Kinkel v. Cingular Wireless

Docket No. 100925.

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

DONNA M. KINKEL, Appellee, v. CINGULAR WIRELESS LLC,

Appellant.

Opinion filed October 5, 2006.

JUSTICE GARMAN delivered the judgment of the court,

with opinion.

Justices Freeman, Fitzgerald, Kilbride, and Karmeier

concurred in the judgment and opinion.

Chief Justice Thomas and Justice Burke took no part in the

decision.

OPINION

Defendant, Cingular Wireless, LLC (Cingular), provides

cellular telephone service to consumers. Under Cingular=s

standard service agreement, its customers commit to a

specified Aservice term@ and agree to pay an early-termination

fee if they withdraw from the service agreement before the end

of the term. Plaintiff, Donna M. Kinkel, individually and on

behalf of a class of those similarly situated, filed suit against

Cingular in the circuit court of Madison County, alleging that

the early-termination fee constitutes an illegal penalty and that

imposition of the fee is both a breach of the service agreement

and statutory fraud under the Illinois Consumer Fraud and

Deceptive Business Practices Act (Consumer Fraud Act) (815

ILCS 505/1 et seq. (West 2002)).

Cingular filed a motion to compel arbitration of plaintiff=s

individual claim, in accordance with the mandatory arbitration

provision of the standard service agreement, which provides

that Ano arbitrator has the authority@ to resolve class claims.

The circuit court, after a hearing, denied the motion.

Interlocutory appeal was taken by Cingular pursuant to

Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)). The

appellate court reversed and remanded, finding that although

the arbitration clause is enforceable, the limitation on class

arbitration contained therein is unconscionable and, thus,

unenforceable. 357 Ill. App. 3d 556. This court granted

Cingular=s petition for leave to appeal pursuant to Supreme

Court Rule 315 (177 Ill. 2d R. 315), to determine whether the

prohibition of class arbitration is unconscionable.

BACKGROUND

In July 2001, plaintiff entered into a two-year service

agreement with Cingular for cellular telephone service by

signing defendant=s standard service agreement. The ATERMS

AND CONDITIONS@ of the agreement appear on the back of

the form that plaintiff signed. These terms and conditions are

spelled out on a single, legal-size sheet of paper in small type.

Certain provisions are emphasized by the use of capital letters.

Topics or headings appear in boldface type.

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Plaintiff cancelled her cellular telephone service in April

2002, although the two-year term was not scheduled to expire

until July 2003. Pursuant to the early-termination provision in

the service agreement, Cingular charged her an early-

termination fee of $150, which she paid under protest.

In August 2002, plaintiff filed suit. Cingular filed a motion to

compel arbitration of her individual claim and stay the litigation,

invoking the arbitration clause of the service agreement and

sections 2 and 3 of the Federal Arbitration Act (FAA) (9 U.S.C.

''2, 3 (2000)). In September 2003, plaintiff filed her first

amended complaint, again alleging that the $150 early

termination fee is an illegal penalty. She further alleged that the

ban on class treatment contained in the mandatory arbitration

provision is intended by Cingular to further an unlawful scheme

to collect an illegal penalty from her and other members of the

class she purports to represent and that it prevents her and

others from Aeffectively vindicating their statutory and common

law causes of action and facilitates rather than remedies

Cingular=s fraudulent and unlawful conduct.@ (Because

provisions barring class treatment in arbitration are generally

referred to in the case law and the literature as Aclass action

waivers,@ we will use the term Awaiver,@ even though the

provision at issue is phrased as a limitation on the scope of the

arbitrator=s authority, rather than as a waiver by the customer

of her ability to file a claim on behalf of a class.)

After a hearing, the trial court denied Cingular=s motion to

compel arbitration finding, inter alia, that the arbitration clause

was unenforceable on the basis of unconscionability.

Interlocutory appeal was taken by Cingular.

The appellate court concluded that the class action waiver

was unconscionable, but that it was severable from the

remainder of the arbitration clause, which, in keeping with Athe

strong policy in favor of enforcing arbitration agreements,@

should be enforced. 357 Ill. App. 3d at 569. The appellate court

remanded for further proceedings consistent with its opinion,

noting that the effect of its ruling would be to stay plaintiff=s

lawsuit while her class claim proceeded to arbitration. 357 Ill.

App. 3d at 569.

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Relevant Provisions of the Service Agreement

The second sentence of the standard service agreement

states that service is Asubject to CINGULAR=s standard

business policies, practices and procedures that CINGULAR

may change at any time without notice.@ The fourth sentence

states:

AIMPORTANT NOTICE: THIS AGREEMENT

CONTAINS MANDATORY ARBITRATION AND

OTHER IMPORTANT PROVISIONS LIMITING THE

REMEDIES AVAILABLE TO YOU IN THE EVENT OF A

DISPUTE. PLEASE REFER TO THE SECTION

ENTITLED >ARBITRATION= FOR DETAILS.@

The provision that is the subject of plaintiff=s claim provides:

ASERVICE COMMITMENT You have agreed to

maintain service for a minimum term, the Service

Commitment specified on the signature portion of this

Agreement. The Service Commitment begins on the day

your service is activated. If you have contracted for a

Service Commitment greater than a month, in exchange

you have received certain benefits from CINGULAR.

You understand and agree that you now have certain

contractual obligations and that CINGULAR=s damages

arising out of a breach thereof will be difficult, if not

impossible, to determine. Therefore, if you terminate

your service for any reason other than a change of

terms, conditions, or rates as set forth below, or if

CINGULAR terminates your service for nonpayment or

other default before the end of the Service Commitment,

you hereby agree to pay CINGULAR, as liquidated

damages, and not as a penalty, in addition to all other

amounts owed, the termination charge of $150 per

wireless phone on the account (>Termination Fee=).@

The arbitration clause provides, in pertinent part:

AINDEPENDENT ARBITRATION Please read this

paragraph carefully. It affects rights that you may

otherwise have. (a) CINGULAR and you shall use our

best efforts to settle any dispute or claim arising from or

relating to this Agreement. To accomplish this,

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CINGULAR and you agree to arbitrate any and all

disputes and claims (including but not limited to claims

based on or arising from an alleged tort) arising out of or

relating to this Agreement, or to any prior Agreement for

products or services between you and CINGULAR ***.

The arbitration of any dispute or claim shall be

conducted in accordance with the wireless industry

arbitration rules (>WIA Rules=) as modified by this

agreement and as administered by the American

Arbitration Association (>AAA=). The WIA Rules and fee

information are available from CINGULAR or the AAA

upon request. CINGULAR and you acknowledge that

this agreement evidences a transaction in interstate

commerce and that the United States Arbitration Act

and Federal Arbitration Law shall govern the

interpretation and enforcement of, and proceedings

pursuant to, this or a prior agreement. *** Except where

prohibited by law, CINGULAR and you agree that no

arbitrator has the authority to: (1) award relief in excess

of what this agreement provides; (2) award punitive

damages or any other damages not measured by the

prevailing party=s actual damages; or (3) order

consolidation or class arbitration. The Arbitrator(s) must

give effect to the limitations on CINGULAR=s liability as

set forth in this agreement, any applicable tariff, law, or

regulation. *** You agree that CINGULAR and you each

is waiving its respective right to a trial by jury. You

acknowledge that arbitration is final and binding and

subject to only very limited review by a court. If for some

reason this arbitration clause is at some point deemed

inapplicable or invalid, You and CINGLUAR agree to

waive, to the fullest extent allowed by law, any trial by

jury. *** Notwithstanding any of the foregoing, either

party may bring an action in small claims court.@

Defendant=s brief states that the service agreement also

provides that Aall fees and expenses of the arbitration shall be

equally borne by [the customer] and CINGULAR.@ Repeated

reading of the fine print of the ATERMS AND CONDITIONS@

page, however, has failed to reveal the existence of this

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provision. The only provision relating to the cost of arbitration

incorporates the WIA Rules by reference and informs the

customer that fee information is available from Cingular or the

AAA Aupon request.@

Under the WIA Rules promulgated by the AAA, a claimant

must pay a fee at the time he or she files a claim. If, as in the

present case, the claim does not exceed $10,000, the claimant

must pay one-half of the arbitrator=s fees, up to a maximum of

$125. Any funds not used are refunded to the claimant. For

claims under $10,000, the business pays all fees that are not

the responsibility of the claimant. Wireless Industry Arbitration

Rules of the American Arbitration Association, Supplementary

Procedures for Consumer-Related Disputes (eff. March 1,

2002), available at

http://www.adr.org/sp.asp?id=22014#CONC-8 (hereinafter WIA

Rules).

While this matter was still before the trial court, Cingular

offered to reimburse plaintiff for her reasonable attorney fees

and costs if her claim were to proceed to arbitration and the

arbitrator were to award her an amount equal to or greater than

her $150 claim. In response to a question by the trial court,

Cingular=s counsel represented that Cingular would apply the

terms of the new arbitration provision to all customers, current

and former, including plaintiff and members of the purported

class.

In July 2003, Cingular revised the arbitration provision in its

standard service agreement, notifying all then-current

customers of the change by mail and posting the new terms on

its website. Under the new provision, Cingular agrees to pay

Aall AAA filing, administration and arbitrator fees,@ unless the

claim filed or the relief sought is so improper as to be subject to

sanctions under Federal Rule of Civil Procedure 11(b) (Fed. R.

