Coneff v. At & T Corp.

• Decision Date: 22 May 2009
• Docket Number: Case No. C06-944 RSM.
• Court: U.S. District Court — Western District of Washington
• Parties: Marygrace A. CONEFF, et al., Plaintiffs, v. AT & T CORP. et al., Defendants.

620 F.Supp.2d 1248

Marygrace A. CONEFF, et al., Plaintiffs, v. AT & T CORP. et al., Defendants.

Case No. C06-944 RSM.

United States District Court, W.D. Washington, at Seattle.

May 22, 2009.

Bruce L. Simon, Esther L. Klisura, Pearson Simon Warshaw & Penny LLP, San Francisco, CA, F. Paul Bland, Trial Lawyers for Public Justice, Washington, DC, Kevin Coluccio, Paul L. Stritmatter, Stritmatter Kessler Whelan Caluccio, Seattle, WA, Leslie A. Bailey, Trial Lawyers for Public Justice, Oakland, CA, Harvey Rosenfield, Pamela Pressley, Foundation

for Taxpayer and Consumer Rights, Santa Monica, CA, Garth L. Jones, Stritmatter, Kessler, Whelan, Coluccio, Hoquiam, WA, for Plaintiffs.

Michael E. Kipling, Kipling Law Group PLLC, Seattle, WA, Neal S. Berinhout, Cingular Wireless LLC, Atlanta, GA, Archis A. Parasharami, Evan M. Tager, Mayer Brown LLP, Washington, DC, William F. Cronin, Corr, Cronin, Michelson, Baumgardner & Preece, Seattle, WA, for Defendants.

ORDER DENYING DEFENDANTS' MOTION TO COMPEL ARBITRATION

RICARDO S. MARTINEZ, District Judge.

I. INTRODUCTION

This matter comes before the Court on "Defendants' Amended Motion to Compel Arbitration Pursuant to the Federal Arbitration Act and to Dismiss Action." (Dkt. # 133). Defendants argue that pursuant to a binding arbitration clause entered into between the parties, Plaintiffs must pursue their disputes through individualized arbitration. Defendants also argue that the Federal Arbitration Act preempts any state law defenses Plaintiffs can bring to the enforceability of the arbitration clause.

Plaintiffs respond that the arbitration provisions are unenforceable because they are substantively unconscionable. Additionally, Plaintiffs indicate that Defendants' preemption arguments have been rejected by the Ninth Circuit.

For the reasons set forth below, the Court agrees with Plaintiffs, and DENIES Defendants' motion to compel.

II. DISCUSSION

A. Background

The instant putative class action lawsuit was brought by several individuals across the United States against Defendants Cingular Wireless LLC ("Cingular"), Cingular Wireless Corporation, AT & T Wireless Services, Inc. ("AT & T Wireless"), and New Cingular Wireless Services, Inc. (See Dkt. # 45, Second Am. Compl., ¶¶ 22-25). Plaintiffs, who were or are currently AT & T Wireless customers, allege that after Cingular merged with AT & T Wireless in October of 2004, Cingular deliberately degraded AT & T Wireless' network in order to induce AT & T Wireless customers to transfer their plans to Cingular plans, which they allege are generally more expensive and less favorable to customers. Plaintiffs also contend that Cingular's intention was to charge AT & T Wireless customers with various fees and costs in connection with those new plans.

Plaintiffs allege that Cingular's specific scheme was to encourage AT & T Wireless customers to "upgrade" to Cingular's network. These "upgrades" required customers to do one or more of the following: (1) pay an $18 transfer fee to Cingular; (2) purchase one or more new phones from Cingular; (3) pay $18 for a SIM chip to operate their current phone; and/or (4) enter into a new service contract with Cingular. Plaintiffs allege that AT & T Wireless customers who did not agree to such an "upgrade" were left with a choice to either fulfill their contract term with a degraded AT & T Wireless service, or pay a $175 early termination fee to cancel service.

Plaintiffs also allege that Cingular began charging an unnecessary and mandatory fee to all AT & T Wireless customers. As a condition for approval of the merger, the Federal Communication Commission required Cingular to keep AT & T Wireless' network in place until February of 2008. Significantly, Cingular offered its wireless services through a new and improved GSM network, whereas AT & T Wireless offered service through a TDMA/Analog network. Plaintiffs allege, however, that in July of 2006, Cingular began imposing a mandatory $4.99 monthly fee to any AT & T Wireless customer still using the TDMA/Analog network. Plaintiffs note in their complaint that major publications, including the Wall Street Journal, reported that Cingular had "been spending next to nothing to maintain the [AT & T Wireless] network, leaving customers who don't upgrade [to the Cingular network] in the lurch." (Second Am. Compl., ¶ 35).

