Ninth Circuit Refuses to Enforce Class Arbitration Waiver

In Laster v. AT&T Mobility LLC (9th Cir. October 27, 2009), the Ninth Circuit followed Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007) and affirmed a District Court decision that a class arbitration waiver was unconscionable and unenforceable in a class action against a telephone company based on allegations that the company’s offer of a "free" phone was fraudulent because the company charged the customer sales tax on the phone. The "new wrinkle" in this case -- a very creative contract clause providing a "premium" payment of $7,500 to any customer who recovered more in arbitration that the company's last written offer before selecting the arbitrator -- did not prevent the class action waiver from being substantively unconscionable. The Court also held that the Federal Arbitration Act does not preempt California unconscionability law.