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Cohen v. Blockbuster Entertainment

March 20, 2003

MARC COHEN, UWE STUECKRAD, MARC PERPER, AND DENITA SANDERS, INDIV. AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLEES,
v.
BLOCKBUSTER ENTERTAINMENT, INC., INDIV. AND ON BEHALF OF ALL ENTITIES DOING BUSINESS AS BLOCKBUSTER OR BLOCKBUSTER VIDEO, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County. No. 99 CH 2561 (cons. with 99 CH 8984) Honorable Paul Biebel, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Theis

Defendant, Blockbuster, Inc. *fn1 , appeals from an interlocutory order of the circuit court denying its motion to compel certain class action members to arbitrate their claims for relief from unlawful penalties, unjust enrichment, breach of implied contract, and breach of express contract. Blockbuster contends that (1) those class members who signed membership agreements after mid-August 2001 are bound to arbitrate their individual claims; (2) the cost of arbitration does not render the arbitration agreement invalid or preclude plaintiffs from vindicating their rights; and (3) the terms of the agreement barring class actions or class arbitration is not unconscionable.

BACKGROUND

On February 18, 1999, plaintiffs filed a class-action-styled complaint against Blockbuster alleging that it charged improper and excessive fees to its customers who returned videos untimely or failed to return them. Thereafter, the circuit court certified the class to include (1) all United States residents who rented videos from Blockbuster who incurred late fees between February 18, 1994, and the date this case is resolved; (2) all United States residents who rented videos from Blockbuster and were forced to purchase an unreturned video between February 18, 1994, and the date this case is resolved; and (3) all entities that have done or are doing business in the United States as Blockbuster at any time since February 18, 1994.

Simultaneously, numerous other state court class action lawsuits were filed throughout the country asserting similar causes of action on behalf of Blockbuster customers. On April 11, 2001, Blockbuster entered into a nationwide settlement in the case of Scott v. Blockbuster, Inc., No. D 162-535 (Jefferson County, Texas)(Scott). The Scott settlement class was defined to include "[a]ll members of Blockbuster who incurred an extended viewing fee or non-return fee between January 1, 1992, and April 1, 2001." The settlement was finally approved in January 2002. An appeal taken by some of plaintiffs' class representatives remains pending in the Texas Appellate Court.

On January 22, 2002, plaintiffs filed a first amended consolidated complaint. Therein, they acknowledged that unless the Scott settlement is reversed on appeal, the class will need to be redefined. The complaint additionally alleges that in approximately mid-August 2001, Blockbuster began using a new membership application form for new members. The membership application contains an arbitration agreement, which provides as follows:

"To fairly resolve any dispute between you and Blockbuster regarding your membership, account, fees, any transaction with Blockbuster, or any Blockbuster policies, you and Blockbuster agree that any claims of these types by either you or Blockbuster shall be settled exclusively by binding arbitration governed by the Federal Arbitration Act and administered by the American Arbitration Association under its rules for the resolution of consumer-related disputes, or under other mutually-agreed procedures. Because this method of dispute resolution is personal, individual, and provides the exclusive method for resolving such disputes, you further agree that you will not participate in a class action or class-wide arbitration for any claims covered by this agreement."

Plaintiffs attached the revised membership agreement to their amended complaint. Plaintiffs additionally alleged that the representative plaintiffs of the class did not sign a membership agreement containing an arbitration provision. Thus, questions remain regarding the extent of the claims that would proceed in court. Plaintiffs maintained that they may assert the following claims on behalf of blockbuster members: (1) all pre-settlement claims if Scott is reversed on appeal; (2) all pre-settlement claims of those members who opted out of the Scott settlement; (3) all post-settlement claims of members, including the representative class, who did not sign the August 2001 membership agreement; and (4) all post-settlement claims of members who signed the August 2001 membership agreement if it is found to be invalid and unenforceable.

In response to the amended complaint, Blockbuster filed motions to dismiss pursuant to sections 2-615 and 2-619 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/2-615, 2-619 (West 2000)). As part of its section 2-615 motion, Blockbuster argued, citing both the Federal Arbitration Act (9 U.S.C. §1 et seq. (2000)) and the Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 2000)), that any claims that plaintiffs purported to bring on behalf of Blockbuster members who joined after mid-August 2001 were subject to arbitration and therefore could not be heard by the trial court. Plaintiffs replied that Blockbuster could not compel arbitration of absent class members because those members are not parties to the proceeding, the representatives of the class are not subject to the arbitration agreement, and factual issues existed that would preclude such a finding. Plaintiffs further argued that as to the absent class members who signed the new membership application, the arbitration provision was invalid and unenforceable. The arbitration issue was not addressed in Blockbuster's section 2-619 motion to dismiss.

Thereafter, on April 8, 2002, the circuit court held a hearing on the motions to dismiss, but did not make a ruling at that time. The court directed plaintiffs to file an amended complaint to address a matter of pleading and directed Blockbuster to amend its pending section 2-615 or section 2-619 motion to dismiss to further address the arbitration issue. On April 22, 2002, plaintiffs filed a second amended consolidated complaint. Thereafter, Blockbuster filed a pleading styled "Supplemental Motion to Dismiss or in the Alternative for a Partial Stay and to Compel Arbitration," incorporating its previous motions to dismiss and again arguing that those members who signed the revised membership agreement are precluded from litigating their claims before a trial court and must be compelled to arbitrate their individual claims.

On September 4, 2002, the trial court addressed the section 2-615 and 2-619 motions to dismiss. During the court's oral ruling, it raised two concerns regarding the arbitration provision in the new membership agreement: (1) the impact of the arbitration fee on the decision of a member to arbitrate in light of the modicum of damages involved; and (2) whether precluding members from pursuing class action suits would be unconscionable. Ultimately, the trial judge stated, "I don't wish to address this issue in this case at this stage because we're here on a motion to dismiss." He stated that he was expressing a "general concern with the arbitration provision here in light of the realities and money involved." The order, as drafted by plaintiffs' counsel, and signed by the trial judge, stated in pertinent part that "defendant's supplemental motion to dismiss, or in the alternative, for a partial stay and to compel arbitration are denied for the reasons stated in open court."

On September 25, 2002, plaintiffs filed a motion to clarify the trial court order as to whether the court had in fact ruled on Blockbuster's alternative motion for a partial stay and to compel arbitration. On October 1, 2002, Blockbuster filed a notice of appeal from the order of September 4, 2002, pursuant to Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)), believing that the trial court had indeed denied its motion to compel arbitration. Thereafter, at the hearing on the motion to clarify on October 3, 2002, the trial judge commented:

"THE COURT: What I had before me basically was the motion to dismiss. That is what I was ...


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