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The 1st U.S. Circuit Court of Appeals is the second federal circuit to tell a company offering consumer services that it cannot simply ban class actions by inserting a provision in an arbitration clause in its contracts. Consumer lawyers have lauded the court’s decision in Kristian v. Comcast Corp., No. 04-2619 and No. 04-2655 (1st Cir. April 2006), as the first to recognize that the bans deprive plaintiffs of the ability to exercise their statutory rights under federal antitrust law. The 9th Circuit and the California Supreme Court have struck down class action waivers as illegal under California law. Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003), and Discover Bank v. Superior Court (Boehr), 36 Cal. 4th 148 (Calif. 2005). In its recent ruling, the 1st Circuit determined that the challenged arbitration clause is valid, but that under Rule 23 of the Federal Rules of Civil Procedure, which addresses class actions, the plaintiffs’ antitrust claims against Comcast Corp. can go forward on a class or consolidated basis. The 1st Circuit pointed to evidence that the class action waiver deprived subscribers of any practical means of recovering overcharges arising from the alleged antitrust violations. The court also ruled that the plaintiffs can recover triple damages and attorney fees and costs in an arbitration. Barry C. Barnett, a partner in Houston-based Susman Godfrey’s Dallas office who represents Boston-area Comcast cable subscribers in the case, called the decision a big win for consumers whose small claims are too small to pursue in individual arbitration. “In a complex case against a powerful business, consumers can get a fair hearing only if they band together,” Barnett said. “Banding together makes the case big enough to justify the millions that their lawyers will have to spend to hold the business accountable.” Jaime A. Bianchi, a partner in the Miami office of White & Case who argued Comcast’s case, did not return calls seeking comment. Ruling questioned But Alan S. Kaplinsky, who chairs Philadelphia-based Ballard Spahr Andrews & Ingersoll’s consumer finance litigation practice group and helped develop arbitration clauses in consumer contracts, said that he thinks the 1st Circuit’s analysis is flawed. The court, acknowledging that the arbitration clause’s class action waiver did not conflict with state or federal antitrust law, is the first to find that the waiver conflicts with the federal procedural rule that provides for class actions, said Kaplinsky, who is not involved in the litigation. In Kaplinsky’s view, the court “somehow magically transmuted” Rule 23 from a procedural guideline into a regulation that carries the force and effect of law. He added that by doing so, “the 1st Circuit went pretty far off the reservation,” and said further that he expects counsel to request a rehearing of the matter en banc. Barnett represents Comcast cable television subscribers in the company’s Boston, Chicago and Philadelphia service areas who allege that the company’s anti-competitive practices caused them to pay inflated rates, he said. The Chicago plaintiffs dismissed their original state court action filed in Illinois and refiled their claims as an amended complaint against Comcast in the Philadelphia area in federal court in Philadelphia, Barnett said. Glaberson v. Comcast, No. 03-cv-6604 (E.D. Pa.). That case is awaiting a scheduling order for the Philadelphia piece of the litigation after a trip to the 3d Circuit. The Chicago piece of that litigation was stayed pending a decision by the Illinois Supreme Court on the question of whether a ban on class actions is unconscionable under state law, Barnett said. Kinkel v. Cingular Wireless, No. 100925 (Ill.). “The Kristian case gives consumers a lot of ammunition on the unconscionability issue,” Barnett said.

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