## Facts

- AT&T issued a standardized Consumer Services Agreement (CSA) for residential long-distance customers.
- The CSA required mandatory binding arbitration and barred class actions and classwide arbitration.
- The CSA required confidentiality of arbitration proceedings and outcomes.
- The CSA required consumers to split arbitration fees with AT&T and limited remedies and damages otherwise available under California consumer-protection law.
- Customers were told continued use of service would constitute acceptance; customers could not reject the CSA and continue service, and the practical alternative was to terminate service.
- Darcy Ting and Consumer Action sued on behalf of a class, alleging that the CSA’s arbitration and liability-limitation provisions violated California consumer-protection statutes because they were unconscionable and contrary to public policy.
- The district court found CSA provisions (including §§ 4 and 7) unconscionable and permanently enjoined AT&T from enforcing them against California customers; AT&T appealed, arguing federal preemption and FAA enforcement.

## Issues

1. Whether the Federal Communications Act and the filed-rate doctrine preempt application of California consumer-protection and unconscionability law to AT&T’s CSA provisions.
2. Whether the Federal Arbitration Act requires enforcement of the CSA’s arbitration clause notwithstanding California unconscionability doctrine.
3. Whether the arbitration clause and related remedial limitations were procedurally and substantively unconscionable under California law, and if so, whether the provisions could be severed.

## Decision

- The Ninth Circuit affirmed in part and reversed in part.
- The court held the FCA and filed-rate doctrine did not categorically bar application of generally applicable California consumer-protection and unconscionability doctrines to the CSA, so long as state law did not conflict with federal tariff requirements or federal objectives.
- The court held the FAA did not preempt California unconscionability doctrine as a generally applicable contract defense.
- The court upheld findings that major components of the arbitration scheme were unconscionable and unenforceable, including the class-action waiver, fee-splitting requirement, and confidentiality provision, and it agreed that the remedial restrictions improperly curtailed statutory rights.
- The court largely affirmed the permanent injunction prohibiting enforcement of the challenged CSA provisions against California customers, with limited modifications consistent with federal preemption boundaries.

## Legal Principles

- State laws of general application, including unconscionability, may apply to federally regulated carriers’ consumer contracts unless they conflict with federal tariffs or frustrate federal regulatory objectives.
- The FAA permits arbitration agreements to be invalidated by generally applicable contract defenses (including unconscionability) when the doctrine does not single out arbitration for disfavored treatment.
- Under California law, procedural unconscionability may be shown by oppression or surprise in an adhesion contract presented on a take-it-or-leave-it basis with no meaningful opportunity to negotiate.
- Substantive unconscionability exists where terms are overly harsh or one-sided, including provisions that effectively deter small-value consumer claims (e.g., class-action bans and fee arrangements making dispute resolution more costly than court).
- Confidentiality terms may be substantively unconscionable when they create an informational asymmetry favoring a repeat-player business and impair consumers’ ability to investigate and pursue similar claims.
- Where multiple unconscionable terms are central to the arbitration scheme, a court may refuse enforcement rather than sever provisions that would require rewriting the agreement.

## Conclusion

The Ninth Circuit held that California unconscionability doctrine could be applied consistently with the FCA and FAA to invalidate one-sided terms in AT&T’s mass-market arbitration agreement, and it largely upheld an injunction barring enforcement of the CSA’s arbitration and remedial limitations against California consumers.


Ting v. AT&T Corp., 319 F.3d 1126 (9th Cir. 2003)