On September 4, 2007, the Eleventh Circuit took an important turn in its approach to evaluating arbitration provisions that include a waiver of the class action mechanism. The Court’s decision in Dale et al. v. Comcast Corporation, No. 06-15516 (11th Cir. Sept. 4, 2007) , establishes that such provisions will be evaluated on a case-by-case basis, with significant consideration given to whether attorney’s fees and litigation costs are available to a prevailing plaintiff.
In a straightforward opinion, the Court held that the class action waiver in the arbitration provision of Comcast’s Policies and Procedures was unconscionable and therefore, unenforceable as a matter of Georgia law. The arbitration provision at issue was part of Comcast’s 2004 “Policies and Procedures”, which is an annual notice included in a cable subscriber’s December invoice or in a welcome kit given to each new subscriber at the time of his cable installation. The arbitration section of the notice provided that either Comcast or the subscriber could elect to arbitrate a dispute. The arbitration provision also included a class action waiver clause that barred subscribers from bringing claims on behalf of a class or on a consolidated basis. The waiver stated:
All parties to the arbitration must be individually named. There shall be no right or authority for any claims to be arbitrated or litigated on a class action or consolidated basis or on basis [sic]- involving claims brought in a purported representative capacity on behalf of the general public (such as a private attorney general), other subscribers or other persons similarly situated.
The subscribers argued that the provision was substantively unconscionable because, absent the class action mechanism, they would effectively be denied a remedy. Specifically, the subscribers asserted that an individual could only recover a minimal amount if he prevailed in an arbitration of the underlying issue (whether Comcast passed on to its subscribers more of its franchise fee than was permitted by law). Subscribers would also be responsible for their own attorneys fees and expert witness costs. Even if the subscribers prevailed, Comcast would pay only those fees and costs it is required to pay by law. If Comcast prevailed, the arbitration required the subscriber to reimburse Comcast for a limited amount of the arbitration advance fees, up to $137.50. The Court held that the class action waiver was unconscionable, and therefore the arbitration provision was unenforceable because the severability clause of the agreement provided that the entire arbitration provision fell with the class action waiver.
The Dale decision represents a departure from the Eleventh Circuit’s previous treatment of arbitration provisions that bar class actions. In Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005), the Court rejected the plaintiff’s substantive unconscionability argument and held that Gulfstream’s dispute resolution policy, which included a class action and discovery waiver, was conscionable. In Dale, the Eleventh Circuit limited the Caley precedent to the facts of that case, distinguishing the Comcast provision at issue in Dale because it effectively foreclosed a remedy by allowing a negligible amount of recovery when compared to the cost of bringing an arbitration action. Important to this distinction was the fact that the underlying causes of action in Caley, including Title VII and ADEA claims, permitted recovery of attorneys’ fees and litigation costs if the plaintiff prevailed, unlike the arbitration provision in Dale.
The Eleventh Circuit went on to distinguish two other previous cases in which it had upheld arbitration provisions that barred class actions, Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 877-78 (11th Cir. 2005) and Randolph v. Green Tree Fin. Corp.-Ala., 244 F.3d 814, 819 (11th Cir. 2001). The arbitration provisions in those cases, again unlike that in Dale, allowed a plaintiff to recover attorneys’ fees and other costs.
The Court was unmoved by the fact that the Dale Plaintiffs retained their ability to recover attorneys’ fees under Georgia’s bad faith litigation statute, O.C.G.A. 13-6-11. The Eleventh Circuit reasoned that the potential recovery of attorneys’ fees and litigation costs under that statute did not provide sufficient incentive for an attorney to represent an individual plaintiff as would the automatic, or likely, award of fees and costs that was available to the prevailing plaintiffs in the prior cases, Caley, Jenkins, and Randolph.
The Eleventh Circuit’s conclusion in Dale is particularly instructive. There, the Court made clear that the enforceability of a class action waiver in an arbitration provision requires a case-by-case determination. Relevant considerations include the fairness of the provisions, the cost to an individual plaintiff of vindicating his claim as compared to the plaintiff’s potential recovery, the ability to recover attorneys’ fees and costs and the concomitant ability to obtain legal representation, the impact the waiver will have on a company’s ability to act with impunity in the marketplace, and related public policy concerns.
While this opinion is not long or especially complicated, the effects of this decision may be far ranging. Companies will want to review their arbitration provisions that bar class actions and check them against the list of enforceability considerations outlined by the Eleventh Circuit. Of utmost importance in such a review is the availability of attorneys’ fees and litigation costs to prevailing plaintiffs. Also important is the allocation of the costs in bringing the arbitration.