Opinion
CASE NO. SACV 03-130 DOC (ANx)
April 18, 2003
ORDER (1)DENYING PLAINTIFFS' MOTION TO REMAND; AND (2) GRANTING DEFENDANT'S MOTION TO STAY ACTION AND COMPEL ARBITRATION
Before the Court is (1) Plaintiffs Bruce Gatton and Richard Samko's motion to remand to Superior Court for the State of California for the County of Orange, and (2) Defendant T-Mobile USA, Inc.'s (T-Mobile) motion to dismiss and/or stay proceedings and compel arbitration. After reviewing the moving, opposing and replying papers, and after oral argument on March 10, 2003 and April 7, 2003, and for the reasons set forth below, the Court DENIES Plaintiffs' motion to remand and GRANTS T-Mobile's motion to stay the action and compel arbitration.
I. BACKGROUND
Plaintiffs in this case are T-Mobile wireless subscribers. T-Mobile is a provider or wireless telephone service. As part of its business practices, T-Mobile requires prospective subscribers to sign a standard Customer Service Agreement (CSA). As part of the CSA, any claim or dispute between a subscriber and T-Mobile is subject to mandatory arbitration.
The provision in question is the third paragraph out of twenty-five paragraphs set forth in the "T-Mobile Terms and Conditions" portion of the CSA. The terms and conditions begins at the second page of the CSA. The provision is entitled, in bold "Mandatory Arbitration; Dispute Resolution." Approximately half of the provision is set forth in capital letters.
Under the provision, the signatory to the CSA agrees that: (1) virtually any claim or dispute between the subscriber and T-Mobile will be submitted to binding arbitration with the American Arbitration Association (AAA), pursuant to AAA wireless industry rules; (2) the arbitration will be subject to a choice of law provision; (3) representative or consolidated actions, including class actions, are not permitted; (4) no lost profits, punitive, incidental or consequential damages, other than the prevailing party's direct damages, may be awarded; (5) the expenses of arbitration will be split by the parties, unless the claim is less than $1000.00, in which case the subscriber pays either $25.00 or nothing; (6) each party will pay the fees and costs of its own counsel, experts and witnesses; (6) the signatory waives "disclaimed damages," jury trial, or participation in a class action even if the clause is deemed inapplicable.
Plaintiffs brought this action in Orange County Superior Court on December 18, 2002. T-Mobile subsequently removed the case to this Court on February 6, 2003, T-Mobile now moves for dismissal or stay of Plaintiffs' case and an order compelling Plaintiffs to arbitrate their claims under the terms of the Agreement. Plaintiffs concurrently move to remand the case to state court. II. DISCUSSION
A. Removal and Subject Matter Jurisdiction
The FAA provides both federal and state courts with the power to compel arbitration. See Southland Corp. v. Keating, 465 U.S. 1, 15, 104 S.Ct. 852, 860-61 (1984). The FAA does not, however, provide an independent basis for federal jurisdiction. Id. As a result, an independent basis for jurisdiction in federal court must be established to enforce arbitration provisions generally. Id. Accordingly, the Court must determine that the action was properly removed — i.e. that the Court has subject matter jurisdiction to hear the matter — before considering T-Mobile's motion to compel arbitration.
Under the well pleaded complaint rule, the plaintiff is the master of the complaint, free to avoid federal jurisdiction through pleading only state law claims even though a federal claim may also be available. See Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S. Ct 2425, 2429-30 (1987). Removal to federal court of an action brought in state court is only proper if the case could have originally been brought in federal court. See 28 U.S.C. § 1441 (a). There is a strong presumption against removal jurisdiction. See Glaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). An action improperly removed to federal court may be remanded to state court "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction." 28 U.S.C. § 1447(c). The party seeking removal of the action bears the burden of establishing federal subject matter jurisdiction over the action. See Emrich v. Touche Ross Co., 846 F.2d 1190, 1195 (9th Cir. 1988). In the present case, T-Mobile contends that the Court has federal subject matter jurisdiction based on both federal question and diversity jurisdiction.
1. Diversity Jurisdiction
T-Mobile argues that the Court has subject matter jurisdiction based on diversity of citizenship and an amount in controversy greater than $75,000.00. See 28 U.S.C. § 1332. Neither Plaintiffs nor T-Mobile dispute that there is complete diversity of citizenship between the parties. Plaintiffs contend, however, that because the claims asserted in the complaint do not satisfy the $75,000.00 amount in controversy requirement, the Court does not have jurisdiction based on diversity.
