damages or order specific performance) against the person unfairly treated, on the theory that he/she was misled, lacked information or signed under duress or misunderstanding. It is similar to an "adhesion contract," in which one party has taken advantage of a person dealing from weakness. What that's saying is that courts take note of contracts between a 900-pound gorilla corporate entity and a mere individual, and that is particularly the case if it's a "take it or leave it" type of contract from the gorilla.
Here's the definition of substantive unconscionability, from GetLegal's dictionary: substantive unconscionability
(n)
:unconscionability of a contract that arises from the terms of the contract and esp. from terms that are found to be one-sided, unjust, or overly harsh
So it's a term for the content of a clause.
What about procedural unconscionabililty? It has to do with the process, how the deal went down. GetLegal's dictionary: procedural unconscionability
(n)
:unconscionability that derives from the process of making a contract rather than from inherent unfairness or unreasonableness in the terms of the contract ...Procedural unconscionability is based on factors, such as consumer ignorance or a great deal of unexplained fine print, that serve to deprive a party of a meaningful choice. In this case, the the court found that McKee wasn't given a copy of any contract when he signed up for services. He signed up years ago, and while AT&T said it mailed him a copy, he said he never got it, and he never signed anything mailed to him. Even in an electronic signup, the court said, "the consumer
has an opportunity to review the contract and is given the choice to 'agree' before the contract is formed." And here's where I thought it might get interesting: AT&T apparently mailed the terms and conditions to McKee
10 days to two weeks after he subscribed for service. AT&T retained the
right to unilaterally change the contract by posting the change on its web site
or by mailing the notice of the change. A consumer was deemed to have
agreed to the changes by continuing to use AT&T service whether the
consumer had actual notice of the change or not. At no time was the
consumer required to read and sign or affirmatively acknowledge acceptance
of the terms and conditions. These facts raise an issue of whether McKee had
a reasonable opportunity to understand the terms and a meaningful choice. Woah. Is the court really going to toss out such EULAs, I wondered? Not this time, anyway. The court decided that since it already found some of the other clauses substantively unconscionable, it didn't have to decide this issue of procedural unconscionability: However, having held below that the entire
dispute resolution provision is substantively unconscionable, we find it
unnecessary to reach the issue of procedural unconscionability. Rats. I really want a court that issues rulings like this one to decide that question. But at least we know now what substantive and procedural unconscionability mean. Psystar is claiming Apple is guilty of both, so now at least we know what they are talking about -- alleging that the Apple terms are both unfair in their content and that some aspect of the process is also unconscionable.
We'll see. But Psystar is in California, not Washington State, and I gather in California to get a EULA overturned, it has to be both substantively *and* procedurally unconscionable, not just substantively. Here's how one lawyer explains it on his blog, Cal Biz Lit, in an article titled How to Get Out of a Contract: Nonetheless, our courts allow attacks on contracts for “unconscionability.” To overturn a contract on this ground, the contract must be both “procedurally” unconscionable and “substantively” unconscionable. Discover Bank v. Superior Court (2005) 36 Cal.3d. 148, , 160. A procedurally unconscionable contract is one involving “oppression” or “surprise” because of unequal bargaining power, while substantively unconscionable terms are those which are unfairly one-sided.
The way the analysis works is this: As a threshold matter, the court must look at whether there is procedural unconscionability, and if there is any, it then turns to the substantive unconscionability question. If both are present, the court may choose not to enforce the contract. And this is a sliding scale process: if the substantive terms are sufficiently harsh, it won’t take much in the way of procedural problems to get the contract knocked out. But there still has to be some. So when two parties sit down at the table and hammer out each term on a custom, one-on-one basis, the courts will tolerate fairly harsh outcomes, assuming that this is what the parties wanted. But when the contract is a form, dictated by one side on a take-it or leave-it basis, there's always a risk that the court will find procedural unconscionability and then dig in looking for fairness issues. He goes on to discuss in depth a 2007 case that was decided by the Califonia appeals court, Gentry v. Circuit City . His view is that it "may open up the potential for unconscionability arguments in all kinds of contracts, and strike a big blow against all kinds of 'contracts of adhesion.'” That tilts things, I assume, in Psystar's direction. Another attorney comments on the Gentry case, and I gather there is a trend in California. Don't be thrown by one calling it Gentry v. Circuit City and the other Gentry v. Superior Court. The whole title is Gentry v. Superior Court, respondent, and Circuit City, real party in interest. They are discussing the same case. Here's a list of other cases regarding unconscionability in California now pending. What exactly should the courts do to protect consumers from being induced into unconscionable contracts?
What the Purpose of Arbitration Is and How It Can Be Gamed by Gorillas The purpose of arbitration isn't to strip away rights from consumers, the court ruled. In Washington State, then, a clause requiring a consumer to waive class actions is sufficient to have the clause found unconscionable. Why? Because, the court explained, companies can potentially get away with widespread misconduct, by keeping each individual wrong small but spread over a large class of customers. Such companies can clean up wrongfully, bit by bit, and the customers have no reasonable or practical way to make it stop. As the court puts it, "when wrongs are small but
widespread, class actions are often the only effective way to address them."
In this situation, McKee argued that while the amounts of the overcharges were small, they added up over the years, and when you included all others similarly overcharged, it was a tidy sum for AT&T that it didn't deserve.
Forcing each and every person so affected to sue individually, or arbitrate individually, tips the playing field so far in AT&T's direction, the court found, it made the clause unconscionable. No attorney would be willing to sue or arbitrate for such a customer over amounts at issue so small that it wouldn't be practical to even justify paying a filing fee. Many such overcharged consumers might not even know they had a claim. As for the clause requiring confidentiality, the court said such a clause in a EULA "is a one-sided
provision designed to disadvantage claimants and may even help conceal
consumer fraud" because it "unreasonably favors repeat players such as AT&T" because it keeps similarly situated potential litigants in the dark, concealing "any patterns of illegal or
abusive practices", thus hampering them from "learning about potentially
meritorious claims and serves no purpose other than to tilt the scales in favor
of AT&T".
Why? Because each individual case builds AT&T's knowledge legally of what works, what the law is in various places, what to expect from various arbitrators, etc. So they are honing their tactics, while customers are starting at zero each and every time, reinventing the wheel, and not even knowing how it worked out for others in their category who preceded them.
You know how Ray Beckerman will post various tips and strategies for other lawyers to benefit from, so they can improve their representation of similarly situated clients, based on what he is learning? That would be impossible under AT&T's confidentiality requirement. Imagine if SCO could have done all it tried to do in the dark.
So, in Washington State at least, "class action waivers are substantively
unconscionable in consumer contracts when the costs of pursuing the claim far outweigh
the amount in controversy", as the court puts it. As for confidentiality clauses, the court said that "[s]ecrecy breeds
mistrust and, potentially, misuse of power." Those were not the only rights AT&T required consumers to give up. The agreement limited the statute of limitations. That means you only have a certain time frame within which to sue, and that can limit your recovery or even your ability to sue at all. Remember in the SCO v. IBM case the court ruled that the statute of limitations had run out on the Project Monterey contract? That's the impact a statue of limitations clause can have. The court found the AT&T's agreement one-sided and harsh in an agreement regarding long-distance services, because it cut the time period to two years. Washington State allows you four years, and the whole point is to protect the public and foster competition, so it voided that clause too.
Then there was the agreement's provisions saying that if AT&T won in the arbitration, the plaintiff had to pay its attorneys' fees; if it lost, it didn't have to pay the victorious plaintiff's attorneys' fees. "Say, what?" the court clearly said to itself. Here's what it said publicly: The AT&T Consumer Services Agreement is completely lopsided on
the issue of attorney fees. AT&T has not hesitated to give itself the
advantage of collecting its attorney fees as one of its remedies....
However, section 7(a) provides that any claim
by the customer must be submitted to arbitration and limits the remedies
available, "THE ARBITRATOR MAY NOT AWARD DAMAGES
THAT ARE NOT EXPRESSLY AUTHORIZED BY THIS
AGREEMENT AND MAY NOT AWARD PUNITIVE DAMAGES OR
ATTORNEYS' FEES UNLESS SUCH DAMAGES ARE EXPRESSLY
AUTHORIZED BY A STATUTE." That section 7 "contravenes the policy of this state," the court said. Not to mention failing the laugh test. Oh, wait. That part is me, not the court, but I'll bet they thought it, judging from this part: When one party to a contract seeks to impose a unilateral attorney
fee provision by contract, Washington's policy, by statute, is to convert the
unilateral provision into a reciprocal contractual provision that applies equally
to all parties to the contract.... Further Washington's
Consumer Protection Act provides for attorney fees for consumers who
successfully challenge unfair acts and practices. I can almost hear AT&T's musings on reading that part of the ruling. . . "What? We have to play fair?" Yes, said the court. It's unconscionable and even if the court evened it out, "the risk was still too great to make relief available." Next the court addressed the clause limiting punitive damages, or really saying you couldn't seek them unless the local statute expressly authorized them. It happens Washington State is one of the states that doesn't provide for punitive damages for "egregious conduct". You can sometimes get treble damages, but not punitive. This case involved a class asking for a $2 a month damages; under the law, that would make treble damages of $6 a month possible. So, because the statute says what it says, the court said the limitation on punitives was not unconscionable: Because Washington
provides for limited examples of exemplary damages and each example is
specifically authorized by statute, we do not read AT&T's Consumer
Services Agreement to limit the availability of punitive damages in
Washington State. We hold the limitation on punitive damages is not
unconscionable.
So, the final issue the court had to address was this: if it removed the clauses it found unconscionable, would the rest of the EULA be valid? You can sometimes do that with contracts, which is why you'll often see a clause in a contract specifically saying that if one clause is found invalid, the rest should survive. Here's what this court considered when deciding what to do about editing the EULA and leaving the rest standing: Permitting severability as requested by AT&T in the face of a contract
that is permeated with unconscionability only encourages those who draft
contracts of adhesion to overreach. If the worst that can happen is the
offensive provisions are severed and the balance enforced, the dominant party
has nothing to lose by inserting one-sided, unconscionable provisions. Clear enough for you? Nevertheless, the court decided to do it anyway, and here's why: Although we find that the entire dispute resolution section must be
stricken because the unconscionable terms are inextricable without rewriting
the agreement, we find that this effect does not extend to the rest of the
Consumer Services Agreement. Section 8 of the Consumer Services
Agreement provides for severability. "e. Separability. If any part of this
Agreement is found invalid, the rest of the Agreement will remain valid and
enforceable." CP at 719. We give effect to severability clauses if we can
easily excise the unconscionable provision without essentially rewriting the
contract.... We
find that having excised the dispute resolution provision as unconscionable,
the balance of the agreement stands on its own. We hold that the balance of
the agreement is enforceable subject to this opinion. I gather they saw no harm to the plaintiff, as long as it remains subject to this ruling, or there may be other factors I'm not seeing. But overall, it's a very strong ruling for the little guy, and the bottom line to me is this: try to live in a state where there are strong consumer protection policies. And so, here's the entire ruling, and I hope you can read it now with greater interest and comprehension. **************************
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
MICHAEL McKEE, individually and
on behalf of all other persons
similarly situated,
Respondent,
v.
