"It is an enormous victory for the consumers in this case," said Paul Bland, one of the plaintiff's attorneys with Public Justice in Washington, D.C. "It's an extremely important case not only for consumers in Washington but throughout the country."
Michael McKee of East Wenatchee filed a class-action suit against AT&T Corp. in 2003, alleging that it wrongly charged him and others for city utility surcharges and usurious late fees.
McKee said he was charged a city utility fee even though he lived outside city limits. The charges were small -- no more than $2 in any given month -- but McKee argued that it added up after many years for many customers, and his best recourse was to seek remedy for a class.
AT&T argued that the dispute should be settled through individual arbitration and that McKee was bound by an arbitration clause included in the customer-service agreement mailed to him when he signed up for long-distance service in 2002.
Such arbitration clauses are ubiquitous, and consumers typically agree to them as a condition of accepting a credit card, a cell phone or other services.
"A growing number of companies have been using these mandatory (clauses) to limit the ability of their customers to sue them if they break the law," Bland said.
A Chelan County Superior Court found AT&T's dispute-resolution provision to be "unconscionable" and denied AT&T's motion to compel McKee to arbitrate the case. AT&T appealed, arguing that federal and New York laws should apply in this case rather than Washington's consumer protection laws.
The state Supreme Court dismissed those arguments.
Justice Tom Chambers, writing for a unanimous court, concluded that AT&T's agreement "is substantively unconscionable and therefore unenforceable to the extent that it purports to waive the right to class actions, require confidentiality, shorten the Washington Consumer Protection Act statute of limitations, and limit availability of attorney fees."
He added: "Courts will not be easily deceived by attempts to unilaterally strip away consumer protections and remedies by efforts to cloak the waiver of important rights under an arbitration clause."