Hill v. Galaxy Telecom, L.P., 1:98CV51-D-D.

• Decision Date: 16 April 2001
• Docket Number: No. 1:98CV51-D-D.,1:98CV51-D-D.
• Citation: 176 F.Supp.2d 636
• Parties: Ted HILL, Sr., Individually and on Behalf of all Others Similarly Situated, Plaintiff, v. GALAXY TELECOM, L.P., d/b/a Galaxy Cablevision, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

176 F.Supp.2d 636

Ted HILL, Sr., Individually and on Behalf of all Others Similarly Situated, Plaintiff, v. GALAXY TELECOM, L.P., d/b/a Galaxy Cablevision, Defendant.

No. 1:98CV51-D-D.

United States District Court, N.D. Mississippi, Eastern Division.

April 16, 2001.

Jon W. (Don) Barrett, Barrett Law Offices, Lexington, MS, Gordon Ball, Knoxville, TN, Michael B. Hyman, Much, Shelist, Freed, Denenberg & Ament, Chicago, IL, Steven A. Martino, Jackson, Taylor & Martino, Mobile, AL, Philip S. Friedman, Ifshin & Friedman, PLLC, Washington, DC, Peter Lubin, Ditommasso & Assoc., Oakbrook, IL, Patrick W. Pendley, Nyle Politz, Patrick W. Pendley, APLC, Plaquemine, LA, for plaintiff.

Charles J. Swayze, Jr., Whittington, Brock, Swayze & Dale, Greenwood, MS, for defendant.

OPINION

DAVIDSON, Chief Judge.

Ted Hill (Hill), individually and on behalf of all others similarly situated, instituted this class action against Galaxy Telecom, L.P., d/b/a Galaxy Cablevision (Galaxy) for damages allegedly sustained as a result of Galaxy's breach of the implied duty of good faith and fair dealing. Hill maintains that Galaxy's late fee of five dollars is excessive and does not accurately reflect the amount which Galaxy incurs due to late-payers.

This class was certified by order of this court on January 13, 1999. Hill's claims for excessive liquidated damages and unjust enrichment were dismissed by order of this court on March 2, 2000.

The court has jurisdiction of this cause pursuant to 28 U.S.C. § 1332(a)(1). A bench trial on this matter was convened from March 19, 2001, through March 20, 2001.¹

Having carefully considered the testimony and exhibits presented at trial along with the parties' post-trial submissions, the court finds for the Defendant, Galaxy. Pursuant to Federal Rule of Civil Procedure 52(a), the court issues the following findings of fact and conclusions of law. Findings of Fact

Galaxy, a Delaware limited partnership, was organized in 1995, and provides cable television service to approximately 115,000 customers in fifteen states.² Other television services available in the Galaxy service area, including Mississippi, are: 1) Wireless One; 2) Direct TV; and 3) Echo Star.

Hill, class representative, is an adult resident citizen of Prentiss County, Mississippi. He is a self-employed business man with at least two years of college education and is neither uneducated nor disadvantaged. In 1998, Hill entered into a written contract with TeleCommunications, Inc. (TCI) for cable television service. The stated terms of the contract, repeated on the face of each monthly bill, provided that Hill would be assessed a five dollar late fee if he did not pay his cable bill timely. TCI's Policies and Practices, a copy of which was provided to each customer, including Hill, explained the five dollar late fee charge as follows:

If you do not pay your bill by the due date, you agree to pay us an administrative fee for late payment. The administrative fee is intended to be a reasonable advance estimate of our costs which result from customers' late payments and non-payments. Other fees or charges may also be assessed by your local cable system.

We do not anticipate that you will pay your bill late and the administrative fee is set in advance because it would be difficult to determine the costs associated with any one particular late payment. We do not extend credit to our customers and the administrative fee is not interest, a credit service charge or a finance charge.

In June of 1996, Galaxy acquired ownership of TCI's cable television system in Mississippi, and all subscribers contracts, including Hill's. Galaxy assumed and maintained TCI's Policies and Practices as described in its contracts, including the five dollar late fee charge. Galaxy mailed a copy of its Customer Handbook, which includes its Policies and Practices, and its "How to Read Your Bill" pamphlet to all subscribers, including Hill. Each of these documents alerts customers to pay by the due date to avoid a five dollar late payment fee. Hill continued to be a resident cable customer of Galaxy and received all cable services described in the parties' written contract.

