Thibodeau v. Comcast Corp.

• Citation: 912 A.2d 874
• Parties: Philip THIBODEAU, Appellee v. COMCAST CORPORATION, Comcast Cable Communications, Inc., Comcast Holdings Corporation, Comcast Cable Communications Holdings, Inc., Comcast Cable Holdings, LLC, Comcast MOP Group, Inc., Comcast MO of Delaware, Inc., Comcast of Massachusetts II, Inc., and AT & T Corporation, Appellants.
• Decision Date: 01 December 2006
• Court: Superior Court of Pennsylvania

Page 874

912 A.2d 874

Philip THIBODEAU, Appellee v. COMCAST CORPORATION, Comcast Cable Communications, Inc., Comcast Holdings Corporation, Comcast Cable Communications Holdings, Inc., Comcast Cable Holdings, LLC, Comcast MOP Group, Inc., Comcast MO of Delaware, Inc., Comcast of Massachusetts II, Inc., and AT & T Corporation, Appellants.

Superior Court of Pennsylvania.

Argued July 25, 2006.

Filed December 1, 2006.

COPYRIGHT MATERIAL OMITTED

Stephen V. Saia, Pembroke, MA, for AARP, Amicus Curiae.

Robert C. Heim, Philadelphia, for Comcast, appellant.

Mark Cuker, Philadelphia, for appellee.

BEFORE: MUSMANNO, KLEIN and TAMILIA, JJ.

OPINION BY MUSMANNO, J.:

¶ 1 In this consolidated appeal, Comcast Corporation, Comcast Cable Communications, Inc., Comcast Holdings Corporation, Comcast Cable Communications Holdings, Inc., Comcast Cable Holdings, LLC, Comcast MOP Group, Inc., Comcast MO of Delaware, Inc., Comcast of Massachusetts II, Inc., and AT & T Corporation (collectively, "Comcast"), appeal from the two trial court Orders entered on June 10, 2005, in which the trial court denied Comcast's Petition to compel arbitration and stay litigation, as well as Comcast's Preliminary Objections. We affirm.

¶ 2 In this appeal, Comcast argues that the trial court erred in its interpretation of the doctrine of federal preemption in determining that the Federal Arbitration Act ("FAA")¹ did not preempt Pennsylvania state law. Specifically, Comcast challenges the trial court's conclusion that the arbitration clause, contained in Philip Thibodeau's ("Thibodeau") Consumer Agreement (the "Agreement") with Comcast, was unconscionable and, thus, unenforceable. This appeal presents this Court with a matter of first impression in Pennsylvania.

¶ 3 The relevant facts of this case are set forth as follows. Thibodeau lives in Massachusetts, where he subscribed to Comcast's cable television service. Comcast's corporate headquarters is located in Philadelphia, Pennsylvania. Pursuant to his cable subscription, Thibodeau received non-premium television channels, otherwise known as extended basic service. As part of his cable services, Thibodeau was required to pay monthly charges for cable converter boxes and remote controls. However, Thibodeau subsequently learned that the use of the cable converter boxes and remote controls were not necessary to receive basic service.

¶ 4 Thibodeau has been a cable television subscriber since 1998. Thibodeau originally received cable television services though AT & T Broadband. However, in 2002, Comcast acquired AT & T Broadband. The trial court explained the events following the acquisition as follows:

After the acquisition, AT & T customers were mailed a new Comcast customer [A]greement which contained new terms unilaterally imposed by Comcast. The new customer [A]greement mandated individual arbitration and precluded class actions by aggrieved customers. The old AT & T and new Comcast [A]greements were virtually identical in terms of style, font size, type and layout. The only aesthetic difference between [the two agreements] was a small icon on the first page. The image was originally the AT & T logo, which was replaced by the Comcast logo.

There were, however, significant substantive differences. On the 8th page of the 10-page document, the Comcast [A]greement reads:

10. MANDATORY AND BINDING ARBITRATION

IF WE ARE UNABLE TO RESOLVE INFORMALLY ANY CLAIM OR DISPUTE RELATED TO OR ARISING OUT OF THIS

AGREEMENT OR THE SERVICES PROVIDED, WE HAVE AGREED TO BINDING ARBITRATION EXCEPT AS PROVIDED BELOW. YOU MUST CONTACT U.S. WITHIN ONE (1) YEAR OF THE DATE OF THE OCCURRENCE OF THE EVENT OR FACTS GIVING RISE TO A DISPUTE (EXCEPT FOR BILLING DISPUTES WHICH ARE SUBJECT TO PARAGRAPH J, RATES AND CHARGES, ABOVE), OR YOU WAIVE THE RIGHT TO PURSUE A CLAIM BASED UPON SUCH EVENTS, FACTS OR DISPUTE.

THERE SHALL BE NO RIGHT OR AUTHORITY FOR ANY CLAIMS TO BE ARBITRATED ON A CLASS ACTION OR CONSOLIDATED BASIS OR ON BASES INVOLVING CLAIMS BROUGHT IN A PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE GENERAL PUBLIC (SUCH AS A PRIVATE ATTORNEY GENERAL), OTHER SUBSCRIBERS, OR OTHER PERSONS SIMILARLY SITUATED UNLESS YOUR STATE'S LAWS PROVIDE OTHERWISE.

