Kinkel v. Cingular Wireless LLC

• Decision Date: 05 October 2006
• Docket Number: No. 100925.,100925.
• Citation: 857 N.E.2d 250,223 Ill.2d 1,306 Ill.Dec. 157
• Parties: Donna M. KINKEL, Appellee, v. CINGULAR WIRELESS LLC, Appellant.
• Court: Illinois Supreme Court

857 N.E.2d 250

223 Ill.2d 1

306 Ill.Dec. 157

Donna M. KINKEL, Appellee, v. CINGULAR WIRELESS LLC, Appellant.

No. 100925.

Supreme Court of Illinois.

October 5, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Kurt E. Reitz, Roman P. Wuller, Robert J. Wagner, Heath H. Hooks, of Thompson Coburn, L.L.P., Belleville, Evan M. Tager and David M. Gossett, of Mayer, Brown, Rowe & Maw, L.L.P., Washington, D.C., for appellant.

L. Thomas Lakin, Bradley M. Lakin, Richard J. Burke, Gail G. Renshaw, of Lakin Law firm, Charles W. Chapman, Wood River, Paul M. Weiss, Tod A. Lewis, of Freed & Weiss, L.L.C., Malik R. Diab, Phillip A. Bock, of Diab & Bock, William R. Quinlan, James A. Niewiara, Lisa M. Hegedus and Brian J. Alesia, of Quinlan & Carroll, Ltd., Chicago, for appellee.

OPINION

Justice GARMAN delivered the judgment of the court, with opinion:

Defendant, Cingular Wireless, LLC (Cingular), provides cellular telephone service to consumers. Under Cingular's standard service agreement, its customers commit to a specified "service term" and agree to pay an early-termination fee if they withdraw from the service agreement before the end of the term. Plaintiff, Donna M. Kinkel, individually and on behalf of a class of those similarly situated, filed suit against Cingular in the circuit court of Madison County, alleging that the early-termination fee constitutes an illegal penalty and that imposition of the fee is both a breach of the service agreement and statutory fraud under the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 2002)).

Cingular filed a motion to compel arbitration of plaintiff's individual claim, in accordance with the mandatory arbitration provision of the standard service agreement, which provides that "no arbitrator has the authority" to resolve class claims. The circuit court, after a hearing, denied the motion. Interlocutory appeal was taken by Cingular pursuant to Supreme Court Rule 307(a)(1) (188 Ill.2d R. 307(a)(1)). The appellate court reversed and remanded, finding that although the arbitration clause is enforceable, the limitation on class arbitration contained therein is unconscionable and, thus, unenforceable. 357 Ill.App.3d 556, 293 Ill.Dec. 502, 828 N.E.2d 812. This court granted Cingular's petition for leave to appeal pursuant to Supreme Court Rule 315 (177 Ill.2d R. 315), to determine whether the prohibition of class arbitration is unconscionable.

BACKGROUND

In July 2001, plaintiff entered into a two-year service agreement with Cingular for cellular telephone service by signing defendant's standard service agreement. The "TERMS AND CONDITIONS" of the agreement appear on the back of the form that plaintiff signed. These terms and conditions are spelled out on a single, legal-size sheet of paper in small type. Certain provisions are emphasized by the use of capital letters. Topics or headings appear in boldface type.

Plaintiff cancelled her cellular telephone service in April 2002, although the two-year term was not scheduled to expire until July 2003. Pursuant to the early-termination provision in the service agreement, Cingular charged her an early-termination fee of $150, which she paid under protest.

In August 2002, plaintiff filed suit. Cingular filed a motion to compel arbitration of her individual claim and stay the litigation, invoking the arbitration clause of the service agreement and sections 2 and 3 of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 2, 3 (2000)). In September 2003, plaintiff filed her first amended complaint, again alleging that the $150 early termination fee is an illegal penalty. She further alleged that the ban on class treatment contained in the mandatory arbitration provision is intended by Cingular to further an unlawful scheme to collect an illegal penalty from her and other members of the class she purports to represent and that it prevents her and others from "effectively vindicating their statutory and common law causes of action and facilitates rather than remedies Cingular's fraudulent and unlawful conduct." (Because provisions barring class treatment in arbitration are generally referred to in the case law and the literature as "class action waivers," we will use the term "waiver," even though the provision at issue is phrased as a limitation on the scope of the arbitrator's authority, rather than as a waiver by the customer of her ability to file a claim on behalf of a class.)

After a hearing, the trial court denied Cingular's motion to compel arbitration finding, inter alia, that the arbitration clause was unenforceable on the basis of unconscionability. Interlocutory appeal was taken by Cingular.

