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AT&T Secures Arbitration in Subscriber’s SIM Swapping Suit

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A magistrate judge sitting in Houston, Texas sided with AT&T Inc. earlier this week, deciding to shift an aggrieved customer’s tort complaint over a SIM swapping incident to arbitration. The plaintiff sued the wireless carrier after a malicious actor executed a SIM swap and gained access to his cryptocurrency account, draining it of more than half-a-million dollars.

Tuesday’s report and recommendation recounted that the hack occurred in September 2020. Specifically, the hackers changed one of his cryptocurrency account passwords and removed 159.8 Ethereum Tokens, then worth a little over $500,000. The plaintiff accused AT&T of failing to provide reasonable and appropriate security to prevent unauthorized access of his wireless account.

The Texas man asserted six causes of action against AT&T including violation of the Federal Communications Act, the Texas Deceptive Trade Practices Act, breach of contract, negligence and negligent hiring, retention, and supervision.

AT&T responded to the complaint with a motion to compel arbitration last December. The company argued that the plaintiff agreed to its 2009 terms of service which included a compulsory arbitration provision. The plaintiff opposed on grounds that the provision is unenforceable, arguing that he did not read it until after filing suit and that it is both procedurally and substantively unconscionable.

The court quickly dismissed of the first contention, explaining that “it is well-settled under Texas law that ‘a party’ s failure to read an arbitration agreement does not excuse him from arbitration.’” Tackling the question of unconscionability, the court noted that the plaintiff “bears the heavy burden of proving this defense” in view of the “‘liberal federal policy favoring arbitration agreements.’”

The court said that the plaintiff’s argument, again that the arbitration provision was a surprise to him because he did not read AT&T’s terms, was insufficient to establish procedural unconscionability, “as it does not demonstrate that some form of oppression or unfairness tainted the negotiation process.” Lastly, the court addressed substantive unconscionability and said that there was nothing about the provision that “shocked the conscious” as required by Texas law.

The plaintiff is represented by Richard E. Brown Attorney at Law PC and AT&T by Kilpatrick Townsend & Stockton LLP.

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