Schnall v. At & T Wireless Services, Inc., 57523-6-I.

• Citation: 139 Wn. App. 280,161 P.3d 395
• Decision Date: 18 June 2007
• Docket Number: No. 57523-6-I.,57523-6-I.
• Court: Washington Court of Appeals
• Parties: Martin SCHNALL, a New Jersey resident; Nathan Riensche, a Washington resident; and Kelly Lemons, a California resident; individually and on behalf of all the members of the class of persons similarly situated, Appellants/Cross-Respondents and John Girard, a California resident; and Sean O'Day, a Florida resident; Plaintiffs, v. AT & T WIRELESS SERVICES, INC., a domestic corporation, Respondent/Cross-Appellant.

161 P.3d 395

139 Wn. App. 280

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

No. 57523-6-I.

Court of Appeals of Washington, Division 1.

June 18, 2007.

David Elliot Breskin, Daniel Foster Johnson, Short Cressman & Burgess, Seattle, WA, William Walter Houck, Issaquah, WA, for Appellants/Cross-Respondents.

Michael Edward Kipling, Kipling Law Group PLLC, Seattle, WA, for Respondent/Cross-Appellant.

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

AGID, J.

¶ 1 Appellants brought a class action lawsuit on behalf of all AT & T Wireless Services customers who were charged a "universal connectivity charge" (UCC) from 1998 through 2003. They allege that AT & T violated Washington's Consumer Protection Act (CPA)¹ by charging the fee without disclosing it in its advertisements, misleading its customers by categorizing it as a tax, surcharge or regulatory fee, and breaching its customer contracts by raising the fee without notice. The trial court denied class certification on all of the appellants' claims on two grounds: (1) the appellants were required to prove each class member's individual reliance to establish a CPA claim and (2) choice of law issues made a class action on the contract claims unmanageable because individual issues predominated over common ones.

¶ 2 The trial court correctly ruled that the CPA applies to the appellants' nationwide claims. AT & T's most significant contacts were within the state, Washington has an important interest in regulating business activities within its state, and the alleged misleading acts occurred before any consumer contracts were executed. We also agree with the trial court that causation is an essential element of private class action claims under RCW 19.86.090. But proof of individual reliance is not the only means by which consumers may make a prima facie showing on this element. Finally, while the trial court correctly enforced the choice of law provisions in each consumer's contract, its denial of class certification on the contract claim was in error because the mere existence of individualized issues does not preclude a class claim so long as there are both a common nucleus of operative facts and a common legal issue. Here, the appellants claim, that AT & T breached its contracts by charging them a fee that was neither disclosed in their contracts nor properly categorized as a government fee, tax or surcharge, was enough to certify the class at this stage of the proceedings.

FACTS

¶ 3 AT & T sells its wireless service on monthly plans, and subscribers pay monthly fees for the service. AT & T advertises its monthly rates in the media and other marketing materials and provides a pre-printed standard form contract to each new customer explaining the terms and conditions of service. Customer contracts include a choice of law clause.²

¶ 4 In addition to its monthly fees and mandatory government taxes and fees, AT & T began charging new subscribers a universal connectivity charge in 1998. In January and February 1998, AT & T sent its existing customers a notice with their bill that described the UCC and what it would cost. From 1998 through 2003, AT & T billed its customers for the UCC under the "Taxes, Surcharges, and Regulatory Fees" category. The appellants allege that the UCC is an element of AT & T's overhead, not a government mandated charge, because it reimburses fees required by the Federal Communications Commission (FCC) for the Universal Service Fund (USF), which was created to subsidize cellular service to low-income and rural areas. According to the appellants, the FCC allows, but does not require, cellular providers to recover their contributions to the USF from their customers. When customers called the AT & T service center, the appellants assert AT & T told them it was "federally mandated and not an [AT & T] initiative."

