Schnall v. At & T Wireless Services, Inc.

• Decision Date: 21 January 2010
• Docket Number: No. 80572-5.,80572-5.
• Citation: 168 Wn.2d 125,225 P.3d 929
• Court: Washington Supreme Court
• Parties: Martin SCHNALL, a New Jersey resident; Jeananne Aguirre; Nathan Riensche, a Washington resident; Kelly Lemons, a California resident, individually and on behalf of all the members of the class of persons similarly situated, Respondents, John Girard, a California resident; Sean O'Day, a Florida resident, Plaintiffs, v. AT & T WIRELESS SERVICES, INC., a domestic corporation, Petitioner.

225 P.3d 929

168 Wn.2d 125

Martin SCHNALL, a New Jersey resident; Jeananne Aguirre; Nathan Riensche, a Washington resident; Kelly Lemons, a California resident, individually and on behalf of all the members of the class of persons similarly situated, Respondents, John Girard, a California resident; Sean O'Day, a Florida resident, Plaintiffs, v. AT & T WIRELESS SERVICES, INC., a domestic corporation, Petitioner.

No. 80572-5.

Supreme Court of Washington, En Banc.

Argued October 28, 2008.

Decided January 21, 2010.

As Corrected February 9, 2010.

Michael Edward Kipling, Kipling Law Group PLLC, Seattle, WA, for Petitioner.

Daniel Foster Johnson, David Elliot Breskin, Breskin Johnson & Townsend PLLC, Seattle, WA, William Walter Houck, Attorney at Law, Issaquah, WA, for Respondents.

Shannon E. Smith, Office of the Attorney General, Seattle, WA, for Amicus Curiae on behalf of Attorney General of Washington.

Stephen Michael Rummage, Fred B. Burnside, Davis Wright Tremaine LLP, Seattle, WA, Robin S. Conrad, Nat'l Chamber Litigation Center, Washington, DC, for Amicus Curiae on behalf of Chamber of Commerce of the United States of America.

Kelby Dahmer Fletcher, Peterson Young Putra, Seattle, WA, Bryan Patrick Harnetiaux, Attorney at Law, Spokane, WA, for Amicus Curiae on behalf of Washington State Trial Lawyers Assoc., Washington State Association for Justice Foundation.

Seth Leslie Cooper, Attorney at Law, Fairfax, VA, Micah Louise Balasbas, Attorney at Law, Tacoma, WA, for Amicus Curiae on behalf of American Legislative Exchange Council.

Stephen Michael Rummage, Davis Wright Tremaine LLP, Paul J. Lawrence, K & L Gates LLP, Seattle, WA, for Amicus Curiae on behalf of Amazon.com, Clearwire Corporation, Microsoft Corporation, T-mobile USA, Inc.

MADSEN, C.J.

¶ 1 This case asks our court to decide whether Washington will believe the trial court did not abuse its discretion by declining to certify such a class. To the extent a class action is feasible here, the only appropriately certified class for plaintiffs' contract claims is a state wide class. We reverse, in part, and remand for proceedings consistent with this opinion.

FACTS

¶ 2 Customers of AT & T Wireless Services, Inc. (AT & T) filed a nationwide class action alleging the company misled consumers when it billed them for a charge that was not included in advertised monthly rates and was not described clearly in billing statements. The Federal Communications Commission (FCC) requires telecommunications companies like AT & T to contribute to the Universal Service Fund (USF), a fund created by the Telecommunications Act of 1996 that subsidizes phone and Internet service to low-income and rural areas. The FCC expressly permits companies to recover USF contributions from customers. AT & T recovered its contributions from customers by charging a Universal Connectivity Charge (UCC), listed in customer agreements as either "Other Charges & Credits" or "Taxes, Surcharges & Regulatory Fees." Pet. for Review at 3. Named plaintiff Martin Schnall claims this categorization of the UCC violates the Washington Consumer Protection Act (CPA), chapter 19.86 RCW, and further, that AT & T violated the terms of its contract by failing to disclose the charge at the time he signed his agreement for wireless service. Schnall further claims AT & T violated the terms of its user contracts by increasing the UCC charge without notice. Schnall sought certification of a nationwide class of all AT & T customers "who have been improperly billed and paid a universal connectivity charge that they did not owe." Clerk's Papers (CP) at 186 (First Amended Class Action Complaint).

¶ 3 The trial court determined that "individual questions predominated over common questions" and denied class certification on all of Schnall's claims. CP at 417-18 (Mem. Op. Denying Mot. for Class Certification at 1-2) (Mem. Op.). Schnall appealed that decision to Division One of the Court of Appeals which reversed the trial court and certified the class.

