Jeffrey M. Wakefield
Flaherty, Sensabaugh & Bonasso
Charleston, West Virginia
Archis A. ParasharamiEvan M. Tager
Pro Hac Vice
Mayer & Brown
Counsel for the Petitioners
Robert L. Bailey
William David Wilmoth
Michael T. McCarthy
Steptoe & Johnson
Charleston, West Virginia
Counsel for the Respondent,
Christopher J. Regan
James G. Bordas, Jr.
Jason E. Causey
Bordas & Bordas
Wheeling, West Virginia
Thomas E. McIntire
Thomas E. McIntire & Associates
Wheeling, West Virginia
Chanler A. Langham
William R. Merrill
Pro Hac Vice
Susman Godfrey, LLP
Counsel for the Respondent,
Petitioners AT&T Mobility, LLC and AT&T Mobility Corporation (hereinafter collectively referred to as AT&T Mobility) seek a writ of prohibition in connection with the December 1, 2009, order of the Circuit Court of Brooke County denying their motion to compel arbitration. AT&T Mobility asserts that the trial court misapplied this Court's decision in State ex rel. Dunlap v. Berger, 211 W.Va. 549, 567 S.E.2d 265 (2002), as the basis for its refusal to refer the underlying matter to arbitration. Because the trial court erroneously concluded that any arbitration agreement which contains language banning class action relief is unconscionable, we grant a writ of prohibition as moulded to address the lower court's misinterpretation of our decision in Dunlap.
Following removal to federal court and subsequent remand to the circuit court, (See footnote 6) AT&T Mobility moved the circuit court to compel Ms. Shorts to pursue her counterclaims in arbitration based on her consent to various wireless agreements. (See footnote 7) AT&T Mobility argued that the primary obligation to arbitrate arose under the terms of the 2003 service agreement. It maintained, however, that the procedural aspects of the arbitration were governed by a service agreement that Ms. Shorts entered into with Cingular in 2005 along with various consumer friendly modifications that AT&T Mobility implemented for all of its customers in 2006 and 2009. (See footnote 8)
In responding to the motion to compel below, Ms. Shorts took the position that the terms of the 2003 agreement were the only applicable provisions that governed the issue of arbitration. To decide which arbitration provisions were controlling, the trial court looked to the language in the Cingular service contract that Ms. Shorts executed in 2005, which provided that Cingular and you (such references include our respective. . . predecessors in interest [and] successors and assigns) agree to arbitrate all disputes and claims . . . arising out of or relating to this Agreement, or to any prior oral or written agreement, for Equipment or services between Cingular and you. Citing to this language, the trial court opined: [W]hen Shorts was sued in 2006 by Palisades, she had the right to arbitrate her 2003 AWS [AT&T Wireless] phone service disagreement under the more beneficial Cingular arbitration terms. Rejecting Ms. Shorts' position that the 2003 agreement was singularly controlling, the trial court ruled: It is the 2005 arbitration agreement, with its consumer oriented revisions in December 2006 and March 2009, that the court finds to be . . . the focus of the legal issue before the court. (See footnote 9)
After discussing the array of customer-oriented improvements effectuated by the 2006 and 2009 modifications to the arbitration clauses contained in AT&T Mobility's wireless agreements, (See footnote 10) the trial court proceeded to determine whether the arbitration agreement was enforceable in light of this Court's opinion in Dunlap. See 211 W.Va. 549, 567 S.E.2d 265 (2002). Believing that it could not rule in favor of arbitration without contravening the law set forth in Dunlap, the trial court concluded that the prohibition of class actions and punitive damages (See footnote 11) rendered the various adhesion contracts (See footnote 12) at issue unconscionable. (See footnote 13) Based on this ruling of unconscionability, the trial court denied the motion of AT&T Mobility to compel arbitration on December 1, 2009.
On February 18, 2010, AT&T Mobility filed a petition with this Court seeking a writ of prohibition in connection with the trial court's refusal to compel arbitration. As the basis for its petition, AT&T Mobility raised two issues: (1) Whether an arbitration provision like ATTM's, which neither imposes undue costs on the consumer nor limits the consumer's remedies, is unenforceable under West Virginia law merely because it requires that arbitration be conducted on an individual basis; and (2) Whether the FAA [Federal Arbitration Act] precludes interpreting West Virginia law to deem arbitration provisions unenforceable merely because they require that arbitration be conducted on an individual basis.
This Court issued a rule to show cause on April 14, 2010, returnable on September 8, 2010. On June 14, 2010, AT&T Mobility filed a motion seeking to continue oral argument and stay proceedings on the writ of prohibition in light of an appeal currently pending before the United States Supreme Court (See footnote 14) that presents the issue of whether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of procedures such as class wide arbitration when those procedures are not necessary to ensure that the parties may fully vindicate their rights. Upon determining that the second of two issues raised by AT&T Mobility in the petition before us is likely to be addressed by the United States Supreme Court in AT&T v. Concepcion, (See footnote 15) we limited our consideration in this proceeding to the issue of whether the absence of class wide arbitration in a consumer arbitration agreement renders the arbitration agreement unconscionable per se under West Virginia law.
