Parrish v. Cingular Wireless, LLC

• Decision Date: 18 May 2005
• Docket Number: No. A105518.,A105518.
• Citation: 28 Cal.Rptr.3d 802,129 Cal.App.4th 601
• Court: California Court of Appeals Court of Appeals
• Parties: Rita PARRISH et al., Plaintiffs and Respondents, v. CINGULAR WIRELESS, LLC, et al., Defendants and Appellants.

28 Cal.Rptr.3d 802

129 Cal.App.4th 601

Rita PARRISH et al., Plaintiffs and Respondents, v. CINGULAR WIRELESS, LLC, et al., Defendants and Appellants.

No. A105518.

Court of Appeal, First District, Division 5.

May 18, 2005.

As Modified on Denial of Rehearing June 17, 2005.

Review Granted August 24, 2005.

Bramson, Plutzik, Mahler & Birkhaeuser, Alan R. Plutzik, Walnut Creek, Lawrence

Timothy Fisher, Lerach Coughlin Stoia & Robbins, Reed R. Kathrein, Jacqueline E. Mottek, Shana E. Scarlett, San Francisco, Pamela M. Parker, San Diego, Franklin & Franklin, John David Franklin, for Plaintiffs and Respondents.

Drinker Biddle & Reath, Seamus C. Duffy, William M. Connolly, Amor A. Esteban, Los Angeles, Mayer, Brown, Rowe & Maw, Evan M. Tager, David M. Gossett, Donald M. Falk, Palo Alto, for Defendants and Appellants.

JONES, P.J.

In Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 118 Cal.Rptr.2d 862 (Szetela), the Court of Appeal held an arbitration clause prohibiting class-wide arbitration to be unconscionable and unenforceable. The trial court in the present case relied upon Szetela to rule that the arbitration clause at issue here is likewise unconscionable. Recognizing that the issue is pending before our Supreme Court, we will not follow Szetela and will conclude instead that under the facts in the present case the contractual ban on class-wide arbitration is not unduly one-sided, harsh, or in violation of public policy.¹

FACTUAL AND PROCEDURAL BACKGROUND

Three separate lawsuits were brought against defendant Cingular Wireless, LLC, and other providers of wireless telephone service, challenging the "early termination fee" charged to customers who end their wireless telephone service before the expiration of the term of the service agreement.

Rita Parrish sued in Orange County as a private attorney general under the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.), alleging that the early termination fee constituted an unlawful liquidated damages provision in an unconscionable contract. Jerilyn Marlowe and seven other named plaintiffs brought a class action in Alameda County alleging violations of the UCL and the Consumers' Legal Remedies Act (CLRA) (Civ.Code, § 1750 et seq.). In the third lawsuit, Astrid Mendoza sued in Alameda County as a private attorney general and as a class representative to challenge both the early termination fee and Cingular's locked headsets that preclude the use of competitors' networks. These three lawsuits were consolidated and coordinated with other lawsuits pending against other wireless service providers.

The wireless telephone service agreement at issue in all three lawsuits provides for arbitration of all disputes and claims arising out of or related to the agreement. In July 2003, Cingular modified the arbitration clause, making it more advantageous to the customers, and Cingular notified its customers of the change by way of an insert included with the customers' monthly bill. Both the original and the modified versions of the arbitration clause provide that either party may bring an individual action in small claims court, notwithstanding the agreement to arbitrate all disputes. The modified arbitration clause provides that the arbitration will be governed by the commercial dispute resolution procedures and the supplementary procedures for consumer-related disputes of the American Arbitration Association (AAA).² The modified version significantly changed the procedure for payment of fees: If the customer initiates arbitration, Cingular will promptly reimburse the customer for the filing fee. Moreover, Cingular will pay all filing, administration, and arbitrator fees unless the arbitrator finds that the customer's claim is frivolous, in which case payment of fees will be governed by the AAA rules and thereby apportioned by the arbitrator.³ And if the arbitration award is equal to or greater than the customer's demand, Cingular will pay the customer's attorney fees and expenses.

