Echoing many arguments in AARP’s “friend of the court” brief, Kentucky’s highest court ruled against an Internet provider seeking to limit customers’ right to seek redress.
Arbitration is an out-of-court dispute resolution mechanism that increasingly appears in a range of contracts, including consumer products and services, employment, health care, and nursing home admissions. Originally designed to resolve disputes between businesses with comparable bargaining power, companies with greater sophistication and control over the contract process are imposing these clauses on consumers. Arbitration generally is much more expensive for consumers than is a court proceeding, and it severely limits the rights and protections they would have in court.
In 2006, Insight Communications was the only provider of broadband service in Louisville, Ky. In April 2006, Insight customers began to experience service disruptions that lasted in some cases weeks. Customers claimed that when they called the company they often could not get through or were given seriously misleading information. The customers filed a class action lawsuit alleging breach of contract and violation of Kentucky’s Consumer Protection Act. Insight invoked the arbitration clause in its contract and noted that the clause prohibited class actions.
AARP Foundation Litigation attorneys filed AARP’s “friend of the court” briefs as this case worked its way up through the courts. The briefs discussed the many federal and state courts that have refused to enforce class action bans in arbitration clauses because they deprive consumers of any way to recover their losses and, in effect, allow corporations to continue their unlawful practices without any fear of liability.
The Kentucky Supreme Court agreed. Echoing arguments in AARP’s briefs, the court ruled that in this case, the ban against class actions was unenforceable because it is “comprehensive and absolute, prohibiting the joining of lawsuits in all situations and in all forums.” Over one dissent, the court declined to go as far as plaintiffs and AARP had asked, and did not strike down the entire arbitration clause (the dissent would have struck down the entire arbitration clause). The court also stopped short of ruling that all class action bans in arbitration clauses are unenforceable based on pro-arbitration language in the Kentucky Constitution and statutes. Nonetheless, the thoughtful description of the dangers of class action bans will be helpful to other courts considering these types of cases, in Kentucky and out.
What’s at Stake
Arbitration clauses generally prevent consumers from having their day in court, but class action bans in these clauses are even more pernicious. Numerous courts around the country, including the U.S. Supreme Court, have recognized that class actions are an efficient way to address widespread wrongs. Class actions are particularly important for consumers, whose individual claims are relatively small but whose losses, in the aggregate, are quite large. Unless consumers can proceed on a classwide basis, it will often be financially impossible for them to seek relief at all, and a company will be able to evade liability and keep money obtained due to those practices, merely because it harmed many people for small amounts instead of only a few people for large amounts.
Schnuerle v. Insight Communications Co. was decided by the Kentucky Supreme Court.