Yesterday, the Court of Appeal (Second Appellate District, Division Four) affirmed a trial court order denying a motion to compel arbitration of a UCL class action. Aral v. EarthLink, Inc., ___ Cal.App.4th ___ (Nov. 29, 2005). First, the Court determined that the plaintiff's UCL claim for monetary restitution, as opposed to injunctive relief, would have been arbitrable:
Under the holding in Cruz [v. PacifiCare Health Systems, Inc., 30 Cal.4th 303 (2003)], when a party brings a claim under the UCL seeking both injunctive and restitutionary relief and the dispute is subject to arbitration, the proper procedure is to sever the claim for injunctive relief and compel arbitration of the claim for restitutionary relief only. Aral is seeking both injunctive relief and restitution of funds which were allegedly acquired by means of unfair business practices. Thus, the trial court erred in ruling that the entire claim should go forward in court.
(Slip op. at 9.) Nonetheless, the Court of Appeal affirmed the trial court's order because the arbitration clause was invalid in its entirety under Discover Bank v. Superior Court, 36 Cal.4th 148 (2005). Its provisions prohibiting class actions and requiring California consumers to arbitrate in Georgia were both procedurally and substantively unconscionable:
The arbitration provision in the DSL service agreement put forth as the parties’ final agreement by EarthLink requires California consumers with minor monetary claims to arbitrate in Georgia and forbids class actions. Under recent Supreme Court authority, provisions in adhesion contacts that preclude class actions are unconscionable where the case involves allegations that a large number of consumers have been cheated out of a small sum of money. Moreover, EarthLink sought an order specifying that arbitration of a minor monetary claim by a California resident take place in Georgia. A forum selection clause that discourages legitimate claims by imposing unreasonable geographical barriers is unenforceable under well-settled California law.
(Slip op. at 2, 10-21.) The Court also rejected the defendant's argument that Georgia law, rather than California law, should govern the question of whether the arbitration clause was unconscionable:
[The plaintiff] resides in California, seeks to represent only California consumers, and relies solely on California’s UCL to support his claim. The fundamental policy at issue is not simply the right to pursue a class action remedy, but the right of California to ensure that its citizens have a viable forum in which to recover minor amounts of money allegedly obtained in violation of the UCL. Forcing consumers to travel to a far location and depriving them of any hope of class litigation would pose an insurmountable barrier to recovery of small sums unjustly obtained, and undermine the protections of the UCL.
(Slip op. at 25.)