Civ. P. 11(b)). If a claimant recovers the amount of his demand

or more, Cingular agrees to reimburse him for his reasonable

attorney fees and expenses incurred in bringing the claim to

arbitration. The location of arbitration has been changed to the

county of the claimant=s billing address, rather than the city in

which Cingular=s switching office is located. Unlike the earlier

provision, the new arbitration provision does not include a

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confidentiality requirement and does not limit the remedies that

an arbitrator may award, so that the possibility exists for an

award of punitive damages. In addition, the new arbitration

provision states:

AYou and CINGULAR agree that YOU AND CINGULAR

MAY BRING CLAIMS AGAINST THE OTHER ONLY IN

YOUR OR ITS INDIVIDUAL CAPACITY, and not as a

plaintiff or class representative or class member in any

purported class or representative proceeding. Further,

you agree that the arbitrator may not consolidate

proceedings or more than one person=s claims, and may

not otherwise preside over any form of a representative

or class proceeding, and that if this specific proviso is

found to be unenforceable, then the entirety of this

arbitration clause shall be null and void.@

The trial court rejected Cingular=s argument that this new

provision should be applied to plaintiff=s claim. The appellate

court agreed with the trial court=s ruling, concluding that Agiving

Cingular the benefit of a piecemeal reworking of the contract

that was in effect when the plaintiff cancelled her service would

not meet the ends of justice.@ 357 Ill. App. 3d at 568, citing

Spinetti v. Service Corp. International, 324 F.3d 212, 217 n.2

(3d Cir. 2003) (concluding that A >reviewing courts should not

consider after-the-fact offers= @ to pay a plaintiff=s share of

arbitration costs A >where the agreement itself provides that the

plaintiff is liable, at least potentially, for arbitration fees and

costs= @), quoting Morrison v. Circuit City Stores, Inc., 317 F.3d

646, 676 (6th Cir. 2003).

ANALYSIS

Subsequent Revision of Service Agreement

As a threshold matter, we address Cingular=s argument that

the terms of its current standard service agreement should be

applied to plaintiff=s claim, notwithstanding her lack of consent

to be bound by such terms. At this stage of our analysis, we

need not be concerned with the strong federal policy favoring

arbitration, as we are not yet considering whether an arbitration

clause is enforceable. The question at this stage is which of the

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two arbitration provisionsBthe one printed on the back of the

form plaintiff signed in 2001, or the one adopted by Cingular in

2003Bshould be the subject of the court=s inquiry.

Neither party has suggested the proper standard of review.

Because the question is, in essence, one of contract

modification, we look to the law of contracts. Where the

evidence is in conflict, whether an existing contract has been

modified is a question of fact. 12A Ill. L. & Prac. '347, at 199

(1983). However, where the evidence is undisputed, it is for the

court to decide whether a modification has been effected. 12A

Ill. L. & Prac. '347, Comment, at 199 (1983). The evidence in

the present case is undisputed. We, therefore, review de novo

the question of the applicability of the revised arbitration

provision to plaintiff=s claim.

Cingular devoted a significant portion of its brief and oral

argument to its offer to bear the full cost of arbitration and to

reimburse plaintiff for her attorney fees if she were to prevail in

arbitration. Cingular asserts that the appellate court erred by

refusing to focus on its revised arbitration clause, which it

characterizes as a Aconsumer-friendly@ provision that waives

the earlier cost-sharing requirement. Cingular cites Ellman v.

Ianni, 21 Ill. App. 2d 353, 361 (1959), for the proposition that Aa

condition or provision of the contract may, generally, be waived

by the party thereto who is entitled to receive the benefit of the

condition.@

In addition, Cingular argues that Aoffers to pay the costs of

arbitration should be credited when considering whether an

arbitration provision is enforceable,@ citing Livingston v.

Associates Finance, Inc., 339 F.3d 553, 557 (7th Cir. 2003). In

Livingston, the court of appeals found that a provision in the

arbitration agreement, under which the company offered to pay

arbitration fees if the customer was financially incapable of

paying, was sufficient to protect the customer from potentially

prohibitive costs. Thus, the court concluded, the Abare

assertion of prohibitive costs, without more, is too speculative

and insufficient to shift the burden@ to the company to show

that the costs of arbitration are not prohibitive. Livingston is

readily distinguishable from the present case because the

defendant=s offer to pay the costs of arbitration was part of the

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initial agreement that the customer signed. In the present case,

the offer was not made until after the customer filed a lawsuit.

Cingular has also been permitted to file supplemental

authority in support of its claim that the revised service

agreement should be applied to plaintiff=s claim. In Kristian v.

Comcast Corp., 446 F.3d 25 (1st Cir. 2006), the court of

appeals held an arbitration provision added to the defendant=s

standard service agreement in 2002-03 applied retroactively to

the plaintiffs= claims that arose during the period 1987-2001.

When the plaintiffs first subscribed for cable services from

Comcast, their service agreements did not contain arbitration

provisions. It appears, however, that all four plaintiffs continued

to subscribe to Comcast services after the arbitration provision

was added to the standard service agreement and were,

therefore, subject to the revised terms. Kristian, 446 F.3d at 30.

Kristian is distinguishable on this basis. Plaintiff was not a

Cingular customer on or after the date upon which Cingular

amended its service agreement.

Plaintiff responds that Cingular Ashould not be allowed to

make unilateral post facto amendments to its contract to

improve its litigation position in this case,@ and distinguishes

Ellman based on the difference between a party=s waiving a

term of the original contract and changing the terms of that

contract. We agree that the offer made by Cingular to plaintiff is

not a mere waiver of a contractual right (the right to have

plaintiff pay a portion of the cost of arbitration), but is a

substantial modification of the parties= contract, including an

affirmative promise to pay plaintiff=s attorney fees and costs if

she were to prevail in arbitration, as well as other new terms.

Plaintiffs also rely on Morrison v. Circuit City Stores, Inc.,

317 F.3d 646, 676 (6th Cir. 2003), in which the court of appeals

rejected the defendant-employer=s argument that the plaintiff-

employee should be compelled to arbitrate his discrimination

claim because it had agreed, in writing, to pay his share of the

arbitration fee.

AIn considering the ability of plaintiffs to pay arbitration

costs under an arbitration agreement, reviewing courts

should not consider after-the-fact offers by employers to

pay the plaintiff=s share of arbitration costs where the

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agreement itself provides that the plaintiff is liable, at

least potentially, for arbitration fees and costs.@

Morrison, 317 F.3d at 676.

Cingular responds that, unlike the defendant in Morrison, it

has changed its standard service agreement so that all

customers, not just this plaintiff, will be spared the costs of

arbitration if they have meritorious claims. Thus, Cingular

claims, any claim by plaintiff or any current or former customer

that its arbitration provision is unconscionable on the basis of

the prohibitive cost of arbitration is moot.

We conclude, for two reasons, that the original arbitration

clause should be the focus of the unconscionability analysis.

First, we agree with the reasoning of Morrison and Spinetti that

a defendant=s after-the-fact offer to pay the costs of arbitration

should not be allowed to preclude consideration of whether the

original arbitration clause is unconscionable. As the Morrison

court noted, the party who drafted the provision Ais saddled

with the consequences of the provision as drafted.@ (Emphasis

in original.) Morrison, 317 F.3d at 677. We find this reasoning

equally applicable whether the defendant alters its arbitration

clause with respect to all current contracts, or makes a private,

individual offer to the plaintiff in a particular case.

Second, this result is consistent with the law of contracts

regarding modification. In the service agreement signed by

plaintiff, Cingular expressly reserved the right to unilaterally

modify the terms and conditions of the agreement, at any time,

without notice. Plaintiff accepted this condition. Plaintiff

terminated her contractual relationship with Cingular in April

2002, when, in full compliance with the then-existing

agreement, she cancelled her cellular telephone service and

paid the early-termination fee. Cingular subsequently modified

the arbitration provision of its standard service agreement.

When Cingular revised the arbitration provision, however, the

contract between Cingular and plaintiff was no longer in effect.

Cingular did not have the right to unilaterally modify the terms

of a contract that had been terminated many months prior to

the attempted modification. Plaintiff could certainly have

accepted Cingular=s offer to extend the new terms to her, but

Cingular cannot compel her to do so.

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In response to Cingular=s argument that the strong federal

interest in enforcement of arbitration agreements weighs in

favor of applying its new arbitration provision to plaintiff=s claim,

we note that, in deciding whether to give effect to an attempted

contract modification, the analysis does not depend on the

nature of the contractual provision at issue. One party to a

contract may not unilaterally modify a contract termBwhether it

is an arbitration clause, a disclaimer of incidental and

consequential damages, a liquidated damages clause, or any

other termBafter the contractual relationship between the

parties has ended and the original contract is the subject of a

dispute. Defendant=s revision of the arbitration provision in

existing service agreements is, therefore, irrelevant to the

instant case because this new provision was never a part of

the contract between the parties.

Federal Preemption

Having concluded that the contract provision at issue in the

present case is the arbitration clause printed on the back of the

form plaintiff signed, we turn to Cingular=s federal preemption

arguments. If plaintiff=s claim is preempted by federal law, we

need go no further in our analysis of the class action waiver.

Cingular argues that any holding that would not give effect to

its arbitration provision and the class action waiver therein is

expressly and impliedly preempted by federal law. Whether

state law is preempted by a federal statute is a question of law,

subject to de novo review. Schultz v. Northeast Illinois

Regional Commuter R.R. Corp., 201 Ill. 2d 260, 288 (2002).

Cingular=s express-preemption argument is based on

section 2 of the FAA, which provides that a written agreement

in a Acontract evidencing a transaction involving commerce@ to

arbitrate a controversy arising out of such a contract Ashall be

valid, irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.@ 9

U.S.C. '2 (2000). In Perry v. Thomas, 482 U.S. 483, 491, 96 L.

