Arbitration Provision Stricken Because Unconscionable in Part
For anyone who deals with Washington consumers, the Washington State Supreme Court came down with a decision this week that is not to be missed. I suspect that the decision’s reach will be debated for some time, but, right now, any business that has a consumer contract with an arbitration dispute resolution clause and/or out of state choice of law provision should look carefully at yesterday’s 35 page opinion in McKee v. AT&T, which stated that a cell phone dispute resolution clause was unconscionable in four different aspects and refused to enforce an arbitration clause that contained those provisions.
McKee, an AT&T customer, initiated a class action suit in Washington state court relating to a cell phone contract. AT&T objected for a number of reasons including a dispute resolution paragraph in the agreement that mandated arbitration and that waived any right to start class actions. Citing Washington’s strong interest in consumer protection and limited contacts with New York, the court refused to apply New York law (which allows contractual waiver of class actions), and found the arbitration provision was substantively unconscionable because it mandated that the arbitration be confidential, prohibited class actions, shortened the statute of limitations, and limited attorney’s fees – only the customer paid them. The bottom line is that the court refused to sever the unconscionable provisions, and the dispute resolution paragraph was stricken from the agreement because of the taint of the unconscionable portions.
I have no involvement in this case, but, given the tenor of the opinion, the best news for AT&T yesterday was that the court didn’t think it was necessary to reach the issue of whether the agreement was procedurally unconscionable. The court did not seem particularly impressed with those procedures.
Anyway, given this decision, sellers or service providers dealing with Washington consumers should take a hard look at their agreements, as well as their procedures for binding their customers or amending their agreements as soon as possible.
