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Shroyer v. New Cingular Wireless Services, Inc.

    Brief Fact Summary.

    Shroyer sued New Cingular Wireless Services, Inc. (Cingular) in a class action lawsuit despite having signed an arbitration agreement with Cingular.

    Synopsis of Rule of Law.

    A procedurally and substantively unconscionable class arbitration waiver is not enforceable.

    Facts.

    Shroyer’s cellular phone service with AT&T dwindled after AT&T merged with Cingular Wireless Services, Inc. (Cingular). Shroyer sought individual plans with Cingular at the advice of AT&T. Cingular’s terms and conditions included an arbitration clause that required all disputes to be handled by arbitration rather than class action lawsuits. In 2006, Shroyer sued Cingular alleging that the company guaranteed better wireless service if consumers signed an extension contract with Cingular. The district court granted Cingular’s motion to compel arbitration. Shroyer appealed.

    Issue.

    Whether an unconscionable class arbitration waiver is enforceable?

    Held.

    No. Arbitration may not be compelled because the arbitration contract is one of adhesion drafted by Cingular, cellular phone contracts involve small amounts of damages, and Shroyer claims that Cingular cheated consumers out of small amounts of money by claiming that consumer’s cellular service will only improve if they sign an extension contract with Cingular.

    Discussion.

    Arbitration is binding unless there are grounds for arbitration. In order for arbitration to be revocable on grounds of unconscionability, the arbitration clause must be substantively and procedurally unconscionable. Procedural unconscionability exists if there is unequal bargaining power between the parties and substantive unconscionability exists if there are one-sided results. To determine whether an arbitration agreement is unconscionable, a three-part test exists: (1) The contract is one of adhesion drafted by the party with superior bargaining power, (2) The agreement involves disputes regarding small amounts of damages, and (3) the agreement deprives customers of pursuing small, individual claims.


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