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AT&T Arbitration Clause Ruled Unconscionable 261

Posted by ScuttleMonkey
from the new-contracts-just-ask-to-surrender-all-rights dept.
Tech.Luver writes to tell us the Consumerist is reporting that a small clause in AT&T contracts has been ruled "unconscionable" by the 9th circuit court of appeals. The clause in question stated that if you use AT&T service you surrender your right to class action lawsuits and instead have to participate in mandatory binding arbitration.
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AT&T Arbitration Clause Ruled Unconscionable

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  • Article or link? (Score:4, Insightful)

    by hazem (472289) on Sunday August 19, 2007 @05:35PM (#20288069) Journal
    Can we have an article or link? Or should we write directly to tech.luver?
  • Old news (Score:4, Insightful)

    by Zatchmort (1091857) on Sunday August 19, 2007 @05:36PM (#20288077)
    Well, this is nothing new. Most "contracts" are just waiving the consumer's rights. On the other hand, I'm glad somebody finally called them on it, since this is so blatantly obvious.
    • Re: (Score:3, Interesting)

      Well, this is nothing new. Most "contracts" are just waiving the consumer's rights. On the other hand, I'm glad somebody finally called them on it, since this is so blatantly obvious.

      Actually, 100% of contracts are a waiver of some rights by one or both parties. That's what a contract is: an exchange of negotiated consideration ("consideration" here is a legal term, meaning either detriment or benefit to one or both parties, depending on which jurisdiction you're in).

      • Re: (Score:2, Interesting)

        by Zatchmort (1091857)
        Sadly, you're almost right. Theoretically, a contract is just a document stating what each party has agreed to. We could write up a contract saying "I will write a reply agreeing with everything you say on Slashdot for the next week and you will give me $100 in exchange", and neither of us would be giving up any rights. Problem is, most transactions now have a "standard" contract that includes giving up most of your rights.
        • Re: (Score:3, Interesting)

          by rtb61 (674572)
          Wrong, not condition of contract can ever, ever, overrule a statutory law. You can not surrender your rights given by law to a contract, those kinds of clauses are just a bluff to argue over in civil to court, so the little people hopefully run out of money before they can obtain justice.

          Serious effort needs to be made to ensure that those companies that attempt to implement clauses in contracts that infringe the law and the rights people should face criminal penalties, especially when the clauses are in

    • Re: (Score:3, Informative)

      Hey, as a law student, I hate to break it to you, but the only contracts that are enforceable are the ones YOU agree to. I know it's en vogue to blame the evil faceless corporation for the world's ills, but guess what? The blind masses who think they can forfeit their rights, with NO problem, in order to gain luxuries are a complicit accomplice. Contracts have to be signed by TWO parties.
      • Re: (Score:2, Interesting)

        by Zatchmort (1091857)
        Which is fine, unless you want to, y'know, buy a house, own a car... Face it, you can't just avoid contracts you don't like. Every ticket you buy is a contract. For that matter, so is every grocery item-- it's just an unwritten contract with fewer provisions. Also, as a non-law student, I hate to break it to you, but even contracts you don't agree to can be enforced in some situations. Hostpitals do this all the time.
        • Sorry man, but a contract, by definition, requires a two-party agreement.

          It's not just hypothetically true; it's tautologically true.

          I'm not sure what point you're making, but any 'contract' agreed to by only one party is just toilet paper. Now, if you're disputing the threshold for agreement, sure, that's a valid legal concern (and has been as far as the twentieth century has been concerned), but your point doesn't provide a unique perspective.
  • all fine print (Score:5, Informative)

    by seanadams.com (463190) * on Sunday August 19, 2007 @05:37PM (#20288083) Homepage
    "unconscionable" basically means that no person of sound mind could have been expected to accept the contract at the time the contract was signed.