Plaintiffs' complaint seeks both damages and injunctive relief. The monetary relief requested by each Plaintiffs is less than $10,000. T-Mobile argues, however, that the injunctive relief sought makes the value of the relief sought greater than the $75,000.00 jurisdictional minimum. Specifically, T-Mobile contends that the equitable relief requested by Plaintiffs would result in: (1) rewriting the CSA; (2) printing copies of the new CSA; and (3) mailing copies of the new CSA to customers. (Gray Decl ¶ 5(a)-(c).) According to T-Mobile, such an effort would costs hundreds of thousands of dollars. Id.
While the Court does not doubt that the expense to T-Mobile in rewriting the CSA, printing new copies of the CSA and mailing those copies to customers would exceed $75,000.00, T-Mobile has not addressed with any specificity why each of those measures would be required, nor how much the activity would cost, except for the statement that the cost would be in the hundreds of thousands of dollars. This can hardly satisfy T-Mobile's burden of proof, especially where Plaintiffs' claims for damages are so far below the amount in controversy requirement.
There is a strong presumption that the plaintiff has not claimed a large amount in order to confer jurisdiction on a federal court or that the parties have colluded to that end. Glaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam), As the party asserting diversity jurisdiction, T-Mobile bears the burden of establishing that the amount in controversy requirement is met. See In re Ford Motor Co/Citibank (South Dakota), N.A., Cardholder Rebate Program Litigation, 264 F.3d 952, 957 (9th Cir. 2001) (citing Sanchez v. Monumental Life Ins. Ca, 102 F.3d 398, 404 (9th Cir. 1996)). In the Ninth Circuit, the court should look to the value of the right asserted by the plaintiff in determining whether the jurisdictional minimum is satisfied. See Snow v. Ford Motor Co., 561 F.2d 787, 788 (9th Cir. 1977); Ridder Bros., Inc. v. Blethen, 142 F.2d 395, 398-99 (9th Cir. 1944). According to this proposition, T-Mobile contends that the injunctive relief sought necessarily carries the present action across the amount in jurisdiction threshold.
T-Mobile relies on the distinction between class actions and non-class actions as the basis for its amount in controversy argument, According to T-Mobile, the amount in controversy requirement is satisfied if the cost to the T-Mobile of the equitable relief sought in a non-class action exceeds $75,000.00. Two recent pronouncements from the Ninth Circuit, both class actions, analyze this interplay.
In Kanter v. Warner-Lambert Co., 265 F.3d 853 (9th Cir. 2001), a group of plaintiffs brought a state court class action against the manufacturer of head lice remedies that the plaintiffs alleged were ineffective. Id. at 855. The defendant removed the case to federal court on the basis of diversity jurisdiction, but the district court remanded the case to state court, holding that the amount in controversy requirement was not met. Id. at 856. The Kanter court held that it would be inappropriate to include the cost of plaintiffs' proposed injunctive relief, which would prohibit the defendant from advertising and selling a defective product, in evaluating whether the plaintiffs' claims exceeded the amount in controversy requirement. Id. at 861. In reaching its conclusion, the Kanter court focused on the "nature of the right asserted," explaining that it would be "reluctant to allow a request for injunctive relief to provide the basis for federal jurisdiction in a case, such as this one, where that relief does not appear to be the primary object of the litigation." Id. at 860. While cognizant that proposed injunction was a component of the relief sought, the Kanter court focused on the monetary damages as the "essential goal" of the plaintiffs in the litigation. Id.
Similarly, in In re Ford Motor Co./Citibank, 264 F.3d at 952, defendants to a class action seeking, among other things, injunctive relief, argued that the costs of compliance with the proposed injunction established the amount in controversy for diversity purposes. Id. at 958. The In re Ford Motor Co./Citibank court concluded that the administrative costs of compliance with the proposed injunction did not serve to establish that the amount in controversy requirement was satisfied. Id. at 960. More importantly, the Ninth Circuit noted that its holding would be the same whether the administrative costs of the injunctive relief were incurred in reference to one plaintiff or six million plaintiffs. Id. The rationale for this non-distinction is compelling:
"It is fundamentally violative of the principle underlying the jurisdictional amount requirement — to keep small diversity suits out of federal court. If the argument were accepted, and the administrative costs of complying with an injunction were permitted to count as the amount in controversy, then every case, however trivial, against a large company would cross the threshold. It would be an invitation to file state-law nuisance suits in federal court."Id. (internal citations omitted).
Although In re Ford Motor Co./Citibank was a class action, the rule against counting administrative costs of an injunction toward the amount in controversy requirement "should apply to all multi-party complaints," Id. at 958. The Ninth Circuit has demonstrated in both Kanter and In re Ford Motor Co./Citibank that the administrative costs of complying with a claim for injunctive relief that accompanies other claims for monetary relief should not provide the basis upon which removal is allowed. If the Court were to accept T-Mobile's logic, virtually no plaintiff, whether individually or part of a multi-party complaint, could bring an action for injunctive relief against a large corporation in state court because the administrative costs of compliance — here, printing and mailing — would necessarily cross the $75,000.00 threshold. While the principle in Ridder that a court should look at the value of the right asserted certainly remains valid, it can hardly be maintained that such a rule was intended to effectively provide "safe harbor" for large corporations from suits in state court simply because it would cost them more to comply with a proposed injunction due to their size.
