ORDER 

PAGE - 1 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT 

WESTERN DISTRICT OF WASHINGTON 

AT SEATTLE 

MARYGRACE A. CONEFF, et al., 

 Plaintiffs, 

 v. 

AT&T CORP. et al., 

 Defendants. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

CASE NO. C06-944 RSM 

ORDER DENYING DEFENDANTS’ 

MOTION TO COMPEL ARBITRATION 

I. INTRODUCTION

 This matter comes before the Court on “Defendants’ Amended Motion to Compel 

Arbitration Pursuant to the Federal Arbitration Act and to Dismiss Action.” (Dkt. #133). 

Defendants argue that pursuant to a binding arbitration clause entered into between the 

parties, Plaintiffs must pursue their disputes through individualized arbitration. Defendants 

also argue that the Federal Arbitration Act preempts any state law defenses Plaintiffs can 

bring to the enforceability of the arbitration clause. 

Plaintiffs respond that the arbitration provisions are unenforceable because they are 

substantively unconscionable. Additionally, Plaintiffs indicate that Defendants’ preemption 

arguments have been rejected by the Ninth Circuit. 

 For the reasons set forth below, the Court agrees with Plaintiffs, and DENIES 

Defendants’ motion to compel. 

 
ORDER 

PAGE - 2 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

II. DISCUSSION

A. Background 

The instant putative class action lawsuit was brought by several individuals across the 

United States against Defendants Cingular Wireless LLC (“Cingular”), Cingular Wireless 

Corporation, AT&T Wireless Services, Inc. (“AT&T Wireless”), and New Cingular Wireless 

Services, Inc. (See Dkt. #45, Second Am. Compl., ¶¶ 22-25). Plaintiffs, who were or are 

currently AT&T Wireless customers, allege that after Cingular merged with AT&T Wireless 

in October of 2004, Cingular deliberately degraded AT&T Wireless’ network in order to 

induce AT&T Wireless customers to transfer their plans to Cingular plans, which they allege 

are generally more expensive and less favorable to customers. Plaintiffs also contend that 

Cingular’s intention was to charge AT&T Wireless customers with various fees and costs in 

connection with those new plans. 

Plaintiffs allege that Cingular’s specific scheme was to encourage AT&T Wireless 

customers to “upgrade” to Cingular’s network. These “upgrades” required customers to do 

one or more of the following: (1) pay an $18 transfer fee to Cingular; (2) purchase one or 

more new phones from Cingular; (3) pay $18 for a SIM chip to operate their current phone; 

and/or (4) enter into a new service contract with Cingular. Plaintiffs allege that AT&T 

Wireless customers who did not agree to such an “upgrade” were left with a choice to either 

fulfill their contract term with a degraded AT&T Wireless service, or pay a $175 early 

termination fee to cancel service. 

Plaintiffs also allege that Cingular began charging an unnecessary and mandatory fee to 

all AT&T Wireless customers. As a condition for approval of the merger, the Federal 

Communication Commission required Cingular to keep AT&T Wireless’ network in place 

until February of 2008. Significantly, Cingular offered its wireless services through a new 

and improved GSM network, whereas AT&T Wireless offered service through a 

TDMA/Analog network. Plaintiffs allege, however, that in July of 2006, Cingular began 

imposing a mandatory $4.99 monthly fee to any AT&T Wireless customer still using the 

TDMA/Analog network. Plaintiffs note in their complaint that major publications, including 
ORDER 

PAGE - 3 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

the Wall Street Journal, reported that Cingular had “been spending next to nothing to maintain 

the [AT&T Wireless] network, leaving customers who don’t upgrade [to the Cingular 

network] in the lurch.” (Second Am. Compl., ¶ 35). 

As a result of this conduct, Plaintiffs initiated the instant class action against Defendants 

in this Court on July 6, 2006. Plaintiffs assert claims under the consumer protection acts of 14 

different states, the Federal Communications Act as codified by 47 U.S.C. §§ 201 et seq., and 

several common-law doctrines. Plaintiffs also seek, among other things, a declaratory 

judgment that an arbitration provision contained in their contracts with Defendants is 

unconscionable and therefore unenforceable. 

Defendants now bring the instant motion to compel arbitration on an individual basis, 

and to dismiss Plaintiffs’ claims pursuant to the arbitration provision that Plaintiffs argue is 

unconscionable.1

 Although the exact wording of the various AT&T Wireless Service 

Agreements (“WSAs”) that Plaintiffs entered into with Defendants has changed over time, the 

arbitration agreements have remained substantially intact. Each expressly requires customers 

to pursue their dispute in either individual arbitration or small claims court. The WSAs also 

preclude customers from bringing or participating in any class action, regardless of whether 

the action is brought in arbitration or in court. Counsel for Plaintiffs acknowledged during 

oral argument that the 2006 WSA controls in this case. This version of the WSA provides: 

YOU AND [CINGULAR/AT&T] AGREE THAT EACH MAY BRING CLAIMS 

AGAINST THE OTHER ONLY IN YOUR OR ITS INDIVIDUAL CAPACITY, AND 

NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR 

REPRESENTATIVE PROCEEDING. Further, unless both you and [Cingular/AT&T] 

agree otherwise, the arbitrator may not consolidate more than one person’s claims, and 

may not otherwise preside over any form of a representative or class proceeding. 

