Written By Attorneys Craig A. Cohen and Darren L. Harrison

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

In a decision that may impact class action litigation in Pennsylvania, Judge Mark I. Bernstein of the Philadelphia Court of Common Pleas has ruled that class litigation preclusion clauses in contracts of adhesion are "unconscionable and unenforceable." The Court's decision illustrates the skepticism with which a number of Pennsylvania courts have viewed class litigation preclusion clauses in recent years.

In Thibodeau v. Comcast, PICS 06-0119 (which was consolidated with an action captioned Afroilan v. AT&T Wireless), Judge Bernstein concluded that the mandatory individual arbitration clauses found in many contracts of adhesion have served to "immunize large corporations from liability by allowing them to preclude all class action litigation." Specifically, Judge Bernstein observed that "[n]o individual will expend the time, fees, costs and/or other expenses necessary for individual litigation or individual arbitration for [the] small potential recovery [at issue in these cases]." Therefore, Judge Bernstein concluded that "[i]f the mandatory individual arbitration and preclusion of action provisions are valid, Comcast and AT&T are immunized from the challenges brought by Ms. Afroilan, Mr. Thibodeau, [or] by any member, or, effectively, from any minor consumer claims."

Thibodeau involved a proposed national class of consumers who rented cable boxes and remotes from Comcast, allegedly unaware that such items were not necessary to receive basic cable. Afroilan involves a putative Pennsylvania class of AT&T cell phone customers who claim they did not know until they signed up for service that they could not use their phones on non-AT&T networks. In both cases, the plaintiffs say that once they became customers of the respective companies, they were given documents containing mandatory individual arbitration provisions.

While recognizing that mandatory arbitration clauses are not in and of themselves illegal, Judge Bernstein relied on two Pennsylvania Superior Court decisions dealing with "unconscionable" contracts of adhesion: Lytle v. Citifinancial Services,810 A.2d 643 (Pa. Super. Ct. 2002), and McNulty v. H&R Block, 843 A.2d 1267 (Pa. Super. Ct. 2004). In Lytle, the court ruled that prohibitions on class litigation are unconscionable if the costs of individual arbitrations tend to dissuade consumers from pursuing their grievances. The McNulty panel reaffirmed that holding in a case involving plaintiffs faced with the possibility of spending $50 and much time in order to possibly be awarded $30. Judge Bernstein also called attention to the fact that state courts in other jurisdictions, such as California, have struck down the use of mandatory individual arbitration provisions in contracts of adhesion.

In ruling the class litigation preclusion clauses in Thibodeau and Afroilan "unconscionable and unenforceable," Judge Bernsteinnoted that the plaintiffs in Thibodeau and Afroilan were claiming minimal damages. Specifically, Ms. Afroilan alleged on behalf of the putative class that the cellular phones they purchased for $50 were unusable. Furthermore, Mr. Thibodeau alleged on behalf of the putative class that they were unlawfully overcharged $9.60 per month. Judge Bernstein stated that “[e]verybody knows that these claims will never be arbitrated on an individual basis, either by the named plaintiffs or by any other of the millions of class members they represent."

Judge Bernstein did acknowledge that arbitration has become commonplace in the modern era, and that it can often provide a "quicker, less expensive and always more private alternative to traditional litigation." However, Judge Bernstein concluded that "[c]lass action lawsuits are and remain the essential vehicle by which consumers may vindicate their lawful rights. The average consumer, having limited financial resources and time, cannot individually present minor claims in court or in an arbitration."

Importantly, Judge Bernstein found that both Ms. Afroilan and Mr. Thibodeau were forced to accept all the terms of the customer agreements imposed on them by the respective service providers. Whether similar mandatory arbitration clauses are held to be unconscionable and unenforceable will require a detailed analysis of the contractual relationship between the consumer and company.