Shroyer v. New Cingular Wireless Serv. Inc.

• Decision Date: 20 September 2010
• Docket Number: No. 08-55028.,08-55028.
• Citation: 622 F.3d 1035
• Parties: Kennith SHROYER, Plaintiff-Appellant, v. NEW CINGULAR WIRELESS SERVICES, INC.; AT & T Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

622 F.3d 1035

Kennith SHROYER, Plaintiff-Appellant,

v.NEW CINGULAR WIRELESS SERVICES, INC.; AT & T Corporation, Defendants-Appellees.

No. 08-55028.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted April 13, 2009.

Filed May 26, 2010.

Amended Sept. 20, 2010.

COPYRIGHT MATERIAL OMITTED.

Robert K. Friedl, Kirtland & Packard LLP, El Segundo, CA; William R. Weinstein, Sanford, Wittels & Heisler, LLP, New York, NY; for the plaintiff-appellant.

Steven P. Rice and Theresa C. Lopez, Crowell & Moring LLP, Irvine, CA, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California, Manuel L. Real, District Judge, Presiding. D.C. No. CV-06-01792-R.

Before: WILLIAM C. CANBY, JR., JOHNNIE B. RAWLINSON and N. RANDY SMITH, Circuit Judges.

ORDER AND AMENDED OPINION

The opinion filed in this matter by this court on May 26, 2010, 606 F.3d 658, is amended as follows:

At 606 F.3d at 661, right column, first full paragraph: The final sentence of this paragraph (beginning “We affirm ...”) is amended to state:

We affirm the dismissal of the fraud and unfair competition claims and the dismissal of the claims for declaratory relief with regard to those claims, but we reverse the dismissal of the breach of contract claim and the claim for declaratory relief with regard to that claim.

At 606 F.3d at 667, the body of Section III, entitled “Declaratory Relief” is amended to state:

The district court's dismissal of the claims for declaratory relief appears to have depended upon its ruling dismissing all claims for substantive relief. Because we affirm the district court's dismissal of the fraud and unfair competition claims, we affirm the dismissal of the claims for declaratory relief on those claims. Because we reverse the district court's dismissal of the breach of contract claim, we also reverse the denial of declaratory relief with regard to that claim.

At 606 F.3d at 667, the first sentence of Section IV, entitled “Conclusion,” is amended to state:

For the reasons above stated, we affirm the dismissal of Shroyer's common law fraud and unfair competition claims and the denial of declaratory relief with regard to those claims, and we reverse the dismissal of Shroyer's breach of contract claim and denial of declaratory relief with regard to that claim.

There are no pending petitions for panel or en banc rehearing. No subsequent petitions for panel or en banc rehearing may be filed. The mandate shall issue in due course.

The amended opinion is filed contemporaneously with this order.

OPINION

CANBY, Circuit Judge:

Appellant Kennith Shroyer filed a class action against New Cingular Wireless Services, Inc., a corporation resulting from the merger of AT & T Wireless Services, Inc., and Cingular Wireless Corporation. At the time of the merger in 2004, Shroyer had a contract for wireless telephone services with AT & T. He alleged that, immediately following the merger, his cellular phone service was severely degraded. He claimed that New Cingular disregarded its obligations under the existing AT & T contract by failing to provide adequate service coverage and requiring Shroyer to sign a different contract with New Cingular if he desired to get the service that AT & T had contracted to provide under the first agreement. He also claimed that New Cingular misrepresented and omitted key facts about the consequence of the merger to the Federal Communications Commission (“FCC”), and that the FCC would not have approved the merger if it had known that New Cingular planned to ignore the obligations of existing AT & T contracts. On these allegations, he made claims for 1) breach of contract; 2) fraud and deceit; 3) unfair competition under Cal. Bus. & Prof.Code §§ 17200-210; and 4) a demand for a declaratory judgment. ¹

The district court granted New Cingular's 12(b)(6) motion to dismiss each of the claims, and Shroyer appeals. We affirm the dismissal of the fraud and unfair competition claims and the dismissal of the claims for declaratory relief with regard to those claims, but we reverse the dismissal of the breach of contract claim and the claim for declaratory relief with regard to that claim.

