MOBILE ELECTRONIC SERV. v. FIRSTEL, INC

• Decision Date: 24 July 2002
• Docket Number: No. 21818.,21818.
• Citation: 649 N.W.2d 603,2002 SD 87
• Parties: MOBILE ELECTRONIC SERVICE, INC., Plaintiff and Appellee, v. FIRSTEL, INC., Defendant and Appellant.
• Court: South Dakota Supreme Court

649 N.W.2d 603

2002 SD 87

MOBILE ELECTRONIC SERVICE, INC., Plaintiff and Appellee, v. FIRSTEL, INC., Defendant and Appellant.

No. 21818.

Supreme Court of South Dakota.

Considered on Briefs on October 1, 2001.

Reassigned March 19, 2002.

Decided July 24, 2002.

Steven R. Nesson, Sioux Falls, for plaintiff and appellee.

Debra S. Sittig of Woods, Fuller, Shultz & Smith, P.C., Sioux Falls, for defendant and appellant.

GORS, Acting Justice (on reassignment).

[¶ 1.] FirsTel, Inc. (FirsTel) appeals the decision of the trial court denying its motion to dismiss. FirsTel claimed that its liability to Mobile Electronics Service, Inc. (Mobile) for failure to change Mobile's phone numbers from "unlisted" to "listed" is limited by a tariff filed with the South Dakota Public Utilities Commission (PUC) and incorporated by reference in the listing contract with Mobile. We affirm.

FACTS AND PROCEDURE

[¶ 2.] FirsTel is one of several providers of local telephone exchange services in South Dakota. One of the services that it provides is classifying clients' telephone numbers as "business" or "residential" and "listed" or "unlisted." Mobile is a Sioux Falls business that entered into a contract with FirsTel for local telephone service.

[¶ 3.] Mobile alleges that in May of 1999, it contacted U.S. West Dex (Dex) to have Mobile's telephone numbers listed in the business white pages and to have an advertisement in the yellow pages. Dex advised Mobile that its phone numbers could not be published in the white pages because FirsTel classified Mobile's business numbers as "unlisted." Mobile claims that it immediately contacted FirsTel and was assured that the classification would be changed in time for Dex to include Mobile in the publication of the 1999-2000 directory. When the Dex directories were distributed months later, Mobile's telephone number was not included in the business white pages. Mobile also found that its business number was still classified as "unlisted," despite FirsTel's previous assurances.

[¶ 4.] Mobile sued FirsTel for breach of contract and ordinary negligence, seeking damages for loss of business and the cost of additional advertising. FirsTel moved to dismiss, claiming that Mobile was barred by a tariff that limited Mobile's damages to the proportionate charge for the service for the period during which the service was affected. Mobile then moved to amend its complaint to include a claim that including the tariff created an illegal contract adhesion and therefore was unenforceable. Mobile also sought to amend its negligence claim and additionally assert that FirsTel's acts were intentional and reckless.

[¶ 5.] The trial court denied FirsTel's motion to dismiss and granted Mobile's motion to amend, concluding that the tariff was an unconstitutional delegation of legislative authority. FirsTel appeals.

STANDARD OF REVIEW

[¶ 6.] This Court's standard of review of a trial court's grant or denial of a motion to dismiss is the same standard that is applied upon review of a motion of summary judgment: `is the pleader entitled to judgment as a matter of law?' We review all facts in a light most favorable to the nonmoving party. In reviewing under this standard, we give no deference to the trial court's conclusions of law.

Hansen v. Kjellsen, 2002 SD 1, ¶ 6, 638 N.W.2d 548, 549 (internal citations omitted).

ANALYSIS AND DECISION

[¶ 7.] On May 29, 1998, FirsTel filed a telephone tariff with the PUC. Section 2.4.1.A of the tariff provides:

The Company's liability, if any, for its willful misconduct is not limited by this tariff. With respect to any other claim or suit by a Customer or by any others, for damages associated with the installation, provision, termination, maintenance, repair or restoration of a service, and subject to the provisions following, the Company's liability, if any, shall not exceed an amount equal to the proportionate charge for the service for the period during which the service was affected. This liability for damages shall be in addition to any amounts that may otherwise be due the Customer under this tariff as a Credit Allowance for Interruptions.

(emphasis added). The contract between Mobile and FirsTel is preprinted on the front and back on one sheet of paper. The contract does not state that FirsTel's liability is limited. The tariff is not set out in the contract. The only mention of any tariff is contained in this oblique statement on the back of the contract:

FirsTel provides service in accordance with applicable Tariffs for the state or federal jurisdiction in which Service is provided, incorporated herein by this reference.

