Kaltwasser v. Cingular Wireless LLC

• Decision Date: 11 April 2008
• Docket Number: No. C07-00411. [Docket no. 26].,C07-00411. [Docket no. 26].
• Citation: 543 F.Supp.2d 1124
• Parties: Jonathan C. KALTWASSER, Plaintiff, v. CINGULAR WIRELESS LLC, a Delaware Corporation, Defendant.
• Court: U.S. District Court — Northern District of California

543 F.Supp.2d 1124

Jonathan C. KALTWASSER, Plaintiff, v. CINGULAR WIRELESS LLC, a Delaware Corporation, Defendant.

No. C07-00411. [Docket no. 26].

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

April 11, 2008.

COPYRIGHT MATERIAL OMITTED

Michael David Braun, Braun Law Group, P.C., Janet Lindner Spielberg, Law Offices of Janet Lindner Spielberg, Robert Ira Spiro, Spiro Moss Barness LLP, Los Angeles, CA, Joseph N. Kravec, Jr., Wyatt A. Lison, Specter Specter Evans & Manogue, P.C., Pittsburgh, PA, for Plaintiff.

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 DENYING MOTION TO COMPEL ARBITRATION

FOGEL, District Judge.

Plaintiff, Jonathan C. Kaltwasser ("Kaltwasser") brings this action against Cingular Wireless, LLC ("Cingular") for alleged violations of the California Business and Professions Code and the Consumer Legal Remedies Act ("CLRA") and for breach of contract. Cingular moves to compel arbitration pursuant to the Federal Arbitration Act ("FAA"). The Court has considered the moving and responding papers and the argument of counsel presented at the hearing on January 25, 2008. For the reasons set forth below, the motion will be denied.

I. BACKGROUND

Kaltwasser alleges the following. Cingular is a Delaware corporation with its principal place of business in Atlanta, Georgia and is the largest wireless communications company in the United States. In July 2006, Kaltwasser renewed his wireless telephone service with Cingular. Kaltwasser claims to have based his renewal on advertising that identified Cingular as the wireless service with the fewest dropped calls. Kaltwasser alleges that by providing service that does not meet this standard, Cingular has violated the California Business and Professions Code and the CLRA and also has breached its contract with him.

Kaltwasser's Wireless Service Agreement contains the following arbitration clause:

Cingular and you ... agree to arbitrate all disputes and claims arising out of or relating to this Agreement for Equipment or services between Cingular and you. ... You and Cingular agree that YOU AND CINGULAR 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.

See Declaration of Neal S. Berinhout in Support of Motion of Defendant to Compel Arbitration and Dismiss Litigation Pursuant to the Federal Arbitration Act. ("Berinhout Decl."), Exs. 4, 7. The agreement also contains the following statement:

Notwithstanding any provision in this Agreement to the contrary, we agree that if Cingular makes any change to this arbitration provision ... during your Service Commitment, you may reject any such change and require Cingular to adhere to the language in this provision if a dispute between us arises.

Id., Ex. 8.

In December 2006, Cingular allegedly mailed Kaltwasser a copy of a modified arbitration clause that according to Cingular governs the current proceedings. That clause reads as follows:

Cingular and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to: claims arising out of or relating to any aspect of the relationship between us ...; claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising); claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and claims that may arise after the termination of this agreement.

Id. Kaltwasser alleges that he neither received nor accepted the modification.

II. LEGAL STANDARD

The FAA, which applies to all written contracts involving interstate or foreign commerce, mandates that written agreements to arbitrate disputes "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. The FAA was enacted to overcome longstanding judicial reluctance to enforce agreements to arbitrate. Bradley v. Harris Research, Inc., 275 F.3d 884, 888 (9th Cir.2001). "The Act creates `a body of federal substantive law of arbitrability' enforceable in both state and federal courts and preempting any state laws or policies to the contrary." Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 285 (quoting Moses H. Cone Mem' Hosp. v Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).

