The mobile phone industry urged the U.S. Supreme Court to overturn a lower court ruling in which a California state law trumped the Federal Arbitration Act.
The high court, which agreed to review the case, Preston v. Ferrer, in late September, has nothing to do with wireless business, but instead is about employment law and deals with the reach and limits of the Federal Arbitration Act and thus has the attention of cellular carriers because of their widespread inclusion of arbitration clauses in service contracts and legal attacks on their enforceability.
“CTIA is concerned about efforts by California and other states to deem certain disputes or claims to be non-arbitrable,” the cellphone industry association stated in a friend-of-the-court brief. “Accordingly, CTIA has a strong interest in urging this court to make clear once and for all that only Congress, not the states, may exempt claims from the Federal Arbitration Act or impose preconditions to the enforcement of agreements to arbitrate disputes.”
Wireless stakes
The arbitration controversy has more than just a passing interest for the cellular industry. It hits home for wireless carriers.
The Washington Supreme Court in July struck down AT&T Mobility’s arbitration clause in a consumer class action lawsuit. Plaintiffs alleged Cingular Wireless L.L.C., which is now part of AT&T Mobility, overcharged consumers up to $40 per month by unlawfully adding roaming and hidden charges. The trial court ruled in favor of the wireless operator, pointing to an arbitration clause provision banning class action litigation. The plaintiffs argued the class action waiver was unconscionable and unenforceable, an argument with which the Washington Supreme Court ultimately agreed.
The state’s high court concluded that “the class action waiver is unconscionable because it effectively denies large numbers of consumers the protection of Washington’s Consumer Protection Act . because it effectively exculpates Cingular from liability for a whole class of wrongful conduct. It is, therefore, unenforceable. Since the arbitration clause itself provides that if any part is found unenforceable, the entire clause shall be void, there is no basis to compel arbitration.”
AT&T Mobility pointed out the decision addressed only the arbitration clause dispute, not the merits of the case.
“We continue to believe that a consumer is better off pursuing a claim under our arbitration clause, rather than pursuing a class action,” said Walt Sharp, an AT&T Mobility spokesman, at the time. “In fact, a year ago, we changed our arbitration clause to make it even more consumer friendly. Our current arbitration clause calls for the company-if it does not settle a consumer complaint and loses arbitration-to pay the greater of amount of either the arbitration or the state’s statutory definition of a small claim. Also, if the consumer has used a lawyer in winning an arbitration case, the company would pay two times the lawyer’s fee. In addition, we pay the entire costs of the arbitration.”
History in California
AT&T Mobility and T-Mobile USA Inc. have faced adverse legal rulings in arbitration cases in California state courts in recent years.
“The premise of the California courts that states may nonetheless make a dispute or claim non-arbitrable whenever they decide that arbitration is ‘inherently inconsistent’ with the achievement of the purposes of the statute is simply wrong,” CTIA told the U.S. Supreme Court in the employment law case. “This court has said that Congress may make that judgment, but it turns the supremacy clause on its head to suggest that states may do so.”
CTIA views the case as having broader implications if the high court decides to give deference to the FAA.
“What’s fascinating is that the wireless companies have lost a slew of arbitration decisions in California and across the country but have not asked the Supreme Court to review those,” said Harvey Rosenfield, founder of the San Francisco-based Foundation for Taxpayer and Consumer Rights. “Rather they are jumping into an employment contract case with a screed against the California courts in the hopes that the Supreme Court will issue a decision that kills state law protections and shoves one-sided kangaroo court arbitration down the throats of cellular consumers everywhere”.
The Supreme Court is scheduled to hear oral argument Jan. 14.
