Appeals court upholds Suddenlink arbitration agreement

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The 4th U.S. Circuit Court of Appeals has reversed and remanded a case in which three unhappy West Virginia customers sued their internet service provider but attempted to evade their arbitration obligations. 

Incongruous with the parties’ claims, the district court found that the matter was controlled by an earlier version of the arbitration agreement. Based on that determination, the court denied the defendants’ motions to compel arbitration. 

But U.S. Circuit Judge Alison Jones Rushing said the parties’ 2021 arbitration agreement was enforceable and “necessarily superseded any preceding version of the agreement.” The judge rejected the plaintiffs’ unconscionability and waiver claims. 

Joined by U.S. District Judge Mary Geiger Lewis, sitting by designation from the District of South Carolina, Rushing reversed and remanded Meadows v. Cebridge Acquisition LLC (VLW 025-2-108). 

In a concurring opinion, U.S. Circuit Judge James Andrew Wynn pointed out that the defendants’ modification clause did not satisfy West Virginia’s reasonable-notice standard, but said “this infirmity does not afflict the formation of the arbitration agreement.” 

Attorneys involved with this case did not respond to a request for comment. 

Unhappy customers 

Unhappy with their cable and internet service, three West Virginia residents sued four companies which operated collectively under the brand name Suddenlink. 

Suddenlink moved to compel arbitration in each case, relying on the arbitration agreement in its 2021 residential services agreement, or RSA. The district court found that a 2017 arbitration agreement controlled. It denied Suddenlink’s motions because the agreement was unconscionable and could not be enforced. Suddenlink appealed.

Multiple versions 

The plaintiffs attempted to escape the 2021 arbitration agreement by averring they were simultaneously parties to all earlier and later versions of the RSA in place while they were Suddenlink customers, each of which claimed to reach into the past and into perpetuity, creating conflicting obligations.  

Rushing said that was not so because the plaintiffs agreed to the October 2021 RSA and arbitration agreement, which “necessarily superseded any preceding version of the agreement.” 

Looking to Thornsbury v. Cabot Oil & Gas Corp., the judge said it was “‘a well-established, fundamental principle of contract law‘ that a prior contract between the parties may be ‘superseded by a subsequent contract,’ provided that all elements of contract formation are satisfied.” 

“And a superseding contract need not say so expressly,” she wrote. “Rather, under West Virginia law ‘a subsequent contract which does not by express terms abrogate an earlier contract nevertheless will operate as a discharge thereof, if it is inconsistent with such earlier contract.’” 

Whereas the plaintiffs argued that the various arbitration agreements contained differing and mutually incompatible provisions, and because multiple versions cannot apply, Rushing pointed out that “the later-in-time version controls.” 

The plaintiffs alleged in response to a motion from Suddenlink that a more recent RSA from July 2022 applied. However, the judge disagreed, noting that updated RSA became effective only after the plaintiffs sued. 

“The 2021 Arbitration Agreement, which was the governing version when plaintiffs sued, specifically provides that the parties ‘agree that if we make any amendment to this arbitration provision . . . in the future, that amendment shall not apply to any claim that was filed in a legal proceeding against Suddenlink prior to the effective date of the amendment,’” Rushing noted.

Consideration 

Citing Hampden Coal, LLC v. Varner, Rushing found that both parties surrendered their right to trial and obligated themselves to arbitration to resolve disputes. Additionally, the judge found that the 2021 arbitration agreement satisfied the valuable consideration element of contract formation. 

The plaintiffs contended that consideration was illusory because Suddenlink retained the ability to unilaterally modify the arbitration agreement at its sole discretion. Rushing cited Donna S. v. Travis S. in which the Supreme Court of Appeals of West Virginia held that an “illusory promise appears to be a promise, but it does not actually bind or obligate the promisor to anything,” and therefore “cannot constitute consideration.” 

However, Rushing wrote that “the unilateral right to modify a contract does not render an underlying promise illusory if the modifying party must give reasonable notice of modification.” The judge noted that Suddenlink must notify customers of arbitration agreement amendments. Upon notice, customers who disagree with the changes can cancel their RSA. 

Under West Virginia law, Rushing found Suddenlink’s notice of the changes does not undermine the only consideration supporting the agreement. “As in [Citizens Telecomms. Co. v.] Sheridan, a ‘[c]ustomer’s continued use of the [services] following notice of such change, modification or amendment shall be deemed … acceptance,’” the judge said. 

Accordingly, the mutual promise to arbitrate was not illusory under West Virginia law. 

Alleged defects 

Since the court’s review was limited to the enforceability of the arbitration agreement itself, Rushing refused to consider the plaintiffs’ concerns about terms and conditions outside the arbitration agreement.  

“We may not determine the enforceability of other contractual provisions within the RSA, which the contract reserves for the arbitrator to decide,” she wrote, adding that “an arbitration agreement is severable from the remainder of the contract.” 