AT&T CORPORATION, a foreign
corporation,
Petitioner.
______________________________
No. 81006-1
En Banc
Filed August 28, 2008
_____________________________
Chambers, J. -- Michael McKee filed this class action suit, alleging
AT&T wrongly charged him (and others) city utility surcharges and usurious
late fees. When the Chelan County Superior Court found the dispute
resolution provision of AT&T's Consumer Services Agreement
unconscionable and denied its motion to compel arbitration, AT&T appealed.
The Court of Appeals, Division Three, certified the case to this court. We
affirm the trial court and remand for further proceedings.
Facts
McKee lives near Wenatchee, Washington, and signed up for AT&T
long distance phone service in November 2002. His monthly bills included a
Wenatchee city utility tax surcharge, even though he lives outside the
Wenatchee city limits. When he called AT&T to resolve this issue, at first,
the various operators merely tried to sell him a new long distance package.
Finally, he was told that taxes were assessed by zip code. Unfortunately,
McKee's zip code includes people who live both inside and outside the
Wenatchee city limits. McKee contends that AT&T collects the tax from all
of its customers who live within the zip code, whether the customers owe the
tax or not. A late fee of 1.5 percent applies if the customer does not pay all
charges on time. The charges McKee challenges amount to no more than $2
in any given month, less than $20 total in a year. But McKee notes that after
many years and many customers, small amounts add up to very large sums.
After his individual attempts to resolve his billing issues with AT&T
failed, McKee filed this class action lawsuit, alleging violations of
Washington's Consumer Protection Act, chapter 19.86 RCW, and
Washington's usury statute, chapter 19.52 RCW, as well as negligence and
breach of contract. AT&T removed the action to federal district court,
claiming McKee had raised federal law in his complaint. After the complaint
was amended to omit any reference to federal law, the federal court remanded
the case back to Chelan County Superior Court.
AT&T then moved to compel arbitration under its Consumer Services
Agreement. At the time McKee agreed to use AT&T as his long distance
provider, he did not sign any agreement with AT&T and was not informed of
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any terms and conditions associated with AT&T service. After he began
using AT&T, it sent him mail, which may have included a contract. He had
not retained any of the mail and did not know the terms of his agreement with
AT&T. In support of the motion to compel arbitration, AT&T employees
Howard Spierer and April Morlock filed declarations averring that a specific
agreement was sent to McKee in November as part of his "fulfillment
package" and attached a copy of that agreement to their declarations. We
detail the specifics of the declarations because AT&T later repudiated the
declarations it filed and the agreement it sought to enforce.
Spierer, a senior attorney with AT&T, signed a declaration on January
8, 2004, declaring that since August 1, 2001, AT&T's relationship with its
customers has been governed by the terms of a Consumer Services
Agreement. The Consumer Services Agreement has been revised several
times. "Indeed, the version sent to Mr. McKee was an amended [Consumer
Services Agreement], effective March 1, 2002." Clerk's Papers (CP) at 691.
Morlock filed a similar declaration dated October 23, 2003, in support of
AT&T's motion to compel arbitration. She declared,
1. I am a Fulfillment/Response Operations Manager
for AT&T Corp.
2. It is my responsibility as a Fulfillment/Response
Manager to ensure that all customers receive a "fulfillment
package" from AT&T as a result of an order he/she may have
placed. It is a business practice of AT&T to mail this fulfillment
package within 8-10 business days from the date the customer
places his/her order . . . .
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3. Mr. McKee became an AT&T customer in
November 2002. Attached as Exhibit A to this declaration is a
true and correct copy of the fulfillment package.
CP at 1114. Both Spierer and Morlock attached the same version of the
Consumer Services Agreement, which became the subject of several hearings
in Chelan County.
For clarity, an entire copy of the Consumer Services Agreement is
included as an appendix to this opinion.
We focus primarily on the dispute
resolution provisions. Section 7 of the agreement, entitled "Dispute
Resolution," requires binding arbitration of all disputes related to the
agreement. It forbids class actions and requires that all arbitrations be kept
confidential. The agreement also states in relevant part that "[n]o dispute
may be joined with another lawsuit, or in an arbitration with a dispute of any
other person, or resolved on a class-wide basis," and "[a]ny arbitration shall
remain confidential. Neither you nor AT&T may disclose the existence,
content, or results of any arbitration or award, except as may be required by
law or to confirm and enforce an award." CP at 718-19. The dispute
resolution section also provides that any claim must be brought within two
years and limits a consumer's right to collect punitive damages and attorney
fees.
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McKee opposed the motion to compel arbitration and moved to stay
arbitration, claiming the agreement was substantively and procedurally
unconscionable. He claimed he had no meaningful choice and the agreement
was overly one-sided and harsh because it prohibited class actions, shortened
the statute of limitations, prohibited punitive damages and attorney fees,
required arbitration be kept secret, and required application of New York
law. AT&T is incorporated in New York. McKee filed declarations from a
former Washington assistant attorney general and several other experienced
Washington attorneys. Owen Clarke, former Washington State assistant
attorney general for 25 years, and the head of the Spokane County Consumer
Protection Division for 17 years, declared that McKee's class action suit
would require a skilled attorney and that without class certification the class
members would be unable to retain qualified counsel. Two other experienced
attorneys, Garfield Jeffers and David Thorner, declared that moderate income
consumers cannot afford the hourly rates of trial lawyers and that no attorney
would take a case on a contingent basis where the amount in controversy is
so small and the risk so great.
On June 18, 2004, Judge Bridges heard oral argument on the motions
to compel and stay arbitration. He denied the motion to compel arbitration,
finding the entire dispute resolution section of the agreement substantively
unconscionable because of the provisions prohibiting class actions, shortening
the statute of limitations, limiting damages, requiring confidentiality, and
5
requiring the application of New York law. Judge Bridges found the
unconscionable provisions were not severable from other provisions and
declared the entire dispute resolution clause unenforceable. After Judge
Bridges' oral ruling, more than a year passed before the parties presented
findings of fact. It appears counsel was awaiting this court's decisions in
Zuver v. Airtouch Communications, Inc., 153 Wn.2d 293, 103 P.3d 753
(2004) and Adler v. Fred Lind Manor, 153 Wn.2d 331, 103 P.3d 773 (2004).
During that year, in March 2005, approximately nine months after the
learned trial judge issued his oral opinion on June 18, 2004, Spierer filed a
new declaration, declaring that AT&T had revised its Consumer Services
Agreement for "its millions of residential customers." CP at 126-31. He
declared that he was mistaken in his 2001 declaration. He contended that
AT&T had amended its agreement "in significant ways, including, for
example, the removal of the two-year statute of limitations, the ability of the
customer to determine whether the proceedings should be confidential, and
specifically allowing consumers to obtain statutory relief--including damages
and attorney's fees--through the arbitration process."
CP at 127. Spierer
attached a revised draft of the AT&T Consumer Services Agreement that
AT&T now contended was applicable to McKee.
AT&T moved for
6
reconsideration and asked the court to consider this new version of the
Consumer Services Agreement. When findings of fact and conclusions of law
were finally presented to him, Judge Bridges expressed some frustration in
the long delay, declined to sign either party's proposals, and instead adopted
his oral ruling rendered more than one year earlier as his findings and
conclusions. The judge also denied the motion for reconsideration and
declined to consider a new version of the agreement.
AT&T appealed, and the Court of Appeals certified the case to this
court.
The only Consumer Services Agreement considered by Judge
Bridges was the March 1, 2002 agreement proffered by Spierer and Morlock
on January 8, 2004 and October 23, 2003 respectively, and it is the only
agreement before us for review.
Standard of Review
Arbitrability is a question of law we review de novo. Zuver, 153
Wn.2d at 302. The burden of proof is on the party seeking to avoid
arbitration. Id. (citing Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 92,
121 S. Ct. 513, 148 L. Ed. 2d 373 (2000)). When the validity of an
agreement to arbitrate is challenged, courts apply ordinary state contract law.
Luna v. Household Fin. Corp. III., 236 F. Supp. 2d 1166, 1173 (W.D. Wash.
2002) (quoting Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th
Cir. 2001)); see also First Options of Chi., Inc. v. Kaplan, 514 U.S. 938,
944, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995). General contract defenses
such as unconscionability may invalidate arbitration agreements. Luna, 236
F. Supp. 2d at 1173 (quoting Circuit City, 279 F.3d at 892); see also
Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 134
L. Ed. 2d 902 (1996)). Unconscionability is also a question of law we review
de novo. Nelson v. McGoldrick, 127 Wn.2d 124, 131, 896 P.2d 1258
(1995).
Choice of Law
We turn first to the question of which state's law should apply to
determine the validity of the agreement. Section 8(f) of AT&T's Consumer
Services Agreement provides that New York law governs the agreement.
Both the dispute resolution section and the agreement as a whole state that if
8
any individual part is found unenforceable, it should be severed and the rest
enforced. We review choice of law questions de novo. Erwin v. Cotter
Health Ctrs., 161 Wn.2d 676, 690-91, 167 P.3d 1112 (2007).
The choice of law question focuses us on very similar issues to those
we considered in Dix v. ICT Group, Inc., 160 Wn.2d 826, 161 P.3d 1016
(2007), where we held that a forum selection clause selecting the state of
Virginia was substantively unconscionable because it effectively denied relief
under Washington's Consumer Protection Act, which evidences a strong
public policy in favor of class actions for small consumer claims.
We generally enforce contract choice of law provisions with certain
exceptions. Erwin, 161 Wn.2d at 695-96. We disregard the contract
provision and apply Washington law if, without the provision, Washington
law would apply; if the chosen state's law violates a fundamental public
policy of Washington; and if Washington's interest in the determination of the
issue materially outweighs the chosen state's interest. Id. at 694-95 (citing
O'Brien v. Shearson Hayden Stone, Inc., 90 Wn.2d 680, 685, 586 P.2d 830
(1978) (quoting Restatement (Second) of Conflict of Laws § 187 (1971))).
