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Banning class action bans: class action limitations, embedded in contracts for cars to phones to jobs, amount to a 'get out of jail free' card for corporations. By building a strong factual record and choosing the right legal strategy, you can battle the ban - and win.

Article Excerpt
Imagine that a long-distance phone company collects a tax that amounts to a few dollars per month from all its customers in one area--even though many of them do not owe the tax. Very few realize they've been cheated, and none can bring an individual lawsuit to recover a few dollars. Without being able to file a class action, those consumers will be left with no legal recourse--and the phone company will get away with cheating them.

This situation, based on a case that we are handling, (1) illustrates the central problem of bans on class action lawsuits. Unfortunately, a large and ever-growing number of corporations--including most cell phone carriers, credit card issuers, new car dealers, and major computer manufacturers--are inserting terms in their standard contracts that bar their customers and employees from ever bringing, or participating in, a class action. Such bans are usually embedded in arbitration clauses but apply to class actions in court or arbitration.

Two principal legal theories exist for challenging class action bans: contract law and statutory law.

Contract law challenges. In cases where a ban on class actions serves as a corporate exculpatory clause, a number of courts have held that they are unenforceable because either they are unconscionable or they violate a state's public policy by undermining state consumer protection or civil rights statutes. In some cases, this has led courts to invalidate entire arbitration clauses containing the class action bans; in others, courts have struck down the ban and sent the case to arbitration without the provision.

In early litigation, most plaintiffs bringing contract law challenges to class action bans were not successful. (2) More recently, courts in a growing number of states have ruled in favor of plaintiffs. (3)

For example, the high courts in California, Illinois, New Jersey, and Washington--as well as intermediate appellate courts in Missouri, Ohio, Oregon, Pennsylvania, and Wisconsin--have all struck down class action bans in cases where they were deemed unconscionable (because the bans were effectively exculpatory and/or because they were one-sided). (4) Some other courts have struck down class action bans on the grounds that they violated public policy by undermining the enforcement of important consumer protection statutes. (5)

When challenging a ban either on an unconscionability theory or based on a state's public policy against adhesive exculpatory clauses, it is best to have a strong factual record. In one recent case, a court struck down a class action ban after a two-day evidentiary hearing where the plaintiffs presented expert testimony that no consumer lawyer in the state would take similar cases on an individual basis because the cost of bringing them would outweigh the likely remuneration. (6)

Similarly, in Scott v. Cingular Wireless, Washington's high court struck down a class action ban when the factual record included both testimony from consumer law experts and materials obtained through...

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