Kinkel v. Cingular Wireless ( 2006 )

Docket No. 100925.
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
DONNA M. KINKEL, Appellee, v. CINGULAR WIRELESS LLC,
Appellant.
Opinion filed October 5, 2006.
JUSTICE GARMAN delivered the judgment of the court,
with opinion.
Justices Freeman, Fitzgerald, Kilbride, and Karmeier
concurred in the judgment and opinion.
Chief Justice Thomas and Justice Burke took no part in the
decision.
OPINION
Defendant, Cingular Wireless, LLC (Cingular), provides
cellular telephone service to consumers. Under Cingular=s
standard service agreement, its customers commit to a
specified Aservice term@ and agree to pay an early-termination
fee if they withdraw from the service agreement before the end
of the term. Plaintiff, Donna M. Kinkel, individually and on
behalf of a class of those similarly situated, filed suit against
Cingular in the circuit court of Madison County, alleging that
the early-termination fee constitutes an illegal penalty and that
imposition of the fee is both a breach of the service agreement
and statutory fraud under the Illinois Consumer Fraud and
Deceptive Business Practices Act (Consumer Fraud Act) (815
ILCS 505/1 et seq. (West 2002)).
Cingular filed a motion to compel arbitration of plaintiff=s
individual claim, in accordance with the mandatory arbitration
provision of the standard service agreement, which provides
that Ano arbitrator has the authority@ to resolve class claims.
The circuit court, after a hearing, denied the motion.
Interlocutory appeal was taken by Cingular pursuant to
Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)). The
appellate court reversed and remanded, finding that although
the arbitration clause is enforceable, the limitation on class
arbitration contained therein is unconscionable and, thus,
unenforceable. 357 Ill. App. 3d 556. This court granted
Cingular=s petition for leave to appeal pursuant to Supreme
Court Rule 315 (177 Ill. 2d R. 315), to determine whether the
prohibition of class arbitration is unconscionable.
BACKGROUND
In July 2001, plaintiff entered into a two-year service
agreement with Cingular for cellular telephone service by
signing defendant=s standard service agreement. The ATERMS
AND CONDITIONS@ of the agreement appear on the back of
the form that plaintiff signed. These terms and conditions are
spelled out on a single, legal-size sheet of paper in small type.
Certain provisions are emphasized by the use of capital letters.
Topics or headings appear in boldface type.
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Plaintiff cancelled her cellular telephone service in April
2002, although the two-year term was not scheduled to expire
until July 2003. Pursuant to the early-termination provision in
the service agreement, Cingular charged her an early-
termination fee of $150, which she paid under protest.
In August 2002, plaintiff filed suit. Cingular filed a motion to
compel arbitration of her individual claim and stay the litigation,
invoking the arbitration clause of the service agreement and
sections 2 and 3 of the Federal Arbitration Act (FAA) (9 U.S.C.
''2, 3 (2000)). In September 2003, plaintiff filed her first
amended complaint, again alleging that the $150 early
termination fee is an illegal penalty. She further alleged that the
ban on class treatment contained in the mandatory arbitration
provision is intended by Cingular to further an unlawful scheme
to collect an illegal penalty from her and other members of the
class she purports to represent and that it prevents her and
others from Aeffectively vindicating their statutory and common
law causes of action and facilitates rather than remedies
Cingular=s fraudulent and unlawful conduct.@ (Because
provisions barring class treatment in arbitration are generally
referred to in the case law and the literature as Aclass action
waivers,@ we will use the term Awaiver,@ even though the
provision at issue is phrased as a limitation on the scope of the
arbitrator=s authority, rather than as a waiver by the customer
of her ability to file a claim on behalf of a class.)
After a hearing, the trial court denied Cingular=s motion to
compel arbitration finding, inter alia, that the arbitration clause
was unenforceable on the basis of unconscionability.
Interlocutory appeal was taken by Cingular.
The appellate court concluded that the class action waiver
was unconscionable, but that it was severable from the
remainder of the arbitration clause, which, in keeping with Athe
strong policy in favor of enforcing arbitration agreements,@
should be enforced. 357 Ill. App. 3d at 569. The appellate court
remanded for further proceedings consistent with its opinion,
noting that the effect of its ruling would be to stay plaintiff=s
lawsuit while her class claim proceeded to arbitration. 357 Ill.
App. 3d at 569.
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Relevant Provisions of the Service Agreement
The second sentence of the standard service agreement
states that service is Asubject to CINGULAR=s standard
business policies, practices and procedures that CINGULAR
may change at any time without notice.@ The fourth sentence
states:
AIMPORTANT NOTICE: THIS AGREEMENT
CONTAINS MANDATORY ARBITRATION AND
OTHER IMPORTANT PROVISIONS LIMITING THE
REMEDIES AVAILABLE TO YOU IN THE EVENT OF A
DISPUTE. PLEASE REFER TO THE SECTION
ENTITLED >ARBITRATION= FOR DETAILS.@
The provision that is the subject of plaintiff=s claim provides:
ASERVICE COMMITMENT You have agreed to
maintain service for a minimum term, the Service
Commitment specified on the signature portion of this
Agreement. The Service Commitment begins on the day
your service is activated. If you have contracted for a
Service Commitment greater than a month, in exchange
you have received certain benefits from CINGULAR.
You understand and agree that you now have certain
contractual obligations and that CINGULAR=s damages
arising out of a breach thereof will be difficult, if not
impossible, to determine. Therefore, if you terminate
your service for any reason other than a change of
terms, conditions, or rates as set forth below, or if
CINGULAR terminates your service for nonpayment or
other default before the end of the Service Commitment,
you hereby agree to pay CINGULAR, as liquidated
damages, and not as a penalty, in addition to all other
amounts owed, the termination charge of $150 per
wireless phone on the account (>Termination Fee=).@
The arbitration clause provides, in pertinent part:
AINDEPENDENT ARBITRATION Please read this
paragraph carefully. It affects rights that you may
otherwise have. (a) CINGULAR and you shall use our
best efforts to settle any dispute or claim arising from or
relating to this Agreement. To accomplish this,
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CINGULAR and you agree to arbitrate any and all
disputes and claims (including but not limited to claims
based on or arising from an alleged tort) arising out of or
relating to this Agreement, or to any prior Agreement for
products or services between you and CINGULAR ***.
The arbitration of any dispute or claim shall be
conducted in accordance with the wireless industry
arbitration rules (>WIA Rules=) as modified by this
agreement and as administered by the American
Arbitration Association (>AAA=). The WIA Rules and fee
information are available from CINGULAR or the AAA
upon request. CINGULAR and you acknowledge that
this agreement evidences a transaction in interstate
commerce and that the United States Arbitration Act
and Federal Arbitration Law shall govern the
interpretation and enforcement of, and proceedings
pursuant to, this or a prior agreement. *** Except where
prohibited by law, CINGULAR and you agree that no
arbitrator has the authority to: (1) award relief in excess
of what this agreement provides; (2) award punitive
damages or any other damages not measured by the
prevailing party=s actual damages; or (3) order
consolidation or class arbitration. The Arbitrator(s) must
give effect to the limitations on CINGULAR=s liability as
set forth in this agreement, any applicable tariff, law, or
regulation. *** You agree that CINGULAR and you each
is waiving its respective right to a trial by jury. You
acknowledge that arbitration is final and binding and
subject to only very limited review by a court. If for some
reason this arbitration clause is at some point deemed
inapplicable or invalid, You and CINGLUAR agree to
waive, to the fullest extent allowed by law, any trial by
jury. *** Notwithstanding any of the foregoing, either
party may bring an action in small claims court.@
Defendant=s brief states that the service agreement also
provides that Aall fees and expenses of the arbitration shall be
equally borne by [the customer] and CINGULAR.@ Repeated
reading of the fine print of the ATERMS AND CONDITIONS@
page, however, has failed to reveal the existence of this
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provision. The only provision relating to the cost of arbitration
incorporates the WIA Rules by reference and informs the
customer that fee information is available from Cingular or the
AAA Aupon request.@
Under the WIA Rules promulgated by the AAA, a claimant
must pay a fee at the time he or she files a claim. If, as in the
present case, the claim does not exceed $10,000, the claimant
must pay one-half of the arbitrator=s fees, up to a maximum of
$125. Any funds not used are refunded to the claimant. For
claims under $10,000, the business pays all fees that are not
the responsibility of the claimant. Wireless Industry Arbitration
Rules of the American Arbitration Association, Supplementary
Procedures for Consumer-Related Disputes (eff. March 1,
2002), available at
http://www.adr.org/sp.asp?id=22014#CONC-8 (hereinafter WIA
Rules).
While this matter was still before the trial court, Cingular
offered to reimburse plaintiff for her reasonable attorney fees
and costs if her claim were to proceed to arbitration and the
arbitrator were to award her an amount equal to or greater than
her $150 claim. In response to a question by the trial court,
Cingular=s counsel represented that Cingular would apply the
terms of the new arbitration provision to all customers, current
and former, including plaintiff and members of the purported
class.
In July 2003, Cingular revised the arbitration provision in its
standard service agreement, notifying all then-current
customers of the change by mail and posting the new terms on
its website. Under the new provision, Cingular agrees to pay
Aall AAA filing, administration and arbitrator fees,@ unless the
claim filed or the relief sought is so improper as to be subject to
sanctions under Federal Rule of Civil Procedure 11(b) (Fed. R.