As a result of this conduct, Plaintiffs initiated the instant class action against Defendants in this Court on July 6, 2006. Plaintiffs assert claims under the consumer protection acts of 14 different states, the Federal Communications Act as codified by 47 U.S.C. §§ 201 et seq., and several common-law doctrines. Plaintiffs also seek, among other things, a declaratory judgment that an arbitration provision contained in their contracts with Defendants is unconscionable and therefore unenforceable.

Defendants now bring the instant motion to compel arbitration on an individual basis, and to dismiss Plaintiffs' claims pursuant to the arbitration provision that Plaintiffs argue is unconscionable.¹ Although the exact wording of the various AT & T Wireless Service Agreements ("WSAs") that Plaintiffs entered into with Defendants has changed over time, the arbitration agreements have remained substantially intact. Each expressly requires customers to pursue their dispute in either individual arbitration or small claims court. The WSAs also preclude customers from bringing or participating in any class action, regardless of whether the action is brought in arbitration or in court. Counsel for Plaintiffs acknowledged during oral argument that the 2006 WSA controls in this case. This version of the WSA provides:

YOU AND [CINGULAR/AT & T] AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN YOUR OR ITS INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. Further, unless both you and [Cingular/AT & T] agree otherwise, the arbitrator may not consolidate more than one person's claims, and may not otherwise preside over any form of a representative or class proceeding.

(Dkt. # 52, Decl. of Berinhout, Ex. 4 at 35; Dkt. # 134, Ex. 23 at 124).

Defendants also contend that each WSA contains a choice-of-law clause selecting the Plaintiff's home state as the governing law. Defendants argue that under the law of each applicable state, the class-waiver provisions in the WSAs are neither procedurally nor substantively unconscionable. The applicable state laws include: Alabama, Arizona, California, Florida, Illinois, Missouri, New Jersey, Virginia and Washington.

Alternatively, Defendants argue the Section 2 of the FAA preempts Plaintiffs' state-law unconscionability arguments. Defendants suggest that the FAA preempts general principles of contract law such as unconscionability if those doctrines are employed in ways that subject arbitration clauses to special scrutiny. Given the unique and "pro-consumer" nature of the arbitration agreements at-issue, Defendants contend that the Court should overlook any state-law standard that is at odds with the FAA's liberal policy in favor of arbitration.

Notably, and prior to the merger, Cingular was the second largest provider of wireless communication services in the U.S. in terms of subscribership with approximately 24 million customers, and AT & T was the third largest with over 22 million customers. After the merger, in which Cingular acquired AT & T Wireless for $41 billion, the new consolidated corporation branded as AT & T Mobility became the largest provider of wireless services. At the end of 2007, AT & T Mobility had over 70 million customers and reported approximately $42.7 billion in revenue. (Dkt. # 138, Decl. of Coluccio, Ex. Q).

B. The Federal Arbitration Act

It is well settled that Congress enacted the Federal Arbitration Act ("FAA") to "overcome judicial resistance to arbitration . . . and to declare a national policy favoring arbitration of claims that parties contract to settle in that matter." Vaden v. Discover Bank, ___ U.S. ___, 129 S.Ct. 1262, 1271, 173 L.Ed.2d 206 (2009) (internal quotations and citations omitted). The primary purpose of the FAA is to ensure that "private agreements to arbitrate are enforced according to their terms." Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). The FAA clearly manifests a liberal federal policy favoring arbitration agreements. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991).

Nevertheless, courts should consider "ordinary state-law principles that govern the formation of contracts" in determining whether the arbitration provision is valid. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (citations omitted). Thus, "generally applicable contract defenses such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements[.]" Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (citations omitted). The party opposing arbitration bears the burden of showing that the agreement is not enforceable. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91-92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).

Here, the parties do not dispute that Plaintiffs' claims fall within the scope of the arbitration agreements in the WSAs. As a result, the Court must determine whether the arbitration agreements are enforceable.

C. Applicable Law

The first issue for the Court to determine is whether the choice-of-law provisions contained in the WSAs are valid. It is undisputed that the WSAs select the law of the individually-named Plaintiffs home state or the state of the wireless phone number. (Dkt. # 133 at 19, n. 8). Plaintiffs maintain, however, that applying the choice-of-law clauses would violate Washington's fundamental public policy against...