OLYMPIA, Wash. (Legal Newsline)-AT&T Corp. cannot force a customer to resolve a dispute through arbitration, the Washington Supreme Court ruled unanimously late last week.

The telecom giant sought to thwart a class action lawsuit filed against it by one of its customers, citing a service contract provision that says he will resolve any disputes with the company through arbitration.

Michael McKee of East Wenatchee, Wash., filed a class action lawsuit against AT&T in 2003, alleging that it wrongly charged him and others for city utility surcharges and usurious late fees.

McKee said he should not have been charged the city fee since he lived outside the city limits.

A Chelan County Superior Court found AT&T's provision banning class actions was "unconscionable" and denied AT&T's motion to compel McKee to arbitrate the case.

AT&T, which is headquartered in San Antonio but incorporated in New York, appealed the case, arguing that federal and New York laws should apply in this case rather than Washington's consumer protection laws.

The high court said AT&T's agreement "is substantively unconscionable and therefore unenforceable to the extent that it purports to waive the right to class actions, require confidentiality, shorten the Washington Consumer Protection Act statute of limitations, and limit availability of attorney fees."

"Courts will not be easily deceived by attempts to unilaterally strip away consumer protections and remedies by efforts to cloak the waiver of important rights under an arbitration clause," Justice Tom Chambers wrote for the majority.

AT&T spokesman Marty Richter said the company is reviewing the court's decision and considering its legal options.

"It's important to remember that this decision is based on an old arbitration clause," Richter said in a statement. "We've since revised our arbitration clause to make it more consumer friendly, and other courts have upheld it. We continue to believe a consumer is better off pursuing a claim under our arbitration clause rather than pursuing a class action."

From Legal Newsline: Reach reporter Chris Rizo at chrisrizo@legalnewsline.com.