    Seem to me like that should apply to all EULAS, click-through terms of service, notice of terms after the fact, etc. No person should be expected to wade through such a contract for such trifling matters as purchasing a telephone, installing some software, etc.
    • Re:all fine print (Score:5, Interesting)

      by kimvette (919543) on Sunday August 19, 2007 @06:10PM (#20288249) Homepage Journal
      Well, where software is concerned, EULAs are moot. You see the EULA after you make the purchase and open the package. Open the package, the store will refuse to accept it. Your right of first sale (it's a commodity good, NOT a work for hire) allows you to use it for its intended purpose without restriction. You are still of course bound by patents and copyrights, but not to use the package for its advertised purpose, or even to resell it to someone else when you're finished with it.

      With AT&T, you're buying a service; it amounts to a work for hire, in essence. As such, they can require you to agree to certain terms, but not ones which would restrict you from certain rights, e.g., if they work with the government to subert your constitutional rights (e.g., engaged in wiretapping without a warrant), engage in fraud and charge you for services you do not receive, or falsely advertise their services (advertising them as unlimited), and so forth, it is unreasonable for a court to accept that waiver of such rights is valid or even possible.
      • by Elemenope (905108) on Sunday August 19, 2007 @06:42PM (#20288383)

        Well, where software is concerned, EULAs are moot. You see the EULA after you make the purchase and open the package. Open the package, the store will refuse to accept it. Your right of first sale (it's a commodity good, NOT a work for hire) allows you to use it for its intended purpose without restriction. You are still of course bound by patents and copyrights, but not to use the package for its advertised purpose, or even to resell it to someone else when you're finished with it.

        Not that I disagree that's how it ought to be, but last I checked/heard/read the US Appeals courts were still thoroughly confused on the point of whether the First Sale Doctrine applies to software licensed for purchase. Any lawyers in the house who know one way or the other? Have there been any definitive rulings, esp. Supreme court rulings on the issue?

        • by Todd Knarr (15451)

          I don't think anyone's ever taken a case on on that point. They're all interested in trying to argue that the EULA's not valid, or that their agreement to it should be set aside. I don't recall anyone ever arguing that the EULA's irrelevant because they never agreed to it and don't have to agree to it.

          Were I cynical, I'd suggest that this might be because it'd turn it from a sexy First Amendment case into a bog-standard Uniform Commercial Code contract case that wouldn't make for nearly as good a headline

      • Software EULAs have been upheld in court: see ProCD v. Zeidenberg [wikipedia.org]. The judge's analysis rested mostly on the Uniform Commercial Code (or UCC), not copyright law.

        "Work for hire" is a concept that only applies to copyright law; it makes no sense to talk about it in the context of a service.

        These basic errors lead me to question the rest of your analysis as well.
        • by kimvette (919543)
          That may be valid if in fact the software can be returned. The simple fact is that once you purchase software online, or in most stores, and disagree with the EULA, the return will be refused. You're left holding the bag. In such cases the EULA is pretty much irrelevent and you still have your right of first sale, so you can pretty much do what you darn well please with that commodity good.

          Now, for a phone directory? It's factual information, and not subject to copyright. Were the software a work for hire I
        • by Alaren (682568) on Sunday August 19, 2007 @07:25PM (#20288611)

          I am not a lawyer, but I am in law school. The following is not legal advice.

          While you are correct, please remember that the fact-finding in the ProCD case suggested that the purchaser in fact knew of the EULA (I think there was a line about it on the outside of the box IIRC). Actual or constructive knowledge of the EULA's existence was enough for the EULA to be a contract; additionally, when ProCD went down you could still return opened software to some places, aa the judge mentions returning the software in the opinion. In the final analysis, I still think ProCD was wrongly decided, but even so it wasn't as big a victory for EULA's as people make it out to be.

          There has not been a case where a purchaser in genuine ignorance of a EULA or its existence has been held to it. This AT&T case is a minor victory, but in general lawyers will do precisely the wrong thing and the legislature will support it. Just wait for the day when you buy your groceries and sign a receipt stating that you have license to eat them, but not resell them. Eight judges out of ten seem incapable of understanding technology or rationally grasping the deeper principles that underlay the law, and at this rate it won't be long before you can't even resell your furniture, let alone your software.