However, state law is not entirely displaced from FAA analysis. In interpreting 9 U.S.C. § 2, the Supreme Court has held that "state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). As a result, "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening Section 2" of the FAA. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).

III. DISCUSSION

Under the FAA, a binding arbitration provision must be (1) in writing; and (2) part of a contract that evidences a transaction involving commerce. 9 U.S.C. § 2. The arbitration agreement included in Kaltwasser's Wireless Service Agreement meets these requirements.¹ Accordingly, the FAA applies to contractual disputes arising between the parties unless the FAA is preempted by a generally applicable state contract defense. Id. To determine whether there is FAA preemption, this Court must decide which state's law applies and whether, under the law of the appropriate state, the arbitration provision in the Wireless Service Agreement is valid and enforceable.

A. Choice of Law

The parties do not dispute that they are bound by the choice-of-law provision in the Wireless Service Agreement, which provides that: "[t]he law of the state of your billing address shall govern this Agreement." Berinhout Decl., Ex. 7. Kaltwasser asserts that pursuant to this provision California law applies, because he had a California billing address when he entered into the contract and the 2006 version of the Wireless Service Agreement also listed a California billing address. Cingular contends that the Court should apply Virginia law because Plaintiff had a Virginia billing address at the time he filed the instant action.

"Federal Courts sitting in diversity must apply `the forum state's choice of law rules to determine the controlling substantive law.'" Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir.2005) (quoting Patton v. Cox, 276 F.3d 493, 495 (9th Cir.2002)). Accordingly, because Kaltwasser filed his complaint in California, California's choice-of-law rules apply. "In determining the enforceability of a contractual choice-of-law provision, California courts apply the principles set forth in § 187 of the Restatement, which reflects a strong policy favoring enforcement of such provisions." Omstead v. Dell, Inc., 473 F.Supp.2d 1018, 1023 (N.D.Cal.2007) (citing Nedlloyd Lines B.V. v. Superior Court of San Mateo County, 3 Cal.4th 459, 464-65, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (Cal.1992)). Section 187 provides:

The law of the state chosen by the parties to govern their contractual rights and duties will be applied, ..., unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or (b) the application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue. ...

RESTATEMENT SECOND OF CONFLICT OF LAWS § 187(2) (1971). "Under California law, the party advocating a contractual choice of law clause bears the burden of showing that the claim falls within the scope of the choice of law provision." Oestreicher v. Alienware Corp., 502 F.Supp.2d 1061, 1065 (N.D.Cal.2007) (citing Wash. Mutual Bank, FA v. Superior Court, 24 Cal.4th 906, 916, 103 Cal.Rptr.2d 320, 15 P.3d 1071 (Cal.2001)),

Cingular fails to meet its burden under either prong of the Restatement test. As to the first prong, it does not show that Virginia has a substantial relationship to the parties or their transactions. While Virginia is the state in which Kaltwasser currently receives his wireless service bills, it is not the state in which the contract was formed, nor is it the state under whose laws the dispute arises.

As to the second prong the application of Virginia law, which disfavors class action lawsuits, is in conflict with California public policy, and California has declared a strong interest in applying that policy to contracts formed within the state. The California Supreme Court has opined that "because ... damages in consumer cases are often small and because `[a] company which wrongfully exacts a dollar from each of millions of customers will reap a handsome profit' `the class action is often the only effective way to halt and redress such exploitation.'" Discover Bank v. Superior Court of Los Angeles, 36 Cal.4th 148, 161, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (Cal.2005) (quoting Linder v. Thrifty Oil Co., 23 Cal.4th 429, 446, 97 Cal.Rptr.2d 179, 2 P.3d 27 (Cal.2000)). That court expressed the view that "class action waivers ... may operate effectively as exculpatory contract clauses that are contrary to public policy." Discover Bank, 36 Cal.4th at 161, 30 Cal. Rptr.3d 76, 113 P.3d 1100. In the present case, precluding Kaltwasser from bringing a class action suit against Cingular may as a practical matter exculpate it from any alleged...