Contracts Prohibiting Class Action Participation May Be Unconscionable
“Unconscionability is an amorphous concept that evades precise definition.” Wisconsin Auto Title Loans, Inc. v. Jones, 2006 WI 53, ¶31, 290 Wis. 2d 514, 714 N.W.2d 155.
Not exactly where you want the court of appeals to start when analyzing whether or not an arbitration provision is unconscionable. It looks like a set-up to get where they want to go without having to rely on anything other than some generalized, and rarely consistent, sense of fairness.
Beginning with just that statement in Cottonwood Financial v. Estes, the District III court of appeals reviewed a Pierce County decision regarding the claimed unconscionability of an arbitration provision in a payday lending contract. To its credit, court steered clear of fuzzy and emotional thinking and went to the heart of the matter, which in this case was a provision that prevented the plaintiff from being part of a class action suit:
Finally, we reach, and accept, Estes’s argument that the arbitration agreement was substantively unconscionable because it precluded her from proceeding as a member of a class. The arbitration provision states:
You are waiving your right to serve as a representative, as a private attorney general, or in any other representative capacity, and/or to participate as a member of a class of claimants, in any lawsuit filed against us …. [A]ll disputes including any representative claims against us … shall be resolved by binding arbitration only on an individual basis with you. Therefore, the arbitrator shall not conduct class arbitration; that is, the arbitrator shall not allow you to serve as a representative, as a private attorney general, or in any other representative capacity for others in the arbitration. (Capitalization and bold omitted.)
This provision runs afoul of WIS. STAT. § 421.106(1), which provides, “[A] customer may not waive or agree to forego rights or benefits under” the consumer act. WISCONSIN STAT. § 426.110(1) explicitly recognizes a consumer’s right to “bring a civil action on behalf of himself or herself and all persons similarly situated.”
The lesson: take care to ensure that your contracts don’t over-reach, particularly when dealing with consumers. Also, the case provides a pretty good shorthand lesson on unconscionability in contract language.