(Dkt. #52, Decl. of Berinhout, Ex. 4 at 35; Dkt. #134, Ex. 23 at 124). 

Defendants also contend that each WSA contains a choice-of-law clause selecting the 

Plaintiff’s home state as the governing law. Defendants argue that under the law of each 

applicable state, the class-waiver provisions in the WSAs are neither procedurally nor 

 

1

 It is noteworthy that Defendants’ original motion to compel was filed on October 30, 2006. 

(Dkt. #51). However, due to extensive discovery and repeated continuances requested by the 

parties, the motion finally became ripe for review on March 11, 2009. 
ORDER 

PAGE - 4 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

substantively unconscionable. The applicable state laws include: Alabama, Arizona, 

California, Florida, Illinois, Missouri, New Jersey, Virginia and Washington. 

Alternatively, Defendants argue the Section 2 of the FAA preempts Plaintiffs’ state-law 

unconscionability arguments. Defendants suggest that the FAA preempts general principles 

of contract law such as unconscionability if those doctrines are employed in ways that subject 

arbitration clauses to special scrutiny. Given the unique and “pro-consumer” nature of the 

arbitration agreements at-issue, Defendants contend that the Court should overlook any statelaw standard that is at odds with the FAA’s liberal policy in favor of arbitration. 

Notably, and prior to the merger, Cingular was the second largest provider of wireless 

communication services in the U.S. in terms of subscribership with approximately 24 million 

customers, and AT&T was the third largest with over 22 million customers. After the merger, 

in which Cingular acquired AT&T Wireless for $41 billion, the new consolidated corporation 

branded as AT&T Mobility became the largest provider of wireless services. At the end of 

2007, AT&T Mobility had over 70 million customers and reported approximately $42.7 

billion in revenue. (Dkt. #138, Decl. of Coluccio, Ex. Q). 

B. The Federal Arbitration Act 

It is well settled that Congress enacted the Federal Arbitration Act (“FAA”) to 

“overcome judicial resistance to arbitration . . . and to declare a national policy favoring 

arbitration of claims that parties contract to settle in that matter.” Vaden v. Discover Bank, 

129 S.Ct., 1262, 1271 (2009) (internal quotations and citations omitted). The primary 

purpose of the FAA is to ensure that “private agreements to arbitrate are enforced according 

to their terms.” Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 

U.S. 468, 479, (1989). The FAA clearly manifests a liberal federal policy favoring 

arbitration agreements. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991). 

Nevertheless, courts should consider “ordinary state-law principles that govern the 

formation of contracts” in determining whether the arbitration provision is valid. First 

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (citations omitted). Thus, 

“generally applicable contract defenses such as fraud, duress, or unconscionability, may be 
ORDER 

PAGE - 5 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

applied to invalidate arbitration agreements[.]” Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 

681, 687 (1996) (citations omitted). The party opposing arbitration bears the burden of 

showing that the agreement is not enforceable. Green Tree Fin. Corp.-Ala. v. Randolph, 531 

U.S. 79, 91-92 (2000). 

Here, the parties do not dispute that Plaintiffs’ claims fall within the scope of the 

arbitration agreements in the WSAs. As a result, the Court must determine whether the 

arbitration agreements are enforceable. 

C. Applicable Law 

The first issue for the Court to determine is whether the choice-of-law provisions 

contained in the WSAs are valid. It is undisputed that the WSAs select the law of the 

individually-named Plaintiff’s home state or the state of the wireless phone number. (Dkt. 

#133 at 19, n.8). Plaintiffs maintain, however, that applying the choice-of-law clauses would 

violate Washington’s fundamental public policy against class-action waivers in arbitration 

agreements. 

A court sitting in diversity, as is the case here, applies the choice-of-law rules of the 

forum state. Downing v. Abercrombie & Fitch, 265 F.3d 994, 1005 (9th Cir. 2001). In 

Washington, “there must be an actual conflict between the laws or interests of Washington 

and the laws or interests of another state before Washington courts will engage in a conflict of 

laws analysis.” Erwin v. Cotter Health Centers, 161 Wash.2d 676, 692 (2007) (citations 

omitted). Consequently, and as this district court has noted, choosing the applicable law is a 

two-part inquiry: first, a court must determine whether there is an actual and meaningful 

difference between the potentially applicable laws; and second, a court must determine 

whether the parties’ choice-of-law is actually effective. Carideo v. Dell, Inc., 520 F.Supp.2d 

1241, 1244-45 (W.D. Wash. 2007). 

