Originally prepared for and published by PBSA in the May-June 2021 edition of the Journal. Read the full issue here: https://thepbsa.org/resources/publications/
On April 5, 2021, the Federal Court of Appeals for the Eleventh Circuit held in Michael Hearn v. Comcast Cable Communications, LLC [1] that a proposed Fair Credit Reporting Act (FCRA) class action lawsuit against Comcast may have to go to arbitration due to an arbitration provision in a Subscriber Agreement signed by Michael Hearn, the proposed lead plaintiff. The case is important because it involved a sweeping arbitration provision—applying broadly to all disputes between the parties, even those arising after the agreement was terminated. The Appellate Court, however, did not reach the question of the provision’s enforceability and remanded the case to the District Court to make this determination.
Background of Case
In December of 2016, Michael Hearn obtained service from Comcast. In doing so he signed a work order acknowledging that he received a “Comcast Welcome Kit” that contained a Subscriber Agreement. This Agreement included an arbitration provision that broadly applied to “any claim or controversy related to Comcast” and specified that it survived the termination of the Agreement. The Agreement defined disputes to include “… claims that are currently the subject of purported class action litigation in which you are not a member of a certified class.” Although the Agreement gave Hearn the ability to opt out of the arbitration provision he did not do so. Hearn terminated his Comcast service in August of 2017.
In March 2019, Hearn called Comcast to inquire about pricing and obtaining services again. Hearn claims the Comcast representative obtained his credit information during the call without his knowledge or permission, which lowered his credit score.
Hearn’s FCRA Class Action Lawsuit
Hearn sued Comcast seeking to represent a class of Georgia consumers who experienced reduced credit scores after Comcast allegedly obtained their credit information without their knowledge, even if they did not have a Comcast account for the past five years. He claimed Comcast violated multiple portions of the FCRA since it did not have a lawful reason to obtain his credit report and did not notify him of the credit check.
District Court Denies Comcast’s Motion to Compel Arbitration
Comcast filed a motion arguing that Hearn’s lawsuit did not belong in court and should instead be sent to arbitration based on the arbitration provision in the Subscriber Agreement. Hearn opposed the motion, claiming that (1) there was no valid arbitration agreement between the parties, (2) his FCRA claim does not relate to the Subscriber Agreement and therefore is not arbitrable, and (3) the Arbitration Provision is overly broad and unconscionable.
The District Court denied Comcast’s motion. It acknowledged that the parties intended for the Arbitration Provision to survive termination of the Subscriber Agreement but still found that Hearn’s claim fell outside the scope of the Agreement, concluding that no reasonable person would believe that the Arbitration Provision was so all-encompassing as to apply to all claims regardless of when they occurred or whether they related to the agreement. Comcast appealed the District Court’s decision to the 11th Circuit Court of Appeals.
Appellate Court Overturns District Court
On appeal, the Appellate Court overturned the District Court. Upon review of the provisions of the Agreement, including the reconnection, credit inquiries, and termination provisions, the Appellate Court found that the Agreement contained specific duties relevant to Comcast’s March 2019 credit inquiry. The Appellate Court emphasized that Comcast could not have even run the credit inquiry without the personal information it collected from Hearn pursuant to the Subscription Agreement. Based on its findings, the Appellate Court concluded that the FCRA claim related to the Agreement based on (1) the Federal Arbitration Act (FAA)[2] and the liberal federal policy favoring arbitration agreements; (2) the relevant provisions in the Subscriber Agreement applicable to Hearn; and (3) “the fact that Comcast would not have access to Hearn’s personal information—and therefore could not have engaged in the allegedly [FCRA violations]—but for the pre-existing Agreement.”
The Appellate Court emphasized that its holding was “narrow.” Although the Court acknowledged that “[w]hile the language in some of our prior decisions may indicate that the full scope of the Arbitration Provision is enforceable, this is a close question that we leave for another day.” Accordingly, the Appellate Court did not rule on Hearn’s argument that the arbitration provision was unconscionable, leaving that determination for the District Court.