We will enforce a choice of law provision unless all three of these conditions
are met.Id. at 696.
Each of these conditions is met in this case. First, if there were no
9
choice of law provision, Washington law would be applied to this consumer
contract performed in Washington. Washington applies the "most significant
relationship" test from the Restatement, supra, § 188. Mulcahy v. Farmers
Ins. Co., 152 Wn.2d 92, 100, 95 P.3d 313 (2004). Courts weigh the relative
importance to the particular issue of (a) the place of contracting, (b) the place
of negotiation of the contract, (c) the place of performance of the contract, (d)
the location of the subject matter of the contract, and (e) the domicile,
residence, or place of incorporation of the parties. Id. (citing Restatement,
supra, § 188). Here, Washington is the place of contracting, the place of
negotiation (what little there was), the place of performance, the location of
the subject matter, and the residence of one of the parties. New York's only
tie to this litigation is that it is the state of incorporation of AT&T. We
therefore conclude that, absent a choice of law clause, Washington law would
apply to this dispute.
Second, New York law, which allows waiver of class-based relief,
conflicts with our state's fundamental public policy to protect consumers
through the availability of class action. See Scott v. Cingular Wireless, 160
Wn.2d 843, 854, 161 P.3d 1000 (2007);
Dix, 160 Wn.2d at 829. Protecting
parties in a position of weaker bargaining power from exploitation is among
the types of fundamental public policy contemplated by Restatement, supra, §
187(2)(b) cmt. g.
10
The proper focus here, under section 187(2)(b) of the Restatement, is
whether New York law permitting a class action ban is contrary to a
Washington fundamental policy. This question is different than determining
whether a class action ban under some circumstances is substantively
unconscionable. We have held that some class action prohibitions may be
conscionable. But application of New York law would permit waiver of any
and all class action claims, and we have declared a strong Washington State
public policy in support of the use of class action claims to pursue actions for
small-dollar damage claims under the Washington State Consumer Protection
Act. See Scott, 160 Wn.2d at 854.
In Dix, we explained that forum selection clauses contravening the
"'strong public policy of the forum in which suit is brought'" may be invalid
and we held that a forum selection clause designating Virginia as the forum
was unenforceable against Washington citizens asserting small-dollar
Consumer Protection Act claims. Dix, 160 Wn.2d at 836 (quoting Bremen v.
Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 32 L. Ed. 2d 513
(1972)). We held that a forum selection clause was substantively
unconscionable because it denied relief by selecting a forum in which
consumer class actions were not available. Id. at 837. Specifically, we held
that "a forum selection clause that seriously impairs the plaintiff's ability to
go forward on a claim of small value by eliminating class suits in
circumstances where there is no feasible alternative for seeking relief violates
11
public policy and is unenforceable." Id.
In contrast, New York courts have held that class action waivers are
enforceable under New York law. Tsadilas v. Providian Nat'l Bank, 13
A.D.3d 190, 191, 786 N.Y.S.2d 478 (N.Y. App. Div. 2004); Ranieri v. Bell
Atl. Mobile, 304 A.D.2d 353, 354, 759 N.Y.S.2d 448 (N.Y. App. Div. 2003).
Under New York law, class-based relief would not be available in cases such
as Scott and the one before us now. Therefore, the choice of New York law
in this case is unconscionable under Dix because it conflicts with
Washington's fundamental public policy favoring the availability of class-
based relief for small consumer claims. Accordingly, we hold that
Washington's strong Consumer Protection Act policy favoring class
adjudication of small-dollar claims is a "fundamental policy" contemplated by
Restatement, supra, § 187(2)(b).
Finally, Washington's interest in protecting large classes of its
consumers materially outweighs New York's limited interest in this matter.
See Erwin, 161 Wn.2d at 695. Thus, the New York choice of law provision in
AT&T's Consumer Services Agreement is unenforceable and Washington
law will be applied.
Federal Communications Act of 1934 Preemption
Next, AT&T argues that Washington law is preempted by the Federal
Communications Act of 1934 (FCA) (codified as amended at 47 U.S.C. §§
151-161, 201-231, 251-261, 301-339, 351-363). AT&T distinguishes this
12
case from Scott because the federal act in question there was the Federal
Arbitration Act (FAA), Title 9 U.S.C. Scott, 160 Wn.2d at 857-59. AT&T
argues that the FCA "demonstrates a congressional intent that customers
receive uniform terms and conditions of service" and that to achieve such
uniformity, it is Congress's and the Federal Communications Commission's
(FCC) goal to create a federal, uniform standard for determining the validity
of the rates, terms, and conditions of carriers. AT&T contends that
Washington's consumer protection and contract laws are impliedly preempted
by the FCA because they "stand as an obstacle to the accomplishment and
execution of Congress's and the FCC's purpose and objective of creating a
federal, uniform standard for determining the validity of long-distance service
contract rates, terms, and conditions." Br. of Appellant at 19-20.
Under the supremacy clause of the United States Constitution article
VI, clause 2, state laws are not superseded by congressional legislation unless
that is the clear and manifest purpose of Congress. Hue v. Farmboy Spray
Co., 127 Wn.2d 67, 78, 896 P.2d 682 (1995); Cipollone v. Liggett Group,
Inc., 505 U.S. 504, 516, 112 S. Ct. 2608, 120 L. Ed. 2d 407 (1992).
Preemption is a question of law we review de novo. Axess Int'l Ltd. v.
Intercargo Ins. Co., 107 Wn. App. 713, 722, 30 P.3d 1 (2001) (citing
Hoddevik v. Arctic Alaska Fisheries Corp., 94 Wn. App. 268, 278, 970 P.2d
828 (1999)). Conflict preemption is found where it is impossible to comply
with both state and federal law or where state law "stands as an obstacle to
13
the accomplishment of the full purposes and objectives of Congress."
Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 104 S. Ct. 615, 78 L. Ed.
2d 443 (1984) (citation omitted). The obstruction strand of conflict
preemption focuses on both the objective of the federal law and the method
chosen by Congress to effectuate that objective, taking into account the law's
text, application, history, and interpretation. See Int'l Paper Co. v. Ouellette,
479 U.S. 481, 494, 107 S. Ct. 805, 93 L. Ed. 2d 883 (1987) ("state law . . . is
pre-empted if it interferes with the methods by which the federal statute was
designed to reach this goal"); Jones v. Rath Packing Co., 430 U.S. 519, 526,
97 S. Ct. 1305, 51 L. Ed. 2d 604 (1977) (courts should consider how law is
applied and interpreted in addition to plain text). Thus, the question for us is
whether Congress's intent or goals would truly be frustrated if AT&T were
required to comply with Washington's laws regarding the formation of
consumer contracts and the strong public policy of Washington's Consumer
Protection Act that consumers be able to vindicate their right to be free of
unfair and deceptive practices in consumer transactions. See Ting v. AT&T
Corp., 319 F.3d 1126, 1136 (9th Cir. 2003) and cases cited therein. See also
RCW 19.86.020.
AT&T urges us to follow a Seventh Circuit opinion that AT&T
contends is the leading case on preemption under the FCA. Boomer v. AT&T
Corp., 309 F.3d 404 (7th Cir. 2002). The Washington State attorney general,
appearing as amicus, urges us not to follow Boomer. The attorney general
14
argues the issue of whether the FCA preempts state consumer protection and
contract laws was considered and correctly decided five years ago by the
Ninth Circuit Court of Appeals in Ting, 319 F.3d 1126. The Ninth Circuit
examined the FCA's text, application, history, and interpretation thoroughly
before reaching its conclusion that the FCA, after detariffing, no longer
preempts state laws in claims arising from the rates, terms, and conditions of
a long distance carrier's customer contract. Id. at 1130-33, 1137-46.
Congress originally enacted the FCA in 1934, ch. 652, 48 Stat. 1064
(codified as amended at 47 U.S.C. §§ 151-161, 201-231, 251-261, 301-339,
351-363). It was passed in a monopolistic environment. Section 203(a) was
intended to provide fair contracts through a tariff system. It required
telecommunications carriers to file with the FCC a list of tariffs, or
"schedules," showing "all charges . . . and . . . the classifications, practices,
and regulations affecting such charges. 47 U.S.C. § 203(a). Tariffs covered
not only the rates but the terms and conditions of customer contracts. The act
prohibited any "classification, regulations, or practice affecting such charges,
except as specified" in a carrier's filed tariffs. Id. § 203(2)(c). In the filed-tariff environment, consumers were, in theory, protected from unjust,
unreasonable, or discriminatory rates, terms, and conditions by the FCC's
prior determination that the carrier's filed rate was "just" and "reasonable"
and not unreasonably or unduly discriminatory. Once a tariff was approved by
the FCC, it then carried the force of law and became binding on both the
15
consumer and the carrier. Brown v. MCI Worldcom Network Servs., Inc., 277
F.3d 1166, 1170 (9th Cir. 2002) (citing Lowden v. Simonds-Shields Lonsdale
Grain Co., 306 U.S. 516, 520, 59 S. Ct. 612, 83 L. Ed. 953 (1939)). Under
this regime, courts frequently held that state law contract claims were barred.
See, e.g., AT&T v. Cent. Office Tel., Inc., 524 U.S. 214, 228, 118 S. Ct.
1956, 141 L. Ed. 2d 222 (1998); In re NOS Commc'ns, 495 F.3d 1052 (9th
Cir. 2007).
Over time, the monopolistic model fell way to deregulation and free
market pressures. Under the old regime, AT&T had achieved a near
monopoly in the telecommunications market, and there were many companies
eager to enter the telecommunications market. Starting in the early 1980's,
the FCC tried to prohibit tariff-filing by nondominant carriers (i.e., those other
than AT&T) on the ground that market forces would guarantee reasonable
rates without collusive pricing. In re Policy & Rules Concerning Rates for
Competitive Common Carrier Servs., 99 F.C.C.2d 1020, 1028-29 (1985).
Finally, in 1996, Congress fundamentally changed the communications act's
scheme by adopting a national policy of opening all telecommunications
markets to competition and providing a deregulatory, procompetition
framework. H.R. Conf. Rep. No. 104-458, at 113 (1996), reprinted in 1996
U.S.C.C.A.N. 124. As the Ninth Circuit explained:
Finally armed with the requisite congressional authorization,
the FCC promptly issued a Notice of Proposed Rulemaking on
March 25, 1996, to "forbear from applying" the tariffing
16
requirements of § 203 of the 1934 Act. Notice of Proposed
Rulemaking, 11 F.C.C.R. 7,141 (1996). In the Notice, the
Commission tentatively concluded that tariffs were no longer
necessary because market forces were sufficient to protect
consumers from unjust and unreasonable rates, terms, and
conditions. Id. at ¶¶ 30, 31 (concluding that removing filing
requirement will promote competition and prevent collusive
pricing). Following a comment period, the FCC issued an order
of mandatory detariffing on October 29, 1996, see Second
Report and Order, 11 F.C.C.R. 20,730 (1996), thus confirming
that "enforcement of the tariffing provision is neither necessary
to ensure just and reasonable, non-discriminatory rates, nor
necessary for the protection of consumers." MCI WorldCom,
Inc., v. FCC, 209 F.3d 760, 763 (D.C. Cir. 2000) (citing Second
Report and Order, 11 F.C.C.R. 20,730, at ¶ 21).
