A California federal judge has rejected Vonage America Inc.’s bid to force arbitration in a putative class action claiming the telecom billed consumers an extra monthly “County 911 Fee” that wasn’t required by the government. U.S. District Judge Christina A. Snyder called Vonage’s contract “unconscionable.” After the Plaintiffs filed suit in September, Vonage said an arbitration provision found within the Vonage Terms of Service Agreement, agreed to by all customers who sign up for Vonage services, prohibited the lawsuit. But Judge Snyder denied Vonage’s motion to compel arbitration in the case, saying the service agreement’s terms, including the arbitration provision, is procedurally and substantively unconscionable.
According to Judge Snyder, those terms involved a substantial degree of oppression, which addresses the weaker party’s absence of choice and unequal bargaining power, and of surprise, which looks to the extent the contract clearly discloses its terms. “The subscriber is given no opportunity to negotiate the contract: He or she must either accept the [terms of service agreement] in the entirety, or else reject it and forego Vonage services. Such ‘take it or leave it’ contracts of adhesion are frequently found to be oppressive under California law,” Judge Snyder said. She added that the provision actually grants Vonage the forum of its choice while claiming to mutually bind both parties to arbitration.
The court’s decision allows the Plaintiffs to pursue their allegations in court because of an unreasonable contract. Named Plaintiffs Arthur Merkin and James Smith sued Vonage and others on Sept. 27, asserting claims for violation of the California Unfair Competition Law, obtaining money under false pretenses, violating the Consumer Legal Remedies Act, fraud, unjust enrichment and others. The Plaintiffs said Vonage billed customers for a monthly “government mandated” charge of $4.75 for a County 911 Fee, despite the fact that no government agency mandated the fee.
In late October, Vonage removed the case to federal court pursuant to the Class Action Fairness Act. One month later, the Internet telephony services provider moved to compel arbitration and to dismiss or stay the case. After a Jan. 27 hearing, Judge Snyder found the arbitration agreement at issue to be one-sided and substantively unconscionable. Judge Snyder further rejected Vonage’s contention that he should refer the question of the arbitration provision’s fairness to an arbitrator. He ruled that Vonage did not point to any provision in the terms of the service agreement that would constitute proof that the parties agreed to delegate questions of arbitrability.
The Plaintiffs are represented in the case by J. Michael Hennigan, Bruce R. MacLeod and Elizabeth S. Lachman of McKool Smith a Los Angeles firm; and by Taras P. Kick, James Strenio and Thomas A. Segal of The Kick Law Firm, located in Santa Monica, Calif.
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