"Requiring Arbitration in Consumer Account Agreements May Deter Costly Litigation"

Banking e-Alert
2011

Given the many aggressive trial lawyers who have earned millions of dollars representing consumers in class action lawsuits challenging the fairness of service fees or the accuracy of consumer advertising, among other subjects, the risk of consumer class action litigation is something that every West Virginia bank should consider. Although “normal” litigation is seldom inexpensive, the complexity and the “bet the company” nature of class action litigations place class actions in their own category. Unsurprisingly, many businesses that find themselves the targets of unmeritorious class actions frequently settle these cases to avoid any possibility — no matter how unlikely — of potentially disastrous damages.

Fortunately, three recent decisions rendered by West Virginia courts have recognized the potential enforceability of consumer arbitration agreements that waive the right to bring or participate in class actions. Notably, all three decisions involved an arbitration provision included within AT&T Mobility’s standard consumer service agreement. These decisions provide West Virginia businesses with a potentially useful tool to mitigate the risks posed by class action litigations. The first two of these decisions were decided by the United States District Court for the Southern District of West Virginia and the United States District Court for the Northern District of West Virginia, respectively. In both decisions, the federal courts rejected the argument that West Virginia state law precluded the enforceability of AT&T Mobility’s arbitration agreement and ruled that the agreement is enforceable under West Virginia state law. 

More recently, and in a different case, the West Virginia Supreme Court of Appeals recognized that the same arbitration provision is potentially enforceable in West Virginia state trial courts. Although the West Virginia Supreme Court did not decide the validity of the AT&T Mobility arbitration agreement one way or another, the Court noted that the AT&T Mobility provision compared very favorably to other arbitration provisions that it had previously refused to enforce. Indeed, the West Virginia Supreme Court’s decision arguably implies that the AT&T Mobility provision might be enforceable. 

Based on these recently decided cases, an appropriately-drafted arbitration provision that waives the right to bring or participate in a class action might be enforceable in a West Virginia state or federal court. Importantly, however, courts construe the enforceability of arbitration provisions on a case-by-case basis and based upon each provision’s specific terms. Most significantly, the enforceability of any arbitration provision will depend upon whether the provision prevents the consumer from vindicating his/her legal rights and whether the provision is unreasonably burdensome to the consumer. In other words, to have the greatest chance of being upheld in a court, an arbitration provision must be drafted with great care and precision.