Civ. P. 11(b)). If a claimant recovers the amount of his demand
or more, Cingular agrees to reimburse him for his reasonable
attorney fees and expenses incurred in bringing the claim to
arbitration. The location of arbitration has been changed to the
county of the claimant=s billing address, rather than the city in
which Cingular=s switching office is located. Unlike the earlier
provision, the new arbitration provision does not include a
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confidentiality requirement and does not limit the remedies that
an arbitrator may award, so that the possibility exists for an
award of punitive damages. In addition, the new arbitration
provision states:
AYou and CINGULAR agree that YOU AND CINGULAR
MAY BRING CLAIMS AGAINST THE OTHER ONLY IN
YOUR OR ITS INDIVIDUAL CAPACITY, and not as a
plaintiff or class representative or class member in any
purported class or representative proceeding. Further,
you agree that the arbitrator may not consolidate
proceedings or more than one person=s claims, and may
not otherwise preside over any form of a representative
or class proceeding, and that if this specific proviso is
found to be unenforceable, then the entirety of this
arbitration clause shall be null and void.@
The trial court rejected Cingular=s argument that this new
provision should be applied to plaintiff=s claim. The appellate
court agreed with the trial court=s ruling, concluding that Agiving
Cingular the benefit of a piecemeal reworking of the contract
that was in effect when the plaintiff cancelled her service would
not meet the ends of justice.@ 357 Ill. App. 3d at 568, citing
Spinetti v. Service Corp. International, 324 F.3d 212, 217 n.2
(3d Cir. 2003) (concluding that A >reviewing courts should not
consider after-the-fact offers= @ to pay a plaintiff=s share of
arbitration costs A >where the agreement itself provides that the
plaintiff is liable, at least potentially, for arbitration fees and
costs= @), quoting Morrison v. Circuit City Stores, Inc., 317 F.3d
646, 676 (6th Cir. 2003).
ANALYSIS
Subsequent Revision of Service Agreement
As a threshold matter, we address Cingular=s argument that
the terms of its current standard service agreement should be
applied to plaintiff=s claim, notwithstanding her lack of consent
to be bound by such terms. At this stage of our analysis, we
need not be concerned with the strong federal policy favoring
arbitration, as we are not yet considering whether an arbitration
clause is enforceable. The question at this stage is which of the
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two arbitration provisionsBthe one printed on the back of the
form plaintiff signed in 2001, or the one adopted by Cingular in
2003Bshould be the subject of the court=s inquiry.
Neither party has suggested the proper standard of review.
Because the question is, in essence, one of contract
modification, we look to the law of contracts. Where the
evidence is in conflict, whether an existing contract has been
modified is a question of fact. 12A Ill. L. & Prac. '347, at 199
(1983). However, where the evidence is undisputed, it is for the
court to decide whether a modification has been effected. 12A
Ill. L. & Prac. '347, Comment, at 199 (1983). The evidence in
the present case is undisputed. We, therefore, review de novo
the question of the applicability of the revised arbitration
provision to plaintiff=s claim.
Cingular devoted a significant portion of its brief and oral
argument to its offer to bear the full cost of arbitration and to
reimburse plaintiff for her attorney fees if she were to prevail in
arbitration. Cingular asserts that the appellate court erred by
refusing to focus on its revised arbitration clause, which it
characterizes as a Aconsumer-friendly@ provision that waives
the earlier cost-sharing requirement. Cingular cites Ellman v.
Ianni, 21 Ill. App. 2d 353, 361 (1959), for the proposition that Aa
condition or provision of the contract may, generally, be waived
by the party thereto who is entitled to receive the benefit of the
condition.@
In addition, Cingular argues that Aoffers to pay the costs of
arbitration should be credited when considering whether an
arbitration provision is enforceable,@ citing Livingston v.
Associates Finance, Inc., 339 F.3d 553, 557 (7th Cir. 2003). In
Livingston, the court of appeals found that a provision in the
arbitration agreement, under which the company offered to pay
arbitration fees if the customer was financially incapable of
paying, was sufficient to protect the customer from potentially
prohibitive costs. Thus, the court concluded, the Abare
assertion of prohibitive costs, without more, is too speculative
and insufficient to shift the burden@ to the company to show
that the costs of arbitration are not prohibitive. Livingston is
readily distinguishable from the present case because the
defendant=s offer to pay the costs of arbitration was part of the
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initial agreement that the customer signed. In the present case,
the offer was not made until after the customer filed a lawsuit.
Cingular has also been permitted to file supplemental
authority in support of its claim that the revised service
agreement should be applied to plaintiff=s claim. In Kristian v.
Comcast Corp., 446 F.3d 25 (1st Cir. 2006), the court of
appeals held an arbitration provision added to the defendant=s
standard service agreement in 2002-03 applied retroactively to
the plaintiffs= claims that arose during the period 1987-2001.
When the plaintiffs first subscribed for cable services from
Comcast, their service agreements did not contain arbitration
provisions. It appears, however, that all four plaintiffs continued
to subscribe to Comcast services after the arbitration provision
was added to the standard service agreement and were,
therefore, subject to the revised terms. Kristian, 446 F.3d at 30.
Kristian is distinguishable on this basis. Plaintiff was not a
Cingular customer on or after the date upon which Cingular
amended its service agreement.
Plaintiff responds that Cingular Ashould not be allowed to
make unilateral post facto amendments to its contract to
improve its litigation position in this case,@ and distinguishes
Ellman based on the difference between a party=s waiving a
term of the original contract and changing the terms of that
contract. We agree that the offer made by Cingular to plaintiff is
not a mere waiver of a contractual right (the right to have
plaintiff pay a portion of the cost of arbitration), but is a
substantial modification of the parties= contract, including an
affirmative promise to pay plaintiff=s attorney fees and costs if
she were to prevail in arbitration, as well as other new terms.
Plaintiffs also rely on Morrison v. Circuit City Stores, Inc.,
317 F.3d 646, 676 (6th Cir. 2003), in which the court of appeals
rejected the defendant-employer=s argument that the plaintiff-
employee should be compelled to arbitrate his discrimination
claim because it had agreed, in writing, to pay his share of the
arbitration fee.
AIn considering the ability of plaintiffs to pay arbitration
costs under an arbitration agreement, reviewing courts
should not consider after-the-fact offers by employers to
pay the plaintiff=s share of arbitration costs where the
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agreement itself provides that the plaintiff is liable, at
least potentially, for arbitration fees and costs.@
Morrison, 317 F.3d at 676.
Cingular responds that, unlike the defendant in Morrison, it
has changed its standard service agreement so that all
customers, not just this plaintiff, will be spared the costs of
arbitration if they have meritorious claims. Thus, Cingular
claims, any claim by plaintiff or any current or former customer
that its arbitration provision is unconscionable on the basis of
the prohibitive cost of arbitration is moot.
We conclude, for two reasons, that the original arbitration
clause should be the focus of the unconscionability analysis.
First, we agree with the reasoning of Morrison and Spinetti that
a defendant=s after-the-fact offer to pay the costs of arbitration
should not be allowed to preclude consideration of whether the
original arbitration clause is unconscionable. As the Morrison
court noted, the party who drafted the provision Ais saddled
with the consequences of the provision as drafted.@ (Emphasis
in original.) Morrison, 317 F.3d at 677. We find this reasoning
equally applicable whether the defendant alters its arbitration
clause with respect to all current contracts, or makes a private,
individual offer to the plaintiff in a particular case.
Second, this result is consistent with the law of contracts
regarding modification. In the service agreement signed by
plaintiff, Cingular expressly reserved the right to unilaterally
modify the terms and conditions of the agreement, at any time,
without notice. Plaintiff accepted this condition. Plaintiff
terminated her contractual relationship with Cingular in April
2002, when, in full compliance with the then-existing
agreement, she cancelled her cellular telephone service and
paid the early-termination fee. Cingular subsequently modified
the arbitration provision of its standard service agreement.
When Cingular revised the arbitration provision, however, the
contract between Cingular and plaintiff was no longer in effect.
Cingular did not have the right to unilaterally modify the terms
of a contract that had been terminated many months prior to
the attempted modification. Plaintiff could certainly have
accepted Cingular=s offer to extend the new terms to her, but
Cingular cannot compel her to do so.
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In response to Cingular=s argument that the strong federal
interest in enforcement of arbitration agreements weighs in
favor of applying its new arbitration provision to plaintiff=s claim,
we note that, in deciding whether to give effect to an attempted
contract modification, the analysis does not depend on the
nature of the contractual provision at issue. One party to a
contract may not unilaterally modify a contract termBwhether it
is an arbitration clause, a disclaimer of incidental and
consequential damages, a liquidated damages clause, or any
other termBafter the contractual relationship between the
parties has ended and the original contract is the subject of a
dispute. Defendant=s revision of the arbitration provision in
existing service agreements is, therefore, irrelevant to the
instant case because this new provision was never a part of
the contract between the parties.
Federal Preemption
Having concluded that the contract provision at issue in the
present case is the arbitration clause printed on the back of the
form plaintiff signed, we turn to Cingular=s federal preemption
arguments. If plaintiff=s claim is preempted by federal law, we
need go no further in our analysis of the class action waiver.
Cingular argues that any holding that would not give effect to
its arbitration provision and the class action waiver therein is
expressly and impliedly preempted by federal law. Whether
state law is preempted by a federal statute is a question of law,
subject to de novo review. Schultz v. Northeast Illinois
Regional Commuter R.R. Corp., 201 Ill. 2d 260, 288 (2002).
Cingular=s express-preemption argument is based on
section 2 of the FAA, which provides that a written agreement
in a Acontract evidencing a transaction involving commerce@ to
arbitrate a controversy arising out of such a contract Ashall 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. '2 (2000). In Perry v. Thomas, 482 U.S. 483, 491, 96 L.