With respect to the first inquiry, there is no question that an actual conflict exists 

between Washington law and the law of other states that are implicated in this lawsuit. In 

Washington, a class-action waiver is unenforceable in certain circumstances. Scott v. 

Cingular Wireless, 160 Wash.2d 843, 859 (2008). On the other hand, in Virginia, Illinois, 
ORDER 

PAGE - 6 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

and Alabama – three states that are potentially applicable in the instant case – courts have 

upheld class action waivers based on a strict interpretation of the FAA, or when the corporate 

defendants have agreed to pay the administrative fees associated with arbitration. See, e.g., 

Gay v. CreditInform, 511 F.3d 369, 390-92 (3d Cir. 2007) (applying Virginia law); 

Hutcherson v. Sears Roebuck & Co., 342 Ill.App. 3d 109, 121-124 (2003) (applying Illinois 

law); Billups v. Bankfirst, 294 F.Supp.2d 1265, 1276-77, n. 6 (M.D. Ala. 2003) (applying 

Alabama law). Indeed, there is a split of authority in this country over the enforceability of 

class-action waivers. See Scott, 160 Wash.2d at 850-851 (collecting cases). 

As a result, the Court must ask whether the parties’ express contractual choice-of-law is 

effective. Washington applies § 187 of the Restatement to make this determination. See 

Erwin, 161 Wash.2d at 694. Section 187(2) of the Restatement specifically provides: 

(2) The law of the state chosen by the parties to govern their contractual rights and 

duties will be applied, even if the particular issue is one which the parties could 

not have resolved by an explicit provision in their agreement directed to that 

issue, unless either 

(a) the chosen state has no substantial relationship to the parties or the 

transaction and there is no other reasonable basis for the parties’ choice, or 

(b) application of the law of the chosen state would be contrary to a fundamental 

policy of a state which has a materially greater interest than the chosen state 

in the determination of the particular issue and which, under the rule § 188, 

would be the state of the applicable law in the absence of an effective choice 

of law by the parties. 

Restatement (Second) of Conflict of Laws § 187 (1971). 

Here, there is no dispute that Defendants’ chosen state has a substantial relationship to 

the parties of the transaction. The states are those in which the individually named Plaintiffs 

respectively reside. Therefore Plaintiffs must show that the elements of § 187(2)(b) of the 

Restatement are met. 

1. Washington Law Governs Absent an Enforceable Choice-of-Law Clause

As the Washington Supreme Court recently explained, the first inquiry in the choice-oflaw analysis is to determine whether Washington law would apply without the provision. 

McKee v. AT&T Corp., 164 Wash.2d 372, 384 (2008). Washington courts have applied 

various tests when making this inquiry, including the “most significant relationship” test from 
ORDER 

PAGE - 7 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

§ 188 of the Restatement. This test specifies that courts should consider: (1) the place of 

contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the 

location of the subject matter of the contract, and (5) the domicile, residence, or place of 

incorporation of the parties. Restatement, supra, § 188; see also Mulcahy v. Farmers Ins. Co. 

of Washington, 152 Wash.2d 92, 101 (2004) (employing the same five factors). 

Other courts have examined factors outside of those listed in the Restatement. For 

example, this district court held that in a class-action lawsuit involving plaintiffs from across 

the nation, “the place of injury is of lower importance . . . In such a case, the state in which 

the fraudulent conduct arises has a stronger relationship to the action.” Kelley v. Microsoft 

Corp., 251 F.R.D. 544, 552 (W.D. Wash. 2008) (emphasis added). Likewise, a Washington 

state court acknowledged that even though a defendant corporation was incorporated outside 

of Washington state, Washington law nevertheless applied because “all defendants reside or 

conduct business in Washington . . . a Seattle attorney was involved in preparing and 

reviewing many transaction documents . . . and [] many of the acts of alleged fraud occurred 

in Washington.” Ito Intern. Corp. v. Prescott, Inc., 83 Wn. App. 282, 290 (1996). 

In the instant case, the Court finds that the first four factors in the Restatement analysis 

are neutral. The reality of the situation presented by this case is that there is simply no place 

of contracting, no place of negotiation of the contract, no place of performance, and no central 

location of the subject matter of the contract. Instead, Defendants sent the WSAs to 

customers who were existing AT&T Wireless customers, and there is no evidence that the 

Plaintiffs repeatedly communicated with Defendants to either change or otherwise modify 

their plans. Therefore no true negotiation between the parties took place. Additionally, in a 

case involving wireless phones, there is no central place of performance, as Defendants 

undoubtedly have satellite towers all across the country, and customers often use their phones 

in multiple states. Indeed, wireless phone use is a nation-wide practice. 

With respect to the last factor, this weighs in favor of applying Washington law. 