Accordingly, the amount in controversy requirement is not met in the present case, and, therefore, the Court lacks subject matter jurisdiction based on diversity jurisdiction.
2. Preemption and Artful Pleading
T-Mobile also argues that the Court has subject matter jurisdiction based on federal question jurisdiction. T-Mobile makes two arguments in support of this assertion. First, T-Mobile contends that the Federal Communications Act (FCA) of 1934, 47 U.S.C. § 151 et seq., completely preempts state law regulation of the rates charged for the mobile service at issue in this case. Second, T-Mobile argues that the case may be removed under the artful pleading doctrine.
a. Complete Preemption
In certain limited areas, "Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Met. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1547 (1987). In such a case, removal from state court is proper despite the plaintiffs intention to avoid federal jurisdiction by pleading only state law claims. See Bastien v. ATT Wireless Services, Inc., 205 F.3d 983, 986 (7th Cir. 2000). Complete preemption is thus a judicially crafted 'independent corollary' to the well-pleaded complaint rule. TPS Utilicom Services, Inc. v. ATT Corp., 223 F.2d 1089, 1097 (C.D. Cal. 2002). In situations where federal statutory or common law "so utterly dominates a preempted field that all claims brought within that field arise under federal law, a complaint purporting to raise state law claims in that field actually raises federal claims. Therefore, the well pleaded complaint is satisfied, and removal is proper." Marcus v. ATT Corp., 138 F.3d 46, 52 (2d Cir. 1998).
The "touchstone of the federal district court's removal jurisdiction is . . . the intent of Congress." Met. Life, 481 U.S. at 66, 107 S, Ct. at 1548. According to the Ninth Circuit, complete preemption is proper when the federal law in question (1) conflicts with state law (conflict preemption); and (2) provides remedies that displace state law remedies (displacement). Botsford v. Blue Cross Blue Shield, 314 F.3d 390, 393 (9th Cir. 2002), as amended, 319 F.3d 1078 (9th Cir. 2003). The complete preemption doctrine is, however, extremely narrow. TPS Utilicom, 223 F.2d. at 1097. The doctrine's limited applicability is evidenced by the fact that only three areas have been deemed areas of complete preemption by the United States Supreme Court: (1) claims under the Labor Management Relations Act, see Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557, 561-62, 88 S.Ct. 1235, 1237-38 (1968); (2) claims under the Employment Retirement and Insurance Security Act (ERISA), see Met. Life, 481 U.S. at 66-67, 107 S.Ct. at 1547-48; and (3) certain Indian land grant rights, see Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666-67, 94 S.Ct. 772, 776-77 (1974).
The FCA provides that "no 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). In addition, the savings clause to the FCA states: "[n]othing in this chapter shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies." 47 U.S.C. § 414.
The Seventh Circuit, in Bastien, concentrated on the plain language of the statute in concluding that the clause completely preempted the regulation of rates, thereby allowing removal to federal court. 205 F.3d at 987 ("This clause completely preempted the regulation of rates"). On the other hand, the Second Circuit reached a contrary conclusion. See Marcus v. ATT Corp., 138 F.3d 46, 53 (2d Cir. 1998) (the "mere fact that the [FCA] governs certain aspects of [ATT's] billing relationships with its customers does not mean that [the appellants'] claims arise under the Act") (quoting Nordlicht v. A New York Tel. Co., 799 F.2d 859, 861 (2d Cir. 1986).
T-Mobile's argument for complete preemption relies heavily on Bastien. T-Mobile also relies on the Ninth Circuit's holding in ATT Corp. v. Coeur d'Alene Tribe, 295 F.3d 899 (9th Cir. 2002), as establishing displacement remedies under 47 U.S.C. § 332, which is part of Subchapter III of the FCA. The Coeur d'Alene court considered whether a tribal court had jurisdiction to hear a suit brought under Subchapter II of the FCA. Id. at 904-905. In holding that Congress vested exclusive jurisdiction in the federal courts and the Federal Communications Commission for suits against common carriers under Subchapter II of the FCA the Ninth Circuit stated that 47 U.S.C. § 207 "establishes concurrent jurisdiction in the FCC and federal district courts only, leaving no room for adjudication in any other forum — be it state, tribal or otherwise." Id. at 905.