Ed. 2d 426, 436, 107 S. Ct. 2520, 2526 (1987), the Supreme
Court held that section 2 of the FAA expressly preempted a
California statute that provided a judicial forum for actions for
the collection of wages A >without regard to the existence of any
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private agreement to arbitrate.= @ Perry, 482 U.S. at 484, 96 L.
Ed. 2d at 432, 107 S. Ct. at 2523, quoting Cal. Lab. Code '229
(West 1971). The Court noted that section 2 A >is a
congressional declaration of a liberal federal policy favoring
arbitration agreements, notwithstanding any state substantive
or procedural policies to the contrary.= @ Perry, 482 U.S. at 489,
96 L. Ed. 2d at 435, 107 S. Ct. at 2525, quoting Moses H.
Cone Memorial Hospital v. Mercury Construction Corp., 460
U.S. 1, 24, 74 L. Ed. 2d 765, 785, 103 S. Ct. 927, 941 (1983).
By enacting section 2, A >Congress declared a national policy
favoring arbitration and withdrew the power of the states to
require a judicial forum for the resolution of claims which the
contracting parties agreed to resolve by arbitration.= @ Perry,
482 U.S. at 489, 96 L. Ed. 2d at 435, 107 S. Ct. at 2525,
quoting Southland Corp. v. Keating, 465 U.S. 1, 10, 79 L. Ed.
2d 1, 12, 104 S. Ct. 852, 858 (1984). Section 2 Aembodies a
clear federal policy of requiring arbitration unless the
agreement to arbitrate is not part of a contract evidencing
interstate commerce,@ in which case section 2 would simply not
apply, or the contract Ais revocable >upon such grounds as
exist= @ under state law for the revocation of the contract. Perry,
482 U.S. at 489, 96 L. Ed. 2d at 435, 107 S. Ct. at 2525. The
Court concluded: A >We see nothing in the Act indicating that
the broad principle of enforceability is subject to any additional
limitations under state law.= @ Perry, 482 U.S. at 489-90, 96 L.
Ed. 2d at 435, 107 S. Ct. at 2525, quoting Keating, 465 U.S. at
11, 79 L. Ed. 2d at 12, 104 S. Ct. at 858.
Cingular acknowledges that section 2, as construed in
Perry, expressly permits the invalidation of an arbitration
agreement on state law grounds such as unconscionability.
Cingular argues, however, that the Aany contract@ language in
section 2 of the FAA expressly preempts a state court from
holding that a class action waiver in an arbitration clause is
unconscionable if that same waiver would not be deemed
unconscionable in a contract without an arbitration clause.
Cingular relies on dicta contained in a footnote to the Perry
decision. Perry, 482 U.S. at 492 n.9, 96 L. Ed. 2d at 437 n.9,
107 S. Ct. at 2527 n.9. The Court declined to address the
plaintiff=s claim that the arbitration agreement in his
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employment contract was unconscionable as a contract of
adhesion and explained that this question could be considered
by the state court on remand. The Court went on to explain,
however, that:
A[S]tate law, whether of legislative or judicial origin, is
applicable if that law arose to govern issues concerning
the validity, revocability, and enforceability of contracts
generally. A state-law principle that takes its meaning
precisely from the fact that a contract to arbitrate is at
issue does not comport with this requirement of '2.
[Citations.] A court may not, then, in assessing the
rights of litigants to enforce an arbitration agreement,
construe that agreement in a manner different from that
in which it otherwise construes nonarbitration
agreements under state law. Nor may a court rely on
the uniqueness of an agreement to arbitrate as a basis
for a state-law holding that enforcement would be
unconscionable, for this would enable the court to effect
what we hold today the state legislature cannot.@
(Emphasis in original.) Perry, 482 U.S. at 492 n.9, 96 L.
Ed. 2d at 437 n.9, 107 S. Ct. at 2527 n.9.
In Doctor=s Associates, Inc. v. Casarotto, 517 U.S. 681,
683, 134 L. Ed. 2d 902, 906, 116 S. Ct. 1652, 1654 (1996), the
Supreme Court held that a Montana statute applicable to
arbitration clauses, but not to contracts in general, conflicted
with the FAA and was, therefore, preempted. The challenged
statute provided that an arbitration clause was unenforceable
unless it was printed on the first page of the contract in
underlined capital letters. After summarizing its previous
decisions in Perry, Southland, and other cases, the Court
restated what these prior decisions had established:
A >States may regulate contracts, including arbitration
clauses, under general contract law principles and they
may invalidate an arbitration clause Aupon such grounds
as exist at law or in equity for the revocation of any
contract.@ [Citation.] What States may not do is decide
that a contract is fair enough to enforce all its basic
terms (price, service, credit), but not fair enough to
enforce its arbitration clause. The Act makes any such
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state policy unlawful, for that kind of policy would place
arbitration clauses on an unequal Afooting,@ directly
contrary to the Act=s language and Congress=s intent.= @
(Emphasis added.) Casarotto, 517 U.S. at 686, 134 L.
Ed. 2d at 908, 116 S. Ct. at 1655, quoting Allied-Bruce
Terminix Cos. v. Dobson, 513 U.S. 265, 281, 130 L. Ed.
2d 753, 769, 115 S. Ct. 834, 843 (1995).
The authorities relied upon by Cingular stand for the
proposition that under federal law, a class action waiver cannot
be found unconscionable on grounds that apply only to
arbitration clauses. We agree with Cingular that such a finding
is expressly preempted by the FAA. Plaintiff, however, does
not argue that the class action waiver is unconscionable solely
because it is contained in an arbitration clause. Her claim,
therefore, is not expressly preempted by federal law.
Cingular also argues that a finding that its class action
waiver is unconscionable is impliedly preempted under the
supremacy clause of the United States Constitution (U.S.
Const., art. VI, cl. 2). There are two types of implied
preemption, described as Afield preemption@ and Aconflict
preemption.@ English v. General Electric Co., 496 U.S. 72, 78-
79, 110 L. Ed. 2d 65, 74, 110 S. Ct. 2270, 2275 (1990). Conflict
preemption occurs when it is either Aimpossible for a private
party to comply with both state and federal requirements,@ or
Awhere state law >stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of
Congress.= @ English, 496 U.S. at 79, 110 L. Ed. 2d at 74, 110
S. Ct. at 2275, quoting Hines v. Davidowitz, 312 U.S. 52, 67,
85 L. Ed. 581, 587, 61 S. Ct. 399, 404 (1941).
Cingular=s implied-conflict-preemption argument is based
on the premise that if enforcement of its arbitration provision is
conditioned upon the availability of class treatment in the
arbitral forum, the objectives of Congress in enacting the FAA
will be defeated. Cingular argues that the benefits of
arbitration, including efficiency and lower cost, will be lost by
requiring class arbitration. In effect, Cingular=s position is that
any outcome that discourages arbitration of individual claims is
in conflict with the FAA and is, therefore, impliedly preempted.
Cingular cites many sources demonstrating that encouraging
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arbitration is, indeed, a strong federal objective, but offers no
authority for the claim that individual arbitration, rather than
class arbitration, is favored.
We, therefore, reject Cingular=s claim of conflict preemption.
The FAA does not require state courts, when applying state
law to a question of the enforceability of a particular contract, to
necessarily reach an outcome that encourages individual
arbitration. Further, class arbitration cannot be in conflict with
the FAA when the Supreme Court has recognized the
arbitrability of class claims.
In 2003, the United States Supreme Court held in Green
Tree Financial Corp. v. Bazzle, 539 U.S. 444, 156 L. Ed. 2d
414, 123 S. Ct. 2402 (2003), that class actions may be
arbitrated when the agreement between the parties is silent on
the question. Rejecting Green Tree=s argument that class
arbitration should be permitted only when the arbitration
agreement expressly provided for it, the Supreme Court held
that whether class claims could be arbitrated was a decision
that an arbitrator should make when the arbitration clause does
not expressly prohibit class arbitration. Green Tree, 539 U.S. at
454, 156 L. Ed. 2d at 423-24, 123 S. Ct. at 2408.
In response to this decision, the AAA subsequently
promulgated rules governing class arbitration. These rules
contain provisions similar to Federal Rule of Civil Procedure 23
(Fed. R. Civ. P. 23). The AAA=s policy with regard to class
arbitration is that it Awill administer demands for class
arbitration *** if (1) the underlying agreement specifies that
disputes arising out of the parties= agreement shall be resolved
by arbitration in accordance with any of the Association=s rules,
and (2) the agreement is silent with respect to class claims,
consolidation or joinder of claims.@ AAA Policy on Class
Arbitrations, available at http://www.adr.org/sp.asp?id=25967.
The Court=s holding in Green Tree and the AAA policy
suggest that an arbitration agreement expressly waiving the
ability to arbitrate class claims is enforceable. Thus, under the
preemption principles discussed above, unless the class action
waiver, the arbitration clause, or the contract itself is
unenforceable under generally applicable principles of state
law, such a provision must be enforced.
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In sum, the FAA neither expressly nor impliedly preempts a
state court from holding that an arbitration clause or a specific
provision within an arbitration clause is unenforceable; it merely
frames the issue by requiring that a state court examine the
disputed provision in the same manner that it would examine
any contract. Because our analysis on the question of class
action waivers is applicable to all contracts governed by Illinois
law, it can be applied to render the class action waiver in an
arbitration clause unenforceable without undermining the goals
and policies of the FAA.