Ed. 2d 426, 436, 107 S. Ct. 2520, 2526 (1987), the Supreme

Court held that section 2 of the FAA expressly preempted a

California statute that provided a judicial forum for actions for

the collection of wages A >without regard to the existence of any

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private agreement to arbitrate.= @ Perry, 482 U.S. at 484, 96 L.

Ed. 2d at 432, 107 S. Ct. at 2523, quoting Cal. Lab. Code '229

(West 1971). The Court noted that section 2 A >is a

congressional declaration of a liberal federal policy favoring

arbitration agreements, notwithstanding any state substantive

or procedural policies to the contrary.= @ Perry, 482 U.S. at 489,

96 L. Ed. 2d at 435, 107 S. Ct. at 2525, quoting Moses H.

Cone Memorial Hospital v. Mercury Construction Corp., 460

U.S. 1, 24, 74 L. Ed. 2d 765, 785, 103 S. Ct. 927, 941 (1983).

By enacting section 2, A >Congress declared a national policy

favoring arbitration and withdrew the power of the states to

require a judicial forum for the resolution of claims which the

contracting parties agreed to resolve by arbitration.= @ Perry,

482 U.S. at 489, 96 L. Ed. 2d at 435, 107 S. Ct. at 2525,

quoting Southland Corp. v. Keating, 465 U.S. 1, 10, 79 L. Ed.

2d 1, 12, 104 S. Ct. 852, 858 (1984). Section 2 Aembodies a

clear federal policy of requiring arbitration unless the

agreement to arbitrate is not part of a contract evidencing

interstate commerce,@ in which case section 2 would simply not

apply, or the contract Ais revocable >upon such grounds as

exist= @ under state law for the revocation of the contract. Perry,

482 U.S. at 489, 96 L. Ed. 2d at 435, 107 S. Ct. at 2525. The

Court concluded: A >We see nothing in the Act indicating that

the broad principle of enforceability is subject to any additional

limitations under state law.= @ Perry, 482 U.S. at 489-90, 96 L.

Ed. 2d at 435, 107 S. Ct. at 2525, quoting Keating, 465 U.S. at

11, 79 L. Ed. 2d at 12, 104 S. Ct. at 858.

Cingular acknowledges that section 2, as construed in

Perry, expressly permits the invalidation of an arbitration

agreement on state law grounds such as unconscionability.

Cingular argues, however, that the Aany contract@ language in

section 2 of the FAA expressly preempts a state court from

holding that a class action waiver in an arbitration clause is

unconscionable if that same waiver would not be deemed

unconscionable in a contract without an arbitration clause.

Cingular relies on dicta contained in a footnote to the Perry

decision. Perry, 482 U.S. at 492 n.9, 96 L. Ed. 2d at 437 n.9,

107 S. Ct. at 2527 n.9. The Court declined to address the

plaintiff=s claim that the arbitration agreement in his

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employment contract was unconscionable as a contract of

adhesion and explained that this question could be considered

by the state court on remand. The Court went on to explain,

however, that:

A[S]tate law, whether of legislative or judicial origin, is

applicable if that law arose to govern issues concerning

the validity, revocability, and enforceability of contracts

generally. A state-law principle that takes its meaning

precisely from the fact that a contract to arbitrate is at

issue does not comport with this requirement of '2.

[Citations.] A court may not, then, in assessing the

rights of litigants to enforce an arbitration agreement,

construe that agreement in a manner different from that

in which it otherwise construes nonarbitration

agreements under state law. Nor may a court rely on

the uniqueness of an agreement to arbitrate as a basis

for a state-law holding that enforcement would be

unconscionable, for this would enable the court to effect

what we hold today the state legislature cannot.@

(Emphasis in original.) Perry, 482 U.S. at 492 n.9, 96 L.

Ed. 2d at 437 n.9, 107 S. Ct. at 2527 n.9.

In Doctor=s Associates, Inc. v. Casarotto, 517 U.S. 681,

683, 134 L. Ed. 2d 902, 906, 116 S. Ct. 1652, 1654 (1996), the

Supreme Court held that a Montana statute applicable to

arbitration clauses, but not to contracts in general, conflicted

with the FAA and was, therefore, preempted. The challenged

statute provided that an arbitration clause was unenforceable

unless it was printed on the first page of the contract in

underlined capital letters. After summarizing its previous

decisions in Perry, Southland, and other cases, the Court

restated what these prior decisions had established:

A >States may regulate contracts, including arbitration

clauses, under general contract law principles and they

may invalidate an arbitration clause Aupon such grounds

as exist at law or in equity for the revocation of any

contract.@ [Citation.] What States may not do is decide

that a contract is fair enough to enforce all its basic

terms (price, service, credit), but not fair enough to

enforce its arbitration clause. The Act makes any such

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state policy unlawful, for that kind of policy would place

arbitration clauses on an unequal Afooting,@ directly

contrary to the Act=s language and Congress=s intent.= @

(Emphasis added.) Casarotto, 517 U.S. at 686, 134 L.

Ed. 2d at 908, 116 S. Ct. at 1655, quoting Allied-Bruce

Terminix Cos. v. Dobson, 513 U.S. 265, 281, 130 L. Ed.

2d 753, 769, 115 S. Ct. 834, 843 (1995).

The authorities relied upon by Cingular stand for the

proposition that under federal law, a class action waiver cannot

be found unconscionable on grounds that apply only to

arbitration clauses. We agree with Cingular that such a finding

is expressly preempted by the FAA. Plaintiff, however, does

not argue that the class action waiver is unconscionable solely

because it is contained in an arbitration clause. Her claim,

therefore, is not expressly preempted by federal law.

Cingular also argues that a finding that its class action

waiver is unconscionable is impliedly preempted under the

supremacy clause of the United States Constitution (U.S.

Const., art. VI, cl. 2). There are two types of implied

preemption, described as Afield preemption@ and Aconflict

preemption.@ English v. General Electric Co., 496 U.S. 72, 78-

79, 110 L. Ed. 2d 65, 74, 110 S. Ct. 2270, 2275 (1990). Conflict

preemption occurs when it is either Aimpossible for a private

party to comply with both state and federal requirements,@ or

Awhere state law >stands as an obstacle to the accomplishment

and execution of the full purposes and objectives of

Congress.= @ English, 496 U.S. at 79, 110 L. Ed. 2d at 74, 110

S. Ct. at 2275, quoting Hines v. Davidowitz, 312 U.S. 52, 67,

85 L. Ed. 581, 587, 61 S. Ct. 399, 404 (1941).

Cingular=s implied-conflict-preemption argument is based

on the premise that if enforcement of its arbitration provision is

conditioned upon the availability of class treatment in the

arbitral forum, the objectives of Congress in enacting the FAA

will be defeated. Cingular argues that the benefits of

arbitration, including efficiency and lower cost, will be lost by

requiring class arbitration. In effect, Cingular=s position is that

any outcome that discourages arbitration of individual claims is

in conflict with the FAA and is, therefore, impliedly preempted.

Cingular cites many sources demonstrating that encouraging

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arbitration is, indeed, a strong federal objective, but offers no

authority for the claim that individual arbitration, rather than

class arbitration, is favored.

We, therefore, reject Cingular=s claim of conflict preemption.

The FAA does not require state courts, when applying state

law to a question of the enforceability of a particular contract, to

necessarily reach an outcome that encourages individual

arbitration. Further, class arbitration cannot be in conflict with

the FAA when the Supreme Court has recognized the

arbitrability of class claims.

In 2003, the United States Supreme Court held in Green

Tree Financial Corp. v. Bazzle, 539 U.S. 444, 156 L. Ed. 2d

414, 123 S. Ct. 2402 (2003), that class actions may be

arbitrated when the agreement between the parties is silent on

the question. Rejecting Green Tree=s argument that class

arbitration should be permitted only when the arbitration

agreement expressly provided for it, the Supreme Court held

that whether class claims could be arbitrated was a decision

that an arbitrator should make when the arbitration clause does

not expressly prohibit class arbitration. Green Tree, 539 U.S. at

454, 156 L. Ed. 2d at 423-24, 123 S. Ct. at 2408.

In response to this decision, the AAA subsequently

promulgated rules governing class arbitration. These rules

contain provisions similar to Federal Rule of Civil Procedure 23

(Fed. R. Civ. P. 23). The AAA=s policy with regard to class

arbitration is that it Awill administer demands for class

arbitration *** if (1) the underlying agreement specifies that

disputes arising out of the parties= agreement shall be resolved

by arbitration in accordance with any of the Association=s rules,

and (2) the agreement is silent with respect to class claims,

consolidation or joinder of claims.@ AAA Policy on Class

Arbitrations, available at http://www.adr.org/sp.asp?id=25967.

The Court=s holding in Green Tree and the AAA policy

suggest that an arbitration agreement expressly waiving the

ability to arbitrate class claims is enforceable. Thus, under the

preemption principles discussed above, unless the class action

waiver, the arbitration clause, or the contract itself is

unenforceable under generally applicable principles of state

law, such a provision must be enforced.

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In sum, the FAA neither expressly nor impliedly preempts a

state court from holding that an arbitration clause or a specific

provision within an arbitration clause is unenforceable; it merely

frames the issue by requiring that a state court examine the

disputed provision in the same manner that it would examine

any contract. Because our analysis on the question of class

action waivers is applicable to all contracts governed by Illinois

law, it can be applied to render the class action waiver in an

arbitration clause unenforceable without undermining the goals

and policies of the FAA.

