Recently, a federal magistrate allowed a putative class action plaintiff to serve discovery regarding a defendant’s consumer arbitrations as part of an effort to invalidate a class waiver in an arbitration clause. In Newton v. Clearwire Corp., No. 2011-CV-00783-WBS-DAD (E.D. Cal. Sept. 23, 2011), the plaintiff is pursuing California consumer fraud, contract, unjust enrichment, and injunctive relief claims based on the internet service provider illegally throttling customers’ internet connection speeds. The defendant moved to compel arbitration, but the court allowed the plaintiff “limited” discovery regarding the defendant’s arbitration and litigation experience with customers. At issue were interrogatories seeking information regarding the number of instances of Clearwire or customers initiating arbitration or non-arbitration proceedings and the outcomes of those proceedings. Slip Op. at 2-3. Note that the magistrate refused to compel production of all documents relating to Clearwire’s policies and procedures for arbitration disputes.
The magistrate granted the plaintiff’s motion to compel, accepting arguments that such information relates to the plaintiff’s substantive unconscionability argument. The plaintiff urged that such information may show the provision is unconscionable because it produces “overly harsh or one-sided results.” Id. at 5. It is not clear from the decision how plaintiff intends to use the information she receives. It seems very likely that she may contend that arbitration is “one-sided” if consumers frequently or overwhelmingly lose in those proceedings. Alternatively, she may argue that the results are unduly harsh if arbitrators award Clearwire fees and costs at some level that plaintiff believes is excessive. If this interpretation is accurate, this decision presents a departure from unconscionability jurisprudence in a manner that allows plaintiffs to inflate discovery expenses while trying to circumvent the straightforward application of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).
The traditional notion of one-sided provisions truly considers whether one party receives benefits the other does not. For example, does the provision require a consumer to pursue arbitration but excuses the business from it? Does the provision require arbitration of claims an employee would bring (e.g., discrimination, unpaid overtime) but allow court proceedings for an employer’s typical claims (e.g., trade secret misappropriation)? May the business seek repayment of fees if the consumer’s claim is frivolous but the provision is silent as to the consumer’s ability to recover fees? If your client’s arbitration provision contains these types of one-sided provisions, you should modify their agreement.
Even if 100% of arbitrated claims result in awards in favor of the business, however, that does not mean the results are “overly harsh or one-sided.” It may be that the business operates fairly and only non-meritorous claims are arbitrated. Likewise, the business may quickly pay reasonable claims—saving all involved the time and expense of arbitration—but chooses to fight frivolous claims. In sum, the number of claims tried or arbitrated and a summary of the outcomes are not meaningful data alone. That is akin to concluding that the American judicial system is unfair to plaintiffs because less than 5% of civil cases reach trial; by itself, that statistic is meaningless if you’re evaluating the system’s fairness. Moreover, as we can imagine, a court embarking on this type of after-the-fact evaluation of arbitrated or tried claims puts itself in the untenable position of reviewing the entirety of those earlier proceedings, including the evidence presented and the arguments made.
Unfortunately, we should expect more plaintiffs to serve and move to compel such discovery as they try to avoid the impact of Concepcion. Typically, however, courts (even those applying California law) take a more reasonable approach when evaluating substantive unconscionability. Rather than trying to dissect the results of past arbitrations, courts usually examine the arbitration provision and evaluate how it will apply to this dispute. For example, the court in Saincome v. Truly Nolen of America, Inc., No. 3:11-CV-00825-JM-BGS (S.D. Cal. Aug. 3, 2011), rejected a variety of unconscionability arguments in an employment dispute. It considered the provision’s language and the disputes it covered, eventually rejecting the plaintiff’s substantive unconscionability arguments (though it refused to rule that the plaintiff could not bring a collective FLSA arbitration). Even more to the point, the court in Meyer v. T-Mobile USA Inc., No. C 10-05858 CRB (N.D. Cal. Sept. 23, 2011)—decided the same day as Newton—refused to allow discovery regarding prior arbitrations. That plaintiff sought discovery relating to all of T-Mobile’s customer disputes for a seven-year period, even if the subject arbitration clause did not apply to them. Unlike the magistrate in Newton, that district judge in Meyer agreed that evaluating the fairness of an arbitration provision involves a narrow inquiry: “[T]he only arbitration agreement at issue is the 2008 agreement, and the documents relevant to determining the validity of that arbitration agreement—the 2008 Service Agreement, T&C [terms and conditions] and arbitration agreement—are already accessible by the parties and the Court.”
Defense lawyers know that we’ll encounter this type of discovery, so be prepared to explain to your judge, magistrate, or discovery master why it is irrelevant to determining if the provision is substantively unconscionable. Focus the court on the arbitration provision’s language and how this plaintiff’s arbitration will proceed. Before you reach that stage, this also is a good reminder to touch base with your clients about ensuring their arbitration clauses are not one-sided so that you’re not focusing the court’s attention on unhelpful language.