ASK AUGELLO

By William J. Augello, Esquire

Question: The U.S. Court of Appeals for the Ninth Circuit (West Coast) held on February 11, 2003 that a clause in AT&T?s contract that required long distance customers to submit claims to mandatory arbitration is unconscionable and unenforceable. The court also struck down provisions that attempted to prohibit class action suits, imposing overly broad confidentiality requirements, limiting the time to file claims shorter than the state statute and requiring customers to pay excessive costs for mandatory arbitration. What does this decision mean to parcel express shippers?

Answer: Most parcel express carriers have the same or similar restrictions in their tariffs! There-fore, parcel shippers should not be dissuaded from suing a carrier instead of arbitrating or participating in a class action suit against a parcel express carrier if they have sufficient grounds to warrant such an action. The Ninth Circuit decision is the law in that circuit, but in the absence of a contrary decision in other circuits, it will usually be followed in other circuits unless it is overturned by the U.S. Supreme Court.

The Ninth Circuit permanently enjoined AT&T from enforcing the provisions of the contract found to be void, and it awarded attorney fees and costs to the plaintiff. (The amounts have yet to be determined.) The court held that ?the substantive element of unconscionability traditionally involves contract terms that are so one-sided as to shock the conscience or impose harsh or oppressive terms.?

The court also held that arbitration agreements may be invalidated on grounds of fraud, duress or unconscionability. It held that the AT&T contract was a ?contract of adhesion? that was imposed upon the class members (long distance customers) ?without an opportunity for negotiation, modification or waiver. . . In other words, the CSA [contract] was presented to the class members on a ?take-it-or-leave-it? basis.?

It observed further that AT&T?s own research found that only 30% of its customers would actually read the entire contract, and 10% of its customers would not read it at all. In addition, one-fourth of the class would not open the separate enclosure in the monthly bill that contained the new contract terms, concluding that this conduct gives a ?strong presence of substan-tive unconscionability in the CSA [contract].?

As to the prohibition of class actions, the court held that ?class action treatment offers the public a vehicle for vindicating legal rights when individual claims are not economically feasible. For all these reasons, the ban on class actions is substantively unconscionable.?

The court then described the confidentiality clause as ?draconian? since it attempted to prohibit a class member from talking about the claim to anyone once the claim enters arbitration. The court concluded that ?the implications of such secrecy to society are troubling. Among many others, they mean that if consumers obtain determinations that a particular AT&T practice is unlawful, they are prohibited from alerting other consumers.?

This puts AT&T in a vastly superior legal posture since, as a party to every arbitration, it will know every result and be able to guide itself and take legal positions accordingly, while each class member will have to operate in isolation and largely in the dark.

In conclusion, the court ruled that ?it is not just that AT&T wants to litigate in the forum of its choice: arbitration; it is that AT&T wants to make it very difficulty for anyone to effectively vindicate her [sic] rights, even in that forum. That is illegal and uncon-scionable and must be enjoined.?

Similar provisions may be found in parcel express carriers? tariffs, Service Guides and Web sites, and therefore, shippers should not be dissuaded from taking actions to protect their rights simply because of the publication of these prohibitions. Parcel express carriers are common carriers subject to federal statutes and regulations, even in the current deregulated environment.

William J. Augello is an adjunct professor at the University of Arizona. If you have a question for him, please email williamaugello@att.net or call 520-531-0203.