In determining whether to entertain and issue the writ of prohibition for cases not involving an absence of jurisdiction but only where it is claimed that the lower tribunal exceeded its legitimate powers, this Court will examine five factors: (1) whether the party seeking the writ has no other adequate means, such as direct appeal, to obtain the desired relief; (2) whether the petitioner will be damaged or prejudiced in a way that is not correctable on appeal; (3) whether the lower tribunal's order is clearly erroneous as a matter of law; (4) whether the lower tribunal's order is an oft repeated error or manifests persistent disregard for either procedural or substantive law; and (5) whether the lower tribunal's order raises new and important problems or issues of law of first impression. These factors are general guidelines that serve as a useful starting point for determining whether a discretionary writ of prohibition should issue. Although all five factors need not be satisfied, it is clear that the third factor, the existence of clear error as a matter of law, should be given substantial weight.
With these factors in mind, we proceed to determine whether AT&T Mobility has established the necessary grounds for a writ of prohibition.
In Dunlap, we identified in generalized terms the types of provisions contained in an adhesion contract that may qualify as unfair for purposes of unconscionability. In syllabus point two of Dunlap we held:
Exculpatory provisions in a contract of adhesion that if applied would prohibit or substantially limit a person from enforcing and vindicating rights and protections or from seeking and obtaining statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public are unconscionable; unless the court determines that exceptional circumstances exist that make the provisions conscionable.
211 W.Va. at 550, 567 S.E.2d at 266, syl. pt. 2. Further clarifying what constitutes unfairness in terms of unconscionability, we held in syllabus point four of Dunlap
Provisions in a contract of adhesion that if applied would impose unreasonably burdensome costs upon or would have a substantial deterrent effect upon a person seeking to enforce and vindicate rights and protections or to obtain statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public, are unconscionable; unless the court determines that exceptional circumstances exist that make the provisions conscionable. In any challenge to such a provision, the responsibility of showing the costs likely to be imposed by the application of such a provision is upon the party challenging the provision; the issue of whether the costs would impose an unconscionably impermissible burden or deterrent is for the court.
211 W.Va. at 551, 567 S.E.2d at 267, syl. pt. 4.
Looking to the specific result that obtained in Dunlap rather than applying the additional standards that we adopted in Dunlap, the trial court incorrectly reasoned that all contracts of adhesion that bar punitive damages and class wide relief are facially unconscionable. Dunlap does not impel or require that conclusion. (See footnote 18) As this Court recognized in Dunlap, every case in which the issue of an unconscionable adhesion contract is raised must be examined on the basis of the language of that particular contract in conjunction with the specific facts surrounding the dispute.
As we observed in State ex rel. Clites v. Clawges, 224 W.Va. 299, 685 S.E.2d 693 (2009), the fact that the Agreement is a contract of adhesion does not necessarily mean that it is also invalid. Id. at 306, 685 S.E.2d at 700. Because there are adhesion contracts that deserve to be enforced and others that do not, this Court looks at a host of factors to determine whether the terms at issue qualify as unconscionable. See id. at 306, 685 S.E.2d at 700 (quoting Dunlap, 211 W.Va. at 557, 567 S.E.2d at 273). The starting point for conducting an unconscionability analysis is the four-part test we identified in Art's Flower Shop. Upon application, that test requires an examination of the relative position of the parties; inquiry into each party's bargaining power; consideration of the availability of meaningful alternatives; and identification of specific unfair terms in the subject contract. See 186 W.Va. at 614, 413 S.E.2d at 671, syl. pt. 4. As a means of assessing the fairness of the contractual terms being challenged, we identified two additional inquiries in Dunlap: (1) whether the contract prevents a claimant from vindicating his or her rights; and (2) whether the costs of arbitration are unreasonably burdensome. See Dunlap, 211 W.Va. at 550-51, 567 S.E.2d at 266-67, syl. pts. 2, 4.