Ting, 319 F.3d at 1132.
When Congress authorized the FCC to eliminate the filing requirement,
it permitted the tariff filing mechanism to be replaced by a market-based
mechanism in the form of individual negotiated contracts between carriers
and their customers. Id. Unlike tariff filing, however, this market-based
mechanism depends in part on state law. Id. at 1133. The market-based
method of achieving the act's goals of reasonableness, fairness, and
nondiscrimination in carrier contracts does not require a single, federal
standard but rather depends in part on state law for the protection of
consumers in the deregulated and competitive marketplace. Id.
The Boomer court, relied upon by AT&T, failed to do a historical
analysis. Boomer, 309 F.3d at 417-23. The Boomer court based its
conclusion upon a textual analysis of sections 201(b) and 202(a) of the 1996
17
Telecommunications Act. Id. Sections 201(b) and 202(a) of the act, which
survived detariffing, require that charges and practices be "just and
reasonable" and prohibit "unjust or unreasonable discrimination" in charges
and practices. But as pointed out by the Ninth Circuit, "save for Boomer, no
court has ever referred to § 201 or § 202 in declaring a carrier's tariff immune
from state-law challenge. That role had always been reserved for § 203 and
the filed rate doctrine." Ting, 319 F.3d at 1138 (citing Cent. Office, 524 U.S.
at 223).8
The FCC no longer enforces section 203's filing requirements. We
agree with the Ninth Circuit that reliance on sections 201 and 202 for federal
preemption is untenable. Ting, 319 F.3d at 1139. Congress unquestionably
intended that consumers receive fair and reasonable rates. 47 U.S.C. §
202(a) makes it unlawful for a carrier to "make any unjust or unreasonable
discrimination" for "like communication service" or "to make or give any
undue or unreasonable preference or advantage." But Congress also
unquestionably intended that telecommunications providers compete in a free
market place and that consumers would have the protection of state consumer
protection laws.
18
Senator Slade Gorton, then a senator from the state of Washington,
succinctly summarized the goals of the FCA when he noted that the 1996
Telecommunications Act (permitting the FCC to cease enforcing section
203's tariffing requirement) would allow "[s]tates to preserve and advance
universal service, protect the public safety and welfare, ensure the continued
quality of telecommunications service, and safeguard the rights of consumers,
which are, of course, the precise goals of this Federal statute itself." 141
Cong. Rec. S8206-02, S8212 (daily ed. June 13, 1995) (statement of Sen.
Gorton).
Setting aside its preemption argument, even AT&T concedes that state
law now governs the formation of consumer long distance contracts. Br. of
Appellant at 22-23. This is so because even the Boomer court recognized
19
that, following detariffing, there appears to be some role for state law.
Boomer, 309 F.3d at 423 (acknowledging that state law may determine
whether a contract has been formed). But we find no persuasive support for
Boomer's argument that the role of state contract law is somehow limited to
laws governing offer and acceptance. In Marcus v. AT&T Corp., 138 F.3d
46, 54 (2d Cir. 1998), the court held that the communications act does not
manifest a clear congressional intent to preempt state law prohibiting
deceptive business practices, false advertising, or common law fraud. In
interpreting the 1996 Telecommunications Act, the FCC has repeatedly
referred to the role of state law and has not done so in limiting terms. See,
e.g., In re Policy & Rules Concerning the Interstate, Interexchange
Marketplace, Implementation of Section 254(g) of the Commc'ns Act of
1934, 11 F.C.C.R. 20,730, 20,751 (1996) (Second Report and Order) (after
detariffing, consumers will also "be able to pursue remedies under state
consumer protection and contract laws" and carriers will be treated like all
other businesses in unregulated markets); In re Policy & Rules Concerning
the Interstate, Interexchange Marketplace, Implementation of Section 254(g)
of the Commc'ns Act of 1934, 12 F.C.C.R. 15,014, 15,057 (1996) (Order on
Reconsideration) (consumers will have remedies under state contract and
consumer protection law regarding the "legal relationship" between carrier
and consumer).
To summarize, in 1996, Congress made a paradigm shift from a
20
monopolistic, tariffed-rate system to a competitive market. Congress's goal
of ensuring that telecommunications carriers provide consumers with
reasonable, fair, and nondiscriminatory rates, terms, and conditions in a
competitive market is furthered by providing consumers the protections of
state contract and consumer protection laws. AT&T seems aghast that it may
have to comply with the laws of 50 different states, but that is precisely what
every other company that competes in a free, competitive, and open market
must do. There is nothing in the 1996 Telecommunications Act that declares
preemption or dictates that all contracts must be identical or uniform. 47
U.S.C. §§ 201, 202. Nothing prevents AT&T from creating new consumer
services agreements with fair and reasonable terms that are consistent with
the state laws in each state or all states in which it operates. Congress
contemplated concurrent authority between federal and state authorities.
State and private remedies aid rather than hinder the goal of preventing unjust
or unreasonable discrimination.
We hold that the FCA does not preempt
21
application of Washington law as to the validity of the contract.
FAA Preemption
AT&T also argues preemption under the FAA. As a preliminary
matter, we reject AT&T's argument that unconscionability should be decided
by the arbitrator under the FAA and Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 449, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006).
In Buckeye, the plaintiff argued that the illegal interest rate provided for in the
contract voided the entire contract, including the arbitration clause. Id. at 443-44. There was no argument that the arbitration clause itself was
unconscionable or illegal. The court held that when a party claims the
contract as a whole is illegal, but does not specifically challenge the
arbitration clause, the arbitrator should decide whether the contract is illegal.
Id. at 449. The court did not change the rule that when the validity of the
arbitration agreement itself is at issue, the courts must first determine whether
there was a valid agreement to arbitrate. Id. at 445. That rule applies here
because the challenges McKee raises with regard to the AT&T Consumer
Services Agreement relate only and specifically to the dispute resolution and
arbitration section. See Preston v. Ferrer, ___ U.S. ___, 128 S. Ct. 978, 984,
169 L. Ed. 2d 917 (2008) (court compelled arbitration under Buckeye because
there was no discrete challenge to the arbitration clause in the proceedings
22
below); Vasquez-Lopez v. Beneficial Or., Inc., 210 Or. App. 553, 565, 152
P.3d 940 (2007).
As in Scott, this challenge is not preempted by section 2 of the FAA.
Scott, 160 Wn.2d at 858; 9 U.S.C. § 2. The FAA requires that we place
arbitration agreements on the same footing as other contracts. See, e.g.,
Doctor's Assocs., 517 U.S. at 687. It does not require us to allow
unconscionable restrictions on arbitration that are essentially exculpatory
clauses in disguise. The FAA does not require us to uphold a class action
waiver merely because it is embedded in an arbitration agreement. See Scott,
160 Wn.2d at 858. Like any other contract, an arbitration agreement may be
substantively unconscionable when it is used as a tool of oppression to
prevent vindication of small but widespread claims. See, e.g., id. at 858-59;
Luna, 236 F. Supp. 2d at 1179 (citing Mendez v. Palm Harbor Homes, Inc.,
111 Wn. App. 446, 465, 45 P.3d 594 (2002)).
As we said in Scott, class action waiver has nothing to do with a valid
agreement to arbitrate. Class actions are often arbitrated. See Green Tree
Fin. Corp. v. Bazzle, 539 U.S. 444, 453, 123 S. Ct. 2402, 156 L. Ed. 2d 414
(2003). Class actions actually promote the prime objective of an agreement
to arbitrate, which is "'streamlined proceedings and expeditious results.'"
Preston v. Ferrer, ____ U.S. ____, 128 S. Ct. 978, 986, 169 L. Ed. 2d 917
(2008) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 633, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985)). Similarly,
23
arbitrations can (and often should) be conducted openly and without secrecy,
apply appropriate statutes of limitations, award damages (both compensatory
and punitive), and award attorney fees. Limiting consumers' rights to open
hearings, shortening statutes of limitations, limiting damages, and awarding
attorney fees have absolutely nothing to do with resolving a dispute by
arbitration. Courts will not be so easily deceived by the unilateral stripping
away of protections and remedies, merely because provisions are disguised as
arbitration clauses. The FAA does not require enforcement of
unconscionable contract provisions. We adhere to our decision in Scott and
hold that the FAA does not preempt application of Washington consumer
protection law.
Substantive Unconscionability
Although states may not refuse to enforce arbitration agreements based
upon state laws that apply only to such agreements, "generally applicable
contract defenses, such as fraud, duress, or unconscionability" may be
applied. Doctor's Assocs., 517 U.S. at 687. Whether an agreement is
unconscionable is a question of law for the courts. Nelson, 127 Wn.2d at
131. Agreements may be either substantively or procedurally
unconscionable. Zuver, 153 Wn.2d at 303. Substantive unconscionability
involves those cases where a clause or term in the contract is one-sided or
overly harsh. Id. Substantive unconscionability alone is sufficient to support
a finding of unconscionability. Adler, 153 Wn.2d at 346-47. Here, the
24
agreement to arbitrate is included in a section of the agreement entitled
"Dispute Resolution." CP at 718-19. That section, and the rest of the
agreement, contains several clauses limiting the nature of the relief available
in arbitration.
A. Class Action Waiver
This issue was largely, but not entirely, decided by Scott. Scott, 160
Wn.2d at 847. In Scott, we held that a class action waiver in an arbitration
agreement was substantively unconscionable. Id. In so holding, we relied on
several crucial facts. First, the individual claims at issue were very small
(between $1 and around $45 per month), but the plaintiffs alleged that in the
aggregate, Cingular had overcharged the public very large sums of money.
Id. at 847-48. We found that without class action suits, the public's ability to
act as "private attorneys general," as intended in the Consumer Protection
Act, was eviscerated. Id. at 854. We therefore concluded the class action
waiver was unconscionably in violation of public policy. Id.
