Petition for Writ of Certiorari — T-Mobile USA, Inc. v. Lowden (No. 07-1330)

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D Supreme Court, U.S;

q OF TLED s

QO 071330 APR18 2008

No. 07- OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

T-MOBILE USA, INC.,

Petitioner,

KATHLEEN LOWDEN AND JOHN MAHOWALD,

INDIVIDUALLY AND ON BEHALF OF ALL THE MEMBERS OF

THE CLASS OF PERSONS SIMILARLY SITUATED,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

STEPHEN M. RUMMAGE CARTER G. PHILLIPS*

KRISTINA SILJA BENNARD PAULJ. ZIDLICKY

DAVIS WRIGHT TREMAINE PETER C. PFAFFENROTH

LLP JAMES C. OWENS

Suite 2200 SIDLEY AUSTIN LLP

1201 Third Avenue 1501 K Street, N.W.

Seattle, WA 98101 Washington, D.C. 20005

(206) 622-3150 (202) 736-8000

Counsel for Petitioner T-Mobile USA, Inc.

April 18, 2008 * Counsel of Record

WALSON-EPES PRINTING Co., INC. - (202) 789-0086 — WASHINGTON, D.C. 20002

QUESTION PRESENTED

Whether this petition for certiorari should be held

pending this Court’s disposition of the petition for

certiorari previously filed in T-Mobile USA, Inc. v.

Laster, No. 07-976 (filed Jan. 23, 2008), given that

both cases present the same important question:

Whether, under the Federal Arbitration Act, a

federal court may refuse to enforce the terms of an

agreement to arbitrate based upon a state-law policy

that individual arbitration is unconscionable in cases

involving small claims by a consumer.

LIST OF PARTIES AND AFFILIATES

Pursuant to Rule 29.6 of the Rules of this Court, T-

Mobile USA, Inc., states that it is a wholly-owned

subsidiary of T-Mobile Global Holding GmbH, which

is a wholly-owned subsidiary of T-Mobile Inter-

national AG, which, in turn, is a wholly-owned

subsidiary of Deutsche Telekom AG. Deutsche

Telekom AG is a publicly-traded company, of which

approximately 14.83% and 16.87% is owned by the

Federal Republic of Germany and the Kreditanstalt

fiir Wiederaufbau (a. bank controlled by the

Government of the Federal Republic of Germany),

respectively. No other publicly-held company owns

10% or more of T-Mobile USA, Inc.

TABLE OF CONTENTS

QUESTION PRESENTED

LIST OF PARTIES AND AFFILIATES

STATUTORY BACKGROUND

FACTUAL BACKGROUND

REASONS FOR GRANTING THE PETITION...

CONCLUSION

APPENDIX A: Lowden v. T-Mobile USA, Inc.,

519 i an 1912 (9th Cir. 2008)

APPENDIX B: Lowden, et al. v. T-Mobile USA,

Inc., No. C05-1482P (W.D. Wash. Apr. 13,

APPENDIX C: T-Mobile Terms and _ Condi-

TABLE OF AUTHORITIES

CASES

Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265 (1995)

Circuit City Stores v. Adams, 532 U.S. 105

(2001)

Dean Witter Reynolds Inc. v. Byrd, 470

U.S. 213 (1985)

Discover Bank v. Superior Court, 113 P.3d

1100 (Cal. 2005)

Doctor’s Assocs. Inc. v. Casarotto, 517 U.S.

681 (1996)

Gay v. CreditInform, 511 F.3d 369 (3d Cir.

Gilmer v. Interstate/Johison Lane Corp.,

500 U.S. 20 (1991)

Jenkins v. First Am. Cash Advance, 400

F.3d 868. (11th Cir. 2005), cert. denied,

546 U.S. 1214 (2006)

Johnson v. West Suburban Bank, 225 F.3d

366 (3d Cir. 2000)

Livingston v. Associates Fin., Inc., 339 F.3d

553 (7th Cir. 2003)

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985)

Moses H. Cone Mem’ Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983)

Perry v. Thomas, 482 U.S. 483 (1987) 3, 6, 7

Preston v. Ferrer, _ U.S. __, 128 S. Ct. 978

(2008)

Randolph v. Green Tree Fin. Corp., 244

F.3d 814 (11th Cir. 2001)

Scott v. Cingular Wireless, 161 P.3d 1000

(Wash. 2007)

Shroyer v. New Cingular Wireless Serus.,

Inc., 498 F.3d 976 (9th Cir. 2007)

TABLE OF AUTHORITIES -— continued

Page

Snowden v. CheckPoint Check Cashing,

290 F.3d 631 (4th Cir. 2002)

Southland Corp. v. Keating, 465 U.S. 1

T-Mobile USA, Inc. v. Laster, No. 07-976

(filed Jan. 23, 2008)

Tillman v. Commercial Credit Loans, Inc.,

655 S.E.2d 362 (N.C. 2008)

Volt Info. Scis., Inc. v. Board of Trs., 489

U.S. 468 (1989)

STATUTES

9 U.S.C. § 2

PETITION FOR A WRIT OF CERTIORARI

Petitioner T-Mobile USA, Inc. (“T-Mobile”),

respectfully requests that this Court grant the

petition for a writ of certiorari to review the decision

and judgment of the United States Court of Appeals

for the Ninth Circuit.

OPINIONS BELOW

The decision of the United States District Court for

the Western District of Washington denying

T-Mobile’s motion to compel arbitration is unreported

and is reproduced in the Appendix to this Petition

(“Pet. App.”) at 18a-38a. The opinion of the Ninth

Circuit affirming the district court is reported at 512

F.3d 1213 and is reproduced at Pet. App. la-17a.

JURISDICTION

Plaintiffs originally filed this lawsuit in the Supe-

rior Court of Washington in and for King County.

T-Mobile removed the action to federai court in

August 2005. The district court had jurisdiction

under 28 U.S.C. §§ 1332(d) and 1453. The Ninth

Circuit, which rendered its decision below on January

22, 2008, had appellate jurisdiction over the district

court’s denial of T-Mobile’s motion to compel

arbitration under 9 U.S.C. § 16(a)(1). T-Mobile

invokes the jurisdiction of this Court under 28 U.S.C.

§ 1254(1).

STATUTES INVOLVED

Section 2 of the Federal Arbitration Act, 9 U.S.C.

§ 2, provides in pertinent part:

A written provision in any .. . contract

evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter

arising out of such contract or transaction... .

shall be valid, irrevocable, and enforceable, save

upon such grounds as exist in law or equity for

the revocation of any contract.

STATEMENT OF THE CASE

This case presents the recurring question whether

Section 2 of the Federal Arbitration Act (“FAA”)

permits federal courts to refuse to enforce private

agreements that expressly preclude class-based

arbitration because state law deems agreements

requiring individual arbitration of consumer claims

to be substantively unconscionable. The petition for

certiorari in T-Mobile USA, Inc. v. Laster, No. 07-976

(filed Jan. 23, 2008), presents the same question. For

the reasons fully set forth in the petition in Laster,

the question presented warrants the grant of

certiorari. Accordingly, petitioner respectfully

requests that this case be held pending disposition of

the petition in Laster and resolved consistent with

that petition.!

Respondents Kathleen Lowden, through her

former spouse, and John Mahowald were T-Mobile

subscribers who each entered into contracts agreeing

to resolve any disputes with T-Mobile through

individual arbitration. Notwithstanding those

agreements, they filed a class action on behalf of

themselves and all similarly situated United States

consumers claiming’ that petitioner’ violated

Washington state law by charging Universal Service

Fund fees in addition to advertised prices, and by

allegedly billing customers for telephone calls made

1In addition, the same issue also is presented and has been

briefed in T-Mobile USA, Inc. v. Ford, No. 07-1103 (filed Feb. 22,

2008).

during a different billing period or for unspecified

calls that had been advertised as being free of charge.

The court below, applying prior Ninth Circuit and

Washington Supreme Court precedent in Shroyer v.

New Cingular Wireless Services, Inc., 498 F.3d 976

(9th Cir. 2007), and Scott v. Cingular Wireless, 161

P.3d 1000 (Wash. 2007), held that ~espondents’

agreement to arbitrate individually waz unenforce-

able because it did not permit class-wide arbitration.

As set forth in T-Mobile’s pending petition for

certiorari in Laster (No. 07-976), such decisions

conflict with the Third Circuit’s ruling in Gay v.

CreditInform, 511 F.3d 369 (3d Cir. 2007). There, the

Third Circuit, relying on this Court’s decision in

Perry v. Thomas, 482 U.S. 483 (1987), ruled that the

FAA precludes a court from refusing to enforce an

agreement to arbitrate individually based upon a

state-law determination that individual arbitration of

small consumer claims is unconscionable. 511 F.3d

at 395. The Gay court concluded that the FAA

preempts state unconscionability standards to the

extent that they would render individual arbitration

unenforceable. Denying enforcement on_ those

grounds, the Third Circuit explained, would be

tantamount to “rely{ing] on the uniqueness of an

agreement to arbitrate as a basis for a state-law

holding that enforcement would be unconscionable.”

Id. (quoting Perry, 482 U.S. at 492 n.9).2

2 The Gay decision builds on decisions by other federal circuits

holding that individual arbitration is appropriate for resolving

federal and state claims by consumers in cases involving

relatively small individual amounts. See Johnson v. West

Suburban Bank, 225 F.3d 366, 373 (3d Cir. 2000); accord

Jenkins v. First Am. Cash Advance, 400 F.3d 868, 878 (11th Cir.

2005), cert. denied, 546 U.S. 1214 (2006); Livingston v.

Associates Fin., Inc., 339 F.3d 553, 559 (7th Cir. 2003); Snowden

The Ninth Circuit in its ruling below expressly

declined “to follow the Third Circuit’s holding in

Gay.” Pet. App. 17a n.3. And, more recently, a

majority of the Supreme Court of North Carolina

followed the approach staked out by the Ninth Circuit

and other courts in striking down an arbitration

agreement that required individual arbitration.

Tillman v. Commercial Credit Loans, Inc., 655 S.E.2d

362, 373 (N.C. 2008).. The dissent in Tillman would

have upheld the agreement to arbitrate based on the

Third Circuit’s reasoning in Gay. Id. at 387 (Newby,

J., dissenting).