          • If we're talking about what ought to be, believe me when I say that I have no love for EULAs.

            But even more than I hate EULAs, I hate sweeping and incorrect legal analysis by armchair lawyers.

            "Software EULAs have no legal weight" is demonstrably false: there are cases where they have been upheld. The question is more complex than that. That's the only statement I was trying to make.

            As an aside, I see several other cases described on this page [jonesday.com] that apparently have also upheld the enforceability of EULAs. I
      • Re: (Score:3, Interesting)

        by Belial6 (794905)
        "With AT&T, you're buying a service; it amounts to a work for hire, in essence. As such, they can require you to agree to certain terms, but not ones which would restrict you from certain rights, e.g., if they work with the government to subert your constitutional rights (e.g., engaged in wiretapping without a warrant), engage in fraud and charge you for services you do not receive, or falsely advertise their services (advertising them as unlimited), and so forth, it is unreasonable for a court to accep
        • Two months into it and I already have a $125 bill! To be fair, I did make 3 minutes worth of long distance calls and dialed local number to connect to my ISP on this line while I was waiting for my DSL connection. Nothing after that though, as I use my cell and Vonage for all of my calls.

          Some providers have a "service" wherein if you use a certain amount of a certain a-la-carte service (or in some cases, ANY of that service) they'll automatically kick you into the next highest service plan, and charge you

      • Re: (Score:2, Interesting)

        by Panthar37 (685745)
        EULAs for software can be overcome. It requires a firm tone and the promise of corporate letter writing. When store managers are told they will be hearing from the corporate office because they didn't satisfy a customer, they will refund you the money. The fact that EULAs are contained inside a sealed box and state that if you do not agree with the terms of service, "you may return the product for a refund" creates a catch-22 for the seller. You can't read it until its open. So, in order to decide you do no
  • by Etherwalk (681268) on Sunday August 19, 2007 @05:43PM (#20288109)
    Isn't this in most or all credit card agreements?
  • Out of hand (Score:5, Interesting)

    by WwWonka (545303) on Sunday August 19, 2007 @05:48PM (#20288139)
    I am glad this got struck down. We are seeing more and more of corporate America using these so called "to smart for the normal guy" contracts that really are never read,signed, or agreed to in a "normal" manner. Hell, recently I got a postcard from Sprint saying that my monthly web service was going to rise a few dollars a month and that by paying my next bill I agree to their service and conditions and the raise. What the f&*k? Of course I am going to have to pay my bill or else they would shut my service off, give me a bad credit mark, and then go to collections on me. A no-win situation.

    I keep asking myself, what the f$*k is going on in America lately?
    • I'm waiting for the RIAA to respond to their court-ordered requirement to pay legal fees to one of the people they sued, with "It's company policy not to pay out judgments against us", or something equally stupid - and then get away with it, or at least successfully stall for years or decades.
    • Re: (Score:3, Interesting)

      by UbuntuDupe (970646) *
      What's going on? My theory is that both sides (that means the consumer too) have gotten better lawyers to find some loophole that lets them weasel out of an agreement. So now, the only way anyone will offer a services is if they have a fallback of "oh, it means whatever we want". They might as well, because it will mean whatever a court says it means.

      The old joke about Russia was "we pretend to work, they pretend to pay us". Here, it's, "we pretend to agree to it, they pretend it will be enforced."

      I firs
    • Re: (Score:2, Interesting)

      by excelblue (739986)
      Actually, they have invalidated your entire contract by raising the rates and are thus asking you to agree to a new contract with increased rates. However, they already stated in the old contract that such agreements can be made by paying a bill. So, for practical reasons, this is a good thing; that means you get to cancel without an early termination fee and switch to a provider that can provide you services for a price you can agree on. You are simply misinterpreting the implications. What they're sayin
    • Re: (Score:2, Insightful)

      by noidentity (188756)
      I agree that "by doing unrelated action Y, you are also accepting contract X" is stupid, but in this case, if you don't like the new terms, let your next bill payment be your last. That's what it'd be anyway if you didn't accept the new terms. Now, if you say agreed to use service for a minimum of a year, either they stated up-front that they could change the contract terms mid-year (for example, raising rate to $1000 per month), or it's fixed for that first year or whatever.
    • Re: (Score:2, Insightful)

      by aeschenkarnos (517917)
      I keep asking myself, what the f$*k is going on in America lately?

