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AT&T Can't Require Arbitration, Court Rules

February 12, 2003

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Calling AT&T's rules "oppressive," a federal appeals court has ruled the company can't force its 7 million California long-distance customers to take disputes to a private arbitration system that limits their rights to sue and swears them to secrecy.

The Ninth U.S. Circuit Court of Appeals in San Francisco upheld a lower court's decision, thus restoring the right of California customers to sue AT&T.

The court found that key provisions of AT&T's arbitration system were unfair and one-sided, in violation of California law. Those provisions included:

• A ban on class actions filed on behalf of multiple AT&T customers.
• A rule that allowed victims of willful misconduct by the company to collect damages in arbitration only for the amount they were charged improperly for phone service. Under the appeals court's ruling, customers can once again sue for additional damages that they or their businesses suffered as a result of AT&T wrongdoing, as well as punitive damages.
• A requirement that customers split the cost of arbitration with AT&T.
• A secrecy clause banning customers as well as the company from publicly disclosing the existence or results of an arbitration.

AT&T imposed its terms in 2000, when it mailed its decree to customers. The court noted that the rules were printed in very small type and were accompanied by a letter that discouraged consumers from bothering to read the revised agreement.

AT&T had argued that long-distance phone service was subject to uniform national regulation but the court held that the Telecommunications Act of 1996 allows states to apply their laws to protect consumers. The court noted that AT&T had presented no evidence showing that forcing customers to give up their rights to sue would save the company so much money that it would be able to reduce its rates.

AT&T imposed mandatory arbitration on all 60 million of its U.S. customers in 2001. A federal court in Chicago has since upheld AT&T's rules, opening the way for AT&T to appeal the latest ruling to a higher court.

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