Defendants concede that AT&T Wireless is a Washington corporation, and Plaintiffs also 

allege that Washington was the primary residence of AT&T Wireless’ officers, directors, and 
ORDER 

PAGE - 8 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

legal department. (Dkt. #136 at 19). Defendants do not dispute these contentions. In 

addition, at least one named Plaintiff of the putative class is a Washington resident. 

Moreover, when considering that AT&T Wireless has strong connections to this state, 

application of Washington law is the logical choice. Plaintiffs indicate that the AT&T 

Wireless executives responsible for “designing, implementing, and operating [AT&T 

Wireless’] national network, including network footprint expansion plans, capacity path 

growth, and the deployment strategy for the company’s next generation wireless network” 

were located in Redmond, Washington. (Decl. of Coluccio, Ex. CC). Plaintiffs further 

indicate that the AT&T Wireless executives responsible for “marketing strategy and 

programs, including products and offers, advertising and marketing communications, 

partnerships and direct marketing” were also located in Redmond. (Id., Ex. DD). In addition, 

AT&T Wireless’ legal department was located in Washington, and it appears that the initial 

drafts of the arbitration provisions were drafted here. (Id., Ex. L, Dep. of Berinhout, 105:17-

22; 111:17-113:1). Defendants also do not dispute these contentions. 

Nevertheless, counsel for Defendants indicated at oral argument that an unpublished 

Ninth Circuit case is controlling on this issue. See In re Detwiler, 305 Fed.Appx. 353 (9th 

Cir. 2008). In that case, a customer to a telecommunications provider argued that the district 

court erred in holding that Florida law applied if no choice-of-law clause existed in the 

parties’ contract. The Ninth Circuit affirmed the district court’s decision because the majority 

of the Restatement factors weighed against the customer, who was seeking to apply 

Washington law. The Ninth Circuit held that Washington law would not apply because 

“Florida is the place of contracting, the place of negotiation, the place of performance, the 

location of the subject matter, and the residence of one of the parties.” Id. at 355. 

Significantly, the customer had contact with the telecommunications provider 11 times over a 

period of six years, and had received several guides regarding her agreement. 

The Court finds that Detwiler is not controlling. As explained previously, the Plaintiffs 

in this case did not have extensive contacts or negotiations with the Defendants, and the first 

four factors of the Restatement simply have no compelling effect. Conversely, the only factor 
ORDER 

PAGE - 9 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

that clearly applies weighs in favor of applying Washington law. Ultimately, the Court agrees 

with Plaintiffs’ counsel’s characterization during oral argument that Washington’s choice-oflaw analysis is a “messy test.” It is clear that Washington courts examine various factors in 

determining whether Washington law would apply. 

As a result, and similar to the Kelley and Prescott cases above, it is clear that a 

substantial portion of the allegedly fraudulent activity occurred in Washington. The 

application of Washington law in this case “would encourage Washington residents involved 

in business transactions to behave responsibly.” Prescott, 83 Wn. App. at 290. Coupled with 

the fact that the Restatement analysis weighs slightly in favor of applying Washington law, 

the Court finds that Washington has the most significant relationship to this case, and that 

Washington law would apply absent a choice-of-law provision in the WSAs. 

2. Fundamental Public Policy of Washington

There can be no doubt that Washington has a strong public policy of refusing to enforce 

exculpatory class action bans. See Scott, 160 Wash.2d at 859.2

 This policy has been 

reinforced by McKee, wherein the court stated that Washington has a “fundamental public 

policy to protect consumers through the availability of class action.” McKee, 164 Wash.2d at 

385. The McKee court further stated that “Washington’s strong [CPA] policy favoring class 

adjudication of small-dollar claims is a ‘fundamental policy’ contemplated by [the 

Restatement].” Id. at 386. 

Here, there is no doubt that the claims alleged by Plaintiffs implicate a fundamental 

public policy of Washington. A prohibition on the Plaintiffs’ ability to initiate a class-action 

lawsuit would violate the rights protected by the Washington CPA and the case law that has 

interpreted these rights. Furthermore, and as mentioned above, there exists the possibility that 

in at least three of the jurisdictions that Defendants contend apply in this case, a court may 

 

2

 In Carideo, this district court found that the analysis of whether a contract would violate a 

fundamental public policy is similar to whether it would be substantively unconscionable. 

520 F.Supp.2d at 1245. However, the McKee court found that “[t]his question is different 

than determining whether a class action ban under some circumstances is substantively 

unconscionable.” 164 Wash.2d at 385. The Ninth Circuit remanded the Carideo decision in 

light of McKee. Accordingly, the Court separates the analysis as well. 
ORDER 

PAGE - 10 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

uphold class-action waivers under certain circumstances. See Gay, 511 F.3d at 392; 

Hutcherson, 342 Ill.App. 3d at 121-124; Billups, 294 F.Supp.2d at 1276-77, n. 6. Therefore 

the Court finds that this element of § 187 of the Restatement has been met. 

