Consumer Class Action Blog

News, analysis and commentary on state and federal consumer class action litigation

Another mandatory arbitration clause bites the dust

Posted by Philip Kay on November 7, 2009

Case settled late yesterday, the Friday before a Monday trial.  While I was buried deep in trial prep, Judge Pannell of the Northern District of Georgia issued an excellent ruling on the enforceability of arbitration clauses and class action waiver provisions in consumer contracts.  I discussed this issue back in August, Issue du Jour: Forced Arbitration, and Judge Pannell’s ruling is in line with the (seeming) national trend invalidating mandatory arbitration/class action waiver provisions in consumer contracts.

In Jones v. DirecTV, Inc., 2009 WL 3646197 (N.D.Ga. Oct 29, 2009), the plaintiff filed a class action against DIRECTV for collecting excessive “sales tax” charges ($0.80 per month) and improperly billed “leased receiver” fees ($4.99 per month).  DIRECTV moved to stay the action and compel arbitration based on the broad arbitration clause and a class action waiver provision in its service contract with the plaintiff.

Judge Pannell denied the motion and invalidated the class action waiver provision based on unconscionability.  He based his ruling on the fact that under DIRECTV’s class action waiver provision, claims such as the plaintiff’s would effectively be foreclosed since the costs of prosecuting the claim individually would far exceed the likely recovery.  In so ruling, Judge Pannell validated the very purpose of class action lawsuits:

“The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. The effort and cost of investigating and initiating a claim may be greater than many claimants’ individual stake in the outcome, discouraging the prosecution of these claims absent a class action filing procedure.”

Since the plaintiff in Jones, even if successful on all of her claims, individually stood to recover a very small amount, she would be unlikely to prosecute her claims individually given the costs of litigation.  Thus, DIRECTV’s class action waiver provision was unconscionable because “the remedies available to the plaintiff and members of the proposed class are effectively foreclosed.”  Since the contract (curiously) provided that if the class action waiver provision is deemed unenforceable then the entire arbitration clause is also unenforceable, Judge Pannell invalidated the entire arbitration clause based on the plain language of the contract.  (Not sure how the arbitration clause would have fared absent the tie-in to the class action waiver provision.  DIRECTV’s corporate counsel should have known better – ALWAYS include a severability provision in your consumer contract!)

Maybe I’m reading too much into it, but it does seem like there is a recent trend against the enforceability of mandatory arbitration clauses and class action waiver provisions in consumer contracts.   More judges seem to be looking beyond the strict letter of take-it-or-leave-it consumer contracts and are finding creative ways to get around the more onerous provisions, especially provisions which deny aggrieved consumers access to an effective remedy in court.


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