Businesses and individuals are bombarded with contractual legalese daily, and seldom consider the consequence of the language prior to agreeing to the contract. A recent decision addresses the recurring issue of whether language in an adhesion contract barring class actions is enforceable. Authority is split nationwide on the critical question of whether class action waivers in arbitration clauses are enforceable. Several states have denied these waivers any worth, while others continue to enforce class action waiver clauses.
In Scott v. Cingular Wireless, 2007 WL 2003404, (Wash. July 12, 2007), the Supreme Court of Washington granted a substantial win to consumers in a case involving cellular service giant Cingular. Cingular’s service contract included an arbitration clause that provided, inter alia, that the parties waived any right to proceed as part of a class action. The arbitration clause included other provisions applying the American Arbitration Association rules and guaranteeing compensation for consumer arbitration fees, unless determined frivolous. Under the Federal Arbitration Act, written arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exits at law or in equity for the revocation of any contract.” The court nevertheless threw out the arbitration clause and held that a class action waiver in Cingular’s standard arbitration clause was unconscionable and violates Washington State public policy. The court wrote that the waiver “effectively denies large numbers of consumers the protection of Washington’s Consumer Protection Act . . . and because it effectively exculpates Cingular from liability for a whole class of wrongful conduct.” The court reached this conclusion based on its acknowledgement that many of the grievances consumers might have against Cingular would never be litigated absent the filing of a class action because the cases were too small individually.
While Washington has now weighed in on the issue, the question of whether the right to proceed as a class action may be waived as part of an arbitration agreement remains open in other jurisdictions.