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 case of first impression, the Pennsylvania Superior Court has held that class litigation preclusion clauses in boilerplate contracts are unconscionable and unenforceable. The Superior Court's December 1, 2006 decision in Thibodeau v. Comcast Corporation, ___ A.2d ___, 2006 WL 3457582 (Pa. Super. Ct. 2006), will be hailed as a victory for consumers in Pennsylvania against companies that utilize mandatory arbitration clauses to avoid class actions.
Philip Thibodeau of Massachusetts was a basic cable customer of the now defunct AT&T Broadband. When AT&T Broadband was acquired by Comcast, Thibodeau received a new service agreement from Comcast. The contract contained a new and substantially different mandatory arbitration clause which precluded class actions by aggrieved customers.
On March 19, 2004, Thibodeau filed suit in the Court of Common Pleas of Philadelphia County, seeking to represent a class of consumers who were unlawfully overcharged $9.60 per month for cable boxes and remote controls, which were allegedly unnecessary for basic cable service plans. Comcast's Petition to Compel Arbitration and Stay Litigation was denied by the Honorable Mark I. Bernstein, on the grounds that the Petition was unconscionable.
On appeal, Comcast argued that the Federal Arbitration Act ("FAA") precluded courts from examining whether an arbitration provision was unconscionable under state contract law. The Superior Court rejected this argument, holding that the FAA does not demonstrate an intent to occupy the entire field of arbitration agreements, and does not require enforcement of an arbitration provision that is otherwise unenforceable under state contract law. The Court agreed with Judge Bernstein that while Pennsylvania law generally supports arbitration, an arbitration clause that is contained in a contract of adhesion and unfairly favors the drafting party is unconscionable and unenforceable under state law.
The Superior Court found Comcast's agreement to be a contract of adhesion, as it is a standardized form contract presented to consumers without negotiation or any option for modification. While recognizing that contracts of adhesion are not per se unenforceable, the Court cited established case law in holding that a mandatory arbitration clause is unenforceable if the costs of arbitration effectively preclude an individual from pursuing a claim.
The Court observed that as Thibodeau and the class members are claiming minimal damages of a $9.60 overcharge per month, these claims will never be arbitrated on an individual basis, as no individual will expend the time, fees, and costs necessary for individual arbitration. The Superior Court asserted that if Comcast was allowed to require mandatory individual arbitration while precluding class-wide arbitration, Comcast would be immunized from challenges brought by Thibodeau or class members, or effectively from minor consumer claims. The Superior Court proclaimed that it is clearly contrary to public policy to immunize large corporations from liability by allowing them to preclude all class action litigation or arbitration.
The Superior Court affirmed the trial court's decision and held that the preclusion of class-wide litigation or class-wide arbitration of consumer claims, imposed in a contract of adhesion, is unconscionable and unenforceable. In so doing, the Court weighed on an issue that has divided courts throughout the United States in recent years. In light of the Superior Court's decision in Thibodeau, enforcement of arbitration provisions in the class action context may be difficult in the state of Pennsylvania. Many class action cases concern minimal damages, and therefore, any arbitration provision that imposes even minor costs on the claimant may be held unenforceable when invoked as a defense to a class action brought in a Pennsylvania court. The true impact of this decision remains to be seen in both the legal world and the marketplace.