3. Washington’s Materially Greater Interest

The last factor for this Court to consider is whether Washington has a materially greater 

interest in adjudicating this dispute than the other potentially applicable states. The Court has 

effectively already performed this analysis in its discussions above. There can be no doubt 

that Washington has an interest in regulating the conduct of businesses that reside in this state. 

This interest is materially greater than the interests of the eight other states whose laws 

Defendants contend apply in this case. In those states, the only connection to this lawsuit is 

that the individually–named Plaintiffs reside there. Defendants do not conduct any significant 

business activity in such states, and therefore the states have limited interest in adjudicating 

the case at bar. 

As a result, because the elements of § 187(2) have been met, Washington law shall 

apply in this case. 

D. Unconscionability 

Washington law recognizes two types of unconscionability, substantive and procedural. 

Zuvver v. Airtouch Communications, Inc., 153 Wash.2d 293, 303 (2004) (citations omitted). 

“Substantive unconscionability involves those cases where a clause or term in the contract is 

alleged to be one-sided or overly harsh, while procedural unconscionability relates to 

impropriety during the process of forming a contract.” Schroeder v. Fageol Motors, Inc., 86 

Wash.2d 256, 260 (1975) (citation omitted). In Washington, courts may hold that contracts 

are unenforceable based upon substantive unconscionability only. See Scott, 160 Wash.2d at 

854, n.4 (“Because we find the class action waiver substantively unconscionable, we find it 

unnecessary to address plaintiffs’ claims of procedural unconscionability.”). 

 
ORDER 

PAGE - 11 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1. Substantive Unconscionability in Washington 

Both parties are fully aware that the Washington Supreme Court has recently held that a 

class-action waiver provision in an arbitration agreement is substantively unconscionable. 

See Scott, 160 Wash.2d at 859. Other recent decisions involving class-action waivers and 

applying Washington law have found similarly. See Lowden v. T-Mobile USA, Inc., 512 F.3d 

1213, 1219 (9th Cir. 2008); Luna v. Household Finance Corp. III, 236 F.Supp.2d 1166, 1179 

(W.D. Wash. 2002); Riensche v. Cingular Wireless, LLC, 2006 WL 3827477, *12 (W.D. 

Wash. 2006). 

Despite this recent case law, Defendants contend that there is no categorical rule that all 

class-action waivers contained in arbitration provisions are substantively unconscionable. 

Defendants argue that Scott only bans class-action waivers where such a waiver would 

prevent vindication of consumer rights secured by the Washington CPA. Defendants further 

point out that the court in Scott held that it could “certainly conceive of situations where a 

class action waiver would not prevent a consumer from vindicating his or her substantive 

rights under the CPA and would thus be enforceable.” Scott, 160 Wash.2d at 860, n.7. 

The Court agrees that there is no per se ban on a class-action waiver. As this district 

court has previously held, “Scott requires the court to examine the enforceability of a classaction waiver given the totality of the circumstances.” Carideo, 520 F.Supp.2d at 1243. As a 

result, the heart of this dispute is whether the specific terms of the class-action waivers are 

substantively unconscionable. 

2. Cingular and AT&T’s class-action waiver provisions

Defendants contend that there are several aspects of the applicable arbitration 

provisions in the WSAs that make them uniquely “pro-consumer,” and therefore enforceable. 

These features include, among other things, the following incentives: (1) cost-free arbitration 

wherein Defendants agree to pay all filing, administration, and arbitrator fees; (2) the option 

to bring a claim in small claims court; (3) the availability of punitive damages; (4) a 

guaranteed minimum recovery of at least $5,000 under certain conditions; and (5) the 
ORDER 

PAGE - 12 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

availability of double attorneys’ fees under certain conditions while Defendants 

simultaneously disclaim their right to seek attorneys’ fees. (Dkt. #133 at 16-17). 

Defendants’ expert witness Richard A. Nagareda, a law professor at Vanderbilt 

University, also testifies that he has “never seen an arbitration provision that has gone as far 

as this one to provide incentives for consumers and their prospective attorneys to bring 

claims.” (Dkt. #53, Decl. of Nagareda, ¶ 11). Mr. Nagareda continues that the applicable 

arbitration provision “reduces dramatically the cost barriers to the bringing of individual 

consumer claims . . . and provides financial incentives for consumers (and their attorneys, if 

any) to pursue arbitration in the event that they are dissatisfied with whatever offer Cingular 

has made to settle their disputes.” (Id.). 

Notwithstanding these arguments and the allegedly unique and “pro-consumer” nature 

of the agreements between AT&T and Cingular and their customers, the Court finds that the 

class-waiver provisions are substantively unconscionable for the following five reasons. 

