Powertel, Inc. v. Bexley

• Decision Date: 01 September 1999
• Docket Number: No. 98-2746, No. 98-3357.
• Parties: POWERTEL, INC. and Powertel/Jacksonville, Inc., Appellants, v. Dana C. BEXLEY, on behalf of herself and all others similarly situated, Appellee.
• Court: Florida District Court of Appeals

743 So.2d 570

POWERTEL, INC. and Powertel/Jacksonville, Inc., Appellants, v. Dana C. BEXLEY, on behalf of herself and all others similarly situated, Appellee.

Nos. 98-2746, 98-3357.

District Court of Appeal of Florida, First District.

September 1, 1999.

Rehearing Denied October 21, 1999.

John A. Tucker, E. Robert Meek and John S. Mills of Foley & Lardner, Jacksonville, for Appellants.

Barbara Slott Pegg of Barbara Slott Pegg, P.A., Ponte Vedra Beach; Kenneth A. Tomchin and Christopher J. Iseley of Tomchin & Odom, P.A., Jacksonville, for Appellee.

PADOVANO, J.

Powertel appeals a nonfinal order denying its motion to compel arbitration. We conclude that the arbitration clause at issue is unconscionable and therefore unenforceable. Moreover, the lawsuit pending in the trial court is not subject to arbitration because it was filed before Powertel attempted to add the disputed arbitration requirement to the parties' agreement. Consequently, we affirm the trial court's determination that the parties are not required to submit the case to arbitration.

Dana Bexley signed an agreement with Powertel on December 11, 1997, to purchase a cellular telephone service plan known as the "Personal Power 40 Plan." According to this plan, Ms. Bexley was to receive four hundred minutes of calling time within Powertel's local service area in return for a monthly access fee of forty dollars. Calls outside the local service area were treated as long distance calls and they were subject to additional charges. Powertel defined the local service area on a coverage map which was provided to Ms. Bexley at the time of the agreement.

On March 31, 1998, Ms. Bexley filed a complaint in the Circuit Court for Duval County alleging that Powertel had wrongfully billed her $4.50 in long distance charges for telephone calls within the local service area. She filed the suit on her own behalf and as a representative of the class of Powertel customers who had been wrongfully charged additional fees for local cellular telephone calls from April 1, 1993, until the filing of the action. The complaint sought damages for breach of contract, unjust enrichment, breach of the covenant of good faith and fair dealing, and violation of Florida's Deceptive and Unfair Trade Practices Act.

The day after the complaint was filed, Ms. Bexley received her Powertel bill in the mail, and included in the envelope with the bill was a pamphlet describing the terms and conditions of Powertel's service. This pamphlet restated many of the same terms and conditions outlined in the pamphlet accompanying the original service contract, but it also included a new provision relating to the resolution of disputes. The new provision states,

Any unresolved dispute, controversy or claim arising out of or relating to [Powertel's] service, including but not limited to a claim based on or arising from an alleged tort, shall be settled by arbitration administered by the American Arbitration Association under its Wireless Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

* * *

The parties acknowledge that use of [Powertel's] service evidences a transaction in interstate commerce. The United States Arbitration Act and federal arbitration law shall govern the interpretation, enforcement and proceedings pursuant to this arbitration clause.

According to the pamphlet, the effective date of the revised terms and conditions of service is February 1, 1998. The record shows, however, that the pamphlet was not received until April 1, 1998, after the lawsuit had been filed.

Powertel maintains that the arbitration clause was a valid modification of the original service contract and that it applies to the pending lawsuit as well as any future dispute between the parties. This argument is based on the following provision of the original service contract:

[Powertel] will provide you [the customer] with at least ten (10) days' prior notification of any changes or modification to these Terms and Conditions of Service or of any change to [Powertel's] rates. By your continued use of the Company's service following receipt of notice of such changes or modifications, you will be deemed to have accepted and agreed to them.

The record reveals that Ms. Bexley continued her telephone service for more than ten days after she received the notice of the new arbitration clause. Powertel argues that by the terms of the original service contract, Ms. Bexley's failure to cancel her phone service was an implied agreement to resolve all disputes by arbitration. Because the arbitration clause refers to "unresolved" claims, Powertel reasons that Ms. Bexley effectively agreed to dismiss her pending lawsuit as well and to resolve the underlying claim in arbitration.

