An arbitrator certified a class-action lawsuit against Verizon Wireless that potentially could cost the No. 2 cellphone carrier close to $1 billion in refunds of early termination fees.
“I find the claimants have complied with the criteria for class certification,” wrote Eugene I. Farber, a former federal judge and senior arbitrator-mediator for the American Arbitration Association in White Plains, N.Y. “My decision is also motivated by my conclusion that as a matter of equity and fairness, millions of class members are entitled to adjudication of the central common questions of fact or law in this arbitration related to whether the $175 early termination fee imposed by respondents Cellco Partnership d/b/a Verizon Wireless . is based upon an unenforceable liquidated damage clause.”
A trial date has not been set, but could begin by the middle or latter part of this year.
“This ruling is a tremendous victory for Verizon Wireless subscribers,” said Scott Bursor, counsel for the plaintiffs. “After four years of extremely hard-fought litigation in several courts and in arbitration, this ruling ensures that Verizon customers who have been charged illegal early termination fees will have an opportunity to prove their claims on a class-wide basis and to seek a refund of nearly a billion dollars worth of illegal charges.”
Largest certified class-action
Bursor said Farber’s 35-page ruling to certify the class action has historical significance. “It is the largest class ever certified in arbitration, with approximately 70 million members of the subscriber class,” he said. “It is also the largest class ever certified on a contested motion in any type of forum, litigation or arbitration.”
A Verizon Wireless spokesperson declined to comment because the arbitration remains pending. Verizon Wireless is believed to have challenged Farber’s ruling in federal appeals court. However, it is unclear whether the arbitrator’s action – a legal setback for Verizon Wireless, but not a final decision on the merits of the case itself – can be appealed as a legal matter.
In 2006, Verizon Wireless announced a new policy to prorate ETFs. T-Mobile USA Inc., Sprint Nextel Corp. and AT&T Mobility subsequently announced similar ETF policy changes last year. Senate legislation co-sponsored by Sens. Amy Klobuchar (D-Minn.) and Jay Rockefeller (D-W.Va.) would mandate prorated ETFs for the entire cellular industry.
A leading consumer advocate has called on mobile-phone carriers to follow through.
“These companies have an obligation to tell consumers how they plan to make good on these promises, in unambiguous, detailed terms. We have more than a few reasons to be skeptical,” said Chris Murray, senior counsel for Consumers Union.
Consumers Union said consumers likely want answers to such questions as whether promised ETF reductions will apply to existing customers or just new ones; whether companies will truly prorate their ETFs, or simply reduce them a little each month, leaving a big fee at the end of the contract; whether cable and phone companies will be charging new ETFs for services such as high-speed Internet and cable television; and how will companies handle ETFs and pricing for people who bring their own phones.
History of lawsuits
ETFs have triggered a slew of lawsuits against mobile carriers in recent years.
AT&T Inc., owner of the nation’s largest mobile-phone carrier, last year agreed pay more than $30 million and withdraw a U.S. Supreme Court challenge to end a highly controversial, seven-year-old case at the California Public Utilities Commission.
In addition to the record $12.14 million fine levied by the CPUC in 2004 and later upheld by state courts, AT&T agreed to refund consumers approximately $18.5 million in ETFs collected from former customers from January 2000 through April 2002. AT&T also consented to contracting with an independent claims administrator to review claims for refunds of additional ETFs paid by former customers to AT&T wireless agents for which records of payment no longer exist. ETFs – charged to subscribers who break service contracts – typically range between $150 and $200 per line.
National cellular association CTIA petitioned the Federal Communications Commission in 2005 to declare ETFs part of the wireless rate structure and therefore pre-empted by federal law. FCC Chairman Kevin Martin has signaled he will not grant CTIA’s petition, but plans to hold one or more hearings on the imposition of penalty fees in a variety of communications sectors.