47 U.S.C. § 207 provides that "[a]ny person claiming to be damaged by any common carrier subject to the provisions of this chapter may either make complaint to the Commission as hereinafter provided for or may bring suit for the recovery of the damages for which such common carrier may be liable under the provisions of this chapter, in any district court of the United States of competent jurisdiction; but such person shall not have the right to pursue both such remedies."
While the Ninth Circuit has not addressed whether the FCA completely preempts state claims, this Court has previously held, after examining both Bastien and Marcus, along with other district court opinions, that the FCA does not provide complete preemption. TPS Utilicom, 223 F.2d at 1100. Although section 207 establishes jurisdiction to enforce claims under the FCA brought against common carriers, the Court does not find congressional intent to create removal jurisdiction under the FCA, Several factors lead to the Court to its conclusion.
As an initial matter, the Court must proceed cautiously in determining whether an entire area of the law is completely preempted in light of the extremely limited circumstances under which courts have previously applied the doctrine. Second, the preemptive effect of Section 332 is limited to certain state law causes of action. In TPS Utilicom, this Court determined that section 332(c)(3)(A) is limited in its preemptive reach to choice of law rather than removal jurisdiction. Id. Although contrary to the Bastien court's holding that the plain language of the preemption clause triggers complete preemption, the TPS Utilicom court did not share as expansive a view of the FCA. Id. Instead, the court held that the intent of Congress was not so clearly stated as to support an intent to confer complete preemption. Id. "The language that 'no state or local government shall have any authority to regulate the entry of or the rates charged,' 47 U.S.C. § 332(c)(3)(A) (emphasis added), only supports the proposition that the FCA preempts state claims within the scope of this provision." Id.
In addition, the savings clause of 47 U.S.C. § 414 does not evidence congressional intent to create removal jurisdiction. "The FCA not only does not manifest a clear Congressional intent to preempt state law actions prohibiting deceptive business practices, false advertisement, or common law fraud, it evidences Congress's intent to allow such claims to proceed under state law." Marcus, 138 F.3d at 54. Neither the Labor Management Relations Act nor ERISA, two other areas where the federal courts have found an area of law completely preempted, contain a savings clause similar to the FCA. Several district courts have found this situation persuasive, if not determinative. See TPS Utilicom, 223 F.2d at 1099; Bryceland v. ATT Corp., 122 F. Supp.2d 703, 709 (N.D. Tex. 2000); Aronson v. Sprint Spectrum, LP., 90 F. Supp.2d 662, 668 (W.D. Pa. 2000). As congressional intent is the "touchstone" of the federal district courts' removal jurisdiction, removal jurisdiction cannot lie where clear evidence of such intent is lacking. Met Life, 481 U.S. at 66, 107 S.Ct. at 1548.
Faced with a seeming lack of congressional intent, the existence of a savings clause, no definitive pronouncement on the issue from the Ninth Circuit, and considering the limited and narrow areas in which state law is deemed completely preempted, complete preemption based on the FCA does not provide the Court with subject matter jurisdiction over the present case.
b. Artful Pleading
T-Mobile argues alternatively that the Court has subject matter jurisdiction because Plaintiffs' state law claims are in reality artfully pled federal claims. The artful pleading doctrine is an outgrowth of the well-pleaded complaint rule. Sullivan v. First Affiliated Securities. Inc., 813 F.2d 1368, 1372, cert. denied, 484 U.S. 850, 108 S.Ct. 150 (1987). "[A]lthough the plaintiff is master of the complaint and may rely on either federal or state law to define his or her cause of action, and thereby control the forum for the complaint's adjudication, it is also an accepted rule that 'the plaintiff cannot defeat removal by masking or 'artfully pleading' a federal claim as a state claim.'" Ethridge v. Harbor House Restaurant, 861 F.2d 1389, 1403 (9th Cir. 1988) (quoting Sullivan, 813 F.2d at 1372). "Under the artful pleading doctrine, a plaintiff may not avoid federal jurisdiction by 'omitting from the complaint federal law essential to his claim, or by casting in state law terms a claim that can be made only under federal law.'" Rains v. Criterion Systems, Inc., 80 F.3d 339, 344 (9th Cir. 1996) (citing Olguin v. Inspiration Consol Copper Co., 740 F.2d 1468, 1472 (9th Cir. 1984)). A federal court may therefore recharacterize an artfully pleaded state claim as a federal claim. Id. The artful pleading doctrine does not, however, allow a defendant to rewrite a plaintiffs properly pled state law claim in order to remove it to federal court. Id.