This case, like the .uling in Laster, implicates the

same conflict over the enforceability of agreements to

arbitrate consumer claims individually. In the ruling

below, the Ninth Circuit applied Shroyer to hold that

the FAA does not mandate enforcement of these

agreements. Pet. App. 12a-17a. In contrast, the

Third Circuit in Gay ruled that the FAA does require

enforcement of agreements requiring individual

arbitration of consumer claims and thus preempts

state law to the contrary. Moreover, the Third,

Fourth, Seventh, and Eleventh Circuits all have

held — unlike the decision below — that individual

arbitration allows for the effective resolution of

claims in cases involving consumers. See Pet’n for

Certiorari at 11-25, 7-Mobile USA, Inc. v. Laster, No.

07-976 (filed Jan. 23, 2008).

Resolution of this conflict is necessary because the

proper application of the FAA to consumer

arbitration agreements presents a recurring issue of

fundamental and national importance. The enforce-

ability of agreements to arbitrate under the FAA

v. CheckPoint Check Cashing, 290 F.3d 631, 638-39 (4th Cir.

2002); Randolph v. Green Tree Fin. Corp., 244 F.3d 814, 818

(11th Cir. 2001).

affects the rights of tens of millions of consumers and

businesses. Indeed, a state-law rule that arbitration

must provide a class-wide mechanism for resolving

disputes directly undercuts the benefit of arbitration

as a streamlined, low-cost alternative to litigation.

Decisions by courts that invalidate the terms of these

arbitration agreements undermine the “primary

purpose” of the FAA: to counteract judicial hostility

to arbitration and to ensure that arbitration remains

a viable alternative to litigation through enforcement

of agreements to arbitrate in accordance with their

terms. See Volt Info. Scis., Inc. v. Board of Trs., 489

U.S. 468, 479 (1989); 9 U.S.C. § 4; see also Pet’n for

Certiorari at 25-29, T-Mobile USA, Inc. v. Laster, No.

07-976 (filed Jan. 23, 2008).

Petitioner requests that this case be held pending

the disposition of the petition for certiorari in Laster,

No. 07-976 (filed Jan. 23, 2008), and resolved as

appropriate in light of that disposition.

STATUTORY BACKGROUND

In 1925, Congress enacted the FAA in response “to

hostility of American courts to the enforcement of

arbitration agreements.” Circuit City Stores v.

Adams, 532 U.S. 105, 111 (2001). Congress sought to

promote arbitration as a meaningful alternative to

litigation. “[Bly agreeing to arbitrate, a party ‘trades

the procedures and opportunity for review of the

courtroom for the simplicity, informality, and

expedition of arbitration.” Gilmer v. Interstate/

Johnson Lane Corp., 500 U.S. 20, 31 (1991). Indeed,

“it is typically a desire to keep the effort and expense

required to resolve a dispute within manageable

bounds that prompts [parties] to forgo access to

judicial remedies.” Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 6383 (1985).

For that reason, “Congress, when enacting [the FAA],

had the needs of consumers, as well as others, in

mind.” Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265, 280 (1995).

The “primary purpose” of the FAA is to “ensurfe]

that private agreements to arbitrate are enforced

according to their terms.” Volt Info. Scis., Inc. v.

Board of Trs., 489 U.S. 468, 479 (1989). Arbitration

agreements must be “rigorously enforce[d]” even if

“the result is ‘piecemeal’ litigation.” Dean Witter

Reynolds Ine. v. Byrd, 470 U.S. 213, 221 (1985).

Indeed, Section 2 of the FAA “compels judicial

enforcement of a wide range of written arbitration

agreements,” Circuit City, 532 U.S. at 111, “notwith-

standing any state substantive or procedural policies

to the contrary.” Perry v. Thomas, 482 U.S. 483, 489

(1987) (quoting Moses H. Cone Mem’ Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 24 (1983)); see also

Preston vy. Ferrer, __ U.S. _, 128 S. Ct. 978, 983

(2008).

Under the FAA, “the underlying issue of

arbitrability” is “a question of substantive federal

law,” Southland Corp. v. Keating, 465 U.S. 1, 12

(1984), that “must be addressed with a healthy

regard for the federal policy favoring arbitration,”

Moses H. Cone, 460 U.S. at 24. In determining

whether an agreement to arbitrate is enforceable,

“the text of § 2 provides the touchstone for choosing

between state-law principles and the principles of

federal common law.” Perry, 482 U.S. at 492 n.9. As

explained in Perry, “[aJn agreement to arbitrate is

valid, irrevocable, and enforceable, as a matter of

federal law ‘save upon such grounds as exist at law or

in equity for the revocation of any contract.” Id.

(quoting 9 U.S.C. § 2) (internal citation omitted;

emphasis added by Court). “[S]tate law ... is

applicable if that law arose to govern issues

concerning the validity, revocability, and enforce-

ability of contracts generally.” Id. at 493 n.9.

“Courts may not... invalidate arbitration agree-

ments under state laws applicable only to arbitration

provisions.” Doctor’s Assocs. Inc. v. Casarotto, 517

U.S. 681, 687 (1996); see Perry, 482 U.S. at 493 n.9.

Likewise, courts may not (i) refuse enforcement based

on state laws applicable only to certain types or

categories of contracts, Southland, 465 U.S. at 16

n.11, or (ii) rely upon a fundamental aspect of

arbitration as a basis for a ruling that arbitration is

unconscionable, Perry, 482 U.S. at 493 n.9.

FACTUAL BACKGROUND

Petitioner T-Mobile markets and sells wireless

telecommunications services, phones, and accessories

throughout the United States. The Federal

Communications Commission long has required T-

Mobile to pay a Universal Service Fund (“USF”) fee,

and T-Mobile at times has passed through USF fees

on customer bilis in accordance with FCC guidance.

See 9th Cir. Excerpts of Record (“ER”) at 19. In

addition, T-Mobile sometimes charges customers for

calls on a per-minute basis when they have exceeded

their allotted minutes and may also charge additional

fees for certain calls. Id. at 20.

a. In or about July 2000, the then-husband of

respondent Kathleen Lowden (“Lowden”) initiated

wireless service with T-Mobile’s predecessor in

interest, VoiceStream Wireless, and at that time

signed a service agreement with the company. ER

31, 109. Immediately above Lowden’s former hus-

band’s signature, the agreement states: “Disputes

are subject to mandatory arbitration pursuant

to paragraph 19.” ER 109 (emphasis in original).

The terms and conditions of service are set forth in

full on the back of the signed service agreement. ER

35.

In or about April 2002, respondent John Mahowald

(“Mahowald”) also initiated service with VoiceStream

Wireless, and, as the district court found, he too

signed the then-applicable service agreement. Pet.

App. 25a; ER 31. Just above the purchaser’s

signature, the agreement states: “Disputes are

subject to mandatory arbitration in accordance

with paragraph 3 on the reverse.” ER 32

(emphasis in original). The full terms and conditions

appear on the reverse of the agreement. Id.

In or about September 2005, after this case was

filed, Mahowald again signed a T-Mobile service

agreement. ER 112-13. A few lines above

Mahowald’s signature, the agreement states:

I UNDERSTAND THAT. THE SERVICE

AGREEMENT AFFECTS MY AND _ T-

MOBILE’S LEGAL abesinicne AMONG OTHER

THINGS, IT:

® REQUIRES MANDATORY ARBITRATION

OF DISPUTES;

REQUIRES MANDATORY WAIVER OF

THE RIGHT TO JURY TRIAL AND

WAIVER OF ANY ABILITY TO PARTICI-

PATE IN A CLASS ACTION{_]

ER 113 (emphasis in original).

In addition to being incorporated in the service

agreements, ER 32, the then-current version of the

companies’ terms and conditions were enclosed in the

boxes containing each new phone that respondents

acquired. ER 31, 32, 34, 36. Each version of the

terms and conditions explicitly stated that by

activating wireless service, respondents acknow-

ledged that they had read and agreed to the terms

and conditions. ER 39, 40, 69, 109, 110, 113. Each

version of the terms and conditions provided

respondents with ample opportunity to cancel service

without paying any cancellation fee. ER 40, 69, 110,

113. Respondents chose to keep the phones, to

continue their T-Mobile service, and to accept the

corresponding terms and conditions. See ER 31.

Each version of the terms and conditions to which

respondents agreed sets forth an _ arbitration

agreement that requires that all parties to the

contract pursue any claims in arbitration on an

individual, not class, basis. For example, the version

to which respondent Mahowald agreed in 2005

provides that the arbitration clause is governed by

“the Federal Arbitration Act and federal arbitration

law” and that “[njeither you nor we may be a

representative of other potential claimants or a class

of potential claimants in any dispute, nor may two or

more individuals’ disputes be consolidated or

otherwise determined in one proceeding.” Pet. App.

41a-42a. The other arbitration clauses at issue all

contained similar provisions. See Pet. App. 39a-40a,

44a.

b. Notwithstanding respondents’ agreements to

arbitrate any disputes with T-Mobile on an individual

basis, in July 2005, they filed a class action in

Washington state court on behalf of three proposed

nationwide classes of T-Mobile customers: (i) those

who were allegedly charged USF fees; (11) those who

were allegedly charged for calls made during a billing

period other than the period in which the calls were

made; and (iii) those who were allegedly charged

additional fees for certain calls that were supposed to

be free of charge. ER 2. Respondents alleged breach

of contract and violation of the Washington

Consumer Protection Act arising from the assessment

of such costs and fees. ER 10-15. They sought

injunctive relief, restitution, “[t]reble, exemplary or

punitive damages,” pre-judgment interest, and

attorney’s fees and litigation expenses. ER 15-16.

c. After removal to federal court, petitioner

moved to compel arbitration under the FAA. Pet.

App. 18a. On April 13, 2006, the district court denied

T-Mobile’s motion, ruling that the arbitration

agreement was substantively unconscionable under

Washington state law because it required individual

arbitration. Pet. App. 29a-3la. Although the court

acknowledged that Washington courts previously had

enforced arbitration agreements that “effectively

prevent class relief,” id. at 29a, the court ruled that

the class action waivers in the T-Mobile and Voice-

Stream arbitration agreements would prevent

respondents from effectively vindicating their rights

under the state consumer protection act. Pet. App.

30a (citing Luna v. Household Fin. Corp. HI, 236 F.

