Class Action

Class Action Defense Cases–Jones v. DirecTV: Georgia Federal Court Denies Motion To Compel Arbitration Holding Class Action Waiver In Arbitration Clause Rendered It Unconscionable

By Michael J. Hassen

Class Action Challenging Monthly Fees Imposed by Satellite TV Provider not Subject to Arbitration on Individual Basis because Class Action Waiver in Arbitration Provision was Unenforceable Georgia Federal Court Holds

Plaintiff filed a putative class action in a Georgia federal court against his satellite television provider, DirecTV, alleging breach of contract and unjust enrichment, and seeking an accounting as well as injunctive and declaratory; specifically, the class action complaint alleged that DirecTV “collect[ed] excessive ‘tax’ charges and improperly billed lease fees” in connection with the satellite television service, and sought to prohibit it from collecting or billing customers “for taxes in excess of those actually due and owing.” Jones v. DirecTV, Inc., 667 F.Supp.2d 1379, 1380-81 (N.D.Ga. 2009). As part of the service, plaintiff signed a written customer agreement; “DIRECTV mails any amendments to the terms of the initial customer agreement with subsequent billing statements when necessary.” Id., at 1380. Plaintiff signed up for service with DirecTV in 2002, and received a copy of the customer agreement, which “stated that customers should immediately cancel their service should they choose to reject the terms of the agreement and that use of the DIRECTV service without rejection constitutes acceptance.” Id. In May 2007, plaintiff received an amended agreement (the April 2007 agreement) containing an arbitration clause with a class action waiver provision. Id. The arbitration provision provided that “if the class action waiver provision is unenforceable, then the entire arbitration clause is also unenforceable.” Id., at 1381. In May 2007, plaintiff obtained two DirecTV receivers, signing an “equipment lease addendum” that “expressly incorporated the April 2007 agreement, specifically the agreement’s arbitration provisions.” Id., at 1380. Defense attorneys moved the district court to compel arbitration of plaintiff’s individual claims in light of the class action waiver in the agreement’s arbitration clause. Id., at 1380-81. The federal court denied the motion.

The district court recognized that the Federal Arbitration Act (FAA) “dictates that binding arbitration clauses in written agreements are enforceable in federal court.” Jones, at 3181 (citation omitted). But it also noted that “such a clause may be invalidated under any applicable state law that governs contracts generally, including ‘fraud, duress, or unconscionability.’” Id. The court concluded that, under Georgia law, the class action waiver in the arbitration clause was unconscionable. Id., at 1381-82. Plaintiff (and the other class members) stood to recover but “a very small amount” – the class action challenged monthly lease fees of $4.99 and sales taxes of $0.80. Id., at 1382. Moreover, “the arbitration provision leaves the determination of whether to award fees for attorneys and expert witnesses to the chosen arbitrator,” making it unlikely that an individual would choose to pursue arbitration. Id. The district court concluded, therefore, that “the remedies available to the plaintiff and members of the proposed class are effectively foreclosed.” Id. Accordingly, the class action waiver was unenforceable, rendering the entire arbitration clause unenforceable (as provided by the agreement). Id. The district court therefore denied the motion to compel arbitration. Id.

Full post as published by Class Action Defense Blog on March 30, 2010 (boomark / email).