The appellate court concluded that the class action waiver was unconscionable, but that it was severable from the remainder of the arbitration clause, which, in keeping with "the strong policy in favor of enforcing arbitration agreements," should be enforced. 357 Ill.App.3d at 569, 293 Ill.Dec. 502, 828 N.E.2d 812. The appellate court remanded for further proceedings consistent with its opinion, noting that the effect of its ruling would be to stay plaintiff's lawsuit while her class claim proceeded to arbitration. 357 Ill.App.3d at 569, 293 Ill.Dec. 502, 828 N.E.2d 812.

Relevant Provisions of the Service Agreement

The second sentence of the standard service agreement states that service is "subject to CINGULAR's standard business policies, practices and procedures that CINGULAR may change at any time without notice." The fourth sentence states:

"IMPORTANT NOTICE: THIS AGREEMENT CONTAINS MANDATORY ARBITRATION AND OTHER IMPORTANT PROVISIONS LIMITING THE REMEDIES AVAILABLE TO YOU IN THE EVENT OF A DISPUTE. PLEASE REFER TO THE SECTION ENTITLED `ARBITRATION' FOR DETAILS."

The provision that is the subject of plaintiff's claim provides:

"SERVICE COMMITMENT You have agreed to maintain service for a minimum term, the Service Commitment specified on the signature portion of this Agreement. The Service Commitment begins on the day your service is activated. If you have contracted for a Service Commitment greater than a month, in exchange you have received certain benefits from CINGULAR. You understand and agree that you now have certain contractual obligations and that CINGULAR's damages arising out of a breach thereof will be difficult, if not impossible, to determine. Therefore, if you terminate your service for any reason other than a change of terms, conditions, or rates as set forth below, or if CINGULAR terminates your service for nonpayment or other default before the end of the Service Commitment, you hereby agree to pay CINGULAR, as liquidated damages, and not as a penalty, in addition to all other amounts owed, the termination charge of $150 per wireless phone on the account (`Termination Fee')."

The arbitration clause provides, in pertinent part:

"INDEPENDENT ARBITRATION Please read this paragraph carefully. It affects rights that you may otherwise have. (a) CINGULAR and you shall use our best efforts to settle any dispute or claim arising from or relating to this Agreement. To accomplish this, CINGULAR and you agree to arbitrate any and all disputes and claims (including but not limited to claims based on or arising from an alleged tort) arising out of or relating to this Agreement, or to any prior Agreement for products or services between you and CINGULAR * * *. The arbitration of any dispute or claim shall be conducted in accordance with the wireless industry arbitration rules (`WIA Rules') as modified by this agreement and as administered by the American Arbitration Association (`AAA'). The WIA Rules and fee information are available from CINGULAR or the AAA upon request. CINGULAR and you acknowledge that this agreement evidences a transaction in interstate commerce and that the United States Arbitration Act and Federal Arbitration Law shall govern the interpretation and enforcement of, and proceedings pursuant to, this or a prior agreement. * * * Except where prohibited by law, CINGULAR and you agree that no arbitrator has the authority to: (1) award relief in excess of what this agreement provides; (2) award punitive damages or any other damages not measured by the prevailing party's actual damages; or (3) order consolidation or class arbitration. The Arbitrator(s) must give effect to the limitations on CINGULAR's liability as set forth in this agreement, any applicable tariff, law, or regulation. * * * You agree that CINGULAR and you each is waiving its respective right to a trial by jury. You acknowledge that arbitration is final and binding and subject to only very limited review by a court. If for some reason this arbitration clause is at some point deemed inapplicable or invalid, You and CINGULAR agree to waive, to the fullest extent allowed by law, any trial by jury. * * * Notwithstanding any of the foregoing, either party may bring an action in small claims court."

Defendant's brief states that the service agreement also provides that "all fees and expenses of the arbitration shall be equally borne by [the customer] and CINGULAR." Repeated reading of the fine print of the "TERMS AND CONDITIONS" page, however, has failed to reveal the existence of this provision. The only provision relating to the cost of arbitration incorporates the WIA Rules by reference and informs the customer that fee information is available from Cingular or the AAA "upon request."

Under the WIA Rules promulgated by the AAA, a claimant must pay a fee at the time he or she files a claim. If, as in the present case, the claim does not exceed $10,000, the claimant must pay one-half of the arbitrator's fees, up to a maximum of $125. Any funds not used are refunded to the claimant. For claims under $10,000, the business pays all fees that are not the responsibility of the claimant. Wireless Industry Arbitration Rules of the American Arbitration...