In a recent 2-1 split decision, the Ninth Circuit reversed a district court's decision and sent a putative class action against Vonage America Inc. ("Vonage"), a voice-over Internet company, to arbitration. The case wound up in the Ninth Circuit after Judge Christina Snyder of the U.S. District Court for the Central District of California denied Vonage's Motion to Compel Arbitration.
The Complaint, which was initially filed in California state court in September 2013 and later removed to federal district court, charged Vonage for pilfering money from its customers. Specifically, the Complaint alleged that Vonage billed its customers for a monthly "Government Mandated Taxes and Fees" of $4.75 for a "County 911 Fee," despite the fact that no government agency mandated such a fee.
In its brief to compel arbitration, Vonage called the Court's attention to the Terms of Service ("TOS") agreement, which included a mandatory arbitration provision. The TOS also contained a "class action waiver," prohibiting customers from pursuing an action as a class in future arbitration proceedings. Vonage contended every customer who signed up for its services agreed to the TOS as part of the subscription process and, thus, must be bound by the terms of the TOS. To further its position, Vonage placed particular emphasis on the case, AT&T Mobility LLC v. Concepcion 563 U.S. 344 (2011). There, the U.S. Supreme Court found that the Federal Arbitration Act ("FAA") preempted state laws that prohibited contracts from disallowing class-wide arbitrations on the basis that the "overarching purpose of the FAA was to ensure the enforcement of arbitration agreements according to their terms so as to streamline proceedings." However, generally applicable contract defenses, including unconscionability, are available to invalidate an arbitration clause without contravening the FAA mandate. As a result, the crux of Plaintiffs' position was that the TOS was unconscionable.
Unfortunately for the Plaintiffs, the Ninth Circuit sided with Vonage and enforced the TOS because it determined that the TOS "was [not] substantively unconscionable and thus [could not] be rendered invalid under California law."
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