According to T-Mobile, Plaintiffs' claims challenge T-Mobile's rates and therefore arise under 47 U.S.C. § 201(b) and 207, and necessarily cannot be properly brought under state law. Plaintiffs' complaint alleges that certain provisions of the "Terms and Conditions" agreement, which the customer signs when purchasing a T-Mobile telephone and service plan, constitute unlawful business practices. Specifically, Plaintiffs allege in their first cause of action that several of the following clauses set forth in the Terms and Conditions are unlawful or unconscionable: (1) paragraph 3 because it compels mandatory arbitration of claims, precludes class action or representative lawsuits, includes a waiver of damages, (including punitive damages), and includes a waiver of jury trial; (2) paragraph 15 in its limitations on liability and limitation of remedy; (3) paragraph 16 concerning indemnification; (4) paragraph 22 regarding the one year statute of limitations; (5) paragraph 7 concerning the $200.00 contract cancellation fee; (6) paragraph 14 because it requires the waiver of any implied warrant regarding the telephone unit. Plaintiffs complaint also seeks to enjoin T-Mobile from enforcing the CSA as to the provisions Plaintiffs deem unlawful or unconscionable, as well as requesting restitution and disgorgement of ill-gotten profits and rescission of Plaintiffs agreements with T-Mobiles. (Compl. ¶ 18.)
Plaintiffs' second cause of action alleges unfair business practices concerning the T-Mobile Terms and Conditions agreement. Plaintiffs specifically complain about paragraph 11, which allows T-Mobile to keep any security balance of $5.00 or less; paragraph 4, which allows T-Mobile to modify the CSA through sending out notice to subscribers; paragraph 12, whereby any minutes purchased but not used in a particular billing period expire at the end of that billing period; and delayed billing practices. (Compl. ¶ 28.) Plaintiffs also seek to enjoin the practices set forth in their second cause of action, as well as restitution of monies obtained and restoration of unused minutes. Finally, Plaintiffs' third cause of action alleges false and deceptive advertising based on T-Mobile's marketing of plans containing the Terms and Conditions Plaintiffs allege are unlawful or unconscionable.
Thus, the Court must determine whether the gravamen of Plaintiffs' complaint is a challenge merely to the Terms and Conditions of the CSA, or a challenge to T-Mobile "rates." T-Mobile argues that challenges to rates are explicitly preempted by section 332 of the FCA. See In re Comcast Cellular Telecomm. Litig., 949 F. Supp. 1193, 1200 (E.D. Pa. 1996), and therefore that Plaintiffs' claims are in reality federal claims under section 332, artfully pled under state law.
Plaintiffs' challenges to T-Mobile's advertising practices and the arbitration clause clearly do not implicate the "rates" charged to subscribers. See Crump v. Worldcom, Inc., 128 F. Supp.2d 549, 560 (W.D. Tenn. 2001); see also Esquivel v. Southwestern Bell Mobile Sys., Inc., 920 F. Supp. 713, 715 (S.D. Tex. 1996) (liquidated damages provision is a "term and condition" rather than a rate under section 332(c)(3)(A), and thus is not preempted). The closer question is whether Plaintiffs' claims relating to T-Mobile's billing practices actually constitute such a challenge. Plaintiffs' contend that because the minutes that are unused in a particular billing period expire if not used, they do not roll over for use in the next billing period. Plaintiffs also contest T-Mobile's so-called delayed billing practice, whereby minutes used in a particular month may be billed in a later month, potentially subjecting the subscriber to additional fees if the total minutes used exceed the plan's allotted monthly minutes.
Plaintiffs' example at oral argument was that if a subscriber paid $39.99 per month for 1000 minutes, but only actually used 800 minutes, the additional 200 minutes that the customer paid for would simply disappear.3United States District Court, C.D. California
Plaintiffs' example has a subscriber using all of his allotted 1000 minutes in September. However, the subscriber is not billed for 200 of those minutes in September, but instead is billed for those minutes in, for example, November. The result, according to Plaintiffs, is that the subscriber is forced to pay for extra air time if the 200 minutes puts him over the 1000 allotment for the month of November, even though the minutes had theoretically already been paid for in September.
In In re Comcast Cellular Telecomm. Litig., 949 F. Supp. 1193 (E.D. Pa. 1996), the plaintiff brought a state law complaint (1) challenging Comcast's practice of collecting fees from its subscribers for "non-connection" time, and (2) seeking restitution for Comcast's unjust enrichment stemming from the challenged billing practices. Id. at 1200. The Comcast court held that the claims presented clear and direct challenges to the reasonableness of Comcast's rates and billing practices, and thus were preempted by section 332 of the FCA. Id. In addition, the Comcast court examined the injunctive relief and restitution sought by the plaintiffs and determined that "the remedies sought by the Plaintiffs further demonstrate that the true gravamen behind their allegations is a challenge to Comcast's rates and the way in which they are applied. . . . the remedies [plaintiffs] seek would require a state court to engage in regulation of the rates charged by a CMRS provider, something it is explicitly prohibited from doing." ID, at 1201.
