# Petition for Writ of Certiorari — T-Mobile USA, Inc. v. Lowden (No. 07-1330) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_1383%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2008 ## Text 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, v. 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. il 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- 12 lV 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) Vv 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 2 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). 3 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 4 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). 5 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], 6 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 7 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 8 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- 9 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 10 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 11 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. 12 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. 13 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 la 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, V. 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: I 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 2a 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. Il 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. 3a 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). 4a 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 5a 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 6a 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, Ta 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). i 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). IV 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 8a 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). A 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- 9a 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. B 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, V. 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; see also Luna, 236 F.Supp.2d at 1183. The Court finds that these arbitration agreements are tainted with substantive unconscionability and that they cannot be enforced. Although some of the provisions are not so one-sided as to be offending, the unconscionable provisions reveal a pattern of at- tempting to deprive Defendant’s customers of a way to enforce their rights against Defendant in a meaningful way. The fact that these are consumer claims brought for individually small sums of money 38a makes the dsmages limitations, class action pro- hibitions, ead the attorneys’ fees limitation in Plaintiff Mahowald’s agreement unconscion~ble to the point of tainting these entire arbitration agree- ments with unconscionability. These provisions also threaten the strong public policy of protecting consumers in Washington State. This “fundamental unfairness” renders these entire agreements substan- tively unconscionable and therefore unenforceable. See Luna, 236 F.Supp.2d at 1183; see also Janda uv. T-Mobile, USA, Inc., --- F.Supp.2d ---, 2006 WL 708936 (N.D.Cal. Mar.17, 2006). Conclusion Plaintiff Lowden is bound by the service agreement that her ex-husband signed with Defendant T-Mobile. Plaintiff Mahowald is bound by the service agree- ment that Defendant asserts he would have been required to. sign, because Mr. Mahowald has not placed the existence of that agreement “in issue” under the FAA. However, he is not bound by the terms of the “Welcome Guide” because Defendant has not substantiated its entitlement to arbitration based on that document. Neither of Plaintiffs’ arbitration agreements are procedurally unconscionable because each had a meaningful choice with respect to whether or not to enter into the agreements. However, the class action prohibitions, damages limitations, and attorneys’ fees limitation are substantively unconscionable under Washington law, and their unconscionable purpose and effect pervades the arbitration agreements. De- fendant’s Motion to Compel Arbitration is DENIED. 39a ‘APPENDIX C T-MOBILE TERMS AND CONDITIONS * * * * 3. Mandatory Arbitration: Dispute Resolution. 