Unconscionability

The trial court found the entire arbitration clause

unconscionable and, therefore, unenforceable. The appellate

court found the arbitration clause as a whole to be enforceable,

but the prohibition on class arbitration to be both procedurally

and substantively unconscionable. Under this ruling, although

Cingular is entitled to demand arbitration of plaintiff=s individual

claim, it cannot preclude arbitration of her class claim. 357 Ill.

App. 3d at 568.

In reaching this conclusion, the appellate court relied on

earlier appellate court decisions holding that a contract or

contract term cannot be deemed unconscionable unless it is

both procedurally and substantively unconscionable. 357 Ill.

App. 3d at 562, citing Zobrist v. Verizon Wireless, 354 Ill. App.

3d 1139, 1147 (2004). In addition, the appellate court

employed a sliding scale under which a provision may be found

unconscionable if is Aextremely substantively unconscionable@

but only Aslightly procedurally unconscionable, and vice versa.@

357 Ill. App. 3d at 562, citing Ting v. AT&T, 319 F.3d 1126 (9th

Cir. 2003).

Subsequent to the appellate court=s ruling in the present

case, this court decided the case of Razor v. Hyundai Motor

America, 222 Ill. 2d 75 (2006), in which we rejected the

requirement that both procedural and substantive

unconscionability must be found before a contract or a contract

provision will be found to be unenforceable. A finding of

unconscionability may be based on either procedural or

-16-

substantive unconscionability, or a combination of both. Razor,

222 Ill. 2d at 99.

Before this court, Cingular argues that the class action

waiver contained in its arbitration provision is neither

procedurally nor substantively unconscionable. At oral

argument, counsel for Cingular acknowledged that the ability of

a Cingular customer to bring a claim on behalf of a class in any

forum is entirely foreclosed by the combination of the

mandatory arbitration provision and the class action waiver, but

argued that such a limitation is not unconscionable under

Illinois law.

Plaintiff argues that the prohibition on class arbitration is

both procedurally and substantively unconscionable. Plaintiff

alleged in her pleadings that several clauses in the service

agreement, including the arbitration clause and the class action

waiver therein, act in combination to further Cingular=s unlawful

scheme to collect an illegal penalty by making it cost prohibitive

for individual customers to vindicate this particular claim.

Before we consider the various arguments made by the

parties, we must clarify the precise issue before this court. The

appellate court found the arbitration clause to be enforceable,

but the class action waiver to be unconscionable. This appeal

was brought by Cingular, to obtain review of the appellate

court=s ruling with regard to the class action waiver provision.

Plaintiff did not seek review of the ruling on the arbitration

clause itself. Thus, the enforceability of the arbitration clause

itself is no longer at issue. The issue in this appeal is whether

the class action waiver is unconscionable. That question,

however, cannot be answered without viewing the waiver

provision in the context of the service agreement as a whole

and against the backdrop of the precise claim made by the

plaintiff. See, e.g., Pierce v. Catalina Yachts, Inc., 2 P.3d 618,

624 n.28 (Alaska 2000) (stating that Athe legal issue of

unconscionability hinges on the totality of the circumstances@),

cited with approval in Razor, 222 Ill. 2d at 100.

The determination of whether a contract or a portion of a

contract is unconscionable is a question of law, which we

review de novo. Razor, 222 Ill. 2d at 99.

-17-

Procedural Unconscionability

AProcedural unconscionability refers to a situation where a

term is so difficult to find, read, or understand that the plaintiff

cannot fairly be said to have been aware he was agreeing to it

***.@ Razor, 222 Ill. 2d at 100, citing with approval Frank=s

Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill.

App. 3d 980, 989 (1980). This analysis also takes into account

the disparity of bargaining power between the drafter of the

contract and the party claiming unconscionability. Razor, 222

Ill. 2d at 100.

Frank=s Maintenance involved a dispute between two

business entities, an engineering firm and a supplier of steel

tubing. The seller=s warranty did not contain an arbitration

clause. Rather, the disputed provision was a limitation of the

seller=s liability for consequential damages. Frank=s

Maintenance, 86 Ill. App. 3d at 992-93. Because Frank=s

Maintenance involves generally applicable principles of Illinois

law, it is entirely appropriate that it be applied to determine

whether the class action waiver in the Cingular arbitration

clause is unconscionable.

In Razor, we cited portions of Frank=s Maintenance with

approval, but we did not quote at length from that opinion. We

do so now:

AProcedural unconscionability consists of some

impropriety during the process of forming the contract

depriving a party of a meaningful choice. [Citations.]

Factors to be considered are all the circumstances

surrounding the transaction including the manner in

which the contract was entered into, whether each party

had a reasonable opportunity to understand the terms of

the contract, and whether important terms were hidden

in a maze of fine print; both the conspicuousness of the

clause and the negotiations relating to it are important,

albeit not conclusive factors in determining the issue of

unconscionability. [Citation.] To be a part of the bargain,

a provision limiting the defendant=s liability must, unless

incorporated into the contract through prior course of

-18-

dealings or trade usage, have been bargained for,

brought to the purchaser=s attention or be conspicuous.

*** Nor does the mere fact that both parties are

businessmen justify the utilization of unfair surprise to

the detriment of one of the parties ***. [Citation.] This

requirement that the seller obtain the knowing assent of

the buyer >does not detract from the freedom to

contract, unless that phrase denotes the freedom to

impose the onerous terms of one=s carefully drawn

printed document on an unsuspecting contractual

partner. Rather, freedom to contract is enhanced by a

requirement that both parties be aware of the burdens

they are assuming. The notion of free will has little

meaning as applied to one who is ignorant of the

consequences of his acts.= [Citations.]@ Frank=s

Maintenance, 86 Ill. App. 3d at 989-90.

We note, in particular, our agreement with the proposition

that the issue of unconscionability should be examined with

reference to all of the circumstances surrounding the

transaction. In addition, the doctrine of unconscionability

should be at least as protective of individual consumers who

enter into contracts with commercial entities as it is of one

business that enters into a contract with another business.

See, e.g., Pierce, 2 P.3d at 623 (ACourts are more likely to find

unconscionability when a consumer is involved, when there is a

disparity in bargaining power, and when the consequential

damages clause is on a pre-printed form@), quoted with

approval in Razor, 222 Ill. 2d at 100.

The appellate court=s finding of procedural unconscionability

was based on several factors. First, the service agreement

containing the class action waiver was Aoffered in a form

contract on a take-it-or-leave it basis,@ which the appellate

court found was Aan important factor to consider.@ Second, the

appellate court quoted Frank=s Maintenance for the proposition

that Ain order to be a part of the parties= bargain, a contract

provision must be >bargained for, brought to the [consumer=s]

attention[,] or *** conspicuous.@ 357 Ill. App. 3d at 563, quoting

Frank=s Maintenance, 86 Ill. App. 3d at 990. Although the class

action waiver term in the arbitration provision may have been

-19-

brought to plaintiff=s attention by the capitalized portion of the

introductory paragraph at the top of the terms-and-conditions

page (357 Ill. App. 3d at 563-64), the appellate court concluded

that the arbitration clause containing the waiver provision could

not have been Aless conspicuous@ because it was Ahidden in a

maze of fine print where it was unlikely to be noticed, much

less read.@ (357 Ill. App. 3d at 563, 564). This, the appellate

court held, was Asufficient for a finding of procedural

unconscionability.@ 357 Ill. App. 3d at 564.

Cingular distinguishes Razor and Frank=s Maintenance on

their facts and argues that neither case supports a finding that

the class action waiver is procedurally unconscionable. In

Razor, a disclaimer of consequential damages was contained

in a warranty in the owner=s manual that was in the glove

compartment of the car when it was delivered to the buyer. We

concluded that Awhatever other context there might be in which

a contractual provision would be found to be procedurally

unconscionable, that label must apply to a situation such as the

case at bar where plaintiff has testified that she never saw the

clause; nor is there any basis for concluding that plaintiff could

have seen the clause, before entering into the sale contract.@

Razor, 222 Ill. 2d at 102. In Frank=s Maintenance, the language

limiting the plaintiff=s remedies was printed on the reverse side

of the sale contract. A clause directing the plaintiff=s attention to

the conditions printed on the reverse was stamped over,

suggesting that the obscured language was irrelevant and

could be ignored. Frank=s Maintenance, 86 Ill. App. 3d at 991-

92. These two cases are distinguishable from the present case,

Cingular argues, because the front of its service agreement

clearly refers to the terms and conditions printed on the back

and plaintiff indicated by her signature that she read and

accepted these terms.

Plaintiff responds that even though Razor may be factually

dissimilar to the present case, it is important authority for the

principle that unconscionability must be determined by

consideration of all of the circumstances surrounding the

transaction. Thus, plaintiff notes, the fact that the directing

clause had been obscured in the contract at issue in Frank=s

Maintenance was merely one relevant factor in the

-20-

unconscionability analysis, but it was not the sole basis for the

finding of procedural unconscionability. See Frank=s

Maintenance, 86 Ill. App. 3d at 991-92.

Considering the totality of the circumstances, we conclude

that the facts and circumstances of Razor and Frank=s

Maintenance are largely distinguishable from the present case.

Plaintiff did sign the front page of the service agreement and

she did initial an acknowledgment provision on the front of the

form, stating that she had read the terms and conditions on the

back. There is no dispute that the terms and conditions were in

her possession and she either read them or could have read

them if she had chosen to do so.

The Cingular service agreement is a contract of adhesion.

The terms, including the arbitration clause and the class action

waiver therein, are nonnegotiable and presented in fine print in

language that the average consumer might not fully

understand. Such contracts, however, are a fact of modern life.