Unlike cases in which a plaintiff challenges only the disclosure of certain billing practices or other aspects of a telecom service provider that may have a "merely incidental" impact on rates, the present case requires the Court to assess the reasonableness of a billing factor. See Crump, 128 F. Supp.2d at 560; see also Fedor v. Cingular Wireless Corp., 2001 WL 1465813. *3 (N.D. Ill. 2001) (delayed billing challenged appropriateness of roaming fees and was therefore preempted under the artful pleading doctrine). Specifically, Plaintiffs ask the Court to, in effect, determine the reasonableness of T-Mobile's practice not to roll-over unused minutes to the next month. It is inescapable that this form of relief implicates the rates charged by T-Mobile for its cellular telephone service. Plaintiffs basically contend that they pay for 1000 minutes each month, but only receive 800 minutes. The rate paid by subscribers per month is inextricably intertwined with the allocation of minutes received for payment of that rate. There is simply no reasonable way to separate Plaintiffs' challenge to the number of minutes available per month for use and the rate paid for those minutes. There is little doubt that the relief sought by Plaintiffs — i.e. carrying over minutes from one month to the next — would change the way T-Mobile calculates its rates. The relief sought by Plaintiffs would therefore involve the state court in the business of regulating T-Mobile's rates, which Congress, through the FCA, has prohibited.
Plaintiffs claims concerning the arbitration provision, cancellation policies and advertising practices do not raise a federal question and are thus appropriate claims under state law. These claims do not concern T-Mobile's rates, but rather attack certain aspects of the agreement between subscriber and service provider. Nevertheless, Plaintiffs claims challenging the expiration of unused minutes and delayed billing practices are artfully pled federal claims that raise a federal question. Accordingly, it is proper to exercise jurisdiction over the state law claims under the Court's supplemental jurisdiction. 28 U.S.C. § 1367.
C. T-Mobile's Arbitration Provision
After finding that the Court has subject matter jurisdiction to hear the present case, the Court must now consider T-Mobile's motion to stay the present action.
1. Arbitration Generally
In cases governed by the Federal Arbitration Act (FAA) of 1947, federal courts are empowered to compel arbitration and to stay actions arising out of disputes that are subject to an arbitration agreement. 9 U.S.C. § 3. A party aggrieved by another party's failure to submit a dispute to arbitration may petition a district court for an order compelling arbitration. 9 U.S.C. § 4. "The Court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration. . . ." Id. Further, the Court should then stay all arbitrable claims. 9 U.S.C § 3 ("[U]pon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, [the court] shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement. . . .") (emphasis added). When a case includes both arbitrable and non-arbitrable claims, the district court has discretion either to stay all the claims or to stay only the arbitrable claims and proceed with the non-arbitrable claims. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 21 n. 23, 103 S.Ct. 927, 939 n. 23 (1983); United States for the Use Benefit of Newton v. Neumann Caribbean Int'l, Ltd., 750 F.2d 1422, 1426-27 (9th Cir. 1985).
There are some exceptions to arbitration. If the arbitration clause is not enforceable as a matter of contract law, or if no agreement to arbitrate was ever actually entered into, the dispute need not be sent to arbitration. In addition, the legislature may indicate that a statutory claim is not subject to arbitration. In the present case, Plaintiffs argue that the arbitration provision is unenforceable because it is an unconscionable, mandatory, and one-sided adhesion clause according to Armendariz v. Foundation Health Psychcare Servs., 99 Cal.Rptr.2d 745 (Cal 2000).
At oral argument on March 10, 2003, Plaintiffs represented to the Court that the AAA refused to arbitrate T-Mobile disputes because T-Mobile had not earlier complied with certain organizational policies concerning consumer claims. Plaintiff based his representation on a letter received from one Harry Hernandez, Jr. at AAA. T-Mobile has since produced a letter dated April 2, 2003 from the same Mr. Hernandez that AAA will administer T-Mobile claims.
An adhesion contract is "a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it." Neal v. State Farm Ins. Cos., 10 Cal.Rptr. 781, 784 (1961).
An adhesion contract is unconscionable when both procedural unconscionability, meaning surprise or distress stemming from unequal bargaining power, and substantive unconscionability, meaning overly harsh or one-sided terms, are present. See Armendariz, 99 Cal.Rptr.2d at 767. However, procedural and substantive unconscionability "need not be present in the same degree." Id. When great substantive unconscionability is presents less procedural unconscionabiiity is required before the agreement will be invalidated. See id.
1. Procedural Unconscionability
The arbitration clause contained in the Agreement was an adhesion contract, T-Mobile was in a position of superior bargaining strength, and Plaintiffs had to sign the agreement in order to obtain service from T-Mobile. Therefore, at least some element of procedural unconscionability is present in the Agreement. Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 784 (9th Cir. 2002); Lozano v. ATT Wireless, 216 F. Supp.2d 1071, 1075 (C.D. Cal. 2002).
