Phillips v. Sprint PCS

• Decision Date: 26 September 2012
• Docket Number: A134371
• Court: California Court of Appeals Court of Appeals
• Parties: TIMOTHY PHILLIPS et al., Plaintiffs and Appellants, v. SPRINT PCS et al., Defendants and Respondents.

TIMOTHY PHILLIPS et al., Plaintiffs and Appellants, v. SPRINT PCS et al., Defendants and Respondents.

A134371

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION THREE

Dated: September 26, 2012

CERTIFIED FOR PUBLICATION

(Contra Costa County

Super. Ct. No. MSC0303044)

In a consumer class action alleging misrepresentation of cellular telephone rates, the trial court in 2006 denied defendants' motion to compel arbitration based upon finding that the provisions in the underlying customer contracts requiring bilateral arbitration and waiver of a class action are unconscionable under California law. Years later, after the United States Supreme Court abrogated the California rule and upheld the validity of class action waivers in consumer contracts (AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___ (Concepcion)), defendants renewed the motion to compel arbitration. After revisiting its prior order based on the intervening change of law, the trial court granted the motion. Plaintiff appeals, contending that the initial order denying arbitration is res judicata, precluding a renewed motion and reconsideration. We conclude that renewal of the motion was proper and shall affirm the order compelling arbitration.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

In December 2003, Diane Tucker brought an action against Sprint PCS and Sprint Spectrum L.P. (collectively, Sprint) alleging that Sprint misrepresented its cellular telephone rates to consumers. (Bus. & Prof. Code, § 17200.) Tucker was not a Sprintcustomer and her claims were dismissed for lack of standing after the Unfair Competition Law was amended to limit recovery to those who have lost money or property. (Bus. & Prof. Code, § 17204.) Sprint customers Pamela Meyer and Timothy Phillips were substituted into the action as plaintiffs, and in 2005 they filed a first amended complaint asserting a putative class action against Sprint. Meyer was later voluntarily dismissed from the case and Phillips became the sole named plaintiff.

In 2006, Sprint filed a motion to compel arbitration under a provision in its customer agreement mandating individual arbitration of disputes. (Code Civ. Proc., § 1281.2.) The arbitration provision applies to "all claims, controversies or disputes" including claims relating to services and advertising, and precludes resolution of disputes "on a class-wide basis." Under the terms of the provision, the Federal Arbitration Act (FAA), not California law, "govern[s] all questions of whether a claim is subject to arbitration."¹

Plaintiff opposed the motion arguing, among other things, that the class action waiver is unconscionable. Plaintiff relied upon Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 153 (Discover Bank), which held that "class-action waivers in consumer contracts of adhesion are unenforceable" under certain circumstances. In Discover Bank,the California Supreme Court also concluded that the FAA does not preempt California law in this respect. (Ibid.) Basing its decision on Discover Bank, the trial court denied Sprint's motion to compel arbitration. Sprint did not appeal that order.

In 2008, the trial court certified a class of all Sprint consumer and business subscribers who contracted with Sprint in California for wireless telephone service between May 2000 and June 2008. In 2010, the United States Supreme Court granted certiorari in another cellular telephone company class action in which the court applied the Discover Bank rule to hold a class action waiver unconscionable. (Concepcion, supra, ___ U.S. at p. ___ .) Sprint moved to stay the proceedings in this case pending resolution of Concepcion, arguing that "[a] reversal in Concepcion likely would require this court to reconsider the order denying Sprint's petition to compel arbitration, and compel this case to a bilateral arbitration." The court granted the stay, excepting limited discovery.

In April 2011, the United States Supreme Court issued its opinion in Concepcion, holding that the FAA preempts California's Discover Bank rule on the unconscionablity of class action waivers in consumer contracts. (Concepcion, supra, ___ U.S. at p. ___ .) The high court held that "[b]ecause it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress' [citation]. California's Discover Bank rule is preempted by the FAA." (Id. at p. ___ [id at p. 1753].) The court "consider[ed] whether the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures" (id. at p. ___ [id at p. 1744]), and held that it does. "[C]lass arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA." (Id. at p. ___ [id. at p. 1751].)