Trial Court Opinion, 1/24/06, at 5 (footnote omitted).

¶ 5 On March 19, 2004, Thibodeau filed a class action Complaint in the Court of Common Pleas of Philadelphia County against Comcast on behalf of a putative class of Comcast customers. Thibodeau averred that these customers were improperly billed for cable converter boxes and remote controls, which were unnecessary for basic service plans. On April 23, 2004, Comcast filed a Notice of removal to the federal district court. However, the case was remanded back to the Court of Common Pleas of Philadelphia County on October 25, 2004. Comcast then filed a Petition to compel arbitration and stay litigation on December 17, 2004. Thereafter, on December 23, 2004, Comcast filed Preliminary Objections to Thibodeau's class action and representative claims.

¶ 6 The trial court held oral argument on both of Comcast's filings on January 24, 2005. The trial court then entered two Orders on June 10, 2005, denying Comcast's Petition to compel arbitration and its Preliminary Objections. On July 6, 2005, Comcast filed a Notice of appeal at 2176 EDA 2005 from the trial court's Order denying Comcast's Petition to compel arbitration and stay litigation. On the same date, Comcast filed a second Notice of appeal at 2177 EDA 2005 from the trial court's Order overruling its Preliminary Objections.² We consolidated these appeals for the purpose of our review.

¶ 7 On appeal, Comcast raises the following issues:

1. Whether the trial court committed errors of law when it denied Comcast's Petition to compel Arbitration and Preliminary Objections?

2. Whether the trial court properly applied Pennsylvania law, rather than Massachusetts law?

3. Whether the trial court erred in concluding that the consumer arbitration agreement was an unconscionable contract of adhesion?

See Brief for Appellant at 2.

¶ 8 In its first claim of error, Comcast asserts that the trial court erred in denying its Petition to compel Arbitration and Preliminary Objections. At the heart of Comcast's argument lies its contention that the trial court erroneously interpreted and applied the FAA when it concluded that the FAA does not preempt the application of state law. Comcast argues that the FAA broadly preempts state law from invalidating arbitration agreements. Comcast characterizes the trial court's Opinion as a blanket invalidation of arbitration agreements in consumer contracts on the basis of Pennsylvania public policy. Thibodeau counters Comcast's argument, contending that the FAA permits application of general state contracts law. In asserting that the arbitration clause, which required individual arbitration and prohibited class-wide arbitration, was invalid, Thibodeau argues that pursuant to Pennsylvania state law, the clause was an unconscionable contract of adhesion.

¶ 9 The FAA is applicable to arbitration agreements that are (1) in writing and (2) part of a "contract evidencing a transaction involving interstate commerce." 9 U.S.C. § 2. The parties here concede that the Agreement is governed by the FAA. Challenges to the validity of arbitration agreements governed by the FAA can be classified as one of two types: (1) a challenge specifically to the arbitration clause; or (2) a challenge to the contract as a whole. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, ___, 126 S.Ct. 1204, 1208, 163 L.Ed.2d 1038 (2006). This case involves a challenge specifically to the arbitration clause. Consequently, this issue was properly decided by the trial court. See id. at 1209 (holding that "unless a challenge is to the arbitration clause itself, the issue of a contract's validity is considered by the arbitrator in the first instance").

¶ 10 The standard of review of a state court's determination of whether an enforceable arbitration agreement exists directs a state court to

look to the body of federal arbitration law," Bhatia v. Johnston, 818 F.2d [418] at 421 [5th Cir.1987], which recognizes that "the question of arbitrability [is to] be addressed with a `healthy regard for the federal policy favoring arbitration,' with doubts regarding the scope of the agreement resolved in favor of arbitration." Id. (quoting Moses H. Cone [Memorial Hosp. v. Mercury Const. Corp.,] 460 U.S. [1] at 24-25, 103 S.Ct. [927] at 941 [, 74 L.Ed.2d 765 (1983)]). As to the more specific issue of whether there is a valid agreement to arbitrate, "`courts generally ... should apply ordinary state-law principles that govern the formation of contracts,'" Webb [v. Investacorp, Inc.,], 89 F.3d [252] at 257 [5th Cir.1996] (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 928, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995)), but in doing so, must give "due regard ... to the federal policy favoring arbitration," id. (quoting Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S.Ct. 1248, 1253-54, 103 L.Ed.2d 488 (1989)); McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 984 (5th Cir.1995) ("In construing an arbitration agreement within the scope of the FAA, `as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.'") (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)). At the same time, however, the court may grant relief to a party opposing arbitration where he presents "well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds `for the revocation of any contract,'" Mitsubishi Motors, 473 U.S. at 627, 105 S.Ct. 3346, 87 L.Ed.2d 444 (quoting 9 U.S.C. § 2); see also Bhatia, 818 F.2d at 421 ...