Kaltwasser v. AT&T Mobility LLC

• Decision Date: 20 September 2011
• Docket Number: Case No. C 07–00411.
• Court: U.S. District Court — Northern District of California
• Parties: Jonathan C. KALTWASSER, Plaintiff, v. AT & T MOBILITY LLC, a Delaware Corporation, f/k/a Cingular Wireless LLC, Defendant.

812 F.Supp.2d 1042

Jonathan C. KALTWASSER, Plaintiff,

v.AT & T MOBILITY LLC, a Delaware Corporation, f/k/a Cingular Wireless LLC, Defendant.

Case No. C 07–00411.

United States District Court, N.D. California,San Jose Division.

Sept. 20, 2011.

Michael D. Braun, Braun Law Group, P.C., James Mark Moore, Robert Ira Spiro, Spiro Moss LLP, Janet Lindner Spielberg, Law Offices of Janet Lindner Spielberg, Los Angeles, CA, Joseph N. Kravec, Jr., Wyatt A. Lison, Stember Feinstein Doyle & Payne, LLC, Pittsburgh, PA, for Plaintiff.

Archis Ashok Parasharami, Mayer Brown LLP, Washington, DC, Jeffrey Ronald Baxter, David L. Balser, Nathan Lewis Garroway, McKenna Long & Aldridge, LLP, Atlanta, GA, Donald M. Falk, Mayer Brown LLP, Palo Alto, CA, Felicia Yi–Wen Feng, McKenna Long & Aldridge LLP, San Francisco, CA, for Defendant.

ORDER GRANTING MOTION TO COMPEL ARBITRATION AND TERMINATING MOTION TO STRIKE CLASS ALLEGATIONS

JEREMY FOGEL, District Judge.

In January 2007, Plaintiff Jonathan C. Kaltwasser filed this putative class action alleging claims under California law against AT & T Mobility LLC, f/k/a Cingular Wireless LLC (“ATTM”). ATTM moved to compel arbitration of Kaltwasser's claims. Relying upon Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (Cal.2005), this Court found the contractual arbitration agreement unenforceable, and that determination was affirmed by the Court of Appeals. See Kaltwasser v. Cingular Wireless LLC, 350 Fed.Appx. 108, 109 (9th Cir.2009). The Court subsequently deferred a decision on Kaltwasser's motion for class certification pending the United States Supreme Court's ruling in AT & T Mobility LLC v. Concepcion, –––U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). In a decision issued on April 27, 2011, the Supreme Court held that California's Discover Bank rule impermissibly conflicted with the Federal Arbitration Act. See Concepcion, 131 S.Ct. at 1748 (citing 9 U.S.C. §§ 2–4). ATTM therefore renewed its motion to compel arbitration and moved to strike Kaltwasser's class allegations. For the reasons discussed below, the motion to compel will be granted, and the motion to strike will be terminated as moot.

I. BACKGROUND

In July 2006, Kaltwasser, who then resided in California, renewed his wireless telephone contract with ATTM, a Delaware corporation with its principal place of business in Atlanta, Georgia. Kaltwasser claims that he decided to renew because ATTM advertised that it was the cellular service provider with the “fewest dropped calls.” Kaltwasser's complaint in the present action alleges that ATTM's advertising was false, giving rise to claims for (1) unfair competition under Cal. Bus. & Prof.Code §§ 17200 et seq., (2) false advertising under Cal. Bus. & Prof.Code §§ 17500 et seq., (3) a violation of the Consumer Legal Remedies Act, Cal. Civ.Code §§ 1750 et seq. , and (4) breach of contract, or, alternatively, unjust enrichment. He asserts his claims on behalf of all customers who contracted for cell phone service with ATTM in California on or after March 1, 2006.