Supp. 2d 1166, 1179 (W.D. Wash. 2002) and Mendez

v. Palm Harbor Homes, 45 P.3d 594, 605 (Wash. App.

2002)):

The court rejected respondents’ arguments that the

agreements were procedurally unconscionable, find-

ing that respondents “had a meaningful choice with

respect to whether or not to enter into the

agreements.” Pet. App. 38a. The court observed that

respondents had “as much time as they wanted to

consider the agreements,” id. at 27a, and that the

arbitration provisions were “not nidden in a ‘maze of

fine print.” Jd. at 28a (quoting Adler v. Fred Lind

Manor, 103 P.3d 773, 784 (Wash. 2004)). Notwith-

standing these findings, the court deemed the

arbitration agreements unenforceable based on their

supposed substantive unconscionability. Pet. App.

37a-38a.°

d. The Ninth Circuit affirmed. It concluded that

the arbitration agreements were “indistinguishable in

all material respects” from an individual arbitration

agreement that the Washington Supreme Court had

rejected in a ruling issued after the district court’s

decision here. Pet. App. 1la (citing Scott v. Cingular

Wireless, 161 P.3d 1000 (Wash. 2007)). It therefore

held that the parties’ agreements, like the agreement

in Scott, were subsvantively unconscionable because

they barred class actions, “in effect .. . exculpat{ing]

[defendant] from legal liability for any wrong where

the cost of pursuit outweighs the potential amount of

recovery.” Pet. App. 10a (omission in original)

(quoting Scott, 161 P.3d at 1007). The court also

ruled that the parties’ arbitration agreements were

unconscionable because it deemed them to be

effectively non-mutual, as in Scott. See id. at 10a-lla

(citing Scott, 161 P.3d at 1008).

The Ninth Circuit also held that the Federal

Arbitration Act does not preempt Washington law

deeming unenforceable the petitioner’s terms and

conditions requiring individual arbitration. Pet. App.

lla-18a. The court determined that the Washington

Supreme Court’s unconscionability law announced in

Scott was “almost identical” to that created by the

California Supreme Court in Discover Bank v.

Superior Court, 113 P.3d 1100 (Cal. 2005), which the

Ninth Circuit already had held not to be preempted.

Pet. App. 16a (adopting reasoning of Shroyer v. New

Cingular Wireless Services, Inc., 498 F.3d 976 (9th

3 The court also found that the arbitration provisions’ bars on

punitive damages and attorney's fees were substantively

unconscionable. Pet. App. 32a-34a.

Cir. 2007)). The court below explicitly acknowledged

the Third Circuit’s conflicting ruling in Gay v.

CreditInform, but “decline[d] T-Mobile’s invitation to

follow the Third Circuit{].” Jd. at 17a n.3.

REASONS FOR GRANTING THE PETITION

This case implicates a conflict among the lower

federal courts on the question whether the Federal

Arbitration Act requires enforcement of agreements

to arbitrate consumer disputes on an individual

basis, or whether such agreements cai: be invalidated

based on state-law policy in favor of class actions.

The issue presented in this case is the same as the

one squarely presented in a prior petition filed by

_ petitioner T-Mobile that is pending before this Court.

T-Mobile USA, Inc. v. Laster, No. 07-976 (filed Jan.

23, 2008). The Laster case involved a single version

of the T-Mobile arbitration agreement and the class

claims addressed a single discrete type of transaction

implicating only the relationship between T-Mobile

and its customers with respect to the sales tax

associated with the purchase of a free wireless phone.

See Pet’n for Writ of Certiorari at 6-11, Laster, No.

07-976. As explained in the Laster petition, that case

presents an ideal vehicle to address and resolve the

same conflict presented in this case. Although the

issue presented in this case is equally worthy of

review, no reason exists to consider more than one

petition raising that same question.

To promote efficiency, petitioner requests that the

Court grant review in Laster and hold the petition in

this case pending the disposition in Laster.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be held pending the Court's

disposition of 7-Mobile USA, Inc. v. Laster, No. 07-

976 (filed Jan. 23, 2008), and then disposed of

accordingly.

Respectfully submitted,

STEPHEN M. RUMMAGE CARTER G. PHILLIPS*

KRISTINA SILJA BENNARD PAUL J. ZIDLICKY

DAVIS WRIGHT TREMAINE PETER C. PFAFFENROTH

LLP JAMES C. OWENS

Suite 2200 SIDLEY AUSTIN LLP

1201 Third Avenue 1501 K Street, N.W.

Seattle, WA 98101 Washington, D.C. 20005

(206) 622-3150 (202) 736-8000

Sat nw nw REARS, FIOA Fuss

stitioner T-Mobile USA, Lie.

April 18, 2008 * Counsel of Record

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

NINTH CIRCUIT

No. 06-35395

KATHLEEN LOWDEN and JOHN MAHOWALD,

individually and on behalf of all the members of

the class of persons similarly situated,

Plaintiffs-Appellees,

T-MOBILE USA, INC., a foreign corporation,

Defendant-Appellant.

Appeal from the United States District Court

for the Western District of Washington;

Marsha J. Pechman, District Judge, Presiding

Argued and Submitted Nov. 7, 2007

Filed Jan. 22, 2008

Before: WILLIAM C. CANBY, JR., SUSAN P.

GRABER, and RONALD M. GOULD, Circuit.Judges.

GOULD, Circuit Judge:

The issues on appeal are whether the arbitration

provisions in Defendant T-Mobile’s service agree-

ments with two of its customers are enforceable

under Washington state law and, if not, whether the

state law is preempted by the Federal Arbitration Act

(“FAA”), 9 U.S.C. §§ 1-16. After two consumers of

T-Mobile’s cellular phone service brought a class

action against T-Mobile in state court for breach of

contract and violation of the Washington Consumer

Protection Act (the “CPA”), Wash. Rev.Code

§ 19.86.010-19.86.920, T-Mobile removed the case to

federal district court and moved to compel arbitration

per its service agreements. The district court denied

T-Mobile’s motion to compel arbitration, holding that

the arbitration agreements were tainted by substan-

tive unconscionability and thus were unenforceable.

We conclude that the Washington State Supreme

Court’s decision in Scott v. Cingular Wireless, 160

Wash.2d 843, 161 P.3d 1000 (2007), establishes that

T-Mobile’s arbitration provision is substantively un-

conscionable and unenforceable under Washington

state law, and that there is no federal preemption in

light of our decision in Shroyer v. New Cingular

Wireless Servs., Inc., 498 F.3d 976 (9th Cir.2007). We

therefore affirm.

The two named Plaintiffs, Kathleen Lowden and

John Mahowald, are or were T-Mobile customers

whose service agreements contained mandatory arbi-

tration provisions with slightly varying terms. Plain-

tiffs sued T-Mobile, alleging that the service provider

had improperly charged them for certain fees beyond

the advertised price of service, charged them for calls

during a billing period other than that in which the

calls were made, and charged them for roaming and

other services that should have been free. T-Mobile

moved to compel arbitration in accord with the

arbitration provisions in Lowden’s and Mahowald’s

service agreements.

In Lowden’s service agreement,’ immediately above

the signature line, the following provision appeared:

“Disputes are subject to mandatory arbitration pur-

suant to paragraph 19. See Reverse.” Paragraph 19

stated:

Mandatory Arbitration. Any controversy, claim or

dispute between you and Company arising under

this Agreement, excluding actions by Company

to collect unpaid charges, shall be submitted to

final, binding arbitration under the auspices of

the American Arbitration Association (“AAA”) pur-

suant to its published Wireless Industry Arbitra-

tion Rules, incorporated herein by this reference

and available by calling the AAA at 800-778-7879

or visiting its web site at http:/Awww.adr.org.

Notice of an arbitration commenced by you shall

be served on Company’s registered agent. All

claims shall be arbitrated individually and you

agree that no person shall bring a punitive [sic]

or certified class action to arbitration or seek to

consolidate or bring previously consolidated claims

' We must assure ourselves that the constitutional standing

requirements are satisfied before proceeding to the merits.

United States v. Hays, 515 U.S. 737, 742, 115 S.Ct. 2431, 132

L.Ed.2d 635 (1995); Casey v. Lewis, 4 F.3d 1516, 1524 (9th

Cir.1993). Although the district court and T-Mobile suggest that

Lowden may not have standing to pursue her claims, we need

not reach this issue. In a class action, standing is satisfied if at

least one named plaintiff meets the requirements. See Arm-

strong v. Davis, 275 F.3d 849, 860 (9th Cir.2001). Here, the

parties do not dispute that Mahowald has standing from his

alleged injury in fact that is both traceable to T-Mobile’s alleged

conduct and likely to be redressed by the damages that

Mahowald seeks. See Lujan v. Defenders of Wildlife, 504 U.S.

555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (discussing

Article III standing requirements).

in arbitration. The arbitrator shall have no au-

thority to award punitive damages. YOU AC-

KNOWLEDGE THAT THIS ARBITRATION

PROVISION CONSTITUTES A WAIVER OF

ANY RIGHT TO A JURY TRIAL.

Those provisions were also in the Terms & Con-

ditions that accompanied the phone delivered to

Lowden and that stated that, “By activating Service

with Company, you acknowledge that you have read

and agree to the terms of this Agreement.” T-Mobile

asserts that, had Lowden or her then-husband

disagreed with those terms, they could have canceled

service and thereby avoided arbitration.

The service agreement in effect when Mahowald

signed up with T-Mobile was slightly different in

substance. While containing an almost identical

provision above the signature line, the provision on

the reverse stated:

Mandatory Arbitration; Dispute Resolution. ANY

CLAIM OR DISPUTE BETWEEN YOU AND

US ARISING UNDER OR IN ANY WAY RE-

LATED TO OR CONCERNING THE AGREE-

MENT, AND/OR OUR PROVISION TO YOU OF

GOODS, SERVICE, OR UNITS, SHALL BE

SUBMITTED TO FINAL, BINDING ARBITRA-

TION WITH THE AMERICAN ARBITRATION

ASSOCIATION (“AAA”) PURSUANT TO ITS

PUBLISHED WIRELESS INDUSTRY ASSO-

CIATION RULES, INCORPORATED HEREIN

BY THIS REFERENCE AND AVAILABLE BY

CALLING THE AAA AT 800-778-7879 OR

VISITING ITS WEBSITE AT http://www.adr.

org. Any arbitration proceeding shall be subject

to the choice of law provision in Paragraph 22.