Consumers routinely sign such agreements to obtain credit

cards, rental cars, land and cellular telephone service, home

furnishings and appliances, loans, and other products and

services. It cannot reasonably be said that all such contracts

are so procedurally unconscionable as to be unenforceable.

One fact, however, does make the arbitration clause in

Cingular=s service agreement similar to the disclaimer

invalidated in the warranty in Razor. The agreement plaintiff

signed obligated her to negotiate any claims in good faith and

to submit to arbitration if negotiations with Cingular were to fail.

However, the agreement did not put her on notice that she

would bear any of the costs associated with arbitration. The

agreement merely stated that Afee information@ was available

from Cingular or the AAA Aupon request.@ This statement,

incorporating by reference information that was not provided to

plaintiff at the time she signed the agreement, was in fine print

near the bottom of an 8 by 14 inch page that was filled, from

margin to margin, with text. This statement was not

emphasized in any way.

We conclude that there is a degree of procedural

unconscionability in the service agreement signed by plaintiff

because it did not inform her that she would have to pay

-21-

anything at all towards the cost of arbitration. She was merely

informed that Afee information@ was available Aupon request.@

This lack of information regarding the cost of arbitration is an

Aadditional fact particular to this case [which] tips the balance in

plaintiff=s favor@ (Razor, 222 Ill. 2d at 100), on the question of

procedural unconscionability of the contract of which the class

action waiver is a part. We do not find this degree of procedural

unconscionability to be sufficient to render the class action

waiver unenforceable, but it is a factor to be considered in

combination with our findings on the question of substantive

unconscionability.

Substantive Unconscionability

The appellate court found the class action waiver in the

Cingular service agreement to be substantively unconscionable

for two reasons. First, because the cost of litigating or

arbitrating a claim for $150 would have approached if not

exceeded the potential recovery, Aconsumers in the plaintiff=s

position are left without an effective remedy in the absence of a

mechanism for class arbitration or litigation.@ 357 Ill. App. 3d at

564. Second, the limitation is one-sided because commercial

entities like Cingular do not have occasion to sue their

customers as a class. That is, although both parties ostensibly

waived the ability to pursue a class action, the limitation

applies, in practice, only to prevent customers A >from seeking

redress for relatively small amounts of money.= @ 357 Ill. App.

3d at 565, quoting Szetela v. Discover Bank, 97 Cal. App. 4th

1094, 1101, 118 Cal. Rptr. 2d 862, 867 (2002).

This court has not had frequent occasion to define the term

Asubstantive unconscionability@ or to apply such a definition.

See, e.g., Streams Sports Club, Ltd. v. Richmond, 99 Ill. 2d

182, 191 (1983) (noting that a contract is unconscionable

Awhen it is improvident, oppressive, or totally one-sided,@ but

that Amere disparity in bargaining power is not sufficient

grounds to vitiate contractual obligations@). In Razor, we noted

only that substantive unconscionability refers to terms that are

Ainordinately one-sided in one party=s favor.@ Razor, 222 Ill. 2d

at 100.

-22-

Frank=s Maintenance contains a more detailed explanation

of the concept of substantive unconscionability, but that

explanation is of somewhat limited usefulness because it

focuses transactions between two commercial entities. See

Frank=s Maintenance, 86 Ill. App. 3d at 990-91 (ASubstantive

unconscionability concerns the question whether the terms

themselves are commercially reasonable@).

Our appellate court in Hutcherson v. Sears Roebuck & Co.,

342 Ill. App. 3d 109, 121 (2003), because it was applying

Arizona law under a choice of law provision, looked to a

decision of the Arizona Supreme Court for a definition of

substantive unconscionability. We find that definition apt:

ASubstantive unconscionability concerns the actual

terms of the contract and examines the relative fairness

of the obligations assumed. [Citation.] Indicative of

substantive unconscionability are contract terms so one-

sided as to oppress or unfairly surprise an innocent

party, an overall imbalance in the obligations and rights

imposed by the bargain, and significant cost-price

disparity.@ Maxwell v. Fidelity Financial Services, Inc.,

184 Ariz. 82, 89, 907 P.2d 51, 58 (1995).

Applying this definition of substantive unconscionability to

the alleged facts in this case, the issue is: whether a waiver of

the ability to bring a class claim is so onerous or oppressive

that it is substantively unconscionable when: (1) the waiver is

contained in a contract that contains a mandatory arbitration

provision, but does not reveal the cost of arbitration to the

claimant, (2) the cost will be $125, and (3) the underlying claim

involves actual damages of $150.

The nature of the underlying claim is also relevant to this

inquiry. Some claims will be obvious to the typical consumer.

For example, if a consumer is charged twice for the same

product or service, is charged for a product or service that was

not received, or is charged a fee that is not specified in the

contract, he or she can be expected to recognize such a claim.

An individual consumer can bring such a claim to the attention

of the other party and, if not satisfied with the response, may

be able to make his or her case in arbitration or in small claims

court without the assistance of an attorney.

-23-

Other claims, however, are not likely to be recognized, let

alone successfully argued in court or arbitration, without the aid

of an attorney. In the present case, the underlying claim is that

the $150 early termination fee is unenforceable as a penalty.

The typical consumer cannot be expected to know that:

A >Damages for breach by either party may be

liquidated in the agreement but only at an amount that is

reasonable in light of the anticipated or actual loss

caused by the breach and the difficulties of proof of

loss. A term fixing unreasonably large liquidated

damages is unenforceable on grounds of public policy

as a penalty.= @ H&M Commercial Driver Leasing, Inc. v.

Fox Valley Containers, Inc., 209 Ill. 2d 52, 71 (2004),

quoting Restatement (Second) of Contracts '356

(1981).

The typical consumer may feel that such a charge is unfair,

but only with the aid of an attorney will the consumer be aware

that he or she may have a claim that is supported by law, and

only with the aid of an attorney will such a consumer be able to

make the merits of such a claim apparent in arbitration or

litigation. Thus, when considering the Acost-price disparity@

factor (Maxwell, 184 Ariz. at 89, 907 P.2d at 58), of substantive

unconscionability, we must consider that the cost to plaintiff of

attempting to vindicate her $150 claim, in the absence of the

ability to bring a class claim, would be $125 plus her attorney

fees. As a result, if she were to prevail on the merits of her

claim and be awarded $150 in damages, it is an absolute

certainty that she would not be made whole.

Cingular makes four arguments on the issue of substantive

unconscionability. First, Cingular cites several cases from our

appellate court in support of its position that the standard for a

finding of substantive unconscionability is so Ademanding@ that

the facts of this case cannot meet it. Second, Cingular argues

that the appellate court improperly distinguished this case from

the facts of Hutcherson and Rosen v. SCIL, LLC, 343 Ill. App.

3d 1075 (2003). In both of these cases, the appellate court

found a class action waiver to be enforceable. Third, Cingular

states that the Aoverwhelming majority rule around the country@

is that class action waivers contained in arbitration provisions

-24-

are not unconscionable if the arbitration provision Aneither

requires the consumer to pay greater costs than he or she

would have to bear in court nor prohibits the arbitrator from

awarding a prevailing plaintiff her attorneys= fees under

applicable fee-shifting statutes.@ Cingular further states that its

original arbitration provision satisfies these conditions. Fourth,

Cingular argues that plaintiff=s ability to bring her claim in small

claims court is Aa recognized means of vindicating small

claims.@ At oral argument, counsel for Cingular made the

related argument that when the class action mechanism is not

available to consumers, as under its service agreement, the

public is still protected by the provision of the Consumer Fraud

Act, which allows the Attorney General to bring an action and

to compel a company to disgorge funds illegally obtained (815

ILCS 505/7 (West 2002)).

In support of its first argument, Cingular cites Basselen v.

General Motors Corp., 341 Ill. App. 3d 278, 288 (2003), for the

proposition that a contract is substantively unconscionable only

if its terms are Agrossly one-sided.@ In addition, Cingular cites In

re Estate of Croake, 218 Ill. App. 3d 124, 127 (1991), for the

proposition that a contract is substantively unconscionable if

Aonly one under delusion@ would make it. These two

descriptions of substantive unconscionability are accurate in

the sense that a contract that meets either of these

descriptions is surely unconscionable. We find these definitions

to be underinclusive and have adopted the Maxwell court=s

definition of substantive unconscionability as a more complete

statement of the doctrine.

We next address Cingular=s argument that the appellate

court=s decision in the present case is in conflict with the

decisions in Hutcherson and Rosen, both of which found class

action waivers to be enforceable. The Hutcherson court applied

Arizona law to a provision in a credit card agreement that

required the claimant to choose between small claims court or

arbitration of any claim. The agreement further provided that

the claimant could not participate as a representative or a

member of a class of claimants. The appellate court concluded

that this provision was not substantively unconscionable. In

reaching this conclusion, the appellate court considered

-25-

several cases from other jurisdictions (see Hutcherson, 342 Ill.

App. 3d at 121) that had found class action waivers

unconscionable. However, the court concluded that the

circumstances that led to the conclusion of unconscionability in

those cases was not present in the case before it. Hutcherson,

342 Ill. App. 3d at 122. Specifically, the arbitration provision

containing the class action waiver required the credit card

company to advance any fees required of the claimant by the

National Arbitration Forum and provided that the claimant could

not be required to refund the advanced fees unless the

arbitrator determined that the claim was frivolous. Thus, the

cost to the claimant of submitting a nonfrivolous claim to

arbitration would be minimal. Hutcherson, 342 Ill. App. 3d at

122.