ATTM moved to compel Kaltwasser to arbitrate his claims on an individual basis, citing the terms of an arbitration agreement that it began including in its Terms of Service in December 2006 (“the 2006 agreement”). Kaltwasser argued that he never accepted the 2006 agreement and that ATTM's previous arbitration agreement, which ATTM used from 2003 to December 2006 (“the 2003 agreement”), applied to him. However, although the 2003 agreement and 2006 agreement differ in some respects, both are take-it-or-leave-it form contracts that preclude ATTM's customers from bringing any “purported class or representative proceeding.” ¹

On April 11, 2008, 543 F.Supp.2d 1124 (N.D.cal.2008), this Court denied ATTM's motion to compel. It observed that under California law as articulated by the California Supreme Court in Discover Bank, consumer contracts binding parties to bilateral arbitration “are generally unconscionable.” In particular, Discover Bank held that a class-action waiver is unconscionable when it appears “in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.” 36 Cal.4th at 162–63, 30 Cal.Rptr.3d 76, 113 P.3d 1100. The Court reasoned that because “damages in consumer cases are often small ... the class action is often the only effective way to halt and redress [consumer] exploitation.” Id. at 161, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (internal quotation marks and citation omitted). Conversely, bilateral arbitration agreements in consumer contracts typically “become[ ] in practice the exemption of the party ‘from responsibility for [its] own fraud, or willful injury to the person or property of another,’ ” making them “unconscionable under California law.” Id. at 163, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (quoting Cal. Civ.Code § 1668). In its order affirming this Court's decision, the Ninth Circuit explained that “it makes no difference” whether the 2003 agreement or the 2006 agreement applies to Kaltwasser because both “include a waiver of the right to bring a class action that is unconscionable as a matter of California law.” See Kaltwasser, 350 Fed.Appx. at 109 (citing Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, 981 (9th Cir.2007); Discover Bank, 36 Cal.4th at 161, 30 Cal.Rptr.3d 76, 113 P.3d 1100).

The parties proceeded with discovery, and Kaltwasser retained an expert to analyze the data that ATTM produced as support for its “fewest dropped calls” advertisements. On February 26, 2010, Kaltwasser filed a motion to certify the proposed plaintiff class.

II. LEGAL STANDARD

Section 4 of the FAA permits a “party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States district court ... for an order directing that ... arbitration proceed in the manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. Id.

The FAA espouses a general policy favoring arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); see also Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Federal courts are required to rigorously enforce an agreement to arbitrate. See Hall Street Assoc., 552 U.S. at 582, 128 S.Ct. 1396. In determining whether to issue an order compelling arbitration, the court may not review the merits of the dispute but must limit its inquiry to (1) whether the contract containing the arbitration agreement evidences a transaction involving interstate commerce, (2) whether there exists a valid agreement to arbitrate, and (3) whether the dispute(s) fall within the scope of the agreement to arbitrate. See Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477–78 (9th Cir.1991), cert. denied, 503 U.S. 919, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992). If the answer to each of these queries is affirmative, then the court must order the parties to arbitration in accordance with the terms of their agreement. 9 U.S.C. § 4.

The FAA provides that arbitration agreements generally “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening” federal law. Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). In interpreting the validity and scope of an arbitration agreement, the courts apply state law principles of contract formation and interpretation. See id. at 686–87, 116 S.Ct. 1652; see also Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir.1998). Accordingly, a court reviews a plaintiffs arbitration agreement in light of the “liberal federal policy favoring arbitration agreements,” Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927, and considers the enforceability according to the laws of the state of contract formation, see First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Ingle v. Circuit City Stores, 328 F.3d 1165, 1170 (9th Cir.2003).

III. DISCUSSION

In Concepcion, the Supreme Court considered whether the Discover Bank rule came within the “savings clause” of Section 2 of the FAA, which provides that a court may find an arbitration agreement unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” See Concepcion, 131 S.Ct. at 1745–48 (citing 9 U.S.C. § 2). The Court held that it did not. It concluded that although the Discover Bank rule was characterized as arising from the “generally applicable” contract law doctrine of unconscionability, it was “applied in a fashion that disfavors arbitration,” as “California's courts have been more likely to hold contracts to arbitrate unconscionable than other contracts.” Id. at 1747. The FAA “was designed to promote arbitration,” which typically has the objective of “achiev[ing] ‘streamlined proceedings and expeditious results.’ ” Id. at 1749 (quoting Preston v. Ferrer, 552 U.S. 346, 357–58, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008)). The Discover Bank rule “interferes with arbitration”: by enabling a consumer who has agreed to bilateral arbitration to “demand [classwide arbitration] ex post,” it subjects the parties to “ ‘fundamental’ ” changes in the arbitration process. Id. at 1750 (quoting Stolt–Nielsen...