I. Federal Preemption

New Cingular argues that Shroyer's claims are preempted by 47 U.S.C. § 332(c)(3)(A) because the claims challenge the quality and rates of service, and those areas are reserved exclusively to the FCC. We reject this contention with regard to Shroyer's breach of contract claim and his misrepresentation claim. In the main, Shroyer is challenging New Cingular's rates and quality of service only insofar as they are contrary to the ones to which he had contractual rights or were misrepresented; he is not asking the court to rule on the reasonableness of a particular rate, and the quality of service is an issue only as it relates to, or was misrepresented as satisfying, the contract on which he sues. The claims are state law claims that do not tread on the FCC's exclusive power to regulate rates and market entry. To the degree, however, that Shroyer's unfair competition claim alleges unfairness resulting from the merger itself or its approval by the FCC, it is preempted.

Section 332 provides: “[N]o State or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service, except that this paragraph shall not prohibit a State from regulating the other terms and conditions of commercial mobile services.” 47 U.S.C. § 332(c)(3)(A). The FCC has stated that § 332 does not prevent states from deciding “whether under state law, there was a difference between promise and performance” of “the terms and conditions of a contract.” In re Wireless Consumers Alliance, Inc., 15 F.C.C.R. 17021, 17035 (2000). In that opinion, the FCC “reject[ed] arguments by [cellular phone service providers] that non-disclosure and consumer fraud claims are in fact disguised attacks on the reasonableness of the rate charged for the service.” ² Id. New Cingular would have this court rely on Bastien v. AT&T Wireless Servs., Inc., 205 F.3d 983 (7th Cir.2000), to hold that the substance of Shroyer's claims is really an attack on the post-merger service, and that deciding the case would necessarily involve regulating the modes and conditions under which New Cingular may begin offering service. But the FCC rejected this per se argument in In re Wireless Consumers Alliance, and so do we. ³ Bastien dealt with a pre-merger AT & T wireless consumer who was dissatisfied with the signal he was receiving on his cellular phone. He alleged that AT & T breached its contract and violated a state consumer protection statute by failing to build sufficient cell towers and misrepresenting the quality of its services. Bastien, 205 F.3d at 985. The Seventh Circuit held that although some of the claims sounded in traditional state law, they were all “founded on the fact that AT & T Wireless had not built more towers and more fully developed its network at the time Bastien tried to use the system.” Id. at 989. The FCC has interpreted Bastien to hold that it is the substance of the claim, not its form, that determines preemption. In re Wireless Consumers Alliance, Inc., 15 F.C.C.R. at 17036-37. New Cingular correctly asserts that in both that case and here, the plaintiffs challenged the level of service they received as wireless customers. But the important difference lies in the theories on which they based their challenges. The plaintiff in Bastien was asking the court to decide the requisite number of cellular towers needed to support service. Here, on the other hand, Shroyer is asking the court to decide whether New Cingular has performed its promise in a contract and whether it misrepresented the level of service it would provide. The latter inquiries are ones that § 332, as interpreted in Wireless, leaves open to state adjudication. ⁴

Similarly, a court does not have to determine the reasonableness of rates to decide Shroyer's fraud claim, for “[a] carrier may charge whatever price it wishes and provide the level of service it wishes, as long as it does not misrepresent either the price or the quality of service.” In re Wireless Consumers Alliance, Inc., 15 F.C.C.R. at 17035. Consequently, the fraud claim, like Shroyer's other claims, is not preempted by § 332.

Furthermore, Bastien dealt with market entry, which the states are expressly excluded from regulating by § 332. Shroyer's breach of contract claim does not. Shroyer claims that New Cingular broke the terms of the contract when the service, support, and cellular phone reception significantly decreased. This breach of contract claim does not depend on whether New Cingular's service is above or below the proper standard for cell phone service; its claim is that the level of service is other than that promised in Shroyer's cell phone contract. Shroyer may or may not be able to prove his breach of contract claim, but the claim as stated is not preempted by § 332. ⁵ Although the Bastien panel uses broad language to describe the type of claims that would be preempted, it is not persuasive here because Bastien relied on authority that has been expressly rejected by the FCC.

The Bastien panel stated that “[t]here can be no doubt that Congress intended complete preemption” as to suits regarding rates and entry. Bastien, 205 F.3d at 986-87. “[A] complaint that service quality is poor is really an attack on the rates charged for the service.... The act makes the FCC responsible for determining the number, placement and operation of the cellular towers and other infrastructure.” Id. at 988. Bastien cites the Supreme Court case of AT & T Co. v. Central Office Telephone, 524 U.S. 214, 223, 118 S.Ct. 1956, 141 L.Ed.2d 222 (1998) as authority for the proposition that “most consumer complaints will involve the rates charged by telephone companies or their quality of service.” Bast...