¶ 5 The appellants filed a motion to certify a class of AT & T customer plaintiffs who, like them, signed up for service between March 1998 and February 2003 and were charged and paid the UCC even though it was not in their service contract and was misrepresented as a government fee or tax. The trial court found that the CPA applied to all nationwide members of the class because CPA claims arise from statute rather than the contract, and the factual basis for the claims occurred before the parties entered into their respective contracts. But it denied class certification on both the CPA and contract claims because the appellants did not satisfy the commonality and typicality tests set forth in CR 23(a) and CR 23(b)(3). In its memorandum opinion, the trial court explained that it denied certification on the CPA claim because each class member was required to establish causation by proving individual reliance. It denied certification on the contract claims because the choice of law provision in each consumer's contract created individualized issues of liability and provided affirmative defenses that made a class action unmanageable.

¶ 6 We granted discretionary review of the class certification issue. On January 24, 2006, the trial court entered final judgment and this appeal was converted to an appeal of right under RAP 2.2(a)(1). The appellants appeal the trial court's denial of their motion for class certification. AT & T cross-appeals the trial court's decision that the CPA applies to non-Washington plaintiffs.

DISCUSSION

¶ 7 A trial court's class certification decision is discretionary and will not be overturned absent an abuse of that discretion.³ The "`primary function of the class suit is to provide a procedure for vindicating claims which, taken individually, are too small to justify individual legal action but which are of significant size and importance if taken as a group.'"⁴ Washington courts favor a liberal interpretation of CR 23 to avoid multiplicity of litigation, free defendants from the harassment of identical future litigation, and save the cost and trouble of filing individual suits.⁵ Because Federal Rule of Civil Procedure 23 is identical to CR 23, courts may look to federal decisions for guidance in interpreting and construing the state rule when state and federal issues are substantially similar.⁶

¶ 8 When the trial court heard the certification motion, the complaint alleged breach of contract and violations of the CPA. The appellants argue that their claims meet all of the threshold requirements of CR 23(a) and CR 23(b)(3), common issues predominate over individual ones, and a class action is superior to individual claims because the monetary losses are small. The appellants assert that the trial court's decision was an abuse of discretion and based on an erroneous view of the law because it ignored the Legislature's mandate to apply CR 23 liberally in favor of granting class certification.

Consumer Protection Act

¶ 9 The appellants allege a violation under the CPA on the ground that AT & T sold its service at an advertised price but charged the UCC, which it identified as "Taxes, Surcharges, and Regulatory Fees," in order to recoup overhead costs. When customers questioned the UCC on their bill, the appellants allege that AT & T customer service told customers it was a government-mandated charge rather than an AT & T initiative. The appellants, and the Attorney General in his amicus brief, assert that the trial court erred as a matter of law when it ruled that individual reliance is required to establish private claims under the CPA.

¶ 10 AT & T asserts that RCW 19.86.090 requires a causal link between the allegedly unfair or deceptive acts and the injury suffered by the appellant under the holding in Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.⁷ AT & T argues there was no basis to conclude that every AT & T subscriber was misled about his or her obligation to pay the UCC, and a class-wide trial runs the risk of giving a windfall to millions of consumers who were fully informed and paid the UCC freely and voluntarily. Relying upon Nuttall v. Dowell,⁸ Hangman Ridge and the Supreme Court's analysis in Pickett v. Holland Am. Line-Westours, Inc. (Pickett II),⁹ AT & T argues that proof of individual reliance is required to satisfy the causation requirement. AT & T contends the trial court correctly concluded that individual questions of fact predominate over common ones because a long line of cases requires proof of causation through an individual showing of reliance.

¶ 11 RCW 19.86.090 provides a private right of action to allow private individual citizens to bring suit to enforce the CPA. In Hangman Ridge, the Washington Supreme Court identified five elements that plaintiffs in private CPA claims must show to prevail: (1) an unfair or deceptive act or practice, (2) in trade or commerce, (3) which affects the public interest, (4) injury to the plaintiff's business or property, and (5) a causal link between the unfair or deceptive act complained of and the injury suffered.¹⁰ Hangman Ridge did not explain how a plaintiff should or could establish causation under this test.

¶ 12 In Nuttall v. Dowell, a pre-Hangman Ridge case relied on by the trial court and AT & T, we affirmed denial of class certification in a case involving a dispute between an individual and a real estate broker.¹¹ The plaintiff alleged that the real estate broker confirmed the legal accuracy of a boundary and the location of an easement on property he purchased.¹² After purchasing the property, Nuttall's neighbors conducted a more accurate survey that showed the true boundary...