In re Universal Service Fund Tele. Bill. Practices

• Decision Date: 04 June 2004
• Docket Number: No. 02-MD-1468-JWL.,02-MD-1468-JWL.
• Citation: 320 F.Supp.2d 1135
• Parties: In re: UNIVERSAL SERVICE FUND TELEPHONE BILLING PRACTICES LITIGATION This Order Relates to All Cases
• Court: U.S. District Court — District of Kansas

320 F.Supp.2d 1135

In re: UNIVERSAL SERVICE FUND TELEPHONE BILLING PRACTICES LITIGATION This Order Relates to All Cases

No. 02-MD-1468-JWL.

United States District Court, D. Kansas.

June 4, 2004.

Isaac L. Diel, Diel & Seelman, P.C., Prairie Village, KS, Jennifer F. Connolly, The Wexler Firm, Chicago, IL, Marc R. Stanley, Stanley Mandel & Iola, Dallas, TX, for Plaintiff.

Christopher J. Leopold, Mark M. Iba, Stinson Morrison Hecker LLP, Lynn S. McCreary, Bryan Cave LLP, Kansas City, MO, Julie E. Grimaldi, Sprint, Mark D. Hinderks, Stinson Morrison Hecker LLP, Overland Park, KS, Mark B. Blocker, Sidley Austin Brown & Wood, Chicago, IL, for Defendants.

Fred Campbell, Michael Nilsson, Patrick O'Donnell, Harris, Wiltshire & Grannis, LLP, Washington, DC, for Respondent.

Patricia C. Howard, Washington, DC, pro se.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

This multidistrict litigation consists of numerous putative class action lawsuits arising from the practices of defendants AT & T Corporation ("AT & T") and Sprint Communications Company, L.P. ("Sprint") and non-parties MCI WORLDCOM Network Services, Inc. and MCI WorldCom Communications, Inc. (collectively "MCI")¹ of charging their customers to recoup their contributions to the federal Universal Service Fund ("USF") program. Plaintiffs are customers or former customers of defendants and MCI who allege that defendants and MCI engaged in an illegal scheme of conspiring to overcharge them for USF-fund surcharges, thereby creating a secret profit center. This matter is presently before the court on defendants' motion to compel arbitration of the claims of MCI business customers included within the conspiracy class (Doc. 248). For the reasons explained below, this motion is denied.

BACKGROUND

On December 1, 2003, the court entered a memorandum and order in this case that largely granted defendants' motions to compel arbitration. See generally In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F.Supp.2d 1107 (D.Kan.2003). In relevant part, the court compelled arbitration of the MCI residential customers' claims against Sprint and AT & T under equitable estoppel principles. Id. at 1138-41.

Approximately two weeks later on December 17, 2003, defendants raised the issue of the potential arbitrability of the MCI business customers' claims for the first time during a status conference in this case. This issue arose during a discussion relating to plaintiffs' then-pending motion for class certification. Defendants requested, and the court granted, leave to submit additional briefing on this issue and its potential impact on plaintiffs' motion for class certification. In defendants' supplemental briefs, they urged the court to modify the conspiracy class definition so that it did not include any MCI business customers because, defendants argued, the claims of the then-lone MCI business customer plaintiff, NYLB, Inc. d/b/a Siany ("NYLB"), are subject to an arbitration clause identical to the one pursuant to which the court compelled arbitration of the MCI residential customers' claims.

Approximately two months later on February 13, 2004, the court entered a memorandum and order granting plaintiffs' motion for class certification. See generally In re Universal Service Fund Tele. Billing Practices Litig., 219 F.R.D. 661 (D.Kan.2004). In this order, the court rejected defendants' argument that the conspiracy class definition should be modified to exclude MCI customers. The court reasoned that defendants waived any right they may have had to compel arbitration of the MCI business customers' claims by failing to timely raise the issue. Id. at 682-83. In addition, the court stated that it was not inclined in any event to compel arbitration of the MCI business customers' claims on the same basis that it compelled arbitration of the MCI residential customers' claims. Id. at 683-84. Accordingly, the court defined the conspiracy class to include "[a]ll business long distance customers of AT & T, Sprint, or MCI in the United States ... who paid a USF charge on or after August 1, 2001." Id. at 664.

