Overly Broad Arbitration Clause Fails–Wexler v. AT&T

screen-shot-2016-10-04-at-7-16-31-amPlaintiff signed up for wireless service from AT&T Mobility. The operative agreement contained an arbitration clause that covered:

1) claims arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory;
2) claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising);
3) claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and
4) claims that may arise after the termination of this Agreement. [emphasis added]

The agreement defined AT&T broadly to “include [its] respective subsidiaries, affiliates, agents, employees, predecessors in interest, successors, and assigns, as well as all authorized or unauthorized users or beneficiaries of services or Devices under this or prior Agreements between us.”

Plaintiff began receiving unsolicited texts and calls from AT&T (the parent or a related entity) regarding “U-verse” television and Internet service. The texts related to a U-verse account under the name Paul MacPherson, which apparently had no connection to plaintiff. The plaintiff sued asserting TCPA violations. AT&T moved for arbitration under the above clause.

The court is troubled by the scope of the arbitration clause, including the entities who an enforce it, the fact that it is seemingly perpetual, and most importantly, the fact that it applies to disputes totally unrelated to the underlying services provided by AT&T (that are the subject of the agreement containing the arbitration clause).

The court says there is a dearth of cases dealing with language of this scope. The few cases that have addressed them have been skeptical that they are enforceable. But the court says these few holdings are in tension with Concepcion, which says the FAA trumps state laws designed to inhibit arbitration. (The clause in Concepcion was similar but the Court did not focus on its scope.) Instead, the court says “that an arbitration clause that is unlimited in scope presents a question of contract formation.” The court says that a customer’s expression of assent to a clause of this nature is truly not an expression of assent:

Notwithstanding the literal meaning of the clause’s language, no reasonable person would think that checking a box accepting the “terms and conditions” necessary to obtain cell phone service would obligate them to arbitrate literally every possible dispute he or she might have with the service provider, let alone all of the affiliates under AT&T Inc.’s corporate umbrella—including those who provide services unrelated to cell phone coverage. Rather, a reasonable person would be expressing, at most, an intent to agree to arbitrate disputes connected in some way to the service agreement with Mobility. As explained above, Wexler’s claims are not so connected. If a company wishes to bind its costumers to something broader, it must take steps to secure something that a reasonable person would understand as an objective expression of his or her agreement.

This is the second federal court decision in NY allowing a plaintiff to chart a course through (or around) an arbitration clause. Judge Rakoff declined to allow Uber to enforce its arbitration clause in a case involving antitrust claims against Uber.

Above all this case illustrates that caution is appropriate in drafting arbitration-related clauses. There is a constant risk of blowback from overreaching clauses, and that’s something practitioners in this area should be cognizant of.

Eric previously noted the overly broad General Mills arbitration clause, which it ultimately reversed course on. It would have been certainly toast in front of this judge.

Case citation: Wexler v. At&T Corp., Case No. 15-CV-0686 (FB) (PK) (E.D.N.Y. Sept. 30, 2016) [pdf]

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Ninth Circuit Sends Uber Driver Claims to Arbitration

Courts Approve Terms of Service-Based Arbitration Clauses for Uber and Groupon

Judge Declines to Enforce Uber’s Terms of Service–Meyer v. Kalanick

Anarchy Has Ensued In Courts’ Handling of Online Contract Formation (Round Up Post)