Plaintiffs also contend that the elements of the provision are essentially unreadable, and the positioning of the provision on the Agreement, as well as the font used, make the provision nearly impossible to read, thus constituting a "surprise component." American Software, Inc. v. Ali, 54 Cal.Rptr.2d 477, 480 (Cal.Ct.App. 1996). The arbitration provision is set forth on the second of five pages in the Agreement, (Compl. Ex. A.) It is not, therefore, buried deep within a heap of paper or otherwise lengthy agreement. See Villa Milano Homeowners Ass'n v. II Davorge, 102 Cal.Rptr.2d 1, 7 (Cal Ct. App. 2000). Furthermore, the provision is the third of twenty-five terms, and the first two terms are rather short. (Compl. Ex. A.) Therefore, even if a subscriber read only the first few terms, they would read the arbitration provision. In addition, approximately half of the provision is set out in capital letters. Id. Of the twenty-five provisions in the Terms and Conditions section of the Agreement, only four contain capital lettering of any sort. Id. Contrary to Plaintiffs' assertion that the arbitration provision is hidden away and is too small to read, it is actually one of the most conspicuous terms in the entire Agreement.
Nonetheless, because the arbitration provision is the result of unequal bargaining power between the subscriber and T-Mobile, with no opportunity to negotiate the offending terms, the Court narrowly finds the provision procedurally unconscionable.
2. Substantive Unconscionability
Plaintiffs must also show that the arbitration provision is substantively unconscionable. Substantive unconscionability "traditionally involves contract terms that are so one-sided as to 'shock the conscience' or that impose harsh or oppressive terms." 24 Hour Fitness, Inc. v. Superior Court, 78 Cal.Rptr.2d 533, 541 (Cal Ct. App. 1998). In Stirlen v. Supercuts, Inc., for instance, the court found the arbitration clause in an adhesion contract to be substantively unconscionable because it relegated all employee claims to arbitration while allowing the employer to go to court, restricted the discovery available to the employee but not the employer and unilaterally deprived the employee of remedies. 60 Cal. Rptr, 2d 138, 151-52 (Cal.Ct.App. 1997). The California Supreme Court likewise found an arbitration provision substantively unconscionable for lack of mutuality and a restriction on the employee's remedies Armendariz, 99 Cal.Rptr.2d at 772.
Plaintiffs argue substantive unconscionability on several grounds. First, Plaintiffs contend that the arbitration provision is unconscionably unilateral because T-Mobile can assign certain claims against subscribers to a collection agency, who are not forced to arbitrate those claims. Here, T-Mobile itself is subject to the same arbitration terms as its subscribers. (Compl. Ex. A.) The only exception to mandatory arbitration is in the event a past due account is assigned to a collection agency. The Court does not agree that allowing such collection efforts by a collection agency is so one-sided as to "shock the conscience." Bischoff v. DircTV, Inc., 180 F. Supp.2d 1097, 1110 (C.D. Cal. 2002). The Court therefore finds no substantive unconscionability on that ground.
Second, the arbitration provision's limitation on damages, according to Plaintiffs, is substantively unconscionable. Plaintiffs do not provide support for the proposition that a limitation on punitive damages, standing alone, renders a contract substantively unconscionable See Lozano, 216 F. Supp.2d at 1075-76; Kinney v. United Health Care Serv., Inc., 83 Cal.Rptr.2d 348, 355 (Cal.Ct.App. 1999). The damages limitation, therefore, while not determinative, is among the group of factors that may contribute to a finding of unconscionability.
Third, Plaintiffs challenge the allocation of fees and administrative expenses between the parties. The arbitration provision provides that administrative expenses will be equally divided unless the claim is less than $1,000.00, whereby the subscriber's fees are capped at $25.00. (Compl. Ex. A.) If the claim is less than $25.00, the subscriber pays nothing. Plaintiff contends, however, that arbitration fees, regardless of T-Mobile's cap on administrative costs, are unconscionable because they may rise into the thousands of dollars. In addition to failing to address the speculative nature of the potential fees, Wireless Industry Arbitration Rules appear to cap consumer responsibility for arbitrator's fees in claims or counterclaims not exceeding $10,000.00 to a maximum of $125.00. (Def. Ex. A.) Thus, this does not appear to be a situation where, as Plaintiffs contend, thousands of dollars of fees and expenses are likely as a result of an arbitration, or where the parties are required to split the costs of the arbitrator's fees in an employment contract setting. See Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 894 (9th Cir. 2002); Armendariz, 99 Cal.Rptr.2d at 763-64. The fees, therefore, do not appear excessive, and do not render the arbitration provision substantively unconscionable.