Standard of Review

¶ 4 The standard of review is paramount in this case: it is not our place to substitute our judgment for that of the trial court. When this court reviews a trial court's decision to deny class certification, that decision is afforded a substantial amount of deference. "[I]f the record indicates the court properly considered all CR 23 criteria," this court will not disturb its decision. Nelson v. Appleway Chevrolet, Inc., 160 Wash.2d 173, 188, 157 P.3d 847 (2007). "[A] trial court abuses its discretion if its decision is manifestly unreasonable or based on untenable grounds." Dix v. ICT Group, Inc., 160 Wash.2d 826, 833, 161 P.3d 1016 (2007).

Enforceability of Choice of Law Clauses

¶ 5 The parties initially dispute whether the choice of law clauses in the customers' contracts are enforceable. The choice of law clauses in this case require customers to litigate asserted violations of their contract in the respective jurisdiction where they signed the contract. This jurisdiction is often based on the customer's area code.

¶ 6 We interpret contract provisions to render them enforceable whenever possible. Patterson v. Bixby, 58 Wash.2d 454, 459, 364 P.2d 10 (1961). Further, "[w]e generally enforce contract choice of law provisions." McKee v. AT & T Corp., 164 Wash.2d 372, 384, 191 P.3d 845 (2008) (citing Erwin v. Cotter Health Ctrs., Inc., 161 Wash.2d 676, 694-96, 167 P.3d 1112 (2007)). In Erwin we applied section 187 of the Restatement (Second) of Conflict of Laws (1971) (Restatement) to hold the parties' contractual choice of law provision was effective. Section 187 reads in significant part:

"`(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

"`(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

"`(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.'"

Erwin, 161 Wash.2d at 694-95, 167 P.3d 1112 (quoting O'Brien v. Shearson Hayden Stone, Inc., 90 Wash.2d 680, 685, 586 P.2d 830 (1978), adhered to on recons., 93 Wash.2d 51, 605 P.2d 779 (1980)). To effectively void a choice of law provision, a court must find that the chosen state has no substantial relationship to the parties or that the application of the chosen law would be contrary to a fundamental policy of Washington. Id. at 698, 586 P.2d 830. Further, Washington courts have also adopted the "significant relationship" test in section 145 of the Restatement, which gives great weight to the place where the parties' relationship was entered. Johnson v. Spider Staging Corp., 87 Wash.2d 577, 580-82, 555 P.2d 997 (1976).

¶ 7 Other courts have also recognized the importance of the location of the contractual relationship in deciding choice of law problems as they apply to class certification. In Kelley v. Microsoft Corp., 251 F.R.D. 544 (W.D.Wash.2008), the district court found the most significant contacts to exist in Washington because in addition to being the location where Microsoft "developed and launched its allegedly deceptive promotional program," "the parties' relationship is not centered in any particular place because the parties did not contract with one another." Id. at 552 (emphasis added) (citing Restatement § 145(2)(b), (d) and applying Washington state law to class action certification of CPA and contract claims). Though not a class action, in Kammerer v. W. Gear Corp., 96 Wash.2d 416, 423, 635 P.2d 708 (1981), we held that because the parties contracted in California to have California law apply, the choice of law clause should be enforced.

¶ 8 The choice of law provisions in this case were mostly based on customers' area codes, not on forums having no substantial relationship to the parties or location of the transaction between them. While it is true that AT & T is headquartered in Washington State, the customer's area code is left to the discretion of the customer, and this area code often corresponds with the customer's place of residence: in effect the customer selected which forum's law would apply when he requested phone service from AT & T. AT & T should not now be forced to face the enormous cost and complexity presented by a nationwide class action when they conscionably included choice of law provisions in their customers' contracts and the choice of forum is dictated by the consumer. See generally 4 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 13:63, at 476 (4th ed. 2002) ("Like all litigation, complex cases are more likely to be settled than tried. The stakes in the case and the cost of pretrial activity increase that likelihood.").

¶ 9 Schnall presents no valid reason why we should now invalidate the choice of law clause each customer signed when he or she purchased wireless service from AT & T.¹ The trial court did not abuse its discretion when it held

[t]here does not seem to be any public policy reason not to enforce the choice of law provision of the agreements in this case. The law of the State associated with the area code will generally be the law of the customer's home state, thereby applying to that customer the law with which he or she is most familiar.

CP at 418 (Mem. Op. at 2). Upholding the trial court's decision to deny certification of a nation wide class does nothing to prevent persons outside of Washington from filing statewide class actions in each of their respective home states. Indeed, the citizens of California have...