Approximately two weeks later on February 27, 2004, defendants filed the current motion to compel arbitration of the claims of MCI business customers included within the conspiracy class. Defendants once again contend the court should compel arbitration of the MCI business customers' claims on the same basis that it compelled arbitration of the MCI residential customers' claims. Defendants also argue that they could not have waived their right to compel arbitration of the unnamed MCI class members' claims because those class members were not parties to this lawsuit until the court entered the order certifying the conspiracy class on February 13, 2004. In response, plaintiffs contend the court should construe defendants' motion as a motion to reconsider the court's February 2004 order, and they argue defendants have not stated a valid basis for the court to reconsider that order.

ANALYSIS

As a threshold matter, the court will address plaintiffs' contention that the court should characterize the motion as a motion to reconsider the court's February 2004 order in which the court rejected defendants' argument that the conspiracy class should be modified to exclude MCI business customers. The issue presented in the court's February 2004 order was whether the court should modify the conspiracy class definition to exclude MCI business customers. By comparison, here the issue presented is whether the court should compel arbitration of the MCI business customers' claims. Although the court's resolution of both issues turns on the same considerations, the relief sought is different. Thus, the court rejects plaintiffs' characterization of the motion and will construe the motion precisely as it is labeled, which is as a motion to compel arbitration.

For the reasons explained below, the court will deny defendants' motion because, as previously explained in the court's February 2004 order, defendants waived any right they may have had to compel arbitration of the MCI business customers' claims. The court will not endeavor to resolve the substantive issue of the arbitrability of those claims given the absence of a pronouncement from the Tenth Circuit on what the court regards as a critical issue.

A. Waiver

The court's conclusion that defendants waived any right they may have had to compel arbitration of the MCI business customers' claims begins with the reasons stated in the court's February 2004 order. In order to avoid a litany of piecemeal quotes from that order, the court will simply quote the entire relevant portion of that order as a starting point to explain the court's rationale on this issue.

The right to arbitration, like any other contractual right, can be waived. Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489 (10th Cir.1994). In determining whether the right to arbitration has been waived, the court must examine the following factors:

(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether "the litigation machinery has been substantially invoked" and the parties "were well into preparation of a lawsuit" before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) "whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place"; and (6) whether the delay "affected, misled, or prejudiced" the opposing party.

Id. (quoting Peterson v. Shearson/Am. Express, 849 F.2d 464, 467-68 (10th Cir.1988)); accord McWilliams v. Logicon Inc., 143 F.3d 573, 576 (10th Cir.1998). Whether a waiver has occurred depends upon the facts of the particular case. Reid Burton Constr., Inc. v. Carpenters Dist. Council, 614 F.2d 698, 702 (10th Cir.1980).

Defendants filed their motions to compel arbitration in this case almost sixteen months ago on October 16, 2002. Those motions did not ask the court to compel arbitration of any of the MCI customers' claims. In plaintiffs' memoranda in response to defendants' motions, plaintiffs pointed out that defendants did not ask the court to compel arbitration of the MCI customers' claims. The first time defendants urged the court to compel arbitration of the MCI customers' claims was in their reply briefs. In AT & T's reply brief, AT & T quoted the arbitration provision in the "MCI General Service Agreement for Residential Customers." Notably, neither defendant submitted an MCI service contract as an exhibit in support of their argument that the court should compel arbitration of the MCI customers' claims. The only MCI service contract that was a part of the record on this issue was the residential customer service contract, and it was submitted as an exhibit to plaintiffs' response memoranda.

The court held a hearing on defendants' motions to compel arbitration more than a year ago on February 5, 2003. At that hearing, the issue of compelling arbitration of the MCI customers' claims was sufficiently discussed such that, despite the fact that defendants first raised this argument in their reply brief, the court considered the issue to have been sufficiently explored that it was a component of defendants' motion to compel arbitration.

On February 20, 2003, plaintiffs filed a motion for leave to file [a] second consolidated and amended class action complaint that, among other things, sought to join Kathy Snavely and Carol Zinsmeister, both MCI residential customers, and NYLB as plaintiffs. On March 10, 2003, plaintiffs' second consolidated and amended class action complaint was filed pursuant to court order, thus joining NYLB as a plaintiff in this case.

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