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 ARBITRATION WITH THE AMERICAN ARBITRATION ASSOCIATION (“AAA”) PURSU- ANT TO ITS PUBLISHED WIRELESS INDUSTRY ARBITRATION RULES, INCORPORATED HERE- IN BY THIS REFERENCE AND AVAILABLE BY CALLING THE AAA AT 800-778-7879 OR VISITING ITS WEB SITE AT www.adr.org. Any arbitration proceeding shall be subject to the choice of law pro- vision 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 incon- sistent with the provisions of the Agreement, order consolidation or arbitration on a classwide basis, or award lost profits, punitive, incidental, or consequen- tial damages or any other damages other than the prevailing partys direct damages, except that the arbitrator may order injunctive or declaratory relief pursuant to applicable law. All administrative ex- penses of an arbitration will be equally divided between you and Us, except if the claim is less than $1000, you will be obligated to pay only $25. If the claim is less than $25, We will pay all administrative 40a expenses. Each party agrees to pay the fees and costs of its own counsel, experts, and witnesses at the arbitration. Subject to the foregoing limitations 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 CONSTITUTES A WAIVER OF ANY RIGHT TO LOST PROFITS, PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR TREBLE DAMAGES (“DIS- CLAIMED DAMAGES”), A JURY TRIAL OR PAR- TICIPATION AS A PLAINTIFF OR AS A CLASS MEMBER IN A CLASS ACTION. IF FOR ANY REASON THIS ARBITRATION CLAUSE IS DEEMED INAPPLICABLE OR INVALID, YOU AND WE BOTH WAIVE ANY CLAIMS TO RECOVER DISCLAIMED 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. 4la T-MOBILE TERMS AND CONDITIONS * *K *K * 3. Mandatory Arbitration: Dispute Resolution. YOU WILL FIRST NEGOTIATE WITH US IN GOOD FAITH TO SETTLE ANY CLAIM OR DISPUTE BETWEEN YOU AND US IN ANY WAY RELATED TO OR CONCERNING THE AGREEMENT, OR OUR PROVISION TO YOU OF GOODS, SERVICES, OR UNITS (“CLAIM”). YOU MUST SEND A WRIT- TEN DESCRIPTION OF YOUR CLAIM TO OUR REGISTERED AGENT (See Sec. 22). IF YOU DO NOT REACH AGREEMENT WITH US WITHIN 30 DAYS, INSTEAD OF SUING IN COURT, YOU AGREE THAT ANY CLAIM MUST BE SUBMITTED TO FINAL, BINDING ARBITRATION WITH THE AMERICAN ARBITRATION ASSOCIATION (“AAA”) UNDER ITS PUBLISHED WIRELESS INDUSTRY ARBITRATION RULES, WHICH ARE A PART OF THE AGREEMENT BY THIS REFERENCE AND ® AVAILABLE BY CALLING THE AAA AT 800- 778-7879 OR VISITING ITS WEB SITE AT www. adr.org. You must serve our registered agent (See Sec. 22) with a notice of an arbitration in order to begin an arbitration. This agreement to arbitrate extends to claims that you assert against other par- ties, including without limit equipment manufactur- ers and dealers, if you also assert claims against us in the same proceeding. The Agreement involves interstate commerce and despite the choice of law provision in Sec. 25, the Federal Arbitration Act and federal arbitration law govern arbitrations under the Agreement. An arbitrator may only award as much relief as a court having jurisdiction in the place of arbitration, limited to the same extent that a court would limit such relief and consistent with the provi- 42a sions of the Agreement. An arbitrator may order injunctive or declaratory relief (so long as that in- junctive or declaratory relief does not apply beyond your dealings with us) or summary judgment under applicable law. AAA has a fee schedule for arbitra- tions. You will pay your share of the arbitrator’s fees except: (a) for claims less than $25, we wil! pay all arbitrator’s fees and (b) for claims between $25 and $1000, you will pay $25 for the arbitrator’s fee. You and we agree to pay our own other fees, costs and expenses including those for counsel, experts, and witnesses. Visit www.adr.org arbitrator fee informa- tion in hardship circumstances. Neither 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. While the prohibition on consolidated or classwide proceedings in this Sec. 3 will continue to apply: (a) you may take claims to small claims court, if they qualify for hearing by such court and (b) 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 AND WE ACKNOWLEDGE AND AGREE THAT THIS SEC. 3 WAIVES ANY RIGHT TO A JURY TRIAL OR PARTICIPATION AS A PLAINTIFF OR AS A CLASS MEMBER IN A CLASS ACTION. IF A COURT OR ARBITRATOR DETERMINES THAT YOUR WAIVER OF YOUR ABILITY TO PURSUE CLASS OR REPRESENTA- TIVE CLAIMS IS UNENFORCEABLE, THE ARBI- TRATION AGREEMENT WILL NOT APPLY AND OUR DISPUTE WILL BE RESOLVED BY A COURT 43a OF APPROPRIATE JURISDICTION, OTHER THAN A SMALL CLAIMS COURT. SHOULD ANY OTHER PROVISION OF THIS ARBITRATION AGREE- MENT BE DEEMED UNENFORCEABLE, THAT PROVISION SHALL BE REMOVED, AND THE AGREEMENT SHALL OTHERWISE REMAIN BINDING. 44a APPENDIX D SERVICE AGREEMENT *x* * * * 9. 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 Arbi- tration Association (“AAA”) pursuant to its published wireless industry arbitration rules, incorporated herein by this reference and available by calling the AAA at 800-778-7879 or visiting its web site at www.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 or certi- fied 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 PROVISION CONSTITUTES A WAIVER OF ANY RIGHT TO A JURY TRIAL. * * * * --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_1383%3A1. Public record. Not legal advice.