Reinsurance & Arbitration Focus

In 2012, the plaintiff entered into a cellphone service contract with AT&T Mobility in which she agreed to arbitrate all disputes and claims with AT&T Mobility and its “subsidiaries, affiliates, agents, employees, predecessors in interest, successors, and assigns.” Three years later, AT&T Inc., the parent company of AT&T Mobility, acquired DirecTV, which, unlike AT&T Mobility, provided satellite television service, not cellphone service.

In 2017, the plaintiff sued DirecTV in the U.S. District Court for the Northern District of West Virginia claiming that DirecTV violated the Telephone Consumer Protection Act (TCPA) by calling her cellphone to advertise DirecTV products and services even though her phone number is listed on the National Do Not Call Registry. Recognizing that the plaintiff had never been a DirecTV customer, DirecTV nonetheless moved to compel arbitration, asserting that the dispute was covered by an arbitration agreement in the contract governing the plaintiff’s cellphone service from AT&T Mobility, a DirecTV “affiliate.”

The district court denied DirecTV’s motion to compel arbitration, finding that the plaintiff’s claims did not fall within the scope of the arbitration agreement. DirecTV appealed to the Fourth Circuit, arguing that the plaintiff had signed the arbitration agreement that included AT&T and its “affiliates.” The plaintiff argued that the agreement did not apply to DirecTV despite AT&T Mobility’s acquisition of the company in 2015.

The Fourth Circuit vacated the district court's decision, finding that the plaintiff formed an agreement to arbitrate with DirecTV and that the dispute fits within the broad scope of that agreement. However, noting the district court’s observation that a construction that does “not so limit the scope of the arbitration clause would be unconscionably overbroad,” the Fourth Circuit remanded the matter to further address unconscionability under West Virginia law.

On remand, the district court once again denied DirecTV’s motion to compel arbitration, holding that the arbitration provision was “overbroad, absurd and unconscionable, and far exceeds anything contemplated by Congress in enacting the FAA.”

The district court determined that the provision was procedurally unconscionable, not only because of the “huge imbalance” between the AT&T conglomerate and the plaintiff who may be somewhat knowledgeable as to the TCPA but unlikely to have expertise in arbitration clauses but also because the provision was a “non-negotiable term” that the plaintiff was not permitted to opt out of or alter if she wanted to obtain AT&T Mobility’s services.

The district court also determined that the arbitration provision was substantively unconscionable because no reasonable AT&T Mobility customer would believe that by signing the arbitration agreement, she was consenting to arbitrate not only with AT&T Mobility but also with any entity that ever might share a corporate umbrella with AT&T Mobility. “[C]onstruing ‘affiliate’ to cover entities like DirecTV would lead to results so absurd that no reasonable person could have intended or anticipated that they would follow from her cell-phone service agreement.”

Mey v. DirecTV, LLC, No. 5:17-cv-00179 (N.D. W.Va. Feb. 12, 2021).