Most significantly, both the original and the modified version of the arbitration clause allow only individual claims to be heard in arbitration. The modified version reads as follows: "The arbitrator may award injunctive relief only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party's individual claim.... 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. Further, you agree that the arbitrator may not consolidate proceedings or more than one person's claims, and may not otherwise preside over any form of a representative or class proceeding, and that [if] this specific proviso is found to be unenforceable, then the entirety of this arbitration clause shall be null and void." (Capitalization in original.)⁴

Cingular petitioned to compel arbitration of plaintiffs' disputes.⁵ Although Cingular did not make a specific request to the court for individual arbitration, Cingular took the position that any arbitration conducted would be limited to arbitration of individual claims. Plaintiffs opposed the petition, arguing, inter alia, that the arbitration clause was unconscionable (1) in precluding class-wide relief, and (2) in requiring plaintiffs to pay the costs of arbitration if they should lose. The trial court agreed with plaintiffs that the ban on class-wide arbitration is unconscionable and invalid under the Court of Appeal decision in Szetela, supra, 97 Cal.App.4th 1094, 118 Cal.Rptr.2d 862. The court denied Cingular's petition to compel arbitration. By way of dictum, the court noted that if the arbitration clause were enforceable, the arbitration would be on an individual basis and not as a class or representative claim. Cingular now appeals from the order denying arbitration.

DISCUSSION

I. Injunctive Relief

Plaintiffs seek, in addition to monetary recovery of the early termination fees injunctive relief to benefit the general public. However, the California Supreme Court has held that such claims for injunctive relief are not arbitrable. (Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315-316, 133 Cal.Rptr.2d 58, 66 P.3d 1157[UCL]; Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1079-1082, 90 Cal.Rptr.2d 334, 988 P.2d 67 [CRLA].) Cingular acknowledged below that the claims for injunctive relief were not arbitrable under Cruz and Broughton, and on appeal Cingular again recognizes that this court is bound to follow existing precedent from the California Supreme Court. We will, therefore, affirm the trial court's denial of Cingular's petition to compel arbitration of the claims for injunctive relief.

II. Monetary Claims

A. Nonsignatory Parrish

With one exception, the plaintiffs who are subject to Cingular's petition to compel arbitration are parties to the arbitration clause in Cingular's wireless service agreement. The one exception is plaintiff Rita Parrish, who is not and never has been a subscriber to Cingular's wireless service. She brought suit only as a private attorney general under the UCL for the benefit of the general public.⁶ We conclude that plaintiff Parrish cannot be compelled to arbitrate.

By statute, an order compelling arbitration is warranted when "an agreement to arbitrate the controversy exists" and "a party thereto refuses to arbitrate such controversy." (Code Civ. Proc., § 1281.2.) The fundamental assumption of arbitration is that the parties have consented to resolving their disputes outside the judicial process. The strong policy favoring arbitration as a means of resolving disputes does not extend to persons who are not parties to the arbitration agreement and have not elected to submit to arbitration. (County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 244-245, 54 Cal.Rptr.2d 628; accord Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990, 112 Cal.Rptr.2d 358.) A proceeding to compel arbitration is essentially a suit in equity for specific performance of an arbitration agreement. A court in equity has no power to compel third party nonsignatories to arbitrate absent some implied authority by the signatory to bind the nonsignatory. (47 Cal.App.4th at pp. 242-245, 54 Cal. Rptr.2d 628; see also Marcus & Millichap Real Estate Investment Brokerage Co. v. Hock Investment Co. (1998) 68 Cal.App.4th 83, 88-89, 80 Cal.Rptr.2d 147.)⁷

As discussed at length in County of Contra Costa v. Kaiser Foundation Health Plan, Inc., supra, 47 Cal.App.4th at pages 242-245, 54 Cal.Rptr.2d 628, a nonsignatory has been held bound by an arbitration agreement in limited cases involving a preexisting relationship between the nonsignatory and a party to the agreement.⁸ (E.g., Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 702, 704, 709, 131 Cal.Rptr. 882, 552 P.2d 1178 [insured employee bound by arbitration clause in medical services contract entered into by employer]; Mormile v. Sinclair (1994) 21 Cal.App.4th 1508, 1511, 26 Cal.Rptr.2d 725 [wife bound by arbitration clause in husband's physician-patient agreement]; Keller Construction Co. v. Kashani (1990) 220 Cal.App.3d 222, 269 Cal.Rptr. 259 [general partner of the signatory limited partnership bound by arbitration clause in construction agreement].) Here, no preexisting relationship exists between plaintiff Parrish and the wireless telephone subscribers she purports to represent; there is no basis for finding that the wireless subscribers had authority to bind plaintiff Parrish to the arbitration agreement.

Net2Phone, Inc. v. Superior Court (2003) 109 Cal.App.4th 583, 135 Cal. Rptr.2d 149, upon which Cingular relies, is not on point. The question in that case was whether a forum selection clause could be enforced against a plaintiff who was not a party to the telephone service contract but who brought the action as a private attorney...