Notice of an arbitration commenced by you must

be served on our registered agent. No party may

act as a representative of other claimants or

potential claimants in any dispute, and two or

more individuals’ disputes may not be consoli-

dated or otherwise determined in one proceeding.

An arbitrator may not award relief in excess of or

inconsistent with the provisions of the Agree-

ment, order consolidation or arbitration on a class

wide basis, or award lost profits, punitive, inci-

dental, or consequential damages or any other

damages other than the prevailing party’s direct

damages, except that the arbitrator may order

injunctive or declaratory relief pursuant to ap-

plicable law. All administrative expenses of an

arbitration will be equally divided between you

and Us, except that if the claim is less that

$1,000, you will be obligated to pay only $25. If

the claim is less than $25, We will pay all ad-

ministrative expenses. Each party agrees to pay

the fees and costs of its own counsel, experts, and

witnesses at arbitration. Subject to the foregoing

limitations on consolidated or classwide proceed-

ings, you agree, however, that if you fail to

timely pay amounts due, We may assign your

account for collection and the collection agency

may pursue such claims in court limited strictly

to the collection of the past due debt and any

interest or cost of collection permitted by law or

the Agreement.

YOU ACKNOWLEDGE AND AGREE THAT

THIS ARBITRATION PROVISION CONSTI-

TUTES A WAIVER CF ANY RIGHT TO LOST

PROFITS, PUNITIVE, SPECIAL, INDIRECT,

INCIDENTAL, CONSEQUENTIAL OR TREBLE

DAMAGES (“DISCLAIMED DAMAGES”), A

JURY TRIAL, OR PARTICIPATION AS A

PLAINTIFF OR AS A CLASS MEMBER IN A

CLASS ACTION. IF FOR ANY REASON THIS

ARBITRATION CLAUSE IS DEEMED INAP-

PLICABLE OR INVALID, YOU AND WE BOTH

WAIVE ANY CLAIMS TO RECOVER DIS-

CLAIMED DAMAGES AND ANY RIGHT TO

PURSUE, OR PARTICIPATE AS A PLAINTIFF

OR A CLASS MEMBER IN, CLAIMS ON A

CLASSWIDE, CONSOLIDATED, OR REPRE-

SENTATIVE BASIS.

As in Lowden’s case, the Terms & Conditions

accompanying the phones delivered to Mahowald

contained the same arbitration provision, along with

a similar warning that service activation constituted

an agreement to be bound thereby.

Relying on those arbitration provisions, T-Mobile

brought its motion to compel individual arbitration.

The district court denied the motion, holding that

T-Mobile’s arbitration provisions were tainted by

substantive unconscionability and were therefore un-

enforceable.

The district court first determined that each named

Plaintiff had an agreement. Then, after dismissing

Plaintiffs’ argument that the agreements as a whole

were procedurally unconscionable, the court assessed

the agreements for substantive unconscionability.

The court preliminarily noted that the Washington

State Supreme Court was considering Scott, 160

Wash.2d 843, 161 P.3d 1000, which, the court stated,

“places squarely at issue the question of whether

class action prohibitions contained in arbitration

agreements are unconscionable under Washington

law and therefore unenforceable.” However, at the

urging of the parties to decide the issue nonetheless,

the district court declined to stay its ruling pending

Scott. The district court next turned to the un-

onary af anak aankantad nxweviiainn within the

two arbitration agreements.

The district court held that the prohibition on class

relief and the limitation on punitive damages, found

in both agreements, were each substantively uncon-

scionable. The district court also concluded that

Mahowald’s attorney fees provision was substan-

tively unconscionable. Although the court rejected

the arguments that the remaining provisions were in-

valid, it nonetheless declared both arbitration agree-

ments to be unenforceable, despite the severability

provisions, because they were “tainted with sub-

stantive unconscionability.” The district court denied

T-Mobile’s motion to compel arbitration and entered

a stay so that T-Mobile could bring the present

interlocutory appeal. We have jurisdiction of this

appeal pursuant to 9 U.S.C. § 16(a)(1)(A) and (B).

We review de novo the denial of a motion to compel

arbitration. Ticknor v. Choice Hotels Int'l, Inc., 265

F.3d 931, 936 (9th Cir.2001). We also review de novo

the district court’s interpretation of the validity and

scope of the arbitration clause. Jd. We review for

clear error the district court’s findings of fact.

Bradley v. Harris Research, Inc., 275 F.3d 884, 888

(9th Cir.2001).

T-Mobile urges us to compel Plaintiffs to arbitrate

in accord with the terms of the agreement. T-Mobile

argues that the service agreements’ terms and the

Federal Arbitration Act mandate this result. Con-

gress enacted the FAA more than eighty years ago to

advance the federal policy favoring arbitration agree-

ments. Section 2 states that arbitration agreements

made as part of contracts “evidencing a transaction

involving [interstate] commerce . . . shall 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 (emphasis added). Where, as

here, a party attempts to litigate claims covered by a

commercial contract containing an arbitration agree-

ment subject to the FAA, the court must determine

“(1) whether a valid agreement to arbitrate exists

and, if it does, (2) whether the agreement encom-

passes the dispute at issue.” Chiron Corp. v. Ortho

Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.

2000). We apply state-law principles that govern the

formation of contracts to determine whether a valid

arbitration agreement exists. First Options of Chi.,

Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131

L.Ed.2d 985 (1995).

We first address whether, under Washington state

contract law, a valid agreement to arbitrate exists.

This requires us to consider what is unconscionable

and unenforceable under Washington state law. After

the district court denied T-Mobile’s motion to compel

arbitration, the Washington State Supreme Court

decided Scott v. Cingular Wireless, 160 Wash.2d 843,

_161 P.3d 1000. In that case, the Washington State

Supreme Court considered the enforceability of an

arbitration provision within a service agreement

binding Cingular Wireless customers, and held that

the agreement was unconscionable and unenforce-

able under Washington law. Jd. at 1002-03. As in

T-Mobile’s case, Cingular’s arbitration provision con-

tained a clause barring class action litigation or

arbitration.’ Id. at 1003.

The Washington State Supreme Court initially

noted that the plaintiffs had submitted a declaration

from the former division chief for consumer protec-

tion in the Washington State Attorney General’s

office, declaring that that office “did not have suf-

ficient resources to respond to many individual cases

and often ‘relied on . . . private class action to correct

the deceptive or unfair industry practice and to

reimburse consumers for their losses.’ ” Jd. at 1004.

The court also acknowledged the clear split of author-

ity on the enforceability of class action waivers in

arbitration clauses. /d.

Turning to the class action waiver’s enforceability,

the court first observed that “[aJn agreement that

violates public policy may be void and unenforceable.”

Id. at 1005 (citing Restatement (Second) of Contracts

8 178 (1981)). The court then discussed Washington’s

state nolicy f feyoring agcraocation of small claims for

purposes of efficiency, deterrence, and access to

justice.” Id. It noted that “when consumer claims are

small but numerous, a class-based remedy is the only

effective method to vindicate the public’s rights.” 7d.

* The remaining Cingular provisions differed slightly from

T-Mobile’s provisions. For instance, Cingular’s agreement pro-

vided that Cingular would “pay the filing, administrator, and

arbitration fees unless the customer’s claim was found to be

frivolous; that Cingular would reimburse the customer for rea-

sonable attorney fees and expenses incurred for the arbitration

(provided that the customer recovered at least the demand

amount); and that the arbitration would take place in the

county of the customer’s billing address.” Scott, 161 P.3d at

1003. The agreement had also initially limited punitive dam-

ages, but Cingular subsequently removed that limitation. Id.

10a

The court held that Cingular’s particular class

action waiver was unconscionable. The court dis-

cussed the public policies that class actions advance,

declaring that, “without class actions, consumers

would have far less ability to vindicate the CPA.” /d.

at 1006. It also stated that the class action waiver

clause was “an unconscionable violation of [Wash-

ington’s] policy to protect the public and foster fair

and honest competition because it drastically fore-

stall[ed] attempts to vindicate consumer rights” and

was, therefore, “substantively unconscionable.” 7d.

(internal quotation marks and citation omitted).

The court then noted that the agreement was

additionally unconscionable because it “in effect .. .

exculpate[d] Cingular from legal liability for any

wrong where the cost of pursuit outweighs the poten-

tial amount of recovery.” Jd. at 1007. It asserted that

the availability of a class action mechanism would

“transform [ ] a merely theoretically possible remedy

into a real one.” Jd. The court reasoned that merely

shifting the cost of arbitration to Cingular did not

seem likely to “make it worth the time, energy, and

stress to pursue such individually small claims,”

especially when attorney fees would be awarded only

if the plaintiffs recovered at least the full amount of |

their demand. Id.

The court reasoned that, because the clause barred

any class action, in or outside arbitration, it func-

tioned to “exculpate the drafter from liability for a

broad range of undefined wrongful conduct, including

potentially intentional wrongful conduct, and that

such exculpation clauses are substantively uncon-

scionable.” Jd. at 1008. The court concluded: “A

clause that unilaterally and severely limits the reme-

dies of only one side is substantively unconscionable

lla

under Washington law for denying any meaningful

remedy.” Id.

The Cingular class action waiver provision that

Scott declares to be unenforceable is indistinguish-

able in all material respects from T-Mobile’s class

action waiver. The Washington State Supreme

Court’s holding in Scott requires us to determine that

T-Mobile’s class action waiver is substantively uncon-

scionable, and unenforceable, under Washington law.

T-Mobile’s class action waiver, like Cingular’s, bars

class actions in both litigation and arbitration, and

the Washington State Supreme Court’s unconscion-

ability analysis in Scott applies as forcefu:ly to

T-Mobile’s agreement.

We need not reach whether T-Mobile’s remaining

provisions are unconscionable. T-Mobile has _ ex-

pressly stated that it does not consent to class action

arbitration and that, as a result, if we deem the class

action waiver clause unconscionable under Washing-

ton law, the entire arbitration provision should he

rendered unenforceable. Having determined that the

(nonseverable) class action waiver is invalid under

Washington law, we hold that T-Mobile’s arbitration

agreement is unenforceable under Washington law.

We next consider T-Mobile’s argument that the

Federal Arbitration Act preempts Washington law

from thus rendering T-Mobile’s class action waiver

unconscionable, and thereby rendering unenforceable

its arbitration agreement. The FAA provides that

contractual arbitration agreements “shall 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 (emphasis added).