In Rosen, another dispute between a credit cardholder and

the credit card company, the court noted that, A[a]s in

Hutcherson, the factors that were present in the cases in which

[class action limitations in] arbitration agreements were found

unconscionable are not present in this case.@ Rosen, 343 Ill.

App. 3d at 1082. Further, the plaintiff in Rosen presented

Aalmost no argument as to why@ the court should find the

provision unconscionable. Rosen, 343 Ill. App. 3d at 1082.

The appellate court distinguished the present case from

Hutcherson on the ground that the arbitration provision at issue

in that case Aprovided that the defendant creditor would

advance any arbitration fees required to be paid by the plaintiff

consumer ***. Each contract further provided that the

consumer would only be required to repay these expenditures

if an arbitrator determined that the consumer was required to

do so ***.@ 357 Ill. App. 3d at 567. Rosen was distinguished in

the same manner.

While we express no opinion on the merits of the judgments

rendered in Hutcherson and Rosen regarding the enforceability

of a class action waiver, we agree with the appellate court that

the present case is readily distinguishable from these two

cases.

Cingular next argues that the majority of jurisdictions that

have ruled on this issue have enforced class action waivers.

Under the reasoning of these decisions, Cingular asserts, the

-26-

class action waiver in its service agreement is not substantively

unconscionable given its Aoffer to bear all the costs of

arbitration and to reimburse successful claimants for their

attorney=s fees.@ In the present case, however, we are not

determining whether Cingular=s revised arbitration clause is

substantively unconscionable. Our focus is on the agreement

plaintiff signed in 2001.

In the alternative, Cingular argues that the class action

waiver in its original service agreement is not substantively

unconscionable. In support of this argument, Cingular cites

Rosen and Hutcherson, which we have already discussed, and

Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d

159 (5th Cir. 2004), in which, Cingular argues, the court of

appeals rejected a challenge to the identical provision that is at

issue in the present case.

In Iberia Credit Bureau, plaintiffs brought putative class

actions against several cellular telephone service providers,

including Cingular, alleging that certain deceptive billing

practices constituted breaches of contract and violations of the

Louisiana Unfair Trade Practices Act. The action was removed

to federal court on the basis of diversity. Louisiana state law

applied. Iberia Credit Bureau, 379 F.3d at 161-62.

Based on the portions of the Cingular service agreement

quoted by the court of appeals, it appears that the arbitration

clause at issue in Iberia Credit Bureau is the same clause that

is at issue in the present case. We note, however, that the

court of appeals stated that certain provisions of Cingular=s

arbitration clause, Asuch as the responsibility for the costs of

arbitration proceedings,@ were not at issue in the appeal. Iberia

Credit Bureau, 379 F.3d at 163 n.3. In the present case,

however, plaintiffs have argued that the cost of arbitration

proceedings is a relevant consideration in determining whether

the class action waiver is substantively unconscionable.

Under Louisiana law, a contract provision must Apossess

features of both adhesionary formation and unduly harsh

substance@ before it will be declared unconscionable. Iberia

Credit Bureau, 379 F.3d at 167. The plaintiffs attempted to

meet the procedural unconscionability prong of this

testBAadhesionary formation@Bby relying entirely on Cingular=s

-27-

use of fine print. The court of appeals found type size to be a

relevant consideration, but held that fine print alone does not

render an arbitration clause procedurally unconscionable,

particularly where the type used in the arbitration provision is

the same size as that used in the rest of the contract. Iberia

Credit Bureau, 379 F.3d at 172.

The court of appeals then examined the bar on class

actions contained in the Cingular arbitration clause. The

plaintiffs in Iberia Credit argued that the bar on collective

proceedings had Athe effect of immunizing the defendants from

low-value claims, no matter how meritorious those claims might

be,@ and that the arbitration clause was Anot so much an

alternative method of dispute resolution@ as it was Aa system

for avoiding liability altogether.@ Iberia Credit Bureau, 379 F.3d

at 174.

The court of appeals ultimately rejected this claim of

substantive unconscionability, stating:

AA highly relevant factor in considering the equities

of the arbitration clauses in this case is that the

Louisiana Unfair Trade Practices Act (LUTPA), which is

one basis of the plaintiffs= claims, does not permit

individuals to bring class actions. [Citations.] Although

this prohibition does not apply to plaintiffs= breach-of-

contract cause of action, it does significantly diminish

the plaintiffs= argument that prohibiting class

proceedings in consumer litigation is unconscionable

under Louisiana law. Moreover, LUTPA does permit the

state attorney general to sue on behalf of the state and

its consumers to pursue restitutionary relief on behalf of

a class of aggrieved consumers [Citations.]. This further

tends to show that the arbitration clause does not leave

the plaintiffs without remedies or so oppress them as to

rise to the level of unconscionability.@ Iberia Credit

Bureau, 379 F.3d at 174-75.

Further, the court of appeals observed that Cingular=s

arbitration clause expressly permitted customers Ato bring

inexpensive small-claims actions.@ Iberia Credit Bureau, 379

F.3d at 175 n.19.

-28-

We find Iberia Credit Bureau to be of interest, but we are

not persuaded to follow it. Illinois law differs significantly from

Louisiana law. First, we need not find both procedural and

substantive unconscionability to conclude that a contract

provision is unconscionable. Razor, 222 Ill. 2d at 99-100.

Because Louisiana law requires both, once the court

determined that Aadhesionary formation@ was not shown, any

discussion of Aunduly harsh substance@ was mere dicta.

Second, our Consumer Fraud Act, unlike Louisiana=s LUTPA,

does not bar a plaintiff from bringing his statutory claim both

individually and on behalf of a class of similarly situated

individuals. Thus, unlike the Louisiana consumer, the Illinois

consumer does lose the ability to be either the representative

of or a member of a class if the class action waiver is enforced.

As for the ability of the Attorney General to vindicate class

claims and the availability of small claims court, we address

these issues below.

Having examined the cases cited by the parties, we

conclude that it is not useful to do a simple head count of the

number of state courts to have ruled a certain way on class

action waivers. Each of these cases presents an application of

the law of a particular state, to a class action waiver in a

contract with other provisions that may affect the assessment

of the waiver itself, in the context of the arguments raised by

the parties to that case. We look to these cases, therefore, to

discern a pattern that might guide us.

Our research reveals that other state courts have

invalidated class action waivers when the contract containing

the waiver is burdened by other unfair features, rendering it

substantively unconscionable when taken as a whole. See,

e.g., Leonard v. Terminix International Co., 854 So. 2d 529,

538-39 (Ala. 2002) (finding arbitration clause unconscionable

because it is in a contract of adhesion that limits recovery of

Aindirect, special, and consequential damages@ and restricts

plaintiffs to Aa forum where the expense of pursuing their claim

far exceeds the amount in controversy,@ by foreclosing

Apractical redress through a class action and limiting them to a

disproportionately expensive individual arbitration@); Discover

-29-

Bank v. Superior Court of Los Angeles, 36 Cal. 4th 148, 162-

63, 113 P.3d 1100, 1110, 30 Cal. Rptr. 3d 76, 87 (2005)

(hereinafter Boehr) (stating in judicial dicta that class action

waivers are unconscionable Aat least under some

circumstances,@ such as Awhen the waiver is found in a

consumer contract of adhesion in a setting in which disputes

between the contracting parties predictably involve small

amounts of damages, and when it is alleged that the party with

the superior bargaining power has carried out a scheme to

deliberately cheat large numbers of consumers out of

individually small sums of money@); Aral v. Earthlink, Inc., 134

Cal. App. 4th 544, 564, 36 Cal. Rptr. 3d 229, 244 (2005)

(applying Boehr test to find class action waiver unconscionable

as applied to California consumer who sought to represent only

California consumers, whose individual claims amounted to

$40 or $50, where defendant allegedly engaged in scheme to

defraud, and where forum selection clause would have

required arbitration of all claims in Georgia); Klussman v. Cross

Country Bank, 134 Cal. App. 4th 1283, 1299, 36 Cal. Rptr. 3d

728, 740-41 (2005) (following test set out in Boehr to find a

class action waiver unconscionable when was not contained in

the parties= agreement, but was incorporated by reference to

the rules of the arbitral forum, which the customer could obtain

by calling an A800@ number); Szetela v. Discover Bank, 97 Cal.

App. 4th 1094, 1101, 118 Cal. Rptr. 2d 862, 867 (2002) (finding

class action waiver procedurally and substantively

unconscionable where the provision was Aclearly meant to

prevent customers *** from seeking redress for relatively small

amounts of money,@ and where if an individual customer does

obtain a remedy, it Awill only pertain to that single customer

without collateral estoppel effect@); Bellsouth Mobility LLC v.

Christopher, 819 So. 2d 171, 173 (Fla. App. 2002) (finding

arbitration clause substantively unconscionable where it limited

defendant=s liability to actual damages, Aeven if its conduct

rises to the level of outrageousness required to assess punitive

damages,@ removes exposure to class action suit even if class

treatment may be warranted, and binds the customer to

arbitration while allowing defendant the option of litigating some

claims, including collection of a debt); Powertel, Inc. v. Bexley,

743 So. 2d 570, 575-76 (Fla. App. 1999) (finding arbitration

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clause unconscionable based on Adeficiencies in the notice@ of

revised terms and fact that the clause forced customers to

Awaive important statutory remedies@ under state consumer

laws, effectively insulating defendant from liability, and where

Apotential claims are too small to litigate individually@); Whitney

v. Alltel Communications, Inc., 173 S.W.3d 300, 313-14 (Mo.