“Once ‘a court is “satisfied that the making of the agreement for arbitration … is not in issue,” it must send the dispute to an arbitrator,’” Rushing explained, looking to Coinbase, Inc. v. Suski. 

The plaintiffs attempted to sidestep that principle by arguing that Suddenlink endeavored to evade judicial review of unconscionable arbitration terms by moving them outside the arbitration agreement into the main body of the RSA. 

“Regardless of the contractual location of the contested term, however, ‘[a] party challenging the enforceability of an arbitration clause under Section 2 of the FAA must rely on grounds that “relate specifically to the arbitration clause and not just to the contract as a whole,”’” the judge responded. 

“Any ‘alleged defects’ that ‘pertain to the entire contract, rather than specifically to the arbitration clause’ must be ‘left to the arbitrator for resolution,’” she said, unpersuaded that Suddenlink relocated challenged provisions from the arbitration agreement. 

“The allegedly relocated provisions, or similar language, can also be found outside the arbitration agreement in the 2017 RSA,” Rushing wrote. “More importantly, the challenged provisions do not single out (or even mention) arbitration, and thus would apply equally to disputes in any forum.”

Not unconscionable 

Nor was Rushing convinced that the arbitration agreement was unconscionable. 

“Plaintiffs’ laundry list of alleged procedural inadequacies in the 2021 Arbitration Agreement lacks merit,” the judge said before rejecting the “generalized contention” that “17% of West Virginia adults have significant difficulty with literacy” as irrelevant. 

The court also would not infer unconscionability from Suddenlink’s purported monopoly power or the unequal bargaining power between the parties. 

“‘A ruling of unconscionability based on this analysis alone could potentially apply to every’ telecommunications contract, and arguably every consumer contract,” Rushing cautioned. 

The judge then explained that “contracts of adhesion are commonplace and not presumptively unconscionable.” 

“It is true that ‘[a] contract of adhesion must be closely scrutinized to determine if it imposes terms beyond the reasonable expectations of an ordinary person, or oppressive or unconscionable terms, any of which will prevent enforcement of the agreement,” she acknowledged. 

“But while an adhesive contract deserves extra scrutiny, that is only ‘the beginning point for analysis, not the end of it,’” the judge said. 

Rushing rebuffed the plaintiffs’ protests about a preexisting customer’s inability to opt out of Suddenlink’s arbitration agreement. 

“In fact, the absence of an opt-out provision is analytically indistinct from the agreement’s adhesive nature,” she wrote. “That is, as existing Suddenlink customers, plaintiffs must either agree to arbitrate their disputes or find another telecommunications provider.” 

Absent further evidence of unconscionability, Rushing would not absolve the plaintiffs of their commitments just because Suddenlink’s contract was presented on a take-it-or-leave-it basis. 

The court did not find that Suddenlink hid arbitration-related provisions elsewhere within the RSA and disagreed with the district court that the rules governing arbitration were excessively difficult to understand. 

And contrary to the district court’s ruling, Rushing said “presenting customers with a mobile device on which to read and sign the RSA does not deny them a ‘reasonable opportunity to understand the terms.’” 

“Reading multiple pages of text on a technician’s mobile device may be tedious, but that inconvenience is not unconscionable,” the judge opined. 

The plaintiffs’ inadequate showing of procedural unconscionability meant they needed to show significant substantive unconscionability. 

“Under West Virginia law, ‘[a] contract term is substantively unconscionable only if it is both one-sided and overly harsh as to the disadvantaged party,’” Rushing said, citing McFarland v. Wells Fargo Bank, N.A. 

Here, there was nothing unreasonable about Suddenlink’s pre-arbitration notice requirement. 

“It applies to both parties equally,” she said. “And it serves a commercially reasonable purpose by allowing both parties the opportunity to resolve disputes informally without incurring the expense of arbitration.” 

The plaintiffs’ misread the appeals process provision by ignoring their right to appeal an arbitrator’s denial of injunctive relief. Further, Rushing disregarded the plaintiffs’ concerns about the waiver of class-wide relief, which have been upheld by West Virginia courts.

Inconsistent settlement 

The plaintiffs claimed that Suddenlink waived its right to compel arbitration of these disputes by entering into a class settlement to resolve different claims about fees and surcharges in New Jersey state court.  

Rushing said that position was untenable because Suddenlink stipulated that its out-of-state class settlement did not cover plaintiffs’ claims, none of which were about fees and surcharges. 

“Litigation surrounding factually and legally distinct claims ‘cannot support a finding that [a party] waived its right to arbitrate . . . unrelated claims’ brought by a different counterparty,” the judge said.  

“Indeed, courts have roundly rejected the idea that ‘allegedly inconsistent conduct in a separate case involving a different party can waive the right to arbitrate,” she pointed out. 

Thus, Rushing reversed the district court’s judgments denying Suddenlink’s motions to compel arbitration.