12a

The United States Supreme Court has interpreted

this statute to require that any state legal principle

attempting to invalidate an arbitration agreement

must be a principle that applies to contracts gen-

erally. In Doctor’s Assocs., Inc. v. Casarotto, 517

U.S. 681, 116 S.Ct. 1652, 1384 L.Ed.2d 902 (1996), for

example, the Supreme Court stated:

“[Glenerally applicable contract defenses, such as

fraud, duress, or unconscionability, may be ap-

plied to invalidate arbitration agreements with-

out contravening § 2. Courts may not, however,

invalidate arbitration agreements under state

laws applicable only to arbitration provisions. By

enacting § 2, we have several times said, Con-

gress precluded States from singling out arbi-

tration provisions for suspect status, requiring

instead that such provisions be placed ‘upon the

same footing as other contracts.’

Id. at 687, 116 S.Ct. 1652 (citations omitted). See also

Southland Corp. v. Keating, 465 U.S. 1, 16 n. 11, 104

S.Ct. 852, 79 L.Ed.2d 1 (1984).

T-Mobile argues that the FAA preempts Washing-

ton’s determination that its class action waiver is

unconscionable. T-Mobile asserts that the Washing-

ton State Supreme Court’s holding in Scott that

Cingular’s class action waiver is unconscionable is

not a contractual rule of general applicability under

the FAA.

We recently decidt 1 Shroyer v. New Cingular

Wireless Servs., Inc., 498 F.3d 976. In Shroyer, we

considered the enforceability of another Cingular ar-

bitration agreement containing a class action waiver.

We determined not only that the agreement was

unconscionable under California law, but also that

13a

the FAA did not preempt California law on this issue.

Id. at 987. We first surveyed California law on uncon-

scionability, and in particular the test the California

Supreme Court set forth in Discover Bank v. Superior

Court of Los Angeles, 36 Cal.4th 148, 30 Cal.Rptr.3d

76, 113 P.38d 1100 (2005), requiring a finding of both

procedural and substantive unconscionability to render

a provision invalid. Shroyer, 498 F.3d at 981-82

(citing Discover Bank, 30 Cal. Rptr.3d 76, 113 P.3d at

1108). We quoted Discover Bank’s reasoning:

“We do not hold that all class action waivers are

necessarily unconscionable. But when the waiver

is found in a consumer contract of adhesion in a

setting in which disputes between the contract-

ing 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, then, at least to the extent the obligation

at issue is governed by California law, the waiver

becomes in practice the exemption of the party

‘from responsibility for [its! own fraud, or willful

injury to the person or property of another.’

(Civ.Code, § 1668.) Under these circumstances,

such waivers are unconscionable under Cali-

fornia law and should not be enforced.”

Id. at 983, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (alter-

ation in Shroyer) (quoting Discover Bank, 30 Cal.

Rptr.3d 76, 113 P.3d at 1100).

Applying Discover Bank’s test, we concluded that

Cingular’s class action waiver was unconscionable

under California law because the agreement was of

the type that Discover Bank foreclosed—a contract

of adhesion in a setting involving disputes between

14a

contracting parties that predictably concerned only

small amounts of damages and where, according to

the Shroyer plaintiffs, the party with the superior

bargaining power (i.e., the wireless provider) had

carried out a fraudulent scheme deliberately to cheat

large numbers of consumers out. of individually small

sums of money. Id. at 983-84. We observed that in

Discover Bank the California Supreme Court had been

concerned “that when the potential for individual

gain is small, verv few plaintiffs, if any, will pursue

individual arbitration or litigation, which greatly

reduces the aggregate liability a company faces when

it has exacted small sums from millions of consum-

ers.” Id. at 986, 30 Cal.Rptr.3d 76, 113 P.3d 1100

(emphasis omitted). As in T-Mobile’s present case,

the invalidating of Cingular’s class action waiver

rendered the entire arbitration agreement unenforce-

able. Id. at 986-87, 30 Cal.Rptr.3d 76, 113 P.3d 1100.

Having decided that the agreement was unen-

forceable under California law, we next considered

Cingular’s argument that the FAA preempted Cali-

fornia law. Cingular had argued that Discover Bank’s

unconscionability provisions subjected arbitration

agreements to special scrutiny. Jd. at 987, 30 Cal.

Rptr.3d 76, 113 P.3d 1100. The United States

Supreme Court had previously observed that “[a]

state-law principle that takes its meaning precisely

from the fact that a contract to arbitrate is at issue

does not comport with th[e] requirement of § 2’ and is

preempted.” Jd. (first alteration in original) (quoting

Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct.

2520, 96 L.Ed.2d 426 (1987)). We held, however, that

such a principle was not at issue in Shroyer; rather,

the California principle of unconscionability was a

generally applicable contract defense, which could

15a

be applied to invalidate an arbitration agreement

without contravening the FAA. Id. at 987-88. We

further commented that we had previously rejected

Cingular’s argument that California’s unconscion-

ability doctrine was preempted by the FAA and that

Discover Bank’s statement that the doctrine applied

to contracts generally, not only to arbitration agree-

ments, affirmed that California law on this point did

not contravene the FAA. Id. at 988.

We rejected Cingular’s argument that application

of California’s unconscionability principles would

obstruct Congress’s purposes in enacting the FAA.

Congress’s primary purpose behind the FAA requires

that we enforce the terms of arbitreticn agreements

like other contracts, not more so. Id. at 989. We

reasoned: “To hold that California unconscionability

law may be applied only to invalidate a class action

waiver, but not a class arbitration waiver, would |

place arbitration agreements on a different footing

than other contracts, in direct contravention of th[e]

principal purpose of the [FAA].” Id. at 990 (citing.

Scott, 161 P.3d at 1008 (“Congress simply requires us

to put arbitration clauses on the same footing as

other contracts, not make them the special favorites

of the law.”)).

We also rejected Cingular’s suggestions that the

FAA implicitly exalted individual arbitration but

disfavored class arbitration, id. at 990, 161 P.3d

1000, and that class arbitration would reduce arbi-

tration’s alleged general efficiency, id. at 990-92, 161

P.3d 1000. We concluded that the FAA did not

preempt California uncenscionability principles from

invalidating Cingular’s class action waiver and

therefore its arbitration agreement. Jd. at 993, 161

P.3d 1000.

16a

The invalid class action waiver in Shroyer is, in all

material respects, identical to T-Mobile’s waiver. As

in Shroyer, T-Mobile’s class action waiver lies within

a contract of adhesion governing claims likely to

concern only small sums of money that the defendant

is alleged to have fraudulently obtained from the

plaintiffs. Most significantly, the Washington State

Supreme Court grounded its unconscionability deter-

mination in Scott in concerns almost identical to

those underpinning California’s unconscionability

determination in Discover Bank. Thus Shroyer’s con-

clusion with respect to California unconscionability

law applies equally here: Just as the FAA does not

preempt California’s unconscionability law, it does

not preempt Washington’s unconscionability law. As

we explained in Skroyer, the California Supreme

Court sought in Discover Bank to remedy its concern

that, when the potential for individual gain is small,

few if any plaintiffs will pursue either individual

arbitration or litigation, thereby greatly reducing the

aggregate liability a company faces when it has

exacted small sums from millions. Those are the

same concerns that underlie the Washington State

Supreme Court’s holding in Scott.

We reject T-Mobile’s argument that Scott’s uncon-

scionability principles do not apply in all contracts—

in other words, that they treat arbitration agree-

ments differently than other contracts. In Shroyer,

we rejected Cingular’s analogous argument, notwith-

standing the California Supreme Court’s recognition

in Discover Bank that it was not holding that all

class action waivers are necessarily unconscionable,

but rather only those in certain circumstances. As

Shroyer’s holding suggests, Scott’s unconscionability

principles embody grounds to revoke any contract,

17a

not just arbitration agreements. The Scott principles

apply equally to a contract that permits only in-

dividual, not aggregate, litigation in court. Stated

another way, the Scott holding targets not the

arbitration context, but rather the class action

waiver, which the Washington State Supreme Court

has determined would deprive Washington consum-

ers of a right generally applicable to arbitration and

litigation contracts alike and which only happens to

be within an arbitration agreement in this case.”

Finally, T-Mobile’s claim, in essence, that the FAA

requires a state to enforce a class action waiver

merely because it lies within an arbitration agree-

ment—whereas a state would be free to find the same

waiver to be invalid in the litigation context—con-

travenes the FAA’s mandate of an “equal footing”

between arbitration and other forms of dispute reso-

lution. See Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038

(2006) (“Section 2 embodies the national policy

favoring arbitration and places arbitration agree-

ments on equal footing with all other contracts. . . .”).

The FAA proscribes states from giving arbitration

special treatment, whether it be positive or negative.

AFFIRMED.

* We also decline T-Mobile’s invitation to follow the Third

Circuit’s holding in Gay v. CreditInform, 511 F.3d 369 (3d Cir.

2007). Unlike the Third Circuit’s :onclusion as to the applicable

state law in Gay, we determine that the Washington Supreme

Court in Scott does not hold “that an agreement to arbitrate

may be unconscionabie simply because it is an agreement to

arbitrate.” Id. at 395.

18a

APPENDIX B

UNITED STATES DISTRICT COURT

W.D. WASHINGTON

No. C05-1482P

KATHLEEN LOWDEN, et al.,

Plaintiffs,

T-MOBILE, USA, INC.,

Defendant.

April 13, 2006

ORDER ON DEFENDANT'S MOTION TO DISMISS

OR STAY AND TO COMPEL ARBITRATION

PECHMAN, JZ.

Introduction

This matter comes before the Court on Defendant

T-Mobile’s Motion to Dismiss or Stay and to Compel

Arbitration. (Dkt. No. 10). Having reviewed all the

pleadings and supplementary materials, and having

heard oral argument, the Court finds that the arbi-

tration provisions in Defendant’s wireless telephone

service agreements contain terms that are substan-

tively unconscionable under Washington law. Fur-

thermere, under these circumstances, the uncon-

scionable provisions at issue permeate the purpose

and effect of the arbitration agreements such that

severance of the offending provisions is inappropri-

ate, and neither arbitration agreement can be en-

forced. Accordingly, Defendant’s motion is DENIED.

