Mattingly v. Hughes Electronics Corp.

• Decision Date: 04 November 2002
• Docket Number: No. 2169,2169
• Citation: 810 A.2d 498,147 Md. App. 624
• Parties: John A. MATTINGLY, Sr., v. HUGHES ELECTRONICS CORPORATION, et al.
• Court: Court of Special Appeals of Maryland

810 A.2d 498

147 Md. App. 624

John A. MATTINGLY, Sr., v. HUGHES ELECTRONICS CORPORATION, et al.

No. 2169, Sept. Term, 2001.

Court of Special Appeals of Maryland.

November 4, 2002.

John A. Mattingly, Jr. (Baldwin, Briscoe & Mattingly, Chtd., on the brief), Lexington Park, for appellant.

Patrick J. Attridge (King & Attridge, Rockville, Steven E. Bledsoe, Stephen H. McClain, Nathan R. Scott and Kirkland & Ellis, Los Angeles, CA, on the brief), for appellees.

Argued before SONNER, ADKINS, CHARLES E. MOYLAN, JR. (Retired, Specially Assigned), JJ. ADKINS, Judge.

In an effort to initiate a class action lawsuit, John A. Mattingly, Sr., appellant, sued DIRECTV, Inc. and its parent company, Hughes Electronics Corporation ("Hughes"), appellees, for charging an illegal $2.81 late fee to his account for satellite television services. The Circuit Court for St. Mary's County agreed with DIRECTV and Hughes that Mattingly is bound by an arbitration clause that DIRECTV inserted into its standard "Customer Agreement" approximately one month after Mattingly subscribed to its service, and dismissed the complaint without prejudice, to allow arbitration of the dispute.

In this appeal, Mattingly challenges that dismissal. He raises numerous issues, which we condense and restate as follows:

I. Did the circuit court err in holding that Mattingly agreed to the arbitration clause by failing to cancel his DIRECTV service?

II. Did the circuit court err in holding that Mattingly agreed to arbitrate his claims against Hughes, who was not a party to the agreement, but merely the corporate parent of DIRECTV?

III. Is the arbitration clause unconscionable?

IV. Did the circuit court err in rejecting Mattingly's efforts to enforce an alleged "settlement agreement"?

We shall hold that the circuit court erred in finding that Mattingly agreed to an amendment adding the arbitration clause because there is no evidence in this record to show that DIRECTV gave him "written notice describing the change," as required under the terms of its customer agreement. For this reason, we will reverse the judgment in favor of DIRECTV. As to Hughes, however, we shall affirm the judgment, because Mattingly has not stated a claim upon which relief could be granted against Hughes.

Our decisions on the first two issues make it unnecessary to reach Mattingly's alternative contention that the arbitration clause is unconscionable. As to the socalled "settlement agreement," we conclude that the court correctly denied relief.

FACTS AND LEGAL PROCEEDINGS

After purchasing satellite television equipment at Circuit City in Waldorf, Mattingly subscribed to DIRECTV's satellite television service. In a February 20, 1997 telephone call, he agreed to accept DIRECTV service subject to the terms of a customer agreement that would later be mailed to him. DIRECTV activated the satellite service while Mattingly was still on the telephone.

The next day, DIRECTV sent Mattingly an invoice, along with a "Customer Agreement" effective "August 28, 1996, until replaced" (the "1996 Agreement"). This agreement stated that "Customer's receipt of services constitutes Customer's acceptance of and agreement to all terms and conditions of this Agreement." One of those conditions was a "change of terms" clause, which provided:

DIRECTV reserves the right to change these terms and conditions .... If any changes are made, [DIRECTV] will send you a written notice describing the change and its effective date. If a change is not acceptable to you, you may cancel your service. If you do not cancel your service, your continued receipt of any service is considered to be your acceptance of that change.

Another term of the 1996 Agreement was that Mattingly agreed that "if [his] payment is not received by DIRECTV before [his] next statement is issued, [he] may be charged an Administrative Late Fee" of up to $5.00.

Less than a month after Mattingly's subscription began, on March 18, 1997, DIRECTV mailed a new Customer Agreement to Mattingly (the "1997 Agreement"). The 1997 Agreement differed from the 1996 Agreement in that it included an arbitration clause. That clause stated that any claim "arising out of, or relating to, this Agreement or any services provided by DIRECTV which cannot be settled by the parties shall be resolved according to binding arbitration[.]" It is undisputed that Mattingly did not cancel his DIRECTV service, and indeed, that he has continued to be a DIRECTV customer.

By invoice dated July 17, 1999, DIRECTV charged Mattingly a "late fee" of $2.81 for a "past due amount" of $56.12. In the "Terms and Conditions," "Administrative Late Fee," and other clauses printed on the back of DIRECTV's invoice, there is no mention of arbitration.