First, the class-action waiver serves to protect Defendants “from legal liability for any 

wrong where the cost of pursuit outweighs the potential amount of recovery.” Scott, 160 

Wash.2d at 855. Here, there can be no doubt that the purported class in this case alleges 

injuries that consist of small sums of money. Specifically, Plaintiffs’ second amended 

complaint describes the putative class members’ damages as ranging from $4.99 to $175. 

(Second Am. Compl., ¶¶ 7-21). Such small claims are undoubtedly dwarfed by the legal 

complexity presented by the facts alleged in Plaintiffs’ complaint. These include claims that 

Cingular, a multi-billion dollar corporation, intentionally degraded AT&T’s pre-existing 

wireless network in order to exponentially increase their profits by assigning small fees to 

customers switching to the new network. There can be no question that the cost of pursuit 

would be prohibitively expensive for a customer proceeding on an individual basis. 

Furthermore, Plaintiffs submit the declarations of several consumer lawyers across the 

country, all of whom testify “that the relatively small amount in controversy makes cases 

against large corporations such as AT&T impractical to pursue on an individual basis.” (Dkt. 

#136 at 10). Each consumer lawyer additionally testifies that he or she would not represent 
ORDER 

PAGE - 13 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

the named Plaintiffs in individual actions, either in court or in arbitration. (Id.). The Court 

finds the testimony of North Carolina lawyer Jerome Hartzell particularly compelling. He 

states that “the hourly charge would generally or invariably exceed the entire amount in 

controversy.” (Dkt. #43, Decl. of Hartzell, ¶ 23). “[N]o lawyer concerned with ethical 

propriety would be comfortable charging a client by the hour for such services.” (Id. at ¶ 34) 

(emphasis added). 

Given the significant disparity presented by the facts of this case, the Court finds it clear 

that the cost of pursuit significantly outweighs the potential recovery if each of the Plaintiffs 

was to proceed on an individual basis. Indeed, “[t]he realistic alternative to a class action is 

not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for 

$30.” Carnegie v. Household Intern., Inc., 376 F.3d 656, 661 (7th Cir. 2004) (emphasis in 

original) (J. Posner). 

The second reason in support of a finding of substantive unconscionability is that 

Defendants significantly overstate the “premiums” contained in their WSAs. The Court gives 

no weight to the fact that Defendants will pay for arbitration fees as well as attorneys’ fees in 

the event a customer wishes to pursue individual arbitration. As Scott clearly held, “[s]hifting 

the cost of arbitration to Cingular does not seem likely to make it worth the time, energy, and 

stress to pursue such individually small claims.” Scott, 160 Wash.2d at 855-56; see also 

McKee v. AT&T Corp., 164 Wash.2d at 398 (“The agreement allows for small claims court 

action, but even the availability of small claims court or low-cost arbitration does not make it 

practicable for an individual to pursue such small amounts.”). 

In addition, Defendants also overstate the provision in their WSAs that allow consumers 

to potentially recoup a $5,000 award. Defendants repeatedly argue throughout their briefings 

that this $5,000 minimum payment is clearly a meaningful recovery that would turn the 

concept of unconscionability on its head. However, the $5,000 payment is awarded only upon 

the condition that “the arbitrator awards the customer more than [AT&T Mobility’s] last 

written settlement offer before an arbitrator was selected.” (Dkt. #133 at 16) (internal 

quotations omitted). Therefore the award is not guaranteed. Defendants are in full control of 
ORDER 

PAGE - 14 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ensuring that such an amount is never awarded by offering a settlement offer that is 

significantly lower than $5,000, but remains significantly higher than the nominal claims that 

the individuals are bringing in this case. This reasoning applies with equal force to the 

provision in Defendants’ WSAs that awards double attorneys’ fees should this condition 

occur. As a result, and as the Scott court pointed out, while these “premiums” are laudable, 

“it appears . . . that these provisions do not ensure that a remedy is practically available.” See 

Scott, 160 Wash. 2d at 856. 

Third, and perhaps most compelling, is that the Court has tangible evidence which 

reveals that Defendants’ “pro-consumer” provisions are not having their intended effect. For 

example, Plaintiffs indicate that since 2003, fewer than 200 consumer arbitrations involving 

Defendants have been conducted nationwide, and only 265 small claims court cases have 

been filed against Defendants nationwide. (Dkt. #136 at 33). To place this in perspective, it 

is worthwhile to reiterate that Defendants’ client base is currently over 70 million customers. 

