Mayhew-Hite Report        Wexler v. AT&T Corp–denying a motion to compel arbitration

Alexander Pribil

In October 2008, Eve Wexler purchased an iPhone and wireless service via AT&T Mobility’s (Mobility) website.  The online transaction required Wexler to check a box acknowledging she read Mobility’s Service Agreement.  Wexler did not deny she placed the online order—but Wexler denied accepting the Service Agreement.[1]

Beginning in October 2014, AT&T (Mobility’s parent company) began sending unsolicited text messages and making unsolicited phone calls to Eve Wexler’s phone.  Frustrated with AT&T, Wexler filed a punitive class action claim in U.S. District Court for the Eastern District of New York under the Telephone Consumer Protection Act.[2]  AT&T and Mobility (collectively, Defendants) moved to compel arbitration pursuant to Wexler’s cell phone Service Agreement with Mobility.  This case summary reviews the District Court’s denial of the Defendants’ motion to compel arbitration.

The Service Agreement included the following arbitration clause:

AT&T and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to:
1) claims arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory;
2) claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising);
3) claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and
4) claims that may arise after the termination of this Agreement.

The Service Agreement went on to “define[] the parties to the agreement to ‘include subsidiaries, affiliates, agents, employees, predecessors in interest, successors, and assigns, as well as all authorized or unauthorized users or beneficiaries of services or Devices under this or prior Agreements…’”[3]

The District Court’s analysis begins with Section 2 of the Federal Arbitration Act (FAA), which states that arbitration clauses in commercial contracts are “valid, irrevocable, and enforceable.” This means that arbitration is fundamentally a matter of contract, and that a court will favor arbitration agreements, unless there is a substantive state or procedural policy to the contrary. However, pursuant to the tenants of contract law, this also means that a court can compel arbitration if the court is certain that the parties agreed to arbitrate that specific dispute.[4]

Wexler argued arbitration cannot be compelled because the arbitration clause in Mobility’s Service Agreement was extremely broad in two respects.  First, Wexler argued the Service Agreement unfairly required arbitration of any claims, even those which may involve a third party affiliated with Mobility.  The District Court’s decision expressed a second concern: the extremely broad subject matter that the clause purports to cover. Traditionally “broad” arbitration agreements cover disputes “arising out of” or “relating to” the underlying agreement: “arbitration serves as the primary recourse for disputes connected to the agreement containing the arbitration clause.”  Mobility’s clause, however, extends far beyond disputes arising out of its Service Agreement.[5]

The arbitration clause in Mobility’s Service Agreement was the subject of a previous U.S. Supreme Court case, Concepcion, but the breadth of the arbitration clause was not discussed.[6]  In fact, there is little case law addressing the breadth of arbitration clauses. In In re Jiffy Lube International, Inc., Text Spam Litigation[7] the United States District Court for the Southern District of California acknowledged that an arbitration clause covering “any and all disputes” would be “clearly unconscionable.” In Stein v. Steinkamp[8] the Seventh Circuit discussed the “absurd results” that would follow from such an overly broad arbitration clause.[9] In this case, both the Parties’ and the District Court’s own research revealed that Jiffy Lube is the only case that “squarely address[es]” an arbitration clause as broad as Mobility’s.[10]

In its analysis, the District Court listed several examples to highlight the absurd breadth of the arbitration clause in Mobility’s Service Agreement. The District Court posits that everything from a securities fraud claim to a tort claim would be subject to arbitration under the Defendant’s interpretation of the Service Agreement. The Defendant argued otherwise, claiming that the cause of action is much more closely related to the terms of Mobility’s Service Agreement. The District Court was not convinced by Defendant’s argument, however, because the only connection between Mobility and Wexler’s claim against AT&T Corp, was the unsolicited phone calls and text messages sent over Mobility’s network.

Concerned about the breadth of the Service Agreement, the District Court concluded that arbitration clauses which are unlimited in scope present a question of contract formation. An essential element of any contract is the “mutual intent to be bound.” It follows then that a contract cannot exist absent this intent to be bound.[11]

In a post argument letter addressed to the District Court, AT&T argued that an objective approach to contract formation could not permit a reasonable basis for a difference of opinion: “all disputes and claims” means exactly what is says, and “affiliates” includes all members of the AT&T corporate family.[12]

The District Court disregarded Defendant’s concern, stating words expressed “must be judged according to ‘what an objective, reasonable person would have understood [them] to convey.’”[13] The District Court reasoned that no reasonable person would think that checking a box, to accept the “terms and conditions” necessary to obtain cell phone service would obligate them to arbitrate “literally every possible dispute he or she might have with the service provider,” let alone every possible dispute with any affiliates under AT&T Inc.’s corporate umbrella.[14]

The District Court reasoned that a reasonable person would be expressing—at the very most—intent to agree to arbitration of disputes that are connected to Mobility’s Service Agreement—not claims whose only connection arises out of use of Mobility’s cell phone network.[15]

Regardless of whether Wexler’s argument is framed in terms of unconscionability (the broad scope of the arbitration clause) or contract formation (no reasonable person would agree to such a broad clause), the District Court refused to compel arbitration.  However, the District Court found the difference in rationale important. Calling an arbitration clause “unconscionable” because it is too broad uses a general contract defense to disfavor arbitration, whereas the reliance on lack of mutual intent is consistent with the FAA because arbitration under the act is a matter of “consent, not coercion.”[16]  “Further, the FAA limits itself to agreements to settle via arbitration controversies ‘arising out of such contract[s] or transaction[s], or the refusal to perform the whole or any part thereof.’”[17] Therefore, AT&T’s motion to compel arbitration was denied.

The District Court’s decision denying the Defendants’ motion to compel arbitration demonstrates that courts are becoming more reluctant to enforce exceptionally broad arbitration clauses.

[1]  Wexler v. AT&T Corp., No. 15–0686, 2016 WL 5678555, at *1 (E.D.N.Y. Sept. 30, 2016).
[2]  Id. (discussing 47 U.S.C. § 227)
[3] Id.
[4] Id. at *2.
[5] Id.
[6] Id. (discussing AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)).
[7] Id. (citing In re Jiffy Lube International, Inc., Text Spam Litigation, 847 F.Supp.2d 1253 (S.D. Cal. 2012)).
[8] Id. (citing Stein v. Steinkamp, 318 F.3d 775 (7th Cir.2003)).
[9] “[I]f Instant Cash murdered Smith in order to discourage defaults and her survivors brought a wrongful death suit against Instant Cash . . . Instant Cash could insist that the wrongful death claim be submitted to arbitration. For that matter, if an employee of Instant Cash picked Smith’s pocket when she came in to pay back the loan, and Smith sued the employee for conversion, he would be entitled to arbitration of her claim. It would make no difference that the conversion had occurred in Smith’s home 20 years after her last transaction with Instant Cash.”  Id. (citing Smith at 777).
[10] Wexler at *3.
[11] Id. at *4.
[12] Id.
[13] Id. (citing Leonard v. Pepsico, Inc., 88 F. Supp. 2d. 116, 127 (S.D.N.Y. 1999)).
[14] Id.
[15] Id.
[16] Id. (citing Volt Info. Scis., Inc. v. Board of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)).
[17] Id. (citing 9 U.S.C.§ 2).