McKee v. At & T Corp.

• Decision Date: 28 August 2008
• Docket Number: No. 81006-1.,81006-1.
• Citation: 164 Wn.2d 372,191 P.3d 845
• Court: Washington Supreme Court
• Parties: Michael McKEE, individually and on behalf of all other persons similarly situated, Respondent, v. AT & T CORPORATION, a foreign corporation, Petitioner.

191 P.3d 845

164 Wn.2d 372

Michael McKEE, individually and on behalf of all other persons similarly situated, Respondent, v. AT & T CORPORATION, a foreign corporation, Petitioner.

No. 81006-1.

Supreme Court of Washington, En Banc.

Argued March 13, 2008.

Decided August 28, 2008.

Daniel Maring Waggoner, Cassandra Lynn Kinkead, Davis Wright Tremaine LLP, Seattle, for Petitioner.

Scott Michael Kane, East Wenatchee, WA, Leslie A. Bailey, Oakland, CA, F. Paul Bland, Jr., Public Justice, PC, Washington, DC for Respondent.

Katherine M. Tassi, Attorney General's Office, Seattle, Amicus Curiae on Behalf of Washington Attorney General's Office.

Kelby Dahmer Fletcher, Peterson Young Putra, Seattle, Sarah C. Schreck, Portland, Bryan Patrick Harnetiaux, Spokane, Amicus Curiae on Behalf of Washington State Trial Lawyers Association.

CHAMBERS, J.

¶ 1 Michael McKee filed this class action suit, alleging AT & T wrongly charged him (and others) city utility surcharges and usurious late fees. When the Chelan County Superior Court found the dispute resolution provision of AT & T's Consumer Services Agreement unconscionable and denied its motion to compel arbitration, AT & T appealed. The Court of Appeals, Division Three, certified the case to this court. We affirm the trial court and remand for further proceedings.

FACTS

¶ 2 McKee lives near Wenatchee, Washington, and signed up for AT & T long distance phone service in November 2002. His monthly bills included a Wenatchee city utility tax surcharge, even though he lives outside the Wenatchee city limits. When he called AT & T to resolve this issue, at first, the various operators merely tried to sell him a new long distance package. Finally, he was told that taxes were assessed by zip code. Unfortunately, McKee's zip code includes people who live both inside and outside the Wenatchee city limits. McKee contends that AT & T collects the tax from all of its customers who live within the zip code, whether the customers owe the tax or not. A late fee of 1.5 percent applies if the customer does not pay all charges on time. The charges McKee challenges amount to no more than $2 in any given month, less than $20 total in a year. But McKee notes that after many years and many customers, small amounts add up to very large sums.

¶ 3 After his individual attempts to resolve his billing issues with AT & T failed, McKee filed this class action lawsuit, alleging violations of Washington's Consumer Protection Act, chapter 19.86 RCW, and Washington's usury statute, chapter 19.52 RCW, as well as negligence and breach of contract. AT & T removed the action to federal district court, claiming McKee had raised federal law in his complaint. After the complaint was amended to omit any reference to federal law, the federal court remanded the case back to Chelan County Superior Court.

¶ 4 AT & T then moved to compel arbitration under its Consumer Services Agreement. At the time McKee agreed to use AT & T as his long distance provider, he did not sign any agreement with AT & T and was not informed of any terms and conditions associated with AT & T service. After he began using AT & T, it sent him mail, which may have included a contract. He had not retained any of the mail and did not know the terms of his agreement with AT & T. In support of the motion to compel arbitration, AT & T employees Howard Spierer and April Morlock filed declarations averring that a specific agreement was sent to McKee in November as part of his "fulfillment package" and attached a copy of that agreement to their declarations. We detail the specifics of the declarations because AT & T later repudiated the declarations it filed and the agreement it sought to enforce.

¶ 5 Spierer, a senior attorney with AT & T, signed a declaration on January 8, 2004, declaring that since August 1, 2001, AT & T's relationship with its customers has been governed by the terms of a Consumer Services Agreement. The Consumer Services Agreement has been revised several times. "Indeed, the version sent to Mr. McKee was an amended [Consumer Services Agreement], effective March 1, 2002." Clerk's Papers (CP) at 691. Morlock filed a similar declaration dated October 23, 2003, in support of AT & T's motion to compel arbitration. She declared,

1. I am a Fulfillment/Response Operations Manager for AT & T Corp.

2. It is my responsibility as a Fulfillment/Response Manager to ensure that all customers receive a "fulfillment package" from AT & T as a result of an order he/she may have placed. It is a business practice of AT & T to mail this fulfillment package within 8-10 business days from the date the customer places his/her order. . . .

