McArdle v. At & T Mobility LLC

• Decision Date: 14 September 2009
• Docket Number: No. C 09-1117 CW.,C 09-1117 CW.
• Citation: 657 F.Supp.2d 1140
• Court: U.S. District Court — Northern District of California
• Parties: Steven McARDLE, an individual, on behalf of himself, the general public and those similarly situated, Plaintiff, v. AT & T MOBILITY LLC; New Cingular Wireless PCS LLC; and New Cingular Wireless Services, Inc., Defendants.

657 F.Supp.2d 1140

Steven McARDLE, an individual, on behalf of himself, the general public and those similarly situated, Plaintiff, v. AT & T MOBILITY LLC; New Cingular Wireless PCS LLC; and New Cingular Wireless Services, Inc., Defendants.

No. C 09-1117 CW.

United States District Court, N.D. California.

September 14, 2009.

COPYRIGHT MATERIAL OMITTED

Adam Gutride, Seth Adam Safier, Gutride Safier LLP, San Francisco, CA, for Plaintiff.

John Nadolenco, Joseph William Goodman, Mayer Brown LLP, Los Angeles, CA, for Defendants.

ORDER DENYING DEFENDANTS' MOTION TO COMPEL ARBITRATION AND GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO STRIKE PORTIONS OF THE ANSWER

CLAUDIA WILKEN, District Judge.

Plaintiff Steven McArdle charges Defendants AT & T Mobility LLC, New Cingular Wireless PCS LLC and New Cingular Wireless Services, Inc. with unlawfully imposing certain fees in connection with providing cellular telephone services. Defendants now move for an order compelling Plaintiff to submit his claims to binding arbitration pursuant to the terms of a service agreement between the parties. Plaintiff opposes the motion and moves to strike a number of defenses from the answer. The matters were heard on September 3, 2009. Having considered oral argument and all of the papers submitted by the parties, the Court denies Defendants' motion and grants Plaintiff's motion in part and denies it in part.

BACKGROUND

AT & T Mobility is a cellular telephone service provider. It owns New Cingular Wireless PCS LLC and New Cingular Wireless Services, Inc. Plaintiff is a customer of AT & T's.

According to the complaint, Defendants impose the following charges, among others, on customers who turn on their phones outside the United States: 1) a charge every time their telephone rings to alert them of an incoming call, even if the call is not answered; 2) a charge every time a notification is sent to their telephone alerting them that a voicemail message has been left, even if the message is not retrieved; and 3) an international data transfer fee, imposed in connection with sending text, video or picture messages, above and beyond the higher rate that already applies to sending such messages from abroad. Plaintiff asserts that these charges are not disclosed to customers.

Plaintiff incurred approximately fourteen dollars' worth of these "international roaming fees" when he used his phone in Italy. He now asserts claims under California law for false advertising, unfair business practices, fraud and violation of the Consumers Legal Remedies Act.

Plaintiff's service agreement with Defendants contains an arbitration provision that requires the parties to the agreement to arbitrate "all disputes and claims" between them. The provision prohibits Defendants' customers from pursuing claims in arbitration on behalf of a class of individuals. According to its express terms, the prohibition on class arbitration is not severable from the rest of the arbitration provision.

DISCUSSION

I. Motion to Compel Arbitration

A. Legal Standard

Under the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., written agreements that controversies between the parties shall be settled by arbitration are valid, irrevocable, and enforceable. 9 U.S.C. § 2. A party aggrieved by the refusal of another to arbitrate under a written arbitration agreement may petition the district court which would, save for the arbitration agreement, have jurisdiction over that action, for an order directing that arbitration proceed as provided for in the agreement. 9 U.S.C. § 4. The FAA further provides that:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement. . . .

9 U.S.C. § 3.

If the court is satisfied "that the making of the arbitration agreement or the failure to comply with the agreement is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." Id. The FAA reflects 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) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). A district court must compel arbitration under the FAA if it determines that: 1) there exists a valid agreement to arbitrate; and 2) the dispute falls within its terms. Stern v. Cingular Wireless Corp., 453 F.Supp.2d 1138, 1143 (C.D.Cal.2006) (citing Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir.2000)). Here, the parties do not dispute that the present dispute falls within the terms of the service agreement's arbitration provision. The only question is whether the arbitration provision is valid.

B. Unconscionability

The FAA provides that arbitration agreements "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. Under this provision, "general contract defenses such as fraud, duress or unconscionability, grounded in state contract law, may operate to invalidate arbitration agreements." Circuit City Stores v. Adams, 279 F.3d 889, 892 (9th Cir.2002).

Under California law, "[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result." Cal. Civ.Code § 1670.5(a).

Unconscionability has both a procedural and a substantive component. Both components must be present before a court may refuse to enforce a contract. Armendariz v. Found. Health Psychcare Servs., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000). However, they need not be present to the same degree; "the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." Id.

A contract is procedurally unconscionable if it is a contract of adhesion. Circuit City, 279 F.3d at 893 ("The [arbitration agreement] is procedurally unconscionable because it is a contract of adhesion."); see also Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 853, 113 Cal.Rptr.2d 376 (2002) ("A finding of a contract of adhesion is essentially a finding of procedural unconscionability."). A contract of adhesion is a "standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it." Armendariz, 24 Cal.4th at 113, 99 Cal.Rptr.2d 745, 6 P.3d 669 (quoting Neal v. State Farm Ins. Co., 188 Cal. App.2d 690, 694, 10 Cal.Rptr. 781 (1961)). Defendants do not dispute that the service agreement at issue here is a contract of adhesion, although they maintain that any procedural unconscionability is "minimal." Rather, Defendants assert that any procedural unconscionability that may exist is not sufficient to render the arbitration provision unenforceable because the provision is not substantively unconscionable at all.

Substantive unconscionability focuses on the harshness and one-sided nature of the terms of the contract. A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 486-87, 186 Cal.Rptr. 114 (1982). In Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), the California Supreme Court noted that class action waivers are substantively unconscionable "inasmuch as they may operate effectively as exculpatory contract clauses," because "[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law." Id. at 161, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (quoting Cal. Civ.Code § 1668). Addressing the interplay between substantive and procedural unconscionability, the court stated that, "at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration." Id. at 153, 30 Cal. Rptr.3d 76, 113 P.3d 1100. The court explained the circumstances in which such a waiver will be unconscionable:

We do not hold that all class action waivers are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party from responsibility for its own fraud, or willful injury to the person or property of another. Under these circumstances, such waivers are unconscionable under California law and should not be enforced.

Id. at 162-63, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (citation, internal quotation marks and alteration marks omitted).

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