Spielholz v. Superior Court

• Decision Date: 08 February 2001
• Docket Number: No. B131655.,B131655.
• Court: California Court of Appeals Court of Appeals
• Parties: Marcia SPIELHOLZ et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Los Angeles Cellular Telephone Company et al., Real Parties in Interest.

104 Cal.Rptr.2d 197

86 Cal.App.4th 1366

Marcia SPIELHOLZ et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Los Angeles Cellular Telephone Company et al., Real Parties in Interest.

No. B131655.

Court of Appeal, Second District, Division 3.

February 8, 2001.

Review Denied May 23, 2001.^*

Lieff, Cabraser, Heimann & Bernstein, Elizabeth J. Cabraser, Jacqueline E. Mottek, Michael W. Sobol, Stephen H. Cassidy and Fabrice N. Vincent, San Francisco; Milberg, Weiss, Bershad, Hynes & Lerach, Los Angeles, William S. Lerach, Leonard B. Simon, William Dato, Alan M. Mansfield, San Diego, Reed R. Kathrein, San Francisco, and Patrick W. Daniels; Ronald F. Hoffman, for Petitioners.

No appearance for Respondent.

Gibson, Dunn & Crutcher, Palo Alto, Mark A. Perry, Steven E. Sletten and Christine Naylor, Cerritos, for Real Parties in Interest.

CROSKEY, J.

Petitioners Marcia Spielholz, Debra Petcove, and Wireless Consumers' Alliance, Inc. (collectively, Spielholz), sued Los Angeles Cellular Telephone Company and AT & T Wireless Services, Inc. (collectively, AT & T), alleging that AT & T falsely advertised a "seamless calling area" throughout Southern California and that it failed to disclose gaps or "dead zones" where wireless telephone users are unable to connect calls. AT & T moved to strike the allegations for monetary relief, based on title 47 United States Code¹ section 332(c)(3)(A), which provides that a state may not "regulate the entry of or the rates charged" by a wireless telephone service provider. It argued that for the court to award damages or restitution based on false advertising it must determine the value of the services provided, and that that determination would constitute rate regulation within the meaning of section 332(c)(3)(A) and therefore is expressly preempted. The trial court agreed and granted the motion.

Spielholz contends section 332(c)(3)(A) does not preempt a state court from awarding monetary relief based on false advertising. We agree.

FACTUAL AND PROCEDURAL BACKGROUND

AT & T provides wireless telephone service to subscribers in the Los Angeles area. Marcia Spielholz and Debra Petcove are AT & T subscribers, and Wireless Consumers' Alliance, Inc., advocates on behalf of wireless telephone users.

Spielholz sued AT & T in February 1998 on behalf of herself and others similarly situated, alleging that it falsely advertised a "seamless calling area" of uninterrupted service throughout Southern California and failed to disclose the existence of gaps or "dead zones" within that area.² The second amended complaint filed in December 1998 alleges causes of action for unfair business practices, false advertising, violation of the Consumer Legal Remedies Act, intentional and negligent misrepresentation, breach of contract, and breach of the implied covenant of good faith and fair dealing.³ Spielholz seeks injunctive and monetary relief, including damages and restitution.

AT & T moved to strike the allegations for monetary relief in January 1999. It argued that although the complaint alleges false advertising, the gravamen of the complaint is that its rates are unreasonable, and the court would be required to determine the fair value of its services in order to award damages or restitution. Such a determination, it argued, would conflict with the federal statutory prohibition against state regulation of rates charged by wireless telephone service providers (§ 332(c)(3)(A)) and therefore is preempted. The court agreed and granted the motion in February 1999.

Spielholz petitioned this court for a writ of mandate, and we issued an alternative writ.⁴ Wireless Consumers' Alliance, Inc., also petitioned the Federal Communications Commission (FCC) for a declaratory ruling on the preemption issue. We stayed the proceedings in this court pending resolution of the FCC petition. The FCC issued its opinion in August 2000, and we vacated the stay.

The FCC concluded that section 332(c)(3)(A) generally does not preempt an award of monetary relief by state courts based on state tort or contract claims, unless a court "purports to determine the reasonableness of a prior rate or it sets a prospective charge for services." (In re Wireless Consumers Alliance, Inc. (2000) 15 F.C.C.R. 17,021, ¶¶ 9, 38, 39.) Without purporting to rule on the specific allegations in this action, the FCC distinguished between "an outright determination of whether a price charged ... was unreasonable," which would be preempted, and the determination of "whether ... there was a difference between promise and performance" in the context of false advertising or breach of contract, which would not be preempted.⁵ (Id. at ¶¶ 25-26.)

