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Federal Appeals Court Affirms TLPJís Victory on Behalf of California Long Distance Customers against AT&T

Court Slams Phone Giantís Arbitration Clause as Unconscionable and Unenforceable Under California Consumer Protection Law

Jim Sturdevant and Karen L. Hindin of The Sturdevant Law Firm, Consumer Action Executive Director Ken McEldowney, plaintiff Darcy Ting, and TLPJ's F. Paul Bland, Jr. Photo by Victoria Ni.

The U.S. Court of Appeals for the Ninth Circuit held on February 11, 2003, that provisions in AT&Tís standard form contract for long distance customers requiring them to submit their claims to mandatory arbitration is unconscionable and unenforceable. Affirming a significant legal victory for seven million California long distance customers of AT&T, the Court struck down provisions in AT&Tís arbitration clause that (a) stripped consumers of the right to file or participate in a class action; (b) stripped consumers of various rights and shielded AT&T from damages for willful misconduct under Californiaís consumer protection laws; (c) required consumers to pay expensive fees for arbitration; and (d) contained a gag rule requiring consumers to keep secret any dispute they might have against AT&T. The Courtís 40-page opinion concluded by explaining that its holding was not directed at arbitration, "but at the manner in which it was forced upon consumers, the way in which AT&T avoided liability for willful misconduct, and the costs to consumers of vindicating their rights."

"The Court of Appeals made clear that corporations like AT&T cannot enforce abusive arbitration clauses that make it impossible for consumers to enforce their rights under consumer protection laws," said TLPJ Staff Attorney F. Paul Bland, Jr., who argued the appeal on October 7, 2002. "AT&T cannot evade laws that protect consumers by sneaking in an unfair and one-sided, fine-print arbitration clause that most long distance customers wonít read or canít understand."

The Court of Appeals held that the provision of AT&Tís arbitration clause that banned class actions was unconscionable and "manifestly one-sided," because it would make it harder for consumers to bring claims. It found that AT&Tís arbitration clause violated state consumer protection law because it would require consumers bringing claims against AT&T to pay costs that are greater than those they would have to pay if they had brought their claims in court. It also found that if AT&T "succeeds in imposing a gag order," such secrecy would favor AT&T because the corporation would know what happened in other arbitrations but consumers would be unable to discover that information.

"AT&T not only tried to force its customers to take their claims to arbitration instead of court, it attempted to rig that forum to strip its customers of all meaningful rights and remedies under California law," said James Sturdevant, co-lead counsel for the plaintiffs. "The Court of Appeals made clear that courts can and must protect consumers from that kind of abuse."

TLPJ and The Sturdevant Law Firm filed this California statewide class action lawsuit on July 30, 2001, against AT&T for attempting to impose mandatory predispute arbitration to eliminate its long distance telephone customersí right to their day in court and shield itself from liability.

The lawsuit, Ting v. AT&T, is the first in the nation to challenge AT&Tís new mandatory arbitration provision. It was filed and certified as a class action on behalf of all AT&T long distance telephone customers in California. The named plaintiffs in the case are Darcy Ting, an AT&T customer who lives in Berkeley, and Consumer Action, a San Francisco-based, national public interest organization that has previously challenged mandatory arbitration clauses and that conducts an annual survey of long distance rates. The federal magistrate judge who presided at trial declared that AT&Tís mandatory arbitration and limitation of liability provisions are illegal, unconscionable, and unenforceable under Californiaís Consumer Legal Remedies Act and Unfair Competition Law, and permanently enjoined their enforcement in California.

AT&T had argued to the Court of Appeals that it did not matter whether it complied with state contract and consumer protection laws because the Federal Communications Act ("FCA") and the Federal Arbitration Act ("FAA") supposedly preempted those laws. The Ninth Circuit rejected the argument that the FCA preempts either state contract laws or state consumer protection laws. The Court agreed with AT&T that the FAA preempts Californiaís Consumer Legal Remedies Act, but held that Californiaís contract law was still sufficient to strike down nearly all of the terms in AT&Tís contract that were challenged in this case.

"The Court of Appeals correctly held that federal communications laws do not provide long distance phone companies with any special exemption from complying with state consumer protection laws," said Linda Sherry, Editorial Director of Consumer Action. "Long distance phone customers will benefit enormously from California lawís strong protections against deceptive and abusive practices."

In addition to Bland and Sturdevant, the plaintiffsí legal team includes Karen Hindin of The Sturdevant Law Firm and TLPJís Staff Attorney Michael J. Quirk, Baron-Brayton Fellow Kate Gordon and former Olender Fellow Khalid Elhassan.

Key briefs and the Ninth Circuit ruling in the Ting case are posted on TLPJís web site, www.tlpj.org.

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Trial Lawyers for Public Justice is the only national public interest law firm dedicated to using trial lawyersí skills and resources to advance the public good. Founded in 1982, TLPJ utilizes a nationwide network of more than 2,700 outstanding trial lawyers to pursue precedent-setting and socially significant litigation. It has a wide-ranging litigation docket in the areas of consumer rights, environmental protection, toxic torts, worker safety, civil rights and liberties, and access to the courts. TLPJ is the principal project of The TLPJ Foundation, a not-for-profit membership organization. It has offices in Washington, DC, and Oakland, CA. TLPJís State Coordinator for Northern California is Althea Kippes, tel. (415) 398-5054.

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