      You've put the foxes in charge of the henhouses, that's what.

    • Re:Out of hand (Score:5, Interesting)

      by Technician (215283) on Monday August 20, 2007 @04:21AM (#20291015)
      Hell, recently I got a postcard from Sprint saying that my monthly web service was going to rise a few dollars a month and that by paying my next bill I agree to their service and conditions and the raise.

      Enclose a photocopy of the postcard with your bill and without a check and send it in with a note.

      "Please contact me regarding the rejection of your new rate offer, my contract and payment of this bill."

      See what happens.
  • Where's the FTC? (Score:5, Interesting)

    by schwit1 (797399) on Sunday August 19, 2007 @05:50PM (#20288143)
    Unconscionable terms are in most consumer contracts today, whether it be a product or a service. That's what happens when big business owns the government. AT&T has more influence with my elected representatives because of campaign finance rules, legalized influence pedaling and lobbyists.


    This won't change until campaign contributions are limited to registered voters.

    • by MightyYar (622222)

      This won't change until campaign contributions are limited to registered voters.
      That's not a bad idea, but I'd expand it to "citizens"... there's no reason for you to give up your rights just because you don't want to vote.
    • Re: (Score:2, Interesting)

      by clearreality (1116627)
      I understand your frustration, however this is a case of the system clearly working in favor of the consumer. If you read the court's decision, they are very clear that this type of clause (no class-action lawsuits/arbitration) in this type of contract (contract of adhesion) is not going to be enforcable.

      In short, this is exactly what you are looking for in terms of curtailing abuse by corporations.

      The system is more than the President and Congress, it is also the Judiciary, and the courts are supposed

  • by SCHecklerX (229973) <thecaptain@captaincodo.net> on Sunday August 19, 2007 @05:50PM (#20288145) Homepage
    I just got the same notice in my most recent Comcast bill.
    • Crap, I fail at closing link tag.
    • Also, Canada has the concept of 'equity', which the US doesn't. This basically means that what is good for the goose is good for the gander and that makes any heavy one-sided contract clause unenforceable.
  • by redelm (54142) on Sunday August 19, 2007 @06:15PM (#20288279) Homepage
    Now the 9th has a hard-earned reputation as avant-garde [nutjobs]. This is an astounding ruling. The binding arbitartion clause is pure boilerplate found in many, many contracts. For the 9th to toss it out changes many contracts.


    Perhaps this is in connection with unequal power consumer level contracts. But then I would suggest that some PUC isn't doing it's job. And if it isn't because the Legislature hasn't seen fit to include DSL as a regulated service, then I'm not sure the courts can or should interfere.


    Please note I'm not criticisning the 9th's decision. They might well be correct: it is the height of absurdity for a court to respect any contested provisions to bypass it. Courts are to resolve disputes fairly. Provisions otherwise are contemptuous.

    • by clearreality (1116627) on Sunday August 19, 2007 @07:26PM (#20288615)
      The 9th Circuit's decision on this one seems to be well-reasoned. You can read the decision here. [uscourts.gov](PDF)

      They basically state that the contact in question for this type of case must be a contract of adhesion, and they clearly define what that means. A contract of adhesion is defined as a contract between a party of greater bargaining power and a party of weaker power (ie, AT&T and a wireless subscriber), and the contract must be standardized for use with all equivalent parties of weaker power (ie, all wireless subscribers), and the presentation of that contract must be "take it or leave it" (ie, no chance to negotiate).

      It is good to note that the ability to walk away from a contract does not change that the contract is a contract of adhesion, even if you accept that contract instead of walking away.