We also found the agreement substantively unconscionable because it
effectively, if not explicitly, exculpated Cingular for potentially widespread
misconduct. Id. at 855. We found that when wrongs are small but
widespread, class actions are often the only effective way to address them.
Id. We rejected Cingular's argument that relief was practically available
because it promised to pay the costs of individual arbitration and because
attorney fees could be awarded to the prevailing party. Id. at 856. We cited
25
the evidence that no attorney would be willing to undertake individual
arbitration to recover the trivial amounts of money at stake in an individual
claim. Id. We also noted that small claims court was not an effective remedy
because the amounts at issue were too small to be worth the time and energy,
let alone the nominal filing fee. Id. We were concerned that without class
actions, many consumers might not even know they had a claim. Id. at 855.
As in Scott, the contract now before us is a contract for consumer
services, and the individual claims here are extremely small, under $2 per
month. Without access to class-wide relief, competent counsel would not be
available to redress many meritorious claims. See CP at 566-69. The
agreement allows for small claims court actions, but even the availability of
small claims court or low-cost arbitration does not make it practicable for an
individual to pursue such small amounts. See Scott, 160 Wn.2d at 855-56.
Indeed, this agreement is less favorable to consumers than the one we struck
down in Scott. Cingular's agreement at issue in Scott provided that Cingular
would pay the attorney fees for a prevailing consumer. Id. at 856. Here, not
only does AT&T not pay the consumer's attorney fees, the agreement
prohibits the arbitrator from awarding them unless specifically provided for in
a statute. Because the class action waiver in this case is not meaningfully
different from the one we held substantively unconscionable in Scott, we hold
that the class action waiver in the AT&T agreement before us is
unconscionable.
26
B. Confidentiality
A confidentiality clause in a contract of adhesion is a one-sided
provision designed to disadvantage claimants and may even help conceal
consumer fraud. Confidentiality unreasonably favors repeat players such as
AT&T. See Ting, 319 F.3d at 1151-52; Luna, 236 F. Supp. 2d at 1180;
Zuver, 153 Wn.2d at 312-15. Secrecy conceals any patterns of illegal or
abusive practices. It hampers plaintiffs in learning about potentially
meritorious claims and serves no purpose other than to tilt the scales in favor
of AT&T. See Zuver, 153 Wn.2d at 313-14. It ensures that AT&T will
"accumulate[ ] a wealth of knowledge" about arbitrators, legal issues, and
tactics. Id. at 312-13. Meanwhile, consumers are prevented from sharing
discovery, fact patterns, or even work product, such as briefing, forcing them
to reinvent the wheel in each and every claim, no matter how similar.
Washington has a strong policy that justice should be administered
openly and publicly. See Dreiling v. Jain, 151 Wn.2d 900, 908, 93 P.3d 861
(2004) (discussing sealed court records). Under our constitution, "[j]ustice in
27
all cases shall be administered openly." Const. art. I, § 10. Secrecy breeds
mistrust and, potentially, misuse of power. Dreiling, 151 Wn.2d at 908.
Whether in regard to improper utility surcharges or unreasonably dangerous
products, consumer adhesion contracts that require secrecy violate this
important public policy. We hold that the confidentiality provision before us
is substantively unconscionable.
C. Statute of Limitations
Generally, parties can shorten the applicable statute of limitations by
contract unless a shorter time frame is unreasonable or prohibited by statute
or public policy. Adler, 153 Wn.2d at 356. But such a limitation is harsh and
one-sided when imposed on a consumer in a contract of adhesion for a basic
consumer service such as long distance telephone service. It is for these
consumer service agreements that Washington's Consumer Protection Act is
designed to provide protection. RCW 19.86.920 (purpose of act is to
"protect the public and foster fair and honest competition"); see also Scott,
160 Wn.2d at 853. The Washington Consumer Protection Act provides a four
year statute of limitations, but AT&T's agreement cuts that period in half.
RCW 19.86.120; CP at 719. The four year statute of limitations permits
adequate time for consumers to vindicate rights violated by unfair business
practices. The act would be meaningless if consumer contracts of adhesion
routinely stripped consumers of their remedies under the Consumer Protection
Act; "consumers would have far less ability to vindicate" their rights under
28
the act. Scott, 160 Wn.2d at 854. We hold AT&T's limitation on actions is
substantively unconscionable as against public policy as to Consumer
Protection Act claims. See id. at 851-53.
D. Limit on Attorney Fees
The AT&T Consumer Services Agreement is completely lopsided on
the issue of attorney fees. AT&T has not hesitated to give itself the
advantage of collecting its attorney fees as one of its remedies. Section 2(e)
of the agreement entitled "SUSPENDING AND CANCELLING THE
SERVICES," provides in part, "Subject to Section 7, you must reimburse us
for any reasonable costs we incur, including attorneys' fees, to collect
charges owed to us." CP at 718. Section 3, entitled
"INDEMNIFICATION," provides in part, "YOU AGREE TO
REIMBURSE US FOR ALL COSTS AND EXPENSES RELATED TO
THE DEFENSE OF ANY SUCH CLAIMS, INCLUDING
ATTORNEYS' FEES." Id. However, section 7(a) provides that any claim
by the customer must be submitted to arbitration and limits the remedies
available, "THE ARBITRATOR MAY NOT AWARD DAMAGES
THAT ARE NOT EXPRESSLY AUTHORIZED BY THIS
AGREEMENT AND MAY NOT AWARD PUNITIVE DAMAGES OR
ATTORNEYS' FEES UNLESS SUCH DAMAGES ARE EXPRESSLY
AUTHORIZED BY A STATUTE." Id.
Section 7 contravenes the policy of this state. Washington follows the
29
American rule, and each party is expected to pay the party's own attorney
fees unless otherwise provided by statute or contract. Cosmopolitan Eng'g
Group, Inc. v. Ondeo Degremont, Inc., 159 Wn.2d 292, 303, 149 P.3d 666
(2006). When one party to a contract seeks to impose a unilateral attorney
fee provision by contract, Washington's policy, by statute, is to convert the
unilateral provision into a reciprocal contractual provision that applies equally
to all parties to the contract. RCW 4.84.330. Further Washington's
Consumer Protection Act provides for attorney fees for consumers who
successfully challenge unfair acts and practices. RCW 19.86.090. AT&T's
provision limiting attorney fees is unconscionable under Scott. We found that
even if attorney fees might be awarded to a prevailing consumer, the risk was
still too great to make relief meaningfully available. Scott, 160 Wn.2d at 856.
If an arbitrator awarded even one cent less than the amount the consumer
requested (which arbitrators often do in attempting to find a compromise), the
attorney fees would not be available. Id. Here, the agreement purports to
prohibit the arbitrator from awarding attorney fees unless expressly provided
for in a statute. CP at 718. We hold the limit on attorney fees is also
substantively unconscionable.
E. Limit on Punitive Damages
As described above, section 7 prohibits an arbitrator from awarding
punitive damages unless expressly authorized by statute. The trial judge
concluded that this provision was substantively unconscionable. However,
30
Washington is one of only a few states that does not provide generally for
punitive damages for particularly egregious conduct. Dailey v. N. Coast Life
Ins. Co., 129 Wn.2d 572, 575, 919 P.2d 589 (1996); see also, e.g.,
Allowance of Punitive Damages in Products Liability Case, 13 A.L.R.4th 52
(1982). Washington does provide a few limited examples of exemplary
damages. The relevant example is the Consumer Protection Act, which
provides "treble" damages upon appropriate findings. RCW 19.86.090. We
say limited because in the instant case, the damages sought are $2 per month;
under Washington's Consumer Protection Act, a prevailing consumer might
be awarded up to $6 per month. The agreement permits punitive damages
"expressly authorized by a statute." CP at 718. Because Washington
provides for limited examples of exemplary damages and each example is
specifically authorized by statute, we do not read AT&T's Consumer
Services Agreement to limit the availability of punitive damages in
Washington State. We hold the limitation on punitive damages is not
unconscionable.
Procedural Unconscionability
The trial judge found AT&T's Consumer Services Agreement both
substantively and procedurally unconscionable. McKee was not provided
with a copy of any agreement at the time he signed up for AT&T services.
Even when a consumer contracts for a service electronically, the consumer
has an opportunity to review the contract and is given the choice to "agree"
31
before the contract is formed. See, e.g., Koresko v. RealNetworks, Inc., 291
F. Supp. 2d 1157, 1163 (E.D. Cal. 2003) (describing electronic "clickwrap"
agreements). AT&T apparently mailed the terms and conditions to McKee
10 days to two weeks after he subscribed for service. AT&T retained the
right to unilaterally change the contract by posting the change on its web site
or by mailing the notice of the change. A consumer was deemed to have
agreed to the changes by continuing to use AT&T service whether the
consumer had actual notice of the change or not. At no time was the
consumer required to read and sign or affirmatively acknowledge acceptance
of the terms and conditions. These facts raise an issue of whether McKee had
a reasonable opportunity to understand the terms and a meaningful choice.
See Zuver, 153 Wn.2d at 304. However, having held below that the entire
dispute resolution provision is substantively unconscionable, we find it
unnecessary to reach the issue of procedural unconsionablity.
Severability
The trial judge concluded these unconscionable provisions permeate
the entire arbitration agreement and thus cannot be severed. Each provision
discussed above magnifies the exculpatory effect of the arbitration agreement.
These unconscionable provisions operate in concert to eliminate any realistic
possibility of relief for consumers with small claims such as McKee's. We
affirm Judge Bridges's conclusion that severance is not possible because the
32
four unconscionable terms pervade the dispute resolution section of the
agreement. AT&T would have us strike the unconscionable provisions from
the dispute resolution section and enforce the rest of the dispute resolution
section. However, when unconscionable provisions so permeate an
agreement, we strike the entire section or contract. See Zuver, 153 Wn.2d at
320 (quoting Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1180 (9th Cir.
2003); Alexander v. Anthony Int'l, LP, 341 F.3d 256, 271 (3d Cir. 2003)).
Here, we are faced with four different unconscionable terms and we find that
they taint the entire dispute resolution section, such that severance would
essentially require us to rewrite the dispute resolution agreement. See Ingle,
328 F.3d at 1180.
Permitting severability as requested by AT&T in the face of a contract
that is permeated with unconscionability only encourages those who draft
contracts of adhesion to overreach. If the worst that can happen is the
offensive provisions are severed and the balance enforced, the dominant party
has nothing to lose by inserting one-sided, unconscionable provisions.
