Cottrell v. AT&T Inc.

Background

David Cottrell alleged that he had been an AT&T U-verse customer for about four years. He alleged that, after contacting AT&T about reducing his internet-service cost, an AT&T supervisor told him that he had received a discount. Cottrell later discovered that he had been charged several hundred dollars for DirecTV Now, a service he said he had declined. He had difficulty canceling the service and received a refund from his credit-card company rather than AT&T.

Cottrell alleged that his experience was part of a broader pattern in which AT&T representatives enrolled existing customers in DirecTV Now without authorization and encouraged others to sign up for free trials without disclosing that automatic charges would begin afterward. His amended complaint asserted claims under California’s Consumer Legal Remedies Act, Unfair Competition Law, and Consumer Records Act, as well as claims for unjust enrichment, conversion, and declaratory relief. He brought the claims for himself and a proposed class of similarly situated consumers.

The Arbitration Agreement

Cottrell acknowledged agreeing to a contract requiring arbitration of disputes. The agreement limited an arbitrator’s authority to award declaratory or injunctive relief to relief benefiting only the individual party and necessary to that party’s individual claim. It also barred class and representative proceedings. The agreement stated that if this specific limitation were found unenforceable, the entire arbitration provision would be “null and void.”

AT&T moved to compel arbitration under the Federal Arbitration Act, or FAA. In the alternative, it asked the court to stay the case while the Supreme Court considered petitions raising whether the FAA preempts California’s rule concerning public injunctive relief.

Analysis of Arbitration

The court applied the California Supreme Court’s decision in McGill v. Citibank, N.A., which held that an agreement cannot waive a plaintiff’s statutory right to seek public injunctive relief. The court also followed Ninth Circuit precedent holding that the FAA does not preempt that rule.

The court concluded that AT&T’s agreement prevented an arbitrator from awarding public injunctive relief and did not preserve the possibility of obtaining that relief in another forum. The agreement therefore violated the McGill rule. The court found persuasive a prior decision involving a similar “poison pill” clause, which treated the entire arbitration provision as unenforceable when the public-injunction limitation was invalid.

The court also concluded that Cottrell’s complaint actually sought public injunctive relief. His requests included an injunction against future violations of California consumer-protection laws and an injunction against AT&T’s allegedly unlawful practices. The court determined that this requested relief was directed toward benefiting the general public, even though Cottrell also sought relief for himself and a proposed class.

The court did not decide whether Cottrell would ultimately be entitled to the broad injunctions he requested or whether those requests satisfied pleading requirements. It held only that the arbitration agreement’s restriction was unenforceable and that the agreement’s own severability language made the entire arbitration provision void.

Stay

The court considered the potential harm from a stay, the hardship to the party required to proceed, and whether a stay would promote the orderly resolution of the case. It found that proceeding could require AT&T to litigate claims that might later be determined to belong in arbitration if the Supreme Court held that the FAA preempts the McGill rule. The court found that risk outweighed the limited harm from a brief stay.

Disposition

The court denied AT&T’s motion to compel arbitration. It granted AT&T’s motion to stay and stayed the case pending further order. The parties were required to file a joint status report no later than fourteen days after the Supreme Court resolved the petition for review in either AT&T Mobility LLC v. McArdle or Comcast Corporation v. Tillage. The court also continued the initial case-management conference.