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Illinois high court strikes down class arbitration ban.

In a 5-0 decision, the Illinois Supreme Court recently held that a class action ban in an arbitration clause is unconscionable and therefore unenforceable. (Kinkel v. Cingular Wireless, 2006 WL 2828664 (Ill. Oct. 5, 2006).)

Courts around the country have been deciding similar cases. Plaintiffs say that class actions, both in court and in arbitration, are essential because they allow consumers to pursue small-value claims that would be too costly to pursue individually.

The plaintiff, Donna Kinkel, alleged that the $150 fee that Cingular Wireless charged her for terminating her cellular service contract early constitutes an illegal penalty. Cingular moved to compel arbitration under its contract's mandatory arbitration provision, which says that "no arbitrator has the authority" to resolve class claims.

The trial court found the whole arbitration clause to be unconscionable and unenforceable, and the appellate court found that the arbitration clause was enforceable but the ban on class arbitration was not. The Illinois Supreme Court upheld that decision.

Kinkel argued that the ban prevents her and others from "effectively vindicating their statutory and common law causes of action and facilitates rather than remedies Cingular's fraudulent and unlawful conduct."

Writing for the court, Justice Rita Garman noted, "Cingular's position is that any outcome that discourages arbitration of individual claims is in conflict with the [Federal Arbitration Act (FAA)] and is, therefore, impliedly preempted." The court disagreed, saying that "class arbitration cannot be in conflict with the FAA when the Supreme Court has recognized the arbitrability of class claims."

The case succeeded in stopping Cingular from "doing an end run around" consumer protection laws, said Brad Lakin of Wood River, Illinois, who represents Kinkel.

The court said the class action ban was unconscionable not just because it was part of an arbitration clause, but because it was part of "a contract of adhesion that fails to inform the customer of the cost to her of arbitration, and that does not provide a cost-effective mechanism for individual customers to obtain a remedy for the specific injury alleged in either a judicial or an arbitral forum."

The court stopped short of saying that class action waivers are per se unconscionable. That determination should be made "on a case-by-case basis, considering the totality of the circumstances," Garman wrote.

In this case, the court found "a degree of procedural unconscionability" because Cingular did not warn Kinkel that she would have to bear any costs of arbitration--a circumstance that the court noted was not enough on its own to render the class action ban unenforceable.

Garman noted that other states have taken the same approach--considering the totality of the circumstances. "Our research reveals that other state courts have invalidated class action waivers when the contract containing the waiver is burdened by other unfair features, rendering it substantively unconscionable when taken as a whole," she wrote.

"The Kinkel court's analysis is pretty close to the First Circuit's in Kristian v. Comcast," noted Barry Barnett of Dallas, who represents the Kristian plaintiffs. In that case, the First Circuit struck down a class action ban, holding that it frustrated the enforcement of federal statutory rights. (446 F.3d 25 (1st Cir. 2006)); see Allison Torres Burtka, Courts Weigh in on Class Action Bans in Arbitration, TRIAL 16 (Sept. 2006).)

Barnett said that Kinkel "signals a definite trend in federal and state courts toward striking down class action bans in arbitration agreements," especially considering that "Illinois is a state not known for extreme pro-consumer decisions."

Lakin agreed, noting that the Illinois court is more moderate than those in states like California and New Jersey, which are generally considered more consumer-friendly. He added that the unanimous decision sends a message about how such issues should be analyzed.

In California, an appeals court recently applied the state supreme court's reasoning in Discover Bank v. Superior Court (113 P.3d 1100 (Cal. 2005)), which struck down a class action ban but did not say that such bans were unconscionable under all circumstances. In Cohen v. DirecTV, Inc., the court said, "Because DirecTV's prohibition on class claims in arbitration effectively operates to insulate DirecTV from liability for its conduct, the class action waiver is unconscionable and unenforceable." (48 Cal. Rptr. 3d 813 (App. 2006).)

Lakin said that Kinkel will proceed--on a class basis--to arbitration, and the arbitrator will determine whether to certify the class. He added that although Cingular wanted to compel arbitration in Kinkel's individual claim, the company "never wanted to deal with any issue on a class basis."
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Author:Burtka, Allison Torres
Date:Jan 1, 2007
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