Although we find that the entire dispute resolution section must be
stricken because the unconscionable terms are inextricable without rewriting
the agreement, we find that this effect does not extend to the rest of the
Consumer Services Agreement. Section 8 of the Consumer Services
Agreement provides for severability. "e. Separability. If any part of this
Agreement is found invalid, the rest of the Agreement will remain valid and
33
enforceable." CP at 719. We give effect to severability clauses if we can
easily excise the unconscionable provision without essentially rewriting the
contract. See Zuver, 153 Wn.2d at 320 (citing Ingle, 328 F.3d at 1180). We
find that having excised the dispute resolution provision as unconscionable,
the balance of the agreement stands on its own. We hold that the balance of
the agreement is enforceable subject to this opinion.
Conclusion
Courts, not arbitrators, decide the validity of arbitration agreements.
Buckeye, 546 U.S. at 445. Applying choice of law principles, Washington
law applies to this contract dispute. Washington consumer protection law
and Washington law relating to the formation of contracts are not preempted
by either the FCA or the FAA. The AT&T Consumer Services Agreement
before us is a contract of adhesion. AT&T's Consumer Services Agreement
is substantively unconscionable and therefore unenforceable to the extent that
it purports to waive the right to class actions, require confidentiality, shorten
the Washington Consumer Protection Act statute of limitations, and limit
availability of attorney fees. We emphasize that these provisions have
nothing to do with arbitration. Arbitrators supervise class actions, conduct
34
open hearings, apply appropriate statutes of limitations, and award
compensatory and punitive damages, as well as attorney fees, where
appropriate. Courts will not be easily deceived by attempts to unilaterally
strip away consumer protections and remedies by efforts to cloak the waiver
of important rights under an arbitration clause. The dispute resolution section
is severable from the balance of the contract. We affirm the trial court in all
respects unless otherwise noted and remand for further proceedings consistent
with this opinion.
35
AUTHOR:
Justice Tom Chambers
WE CONCUR:
Chief Justice Gerry L. Alexander
Justice Susan Owens
Justice Charles W. Johnson
Justice Mary E. Fairhurst
Justice Barbara A. Madsen, result
only
Justice Richard B. Sanders
Justice James M. Johnson
Justice Anne L. Ellington, Justice Pro
Tem.
_________________________
1
The appended copy of the agreement was obtained from web archives and is
available at
http://web.archive.org/web/20011208114437/
serviceguide.att.com/ACS/ext/a
greement.cfm (last visited Aug. 22, 2008). The text is identical to the record
with the exception of the hyperlinks.
2 The record is somewhat confusing, but it appears that there are at least five versions of
the AT&T Consumer Services Agreement in the record below. It appears that AT&T
revised the agreement at least three times in 2002, twice in November, the month that
McKee became a customer.
3 The agreement provides that "IF YOU CONTINUE TO BE ENROLLED IN, USE,
OR PAY FOR THE SERVICES AFTER ANY CHANGES IN THE PRICES,
CHARGES, TERMS OR CONDITIONS, YOU AGREE TO THE CHANGES." CP
at 719. Notice to the customer is described in section 1(b), "Increases to the prices or
charges for the Services are effective no sooner than fifteen days after we post them on
our Web site," and section 9, "With respect to all other changes to this Agreement, we
will notify you of the changes, and they will be effective no sooner than fifteen days after
we post them at www.att.com/serviceguide/home. You may also request a copy of the
revised Agreement . . . by calling AT&T toll free at 1-888-288-4099." Id.
4
In the weeks preceding oral argument before this court, AT&T filed a motion, first
asking to either withdraw its appeal, while preserving the right to appeal the same issues
again later, or stay the appeal pending action by the United States Supreme Court, and
later withdrawing its motion to withdraw and merely asking to stay pending a petition for
certiorari in Laster v. T-Mobile USA, Inc., 252 Fed. Appx. 777, 2007 U.S. App. LEXIS
25265 (9th Cir. Oct. 25, 2007) (unpublished), cert. denied, 128 S. Ct. 2500 (2008). We
declined to stay this appeal merely on the chance that the United States Supreme Court
would agree to hear Laster, which ultimately it did not.
5
AT&T argues the trial court should have determined which version of the agreement was
in effect before ruling on unconscionability and that it is now unclear which version the
court's unconscionability ruling applies to. We disagree. As described above, when the
court ruled on AT&T's motion to compel arbitration in June 2004, there was only one
version of the agreement before the court, namely, the one submitted by both Spierer and Morlock and which we review here. We decline to review a version of the agreement that
the trial court never considered.
6
Additional exceptions to the general rule, not raised here, include when the issue is one
that could have been provided for in an express agreement or when the state has no
substantial relationship to the action and there is no other reasonable basis for the parties'
choice. Erwin, 161 Wn.2d at 694 (citing Restatement, supra, § 187).
7
This case is, in nearly all respects, a companion case to Scott v. Cingular Wireless, where
this court struck down as substantively unconscionable a contract of adhesion requiring
waiver of class actions of even very small consumer claims. Scott, 160 Wn.2d 843.
8
The only other case AT&T cites in which sections 201 and 202 were so interpreted,
remarkably, predates even the existence of the 1934 FCA. See W. Union Tel. Co. v.
Esteve Bros. & Co., 256 U.S. 566, 571, 41 S. Ct. 584, 65 L. Ed. 1094 (1921). In Western
Union, the court interpreted analogous provisions of the Interstate Commerce Act of
1887, ch. 104, 24 Stat. 379, the precursor to the 1934 FCA. Id. We decline to adopt an
interpretation of a different statute in an entirely different historical context.
9
Other statutory schemes are in accord. In Bates v. Dow Agrosciences LLC, 544 U.S.
431, 125 S. Ct. 1788, 161 L. Ed. 2d 687 (2006), the court rejected an argument that pesticide manufacturers may not be sued for injuries under state law because the
Environmental Protection Agency regulates pesticides:
Dow and the United States greatly overstate the degree of uniformity and
centralization that characterizes FIFRA [Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. §§ 136-136y. In fact, the statute authorizes a
relatively decentralized scheme that preserves a broad role for state
regulation . . . . A literal reading of § 136v(b) is fully consistent with the
concurrent authority of the Federal and State Governments in this sphere.
Id. at 450-51 (citations omitted).
10
See In re Policy & Rules Concerning the Interstate, Interexchange Marketplace,
Implementation of Section 254(g) of the Commc'ns Act of 1934, 11 F.C.C.R. 7,141,
7,161 (1996) (Notice of Proposed Rule Making ) ("In addition, the absence of tariffs
would eliminate possible invocation by carriers of the filed rate doctrine."); In re Policy &
Rules Concerning the Interstate, Interexchange Marketplace, Implementation of Section
254(g) of the Commc'ns Act of 1934, 11 F.C.C.R. 20,730, 20,751 (2006) (Second Report
and Order) ("Moreover, we note that in the absence of tariffs, consumers will be able to
pursue remedies under state consumer protection and contract laws in a manner currently
precluded by the 'filed-rate' doctrine.").
11
Although Congress has shifted from a monopolistic to a deregulated free market
approach, AT&T continues to cling to its monopolistic cloak for protection. While we do
not prejudge this case, if collecting taxes by zip code instead of by geography is good
enough for monopoly work but not good enough for competitive market work, such
practices might prove the wisdom of Congress in moving to a competitive market. We do
not mean to focus on AT&T. We note that those companies who were eager to set aside
the monopolistic model in favor of a free market so they could enter the
telecommunications market are also eager to cloak themselves in the same monopolistic
privileges they once sought to render from AT&T. See, e.g., Sprint Telephony PCS, LP v.
County of San Diego, 490 F.3d 700 (9th Cir. 2007); Fisher, 495 F.3d 1052; Pinney v.
Nokia, Inc., 402 F.3d 430 (4th Cir. 2005); Dreamscape Design, Inc. v. Affinity Networks,
Inc., 414 F.3d 665 (7th Cir. 2005); Fedor v. Cingular Wireless Corp., 355 F.3d 1069 (7th
Cir. 2004); Sprint Spectrum, LP v. Mills, 283 F.3d 404 (2d Cir. 2002); Murray v.
Motorola, Inc., 327 F. Supp. 2d 554 (D. Md. 2004); Russell v. Sprint Corp., 264 F. Supp.
2d 955 (D. Kan. 2003); Threadgill v. Cingular Wireless Corp., 223 F. Supp. 2d 786 (E.D.
Tex. 2002); Aronson v. Sprint Spectrum, LP, 90 F. Supp. 2d 662 (W.D. Pa. 2000);
Balthazar v. Verizon Hawaii, Inc., 109 Haw. 69, 123 P.3d 1946 (2005).
12
Our conclusion in Scott has been bolstered by other courts who have affirmed our holding or who have independently come to the same conclusion. For example, Judge
Gould, writing for the Ninth Circuit, recently applied Scott to invalidate a class action
waiver in Lowden v. T-Mobile USA, Inc., 512 F.3d 1213 (9th Cir. 2008). The court
affirmed the district judge's denial of T-Mobile's motion to compel arbitration. Id. at
1214-15. Several other courts have also found class action waivers are substantively
unconscionable in consumer contracts when the costs of pursuing the claim far outweigh
the amount in controversy. See, e.g., Ting, 319 F.3d at 1151; Luna, 236 F. Supp. 2d at
1178; Wigginton v. Dell, Inc., __Ill. App. 3d __, 890 N.E.2d 541, 321 Ill. Dec. 819, 2008
Ill. App. LEXIS 577, at *7 (2008); Whitney v. Alltel Commc'ns, Inc., 173 S.W.3d 300,
313-14 (Mo. App. 2005); Fiser v. Dell Computer Corp., 2008-NMSC-046, ¶ 25, __
N.M. __, 188 P.3d 1215 (2008); Vasquez-Lopez, 210 Or. App. at 570; Coady v. Cross
Country Bank, Inc., 2007 WI App 26, ¶ 50, 299 Wis. 2d 420, 729 N.W.2d 732 (2007).
13
It is troubling that the contract was amended so often that even AT&T has had difficulty
determining which contract terms applied to McKee.
14
See Lowden, 512 F.3d 1213. In Lowden, the district judge observed that Scott v.
Cingular Wireless was pending before the Washington Supreme Court but declined to
stay her ruling pending Scott. Lowden, 512 F.3d at 1216-17. She concluded that T-Mobile's prohibition on class relief and limitations on punitive damages and attorney fees
were substantively unconscionable and declared the entire arbitration agreement to be
unenforceable, despite severability provisions. Id. at 1217; see also Lowden v. T-Mobile,
No. C05-1482P, 2006 U.S. Dist. LEXIS 94861, at *27-29 (W.D. Wash. Apr. 13, 2006).
The Ninth Circuit Court of Appeals affirmed. Lowden, 512 F.3d at 1214-15.
