Robinson Ins. & Real Est. Inc. v. Southwestern Bell Tel. Co.

• Decision Date: 27 August 1973
• Docket Number: Civ. No. FS-71-C-83.
• Parties: ROBINSON INSURANCE & REAL ESTATE INC., Plaintiff, v. SOUTHWESTERN BELL TELEPHONE CO., Defendant.
• Court: U.S. District Court — Western District of Arkansas

366 F. Supp. 307

ROBINSON INSURANCE & REAL ESTATE INC., Plaintiff, v. SOUTHWESTERN BELL TELEPHONE CO., Defendant.

Civ. No. FS-71-C-83.

United States District Court, W. D. Arkansas, Fort Smith Division.

August 27, 1973.

Robert T. Dawson of Hardin, Jesson & Dawson, Fort Smith, Ark., and Ralph Robinson, Van Buren, Ark., for plaintiff.

Douglas O. Smith, Jr., of Warner, Warner, Ragon & Smith, Fort Smith, Ark., and Donald K. King and Ronald T. LeMay, Little Rock, Ark., for defendant.

MEMORANDUM OPINION

PAUL X WILLIAMS, District Judge.

Plaintiff is an Arkansas corporation. Prior to May of 1969, Earl Robinson had been in the insurance business for approximately 20 years in Van Buren, Arkansas. He had also been in the real estate business for most of this period. In May of 1969, Robinson and his associate, Robert Bell, incorporated under the name of Robinson Insurance and Real Estate, Inc.

Defendant, Southwestern Bell Telephone Co., a Missouri corporation, is engaged in the provision of local and long distance telecommunications service in Arkansas and other states. In connection with its business it publishes telephone directories for its service areas. These directories consist of two sections, the alphabetical section or white pages, and the classified section or Yellow Pages. Publication of the alphabetical section is mandated by the Arkansas Public Service Commission. There is no similar requirement regarding the Yellow Pages. Defendant, with respect to this activity, is engaged in a private business enterprise as opposed to a public service offering. Associated Mechanical Contractors of Ark. v. Ark. La. Gas Co., 225 Ark. 424, 283 S.W.2d 123 (1955).

This is a Breach of Contract suit to recover for loss of profits allegedly resulting from defendant's failure to publish certain listings and advertising plaintiff contracted for in defendant's 1970 Fort Smith-Van Buren, Arkansas, telephone directory.

On March 19, 1970, Mr. Robert Bell, acting for plaintiff, and Mr. Tom Ogden, defendant's directory representative, entered into a written contract for Yellow Page advertising and bold face listings in the white pages. The items ordered included a two inch Yellow Page ad, two Yellow Page trade-mark listings, two white page bold face listings and a Yellow Page bold face listing. The total charges for the items amounted to $14.40 per month or a total of $172.80 for the 12 month life of the directory.

In June 1970 when the Fort Smith-Van Buren directory was distributed, plaintiff discovered that its advertising was omitted and thereafter filed this action. In its answer, defendant admitted plaintiff's advertising was omitted. Defendant further admitted liability up to the sum of $172.80 and moved to dismiss plaintiff's action for all sums above that amount based on the following exculpatory clause contained in the parties' contract:

"4. The applicant agrees that the Telephone Company shall not be liable for errors or omissions in directory advertising beyond the amount paid for the item or items omitted, or in which errors occur, for the issue life of the directory involved."

Plaintiff then amended its complaint alleging that the omissions were the result of defendant's intentional wrongdoing or "gross negligence." Defendant in answering plaintiff's amended complaint and in its trial briefs agrees that the limitation clause contained in the parties' contract does not afford protection in the case of intentional wrongdoing or perhaps gross negligence but denies that such occurred.

Plaintiff's position at trial and in its trial brief is a three-fold one. First, plaintiff contends the limitation clause is unenforceable as being contrary to public policy or in modern parlance, "unconscionable." Secondly, it contends that ordinary negligence alone will overcome the limitation or, in the alternative, that gross misconduct in the form of wilful and wanton misconduct or gross negligence has been proved. Thirdly, plaintiff contends that the clause is an unenforceable liquidated damages clause because the limit set is grossly disproportionate to the probable actual damages resulting from the breach. Plaintiff's contentions will be considered seriatim.

