Verizon class action bound by arbitration clause, Appellate Court of

St. Louis Daily Record & St. Louis Countian, Jan 12, 2005 by Emily Umbright

The Appellate Court of Illinois, Fifth District, wrapped a lasso around a Madison County class-action lawsuit last Thursday and tossed it into arbitration.

The decision came as Verizon Wireless sought realization of its arbitration clause found in the contract it held with customer Dawn Zobrist, who filed complaints against the wireless service provider in March 2003 on behalf of people who, like her, wanted out of a one- or two-year service contract but had to pay a $175 early cancellation penalty.

The arbitration clause provided that any claim arising out of the service agreement, except a Verizon claim dealing with nonpayment, shall be settled by means of arbitration in accordance with the American Arbitration Association's Commercial Arbitration Rules. As for the costs of the process, the provision stated each party would pay their own way and split the cost of the arbitrator.

A Madison County trial court previously denied Verizon's motion to compel arbitration because Zobrist's claims did not fit within the terms of the clause and because the clause prevented Zobrist from obtaining attorney fees under the Illinois Consumer Fraud and Deceptive Business Practices Act. Additionally, the trial court declared the arbitration clause procedurally and substantively unconscionable and concluded the contract allowed the parties to pursue their claims in small claims court.

As of the time that the opinion was written, the trial court had not ruled on Verizon's motion to reconsider, which claimed that the company did not receive notice that the court's order had been drafted by the Zobrist's attorney and therefore did not have a chance to respond, among other errors.

On appeal, Verizon argued that the clause encompassed Zobrist's claims and that an arbitrator should decide whether the dispute is suitable for arbitration.

Specifically, Verizon contended that because the arbitration clause covered any claim, actions brought under the Consumer Fraud and Deceptive Business Practices Act for attorney fees must be included within that scope. Furthermore, it argued, an arbitrator could award attorney fees under the act, even though the clause required each party to pay their own costs, because costs and attorney fees are two different things.

The appellate court agreed in an affirmation of the Illinois Supreme Court findings in Donaldson, Lufkin & Janrette Futures Inc. vs. Barr, which held that the issue of arbitrability should initially be left up to the arbitrator in situations where there is some question regarding whether the issue fits within the broad confines of the arbitration clause.

We recognize that this decision has the potential of returning to our court and that, therefore, we might yet have to address the issues raised by the parties. However, this is not the time in which we should do so, Justice Clyde L. Kuehn wrote for the court. Arbitration is favored, and this decision is in keeping with the intent of the Uniform Arbitration Act, as expressed by the supreme court in [Barr].

The Fifth District also dismissed the notion that Zobrist would incur excessive costs if she were to proceed to arbitration.

We find that in this particular factual setting, the excessive- costs argument was improperly utilized as a foundation for declaring that the agreement was invalid, Kuehn wrote, noting that the AAA caps plaintiff's costs at $125.

Additionally, the appellate court refuted the unconscionable labels.

The trial court based its procedurally unconscionable findings on the facts that the arbitration clause was located in a brochure separate from the actual contract and that Zobrist lacked a way to negotiate the clause. However, that is not enough to deem it unconscionable, the appellate court found, because, according to Koveleskie vs. SBC Capital Markets Inc., fraud must be established.

In its order, the trial court presumes fraud simply because the plaintiff included such an allegation in her complaint and because her attorneys argued the point in response to Verizon's motion to compel arbitration, Kuehn explained. From our view of the record on appeal, there was no evidence of fraudulent conduct on Verizon's part in its inclusion of the arbitration provision presented to the trial court.

Likewise, the appellate court held for the trial court's findings of substantively unconscionability, which were rooted in the provision that allowed Verizon to go outside of arbitration for nonpayment claims but confined plaintiffs to stay within arbitration bounds for claims against the company.

The American Arbitration Association's consumer supplement provides that irrespective of Verizon's arbitration clause, the plaintiff is allowed to bring any claim against Verizon, for an amount less than $5,000, in small claims court, Kuehn noted. Additionally, the lack of identical arbitration provisions is not a ground for an automatic invalidation of the arbitration clause, as the court found in Bishop vs. We Care Hair Development Corp.

However, the appellate court denied Zobrist and her class the small claims court route because the court clerk classified her lawsuit as a law division claim rather than a small claims suit.