ADDENDUM
AT&T Consumer Services Agreement
THANK YOU FOR USING AT&T SERVICES. In this Agreement ("Agreement"), "you" and "your" mean the
customer of the AT&T services defined below, and "AT&T," "we," "our," and "us" mean AT&T Corp., Alascom, Inc.,
and any AT&T affiliates authorized to provide you with AT&T services.
BY ENROLLING IN, USING, OR PAYING FOR THE SERVICES, YOU AGREE TO THE PRICES, CHARGES,
TERMS AND CONDITIONS IN THIS AGREEMENT. IF YOU DO NOT AGREE TO THESE PRICES, CHARGES,
TERMS AND CONDITIONS, DO NOT USE THE SERVICES, AND CANCEL THE SERVICES IMMEDIATELY BY
CALLING AT&T AT 1-888-288-4099* FOR FURTHER DIRECTIONS.
"Service" or "Services" means: (1) the AT&T state-to-state and international consumer telecommunications
services you are enrolled in, use, or pay for that AT&T provided to you under tariffs filed with the Federal
Communications Commission as of July 31, 2001; and (2) any new or additional AT&T state-to-state and
international consumer telecommunications services that you enroll in, use, or pay for, after July 31, 2001.
This Agreement does not cover AT&T local services, AT&T in-state long distance services, calls made by dialing 10-10-345, AT&T Wireless Services, AT&T Internet services, and AT&T video services. The Services covered in this
Agreement are subject to billing availability and may not be available at all locations.
"AT&T Service Guides" contain the specific prices and charges, service descriptions and other terms and conditions
not set forth here that apply to each of your Services. You can review the AT&T Service Guides on our web site at
http://web.archive.org/web/20011208114437/http://
serviceguide.att.com/ACS/ext/ or request a copy of the AT&T
Service Guides for the Services you are enrolled in by calling AT&T toll free at 1-888-288-4099.* THIS
AGREEMENT INCORPORATES BY REFERENCE THE PRICES, CHARGES, TERMS AND CONDITIONS
INCLUDED IN THE AT&T SERVICE GUIDES.
1. CHARGES AND PAYMENT.
a. General. You agree to pay us for the Services at the prices and charges listed in the AT&T Service Guides. The
prices and charges for any particular call may depend on a number of factors listed in the AT&T Service Guides,
which include, for example, the duration of a call, the time of day and day of week, the distance called, and the
type of service. Service types include, for example, direct-dialed from home, operator-assisted, or calling card
calls. The prices and charges for the Services may also include, for example, monthly fees, monthly minimums, or
connection charges.
b. Price Changes. We may change the prices and charges for the Services from time to time. We may decrease
prices without providing advance notice. Increases to the prices or charges for the Services are effective no sooner
than fifteen days after we post them on our web site at
http://web.archive.org/web/20011208114437/http://
serviceguide.att.com/ACS/ext/. Increases to charges that
recover our costs associated with government programs are effective no sooner than three days after we post the
increases on our web site (excluding taxes and surcharges under Section 1.e.). We will provide further notices of
increases to the prices and charges as follows: For the Services covering direct-dialed calls from home under the
state-to-state basic schedule and the state-to-state and international calling plans, we will (1) notify you of these
increases by bill message or other notice; and (2) make available in advance recorded announcements of these
price increases. These recordings can be obtained by calling AT&T toll free at 1-888-288-4099, 24 hours a day,
seven days a week, and will be updated on the first and fifteenth day of each month.
For the following types of calls, we will provide you the prices and charges if you request this information at the
time you make a call (or at the time you receive a collect call): AT&T Calling Card calls; AT&T collect calls; AT&T
person-to-person calls; calls made with a commercial credit card or local phone company calling card; calls billed
to a third party; and other types of operator-assisted calls.
c. Payments. You must pay all bills or invoices on time (on or before the due date) and in U.S. money. We do not
waive our right to collect the full amount due if you pay late or you pay part of the bill, even if you write the words
"Paid in Full" (or similar words) on any correspondence to us.
If you make any late payments, and we bill you for the Services, we will charge you a late fee of 1.5%, which we
38
apply to that period's charges and any outstanding charges and late payment charges that remain unpaid at the
time of the next bill. If the state law where you receive the Services requires a different rate, we will apply that
rate. If a local telephone company or other entity bills you for the Services on our behalf, that company's late
payment charges and policies will apply.
If your check, bank draft or electronic funds transfer is returned for insufficient funds, and we bill you for the
Services, we will charge you an additional $15. If the state law where you receive the Services requires a different
fee, we will charge you that amount. If a local telephone company or other entity bills you for the Services on our
behalf, that company's returned check charge and policy will apply. When payment is made by credit card,
payment will also be subject to terms and conditions required by the credit card issuer.
d. Charges and Billing. Charges accrue through a full billing period. We may prorate or adjust a bill if the billing
period covers less than or more than a full month. (For this purpose, each month is considered to have 30 days.)
To determine the charge for each call, we round up to the next full minute for any fraction of minutes used. We will
determine the format of the bill and the billing period, and we may change both the bill format and the billing
period from time to time.
You are responsible for preventing the unauthorized use of the Services, and you are responsible for payment for
any such unauthorized use.
e. Taxes and Other Charges. You must pay all taxes, fees, surcharges and other charges that we bill you for the
Services, unless you can show documentation satisfactory to us that you are exempt. Taxes and surcharges will be
in the amounts that federal, state and local authorities require us to bill you. We will not provide advance notice of
changes to taxes and surcharges, except as required by applicable law.
f. Credit Check and Deposits. You give us permission to obtain your credit information from consumer credit
reporting agencies at any time. If we bill you for the Services and we determine that you may be a credit risk for
(1) unsatisfactory credit rating; (2) insufficient credit history; (3) fraudulent or abusive use of any AT&T services
within the last five years; or (4) late payments for current or prior bills, we may require a deposit (or an advance
payment as permitted by state law) to ensure payment for the Services. The amount of the deposit will be no more
than any estimated one-time charges required for the Services, plus three months of the estimated average per-
minute charges and/or monthly fees for the Services. We will pay simple interest at the annual rate of 4% on the
deposit, subject to the state law where you receive the Services. If you fail to pay for the Services when due, we
may use the deposit without giving notice to you. If you pay undisputed bills by the due date for twelve
consecutive billing months, we will credit the deposit to your account. If a credit balance remains on your account,
we will refund or credit that amount.
g. Credit Limits. If we bill you for the Services, we may set a credit limit based on your payment history or your
credit score from consumer credit reporting agencies. If we do this, we will notify you of your initial credit limit and
all changes to your credit limit. If you exceed your credit limit, we will restrict your access to the Services,
including direct-dialed, operator-assisted, and calls requiring a 900 or 976 prefix. Access to emergency services (9-
1-1) will not be affected by this restriction. If you fail to make timely payments, we may also lower your credit
limit.
2. SUSPENDING AND CANCELLING THE SERVICES.
a. Your Cancellation of the Services. If you use more than one Service, you may change or cancel individual
Services by calling the AT&T customer service number on your AT&T bill, subject to the applicable terms and
conditions in the AT&T Service Guides. This Agreement remains in effect for any Services that you continue to be
enrolled in, use, or pay for. If you want to cancel all of the Services, discontinue your use of all the Services and
call us toll free at 1-888-288-4099 for further instructions.
b. Fraudulent Use. You will not use the Services for any unlawful, abusive, or fraudulent purpose, including, for
example, using the Services in a way that (1) interferes with our ability to provide Services to you or other
customers; or (2) avoids your obligation to pay for the Services. If AT&T has reason to believe that you or
someone else is abusing the Services or using them fraudulently or unlawfully, we can immediately suspend,
restrict, or cancel the Services without advance notice.
c. Failure to Pay. Upon advance notice, we may suspend, restrict, or cancel the Services and this Agreement, if
39
you do not make payments for current or prior bills by the required due date, including payments for late fees or
any other required additional charges.
d. Other. AT&T may from time to time discontinue certain Services, subject to applicable law and regulation.
e. Outstanding Charges. If Services are suspended, restricted, or cancelled, any charges will accrue through the
date that AT&T fully processes the suspension, restriction or cancellation. You must pay all outstanding charges for
these Services, including payment of any bills that remain due after the date of cancellation. Subject to Section 7,
you must reimburse us for any reasonable costs we incur, including attorneys' fees, to collect charges owed to us.
If you want us to renew the Services, we may require that you pay a deposit.
3. INDEMNIFICATION.
YOU AGREE THAT WE SHOULD NOT BE RESPONSIBLE FOR ANY THIRD-PARTY CLAIMS AGAINST US THAT
ARISE FROM YOUR USE OF THE SERVICES. FURTHER, YOU AGREE TO REIMBURSE US FOR ALL COSTS
AND EXPENSES RELATED TO THE DEFENSE OF ANY SUCH CLAIMS, INCLUDING ATTORNEYS' FEES,
UNLESS SUCH CLAIMS ARE BASED ON OUR WILLFUL MISCONDUCT OR GROSS NEGLIGENCE. THIS
PROVISION WILL CONTINUE TO APPLY AFTER THE AGREEMENT ENDS.
4. LIMITATIONS OF LIABILITY.
THIS SECTION DESCRIBES THE FULL EXTENT OF OUR RESPONSIBILITY FOR ANY CLAIMS YOU MAKE
FOR DAMAGES CAUSED BY THE FAILURE OF THE SERVICES, OR ANY OTHER CLAIMS IN CONNECTION
WITH THE SERVICES OR THIS AGREEMENT.
IF OUR NEGLIGENCE CAUSES DAMAGE TO PERSON OR PROPERTY, WE WILL BE LIABLE FOR NO MORE
THAN THE AMOUNT OF DIRECT DAMAGES TO THE PERSON OR PROPERTY. FOR ANY OTHER CLAIM, WE
WILL NOT BE LIABLE FOR MORE THAN THE AMOUNT OF OUR CHARGES FOR THE SERVICES DURING THE
AFFECTED PERIOD. FOR ALL CLAIMS, WE WILL NOT BE LIABLE FOR INDIRECT OR CONSEQUENTIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR REVENUE OR INCREASED COSTS OF
OPERATION. WE ALSO WILL NOT BE LIABLE FOR PUNITIVE, RELIANCE OR SPECIAL DAMAGES. THESE
LIMITATIONS APPLY EVEN IF THE DAMAGES WERE FORESEEABLE OR WE WERE TOLD THEY WERE
POSSIBLE, AND THEY APPLY WHETHER THE CLAIM IS BASED ON CONTRACT, TORT, STATUTE, FRAUD,
MISREPRESENTATION, OR ANY OTHER LEGAL OR EQUITABLE THEORY.