These arguments were presented to the trial court on May 13, 1998, in a motion to stay the pending lawsuit and to compel arbitration. At various points during the hearing, the trial court questioned the validity of the arbitration clause and its applicability to the present action. Among other concerns, the trial court noted that the pamphlet containing the arbitration clause was not conspicuous and that it was indistinguishable from advertisements and other inserts consumers typically find in their monthly bills. At the close of the hearing, the trial court denied the motion to compel arbitration. On September 1, 1998, following an amendment to the complaint, the trial court entered a written order denying the motion to compel arbitration. Powertel then filed a timely appeal to this court.

We have jurisdiction to review the order by appeal, even though it is not a final order. Rule 9.130(a)(3)(C)(v) of the Florida Rules of Appellate Procedure provides that the court may hear an appeal from a nonfinal order that determines "the entitlement of a party to arbitration." See Amour and More North American Licensing, Inc. v. Zammatta, 659 So.2d 1387 (Fla. 3d DCA 1995)

; Southland Ventures, Inc. v. J.W. Harvey & Sons, Inc., 471 So.2d 222 (Fla. 2d DCA 1985). This rule provides a method of obtaining an early decision on the proper forum for resolving a dispute, see State, Department of Health and Rehabilitative Servs. v. Electronic Data Sys., 664 So.2d 332 (Fla. 1st DCA 1995), and thereby avoids the possibility that a party might be forced to litigate the entire controversy in the wrong forum before the error can be corrected.

The trial court's denial of the motion to compel arbitration is based on the language of the original service contract and the documents purporting to modify the contract. A decision construing a contract presents an issue of law that is subject to review on appeal by the de novo standard of review. See Inter-Active Services, Inc. v. Heathrow Master Ass'n, Inc., 721 So.2d 433 (Fla. 5th DCA 1998)

; Steuart Petroleum Co. v. Certain Underwriters at Lloyd's London, 696 So.2d 376 (Fla. 1st DCA 1997). A determination that a contract is unconscionable falls within this general class of decisions and is likewise reviewable by the de novo standard. See Garrett v. Janiewski, 480 So.2d 1324 (Fla. 4th DCA 1985). Here, the trial court did not decide any issue of fact. Nor did the court exercise judicial discretion. Because the order denying Powertel's motion to compel arbitration is based entirely on the trial court's construction of the contract and related documents, we review the decision by the de novo standard.

An arbitration clause in a contract involving interstate commerce is subject to the Federal Arbitration Act. See Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987)

; Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984).¹ According to section 2 of the Act, arbitration agreements are "valid, irrevocable, and enforceable, save on such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

Section 2 prohibits the states from placing greater restrictions on arbitration clauses than those that apply to other contract provisions. In the leading case of Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996), the Supreme Court determined that section 2 preempts contrary provisions in state law. The state statute at issue in Casarotto provided that a contract subject to arbitration must contain a notice typed on the first page in capital letters and underlined, informing the parties of the arbitration clause. The Court reasoned that the notice requirement was invalid because it applied only to contracts that are subject to arbitration and not to "any contract" as provided in section 2 of the Federal Arbitration Act.

Although the states may not impose special limitations on the use of arbitration clauses, the validity of an arbitration clause is nevertheless an issue of state contract law. Section 2 states that an arbitration clause can be invalidated on such grounds as exist "at law or in equity for the revocation of a contract." Thus, an arbitration clause can be defeated by any defense existing under the state law of contracts. As the Court explained in Casarotto, "generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening [the Federal Arbitration Act]." 517 U.S. at 687, 116 S.Ct. 1652.

Applying general principles of contract law, we hold that the arbitration clause in this case is unconscionable and therefore unenforceable. It is an adhesion contract which not only provides for a method of dispute resolution but also dictates a one-sided waiver of important substantive rights. Moreover, we conclude that the arbitration clause cannot apply retroactively to the pending lawsuit. Ms. Bexley had filed the suit before she was even aware of Powertel's intention to modify the contract to require arbitration. Although the arbitration clause refers to...