Unconscionability
The trial court found the entire arbitration clause
unconscionable and, therefore, unenforceable. The appellate
court found the arbitration clause as a whole to be enforceable,
but the prohibition on class arbitration to be both procedurally
and substantively unconscionable. Under this ruling, although
Cingular is entitled to demand arbitration of plaintiff=s individual
claim, it cannot preclude arbitration of her class claim. 357 Ill.
App. 3d at 568.
In reaching this conclusion, the appellate court relied on
earlier appellate court decisions holding that a contract or
contract term cannot be deemed unconscionable unless it is
both procedurally and substantively unconscionable. 357 Ill.
App. 3d at 562, citing Zobrist v. Verizon Wireless, 354 Ill. App.
3d 1139, 1147 (2004). In addition, the appellate court
employed a sliding scale under which a provision may be found
unconscionable if is Aextremely substantively unconscionable@
but only Aslightly procedurally unconscionable, and vice versa.@
357 Ill. App. 3d at 562, citing Ting v. AT&T, 319 F.3d 1126 (9th
Cir. 2003).
Subsequent to the appellate court=s ruling in the present
case, this court decided the case of Razor v. Hyundai Motor
America, 222 Ill. 2d 75 (2006), in which we rejected the
requirement that both procedural and substantive
unconscionability must be found before a contract or a contract
provision will be found to be unenforceable. A finding of
unconscionability may be based on either procedural or
-16-
substantive unconscionability, or a combination of both. Razor,
222 Ill. 2d at 99.
Before this court, Cingular argues that the class action
waiver contained in its arbitration provision is neither
procedurally nor substantively unconscionable. At oral
argument, counsel for Cingular acknowledged that the ability of
a Cingular customer to bring a claim on behalf of a class in any
forum is entirely foreclosed by the combination of the
mandatory arbitration provision and the class action waiver, but
argued that such a limitation is not unconscionable under
Illinois law.
Plaintiff argues that the prohibition on class arbitration is
both procedurally and substantively unconscionable. Plaintiff
alleged in her pleadings that several clauses in the service
agreement, including the arbitration clause and the class action
waiver therein, act in combination to further Cingular=s unlawful
scheme to collect an illegal penalty by making it cost prohibitive
for individual customers to vindicate this particular claim.
Before we consider the various arguments made by the
parties, we must clarify the precise issue before this court. The
appellate court found the arbitration clause to be enforceable,
but the class action waiver to be unconscionable. This appeal
was brought by Cingular, to obtain review of the appellate
court=s ruling with regard to the class action waiver provision.
Plaintiff did not seek review of the ruling on the arbitration
clause itself. Thus, the enforceability of the arbitration clause
itself is no longer at issue. The issue in this appeal is whether
the class action waiver is unconscionable. That question,
however, cannot be answered without viewing the waiver
provision in the context of the service agreement as a whole
and against the backdrop of the precise claim made by the
plaintiff. See, e.g., Pierce v. Catalina Yachts, Inc., 2 P.3d 618,
624 n.28 (Alaska 2000) (stating that Athe legal issue of
unconscionability hinges on the totality of the circumstances@),
cited with approval in Razor, 222 Ill. 2d at 100.
The determination of whether a contract or a portion of a
contract is unconscionable is a question of law, which we
review de novo. Razor, 222 Ill. 2d at 99.
-17-
Procedural Unconscionability
AProcedural unconscionability refers to a situation where a
term is so difficult to find, read, or understand that the plaintiff
cannot fairly be said to have been aware he was agreeing to it
***.@ Razor, 222 Ill. 2d at 100, citing with approval Frank=s
Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill.
App. 3d 980, 989 (1980). This analysis also takes into account
the disparity of bargaining power between the drafter of the
contract and the party claiming unconscionability. Razor, 222
Ill. 2d at 100.
Frank=s Maintenance involved a dispute between two
business entities, an engineering firm and a supplier of steel
tubing. The seller=s warranty did not contain an arbitration
clause. Rather, the disputed provision was a limitation of the
seller=s liability for consequential damages. Frank=s
Maintenance, 86 Ill. App. 3d at 992-93. Because Frank=s
Maintenance involves generally applicable principles of Illinois
law, it is entirely appropriate that it be applied to determine
whether the class action waiver in the Cingular arbitration
clause is unconscionable.
In Razor, we cited portions of Frank=s Maintenance with
approval, but we did not quote at length from that opinion. We
do so now:
AProcedural unconscionability consists of some
impropriety during the process of forming the contract
depriving a party of a meaningful choice. [Citations.]
Factors to be considered are all the circumstances
surrounding the transaction including the manner in
which the contract was entered into, whether each party
had a reasonable opportunity to understand the terms of
the contract, and whether important terms were hidden
in a maze of fine print; both the conspicuousness of the
clause and the negotiations relating to it are important,
albeit not conclusive factors in determining the issue of
unconscionability. [Citation.] To be a part of the bargain,
a provision limiting the defendant=s liability must, unless
incorporated into the contract through prior course of
-18-
dealings or trade usage, have been bargained for,
brought to the purchaser=s attention or be conspicuous.
*** Nor does the mere fact that both parties are
businessmen justify the utilization of unfair surprise to
the detriment of one of the parties ***. [Citation.] This
requirement that the seller obtain the knowing assent of
the buyer >does not detract from the freedom to
contract, unless that phrase denotes the freedom to
impose the onerous terms of one=s carefully drawn
printed document on an unsuspecting contractual
partner. Rather, freedom to contract is enhanced by a
requirement that both parties be aware of the burdens
they are assuming. The notion of free will has little
meaning as applied to one who is ignorant of the
consequences of his acts.= [Citations.]@ Frank=s
Maintenance, 86 Ill. App. 3d at 989-90.
We note, in particular, our agreement with the proposition
that the issue of unconscionability should be examined with
reference to all of the circumstances surrounding the
transaction. In addition, the doctrine of unconscionability
should be at least as protective of individual consumers who
enter into contracts with commercial entities as it is of one
business that enters into a contract with another business.
See, e.g., Pierce, 2 P.3d at 623 (ACourts are more likely to find
unconscionability when a consumer is involved, when there is a
disparity in bargaining power, and when the consequential
damages clause is on a pre-printed form@), quoted with
approval in Razor, 222 Ill. 2d at 100.
The appellate court=s finding of procedural unconscionability
was based on several factors. First, the service agreement
containing the class action waiver was Aoffered in a form
contract on a take-it-or-leave it basis,@ which the appellate
court found was Aan important factor to consider.@ Second, the
appellate court quoted Frank=s Maintenance for the proposition
that Ain order to be a part of the parties= bargain, a contract
provision must be >bargained for, brought to the [consumer=s]
attention[,] or *** conspicuous.@ 357 Ill. App. 3d at 563, quoting
Frank=s Maintenance, 86 Ill. App. 3d at 990. Although the class
action waiver term in the arbitration provision may have been
-19-
brought to plaintiff=s attention by the capitalized portion of the
introductory paragraph at the top of the terms-and-conditions
page (357 Ill. App. 3d at 563-64), the appellate court concluded
that the arbitration clause containing the waiver provision could
not have been Aless conspicuous@ because it was Ahidden in a
maze of fine print where it was unlikely to be noticed, much
less read.@ (357 Ill. App. 3d at 563, 564). This, the appellate
court held, was Asufficient for a finding of procedural
unconscionability.@ 357 Ill. App. 3d at 564.
Cingular distinguishes Razor and Frank=s Maintenance on
their facts and argues that neither case supports a finding that
the class action waiver is procedurally unconscionable. In
Razor, a disclaimer of consequential damages was contained
in a warranty in the owner=s manual that was in the glove
compartment of the car when it was delivered to the buyer. We
concluded that Awhatever other context there might be in which
a contractual provision would be found to be procedurally
unconscionable, that label must apply to a situation such as the
case at bar where plaintiff has testified that she never saw the
clause; nor is there any basis for concluding that plaintiff could
have seen the clause, before entering into the sale contract.@
Razor, 222 Ill. 2d at 102. In Frank=s Maintenance, the language
limiting the plaintiff=s remedies was printed on the reverse side
of the sale contract. A clause directing the plaintiff=s attention to
the conditions printed on the reverse was stamped over,
suggesting that the obscured language was irrelevant and
could be ignored. Frank=s Maintenance, 86 Ill. App. 3d at 991-
92. These two cases are distinguishable from the present case,
Cingular argues, because the front of its service agreement
clearly refers to the terms and conditions printed on the back
and plaintiff indicated by her signature that she read and
accepted these terms.
Plaintiff responds that even though Razor may be factually
dissimilar to the present case, it is important authority for the
principle that unconscionability must be determined by
consideration of all of the circumstances surrounding the
transaction. Thus, plaintiff notes, the fact that the directing
clause had been obscured in the contract at issue in Frank=s
Maintenance was merely one relevant factor in the
-20-
unconscionability analysis, but it was not the sole basis for the
finding of procedural unconscionability. See Frank=s
Maintenance, 86 Ill. App. 3d at 991-92.
Considering the totality of the circumstances, we conclude
that the facts and circumstances of Razor and Frank=s
Maintenance are largely distinguishable from the present case.
Plaintiff did sign the front page of the service agreement and
she did initial an acknowledgment provision on the front of the
form, stating that she had read the terms and conditions on the
back. There is no dispute that the terms and conditions were in
her possession and she either read them or could have read
them if she had chosen to do so.
The Cingular service agreement is a contract of adhesion.
The terms, including the arbitration clause and the class action
waiver therein, are nonnegotiable and presented in fine print in
language that the average consumer might not fully
understand. Such contracts, however, are a fact of modern life.