Mattingly paid the July 1999 late fee and his outstanding balance, then filed suit in an attempt to initiate a class action on behalf of other subscribers challenging the legality of the late fee. On August 6, 1999, he sued DIRECTV and Hughes claiming that (1) the DIRECTV invoices were mailed so late in the month that there was an unreasonably or unconscionably short period in which to make timely payment, resulting in frequent charges for an "administrative late fee," and (2) there was no reasonable relationship between the late payment fee and the actual administrative expenses incurred in processing late payments.

On September 7, 1999, Mattingly amended his complaint, seeking certification as a class action. He asserted four counts in his First Amended Class Action Complaint: (1) violations of the Maryland Consumer Protection Act, codified at Md. Code (1975, 2000 Repl.Vol., 2001 Cum. Supp.), § 13-101 et seq. of the Commercial Law Article ("CL"); (2) violations of Art. III, section 57 of the Maryland Constitution, which sets the legal rate of interest at six percent;¹ (3) violations of CL section 2-718, which prohibits penalties disguised as liquidated damages; and (4) breach of the implied covenant of good faith and fair dealing.

DIRECTV and Hughes removed the case to federal court, but that court dismissed it on the ground that the claim did not meet the $75,000 amount in controversy requirement for federal diversity jurisdiction. When the case returned to circuit court, DIRECTV and Hughes promptly moved to dismiss Mattingly's claims on the ground that they are arbitrable, or in the alternative, to stay the proceedings and compel arbitration. After a hearing on the motion, the court agreed that, under the terms of the 1997 Agreement and subsequent agreements, Mattingly was obligated to arbitrate his claims against both DIRECTV and Hughes. From a judgment dismissing his complaint without prejudice, Mattingly noted this timely appeal.

DISCUSSION

I. The Circuit Court Erred In Finding That Mattingly Knowingly Agreed To Arbitrate His Claims Against DIRECTV

Mattingly argues that the circuit court erred in concluding that he agreed to arbitrate his claims against DIRECTV. He concedes that, beginning with the 1997 Agreement that took effect less than one month after he subscribed to DIRECTV service, there was an arbitration clause in DIRECTV's customer agreement. He claims, however, that he did not knowingly agree to DIRECTV's addition of that clause. For this reason, he argues, his continued subscription to DIRECTV's services did not constitute his consent to arbitration.

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, states that "an agreement in writing to submit to arbitration an existing controversy arising out of... a contract [involving interstate commerce]... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The FAA is applicable to private contracts made and enforced in Maryland when, as in this case, the contract affects interstate commerce. See Long v. Silver, 248 F.3d 309, 315-16 (4th Cir.),

cert. denied, 534 U.S. 894, 122 S.Ct. 213, 151 L.Ed.2d 151 (2001); Bischoff v. DirecTV, Inc., 180 F.Supp.2d 1097, 1102 (C.D.Cal.2002).

Under the FAA, the question of whether the parties agreed to arbitrate the dispute in question is a matter of state law governing the formation of contracts. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-44, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995)

. Under both Maryland and federal law, arbitration is a purely consensual and contractual means of resolving disputes. See id.,

514 U.S. at 947,

115 S.Ct. at 1925; Curtis G. Testerman Co. v. Buck, 340 Md. 569, 579, 667 A.2d 649 (1995); Md.Code (1974, 1998 Repl.Vol.), § 3-207 of the Courts & Judicial Proceedings Article ("CJ"). For this reason, courts cannot compel arbitration unless the parties have voluntarily agreed to arbitrate their disputes.

It is axiomatic that an arbitration panel derives it authority to decide a given dispute from the disputing parties themselves.... "`The question is one of intention, to be ascertained by the same tests that are applied to contracts generally.... No one is under a duty to resort to ... [arbitration] tribunals, however helpful their processes, except to the extent that he has signified his willingness.' " ... [A]bsent an arbitration agreement between the parties, an arbitration panel cannot validly assert jurisdiction to decide a dispute between them.

Stephen L. Messersmith, Inc. v. Barclay Townhouse Assocs., 313 Md. 652, 658, 547 A.2d 1048 (1988)(quoting Continental Milling & Feed Co. v. Doughnut Corp. of America, 186 Md. 669, 675, 48 A.2d 447 (1946)).

"Whether there is an agreement to arbitrate the parties' dispute is a legal question of contract interpretation." NRT Mid-Atlantic, Inc. v. Innovative Props., Inc., 144 Md.App. 263, 279, 797 A.2d 824 (2002). When the existence of an arbitration agreement is in dispute, that dispute must be resolved by a court. See, e.g., CJ § 3-207(b)(under Maryland Uniform Arbitration Act, "if the opposing party denies existence of an arbitration agreement, the court shall...