WE WILL NOT BE LIABLE FOR ANY DAMAGES IF SERVICES ARE INTERRUPTED, OR THERE IS A PROBLEM
WITH THE INTERCONNECTION OF OUR SERVICES WITH THE SERVICES OR EQUIPMENT OF SOME OTHER
PARTY. THIS SECTION WILL CONTINUE TO APPLY AFTER THE AGREEMENT ENDS.
5. WARRANTIES.
EXCEPT AS THIS AGREEMENT EXPRESSLY STATES, WE MAKE NO EXPRESS WARRANTY REGARDING THE
SERVICES AND DISCLAIM ANY IMPLIED WARRANTY, INCLUDING ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. WE ALSO MAKE NO WARRANTY THAT
THE SERVICES WILL BE UNINTERRUPTED OR ERROR FREE. WE DO NOT AUTHORIZE ANYONE,
INCLUDING, BUT NOT LIMITED TO, AT&T EMPLOYEES, AGENTS OR REPRESENTATIVES, TO MAKE A
WARRANTY OF ANY KIND ON OUR BEHALF AND YOU SHOULD NOT RELY ON ANY SUCH STATEMENT.
6. CREDIT ALLOWANCES FOR INTERRUPTIONS.
If an interruption or failure of Services is caused solely by AT&T and not by you or a third party or other causes
beyond our reasonable control, you may be entitled to a credit allowance as specified in the applicable AT&T
Service Guide.
7. DISPUTE RESOLUTION.
IT IS IMPORTANT THAT YOU READ THIS ENTIRE SECTION CAREFULLY. THIS SECTION PROVIDES FOR
RESOLUTION OF DISPUTES THROUGH FINAL AND BINDING ARBITRATION BEFORE A NEUTRAL
ARBITRATOR INSTEAD OF IN A COURT BY A JUDGE OR JURY OR THROUGH A CLASS ACTION. YOU
40
CONTINUE TO HAVE CERTAIN RIGHTS TO OBTAIN RELIEF FROM A FEDERAL OR STATE REGULATORY
AGENCY.
a. Binding Arbitration. The arbitration process established by this section is governed by the Federal Arbitration
Act ("FAA"), 9 U.S.C. §§ 116. You have the right to take any dispute that qualifies to small claims court rather
than arbitration. All other disputes arising out of or related to this Agreement (whether based in contract, tort,
statute, fraud, misrepresentation or any other legal or equitable theory) must be resolved by final and binding
arbitration. This includes any dispute based on any product, service or advertising having a connection with this
Agreement and any dispute not finally resolved by a small claims court. The arbitration will be conducted by one
arbitrator using the procedures described by this Section 7. If any portion of this Dispute Resolution Section is
determined to be unenforceable, then the remainder shall be given full force and effect.
The arbitration of any dispute involving $10,000 or less shall be conducted in accordance with the Consumer
Arbitration Rules of the American Arbitration Association ("AAA"), as modified by this Agreement, which are in
effect on the date a dispute is submitted to the AAA. The AAA's Commercial Arbitration Rules and fee schedules
will apply to any disputes in excess of $10,000. You have the right to be represented by counsel in an arbitration.
In conducting the arbitration and making any award, the arbitrator shall be bound by and strictly enforce the terms
of this Agreement and may not limit, expand, or otherwise modify its terms.
NO DISPUTE MAY BE JOINED WITH ANOTHER LAWSUIT, OR IN AN ARBITRATION WITH A DISPUTE OF
ANY OTHER PERSON, OR RESOLVED ON A CLASS-WIDE BASIS. THE ARBITRATOR MAY NOT AWARD
DAMAGES THAT ARE NOT EXPRESSLY AUTHORIZED BY THIS AGREEMENT AND MAY NOT AWARD
PUNITIVE DAMAGES OR ATTORNEYS' FEES UNLESS SUCH DAMAGES ARE EXPRESSLY AUTHORIZED BY A
STATUTE. YOU AND AT&T BOTH WAIVE ANY CLAIMS FOR AN AWARD OF DAMAGES THAT ARE EXCLUDED
UNDER THIS AGREEMENT.
b. Arbitration Information and Filing Procedures. Before you take a dispute to arbitration or to small claims
court, you must first contact our customer account representatives at the customer service number on your AT&T
bill for the Services, or write to us at AT&T, P.O. Box 944078, Maitland, Florida 32794-4078, and give us an
opportunity to resolve the dispute. Similarly, before AT&T takes a dispute to arbitration, we must first attempt to
resolve it by contacting you. If the dispute cannot be satisfactorily resolved within sixty days from the date you or
AT&T is notified by the other of a dispute, then either party may then contact the AAA in writing at AAA Service
Center, 134555 Noel Road, Suite 1750, Dallas, Texas 75240-6620 and request arbitration of the dispute.
Information about the arbitration process and the AAA's Arbitration Rules and its fees are available from the AAA
on the Internet at http://web.archive.org/web/20011208114437/
http://www.adr.org/, or by contacting us at
http://web.archive.org/web/20011208114437/
http://serviceguide.att.com/ACS/ext/ or AT&T, P.O. Box 944078,
Maitland, Florida 32794-4078. The arbitration will be based only on the written submissions of the parties and the
documents submitted to the AAA relating to the dispute, unless either party requests that the arbitration be
conducted using the AAA's telephonic, on-line, or in-person procedures. Additional charges may apply for these
procedures. Any in-person arbitration will be conducted at a location that the AAA selects in the state of your
primary residence. Any arbitration shall remain confidential. Neither you nor AT&T may disclose the existence,
content or results of any arbitration or award, except as may be required by law, or to confirm and enforce an
award.
ANY CLAIM OR DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT MUST BE BROUGHT
WITHIN TWO YEARS AFTER THE DATE THE BASIS FOR THE CLAIM OR DISPUTE FIRST ARISES.
c. Fees and Expenses of Arbitration. You must pay the applicable AAA filing fee when you submit your written
request for arbitration to the AAA. The AAA's filing fee and administrative expenses for a document arbitration will
be allocated according to the AAA's Rules, except that for claims of less than $1,000, you will only be obligated to
pay a filing fee of $20 and we will pay all of the AAA's other costs and fees. If you elect an arbitration process
other than a document (or "desk") arbitration, you must pay your allocated share of any higher administrative fees
and costs for the process you select. Unless applicable substantive law provides otherwise, each party will pay its
own expenses to participate in the arbitration, including attorneys' fees and expenses for witnesses, document
production and presentation of evidence. The prevailing party may, however, seek to recover the AAA's fees and
the expenses of the arbitrator from the other party.
41
8. MISCELLANEOUS.
a. No Third Party Rights. This Agreement does not provide any third party with a remedy, claim, or right of
reimbursement.
b. Acts Beyond Our Control. Neither you nor we will be responsible to the other for any delay, failure in
performance, loss or damage due to fire, explosion, power blackout, earthquake, volcanic action, flood, the
weather elements, strike, embargo, labor disputes, civil or military authority, war, acts of God, acts or omissions
of carriers or suppliers, acts of regulatory or governmental agencies, or other causes beyond our reasonable
control, except that you must pay for any Services used.
c. Assignment. We can assign all or part of our rights or duties under this Agreement without notifying you. If we
do that, we have no further obligations to you. You may not assign this Agreement or the Services without our
prior written consent.
d. Notices. Notices from you to AT&T must be provided as specified in this Agreement. Notice from you to AT&T
made by calling AT&T is effective as of the date that our records show that we received your call.
AT&T's notice to you under this Agreement will be provided by one or more of the following: posting on our web
site, recorded announcement, bill message, bill insert, newspaper ad, postcard, letter, call to your billed telephone
number, or e-mail to an address provided by you.
e. Separability. If any part of this Agreement is found invalid, the rest of the Agreement will remain valid and
enforceable.
f. Governing Law. This Agreement will be governed by the law of the State of New York, without regard to its
choice of law rules, except that the arbitration provisions in Section 7 will be governed by the Federal Arbitration
Act. This governing law provision applies no matter where you reside, or where you use or pay for the Services.
g. Entire Agreement. This Agreement (which incorporates by reference the AT&T Service Guides) constitutes the
entire agreement between us and supersedes all prior agreements, understandings, statements or proposals, and
representations, whether written or oral. This Agreement can be amended only as provided in Section 9 below. No
written or oral statement, advertisement, or service description not expressly contained in the Agreement will be
allowed to contradict, explain, or supplement it. Neither you nor AT&T is relying on any representations or
statements by the other party or any other person that are not included in this Agreement.
9. CHANGES TO THIS AGREEMENT.
This Agreement may only be changed in the manner provided for in this Section 9. We may change this
Agreement, including the incorporated AT&T Service Guides, from time to time. If we make any changes to the
prices or charges, we will comply with our notice commitments described in Section 1 of this Agreement. With
respect to all other changes to this Agreement, we will notify you of the changes, and they will be effective no
sooner than fifteen days after we post them at
http://web.archive.org/web/
20011208114437/http://serviceguide.att.com/ACS/ext/. You may also request a copy
of the revised Agreement, including revised AT&T Service Guides for the services you are enrolled in, by calling
AT&T toll free at 1-888-288-4099.
IF YOU CONTINUE TO BE ENROLLED IN, USE, OR PAY FOR THE SERVICES AFTER ANY CHANGES IN THE
PRICES, CHARGES, TERMS OR CONDITIONS, YOU AGREE TO THE CHANGES.
10. ENROLLMENT IN ANOTHER AT&T SERVICE.
To enroll in an additional Service, or to switch from your existing Service to a different Service, you must notify us
by: (1) returning an enrollment form provided in AT&T marketing materials; (2) calling the AT&T customer service
number on your AT&T bill; (3) calling the AT&T customer service number provided in AT&T marketing materials; or
(4) going to our web site at http://web.archive.org/web/20011208114437/http://
www.att.com/ and following any
further instructions provided for enrollment. The terms and conditions of this Agreement, including those in the
incorporated AT&T Service Guides, will apply to the new or additional AT&T Service.
BY ENROLLING IN, USING, OR PAYING FOR THESE NEW OR ADDITIONAL SERVICES, YOU AGREE TO THE
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PRICES, CHARGES, TERMS AND CONDITIONS IN THIS AGREEMENT.
* Customers outside the U.S. call: 1-877-288-4725.
TTY for customers with hearing/speech disabilities: 1-800-833-3232.
Terms and Conditions. Privacy Policy. Write to AT&T.
Copyright © 2001 AT&T. All rights reserved.
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