Consumers routinely sign such agreements to obtain credit
cards, rental cars, land and cellular telephone service, home
furnishings and appliances, loans, and other products and
services. It cannot reasonably be said that all such contracts
are so procedurally unconscionable as to be unenforceable.
One fact, however, does make the arbitration clause in
Cingular=s service agreement similar to the disclaimer
invalidated in the warranty in Razor. The agreement plaintiff
signed obligated her to negotiate any claims in good faith and
to submit to arbitration if negotiations with Cingular were to fail.
However, the agreement did not put her on notice that she
would bear any of the costs associated with arbitration. The
agreement merely stated that Afee information@ was available
from Cingular or the AAA Aupon request.@ This statement,
incorporating by reference information that was not provided to
plaintiff at the time she signed the agreement, was in fine print
near the bottom of an 8 by 14 inch page that was filled, from
margin to margin, with text. This statement was not
emphasized in any way.
We conclude that there is a degree of procedural
unconscionability in the service agreement signed by plaintiff
because it did not inform her that she would have to pay
-21-
anything at all towards the cost of arbitration. She was merely
informed that Afee information@ was available Aupon request.@
This lack of information regarding the cost of arbitration is an
Aadditional fact particular to this case [which] tips the balance in
plaintiff=s favor@ (Razor, 222 Ill. 2d at 100), on the question of
procedural unconscionability of the contract of which the class
action waiver is a part. We do not find this degree of procedural
unconscionability to be sufficient to render the class action
waiver unenforceable, but it is a factor to be considered in
combination with our findings on the question of substantive
unconscionability.
Substantive Unconscionability
The appellate court found the class action waiver in the
Cingular service agreement to be substantively unconscionable
for two reasons. First, because the cost of litigating or
arbitrating a claim for $150 would have approached if not
exceeded the potential recovery, Aconsumers in the plaintiff=s
position are left without an effective remedy in the absence of a
mechanism for class arbitration or litigation.@ 357 Ill. App. 3d at
564. Second, the limitation is one-sided because commercial
entities like Cingular do not have occasion to sue their
customers as a class. That is, although both parties ostensibly
waived the ability to pursue a class action, the limitation
applies, in practice, only to prevent customers A >from seeking
redress for relatively small amounts of money.= @ 357 Ill. App.
3d at 565, quoting Szetela v. Discover Bank, 97 Cal. App. 4th
1094, 1101, 118 Cal. Rptr. 2d 862, 867 (2002).
This court has not had frequent occasion to define the term
Asubstantive unconscionability@ or to apply such a definition.
See, e.g., Streams Sports Club, Ltd. v. Richmond, 99 Ill. 2d
182, 191 (1983) (noting that a contract is unconscionable
Awhen it is improvident, oppressive, or totally one-sided,@ but
that Amere disparity in bargaining power is not sufficient
grounds to vitiate contractual obligations@). In Razor, we noted
only that substantive unconscionability refers to terms that are
Ainordinately one-sided in one party=s favor.@ Razor, 222 Ill. 2d
at 100.
-22-
Frank=s Maintenance contains a more detailed explanation
of the concept of substantive unconscionability, but that
explanation is of somewhat limited usefulness because it
focuses transactions between two commercial entities. See
Frank=s Maintenance, 86 Ill. App. 3d at 990-91 (ASubstantive
unconscionability concerns the question whether the terms
themselves are commercially reasonable@).
Our appellate court in Hutcherson v. Sears Roebuck & Co.,
342 Ill. App. 3d 109, 121 (2003), because it was applying
Arizona law under a choice of law provision, looked to a
decision of the Arizona Supreme Court for a definition of
substantive unconscionability. We find that definition apt:
ASubstantive unconscionability concerns the actual
terms of the contract and examines the relative fairness
of the obligations assumed. [Citation.] Indicative of
substantive unconscionability are contract terms so one-
sided as to oppress or unfairly surprise an innocent
party, an overall imbalance in the obligations and rights
imposed by the bargain, and significant cost-price
disparity.@ Maxwell v. Fidelity Financial Services, Inc.,
184 Ariz. 82, 89, 907 P.2d 51, 58 (1995).
Applying this definition of substantive unconscionability to
the alleged facts in this case, the issue is: whether a waiver of
the ability to bring a class claim is so onerous or oppressive
that it is substantively unconscionable when: (1) the waiver is
contained in a contract that contains a mandatory arbitration
provision, but does not reveal the cost of arbitration to the
claimant, (2) the cost will be $125, and (3) the underlying claim
involves actual damages of $150.
The nature of the underlying claim is also relevant to this
inquiry. Some claims will be obvious to the typical consumer.
For example, if a consumer is charged twice for the same
product or service, is charged for a product or service that was
not received, or is charged a fee that is not specified in the
contract, he or she can be expected to recognize such a claim.
An individual consumer can bring such a claim to the attention
of the other party and, if not satisfied with the response, may
be able to make his or her case in arbitration or in small claims
court without the assistance of an attorney.
-23-
Other claims, however, are not likely to be recognized, let
alone successfully argued in court or arbitration, without the aid
of an attorney. In the present case, the underlying claim is that
the $150 early termination fee is unenforceable as a penalty.
The typical consumer cannot be expected to know that:
A >Damages for breach by either party may be
liquidated in the agreement but only at an amount that is
reasonable in light of the anticipated or actual loss
caused by the breach and the difficulties of proof of
loss. A term fixing unreasonably large liquidated
damages is unenforceable on grounds of public policy
as a penalty.= @ H&M Commercial Driver Leasing, Inc. v.
Fox Valley Containers, Inc., 209 Ill. 2d 52, 71 (2004),
quoting Restatement (Second) of Contracts '356
(1981).
The typical consumer may feel that such a charge is unfair,
but only with the aid of an attorney will the consumer be aware
that he or she may have a claim that is supported by law, and
only with the aid of an attorney will such a consumer be able to
make the merits of such a claim apparent in arbitration or
litigation. Thus, when considering the Acost-price disparity@
factor (Maxwell, 184 Ariz. at 89, 907 P.2d at 58), of substantive
unconscionability, we must consider that the cost to plaintiff of
attempting to vindicate her $150 claim, in the absence of the
ability to bring a class claim, would be $125 plus her attorney
fees. As a result, if she were to prevail on the merits of her
claim and be awarded $150 in damages, it is an absolute
certainty that she would not be made whole.
Cingular makes four arguments on the issue of substantive
unconscionability. First, Cingular cites several cases from our
appellate court in support of its position that the standard for a
finding of substantive unconscionability is so Ademanding@ that
the facts of this case cannot meet it. Second, Cingular argues
that the appellate court improperly distinguished this case from
the facts of Hutcherson and Rosen v. SCIL, LLC, 343 Ill. App.
3d 1075 (2003). In both of these cases, the appellate court
found a class action waiver to be enforceable. Third, Cingular
states that the Aoverwhelming majority rule around the country@
is that class action waivers contained in arbitration provisions
-24-
are not unconscionable if the arbitration provision Aneither
requires the consumer to pay greater costs than he or she
would have to bear in court nor prohibits the arbitrator from
awarding a prevailing plaintiff her attorneys= fees under
applicable fee-shifting statutes.@ Cingular further states that its
original arbitration provision satisfies these conditions. Fourth,
Cingular argues that plaintiff=s ability to bring her claim in small
claims court is Aa recognized means of vindicating small
claims.@ At oral argument, counsel for Cingular made the
related argument that when the class action mechanism is not
available to consumers, as under its service agreement, the
public is still protected by the provision of the Consumer Fraud
Act, which allows the Attorney General to bring an action and
to compel a company to disgorge funds illegally obtained (815
ILCS 505/7 (West 2002)).
In support of its first argument, Cingular cites Basselen v.
General Motors Corp., 341 Ill. App. 3d 278, 288 (2003), for the
proposition that a contract is substantively unconscionable only
if its terms are Agrossly one-sided.@ In addition, Cingular cites In
re Estate of Croake, 218 Ill. App. 3d 124, 127 (1991), for the
proposition that a contract is substantively unconscionable if
Aonly one under delusion@ would make it. These two
descriptions of substantive unconscionability are accurate in
the sense that a contract that meets either of these
descriptions is surely unconscionable. We find these definitions
to be underinclusive and have adopted the Maxwell court=s
definition of substantive unconscionability as a more complete
statement of the doctrine.
We next address Cingular=s argument that the appellate
court=s decision in the present case is in conflict with the
decisions in Hutcherson and Rosen, both of which found class
action waivers to be enforceable. The Hutcherson court applied
Arizona law to a provision in a credit card agreement that
required the claimant to choose between small claims court or
arbitration of any claim. The agreement further provided that
the claimant could not participate as a representative or a
member of a class of claimants. The appellate court concluded
that this provision was not substantively unconscionable. In
reaching this conclusion, the appellate court considered
-25-
several cases from other jurisdictions (see Hutcherson, 342 Ill.
App. 3d at 121) that had found class action waivers
unconscionable. However, the court concluded that the
circumstances that led to the conclusion of unconscionability in
those cases was not present in the case before it. Hutcherson,
342 Ill. App. 3d at 122. Specifically, the arbitration provision
containing the class action waiver required the credit card
company to advance any fees required of the claimant by the
National Arbitration Forum and provided that the claimant could
not be required to refund the advanced fees unless the
arbitrator determined that the claim was frivolous. Thus, the
cost to the claimant of submitting a nonfrivolous claim to
arbitration would be minimal. Hutcherson, 342 Ill. App. 3d at
122.
