Another one bites the dust - class action waiver clause, that is. This time under Georgia law.

Last month the Ninth Circuit Court of Appeals struck down a class action waiver clause under California law in Shroyer v. New Cingular Wireless, ruling that it was both procedurally and substantively unconscionable. To demonstrate the district court's error, the appellate court cited no fewer than ten district court cases that had previously struck down similar waivers. The court of appeals missed an eleventh such case decided only a week before (Oestereicher v. Alienware, No. C 07-00523, 2007 U.S. Dist. LEXIS 58616 (N.D. Cal. Aug. 10, 2007) (class action waiver in contract for online purchase of a computer)), but you can forgive them for that.

Now the Eleventh Circuit has struck down a class action waiver in a cable services contract under Georgia law, in Dale v. Comcast Corp., No. 06-15516 (11th Cir. Sept. 4, 2007).

The plaintiff cable subscribers brought a class action, citing a provision of the Cable Communications Policy Act that requires a cable operator to pass through decreases in franchise fees; the subscribers alleged that the cable operator failed to comply with that requirement and sought relief under both state and federal law. The amount of each subscriber's claim was quite small, however, a total of perhaps $10.56 per subscriber over the four year period of the applicable statute of limitations. And the potential cost for an individual choosing to proceed with arbitration was relatively high; although the cable operator agreed to advance arbitration filing fees and the arbitrator's costs and expenses, the subscribers would be responsible for attorney fees and expert witnesses, and if the cable operator prevailed, the subscribers were required to reimburse the cable operator for the advanced fees up to the amount that the subscribers would have had to pay to file the claim in state court, in this case, a total of almost $150.

The cable operator removed the case to federal court, then successfully moved to enforce the arbitration provision in the subscriber agreement, which included a waiver of the right to arbitrate or litigate on a class action or consolidated basis, or in a representative capacity. The subscribers appealed, arguing among other things that the class action waiver was unconscionable under Georgia law.

The subscribers were faced with a seemingly formidable task. First, the standard for determining unconscionability under Georgia law appears high. The Eleventh Circuit cited a Georgia opinion in which the court defined an unconscionable contract as "such an agreement as no sane man not acting under a delusion would make and that no honest man would take advantage of." Slip op. at 7 n. 4, citing Hall v. Fruehauf Corp., 346 S.E.2d 582, 583 (Ga. Ct. App. 1986). Second, in three prior opinions, two of them very recent, the Eleventh Circuit upheld class action waivers, rejecting unconscionability arguments.

The Eleventh Circuit distinguished the prior cases on several grounds, including the fact that the claims in those cases entitled prevailing plaintiffs to an award of attorney fees. Thus, the appeals court concluded, the unavailability of a class mechanism would not deter plaintiffs from proceeding.

Instead of relying on its prior opinions (or rather, having distinguished them away), the Eleventh Circuit looked to a recent opinion in the First Circuit (presumably applying Massachusetts law), in which the First Circuit relied on a broad fairness principle in striking down a class action waiver provision that the same cable operator sought to enforce against a private consumer antitrust action: "...the legitimacy of the arbitral forum rests on the presumption that arbitration provides a fair and adequate mechanism for enforcing statutory rights." The First Circuit concluded that because of the complexity and cost of antitrust cases, a consumer antitrust plaintiff would not sue without the availability of some form of class mechanism, and thus the cable operator would be shielded from liability even if it violated antitrust law. The subscribers, the First Circuit concluded, would "be unable to vindate their statutory rights [and] the social goals of federal and state antitrust laws [would] be frustrated because of the 'enforcement gap' created by the de facto liability shield." Slip op. at 16, citing Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006).

Well, you see where this is going ....

Here's how the Eleventh Circuit wound up its analysis:

While the subscribers in the instant case do not argue the class action waiver prevents them from vindicating their statutory rights, we nonetheless find the First Circuit’s analysis in Kristian instructive. Without the benefit of a class action mechanism, the subscribers would effectively be precluded from suing Comcast for a violation of 47 U.S.C. § 542. The cost of vindicating an individual subscriber’s claim, when compared to his or her potential recovery, is too great. Additionally, because the Cable Act does not provide for the recovery of attorneys’ fees or related costs for the violations alleged by the subscribers, and because state law allows fees and costs to be awarded only where bad faith is shown, it will be difficult for a single subscriber to obtain representation. This will allow Comcast to engage in unchecked market behavior that may be unlawful. Corporations should not be permitted to use class action waivers as a means to exculpate themselves from liability for small-value claims.

We thus conclude that the enforceability of a particular class action waiver in an arbitration agreement must be determined on a case-by-case basis, considering the totality of the facts and circumstances. Relevant circumstances may include, but are not limited to, the fairness of the provisions, the cost to an individual plaintiff of vindicating the claim when compared to the plaintiff’s potential recovery, the ability to recover attorneys’ fees and other costs and thus obtain legal representation to prosecute the underlying claim, the practical affect the waiver will have on a company’s ability to engage in unchecked market behavior, and related public policy concerns.