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Wireless contract 'unconscionable'

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A federal court in San Francisco has decided that AT&T's wireless contract is "unconscionable".

On Friday, the US Court of Appeals for the Ninth Circuit came out against AT&T's "arbitration clause," which forbids wireless customers from bringing class-action suits against the company.

Arbitration clauses are quite common in the US, as companies do their darndest to bury expensive consumer suits before they even get started, and the new ruling could go a long way towards curbing the practice.

"The Ninth Circuit is saying that AT&T - or companies like AT&T - are not allowed to force consumers to waive what it regards as a fundamental constitutional right," Jeffrey Glassman, a lawyer with the California firm Moldo, Davidson, Fraioli, Seror & Sestanovich, told The Reg.

In February of last year, AT&T customer Kenneth Shroyer brought a class-action suit against the company on behalf of AT&T customers everywhere, claiming he had "suffered injuries" thanks to the company's behavior in the wake of its merger with wireless provider Cingular. His claims include breach of contract and untrue advertising, among others.

According to Shroyer, his wireless service significantly deteriorated after the merger. When he complained, the company told him he needed a new chip for his phone. But it wouldn't let him install the chip without signing a new agreement with the company, and in doing so, he unknowingly agreed to the arbitration clause.

Such a clause prevents consumers from exercising various legal rights, including class actions, forcing them to enter arbitration with companies outside the courts.

"This is a standard clause that a lot of companies put in their agreements because they don't want to deal with the hassles and the expense and the risk of getting sued by their employees and their customers and their vendors," Glassman said. "In signing it, you waive your right as a consumer to have a trial by jury or have judge hear your arguments."

So, when Shroyer's suit landed in federal court, it was dismissed. But, on appeal, the Ninth Circuit has now ruled that AT&T's arbitration clause is invalid under California law.

"We hold that the waiver is unconscionable, and, thus, unenforceable, and that the invalidation of the contract provision is not preempted by the Federal Arbitration Act," Judge Stephen Reinhardt wrote. "Accordingly, we reverse the district court's order compelling arbitration."

Such clauses are governed on a state-by-state basis, but a ruling from a court that sits one notch below the US Supreme Court could play a big role in shaping decisions across the country.

"The Ninth Circuit has been a legal trend setter in many ways, with various laws," Glassman said. "When they come down with a decision like this, more often than not, other circuits are going to be following."

Of course, you can bet that AT&T will battle this thing to the very end. "I anticipate that the company will do everything it can to get rid of this opinion," Shroyer's lawyer, Michael Kelly, told us. "If our suit is successful, it will provide monetary relief for probably tens or hundreds of thousands of AT&T customers, and it would surprise if the company didn't continue to vigorously fight it." ®

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