In Rosen, another dispute between a credit cardholder and
the credit card company, the court noted that, A[a]s in
Hutcherson, the factors that were present in the cases in which
[class action limitations in] arbitration agreements were found
unconscionable are not present in this case.@ Rosen, 343 Ill.
App. 3d at 1082. Further, the plaintiff in Rosen presented
Aalmost no argument as to why@ the court should find the
provision unconscionable. Rosen, 343 Ill. App. 3d at 1082.
The appellate court distinguished the present case from
Hutcherson on the ground that the arbitration provision at issue
in that case Aprovided that the defendant creditor would
advance any arbitration fees required to be paid by the plaintiff
consumer ***. Each contract further provided that the
consumer would only be required to repay these expenditures
if an arbitrator determined that the consumer was required to
do so ***.@ 357 Ill. App. 3d at 567. Rosen was distinguished in
the same manner.
While we express no opinion on the merits of the judgments
rendered in Hutcherson and Rosen regarding the enforceability
of a class action waiver, we agree with the appellate court that
the present case is readily distinguishable from these two
cases.
Cingular next argues that the majority of jurisdictions that
have ruled on this issue have enforced class action waivers.
Under the reasoning of these decisions, Cingular asserts, the
-26-
class action waiver in its service agreement is not substantively
unconscionable given its Aoffer to bear all the costs of
arbitration and to reimburse successful claimants for their
attorney=s fees.@ In the present case, however, we are not
determining whether Cingular=s revised arbitration clause is
substantively unconscionable. Our focus is on the agreement
plaintiff signed in 2001.
In the alternative, Cingular argues that the class action
waiver in its original service agreement is not substantively
unconscionable. In support of this argument, Cingular cites
Rosen and Hutcherson, which we have already discussed, and
Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d
159 (5th Cir. 2004), in which, Cingular argues, the court of
appeals rejected a challenge to the identical provision that is at
issue in the present case.
In Iberia Credit Bureau, plaintiffs brought putative class
actions against several cellular telephone service providers,
including Cingular, alleging that certain deceptive billing
practices constituted breaches of contract and violations of the
Louisiana Unfair Trade Practices Act. The action was removed
to federal court on the basis of diversity. Louisiana state law
applied. Iberia Credit Bureau, 379 F.3d at 161-62.
Based on the portions of the Cingular service agreement
quoted by the court of appeals, it appears that the arbitration
clause at issue in Iberia Credit Bureau is the same clause that
is at issue in the present case. We note, however, that the
court of appeals stated that certain provisions of Cingular=s
arbitration clause, Asuch as the responsibility for the costs of
arbitration proceedings,@ were not at issue in the appeal. Iberia
Credit Bureau, 379 F.3d at 163 n.3. In the present case,
however, plaintiffs have argued that the cost of arbitration
proceedings is a relevant consideration in determining whether
the class action waiver is substantively unconscionable.
Under Louisiana law, a contract provision must Apossess
features of both adhesionary formation and unduly harsh
substance@ before it will be declared unconscionable. Iberia
Credit Bureau, 379 F.3d at 167. The plaintiffs attempted to
meet the procedural unconscionability prong of this
testBAadhesionary formation@Bby relying entirely on Cingular=s
-27-
use of fine print. The court of appeals found type size to be a
relevant consideration, but held that fine print alone does not
render an arbitration clause procedurally unconscionable,
particularly where the type used in the arbitration provision is
the same size as that used in the rest of the contract. Iberia
Credit Bureau, 379 F.3d at 172.
The court of appeals then examined the bar on class
actions contained in the Cingular arbitration clause. The
plaintiffs in Iberia Credit argued that the bar on collective
proceedings had Athe effect of immunizing the defendants from
low-value claims, no matter how meritorious those claims might
be,@ and that the arbitration clause was Anot so much an
alternative method of dispute resolution@ as it was Aa system
for avoiding liability altogether.@ Iberia Credit Bureau, 379 F.3d
at 174.
The court of appeals ultimately rejected this claim of
substantive unconscionability, stating:
AA highly relevant factor in considering the equities
of the arbitration clauses in this case is that the
Louisiana Unfair Trade Practices Act (LUTPA), which is
one basis of the plaintiffs= claims, does not permit
individuals to bring class actions. [Citations.] Although
this prohibition does not apply to plaintiffs= breach-of-
contract cause of action, it does significantly diminish
the plaintiffs= argument that prohibiting class
proceedings in consumer litigation is unconscionable
under Louisiana law. Moreover, LUTPA does permit the
state attorney general to sue on behalf of the state and
its consumers to pursue restitutionary relief on behalf of
a class of aggrieved consumers [Citations.]. This further
tends to show that the arbitration clause does not leave
the plaintiffs without remedies or so oppress them as to
rise to the level of unconscionability.@ Iberia Credit
Bureau, 379 F.3d at 174-75.
Further, the court of appeals observed that Cingular=s
arbitration clause expressly permitted customers Ato bring
inexpensive small-claims actions.@ Iberia Credit Bureau, 379
F.3d at 175 n.19.
-28-
We find Iberia Credit Bureau to be of interest, but we are
not persuaded to follow it. Illinois law differs significantly from
Louisiana law. First, we need not find both procedural and
substantive unconscionability to conclude that a contract
provision is unconscionable. Razor, 222 Ill. 2d at 99-100.
Because Louisiana law requires both, once the court
determined that Aadhesionary formation@ was not shown, any
discussion of Aunduly harsh substance@ was mere dicta.
Second, our Consumer Fraud Act, unlike Louisiana=s LUTPA,
does not bar a plaintiff from bringing his statutory claim both
individually and on behalf of a class of similarly situated
individuals. Thus, unlike the Louisiana consumer, the Illinois
consumer does lose the ability to be either the representative
of or a member of a class if the class action waiver is enforced.
As for the ability of the Attorney General to vindicate class
claims and the availability of small claims court, we address
these issues below.
Having examined the cases cited by the parties, we
conclude that it is not useful to do a simple head count of the
number of state courts to have ruled a certain way on class
action waivers. Each of these cases presents an application of
the law of a particular state, to a class action waiver in a
contract with other provisions that may affect the assessment
of the waiver itself, in the context of the arguments raised by
the parties to that case. We look to these cases, therefore, to
discern a pattern that might guide us.
Our research reveals that other state courts have
invalidated class action waivers when the contract containing
the waiver is burdened by other unfair features, rendering it
substantively unconscionable when taken as a whole. See,
e.g., Leonard v. Terminix International Co., 854 So. 2d 529,
538-39 (Ala. 2002) (finding arbitration clause unconscionable
because it is in a contract of adhesion that limits recovery of
Aindirect, special, and consequential damages@ and restricts
plaintiffs to Aa forum where the expense of pursuing their claim
far exceeds the amount in controversy,@ by foreclosing
Apractical redress through a class action and limiting them to a
disproportionately expensive individual arbitration@); Discover
-29-
Bank v. Superior Court of Los Angeles, 36 Cal. 4th 148, 162-
63, 113 P.3d 1100, 1110, 30 Cal. Rptr. 3d 76, 87 (2005)
(hereinafter Boehr) (stating in judicial dicta that class action
waivers are unconscionable Aat least under some
circumstances,@ such as Awhen the waiver is found in a
consumer contract of adhesion in a setting in which disputes
between the contracting parties predictably involve small
amounts of damages, and when it is alleged that the party with
the superior bargaining power has carried out a scheme to
deliberately cheat large numbers of consumers out of
individually small sums of money@); Aral v. Earthlink, Inc., 134
Cal. App. 4th 544, 564, 36 Cal. Rptr. 3d 229, 244 (2005)
(applying Boehr test to find class action waiver unconscionable
as applied to California consumer who sought to represent only
California consumers, whose individual claims amounted to
$40 or $50, where defendant allegedly engaged in scheme to
defraud, and where forum selection clause would have
required arbitration of all claims in Georgia); Klussman v. Cross
Country Bank, 134 Cal. App. 4th 1283, 1299, 36 Cal. Rptr. 3d
728, 740-41 (2005) (following test set out in Boehr to find a
class action waiver unconscionable when was not contained in
the parties= agreement, but was incorporated by reference to
the rules of the arbitral forum, which the customer could obtain
by calling an A800@ number); Szetela v. Discover Bank, 97 Cal.
App. 4th 1094, 1101, 118 Cal. Rptr. 2d 862, 867 (2002) (finding
class action waiver procedurally and substantively
unconscionable where the provision was Aclearly meant to
prevent customers *** from seeking redress for relatively small
amounts of money,@ and where if an individual customer does
obtain a remedy, it Awill only pertain to that single customer
without collateral estoppel effect@); Bellsouth Mobility LLC v.
Christopher, 819 So. 2d 171, 173 (Fla. App. 2002) (finding
arbitration clause substantively unconscionable where it limited
defendant=s liability to actual damages, Aeven if its conduct
rises to the level of outrageousness required to assess punitive
damages,@ removes exposure to class action suit even if class
treatment may be warranted, and binds the customer to
arbitration while allowing defendant the option of litigating some
claims, including collection of a debt); Powertel, Inc. v. Bexley,
743 So. 2d 570, 575-76 (Fla. App. 1999) (finding arbitration
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clause unconscionable based on Adeficiencies in the notice@ of
revised terms and fact that the clause forced customers to
Awaive important statutory remedies@ under state consumer
laws, effectively insulating defendant from liability, and where
Apotential claims are too small to litigate individually@); Whitney
v. Alltel Communications, Inc., 173 S.W.3d 300, 313-14 (Mo.
