Client Alert: Signed, Sealed & Unconscionable? Electronic Signatures Are Legal, But...

In Laster v. T-Mobile USA, Inc., 407 F. Supp. 2d 1181 (S.D. Cal. 2005), the Southern District Court of California upheld an electronic signature process pursuant to ESIGN, however, it refused to compel mandatory arbitration in a putative class action suit against T-Mobile USA, Inc. (“T-Mobile”) and Cingular Wireless, LLC (“Cingular”) after finding the arbitration clauses at issue to be procedurally and substantively unconscionable.

The e-Contracting Process

The plaintiffs in Laster alleged that cellular phone companies such as T-Mobile and Cingular engaged in unfair and deceptive business practices by advertising “free” or substantially discounted phones, but then charging consumers sales tax on the full retail value of such phones. At the time of purchase, Cingular provided its customers with a written “Wireless Service Agreement” that referenced the arbitration provision contained in Cingular’s current Terms of Service. Also, at the time of purchase, Cingular provided its customers with its thirteen page “Terms of Service,” which contained the section entitled “Arbitration.” Before the customer’s wireless service was activated by Cingular, the customer was required to call Cingular’s activation phone service and “execute an electronic signature by selecting the ‘Yes’ option using [the customer’s] telephone keypad in response to the statement: ‘You agree to the terms as stated in the Wireless Service Agreement and Terms of Service.’” In contrast, the T-Mobile customer signed in ink a one-page Service Agreement that did not mention arbitration or incorporate such provision by reference. Instead, T-Mobile’s arbitration clause was provided in the 52-page “Welcome Guide” found in the sealed box containing the new phone. more...