On October 27, 2009, the Ninth Circuit issued an opinion in Laster v. AT&T Mobility LLC concluding a class action waiver used by AT&T in connection with a “free phone” sales promotion was unconscionable under California law.
Significantly, AT&T sought to distinguish it’s class action waiver from the pack by including a provision providing consumers the potential to collect a premium contractual payment of $7500 (the maximum amount of a small claims claim in California). However, as noted by the Court, the consumer would receive this payment “only if AT&T does not make a settlement offer to the aggrieved customer in a sum equal to or higher than is ultimately awarded in arbitration, and before an arbitrator is selected.” The Court reasoned that this provision did not overcome the "small damage" claim issue that rendered similar provisions substantively unconscionable in prior decisions such as Shroyer v. New Cingular Wireless Servs., 498 F.3d 976 (9th Cir. Cal. 2007) and Discover Bank v. Superior Court, 36 Cal. 4th 148 (Cal. 2005), as “AT&T will simply pay the face value of the claim before the selection of an arbitrator to avoid potentially paying $7,500.”
Under authority such as Discover Bank and Shroyer, class action waivers have been deemed substantively unconscionable because the class action mechanism provides incentive to bring small damage claims, and as such, is necessary for adjudication of consumer rights. As explained by the California Supreme Court, the class action mechanism is not simply a procedural device when small damages are alleged, as the class mechanism in such cases is “inextricably linked to the vindication of substantive rights.” See Discover Bank v. Superior Court, 36 Cal. 4th 148, 161 (2005).