App. 2005) (arbitration clause was unconscionable where
dispute involved allegedly deceptive $0.88-per-month charge
applied to all customers= bills and where arbitration clause
prohibited class actions, required customer to bear costs of
arbitration, and prohibited award of incidental, consequential,
or exemplary damages, or attorney fees that would otherwise
be available under state law); Muhammad v. County Bank of
Rehoboth Beach, Delaware, No. AB39B05, slip op. at 3, 24
(N.J. August 9, 2006) (holding that class action waiver in
payday loan agreement is unconscionable Awhether in
arbitration or in court litigation,@ because such waivers can
Afunctionally exculpate wrongful conduct by reducing the
possibility of attracting competent counsel to advance the
cause of action@ where individual claims are small); State ex
rel. Dunlap v. Berger, 211 W. Va. 549, 566, 567 S.E.2d 265,
282 (2002) (holding that Aprovisions in a contract of adhesion
that if applied would impose unreasonably burdensome costs
upon or would have a substantial deterrent effect upon a
person seeking to enforce and vindicate rights and protections
or to obtain statutory or common law relief and remedies ***
under state law@ are unconscionable). See also Ting, 319 F.3d
at 1149-52 (applying California law as set out in Szetela to
conclude that the legal remedies clause in defendant=s form
contract was substantively unconscionable, not because it
required arbitration of all disputes, but because the class action
waiver therein lacked mutuality where carrier would not be
likely to bring a class action against its customers; the legal
remedies clause also sharply curtailed damages for intentional
torts, imposed secrecy on arbitration that benefitted the carrier
to the detriment of customers, and imposed costs on some
customers that would exceed the cost of bringing the same
claim in court); Laster v. T-Mobile USA, Inc., 407 F. Supp. 2d
1181, 1190 (S.D. Cal. 2005) (applying California law to find
arbitration clause containing class action waiver substantively
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unconscionable where plaintiffs alleged that defendant
companies charged customers sales tax on full retail value of
cellular phones that were advertised as free as part of a
scheme to deliberately cheat large numbers of customers out
of small sums of money).
None of these cases held class action waivers to be per se
unconscionable. Thus, a federal court applying West Virginia
law concluded that, under the rule announced in Dunlap, an
arbitration clause containing a class action waiver was not
unconscionable where there was no evidence that the costs of
arbitration would be prohibitive to the plaintiff, who sought more
than $75,000 in damages. Schultz v. AT&T Wireless Services,
Inc., 376 F. Supp. 2d 685, 690-91 (N.D. W.Va. 2005).
Other state courts have upheld the validity of class action
waivers, frequently relying on the principle of freedom of
contract or the premise that a class action is merely a
procedural device, which the parties may agree to forgo. See,
e.g., Strand v. U.S. Bank National Ass=n ND, 2005 ND 68, &21,
693 N.W.2d 918, 926 (finding Ano class action@ clause
procedurally unconscionable but not substantively
unconscionable because A[m]erely restricting the availability of
a class action is not, by itself, a restriction on substantive
remedies. The right to bring an action as a class action is
purely a procedural right@). In Strand, however, the arbitration
clause provided that arbitration would take place in the
customer=s home jurisdiction and that the bank would advance
the fees and costs for arbitration. In addition, the customer
would be entitled to an award of attorney fees if he prevailed at
arbitration. Thus, there was Aa chance@ that the customer
would Abe made whole through individual arbitration.@ Strand,
2005 ND 68 at &23, 693 N.W.2d at 926-27. Thus, Strand is
distinguishable from the present case. See also Rains v.
Foundation Health Systems Life & Health, 23 P.3d 1249, 1254
(Colo. App. 2001) (enforcing arbitration provision requiring
individual arbitration where plaintiff brought her claim as a class
action, because the legislature is better able to determine
whether to require class-wide arbitration in such cases or to
make an exception to the statutory scheme intended to
facilitate arbitration); Fonte v. AT&T Wireless Services, Inc.,
903 So. 2d 1019, 1025-26 (Fla. App. 2005) (under Florida law,
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both procedural and substantive unconscionability are required
to render contract unenforceable; thus, in absence of
procedural unconscionability, agreement is enforceable;
commentary that prohibition on class representation is
enforceable because it did not defeat any remedial purpose of
deceptive practices statute is dicta); Walther v. Sovereign
Bank, 386 Md. 412, 438-42, 872 A.2d 735, 750-53 (2005)
(enforcing Afreely-signed agreement to arbitrate that includes a
no-class-action provision which was conspicuously presented
as part of the arbitration clause,@ despite Alender=s failure to
disclose the fees associated with an arbitration,@ where
plaintiffs did not show the cost of arbitration to be Aunduly
burdensome@); Gras v. Associates First Capital Corp., 346 N.J.
Super. 42, 53, 786 A.2d 886, 892 (2001) (enforcing class
action waiver where arbitration agreement allows successful
plaintiff to achieve Aall statutory remedies@ under the state
consumer fraud act in the arbitral forum, including
compensation for actual loss, treble damages to punish the
wrongdoer, and attorney fees); Ranierei v. Bell Atlantic Mobile,
304 A.D.2d 353, 354, 759 N.Y.S.2d 448, 449 (2003) (rejecting
claim that class action waiver is unconscionable based on
strong public policy favoring arbitration and Aabsence of a
commensurate policy favoring class actions@); Pyburn v. Bill
Heard Chevrolet, 63 S.W.3d 351, 357-63 (Tenn. Ct. App. 2001)
(arbitration agreement is matter of consent of parties, who Acan
limit which issues will be arbitrated and specify the rules under
which the arbitration will be conducted@; class action waiver in
arbitration agreement is enforceable where plaintiff agreed to
waiver clause and fails to prove that cost of arbitration would
be greater than cost of litigation, and where plaintiff can
vindicate his statutory claims Aeffectively through arbitration
regardless of whether class action relief is available@; also
finding the class action waiver issue preempted by federal law
when the waiver is contained in an arbitration clause, even if
such waiver would Aviolate the intent@ of the state legislature);
and AutoNation USA Corp. v. Leroy, 105 S.W.3d 190, 200
(Tex. 2003) (AWhile there may be circumstances in which a
prohibition on class treatment may rise to the level of
fundamental unfairness, [plaintiff=s] generalizations do not
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satisfy her burden to demonstrate that the arbitration provision
is invalid here@).
If there is a pattern in these cases it is this: a class action
waiver will not be found unconscionable if the plaintiff had a
meaningful opportunity to reject the contract term or if the
agreement containing the waiver is not burdened by other
features limiting the ability of the plaintiff to obtain a remedy for
the particular claim being asserted in a cost-effective manner.
If the agreement is so burdened, the Aright to seek classwide
redress is more than a mere procedural device.@ Klussman, 36
Cal. Rptr. 3d at 738, 134 Cal. App. 4th at 1296. As the
Supreme Court noted in Deposit Guaranty National Bank v.
Roper, 445 U.S. 326, 63 L. Ed. 2d 427, 100 S. Ct. 1166 (1980),
AWhere it is not economically feasible to obtain relief
within the traditional framework of a multiplicity of small
individual suits for damages, aggrieved persons may be
without any effective redress unless they may employ
the class-action device.@ Deposit Guaranty, 445 U.S. at
339, 63 L. Ed. 2d at 440, 100 S. Ct. at 1174.
In Deposit Guaranty, the defendant bank attempted to
shield itself from liability to a potential class of approximately
90,000 customers by tendering to each plaintiff the maximum
amount that he or she might have recovered at trial. Over the
objections of the plaintiffs, the district court entered judgment in
their favor. Deposit Guaranty, 445 U.S. at 330, 63 L. Ed. 2d at
434, 100 S. Ct. at 1170. Thus, because no single plaintiff could
demonstrate a live case or controversy, no class could ever be
certified. The Court held that the defendant bank could not
moot the plaintiffs= claims in this manner and that they could
appeal the denial of class certification. Deposit Guaranty, 445
U.S. at 340, 63 L. Ed. 2d at 434, 100 S. Ct. at 1170.
Cingular similarly seeks to insulate itself from liability to a
potential class of customers by enforcing a class action waiver
in its standard service agreement. We find that under the
circumstances of this case, the class action waiver is
unconscionable and unenforceable. These circumstances
include a contract of adhesion that requires the customer to
arbitrate all claims, but does not reveal the cost of arbitration,
and contains a liquidated damages clause that allegedly
operates as an illegal penalty. These provisions operate
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together to create a situation where the cost of vindicating the
claim is so high that the plaintiff=s only reasonable, cost-
effective means of obtaining a complete remedy is as either the
representative or a member of a class.
We note that several other provisions of the arbitration
clause also burden an individual customer=s ability to vindicate
this claim. For example, the strict confidentiality clause that
prohibits Cingular, the claimant, and the arbitrator from
disclosing Athe existence, content, or results of any arbitration,@
means that even if an individual claimant recovers on the
illegal-penalty claim, neither that claimant nor her attorney can
share that information with other potential claimants. Cingular,
however, can accumulate experience defending these claims.
See, e.g., Ting, 319 F.3d at 1152 (finding that a strict
confidentiality clause contributes to the substantive
unconscionability of a contract term Aby ensuring that none of
[defendant=s] potential opponents will have access to
precedent while, at the same time, [defendant] accumulates a
wealth of knowledge@).
We express no opinion on the enforceability of Cingular=s
revised service agreement except to say that the enforceability
of a class action waiver, whether or not the contract provides
for mandatory arbitration, must be determined on a case-by-
case basis, considering the totality of the circumstances.
