Facts
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Qwest Communications International, Inc. (Qwest) offered broadband subscribers a discounted “Price for Life” rate if they entered a minimum two-year commitment; the discounted rate continued as long as service remained unchanged.
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Subscribers who canceled within the first two years were assessed a $200 early cancellation fee.
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The program was governed by a Subscriber Agreement that required disputes to be resolved in arbitration or small-claims court, barred class proceedings, and required subscribers to pay arbitrator fees up to $125.
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Qwest provided subscribers multiple notices of the Subscriber Agreement and its arbitration term:
- For telephone sign-ups, a recorded script referenced the agreement and provided a website where it could be reviewed.
- For online sign-ups, subscribers were presented with notice of the agreement and clicked a box indicating assent.
- All subscribers received an installation disc that referenced the agreement, warned that it contained an arbitration clause, and stated it limited Qwest’s liability.
- Subscribers also received a welcome letter referencing the agreement and warning of the arbitration and liability limits.
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Robin Vernon and three other subscribers canceled their service within two years, were charged the $200 fee, and filed a putative class action alleging the fee was invalid.
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A magistrate judge granted Qwest’s renewed motion to compel arbitration and stayed the case; plaintiffs objected under Federal Rule of Civil Procedure 72.
Issues
- Whether the district court should set aside the magistrate judge’s order compelling arbitration as clearly erroneous or contrary to law under Rule 72.
- Whether the Subscriber Agreement’s arbitration clause (including the class-action waiver and the $125 fee provision) was unenforceable as unconscionable under applicable state contract law.
- Whether the Federal Arbitration Act (FAA), including AT&T Mobility LLC v. Concepcion, required enforcement of the arbitration agreement as written, despite plaintiffs’ objections to individual-only proceedings.
Decision
- The district court denied plaintiffs’ Rule 72 objection and affirmed the magistrate judge’s order compelling arbitration.
- The court held the arbitration agreement was enforceable and applied to plaintiffs’ claims challenging the early cancellation fee.
- The court rejected plaintiffs’ unconscionability arguments, including attacks on the class-action waiver and the cost-sharing term, because plaintiffs did not show the arbitration costs would prevent them from pursuing their claims.
- The case remained stayed pending arbitration (or pursuit of claims in small-claims court, as the agreement allowed).
Legal Principles
- Under Rule 72, a district judge will not overturn a magistrate judge’s non-dispositive order unless it is clearly erroneous or contrary to law.
- The FAA reflects a strong federal policy favoring enforcement of arbitration agreements according to their terms, subject only to generally applicable contract defenses applied evenhandedly.
- After Concepcion, state-law rules that treat class-action waivers in arbitration clauses as invalid (because they bar class procedures) are preempted by the FAA.
- A party asserting that arbitration costs make an arbitration clause unconscionable must present evidence that the costs are likely to be prohibitive; unsupported assertions are insufficient.
- Subscribers can be bound to arbitration terms when they receive repeated notice of the agreement and accept service on those terms (including through online assent and continued use after notice).
Conclusion
The District of Colorado affirmed an order compelling Qwest subscribers to pursue their early-termination-fee dispute in individual arbitration (or small-claims court) because the customers received multiple notices of the Subscriber Agreement, the FAA required enforcement of the class-action waiver after Concepcion, and plaintiffs failed to show that the agreement’s limited arbitration-fee provision rendered arbitration unconscionable.