498 F.3d 1216 (11th Cir. 2007), 06-15516, Dale v. Comcast Corp.

Docket Nº:06-15516.
Citation:498 F.3d 1216
Party Name:Gene DALE, Marrell Waring, et al., Plaintiffs-Appellants, v. COMCAST CORPORATION, Defendant-Appellee.
Case Date:September 04, 2007
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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Page 1216

498 F.3d 1216 (11th Cir. 2007)

Gene DALE, Marrell Waring, et al., Plaintiffs-Appellants,

v.

COMCAST CORPORATION, Defendant-Appellee.

No. 06-15516.

United States Court of Appeals, Eleventh Circuit.

September 4, 2007

Page 1217

Anne Ware Lewis, Frank B. Strickland, Mary M. Brockington, Strickland, Brockington, Lewis, LLP, Kevin Trent Moore, Kevin Trent Moore, P.C., William Allen Pannell, William A. Pannell, P.C., Atlanta, GA, for Plaintiffs-Appellants.

Nolan C. Leake, Ranse M. Partin, King & Spalding, LLP, Atlanta, GA, Jaime A. Bianchi, White & Case, LLP, Miami, FL, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before DUBINA and BLACK, Circuit Judges, and RESTANI, [*] Judge.

BLACK, Circuit Judge:

Plaintiffs-Appellants are Georgia residents and subscribers of defendant Comcast Corporation (Comcast), a cable television provider. The subscribers filed a class action lawsuit against Comcast alleging violations of state law based on the Cable Communications Policy Act of 1984, 47 U.S.C. § 521 et seq. (Cable Act). The district court dismissed the action and compelled arbitration, finding the subscribers had entered into binding arbitration agreements with Comcast. After oral argument and a careful review of the record, we find the arbitration agreements unenforceable and reverse and remand to the district court for further proceedings.

I. BACKGROUND

The Cable Act authorizes local governments to charge cable operators a franchise fee for the use of public rights-of-way, provided the fee does not exceed five percent of the cable operator's gross revenue. 47 U.S.C. § 542(a), (b). The Act permits cable operators, in turn, to pass the franchise fees through to their subscribers. See id. § 542(c). The Act also requires cable operators to "pass through ... the amount of any decrease in a franchise fee." Id. § 542(e).

The subscribers allege Comcast calculates its "pass-through" franchise fees by

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using estimates of future revenue from advertising sales and home-shopping channel commissions. The subscribers contend that by using these estimates, Comcast charges its customers more than it actually pays in franchise fees based on actual revenues, in violation of 47 U.S.C. § 542. They claim Comcast retains the excess franchise fees even though they never consented to Comcast's estimated calculation of the "pass through" fees or to its retention of the excess fees.

On December 12, 2005, Dale, as class action representative, filed a complaint in state court asserting claims of "unjust enrichment" and "money had and received." The class seeks an accounting of funds wrongfully withheld, repayment of excess franchise fees, and declaratory and injunctive relief. Comcast removed the action to federal court and filed a motion to compel arbitration and dismiss, arguing the subscribers' individual claims were governed by written arbitration agreements.

In its motion, Comcast argued that each subscriber received its 2004 "Policies and Procedures, " an annual notice containing a mandatory arbitration provision, with his or her December invoice or in a welcome kit given to each new subscriber at the time of service installation. The arbitration section in the notice, titled "Mandatory & Binding Arbitration" (the Arbitration Provision), provides that either the subscriber or Comcast may elect to arbitrate a dispute rather than litigate the dispute in court. The Arbitration Provision also contains a class action waiver clause prohibiting subscribers from bringing claims on a class action or consolidated basis. The waiver states:

All parties to the arbitration must be individually named. There shall be no right or authority for any claims to be arbitrated or litigated on a class-action or consolidated basis or on basis [sic] involving claims brought in a purported representative capacity on behalf of the general public (such as a private attorney general), other subscribers, or other persons similarly situated.

Comcast argued the subscribers accepted the Arbitration Provision, including the class action waiver, by their continued subscription to Comcast's services after receiving the notices.

In response to Comcast's motion to compel arbitration and dismiss, the subscribers disputed having received the 2004 "Policies and Procedures" or having agreed to the Arbitration Provision, and they requested a jury trial on the issue of whether they each had entered into an arbitration agreement with Comcast. They also argued that, even if the Arbitration Provision constituted an agreement to arbitrate, the class action waiver was unconscionable and therefore unenforceable as a matter of law.

On September 19, 2006, the district court granted Comcast's motion to compel arbitration and dismiss and denied the subscribers' request for a jury trial. The court found the Arbitration Provision was binding and the class action waiver was not unconscionable. The subscribers timely appealed arguing, inter alia, the district court erred in failing to find the class action waiver unconscionable and in granting Comcast's motion to compel arbitration and dismiss.1 We find merit in the subscribers' arguments and reverse and remand

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to the district court for further proceedings.

II. DISCUSSION

We review the district court's grant of Comcast's motion to compel arbitration and dismiss de novo. Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1368 n.6 (11th Cir. 2005). The issue presented is whether the Arbitration Provision's class action waiver is unconscionable under Georgia law and thus unenforceable as a matter of law.2 If it is, then pursuant to the Arbitration Provision's severability clause, the entire Arbitration Provision is unenforceable, and the subscribers can maintain their action in federal court.3

Under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA), written agreements to arbitrate a dispute arising out of a transaction involving commerce are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Id.§ 2. "The FAA allows state law to invalidate an arbitration agreement, provided the law at issue governs contracts generally and not arbitration agreements specifically." Bess v. Check Express, 294 F.3d 1298, 1306 (11th Cir.2002). Thus, "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902 (1996).

Here, the subscribers argue Comcast's class action waiver is unenforceable as a matter of law because it is unconscionable under applicable Georgia law. "[T]he basic test for determining unconscionability is 'whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.' " NEC Techs., Inc. v. Nelson, 267 Ga. 390, 478 S.E.2d 769, 771 (1996) (quoting U.C.C. § 2-302 cmt. 1). 4 Georgia law recognizes both procedural and substantive unconscionability. Id. "Procedural unconscionability addresses the process of making [a] contract, while substantive unconscionability looks to the contractual terms themselves." Id. To determine substantive unconscionability, courts focus on "matters such as the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns." Id. at 772.

The subscribers argue Comcast's class action waiver...

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