Standing alone, the lack of class action relief does not render an arbitration agreement unenforceable on grounds of unconscionability under this Court's decision in Dunlap. See Schultz v. AT&T Wireless Svs., Inc., 376 F.Supp.2d 685, 690 (N.D. W.Va. 2005) (stating that Fourth Circuit does not consider class action waiver to render arbitration agreement unconscionable per se); Tillman v. Commercial Credit Loans, Inc., 655 S.E.2d 362, 373 (N.C. 2008) (recognizing that class action ban is factor for consideration but is not dispositive of unconscionability); but see Hall v. AT&T Mobility LLC, 608 F.Supp.2d 592, 603-04 (D.N.J. 2009) (applying California law and finding that consumer friendly arbitration provisions were unconscionable because individuals are not induced to bring suit based on likely amount of recovery and company is effectively immunized from claims that would be suitable for class action resolution); Scott v. Cingular Wireless, 161 P.3d 1000, 1004 (Wash. 2007) (recognizing that majority of jurisdictions uphold class action waivers but citing cases from fifteen jurisdictions holding that class action waivers in arbitration agreements were substantively unconscionable). Instead, it is just one factor to be examined in considering whether the contractual terms are unfair. See Troy Mining, 176 W.Va. at 601, 346 S.E.2d at 750, syl. pt. 3 (holding that [a]n analysis of whether a contract term is unconscionable necessarily involves an inquiry into the circumstances surrounding the execution of the contract and the fairness of the contract as a whole).
In Dunlap, we expressed doubt that small-dollar/high volume claims such as that at issue would be pursued without the availability of class action relief. (See footnote 19) See 211 W.Va. at 562, 567 S.E.2d at 278. Underlying this observation was concern that, either because of difficulty in obtaining counsel willing to handle such small dollar claims or because the amount of monetary relief is limited, these claims would go unredressed. See id. at 562, 567 S.E.2d at 278; accord Tillman, 655 S.E.2d at 373 (stating that prohibition of class actions contributes to the financial inaccessibility of the arbitral forum . . . because it deters potential plaintiffs from bringing and attorneys from taking cases with low damage amounts in the face of large costs that cannot be shared with other plaintiffs); but see Jenkins v. First Am. Cash Advance, 400 F.3d 868, 878 (11th Cir. 2005) (observing that when the opportunity to recover attorneys' fees is available, lawyers will be willing to represent such debtors in arbitration); Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002) (rejecting argument that class actions are necessary vehicle for obtaining legal representation of consumer claims based on broad availability of statutory attorney's fees in arbitration); Johnson v. West Suburban Bank, 225 F.3d 366, 374 (3rd Cir. 2000) (finding that class action waivers in arbitration agreements do not necessarily choke off the supply of lawyers willing to pursue claims on behalf of debtors).
Based on the limited record that is before us, it appears that this case stands in severe contrast to the concerns of legal representation; burdensome mediation costs; and nominal recovery that we articulated in Dunlap. Pursuant to the arbitral provisions that the trial court found to be controlling (2005 agreement plus the 2006 and 2009 modifications), (See footnote 20) Ms. Shorts bears no costs with regard to an arbitration proceeding. As to her potential recovery, the governing arbitration clause provides that there is a minimum recovery of $10,000 for any customer who is awarded more in arbitration than the last written settlement offer made by AT&T Mobility. And if the arbitral award exceeds the last settlement offer extended by AT&T Mobility, the claimant has a right to double attorney's fees. This double award is in addition to any attorney's fees and expenses the customer has a right to under applicable state laws. Finally, as mentioned above, Ms. Shorts' relief is not limited by the arbitration forum as she is entitled, under the provisions the trial court found to govern, to an award that provides for all statutory and punitive relief that is available in a court. These same arbitration provisions were recently upheld by a federal district court judge. See Wince v. Easterbrooke Cellular Corp., 681 F.Supp.2d 679, 685 (N.D. W.Va. 2010). (See footnote 21)
While the trial court made a finding as to which arbitration provisions governed the parties' dispute, it did not proceed to make the determinations required for declaring an adhesion contract to be unconscionable. (See footnote 22) The trial court made no findings as to the four-part test we articulated in Art's Flower Shop. See 186 W.Va. 613, 413 S.E.2d 670, syl. pt. 4. Similarly, while relying on Dunlap as the basis for its ruling, the trial court failed to rule on whether the applicable arbitration terms prevent Ms. Shorts from vindicating her rights and whether the costs attendant to pursuing her claims in arbitration are unreasonably burdensome. See Dunlap, 211 W.Va. at 550-51, 567 S.E.2d at 266-67, syl. pts. 2, 4. When this matter is returned to the circuit court, the trial court should evaluate the provisions of the arbitration clause it has found to control against the ability of Ms. Shorts to enforce her rights in connection with her claims. (See footnote 23) This determination will necessarily involve a consideration of the financial costs to proceed in arbitration; the opportunity to address her claims in arbitration; and the ability to seek redress for her claims in arbitration.
In light of the trial court's misinterpretation of our decision in Dunlap and its failure to engage in a meaningful analysis of whether the subject arbitration provisions are unconscionable, we grant the writ as moulded to require the trial court to review its ruling on AT&T Mobility's motion to compel arbitration. In reviewing the motion, the trial court is required to make specific findings on the issue of unconscionability that comport with the tests for unconscionability we established in Art's Flower Shop and in Dunlap.