      The court also adequately addresses the issue of marketplace alternatives, specifically stating that even if meaningful alternative services exist (ie, Verizon, Sprint, T-Mobile, etc), that this does not change the fact that the contract may be procedurally unconsionable (a "contract of adhesion" is also stated as being automatically procedurally unconsionable to some degree).

      Note, for a contract or clause of a contract to be unenforceable, it has to be both substantively and procedurally unconsionable to enough of a degree as to be ruled unenforceable. Please read the court's decision and other documents to learn more about legal unconsionability.

      On the issue of arbitration, the court seems to treat arbitration with respect, and cites several cases where arbitration was used and also lists some favorable reasons for people and companies to use arbitration. This is clearly not a case of the court dismissing arbitration -- this is a case where the members of the class who want to sue AT&T would be at a severe disadvantage if they were required to use individual arbitration. Note, AT&T stated that they did not want to use class arbitration to resolve the issue, they specifically wanted individual arbitration. The court actually presents opinions supporting class arbitration at one point in the decision.

      This decision makes sense, and shows that terms that are included in contracts of adhesion are vulnerable to being ruled unenforceable. This is good news from the consumer standpoint, and does not weaken arbitration or consumer's rights in any way I can see.

      I am not a lawyer. I just RTFA.

    • Re: (Score:3, Informative)

      by mrbrown1602 (536940)

      For the 9th to toss it out changes many contracts.

      Not really. Courts have thrown out arbitration clauses before, simply because they're weighted too much in favor of one corporation with a lot of power, versus an individual. One case in particular comes to mind... Hooters of America v. Phillips.

    • by ceejayoz (567949)

      Now the 9th has a hard-earned reputation as avant-garde [nutjobs].

      Correction: people have unfairly and incorrectly tarred them with a reputation as avant-garde [nutjobs].

      http://www.volokh.com/posts/1184633750.shtml [volokh.com]

      let's look at how often the Supreme Court decides that the 9th got it wrong. Last term, the Supreme Court's reversal rate for 9th Circuit cases was 90.5 percent. Yikes--that's huge! But wait, for on-the-merits cases, the Supremes reversed the 3rd and 5th Circuits all of the time last term. Cases from state appellate courts fared no better: They also had a 100 percent reversal rate. Overall, this past term the Supreme Court reversed 75.3 percent of the cases they considered on their merits. The pattern holds true for the 2004 and 2005 terms as well, when the Supremes had overall reversal rates of 76.8 percent and 75.6 percent, respectively. For those years, the 9th was reversed 84 percent and 88.9 percent of the time, or about a case or two more each year than it would have been if it had conformed to the reversal rate of the other circuits. How do one or two cases a year add up to a court run amuck?

    • Now the 9th has a hard-earned reputation as avant-garde [nutjobs]. This is an astounding ruling. The binding arbitartion clause is pure boilerplate found in many, many contracts. For the 9th to toss it out changes many contracts.

      So? That's a good thing. These binding arbitration clauses are very bad. They completely bypass customers' rights to take the company to court. Especially since these arbitrators receive their business from the big companies, and therefore probably see things their way most of the time.

      Perhaps this is in connection with unequal power consumer level contracts.

      A normal contract is a tit-for-tat agreement. EULAs make demands of the customer while offering only the promise not to sue for using the product they bought legally. By definition, an EULA is not a fair contrac

  • I see it as a sign of the wins consumers have had in court against spurious pactices by companies. Rather than try to produce a better service or product, a number of companies have started to try to protect themselves from their customers. It also shows up in attempts through influence peddling at a legislative level to slant things in the direction of business and away from the consumer. Why is the department of homeland security involved in file-sharing at all? The companies all know that all consumers h
  • by Pinky3 (22411) on Sunday August 19, 2007 @07:16PM (#20288573) Homepage
    The 9th Circuit is the largest circuit, so you would expect more appeals from the 9th Circuit. However, the Supreme Court hears a disproportionately large fraction of appeals from the 9th Circuit. Since the Supreme Court doesn't hear appeals unless a number of Justices believe the decision may have been decided improperly, this is evidence that the Supreme Court has greater difficulty with the decisions of the 9th Circuit than any other. In the last term, 90% of appeals from the 9th Circuit were upheld (19 of 21), i.e., the 9th Circuit was reversed. The 9th Circuit is reversed 9-0 more than any other circuit when not a single Justice agrees with the 9th Circuit.
    • Re: (Score:3, Informative)

      by clearreality (1116627)
      Your statistics are correct, however there is some additional information that should be considered.