Therefore the actual percentage of customers utilizing Defendants’ allegedly “pro-consumer” 

provisions represents an infinitesimal amount. 3 

Plaintiffs further point out that the Foundation for Taxpayer and Consumer Rights – a 

non-profit consumer advocacy organization – received more than 4,700 complaints regarding 

service after the merger, and over 1,800 web-based complaints within 24 hours of the press 

announcement that followed the filing of this class action lawsuit. (Dkt. #144, Decl. of 

Heller, ¶¶ 8, 11). Thus, the miniscule amount of customers pursuing arbitration proves that 

the customers are either unaware of their right to take advantage of these “pro-consumer” 

provisions, or the customers have no incentive to bring their claims against Defendants given 

the prohibitively expensive costs of individual adjudication. In either circumstance, 

Defendants are utilizing the provisions in the WSAs to effectively exculpate themselves from 

any potential liability for unfair or deceptive acts or practices in commerce, conduct that is 

expressly barred by the Washington Supreme Court. Scott, 160 Wash.2d at 854 (“Contract 

 

3

 Defendants report that they have conducted nearly 270 arbitrations. Regardless, the tiny 

fraction of those pursuing individual arbitration remains essentially the same. 
ORDER 

PAGE - 15 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

provisions that exculpate the author for wrongdoing, especially intentional wrongdoing, 

undermine the public good.”). This Court will not condone such a broad and exculpatory 

practice. 

Relatedly, and in light of Scott’s holding that not all class-waivers are per se

unconscionable, Defendants’ consistently challenged Plaintiffs during oral argument to 

imagine an arbitration provision that would not violate substantive unconscionability. No 

such burden exists. Plaintiffs must only show that the WSAs in this case are shielding 

Defendants from a substantial amount of potential liability. Defendants attempts to focus this 

Court’s attention on the “pro-consumer” provisions of the WSAs are not persuasive. 

The fourth reason in support of a finding of substantive unconscionability is that class 

action lawsuits are necessary and effective avenues for consumers whose economic positions 

vis-à-vis their corporate opponents would not allow them to proceed on a case-by-case basis. 

Washington clearly has “a state policy favoring aggregation of small claims for purposes of 

efficiency, deterrence, and access to justice.” Scott, 160 Wash.2d at 851. “[A] class-based 

remedy is the only effective method to vindicate the public’s rights.” Id. at 852. 

Nevertheless, Defendants contend that class action settlements are often worth nothing 

to individuals, given that the actual award to individuals is nominal. However, the actual 

award to the individuals that comprise a class is only one of the principal aims of a class 

action lawsuit. Another primary purpose of a class action lawsuit is to allow “[p]rivate 

citizens [to act] as private attorneys general in protecting the public’s interest against unfair 

and deceptive acts and practices in trade and commerce.” Scott, 160 Wash.2d at 853 (citing 

Lightfoot v. MacDonald, 86 Wash.2d 331, 335-36 (1976)). Curbing fraudulent business 

practices is a fundamental principle of any class action lawsuit. As the Scott court noted when 

citing a California Supreme Court decision: 

Individual actions by each of the defrauded consumers [are] often impracticable 

because the amount of individual recovery would be insufficient to justify bringing a 

separate action; thus an unscrupulous seller retains the benefits of its wrongful conduct. 

A class action by consumers produces several salutary by-products, including a 

therapeutic effect upon those sellers who indulge in fraudulent practices, aid to 

legitimate business enterprises by curtailing illegitimate competition, and avoidance to 
ORDER 

PAGE - 16 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

the judicial process of the burden of multiple litigation involving identical claims. The 

benefit to the parties and the courts would, in many circumstances, be substantial. 

Scott, 160 Wash.2d at 852 (citing Vazquez v. Superior Court of San Jouquin County, 4 Cal. 3d 

800, 808 (1971)) (emphasis added). 

Lastly, the Court recognizes that recent jurisprudence views class-action waivers 

unfavorably. Dating back to the beginning of 2008, there have been at least seven different 

courts in five different jurisdictions that have refused to enforce class-action waivers. See 

Hoffman v. Citibank (South Dakota), N.A., 546 F.3d 1078, (9th Cir. 2008); In re Apple & 

AT&T Antirust Litig., 596 F.Supp.2d 1288 (N.D. Cal. 2008); In re American Express 

Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009); McKee v. AT&T Corp., 164 Wash.2d 372 

(2008); Olson v. The Bon, Inc., 144 Wn. App. 627 (2008); Fiser v. Dell Comp. Corp., 144 

N.M. 464 (2008); Woods v. QC Financial Services, --- S.W.3d ---, 2008 WL 5454124 (Mo. 

App. E.D. 2008). And as the Court noted above, even the Carideo case in which Defendants 

heavily rely upon has recently been remanded by the Ninth Circuit. See In re Carideo, 550 

F.3d 846 (9th Cir. 2008). This ruling is therefore consistent with the modern trend. 

As a result, the Court finds that class waiver provisions in the instant case are 

unconscionable. Defendants are effectively exculpated from any liability as a result of the 

provisions contained in their WSAs. This conduct contravenes Washington’s fundamental 

public policy favoring the availability of class actions as a mechanism for enforcing a 

consumer’s rights. 