The District Court Will Determine if The Arbitration Provision is Unconscionable
On remand the District Court will decide whether Hearn has shown that the arbitration provision is procedurally or substantively unconscionable.[3] Procedural unconscionability addresses the process of making the contract, while substantive unconscionability looks to the contractual terms themselves.[4]
A contract is procedurally unconscionable when “one of the parties takes a fraudulent advantage of another.”[5] Factors courts have considered in determining whether a contract is procedurally unconscionable include, “the age, education, intelligence, business acumen and experience of the parties, their relative bargaining power, the conspicuousness and comprehensibility of the contract language, the oppressiveness of the terms, and the presence or absence of a meaningful choice.”[6] In determining whether a contract is substantively unconscionable courts focus on matters such as “the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns”.[7] An unconscionable contract is one that “no sane man not acting under a delusion would make, and that no honest man would take advantage of.”[8]
Comcast’s Arguments That the Arbitration Provision is Not Unconscionable
Comcast cites cases supporting the argument that because Hearn was given the opportunity to opt out of the Arbitration Provision but did not do so, the provision cannot be procedural unconscionable.[9] Comcast also argues that the Arbitration Provision is not substantively unconscionable given Georgia courts’ focus on commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns.[10] Specifically, Comcast argues that the arbitration mechanism in the Subscriber Agreement is inexpensive and convenient for subscribers such as Hearn.
Comcast also points to the FAA, arguing that arbitration agreements must meet only two conditions for the FAA to apply: (1) they must be in writing; and (2) they must be part of “a contract evidencing a transaction involving [interstate] commerce.” 9 U.S.C. § 2.[11] Comcast also cites U.S. Supreme Court precedent, which holds that consistent with the FAA arbitration agreements must be honored as written.[12]
Conclusion
The Eleventh Circuit’s Hearn v. Comcast decision may be helpful to a CRA who has been sued in an FCRA class action lawsuit when the plaintiff has signed an agreement consenting to the arbitration of its class claims against the CRA. The decision, however, is not a “silver bullet”. To take advantage of it, a CRA will need to demonstrate that the arbitration provision adequately addressed the FCRA violations alleged in the lawsuit. Further, to overcome an unconscionability argument the CRA will need to show that the terms and manner in which its arbitration provision was presented were fair and commercially reasonable. For these reasons CRAs should engage qualified legal counsel to assist them in preparing and implementing arbitration provisions.
[1] Hearn v. Comcast Cable Communications, No. 19-14455, 2021 U.S. App. LEXIS 9758 | 992 F.3d 1209 (11th Cir. 2021). The 11th Circuit covers Alabama, Georgia, and Florida.
[2] 9 U.S.C. §§ 1–16; 9 U.S.C. §§ 201–208; 9 U.S.C. §§ 301–307.
[3] Hopkins v. World Acceptance Corp., Case No. 1:10-cv-03429-SCJ, 798 F Supp. 2d 1339, 1346 (N.D. Ga. 2011).
[4] NEC Techs v. Nelson, 267 Ga. 390, 392, 478 S.E.2d 769 (1996).
[5] Results Oriented, Inc. v. Crawford, 245 Ga. App. 432, 441, 538 S.E.2d 73 (2000).
[6] NEC Techs., 267 Ga. At 392.
[7] Id.
[8] R. L. Kimsey Cotton Co., Inc. v. Ferguson, 233 Ga. 962, 214 S.E.2d 350 (Ga. 1975).
[9] Opt-out rights “weigh heavily against a finding of procedural unconscionability.” O’Quinn v. Comcast Corp., No. 10-2491, 2010 U.S. Dist. LEXIS 125879, at *14 (N.D. Ill. Nov. 29, 2010); see also Trout v. Comcast Cable Communs., LLC, No. 17-cv-1912, 2018 U.S. Dist. LEXIS 170261, at *13 (N.D. Cal. Mar. 15, 2018) (“Although Trout insists this was a contract of adhesion, the opt-out opportunity means it was not.”); Hopkins v. World Acceptance Corp., No. 1:10-cv-03429-SCJ, 798 F. Supp. 2d 1339, 1346 (N.D. Ga. 2011) (“[W]hen a party challenges an arbitration agreement that contains an opt-out provision and fails to opt-out, her unconscionability argument is diluted.” (citing Honig v. Comcast of Ga. I, LLC, Case No. 1:07-cv-1839-TCB, 537 F. Supp. 2d 1277, 1289 (N.D. Ga. 2008))
[10] Jones v. Waffle House, Inc., No. 16-15574, 866 F.3d 1257, 1265 (11th Cir. 2017) (quoting NEC Techs., 267 Ga. 390, 478 S.E.2d at 772).
[11] 9 U.S.C. § 2.
[12] See AT&T Mobility LLC v. Concepcion, 563 U.S. at 339 (2011) (“[C]ourts must place arbitration agreements on an equal footing with other contracts … and enforce them according to their terms.”); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (holding that the FAA “leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed” (citing 9 U.S.C. §§ 3, 4)).