3. Mr. McKee became an AT & T customer in November 2002. Attached as Exhibit A to this declaration is a true and correct copy of the fulfillment package.

CP at 1114. Both Spierer and Morlock attached the same version of the Consumer Services Agreement, which became the subject of several hearings in Chelan County.

¶ 6 For clarity, an entire copy of the Consumer Services Agreement is included as an appendix to this opinion.¹ We focus primarily on the dispute resolution provisions. Section 7 of the agreement, entitled "Dispute Resolution," requires binding arbitration of all disputes related to the agreement. It forbids class actions and requires that all arbitrations be kept confidential. The agreement also states in relevant part that "[n]o dispute may be joined with another lawsuit, or in an arbitration with a dispute of any other person, or resolved on a class-wide basis," and "[a]ny arbitration shall remain confidential. Neither you nor AT & T may disclose the existence, content, or results of any arbitration or award, except as may be required by law or to confirm and enforce an award." CP at 718-19. The dispute resolution section also provides that any claim must be brought within two years and limits a consumer's right to collect punitive damages and attorney fees.

¶ 7 McKee opposed the motion to compel arbitration and moved to stay arbitration, claiming the agreement was substantively and procedurally unconscionable. He claimed he had no meaningful choice and the agreement was overly one-sided and harsh because it prohibited class actions, shortened the statute of limitations, prohibited punitive damages and attorney fees, required arbitration be kept secret, and required application of New York law. AT & T is incorporated in New York. McKee filed declarations from a former Washington assistant attorney general and several other experienced Washington attorneys. Owen Clarke, former Washington State assistant attorney general for 25 years, and the head of the Spokane County Consumer Protection Division for 17 years, declared that McKee's class action suit would require a skilled attorney and that without class certification the class members would be unable to retain qualified counsel. Two other experienced attorneys, Garfield Jeffers and David Thorner, declared that moderate income consumers cannot afford the hourly rates of trial lawyers and that no attorney would take a case on a contingent basis where the amount in controversy is so small and the risk so great.

¶ 8 On June 18, 2004, Judge Bridges heard oral argument on the motions to compel and stay arbitration. He denied the motion to compel arbitration, finding the entire dispute resolution section of the agreement substantively unconscionable because of the provisions prohibiting class actions, shortening the statute of limitations, limiting damages, requiring confidentiality, and requiring the application of New York law. Judge Bridges found the unconscionable provisions were not severable from other provisions and declared the entire dispute resolution clause unenforceable.

¶ 9 After Judge Bridges' oral ruling, more than a year passed before the parties presented findings of fact. It appears counsel was awaiting this court's decisions in Zuver v. Airtouch Communications, Inc., 153 Wash.2d 293, 103 P.3d 753 (2004) and Adler v. Fred Lind Manor, 153 Wash.2d 331, 103 P.3d 773 (2004).

¶ 10 During that year, in March 2005, approximately nine months after the learned trial judge issued his oral opinion on June 18, 2004, Spierer filed a new declaration, declaring that AT & T had revised its Consumer Services Agreement for "its millions of residential customers." CP at 126-31. He declared that he was mistaken in his 2001 declaration. He contended that AT & T had amended its agreement "in significant ways, including, for example, the removal of the two-year statute of limitations, the ability of the customer to determine whether the proceedings should be confidential, and specifically allowing consumers to obtain statutory relief—including damages and attorney's fees—through the arbitration process."² CP at 127. Spierer attached a revised draft of the AT & T Consumer Services Agreement that AT & T now contended was applicable to McKee.³ AT & T moved for reconsideration and asked the court to consider this new version of the Consumer Services Agreement. When findings of fact and conclusions of law were finally presented to him, Judge Bridges expressed some frustration in the long delay, declined to sign either party's proposals, and instead adopted his oral ruling rendered more than one year earlier as his findings and conclusions. The judge also denied the motion for reconsideration and declined to consider a new version of the agreement.

¶ 11 AT & T appealed, and the Court of Appeals certified the case to this court.⁴ The only Consumer Services Agreement considered by Judge Bridges was the March 1, 2002 agreement proffered by Spierer and Morlock on January 8, 2004 and October 23, 2003 respectively, and it is the only agreement before us for review.⁵

STANDARD OF REVIEW

¶ 12 Arbitrability is a question of law we review de novo. Zuver, 153 Wash.2d at 302, 103 P.3d 753. The burden of proof is on the party seeking to avoid arbitration. Id. (citing ...