App. 2005) (arbitration clause was unconscionable where

dispute involved allegedly deceptive $0.88-per-month charge

applied to all customers= bills and where arbitration clause

prohibited class actions, required customer to bear costs of

arbitration, and prohibited award of incidental, consequential,

or exemplary damages, or attorney fees that would otherwise

be available under state law); Muhammad v. County Bank of

Rehoboth Beach, Delaware, No. AB39B05, slip op. at 3, 24

(N.J. August 9, 2006) (holding that class action waiver in

payday loan agreement is unconscionable Awhether in

arbitration or in court litigation,@ because such waivers can

Afunctionally exculpate wrongful conduct by reducing the

possibility of attracting competent counsel to advance the

cause of action@ where individual claims are small); State ex

rel. Dunlap v. Berger, 211 W. Va. 549, 566, 567 S.E.2d 265,

282 (2002) (holding that Aprovisions in a contract of adhesion

that if applied would impose unreasonably burdensome costs

upon or would have a substantial deterrent effect upon a

person seeking to enforce and vindicate rights and protections

or to obtain statutory or common law relief and remedies ***

under state law@ are unconscionable). See also Ting, 319 F.3d

at 1149-52 (applying California law as set out in Szetela to

conclude that the legal remedies clause in defendant=s form

contract was substantively unconscionable, not because it

required arbitration of all disputes, but because the class action

waiver therein lacked mutuality where carrier would not be

likely to bring a class action against its customers; the legal

remedies clause also sharply curtailed damages for intentional

torts, imposed secrecy on arbitration that benefitted the carrier

to the detriment of customers, and imposed costs on some

customers that would exceed the cost of bringing the same

claim in court); Laster v. T-Mobile USA, Inc., 407 F. Supp. 2d

1181, 1190 (S.D. Cal. 2005) (applying California law to find

arbitration clause containing class action waiver substantively

-31-

unconscionable where plaintiffs alleged that defendant

companies charged customers sales tax on full retail value of

cellular phones that were advertised as free as part of a

scheme to deliberately cheat large numbers of customers out

of small sums of money).

None of these cases held class action waivers to be per se

unconscionable. Thus, a federal court applying West Virginia

law concluded that, under the rule announced in Dunlap, an

arbitration clause containing a class action waiver was not

unconscionable where there was no evidence that the costs of

arbitration would be prohibitive to the plaintiff, who sought more

than $75,000 in damages. Schultz v. AT&T Wireless Services,

Inc., 376 F. Supp. 2d 685, 690-91 (N.D. W.Va. 2005).

Other state courts have upheld the validity of class action

waivers, frequently relying on the principle of freedom of

contract or the premise that a class action is merely a

procedural device, which the parties may agree to forgo. See,

e.g., Strand v. U.S. Bank National Ass=n ND, 2005 ND 68, &21,

693 N.W.2d 918, 926 (finding Ano class action@ clause

procedurally unconscionable but not substantively

unconscionable because A[m]erely restricting the availability of

a class action is not, by itself, a restriction on substantive

remedies. The right to bring an action as a class action is

purely a procedural right@). In Strand, however, the arbitration

clause provided that arbitration would take place in the

customer=s home jurisdiction and that the bank would advance

the fees and costs for arbitration. In addition, the customer

would be entitled to an award of attorney fees if he prevailed at

arbitration. Thus, there was Aa chance@ that the customer

would Abe made whole through individual arbitration.@ Strand,

2005 ND 68 at &23, 693 N.W.2d at 926-27. Thus, Strand is

distinguishable from the present case. See also Rains v.

Foundation Health Systems Life & Health, 23 P.3d 1249, 1254

(Colo. App. 2001) (enforcing arbitration provision requiring

individual arbitration where plaintiff brought her claim as a class

action, because the legislature is better able to determine

whether to require class-wide arbitration in such cases or to

make an exception to the statutory scheme intended to

facilitate arbitration); Fonte v. AT&T Wireless Services, Inc.,

903 So. 2d 1019, 1025-26 (Fla. App. 2005) (under Florida law,

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both procedural and substantive unconscionability are required

to render contract unenforceable; thus, in absence of

procedural unconscionability, agreement is enforceable;

commentary that prohibition on class representation is

enforceable because it did not defeat any remedial purpose of

deceptive practices statute is dicta); Walther v. Sovereign

Bank, 386 Md. 412, 438-42, 872 A.2d 735, 750-53 (2005)

(enforcing Afreely-signed agreement to arbitrate that includes a

no-class-action provision which was conspicuously presented

as part of the arbitration clause,@ despite Alender=s failure to

disclose the fees associated with an arbitration,@ where

plaintiffs did not show the cost of arbitration to be Aunduly

burdensome@); Gras v. Associates First Capital Corp., 346 N.J.

Super. 42, 53, 786 A.2d 886, 892 (2001) (enforcing class

action waiver where arbitration agreement allows successful

plaintiff to achieve Aall statutory remedies@ under the state

consumer fraud act in the arbitral forum, including

compensation for actual loss, treble damages to punish the

wrongdoer, and attorney fees); Ranierei v. Bell Atlantic Mobile,

304 A.D.2d 353, 354, 759 N.Y.S.2d 448, 449 (2003) (rejecting

claim that class action waiver is unconscionable based on

strong public policy favoring arbitration and Aabsence of a

commensurate policy favoring class actions@); Pyburn v. Bill

Heard Chevrolet, 63 S.W.3d 351, 357-63 (Tenn. Ct. App. 2001)

(arbitration agreement is matter of consent of parties, who Acan

limit which issues will be arbitrated and specify the rules under

which the arbitration will be conducted@; class action waiver in

arbitration agreement is enforceable where plaintiff agreed to

waiver clause and fails to prove that cost of arbitration would

be greater than cost of litigation, and where plaintiff can

vindicate his statutory claims Aeffectively through arbitration

regardless of whether class action relief is available@; also

finding the class action waiver issue preempted by federal law

when the waiver is contained in an arbitration clause, even if

such waiver would Aviolate the intent@ of the state legislature);

and AutoNation USA Corp. v. Leroy, 105 S.W.3d 190, 200

(Tex. 2003) (AWhile there may be circumstances in which a

prohibition on class treatment may rise to the level of

fundamental unfairness, [plaintiff=s] generalizations do not

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satisfy her burden to demonstrate that the arbitration provision

is invalid here@).

If there is a pattern in these cases it is this: a class action

waiver will not be found unconscionable if the plaintiff had a

meaningful opportunity to reject the contract term or if the

agreement containing the waiver is not burdened by other

features limiting the ability of the plaintiff to obtain a remedy for

the particular claim being asserted in a cost-effective manner.

If the agreement is so burdened, the Aright to seek classwide

redress is more than a mere procedural device.@ Klussman, 36

Cal. Rptr. 3d at 738, 134 Cal. App. 4th at 1296. As the

Supreme Court noted in Deposit Guaranty National Bank v.

Roper, 445 U.S. 326, 63 L. Ed. 2d 427, 100 S. Ct. 1166 (1980),

AWhere it is not economically feasible to obtain relief

within the traditional framework of a multiplicity of small

individual suits for damages, aggrieved persons may be

without any effective redress unless they may employ

the class-action device.@ Deposit Guaranty, 445 U.S. at

339, 63 L. Ed. 2d at 440, 100 S. Ct. at 1174.

In Deposit Guaranty, the defendant bank attempted to

shield itself from liability to a potential class of approximately

90,000 customers by tendering to each plaintiff the maximum

amount that he or she might have recovered at trial. Over the

objections of the plaintiffs, the district court entered judgment in

their favor. Deposit Guaranty, 445 U.S. at 330, 63 L. Ed. 2d at

434, 100 S. Ct. at 1170. Thus, because no single plaintiff could

demonstrate a live case or controversy, no class could ever be

certified. The Court held that the defendant bank could not

moot the plaintiffs= claims in this manner and that they could

appeal the denial of class certification. Deposit Guaranty, 445

U.S. at 340, 63 L. Ed. 2d at 434, 100 S. Ct. at 1170.

Cingular similarly seeks to insulate itself from liability to a

potential class of customers by enforcing a class action waiver

in its standard service agreement. We find that under the

circumstances of this case, the class action waiver is

unconscionable and unenforceable. These circumstances

include a contract of adhesion that requires the customer to

arbitrate all claims, but does not reveal the cost of arbitration,

and contains a liquidated damages clause that allegedly

operates as an illegal penalty. These provisions operate

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together to create a situation where the cost of vindicating the

claim is so high that the plaintiff=s only reasonable, cost-

effective means of obtaining a complete remedy is as either the

representative or a member of a class.

We note that several other provisions of the arbitration

clause also burden an individual customer=s ability to vindicate

this claim. For example, the strict confidentiality clause that

prohibits Cingular, the claimant, and the arbitrator from

disclosing Athe existence, content, or results of any arbitration,@

means that even if an individual claimant recovers on the

illegal-penalty claim, neither that claimant nor her attorney can

share that information with other potential claimants. Cingular,

however, can accumulate experience defending these claims.

See, e.g., Ting, 319 F.3d at 1152 (finding that a strict

confidentiality clause contributes to the substantive

unconscionability of a contract term Aby ensuring that none of

[defendant=s] potential opponents will have access to

precedent while, at the same time, [defendant] accumulates a

wealth of knowledge@).

We express no opinion on the enforceability of Cingular=s

revised service agreement except to say that the enforceability

of a class action waiver, whether or not the contract provides

for mandatory arbitration, must be determined on a case-by-

case basis, considering the totality of the circumstances.