FirsTel argues that a telephone company may limit its liability for negligence and breach of contract through tariff provisions. They claim that the tariffs act to protect the public from increased utility rates. Mobile concedes that the Legislature may constitutionally delegate regulation of telecommunication tariffs to the PUC. Mobile argues, however, that FirsTel may not insulate itself from liability for ordinary negligence and breach of contract by unilaterally drafting and filing a tariff with the PUC¹ and then incorporating it by reference in the contract. We agree.

[¶ 8.] In Rozeboom v. Northwestern Bell Tel. Co., 358 N.W.2d 241 (S.D.1984), this Court determined that a similar agreement between a telecommunications company and the PUC was an illegal contract of adhesion. Rozeboom, 358 N.W.2d at 242. In Rozeboom, a citizen operated a business, Rozy's Electric, out of his home and for years had placed ads in the yellow page section of the local telephone directory. His yellow page ad was left out in May of 1980. Rozeboom brought suit claiming $25,000 in damages. Northwestern Bell had a limitation of liability clause in its contract for directory listings. The contract in Rozeboom provided:

If the Telephone Company shall omit said advertisement or any additional advertising from any issue of its directory, in whole or in part, or shall make errors therein, its liability therefor shall in no event exceed the amount of the charges for the advertising which was omitted or in which the error occurred in such directory issue.

Id. (emphasis added). This Court determined that this agreement was a contract of adhesion, that it was unconscionable, and that it should not be enforced as a matter of public policy. Id. at 242-43. This Court stated, "[t]he PUC cannot become a body to regulate claims for damages wrought in private contract. To regulate tariffs, schedules, directories, and listings is one thing, but to adjudicate on monetary rights arising thereunder is conceptually different." Id. at 245-46.

[¶ 9.] FirsTel's inclusion of the tariff filed with the PUC by reference in the contract creates an illegal contract of adhesion, and the contract is unconscionable and unenforceable. Mobile did not participate in the drafting of FirsTel's tariff. Mobile did not negotiate the tariff with either FirsTel or the PUC. The preprinted form did not even set forth the tariff but merely incorporated all tariffs by reference. This Court has previously declared that "[o]ne-sided agreements whereby one party is left without a remedy for another party's breach are oppressive and should be declared unconstitutional." Durham v. Ciba-Geigy Corp., 315 N.W.2d 696, 700 (S.D.1982). The Legislature cannot constitutionally delegate authority to the PUC to approve tariffs that limit or deny contract and tort remedies. Rozeboom, 358 N.W.2d at 246-47; SD Const art VI § 20.

[¶ 10.] FirsTel argues the Rozeboom was narrowly based on the facts of the case, and is therefore inapplicable to the case at bar. In Rozeboom we acknowledged:

It is crucial to understand that this case involves an individual versus a monopoly. We do not have two corporations dealing at arms length nor two individuals dealing at arms length. We have a factual scenario where the bargaining power is wholly unequal. As a result of that economic inequality and monopoly of [the phone company], the terms of this contract became substantively unreasonable and should not be enforced. We do not suggest that simply because this contract is standardized and preprinted, ipso facto, it is unenforceable as a contract of adhesion. Rather, we hold that the terms of this specific standardized contract are unreasonable, oppressive and therefore unconscionable.

Rozeboom, 358 N.W.2d at 245.

[¶ 11.] FirsTel claims that since there are other avenues of advertising available to Mobile, FirsTel should not be liable. However, it is not rational to claim that a commercial business can compete without listing its telephone number in the telephone directory. "The issue ... is not whether there are other forms of advertising available but whether such other modes are tied directly to the telephone service enjoyed by almost every home and business in the state." Morgan v. South Cent. Bell Tel. Co., 466 So.2d 107, 117 (Ala.1985). Other businesses are faced with full liability for negligence and breach of contract. FirsTel cannot shield itself from liability by this tariff.

[¶ 12.] We acknowledge that at the time Rozeboom was decided, the majority of jurisdictions upheld provisions that limited phone companies' liability in omitting or erroneously listing numbers or advertisements in a directory.²Id. at 247-48 (Fosheim, C.J., dissenting). We also acknowledge that eighteen years later, Rozeboom continues to enjoy its minority status. However, we addressed this precise argument in Rozeboom, stating:

We fully appreciate that our viewpoint is not the traditional viewpoint in this Nation. The righteousness of a cause is often solitary and perhaps time will better serve our pronouncement. In a democratic society, we persevere under a system of laws where change is inevitable.... Here, we associate with change rooted in simple fairness and opposed to basic oppression.

Id. at 246.

[¶ 13.] Rozeboom controls. The tariff provisions...