Dale v. Comcast Corp.

• Decision Date: 04 September 2007
• Docket Number: No. 06-15516.,06-15516.
• Citation: 498 F.3d 1216
• Parties: Gene DALE, Marrell Waring, et al., Plaintiffs-Appellants, v. COMCAST CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

498 F.3d 1216

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.

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 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 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 is substantively unconscionable.⁵ They claim both the United States Supreme Court and this Court have recognized that public policy supports the need for class actions for certain types of claims. See, e.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 2246, 138 L.Ed.2d 689 (1997) ("The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights." (internal quotation omitted)); In re Charter Co., 876 F.2d 866, 871 (11th Cir.1989) ("[T]he effort and cost of investigating and initiating a claim may be greater than many claimants' individual stake in the outcome, discouraging the prosecution of these claims absent a class action filing procedure."). The subscribers argue that if Comcast's class action waiver is held valid, they will effectively be denied any remedy. If successful on their claims, the subscribers individually stand to recover a very small amount. For example, the subscribers contend that in Fulton County, during January, February, and March 2005, Comcast charged its subscribers $629,000 in franchise fees, but paid only $590,000 to the local government. This resulted in a total overcharge of $39,000 or $0.66 per subscriber (that is, $39,000 divided by an estimated 58,900 Fulton County subscribers). Over the applicable four-year statute of limitations period, the subscribers estimate Comcast charged them $10.56 each in excess fees (that is, $0.66 each three-month period for four years).

The subscribers also explain that even though the Arbitration Provision requires Comcast to advance arbitration filing fees and the arbitrator's cost and expenses upon written request, it holds the subscribers responsible for additional costs, including fees for attorneys and expert witnesses. Comcast will only pay those fees and costs which it is required to pay by law. If Comcast prevails, the Arbitration Provision further requires the subscribers to reimburse Comcast for advanced fees up to the amount the subscribers would have paid to file the claim in state court.⁶ The subscribers maintain that, given the potential recovery when compared to the cost of arbitration, a single plaintiff would...