Fourth, Plaintiffs challenge the Wireless Industry Arbitration Rules pertaining to discovery. According to Plaintiffs, no discovery is available for so-called "Fast Track" claims under $2,000.00. T-Mobile argues, apparently correctly, that the very rule relied on by Plaintiffs allows discovery when the arbitrator determines that "the demands of justice require it." (Franklin Depo., Ex. B at F-9.) Both parties in the present case are subject to the same limitations on discovery. Plaintiffs point to no authority establishing that a limitation on discovery is an independent ground for substantive unconscionability.
A limitation on discovery may work an injustice in certain situations, such as an employment contract situation, where an employee would necessarily need to substantiate a claim against an employer through obtaining discoverable information. See Ferguson, 298 F.3d at 786-87; Kinney, 83 Cal.Rptr.2d at 355. The present case, however, involves claims concerning subscriber agreements for wireless telephone service. The mutual discovery limitations imposed by the arbitration provision and the Wireless Industry Arbitration Rules no not appear in any way to prevent a subscriber from successfully bringing a claim. Arbitration clauses may properly limit discovery to less than a party might have obtained in court. Armendariz, 99 Cal Rptr.2d at 745. In addition, it is appropriate for an arbitrator to balance the need for simplicity, one of the chief reasons claims are arbitrated in the first place, against the need for discovery sufficient for a party to substantiate a claim. Ferguson, 298 F.3d at 787. The limitations on discovery, therefore, do not render the arbitration provision substantively unconscionable.
Finally, Plaintiffs argue that the prohibition on representative and class actions is unconscionably unilateral, since T-Mobile would never practically bring a class action against a subscriber. The Ninth Circuit recently spoke to this issue in Ting v. ATT, 2003 WL 292296 (9th Cir. 2003). In Ting, a residential long distance customer and a consumer group brought a class action against ATT asserting, among other things, that contract provisions precluding class actions against ATT were substantively unconscionable. Id. at 4-6, The Ting court held that a prohibition on representative or class actions in an adhesion contract violates the bilaterality requirement in all California arbitration agreements. Id. at *20.
T-Mobile argues that Plaintiffs do not have standing to challenge the arbitration provision on the basis of the class action prohibition because this action does not involve class claims. The Court does not agree. Under Ting and cases from this district, T-Mobile's standing argument would have merit if the arbitration provision merely limited class actions, as the two Plaintiffs bring this case on behalf of themselves individually and on behalf of the general public as a private attorney general, but not as a putative class action. See id.; see also Bischoff, 180 F. Supp. at 1108-09 (prohibition on class actions does not render clause substantively unconscionable); Lozano v. ATT Wireless, 216 F. Supp.2d 1071, 1075-76 (C.D. Cal. 2002) (same). However, the arbitration provision also bans the present claim, as Plaintiffs are "two or more individuals" whose claims are "determined in one proceeding." (Compl. Ex. A.) In addition, Plaintiffs bring their claims on behalf of the general public pursuant to California Business Professions Code section 17204. (Compl., ¶ L) Such claims are technically barred by the arbitration provisions ban on actions on behalf of potential claimants. (Compl Ex. A.)
Accordingly, under Ting, the portions of the arbitration provision concerning a plaintiff or plaintiffs acting on a consolidated or representative basis appear substantively unconscionable. However, rather than finding the entire provision substantively unconscionable and void, California law favors severance of the unconscionable terms from the rest of the contract. See Little v. Auto Stiegler, Inc., 2003 WL 548926, *5 (Cal. 2003). As this portion of the arbitration provision is easily severable, that term should be deleted, leaving the rest of the arbitration provision enforceable. Because the remainder of the arbitration clause is enforceable, the Court does not find that the clause as a whole is unenforceable.
3. Scope of the Provision
The Court must also determine whether Plaintiffs claims are within the scope of the arbitration provision. The arbitration provision encompasses "ANY CLAIM OR DISPUTE BETWEEN YOU AND US ARISING UNDER OR IN ANY WAY RELATED TO OR CONCERNING THE AGREEMENT, AND/OR OUR PROVISION TO YOU OF GOODS, SERVICE, OR UNITS SHALL BE SUBMITTED TO FINAL, BINDING ARBITRATION." (Compl. Ex, A.) This provision sufficiently covers plaintiffs claims. See Lozano, 216 F. Supp.2d at 1078. The Court therefore finds that Plaintiffs' claims are within the scope of the arbitration provision.
III. CONCLUSION
Accordingly, for the reasons set forth above, the Court DENIES Plaintiffs Bruce Gatton and Richard Samko's motion to remand this case to Orange County Superior Court and GRANTS Defendant T-Mobile's motion to stay the action and compel arbitration.
IT IS SO ORDERED.