Defendants indicate that if the class-action waiver provision is unenforceable, the entire 

arbitration agreement should be unenforceable. Accordingly, the Court finds that all language 

in the applicable WSAs touching upon arbitration is unenforceable under Washington law. 

E. Preemption 

Defendants nevertheless argue that the FAA preempts the substantive unconscionability 

laws of Washington State. In support of this argument, Defendants indicate that § 2 of the 

FAA mandates that arbitration provisions “shall be valid, irrevocable, and enforceable, save 

upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 
ORDER 

PAGE - 17 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2. Defendants argue that this section preempts general principles of contract law where those 

doctrines are employed in a way to subject arbitration clauses to special scrutiny. (Dkt. #133 

at 53) (citing Iberia Credit Bureau, Inc v. Cingular Wireless LLC, 379 F.3d 159, 167 (5th Cir. 

2004)). In other words, courts “may not invalidate arbitration agreements under state laws 

applicable only to arbitration provisions.” Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 

681, 687 (1996) (emphasis in original). 

However, the arguments raised by Defendants have been squarely rejected by the Ninth 

Circuit. For example, in Shroyer v. New Cingular Wireless Servs., Inc., the court recognized 

that Congress never intended to place arbitration agreements on a different footing than other 

contracts. 498 F.3d 976, 989 (9th Cir. 2007); see also Prima Paint Corp. v. Flood & Conklin 

Mfg. Co., 388 U.S. 395, 404, n. 12 (1967) (“As the ‘savings clause’ in § 2 indicates, the 

purpose of Congress . . . was to make arbitration agreements as enforceable as other contracts, 

but not more so.”). Nonetheless, the Court held that this purpose “does not appear to be 

frustrated or undermined in any way by a holding that class arbitration waivers in contracts of 

adhesion, like class action waivers in such contracts, are unconscionable.” Shroyer, 498 F.3d 

at 990. The court concluded “that applying California’s generally applicable contract law to 

refuse enforcement of the unconscionable class action waiver in this case does not stand as an 

obstacle to the purposes or objectives of the [FAA].” Id. at 993 (emphasis added). 

The Ninth Circuit subsequently upheld Shroyer in a case implicating Washington 

State’s law on substantive unconscionability. See Lowden v. T-Mobile USA, Inc., 512 F.3d 

1213 (9th Cir. 2008). The court expressly held that “[j]ust as the FAA does not preempt 

California’s unconscionability law, it does not preempt Washington’s unconscionability law.” 

Id. at 1221 (emphasis added). The court based this finding on the concern that “when the 

potential for individual gain is small, few if any plaintiffs will pursue either individual 

arbitration or litigation, thereby greatly reducing the aggregate liability a company faces when 

it has exacted small sums from millions.” Id. (emphasis in original). 

The same concerns raised in Shroyer and Lowden apply with equal force here. The 

Court is not extending or otherwise employing a unique rule of law in finding that the class-
ORDER 

PAGE - 18 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

action waiver provisions in this case are substantively unconscionable. In fact, the principles 

utilized by the Court are general doctrines of unconscionability law that would apply to any 

two parties to a contract. The fact that the individuals here are precluded from proceeding as 

a class is not strictly limited to situations where such a provision is embedded in an arbitration 

provision. Whenever a party is effectively exculpating itself from allegedly fraudulent 

activity, general principles of unconscionability would potentially apply. 

 Defendants attempt to make one last plea to escape from the umbrella of these holdings 

by arguing that a recent Supreme Court case supersedes Shroyer and Lowden. See Preston v. 

Ferrer, 128 S.Ct. 978 (2008). This argument is not persuasive. In Preston, the Supreme 

Court addressed the narrow issue of whether a state statute assigning primary jurisdiction to a 

state labor commission is superseded by the FAA. Id. at 981. In holding that the statute was 

indeed preempted by the FAA, the Court upheld the general principle in favor of arbitrating 

disputes. Preston did not discuss or otherwise impact the more specific principle that 

“generally applicable contract defenses such as fraud, duress, or unconscionability, may be 

applied to invalidate arbitration agreements[.]” Casarotto, 517 U.S. at 687. 

III. CONCLUSION

Having reviewed the relevant pleadings, the declarations and exhibits attached thereto, 

and the remainder of the record, and having considered the oral argument of the parties, the 

Court hereby finds and ORDERS: 

 (1) “Defendants’ Amended Motion to Compel Arbitration Pursuant to the Federal 

Arbitration Act and to Dismiss Action” (Dkt. #133) is DENIED. Defendants are directed to 

file an answer to Plaintiffs’ second amended complaint no later than thirty (30) days from the 

date of this Order. Once Defendants respond, the Court will issue its initial scheduling order. 

 (2) The Clerk is directed to forward a copy of this Order to all counsel of record. 

DATED this 22nd day of May, 2009. 

A

RICARDO S. MARTINEZ 

UNITED STATES DISTRICT JUDGE