19a

Background

The named plaintiffs in this putative class action

are Kathleen Lowden and John Mahowald. (Compl.

at 4-5, J 2.1). Ms. Lowden, Mr. Mahowald, and the

other putative class members are or were customers

of Defendant’s wireless telephone services, and they

seek to maintain a nationwide class action. (Jd. at 12-

13, WY 4.1-4.6). Defendant T-Mobile USA, Inc., is a

national telecommunications corporation that is

incorporated in Delaware and has its principal place

of business in Bellevue, Washington. (/d. at 5, J 3.2).

Formerly, the company was known as Voicestream

Wireless. (Def's. Opening Br. at 1-2).

Plaintiff Lowden is apparently the ex-wife of John

Miller, the person with whom Defendant contracted

to provide the wireless phone service that Lowden

uses, (Jd. at 5). Miller first purchased a phone and

signed a service agreement in 2000. (/d.). The service

agreement included an arbitration provision that

states } aka Tei ley ant part:

Any controversy, claim or dispute between you

and Company arising under this Agreement,

excluding actions by Company to collect unpaid

charges, shall be submitted to final, binding

arbitration under the auspices of the American

Arbitration Association (“AAA”) pursuant to its

published Wireless Industry Arbitration Rules,

incorporated herein by this reference .. . [alll

claims shall be arbitrated individually and you

agree that no person shall bring a punitive [sic]

or certified class action to arbitration or seek

to consolidate or bring previously consolidated

claims in arbitration. The arbitrator shall have

no authority to award punitive damages... YOU

ACKNOWLEDGE THAT THIS ARBITRATION

20a

PROVISION CONSTITUTES A WAIVER OF

ANY RIGHT TO A JURY TRIAL.

(Def’s. Opening Br., Decl. of Derek Chang at J 17; Ex.

3, at 3, J 19).

Plaintiff Mahowald first purchased a phone and

contracted for wireless phone service with Defendant

in 2002. Ud. at 2-3). Defendant does not have a copy

of any signed service agreement with Mahowald, but

its Marketing Director declares that he would have

been required to sign one. (/d., Decl. of Derek Chang

at 79 5-11). The a he would have signed

provides:

ANY CLAIM OR DISPUTE BETWEEN YOU

AND US ARISING UNDER OR IN ANY

WAY RELATED TO OR CONCERNING THE

AGREEMENT, AND/OR OUR PROVISION TO

YOU OF GOODS, SERVICE, OR UNITS SHALL

BE SUBMITTED TO FINAL, BINDING ARBI-

TRATION WITH THE AMERICAN ARBITRA-

TION ASSOCIATION ... [nJo party may act as a

representative of other claimants or potential

claimants in any dispute, and two or more

individuals’ disputes may not be consolidated or

otherwise determined in one proceeding. An

arbitrator may not award relief in excess or

inconsistent with the provisions of the Agree-

ment, order consolidation or arbitration on a

classwide basis, or award lost profits, punitive,

incidental, or consequential damages or any

other damages other than the prevailing party’s

direct damages, except that the arbitrator may

order injunctive or declaratory relief pursuant to

applicable law. All administrative expenses of an

arbitration will be équally divided between you

and Us, except if the claim is less than $1000,

21a

you will be obligated to pay only $25. If the clair:

is less than $25, We will pay all administrative

expenses. Each party agrees to pay the fees and

costs of its own counsel, experts, and witness at

the arbitration. Subject to the foregoing limi-

tations on consolidated or classwide proceedings,

you agree, however, that if you fail to timely pay

amounts due, We may assign your account for

collection and the collection agency may pursue

such claims in court limited strictly to the

collection of the past due debt and any interest

or cost of collection permitted by law or the

Agreement.

YOU ACKNOWLEDGE AND AGREE THAT

THIS ARBITRATION PROVISION CONSTI-

TUTES A WAIVER OF ANY RIGHT TO LOST

PROFITS, PUNITIVE, SPECIAL, INDIRECT,

INCIDENTAL, CONSEQUENTIAL, OR TRE-

BLE DAMAGES (“DISCLAIMED DAMAGES”),

A JURY TRIAL OR PARTICIPATION AS A

PLAINTIFF OR AS A CLASS MEMBER IN A

CLASS ACTION. IF FOR ANY REASON THIS

ARBITRATION CLAUSE IS DEEMED INAP-

PLICABLE OR INVALID, YOU AND WE BOTH

WAIVE ANY CLAIMS TO RECOVER DIS-

CLAIMED DAMAGES AND ANY RIGHT TO

PURSUE, OR PARTICIPATE AS A PLAINTIFF

OR AS A CLASS MEMBER IN, CLAIMS ON A

CLASSWIDE, CONSOLIDATED, OR REPRE-

SENTATIVE BASIS.

(Id., Decl. of Derek Chang at { 6; Ex. 1, at 3, 7 3).

Defendant’s Marketing Director also declares that

Mr. Mahowald would have received a superseding

“Terms and Conditions” agreement as part of the

“Welcome Guide” that Defendant regularly ships

22a

with new phones and upgrades. (See id. at 2-4, n. 1).

The “Terms and Conditions” agreement contains an

arbitration agreement with several terms that differ

from those in the service agreement. However, as will

be discussed, Defendant has not established the

enforceability of that agreement, so those terms are

not discussed.

Mr. Mahowald does not explicitly deny that he

signed a service agreement, but instead contends

that Defendant has not proven he signed or received

any agreements. (Pls.’ Opp’n at 1). He asserts that

he has no contract with Defendant except for an oral

contract memorialized in T-Mobile’s customer care

records. (Id., Decl. of Alex Rose at 7 3, 18).

Plaintiffs filed their complaint in this case on. July

27, 2005, alleging breach of contract and violation of

the Washington Consumer Protection Act (CPA)

based on Defendant’s billing practices. (See Compl. at

10-15). Specifically, Plaintiffs allege that Defendant

imposed a “USF-RCR,” or “Universal Service Fee-

Regulatory Cost Fee” in a deceptive manner, leading

customers to believe it was a government-mandated

tax; imposed charges on customers for exceeding

their allotted monthly minutes, but imposed those

charges in months in which the calls were not made;

and imposed roaming, long-distance, and other fees

for services when those services were supposed to be

free of charge. (See Compl. at 7-10, 1 1.1-1.16).

Defendant now brings this Motion to Dismiss or Stay

and to Compe! Arbitration.

Analysis

The Federal Arbitration Act (“FAA”) provides that

an arbitration provision in a contract “evidencing a

transaction involving commerce .. . is valid, irre-

23a

vocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any

contract.” 9 U.S.C. § 2. This section of the FAA is “a

congressional declaration of a liberal federal policy

favoring arbitration agreements, notwithstanding

any state substantive or procedural policies to the

contrary.” Moses H. Cone Mem’l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74

L.Ed.2d 765 (1983). Thus, district courts must compel

arbitration where a valid agreement to arbitrate

exists. See Chiron Corp. v. Ortho Diagnostic Systems,

Inc., 207 F.3d 1126, 1130 (9th Cir.2000). The party

resisting arbitration has the burden of proving that

the arbitration agreement is unenforceable. See

Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91-

92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).

Whether the arbitration agreements in this case

are valid is controlled by state law. See, e.g., Perry v.

Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96

L.Ed.2d 426 (1987) (“state law, whether of judicial or

legislative origin, is applicable if that law arose to

govern issues concerning the validity, revocability,

and enforceability of contracts generally.”) (emphasis

in original); see also Ticknor v. Choice Hotels, Intern.,

Inc., 265 F.3d 931, 936-37 (9th Cir.2001).

A. Lack of Agreement

Plaintiff Lowden clearly has an agreement; it is the

one under which she now sues, and which her hus-

band voluntarily signed in order to obtain T-Mobile

services.’ Therefore, she is bound by the provisions of

' As Defendant notes in its Opening Brief, there may be an

issue of staiding with respect to Plaintiff Lowden’s claims.

(Defs. Opening Br. at 11-12). However, under the FAA, the

district court’s role is limited; this Court can determine “only

24a

that agreement to the extent that the agreement is

enforceable. See Skagit State Bank v. Rasmussen, 1.09

Wash.2d 377, 381, 745 P.2d 37 (1987).

Plaintiff Mahowald is a different story. While not

actually denying that he signed a service agreement,

Plaintiffs argue that Defendant has “presented no

competent or admissible evidence based upon per-

sonal knowledge” that Mr. Mahowald was contrac-

tually bound by any signed form or mailed “Welcome

Guide.” (Pls.’ Opp’n at 1). Further, Plaintiffs argue

that the only contract Mr. Mahowald could have is a

verbal one, noted in Defendant T-Mobile’s customer

care records. (Jd.).

The FAA requires a district court to issue an order

compelling arbitration “upon being satisfied that the

making of che agreement for arbitration .. . is not in

issue,” though “if the making of the agreement is in

issze ... the court shall proceed summarily to the

trial thereof.” 9 U...C. § 4. However,

to pu’ such matters in issue, it is not sufficient

for the party opposing arbitration to utter

general denials of the facts on which the right to

arbitration depends. If the party seeking arbi-

tration has substantiated the entitlement by a

showing of evidentiary facts, the party opposing

may not rest on a denial but must submit

whether a written arbitration agreement exists, and if it does,

enforce it according to its terms.” Simula, Inc. v. Autoliv, Inc.,

175 F.3d 716, 720 (9th Cir.1999). Accordingly, to the extent that

Ms. Lowden seeks to sue under a contract with Defendant that

contains a written arbitration agreement, she is bound by the

enforceable terms of that agreement.

25a

evicentiary facts showing that there is a dispute

of fact to be tried.

Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352,

358 (2d Cir.1995).

Under Washington law, Defendant’s evidence that

signed service agreements are required before it will

provide wireless phone service is business custom

evidence that is “admissible and relevant to prove or

disprove the existernce of a contract.” Industrial

Electric-Seattle, Inc. v. Bosko, 67 Wash.2d 783, 797,

410 P.2d 10 (1966). Defendant has thus substantiated

its claim that the parties entered into the arbitration

agreement contained in the service agreement.

However, Mr. Mahewald has failed to place the mak-

ing of that arbitration agreement in issue because he

does not explicitly deny that he signed the service

agreement. Therefore, the Court concludes that he is

bound by the provisions of that arbitration agreement

to the extent that the agreement is enforceable.

