A group of Verizon Wireless customers filed a class-action lawsuit in federal court in California, challenging hidden fees on their wireless service bills. Invoking a mandatory arbitration provision in its Customer Agreement, Verizon moved to compel the consumers to file their claims in arbitration. The district court denied Verizon’s motion, holding that several aspects of the Customer Agreement were unconscionable under California contract law and that the arbitration provision was accordingly unenforceable. The court further held that the Federal Arbitration Act, which requires courts to enforce an arbitration agreement unless it is invalid under generally applicable principles of contract law, did not preempt the unconscionability principles that invalidated the arbitration agreement. Verizon then appealed.
In the Ninth Circuit, Public Citizen filed an amicus brief supporting the district court’s judgment. The brief explains that the district court correctly held that the arbitration provision was unconscionable in at least two respects. First, the provision generally allows no more than ten consumers at one time to file similar claims in arbitration if they are represented by the same lawyer. That provision is unconscionable under California law because it creates the risk of substantial delay and burdens consumers’ right to engage the attorney of their choice. Second, by purporting to waive consumers’ right to bring claims for “public injunctive relief,” a substantive state-law remedy that aims to protect the public at large from unlawful business practices, the provision is unenforceable under the California Supreme Court’s decision in McGill v. Citibank, N.A. As the U.S. Supreme Court’s recent opinion in Viking River Cruises v. Moriana confirms, the Federal Arbitration Act does not require enforcement of contractual provisions that impermissibly waive state substantive rights; it only preempts state-law procedural rules that are inconsistent with enforcing those rights in arbitration.