In June 2011, Sprint renewed its motion to compel arbitration based upon the change in law effected by Concepcion. (Code Civ. Proc., § 1008, subd. (b).) Sprint asked the court to revisit its 2006 order and to compel plaintiff to pursue his claim in bilateral arbitration. In opposing the motion, plaintiff contended that the prior order denyingarbitration was res judicata, precluding Sprint from relitigating the enforceability of the contractual arbitration provision.

The court rejected plaintiff's contention and granted Sprint's renewed motion and, alternatively, exercised its own discretion to reconsider the prior order in light of a significant change in law. (Code Civ. Proc., § 1008, subds. (b), (c).) The court observed: "Concepcion has resulted in a significant clarification of the federal Arbitration Act - and a major change in California law. It goes to the heart of the issue [Sprint] raised early in the case. Now, according to the United States Supreme Court, it appears the arbitrability issue was wrongly decided by this court insofar as it relied on Discover Bank. [¶] Were the case poised for trial . . . the court might not exercise its discretion to rehear the matter. But so little has been done, and the case has been so little advanced, that it appears reasonable to reconsider a matter as fundamental as this." Having considered the renewed motion to compel in light of Concepcion, the court granted Sprint's motion to compel bilateral arbitration by the sole remaining named plaintiff. The court directed Sprint to "prepare an appropriate form of order" to address "what further proceedings, if any, need be had in this court, including with regard to the class members whose claims were certified in 2008."

Sprint submitted a proposed form of order compelling arbitration by the named plaintiff and dismissing the class claims. Plaintiff objected to the proposed order, asserting that class claims remain viable because there are class members without arbitration agreements and the arbitrator might deny enforcement of plaintiff's arbitration agreement and return the case to the civil court. Plaintiff also filed a motion for reconsideration of the order compelling arbitration. The court issued a formal order compelling arbitration between plaintiff and Sprint but deferring consideration of the class claims until it ruled on the motion for reconsideration. The court subsequently issued an order denying plaintiff's motion for reconsideration under Code of Civil Procedure section 1008, but indicated that sua sponte it would reconsider the entire arbitrability issue and ordered further briefing. However, plaintiff filed a notice of appealbefore the briefing was complete and before the court reached the issue of how the claims of other class members would be resolved.

DISCUSSION

I. The order compelling arbitration is not appealable. The appeal will be treated as a petition for a writ of mandate and reviewed on that basis.

Sprint asserts that this court does not have jurisdiction to hear this appeal because an order compelling arbitration is not appealable. Ordinarily, no immediate appeal lies from an order compelling arbitration and review of the order must await appeal from a final judgment entered after arbitration. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 648.) Plaintiff concedes this point but argues that the order to individually arbitrate his dispute with Sprint effectively rang the "death knell" for the class claims, making the order immediately appealable. The death knell doctrine is applied to orders in class actions that effectively terminate class claims, such as orders denying class certification or decertifying a class, while allowing individual claims to persist. (In re Baycol Cases I & II (2011) 51 Cal.4th 751, 757, 762; Safaie v. Jacuzzi Whirlpool Bath, Inc. (2011) 192 Cal.App.4th 1160, 1168.) The doctrine is animated by the concern "that an individual plaintiff may lack incentive to pursue his individual claims to judgment, thereby foreclosing any possible appellate review of class issues." (Baycol, supra, at p. 758.) To preserve appellate review of class issues, the death knell doctrine permits appeal from "an order that . . . amounts to a de facto final judgment for absent plaintiffs, under circumstances where . . . the persistence of viable but perhaps de minimis individual plaintiff claims creates a risk no formal final judgment will ever be entered." (Id. at p. 759.) Under this doctrine, an order compelling a plaintiff to pursue his or her claim in arbitration and dismissing the action as to all other members of the class has been held to be immediately appealable. (Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1288.)

Sprint contends that the death knell doctrine is inapplicable here because the class member claims have not been dismissed. Plaintiff responds that the class member claimswere effectively dismissed by the order compelling arbitration of his claim because the subscriber agreements of all other class members contain the same arbitration provision, so that "each and every 'substituted' class...