Case: McKee v. AT&T Corp., 191 P.3d 845 (Wash. Aug. 28, 2008).
Status: Ready, Aim, Fire
Plaintiff McKee filed a class action lawsuit alleging that AT&T wrongly charged surcharges and usurious late fees of less than $2 per month to customers like him. AT&T moved to compel arbitration under an agreement it claimed it sent in the mail. The dispute resolution section at issue required binding arbitration, forbade class action lawsuits, shortened the statute of limitation on consumer claims, limited the recovery of attorneys' fees, and required all arbitrations to be kept confidential. The Washington Supreme Court, however, disregarded the contract's choice of law provision and applied Washington law because the waiver of class-based relief conflicted with the state's fundamental public policy to protect consumers. The Court severed the dispute resolution section from the agreement because its unconscionable terms tainted the entire section.
- Choice of law provisions may not get you the law of your choice. Your company's nationwide reach may require you to comply with the laws of each individual state where you contract with customers.
- Carefully consider provisions which might run afoul of strong consumer protection laws, such as those found in Washington. Check applicable laws before you attempt to shorten the statute of limitations for consumers to bring claims, require waiver of class action lawsuits, require confidentiality or limit the ability for the consumer to obtain attorneys fees.
- You'll need evidence that the customer had a reasonable opportunity to understand the terms of the agreement so think twice before adopting agreements that automatically go into effect merely by the customer's continued use of the service or which allow you to unilaterally retain the right to change the customer's contract by providing notice to the customer.
Litigation over small fees, combined with restricting consumer rights, may only highlight the purported "unconscionability" of an agreement that requires arbitration-particularly in states where policy strongly supports use of class action claims to pursue actions for small-dollar damages claims. Such a scenario may leave the court with an impression that you've left your customers completely unarmed.
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