      The 9th Circuit Court processed (the courts say "terminated") 13,424 cases in 2006. That's right, over thirteen thousand. Out of thirteen thousand, 22 cases were heard by the Supreme Court, and 19 were reversed. That is not a bad record.

      Data here [uscourts.gov] (choose 9th Circuit) and here [uscourts.gov] (choose 2006).

      Also, note that the appeals process is designed to overturn incorrect decisions. For an example of this, see th

  • by Lumpy (12016) on Sunday August 19, 2007 @07:28PM (#20288623) Homepage
    Problem is that every time consumers win something like this they hire teams of lawyers to write a new contract that get's around those damned pesky legal rights that the consumers have.

    Honestly Corperations need to be attacked constantly on this stuff because they go out of their way to write "contracts" that are completely designed to screw the customer. There should not be any contracts. If you cant afford that new $950.00 stulish phone then you dont get it. Sign up for service, buy the phone outright and switch every month if you want to, this allowing the Cellphone companies to act the way they do is ridiculously nasty to the consumer.

    but this is america, where your laws are bought by the highest bidder, as a consumer you have no chance.
    • by Renraku (518261)
      The prices of cell phones are seriously inflated to corner people into the contracts.

      AKA you can pay $400 for this base model cell phone, or you can get it for free, with 2 year contract.
  • Precedented (Score:2, Informative)

    by Anonymous Coward
    Reading the court's opinion, the ruling follows several other precedents. In short, Cingular attempted to prevent the filing of class actions by mandating all disputes be settled by individual arbitrations. The court ruled that this was essentially an unfair agreement in this case. Because the amounts being claimed were small--these are cell phone fees--eliminating class actions shields Cingular from responsibility for its own mistakes. It's unbalanced to force each affected individual to present their own
  • "No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws." Amendment XIV, US Constitution

    IANAL, but doesn't enforcing a contract requiring binding arbitration and barring use of the courts mean "without due process of the law"?
  • by JamesRose (1062530)
    Does this mean,

    A) That part of it is void.
    B) None of the document is binding, because part of it is void.
  • by Animats (122034) on Sunday August 19, 2007 @09:12PM (#20289221) Homepage

    The key to this is that California law applies. "Under California law, a contract provision is unenforceable due to unconscionability only if it is both procedurally and substantively unconscionable." The "Discover Bank test" applies: "Under this three-part inquiry, courts are required to determine: (1) whether the agreement is " 'a consumer contract of adhesion' " drafted by a party that has superior bargaining power; (2) whether the agreement occurs " 'in a setting in which disputes between the contracting parties predictably involve small amounts of damages' "; and (3) whether " 'it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.' (quoting Discover Bank, 36 Cal. 4th at 162-63)"

    Arbitration clauses aren't being disallowed generally. But when, as the court puts it, "the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money", the courts can allow class action suits.

    This is a routine decision based on California law; there are about a half dozen cases so far based on Discover Bank. Read the decision. [uscourts.gov]

  • 1 the ability to basically include a standard set of definitions ( define you and the company)
    2 standard blocks in the contracts with a hash before them (this means that a block in the contract with a given hash means the same as any block with that hash)
    3 Total banning of the practice of hiding funny clauses in deep or obscure parts of the contract (ie you agree to sell your first born in paragraph 13 section b)
    4 the whole contract must be A printed on the box (or attached to the outside) B smaller than
  • I've pointed this out before in similar clauses - the courts would never allow this because it reduces their powers.
  • now how about taking a closer look at the rest of AT&T's business practices?

Somebody ought to cross ball point pens with coat hangers so that the pens will multiply instead of disappear.

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