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In assessing a claim of unconscionability, Oregon courts consider both procedural and substantive unconscionability. Although both forms of unconscionability are relevant, only substantive unconscionability is absolutely necessary
Plaintiffs, Paul Stewart and Ellen Chalk, bought a wireless LAN PC card, a device manufactured by Defendant-Appellee Sony Ericsson Mobile Communications (USA), Inc., that enabled computers to connect wirelessly to the Internet, from Defendant-Appellee T-Mobile USA, Inc. Plaintiffs also signed a one-year service agreement with T-Mobile. The service agreement required a mandatory arbitration of disputes and a mandatory waiver of the right to jury trial and waiver of any ability to participate in a class action. Subsequently, plaintiffs found out that the card was incompatible with their computer. Despite multiple email inquiries, a Sony representative did not contact plaintiffs on how to solve the problem. Ultimately, plaintiffs filed a class action lawsuit in federal district court against T-Mobile and Sony, alleging violations of Oregon Unlawful Trade Practices Act, Or. Rev. Stat. § 646.605, the Magnuson-Moss Warranty Act, 15 U.S.C.S. § 2301, and the Lanham Act, 15 U.S.C.S. § 1125(a). Plaintiffs also raised a number of common law theories of liability. Defendants filed a motion to dismiss the case or stay proceedings and compel arbitration under the Federal Arbitration Act. Plaintiffs opposed the motion, contending that the arbitration clause was unconscionable and therefore unenforceable. The district court concluded that the 9 U.S.C.S. § 2 arbitration agreement contained in the service contract was enforceable, rejecting plaintiffs' claim of unconscionability.
Did the district court err in dismissing the plaintiffs’ complaint on the ground of conscionability and enforceability of the service contract?
The court agreed with the district court that the take-it-or-leave-it nature of the agreement, while it reflected an unequal bargaining power, was insufficient to render the agreement procedurally unconscionable. However, the court held that the agreement's class action waiver was substantively unconscionable and unenforceable under Oregon law based on the unilateral nature of the waiver and the disincentive to litigate that was created. Because the agreement prohibited severance of the waiver, the agreement as a whole was unenforceable.