However, Defendant has not substantiated its

entitlement to arbitration based on the “Welcome

Guide” or anything else it mails to customers. Proof

of mailing must be made by a showing of “(1) an office

custom with respect tc mailing, and (2) compliance

with the custom in the specific instance.” Matsko uv.

Dally, 49 Wash.2d 370, 376-77, 301 P.2d 1074 (1956).

Here, the declaration of Defendant’s Marketing

Director is evidence of Defendant’s custom, but there

is no similar declaration or other evidence of com-

pliance with that custom when Plaintiff Mahowald’s

“Welcome Guide” was supposedly mailed. See, e.g., id.

at 377, 301 P.2d 1074 (no proof of compliance without

testimony of clerk or other person who customarily

mailed from the office); Kaiser Aluminum & Chem.

Corp. v. Dep’t of Labor & Indus., 57 Wash.App. 886,

26a

890, 790 P.2d 1254 (1990) (insufficient proof of cus-

tom and compliance).

To summarize, Plaintiff Lowden is bound by the

provisions c’ the arbitration agreement contained in

the “Terms and Conditions” agreement that her ex-

nusband signed in 2000,* to the extent that agree-

ment is enforceable. Plaintiff Mahowald is bound the

provisions of the arbitration agreement contained in

the “Terms and Conditions” agreement he would

have been required to sign in 2002 as a condition of

his service, to the extent that agreement is en-

forceable.

B. Procedural Unconscionability

Plaintiffs argue next that their arbitration agree-

ments are unenforceabie because they are proce-

durally unconscionabie. (Pls.’ Opp’n at 7-8). Proce-

dural unconscionability is “the iack of meaningful

choice, considering all the circumstances surrounding

the transaction, including (1) the manner in which

the contract was entered, (2) whether each party had

a reasonable opportunity to understand the terms of

the contract, and (3) whether the important terms

were hidden in a maze of fine print.” Adler v. Fred

Lind Manor, 153 Wash.2d 331, 345, 103 P.3d 773

(2004) (internal citations omitted). These three fac-

tors are not to be applied “mechanically” without

* Defendant asserted that Lowden would also have received a

“Terms and Conditions” agreement with her phone when it was

delivered, (Def's. Opening Br., Decl. of Derek Chang at 2, {{ 4-5,

Ex. 4), but Plaintiffs’ counsel later produced the original signed

service ~zreement, (see Defs. Reply at 3, Decl. of Bradley

Fischer, at J 5, Ex. 3), and it is identical to the one that would

have been mailed. Therefore, Defendant’s custom with respect

to mailing is irrelevant as to her agreement.

27a

regard to whether a meaningful choice actually

existed. Id.

Plaintiffs rely on the fact that these agreements

are contracts of adhesion. (Pls. Opp’n at 7-8).

Plaintiffs are correct that the agreements are adhe-

sive because they are (1) standard form printed

contracts, (2) prepared by T-Mobile and submitted to

prospective customers on a take-it-or-leave-it basis,

and (3) there is no true equality of bargaining power

between T-Mobile and its customers. See Adler, 153

Wash.2d at 347-48, 103 P.3d 773. However, contracts

of adhesion are not necessarily unconscionable. Zuver

v. Airtouch Commce’ns, Inc., 158 Wash.2d 293, 304,

103 P.38d 753 (2004). Indeed, despite the adhesive

nature of these agreements, Plaintiffs did not ex-

perience the requisite “lack of meaningful choice.”

First, there is no evidence to suggest that the

manner in which they entered into their contracts

was oppressive, deceptive, or even hurried. Compare

that agreement was not procedurally unconscionable

because plaintiff had 15 days to consider the contract,

and opportunity to contact counsel or defendant with

questions), with Adler, 153 Wash.2d at 348, 103 P.3d

773 (remanding for determination of procedural un-

conscionability because factual dispute existed as to

whether employer threatened discharge if plaintiff

did not sign the agreement).

Second, there is no evidence to suggest that

Plaintiffs did not have a reasonable opportunity to

understand the terms of the agreements. The fact

that they had as much as time as they wanted to

consider the agreements before signing them is con-

clusive on this point. See Zuver, 153 Wash.2d at 306,

103 P.3d 753 (reasonable opportunity where the

28a

defendant did not demand immediate return of

the agreement and plaintiff had 15 days to consider

it) citing Luna v. Household Fin. Corp. HI, 236

F.Supp.2d. 1166, 1176 (W.D.Wash.2002) (three day

rescission period under the Truth in Lending Act was

sufficient to provide reasonable opportunity to

consider the terms of an agreement).

Finally, although the typeface is relatively small,

these arbitration provisivnms are not hidden in a

“maze of fine print.” The provisions in both Plaintiffs’

agreements are clearly labeled “Mandatory Arbi-

tration,” and just above the signature line in both

service agreements, there is specific reference to the

numbered paragraph in the attached “Terms and

Conditions” that contains the arbitration provisions.

These features militate against a finding of proce-

dural unconscionability. See Adler, 153 Wash.2d at

349-50, 103 P.3d 773 (no “maze of fine print” where

the first sentence of the arbitration clause explicitly

stated that any disputes would be arbitrated).

C. Substantive Unconscionability

Plaintiffs also argue that their arbitration agree-

ments are unenforceable because they are substan-

tively unconscionable. (Pls.’ Opp’n at 8-17). Sub-

stantive unconscionability “involves those cases

where a clause or term in the contract is alleged to be

one-sided or. overly harsh,” and is described some-

times with terms such as “shocking to the con-

science, ‘monstrously harsh,’ or ‘exceedingly cal-

loused.” Zuver, 153 Wash.2d at 303, 103 P.3d 753.

Although substantive unconscionability is a question

of law, it is “based on the factual circumstances

surrounding the transaction.” Tjart v. Smith Barney,

Inc., 107 Wash.App. 885, 898, 28 P.3d 823 (2001).

One such circumstance that should be considered is

29a

the consumer context of the transaction. See Luna,

236 F.Supp.2d at 1183 (citing Washington cases).

Plaintiffs allege that their agreements are substan-

tively unconscionable on several grounds.

1. Prohibition of Class Relief

Defendant is correct that some Washington courts

have enforced arbitration provisions that effectively

prevent class relief. See Heaphy v. State Farm Mut.

Auto. Ins. Co., 117 Wash.App. 438, 447, 72 P.3d 220

(2003), citing Stein v. Geonerco, Inc., 105 Wash.App.

41, 49, 17 P.3d 1266 (2001). Washington courts have

also upheld arbitration provisions even though they

required arbitration of CPA claims. See Stein, 105

Wash.App. at 49 n. 1, 17 P.3d 1266, citing Garmo v.

Dean, Witter, Reynolds, Inc., 101 Wash.2d 585, 590,

681 P.2d 253 (1984). However, neither Heaphy nor

Stein addressed the unconscionability of class action

prohibitions, but instead rested their holdings on the

plaintiffs’ failures to “demonstrate a conflict with

statutory provisions, contract law,

requirements.”* See Heaphy, 117 Wash.App. at 447,

72 P.3d 220; Stein, 105 Wash.App. at 50, 17 P.3d

1266.

* At oral argument, Defendant’s counsel advised the Court

that the Washington Supreme Court was hearing oral argument

that same day in the matter of Scott v. Cingular Wireless, No.

77406-4. The Scott case places squarely at issue the question of

whether class action prohibitions contained in arbitration agree-

ments are unconscionable under Washington law and therefore

unenforceable. This Court directed the parties to show cause

why the ruling in the instant case should not be deferred, given

the likelihood that Scott will be controlling on the issues here.

(Dkt. No. 28). However, both parties responded by urging this

Court to rule on the instant motion. Accordingly, the Court now

rules on the instant motion, though it is mindful of the fact that

Washington law is currently in flux.

30a

Plaintiffs rely on Luna, in which Judge Lasnik of

this Court held that a prohibition of class actions was

unconscionable because it prevented effective vin-

dication of statutory rights. 236 F.Supp.2d. at 1178-

79, citing Darling v. Champion Home Builders Co.,

96 Wash.2d 701, 706, 638 P.2d 1249 (1982) (dis-

cussing the importance of class actions in the

consumer protection context) and Mendez v. Palm

Elarbor Homes, 111 Wash.App. 446, 465, 45 P.3d 594

(2002) (explaining the unconscionability of prevent-

ing citizens from access to the courts to vindicate

their rights). The Luna Court also held that the class

action prohibition was one-sided because there was

“no reasonable possibility” that the corporate de-

- fendant would ever institute a class action against its

individual customers. Id. at 1179.

The Court is persuaded by the reasoning in Luna

on each of these scores. First, the class action pro-

hibitions deprive Plaintiffs of the means to effectively

vindicate their rights under the CPA. This is so

because, given the nature of the claims involved in

this case, the prohibition “is likely to bar actions

involving practices applicable to all potential class

members, but for which an individual consumer has

so little at stake that she is unlikely to pursue her

claim.” Luna, 236 F.Supp.2d at 1179. Thus, the class

action prohibitions in these arbitration agreements

have been used as “a sword to strike down access to

justice instead of as a shield against prohibitive

costs.” Id., quoting Mendez, 111 Wash.App. at 465, 45

P.3d 594. Second, although the class action limi-

tations in these arbitration provisions are nominally

mutual, they are effectively one-sided because there

is no conceivable set of facts under which T-Mobile

would bring a class action against its customers. For

these reasons, the prohibitions on class actions con-

3la

tained in Plaintiffs’ arbitration agreements are sub-

stantively unconscionable.

2. Limitation of Remedies

A limitation of remedies may also be nominally

mutual, yet have the impermissible effect of being so

one-sided and harsh that it is substantively uncon-

scionable. See Zuver, 153 Wash.2d at 318, 103 P.3d

753. In Luna, Judge Lasnik of this Court found that a

remedies limitation was overly one-sided because it

prohibited any resort to judicial remedies, except that

either the defendant (a lending company) or the

plaintiffs (the borrowers) could bring a lawsuit to

protect or foreclose on property involved in a loan.

236 F.Supp.2d at 1180. Because the limitation al-

lowed a judicial forum in the only type of suit the

defendant would ever bring, while borrowers could

only go to court in one of the many types of suits they

might bring, the Court found the limitation so one-

sided that it was unconscionable. Jd.