Relevant circumstances include the fairness and balance of the

contract terms, the presence of unfair surprise, and the cost of

vindicating the claim relative to the amount of damages that

might be awarded under the dispute resolution provisions of

the contract. See Maxwell, 184 Ariz. at 89, 907 P.2d at 58.

Availability of Small Claims Court or Regulatory Enforcement

The final sentence of the arbitration clause in Cingular=s

standard service agreement provides that, notwithstanding the

arbitration requirement, Aeither party may bring an action in

small claims court.@ Cingular argues that this option eliminates

the possibility that a customer will lack a cost-effective means

of vindicating a small claim. Cingular suggests that small

claims court is often a better option than a class action for the

resolution of small claims, citing Pulver v. 1st Lake Properties,

Inc., 681 So. 2d 965, 970 (La. App. 1996) (noting that a class

-35-

action may lead to a Acomplicated lengthy legal embattlement,@

while an individual can resolve her claim in small claims court

Aexpeditiously and with minimum costs and fees@).

Pulver involved a failed attempt at class certification of a

class 700 to 1,000 tenants who may or may not have had

claims against their various landlords for damages as a result

of a flood. The court affirmed the denial of class certification on

the basis that the plaintiffs did not meet any of the

requirements for certification of a class. The individual claims

of the eight named plaintiffs were, however, within the

jurisdiction of the small claims court. Pulver, 681 So. 2d at 970.

Pulver is thus inapplicable to the present case. Indeed, the

quoted language from Pulver merely suggests a reason that an

individual plaintiff might opt out of a class action to pursue an

individual claim in small claims court. It does not support the

argument that, in the present case, small claims adjudication is

a cost-efficient means for plaintiff to vindicate her claim against

Cingular.

Cingular also relies on Jenkins v. First American Cash

Advance of Georgia, LLC, 400 F.3d 868, 879 (11th Cir. 2005)

(holding that, under Georgia law, contract provision allowing

access to small claims tribunal applies equally to both parties).

Cingular does not explain, however, how the mutual availability

of the small claims forum might render an otherwise

unconscionable contract provision enforceable.

Both parties call our attention to Iberia Credit Bureau.

Cingular states that the court of appeals Afocused on@ the

availability of small claims court when it rejected the plaintiff=s

argument that the class action waiver made it impossible for

individuals to pursue individual small claims. Plaintiff disputes

that this was a Afocus@ of the court of appeals since the

availability of small claims adjudication was not discussed in

the body of the opinion, but was merely referred to in a

footnote. Iberia Credit Bureau, 379 F.3d at 175.

We conclude that, given the particular facts and

circumstances of this case, the availability of a judicial forum

for individual small claims does not render the prohibition on

class treatment of plaintiff=s claim enforceable. In this case, the

small claims forum has the same limitations as the abritral

forum. Plaintiff, whose actual damages total $150, would have

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to pay a filing fee and hire an attorney to litigate her claim that

the early-termination fee is an illegal penalty. Indeed, the

gravamen of her complaint is that Cingular drafted the contract

terms with the intent to impose an illegal penalty for early

termination in such a manner as to make any challenge to the

fee cost-prohibitive in either arbitration or small claims court.

Similarly, we are not persuaded that the ability of the

Attorney General to bring an action under the Consumer Fraud

Act (815 ILCS 505/7 (West 2002)) renders the class action

waiver in the Cingular service agreement enforceable.

Although the Attorney General could challenge the early-

termination fee on behalf of the consumers of Illinois, she must

allocate scarce resources to a variety of issues affecting

consumers. There is no guarantee that the Attorney General

would find the particular claim raised by plaintiff to be a high

priority. If we were to conclude that the mere possibility of

governmental action were sufficient to overcome the

substantive and procedural flaws in Cingular=s class action

waiver, we would be denying plaintiff and other consumers any

remedy for the allegedly illegal $150 penalty, at least until the

Attorney General had the resources and the incentive to

pursue the issue. See, e.g., Deposit Guaranty, 445 U.S. at

338-39, 63 L. Ed. 2d at 440, 100 S. Ct. at 1174 (AThe

aggregation of individual claims in the context of a classwide

suit is an evolutionary response to the existence of injuries

unremedied by the regulatory action of government@ and noting

Aincreasing reliance on the >private attorney general= for the

vindication of legal rights@ via class actions).

Severability

The Cingular service agreement provides that A[i]f any

provision of this Agreement is found to be unenforceable by a

court or agency of competent jurisdiction, the remaining

provisions will remain in full force and effect.@ Nevertheless,

Cingular argues that the appellate court erred by severing the

class action waiver from the remainder of the arbitration

clause. Cingular suggests that the issue of severability was

decided without prior briefing by the parties and that both

parties unsuccessfully sought rehearing on the issue. Thus,

Cingular concludes, there is no justification for requiring the

-37-

parties to engage in a class arbitration to which neither party

agreed and which neither party sought. In particular, Cingular

argues that Aclass actions are inherently inconsistent with the

streamlined nature of arbitration.@

Plaintiff responds that the appellate court merely applied

the plain language of the service agreement when it severed

the class action waiver. In addition, plaintiff notes that the

Supreme Court=s holding in Green Tree implicitly recognizes

the legitimacy of arbitral class actions. Green Tree, 539 U.S. at

453, 156 L. Ed. 2d at 423, 123 S. Ct. at 2407-08. Finally, the

adoption of rules and procedures for class arbitration by the

AAA indicates that class arbitration is entirely feasible.

Cingular replies that plaintiff is estopped from arguing in

favor of severance of the unenforceable class action waiver

because she argued in both the trial court and the appellate

court that the waiver was not severable from the remainder of

the arbitration clause. We note, however, that Cingular

apparently argued to the appellate court that the offending

clause was severable. 357 Ill. App. 3d at 568-69.

The appellate court offered three reasons for severing the

unconscionable clause from the remainder of the arbitration

provision. First, Athe provision requiring the arbitration of

disputes does not depend for its efficacy upon the provision

barring class relief. The claim can still be arbitrated if the

arbitrator is free to determine that class arbitration is

appropriate.@ 357 Ill. App. 3d at 569. Second, the agreement

has a severability clause, which reflects the parties= intent to

give effect to the valid portions of the contract. Third, the strong

policy in favor of enforcing arbitration agreements is best

served by preserving the valid portions of the agreement while

severing the unconscionable provision. 357 Ill. App. 3d at 569.

In Spinetti, the court of appeals considered whether an

unenforceable provision could be severed from an arbitration

clause in an employment agreement. Unlike the present case,

the agreement did not contain a severability clause. The

federal policy encouraging recourse to arbitration

notwithstanding, the court of appeals looked first to the state

law of contracts for the answer. Spinetti, 324 F.3d 214. Under

the applicable law, as enunciated in the Restatement (Second)

of Contracts '184, a court may sever the unenforceable portion

-38-

of an agreement and enforce the remainder A >in favor of a

party who did not engage in serious misconduct if the

performance as to which the agreement is unenforceable is not

an essential part of the agreed exchange.= @ Spinetti, 324 F.3d

219, quoting Restatement (Second) of Contracts '184, at 30

(1981).

This court has not had occasion to consider this section of

the Restatement, but our appellate court has long relied on the

principle that an entire contract or a clause therein fails if the

stricken portion constitutes an essential term of the contract or

clause, but the remainder stands if the stricken portion is not

essential to the bargain. See People v. McNett, 361 Ill. App. 3d

444, 448 (2005), citing Restatement (Second) of Contracts

'184 (1981); Stamatakis Industries, Inc. v. King, 165 Ill. App.

3d 879, 889 (1987) (same); Dryvit Systems, Inc. v. Rushing,

132 Ill. App. 3d 9, 12 (1985) (same). See also Muhammad, slip

op. at 31-33 (concluding that once the unconscionable class

action waiver is removed, the remainder of the arbitration

agreement is enforceable as a matter of state law). We

agree with the appellate court that the existence of a

severability clause and the strong public policy in favor of

enforcing arbitration agreements weigh in favor of enforcing the

arbitration clause without the offending class action waiver.

Cingular, the party that drafted the contract containing the

severability clause, has not persuaded us that the class action

waiver was essential to its making of the agreement. We,

therefore, affirm the appellate court=s ruling on the issue of

severability.

CONCLUSION

In sum, we hold that under the circumstances of this case,

the waiver on class actions is unconscionable. It is not

unconscionable merely because it is contained in an arbitration

clause. It is unconscionable because it is contained in a

contract of adhesion that fails to inform the customer of the

cost to her of arbitration, and that does not provide a cost-

effective mechanism for individual customers to obtain a

remedy for the specific injury alleged in either a judicial or an

-39-

arbitral forum. We further hold that the offending clause is

severable from the arbitration clause.

We do not hold that class action waivers are per se

unconscionable. It is not unconscionable or even unethical for

a business to attempt to limit its exposure to class arbitration or

litigation, but to prefer to resolve the claims of customers or

clients individually. Indeed, it has been suggested that, as a

matter of economic theory, consumers may benefit from

reduced costs if companies are allowed to engage in this

strategy. See, e.g., J. Sternlight & E. Jensen, Using Arbitration

to Eliminate Consumer Class Actions: Efficient Business

Practice or Unconscionable Abuse?, 67 Law & Contemp.

Probs. 75, 92-99 (2004). The unconscionability of class action

waivers must be determined on a case-by-case basis,

considering the totality of the circumstances.

For the foregoing reasons, we affirm the judgment of the

appellate court, which reversed the judgment of the circuit

court, and remanded the cause to the trial court for further

proceedings.

Appellate court judgment affirmed.

CHIEF JUSTICE THOMAS and JUSTICE BURKE took no

part in the consideration or decision of this case.

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