CONTENTIONS

Spielholz contends section 332(c)(3)(A) does not preempt a state court from awarding monetary relief based on false advertising.⁶ AT & T contends an award of monetary relief would require the court to determine the reasonableness of the rates charged and therefore would constitute prohibited rate regulation within the meaning of section 332(c)(3)(A).

DISCUSSION

1. Standard of Review

We review the order striking the allegations for monetary relief de novo, consider the allegations of the complaint as a whole, and assume their truth to determine whether they plead ultimate facts that would support a monetary award. (Clauson v. Superior Court (1998) 67 Cal. App.4th 1253, 1255, 79 Cal.Rptr.2d 747.) Specifically, our task is to determine whether section 332(c)(3)(A) preempts a state court award of monetary relief for causes of action based on false advertising.

Preemption is a legal issue involving statutory construction and the ascertainment of legislative intent, which we also review de novo. (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal. App.4th 1807, 1812, 52 Cal.Rptr.2d 650.)

2. Preemption

Congress has the power to preempt state law under the supremacy clause of the United States Constitution (art. VI, cl.2). (Crosby v. National Foreign Trade Council (2000) 530 U.S. 363, 372-374, 120 S.Ct. 2288, 147 L.Ed.2d 352, 361.) Congress's intent to preempt may be expressly stated or implied where a federal law demonstrates an intent to "`occupy the field'" or a state law conflicts with a federal law. (Ibid.) A conflict exists where compliance with both state and federal law is impossible, or where a state law "`stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" (Ibid., quoting Hines v. Davidowitz (1941) 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581; English v. General Electric Co. (1990) 496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65.)

To determine whether Congress intended to preempt state law with respect to a particular activity, we focus on the nature of the activity that the state seeks to control or regulate rather than on the method of regulation adopted. (San Diego Unions v. Garmon (1959) 359 U.S. 236, 243, 79 S.Ct. 773, 3 L.Ed.2d 775.) Preemption therefore applies not only to positive enactments by legislation or regulation but also to judicial acts that interfere or conflict with congressional intent. (Id. at p. 247, 79 S.Ct. 773 [held that a damage award against labor unions was impliedly preempted as state regulation of union activity].)

Congress's intent to preempt must be "clear and manifest" to preempt state law in a field traditionally occupied by the states, such as the exercise of a state's police powers. (Medtronic, Inc. v. Lohr (1996) 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700; California v. ARC America Corp. (1989) 490 U.S. 93, 101, 109 S.Ct. 1661, 104 L.Ed.2d 86.) This creates a presumption against preemption. (Medtronic, at p. 485, 116 S.Ct. 2240; ARC America Corp., at p. 101, 109 S.Ct. 1661.) The states' police powers extend to consumer protection, such as claims based on false advertising, so the presumption against preemption applies in the present action. (ARC America Corp., at p. 101, 109 S.Ct. 1661; Smiley v. Citibank (1995) 11 Cal.4th 138, 148, 44 Cal.Rptr.2d 441, 900 P.2d 690, affd. (1996) 517 U.S. 735, 116 S.Ct. 1730, 135 L.Ed.2d 25.)

3. Section 332(c)(3)(A)

Section 332(c)(3)(A) is part of the 1993 amendments to the Communications Act of 1934 (§ 151 et seq.). (Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, § 6002(b)(2)(A) (Aug. 10, 1993), 107 Stat. 312, 393.) Under the Communications Act, common carriers engaged in interstate or foreign wire or radio communication must file with the FCC a schedule or "tariff showing all charges and the classifications, practices, and regulations affecting those charges. (§ 203(a).) The contents of the tariff are subject to FCC approval, and the FCC may determine and prescribe just and reasonable charges, classifications, practices, and regulations. (§§ 204(a), 205(a).)

The 1993 amendments authorized the FCC to exempt wireless telephone service from the tariff filing requirement and the provision allowing the FCC to prescribe just and reasonable charges, classifications, practices, and regulations, provided that the FCC determined that those provisions were not necessary to ensure just and reasonable charges, classifications, practices, and regulations. (Pub.L. No. 103-66, § 6002(b)(2)(A), 107 Stat, at 312, 393, codified at § 332(c)(1)(A).) The FCC so determined and ordered the exemption in 1994. (In the Matter of Implementation of Sections 3(n) and 332 of the Communications Act, Second Report and Order (1994) 9 F.C.C.R. 1411; see 47 CFR § 20.15(c) (1999).)

Section 332(c)(3)(A) states that no state or local government may "regulate ... the rates charged" by a wireless telephone service provider, but that a state may "regulat[e] the other terms and conditions" of service.⁷ It further provides that a state may petition the FCC for authority to "regulate the rates" for service, and that the FCC shall grant the petition if market conditions do not adequately ensure just and reasonable rates. Subdivision (c)(3)(B) of...