In this case, the remedies limitations are not so

one-sided that they are substantively unconscionable.

For the most part, the agreements require both sides

to arbitrate disputes. However, Plaintiff. Lowden’s

arbitration agreement excludes “actions by the Com-

pany to collect unpaid charges,” while Plaintiffs

Mahowald’s agreement states that Defendant may

assign customer accounts for collection and that the

collection agency may pursue claims in court “limited

strictly to the collection of the past due debt” and any

permissible interest or cost of collection. These

limited exclusions are not overly harsh or shocking to

the conscience. Collection actions are standard and

fairly routine business practices. In Mr. Mahowald’s

case, T-Mobile is only permitted to assign an account

to a collection agency, and a collection agency’s later

32a

decision to bring suit is not certain. In addition, these

arbitration provisions presumably do not bar a

customer from causing a suit to be brought against

Defendant, for example by forwarding information to

the Attorney General so that she or he may decide

whether or not to bring a CPA claim on behalf of the

citizens of Washington. See RCW 19.86.080-095.

3. Limitation on Damages

Plaintiffs argue next that the damages limitations

in each of their arbitration agreements are sub-

stantively unconscionable. (Pls.’ Opp’n at 13-14).

Plaintiff Lowden’s arbitration agreement provides

that the “arbitrator shall have no authority to award

punitive damages,” (Def’s. Opening Br., Decl. of

Derek Chang, Ex. 3, at 3, 7 19), and Plaintiff

Mahowald’s agreement purports to be a waiver of

punitive, exemplary, and treble damages (id., Ex. 1,

at 3, J 3). The Court finds these limitations to be

substantively unconscionable for the same reasons

that the class action prohibitions are substantively

unconscionable.

First, these damages limitations are substantively

unconscionable because they are effectively one-

sided. Punitive or exemplary damages are not al-

lowed in Washington unless specifically authorized

by the legislature. See Dailey v. North Coast Life Ins.

Co., 129 Wash.2d 572, 590, 919 P.2d 589 (1996).

Indeed, the CPA’s treble damages provision is one

example of such specific authorization. See id. at 592;

Barr v. Interbay Citizens Bank of Tampa, Fla., 96

Wn.2d 692, 699-700 (1981); Gould v. Mut. Life Ins.

Co. of New York, 735 F.2d 1165, 1166-67 (9th Cir.

1984). Punitive damages are thus recoverable only

pursuant to statutory claims. However, while the

damages limitations here are nominally mutual, the

33a

Court cannot imagine a scenario in which Defendant

would ever seek punitive damages, under the CPA or

otherwise, against its individual customers. There-

fore, the limitations are one-sided in effect and

substantively unconscionable. See Zuver, 153 Wash.

2d at 318-19, 103 P.3d 753 (holding that a damages

limitation was substantively unconscionable because

it prohibited punitive damage awards for any com-

mon law claims brought by an employee, but

permitted the employer to recover such damages for

the only type of claim it would ever likely bring, a

breach of a confidentiality agreement).

Second, these damages limitations are substan-

tively unconscionable because they deprive Plaintiffs

of the means to effectively vindicate their rights

under the CPA. The punitive damages provision of

the CPA has the purposes of enabling injured plain-

tiffs to pursue their own claims and to reimburse

them for enforcing the Act on behalf of the general

citizenry. St. Paul Fire & Marine Ins. Co. v. Upde-

grave, 33 Wash.App. 653, 658, 656 P.2d 1130 (1983).

If this measure of damages is unavailable, Plaintiffs’

ability to initiate suit is dramatically hindered.

Therefore, as in the context of the class action

prohibition, the limitations on punitive damages

under these circumstances “works oppression,” Luna,

236 F.Supp.2d at 1179, quoting Mendez, 111 Wash.

App. at 465, 45 P.3d 594, because the limitations

strip Plaintiffs of a statutorily authorized means to

enforce their rights, as well as the rights of the

Washington citizenry at large. For these reasons, the

damages limitations in both of Plaintiffs’ arbitration

agreements are substantively unconscionable to the

extent that they preclude the award of punitive or

exemplary damages under the CPA.

34a

4. Prohibition of Attorneys’ Fees

Plaintiff Lowden’s arbitration agreement does not

prohibit attorneys’ fees, and therefore cannot be

substantively unconscionable on this basis. Plaintiff

Mahowald’s arbitration agreement, however, pro-

vides that “each party agrees to pay the fees and

costs of its own counsel, experts, and witness at the

arbitration.” (Def's. Opening Br., Decl. of Derek

Chang, Ex. 1, at 4 3). The provision also states

that “an arbitrator may not award relief in ex-

cess or inconsistent with the provisions of this

Agreement, .. . except that an arbitrator may award

injunctive or declaratory relief.” (Jd.). This makes it

clear that customers bringing claims against

Defendant may not recover attorneys’ fees.

In Zuver, the Court held that a clause providing

that “parties shall bear their own respective costs

and attorneys fees” was substantively unconscionable

because it undermined the plaintiffs rights to attor-

ney fees under the Washington Law Against Dis-

crimination. 153 Wash.2d at 355, 103 P.3d 773. Here,

there is likewise a clear prohibition of attorneys’ fees,

as well as a specific entitlement to them under the

statute furnishing one of Plaintiffs’ causes of action.

See RCW 19.86.090 (permitting recovery of actual

damages, costs of suit, “including reasonable attor-

neys’ fees”). Therefore, the prohibition of attorneys’

fees in Plaintiff Mahowald’s arbitration agreement is

substantively unconscionable.

5. Limitations on Discovery

Plaintiffs argue that their arbitration agreements

are substantively unconscionable because the AAA’s

Wireless Industry Arbitration Rules, which are in-

corporated into their agreements by reference, do not

35a

allow for the adequate discovery that is necessary to

effectively vindicate consumer rights under the CPA.

(Pls.’ Opp’n at 15-16).

It is true that the “Fast Track” procedures applic-

able to claims involving less than $2,000 generally

prohibit discovery, but it is available “in extra-

ordinary cases when the demands of justice require

it.” Ud., Decl. of Alex Rose, at 28, J F-9). Moreover,

the “Fast Track” procedures cannot be applied

without agreement of the parties in cases where

there is no disclosed monetary claim, or where

equitable relief is sought. (/d., Decl. of Alex Rose, at

20). In the instant case, Plaintiffs have not as yet

disclosed the sums sought by Mr. Mahowald or Ms.

Lowden (although they estimate classwide damages

to be $40 million), and they do in fact pray for

injunctive relief. (See Compl. at {fj 1.1, 5.10, 6.8, 8.1-

8.6). As a result, Plaintiffs may refuse to agree to

“Fast Track” procedures, and instead insist on

“Regular Track” Rules which provide that the arbi-

trator “may issue a subpoena for witnesses or docu-

ments upon the request of any party or inde-

pendently.” (Pls.’ Opp’n, Decl. of Alex Rose, at 24,

{ R-30). For this reason, the incorporated Wireless

Industry Arbitration Rules do not render the arbi-

tration agreements in this case substantively un-

conscionable.

Moreover, there is inevitable uncertainty as to how

an arbitrator might interpret the Rules and conduct

an arbitration, and it is not the proper purview of

this Court to indulge in such speculation. In Zuver,

the Court held that an ambiguous attorneys’ fees

provision was not substantively unconscionable be-

cause plaintiffs contention that she would not be

entitled to fees was “mere speculation” as to how the

36a

arbitrator would interpret the provision and ap-

plicable law. 153 Wash.2d at 311, 103 P.3d 753, citing

PacifiCare Health Systems, Inc. v. Book, 538 U‘S.

401, 406-07, 123 S.Ct. 1531, 155 L.Ed.2d 578 (2003).

This reasoning also demonstrates why potential

discovery limitations in arbitration cannot invalidate

the agreements in this case, because there are many

discretionary decisions that the arbitrator would

make.

6. Cost-Prohibitiveness of Arbitration

Washington law is clear on this issue: “[w]here a

party seeks to invalidate an arbitration agreement on

the ground that arbitration would be prohibitively

expensive, that party bears the burden of showing

the likelihood of incurring such costs.” Adler, 153

Wash.2d at 353, 103 P.3d 773, citing Green Tree Fin.

Corp., 531 U.S. at 92. Carrying the burden requires

production of “specific information” about the party’s

personal finances and the prospective arbitration

fees. Id. at 354, citing Mendez v. Palm Harbor Homes

Inc., 111 Wash.App. 446, 465, 45 P.3d 594 (holding

that plaintiff satisfied the burden with a personal

affidavit describing his circumstances and fee in-

formation obtained from the American Arbitration

Association). Limited discovery may be appropriate to

determine whether costs are prohibitive, but once

they are established, they may be offset by contrary

evidence, including an offer by the other party to pay

all or a part of the arbitration fees and costs. Jd.

Here, Plaintiffs allege that arbitration would “prob-

ably” cost at least $375 to $550 for each member of

the class to arbitrate a claim worth on [sic] a few

hundred dollars, (Pls.’ Opp’n at 17), yet they provide

no documentation or other information to back it

up. Moreover, Defendant T-Mobile has stated its

37a

willingness to pay all fees and costs, (Def’s. Reply at

11), which offsets any evidence that Plaintiffs. could

provide, see Zuver, 153 Wash.2d at 310, 103 P.3d

753. For these reasons, neither of Plaintiffs’ arbi-

tration agreements are unconscionable with respect

to arbitration fees and costs.

D. Severability

The parties contest whether, if this Court finds any

of the provisions of tne arbitration agreements to be

unconscionable, it should sever those provisions or

hold that the entire agreements are unenforceable.

(Pls.’ Opp’n at 18-19; Def’s. Reply at 12).

“Courts are generally loath to upset the terms of an

agreement and strive to give effect to the intent of

the parties.” Zuver, 153 Wash %d at 320, 103 P.3d

753. However, unconscionable provisions may some-

times “taint” or “pervade” the entire arbitration

agreement, see id., or reveal an “insidious pattern” of

seeking to tip the scales unfairly, Adler, 153 Wash.2d

at 359, 103 P.3d 773, quoting Ingle v. Circuit City

Stores, Inc., 328 F.3d 1165, 1180 (9th Cir.2003). In

such cases, severance may be inappropriate and the

arbitration agreement as a whole may be unen-

forceable. Zuver, 153 Wash.2d at 320, 103 P.3d 753;