Each Galaxy monthly bill notified customers that a five dollar late fee would be incurred for payments made after the due date of the bill. All customers receive their bill at least fifteen days before the due date. Hill knew and understood the terms of the contract, failed to pay his bill timely on more than one occasion, was assessed the five dollar late fee, and voluntarily paid the five dollar late fee.

When a bill becomes late, Galaxy's billing system generates a report showing accounts that remain past due. Customer service representatives, responsible for outbound calls, begin to contact subscribers to notify them of past due accounts. Ultimately, several contact attempts may be made. If the accounts remain past due, then a "non-pay" work order is generated by the billing system. Dispatch employees review the work orders and assign them to technicians for attempted collection or disconnection. For most customers, the first visit results only in an attempt to collect the past due amount. A second or third unsuccessful attempt to collect usually results in a disconnection. Attempts to collect at the customer's premises may continue through an entire billing cycle before service is disconnected. An average of 24% of Galaxy's subscribers pay their bills late.

Conclusions of law

Breach of the Implied Duty of Good Faith and Fair Dealing

In every contract there is an implied duty of good faith and fair dealing. "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." Restatement (Second) of Contracts, § 205 (1979). See also, Cenac v. Murry, 609 So.2d 1257, 1272 (Miss.1992) (citing Morris v. Macione, 546 So.2d 969, 971 (Miss. 1989)); UHS-Qualicare v. Gulf Coast Comm. Hosp., 525 So.2d 746, 757 n. 8 (Miss.1987); Blue Cross & Blue Shield of Mississippi, Inc. v. Maas, 516 So.2d 495, 498 (Miss.1987); Perry v. Sears, Roebuck & Co., 508 So.2d 1086 (Miss.1987).

Galaxy's literature, which is given to customers, states that its late fee is a reasonable advance estimate of its costs. The court finds, based on the totality of the evidence, that the five dollar late fee charged by Galaxy is a fair, reasonable, and appropriate charge, and therefore, Galaxy did not breach their duty of good faith and fair dealing to Hill or any class member.

Hill's first expert to testify was John Lehman (Lehman), a certified public accountant. Most of his background is in business consulting and litigation support. Lehman testified that in his opinion, the five dollar late fee bears no relation to the actual costs incurred by Galaxy when a customer fails to pay his/her bill on time. In his opinion, Galaxy incorporates costs which can be attributed to subscribers which never pay their bills, making them non-payers instead of late-payers, and that such cost should not be considered when charging a late-payer a fee. These expenses included collection agency costs, bad debt costs, field collection costs, and vehicles. He reasoned that the vehicles dispatched to homes were to disconnect service and not to collect a late bill. These vehicles were operated by Galaxy every month, and that one person paying late does not result in an extra vehicle being bought, or an extra field representative being hired.

Further, Lehman also testified that costs associated with data processing, service representatives, telephones and other infrastructure should not be included when calculating the late fee. These are costs of doing business and Galaxy would employ these people regardless, since they perform other tasks besides collecting past due bills. Again, one person being late on their bill does not result in an extra person being employed. Therefore, these costs should not be considered. Lehman feels that the only costs which are reasonably caused by a subscriber paying late are the direct cost of billing inserts, and the cost of funds for money wrongfully withheld. He feels that the maximum damage on average, caused by a subscriber who pays late is no more than nineteen cents.

In forming his opinion, Lehman reviewed the financial reports from Galaxy, the depositions of Keith Davidson, Galaxy's chief financial officer, and Ronald Payne, Galaxy's comptroller, and the Overland study, conducted in May, 1999. He did not visit any of Galaxy's offices nor talk to any of their personnel.

Hill's second expert to testify was Gerrold Oppenheim (Oppenheim), an attorney with the National Consumer Law Center in Boston, Massachusetts. Most of his experience lies with utility rate issues, including the amount of a late fee charge. He has only limited experience in the cable industry. In his opinion the five dollar late fee which Galaxy charges is grossly excessive in relation to the costs created by a customer who pays late. He based his opinion, in part, on the public utility industry. Utilities are not permitted to assign the costs of customer service representatives, data processing, collection or bad debt costs to the consumer as late payment fees. Therefore, these costs should not be included in Galaxy's calculation. He reasons that these are costs of doing business and should be included in the base price imposed on all customers.

In Oppenheim's opinion, a reasonable cost would be no more than one to one and a half percent of a subscriber's outstanding bill. The only costs which should be considered is the cost of money caused by the late payment, cost of the notice, and cost of a phone call to collect the bill. The costs related to customer service representatives and field technicians should not be included when calculating the costs incurred by late payers. They are on the...