Plaintiff contends that the limitation clause is unconscionable and should be disregarded since it is contained in a form contract entered into by parties in disparate bargaining positions. In support of this contention, plaintiff cites Allen v. Michigan Tel. Co., 18 Mich.App. 632, 171 N.W.2d 689 (1969). The Michigan appellate court in Allen held exculpatory language similar to that contained in the instant contract to be unconscionable and, consequently, unenforceable. The Michigan court relied upon what it perceived to be the monopolistic character of Yellow Pages and the disparity of bargaining power between the parties to the contract.

The unconscionability argument is not a novel one in telephone directory cases. The first reported case considering such an argument is McTighe v. New England Tel. & Tel. Co., 216 F.2d 26 (2d Cir. 1954). In McTighe, Judge Medina speaking for the Second Circuit, commented on the unconscionability argument as follows at page 28:

"But the principle which enables courts to strike down and condemn clauses affecting the performance by the company of its functions as a public utility is limited to the area in which the public services are rendered and has no application whatever to the domain in which the public utility may freely contract in its private capacity. The obtaining of the services of the public utility by way of transportation or communications or providing gas or electricity is quite apart from the leases, advertising contracts and a host of other miscellaneous agreements commonly made by members of the public with public utility companies. If there be some disparity in the bargaining power of the contracting parties it is no more than may be found generally to exist; and the courts follow the general rule that the parties are free to contract according to their own judgment and the reasonableness of their engagements will not be entered into."

The same argument was advanced in Georges v. Pacific Tel. & Tel. Co., 184 F.Supp. 571 (U.S.D.C.Or.1960) to which the Court responded:

"Now, what can this Court say the Oregon Supreme Court would do if they were dealing not with a business affected by the public interest but was merely engaging in its own private capacity? Would the Oregon Supreme Court say that notwithstanding the firm and universal rule of private contracts that parties are not bound by them? That the telephone companies hold a virtual monopoly and, therefore, any member of the public wishing to have any service from them, even though it was in their private capacity, must take it or leave it, and that such is against public policy? I do not think the Oregon Supreme Court would so overrule the basic concepts of contract law that are reiterated so plainly by the Second Circuit in McTighe.

"I would anticipate that the Oregon Supreme Court would say that if such be an evil it is a matter for the Legislature and not for the judiciary. So, it is the conclusion that the contract involved in this case is merely a contract on behalf of the plaintiff's business for advertising space in the Telephone Company's directory, particularly the yellow pages thereof, which is nothing more than a business venture engaged upon by the telephone people in their own private capacity. I am forced to follow the rule of the Second Circuit case." 184 F.Supp. 571, 578.

Allen represents a departure from the majority view recognizing freedom to contract, is based upon faulty notions of the public interest, and is not in keeping with commercial realities. This Court prefers to follow McTighe and Georges. Yellow Pages is but one form of advertising. It is in no way unique or monopolistic. Numerous alternative advertising forums exist. Moreover, the disparity of bargaining power claimed to exist in the instant case is no more than is generally found to exist in commercial transactions. The Court perceives its responsibility to strike down such a clause to arise only upon a clear showing of palpable unfair and overreaching language or conduct on the part of the defendant. The present clause represents nothing more than an application of a basic concept of contract law which recognizes the propriety of parties contracting to limit their liability. This viewpoint was recently adopted by the Supreme Court of Montana in the case of State ex rel. Mountain States Tel. & Tel. Co. v. District Court, 503 P.2d 528 (Mont.1972). Therein, the Court stated:

The monopolistic character of the yellow pages which the Michigan Court (Allen) decries as resulting in no meaningful choice or no competing alternate, except at a prohibitive disproportionate cost, is not exactly, as has been discussed, a one way street, particularly when one considers further that by the Michigan Court's own definition the service is desirable and at a more reasonable cost than "market place" advertising. It necessarily follows that in some cases it may appear harsh at times but not unconscionable. The mere fact of claimed unequal bargaining position does not render it so in today's world of commerce, where situations of this nature are not uncommon. McAlear v. Saint Paul Insurance Companies, 158 Mont. 452, 493 P.2d 331

* * * * * *

Without a demonstration of bad faith, fraud, or willful or wanton conduct by Mountain States, a limitation of liability for errors and omissions in its advertising expressed in a written and signed contract is reasonable and nowise against public policy and it is within the power of the company and subscribers to its directory to make such contracts and they

...