Relevant circumstances include the fairness and balance of the
contract terms, the presence of unfair surprise, and the cost of
vindicating the claim relative to the amount of damages that
might be awarded under the dispute resolution provisions of
the contract. See Maxwell, 184 Ariz. at 89, 907 P.2d at 58.
Availability of Small Claims Court or Regulatory Enforcement
The final sentence of the arbitration clause in Cingular=s
standard service agreement provides that, notwithstanding the
arbitration requirement, Aeither party may bring an action in
small claims court.@ Cingular argues that this option eliminates
the possibility that a customer will lack a cost-effective means
of vindicating a small claim. Cingular suggests that small
claims court is often a better option than a class action for the
resolution of small claims, citing Pulver v. 1st Lake Properties,
Inc., 681 So. 2d 965, 970 (La. App. 1996) (noting that a class
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action may lead to a Acomplicated lengthy legal embattlement,@
while an individual can resolve her claim in small claims court
Aexpeditiously and with minimum costs and fees@).
Pulver involved a failed attempt at class certification of a
class 700 to 1,000 tenants who may or may not have had
claims against their various landlords for damages as a result
of a flood. The court affirmed the denial of class certification on
the basis that the plaintiffs did not meet any of the
requirements for certification of a class. The individual claims
of the eight named plaintiffs were, however, within the
jurisdiction of the small claims court. Pulver, 681 So. 2d at 970.
Pulver is thus inapplicable to the present case. Indeed, the
quoted language from Pulver merely suggests a reason that an
individual plaintiff might opt out of a class action to pursue an
individual claim in small claims court. It does not support the
argument that, in the present case, small claims adjudication is
a cost-efficient means for plaintiff to vindicate her claim against
Cingular.
Cingular also relies on Jenkins v. First American Cash
Advance of Georgia, LLC, 400 F.3d 868, 879 (11th Cir. 2005)
(holding that, under Georgia law, contract provision allowing
access to small claims tribunal applies equally to both parties).
Cingular does not explain, however, how the mutual availability
of the small claims forum might render an otherwise
unconscionable contract provision enforceable.
Both parties call our attention to Iberia Credit Bureau.
Cingular states that the court of appeals Afocused on@ the
availability of small claims court when it rejected the plaintiff=s
argument that the class action waiver made it impossible for
individuals to pursue individual small claims. Plaintiff disputes
that this was a Afocus@ of the court of appeals since the
availability of small claims adjudication was not discussed in
the body of the opinion, but was merely referred to in a
footnote. Iberia Credit Bureau, 379 F.3d at 175.
We conclude that, given the particular facts and
circumstances of this case, the availability of a judicial forum
for individual small claims does not render the prohibition on
class treatment of plaintiff=s claim enforceable. In this case, the
small claims forum has the same limitations as the abritral
forum. Plaintiff, whose actual damages total $150, would have
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to pay a filing fee and hire an attorney to litigate her claim that
the early-termination fee is an illegal penalty. Indeed, the
gravamen of her complaint is that Cingular drafted the contract
terms with the intent to impose an illegal penalty for early
termination in such a manner as to make any challenge to the
fee cost-prohibitive in either arbitration or small claims court.
Similarly, we are not persuaded that the ability of the
Attorney General to bring an action under the Consumer Fraud
Act (815 ILCS 505/7 (West 2002)) renders the class action
waiver in the Cingular service agreement enforceable.
Although the Attorney General could challenge the early-
termination fee on behalf of the consumers of Illinois, she must
allocate scarce resources to a variety of issues affecting
consumers. There is no guarantee that the Attorney General
would find the particular claim raised by plaintiff to be a high
priority. If we were to conclude that the mere possibility of
governmental action were sufficient to overcome the
substantive and procedural flaws in Cingular=s class action
waiver, we would be denying plaintiff and other consumers any
remedy for the allegedly illegal $150 penalty, at least until the
Attorney General had the resources and the incentive to
pursue the issue. See, e.g., Deposit Guaranty, 445 U.S. at
338-39, 63 L. Ed. 2d at 440, 100 S. Ct. at 1174 (AThe
aggregation of individual claims in the context of a classwide
suit is an evolutionary response to the existence of injuries
unremedied by the regulatory action of government@ and noting
Aincreasing reliance on the >private attorney general= for the
vindication of legal rights@ via class actions).
Severability
The Cingular service agreement provides that A[i]f any
provision of this Agreement is found to be unenforceable by a
court or agency of competent jurisdiction, the remaining
provisions will remain in full force and effect.@ Nevertheless,
Cingular argues that the appellate court erred by severing the
class action waiver from the remainder of the arbitration
clause. Cingular suggests that the issue of severability was
decided without prior briefing by the parties and that both
parties unsuccessfully sought rehearing on the issue. Thus,
Cingular concludes, there is no justification for requiring the
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parties to engage in a class arbitration to which neither party
agreed and which neither party sought. In particular, Cingular
argues that Aclass actions are inherently inconsistent with the
streamlined nature of arbitration.@
Plaintiff responds that the appellate court merely applied
the plain language of the service agreement when it severed
the class action waiver. In addition, plaintiff notes that the
Supreme Court=s holding in Green Tree implicitly recognizes
the legitimacy of arbitral class actions. Green Tree, 539 U.S. at
453, 156 L. Ed. 2d at 423, 123 S. Ct. at 2407-08. Finally, the
adoption of rules and procedures for class arbitration by the
AAA indicates that class arbitration is entirely feasible.
Cingular replies that plaintiff is estopped from arguing in
favor of severance of the unenforceable class action waiver
because she argued in both the trial court and the appellate
court that the waiver was not severable from the remainder of
the arbitration clause. We note, however, that Cingular
apparently argued to the appellate court that the offending
clause was severable. 357 Ill. App. 3d at 568-69.
The appellate court offered three reasons for severing the
unconscionable clause from the remainder of the arbitration
provision. First, Athe provision requiring the arbitration of
disputes does not depend for its efficacy upon the provision
barring class relief. The claim can still be arbitrated if the
arbitrator is free to determine that class arbitration is
appropriate.@ 357 Ill. App. 3d at 569. Second, the agreement
has a severability clause, which reflects the parties= intent to
give effect to the valid portions of the contract. Third, the strong
policy in favor of enforcing arbitration agreements is best
served by preserving the valid portions of the agreement while
severing the unconscionable provision. 357 Ill. App. 3d at 569.
In Spinetti, the court of appeals considered whether an
unenforceable provision could be severed from an arbitration
clause in an employment agreement. Unlike the present case,
the agreement did not contain a severability clause. The
federal policy encouraging recourse to arbitration
notwithstanding, the court of appeals looked first to the state
law of contracts for the answer. Spinetti, 324 F.3d 214. Under
the applicable law, as enunciated in the Restatement (Second)
of Contracts '184, a court may sever the unenforceable portion
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of an agreement and enforce the remainder A >in favor of a
party who did not engage in serious misconduct if the
performance as to which the agreement is unenforceable is not
an essential part of the agreed exchange.= @ Spinetti, 324 F.3d
219, quoting Restatement (Second) of Contracts '184, at 30
(1981).
This court has not had occasion to consider this section of
the Restatement, but our appellate court has long relied on the
principle that an entire contract or a clause therein fails if the
stricken portion constitutes an essential term of the contract or
clause, but the remainder stands if the stricken portion is not
essential to the bargain. See People v. McNett, 361 Ill. App. 3d
444, 448 (2005), citing Restatement (Second) of Contracts
'184 (1981); Stamatakis Industries, Inc. v. King, 165 Ill. App.
3d 879, 889 (1987) (same); Dryvit Systems, Inc. v. Rushing,
132 Ill. App. 3d 9, 12 (1985) (same). See also Muhammad, slip
op. at 31-33 (concluding that once the unconscionable class
action waiver is removed, the remainder of the arbitration
agreement is enforceable as a matter of state law). We
agree with the appellate court that the existence of a
severability clause and the strong public policy in favor of
enforcing arbitration agreements weigh in favor of enforcing the
arbitration clause without the offending class action waiver.
Cingular, the party that drafted the contract containing the
severability clause, has not persuaded us that the class action
waiver was essential to its making of the agreement. We,
therefore, affirm the appellate court=s ruling on the issue of
severability.
CONCLUSION
In sum, we hold that under the circumstances of this case,
the waiver on class actions is unconscionable. It is not
unconscionable merely because it is contained in an arbitration
clause. It is unconscionable because it is contained in a
contract of adhesion that fails to inform the customer of the
cost to her of arbitration, and that does not provide a cost-
effective mechanism for individual customers to obtain a
remedy for the specific injury alleged in either a judicial or an
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arbitral forum. We further hold that the offending clause is
severable from the arbitration clause.
We do not hold that class action waivers are per se
unconscionable. It is not unconscionable or even unethical for
a business to attempt to limit its exposure to class arbitration or
litigation, but to prefer to resolve the claims of customers or
clients individually. Indeed, it has been suggested that, as a
matter of economic theory, consumers may benefit from
reduced costs if companies are allowed to engage in this
strategy. See, e.g., J. Sternlight & E. Jensen, Using Arbitration
to Eliminate Consumer Class Actions: Efficient Business
Practice or Unconscionable Abuse?, 67 Law & Contemp.
Probs. 75, 92-99 (2004). The unconscionability of class action
waivers must be determined on a case-by-case basis,
considering the totality of the circumstances.
For the foregoing reasons, we affirm the judgment of the
appellate court, which reversed the judgment of the circuit
court, and remanded the cause to the trial court for further
proceedings.
Appellate court judgment affirmed.
CHIEF JUSTICE THOMAS and JUSTICE BURKE took no
part in the consideration or decision of this case.
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