Opinion
Civil Action No. 03-6604.
October 8, 2004
ORDER-MEMORANDUM
AND NOW, this eighth day of October, 2004, upon consideration of Defendants' "Amended Motion to Compel Arbitration" (Docket No. 21), all memoranda filed in response thereto, and the oral argument held on September 7, 2004, IT IS HEREBY ORDERED that said Motion is DENIED.
I. BACKGROUND
Plaintiffs, cable television services customers of Defendants in the Chicago and Philadelphia regions, have brought this antitrust suit pursuant Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The Amended Complaint alleges that Defendants Comcast Corporation, Comcast Holdings Corporation, Comcast Cable Communications, Inc., Comcast Cable Communications Holdings, Inc., and Comcast Cable Holdings, LLC (collectively "Comcast"), imposed horizontal market restraints in the cable television markets in the Chicago and Philadelphia regions. (Am. Compl. ¶ 4.) Comcast allegedly divided and allocated cable television markets in those regions through agreements with other cable providers to "swap" customers. Id. The Amended Complaint further alleges that Comcast monopolized, or attempted to monopolize, the markets for provision of cable service to consumers in those areas. (Id. ¶ 5.)
Comcast has moved the Court for an order requiring Plaintiffs to submit their claims to arbitration and staying this proceeding until the completion of that arbitration. Comcast contends that Plaintiffs' claims are subject to arbitration agreements entered into between Plaintiffs and Comcast. Comcast relies on two form arbitration agreements, one of which applies to its customers in the Philadelphia region, and one of which applies to its customers in the Chicago region.
According to Comcast, Plaintiffs in the Philadelphia region are bound by an arbitration clause which Comcast incorporated in pre-printed Work Order forms beginning in December 2001. This form Work Order purported to amend all prior customer subscription contracts and was phased in throughout the Philadelphia region over a period of 60 or 90 days. (09/02/2004 Tr. at 28.) It is Comcast's policy to distribute form Work Orders to its customers during each work visit which requires a Comcast technician to access the customer's residence. Comcast contends that all Comcast customers who received work visits at their residences after December 2001 would have received these new form Work Orders and are, therefore, bound by their arbitration clause. The arbitration clause provides as follows: " MANDATORY AND BINDING ARBITRATION — EXCEPT AS PROVIDED BELOW, ANY CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SERVICES PROVIDED UNDER THIS AGREEMENT, SHALL BE SETTLED BY ARBITRATION". (Work Order, Defs.' Mem. Exhibit 5(A) ¶ 13, emphasis in original.) Five of the six Philadelphia area Plaintiffs received work visits at their homes between December 2001 and December 8, 2003, and on those occasions allegedly were given, and consented to, the arbitration clauses on the back of the form Work Orders. (Defs.' Mem. at 11-12.)
In connection with Plaintiffs in the Chicago region, Comcast seeks to enforce an arbitration clause included in a booklet entitled "Policies Practices — Notice to Customers Regarding Policies, Complaint Procedures Dispute Resolution" (hereinafter "2002/2003 Policies Practices"). This document purported to amend Comcast's subscription agreements with its customers and was allegedly sent to all Comcast subscribers in the Chicago area with their monthly bills for November in both 2002 and 2003. (Funch. Decl. ¶ 4.) The 2002/2003 Policies Practices provides in relevant part as follows: " 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." (2002/2003 Policies Practices at 10, emphasis in original.)
II. DISCUSSION
Comcast contends that this Court must enforce the arbitration agreements pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16. Section 2 of the FAA provides that:
[A] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.9 U.S.C. § 2. The FAA also provides that, upon application by a party aggrieved by the failure to arbitrate a controversy under the arbitration clause, the court must "stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. Before a reluctant party can be compelled to arbitrate, however, the court must "engage in a limited review to ensure that the dispute is arbitrable — i.e., that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement." PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990).
The relationship between Comcast and its cable subscribers is governed by the regulations promulgated to implement the Cable Television and Consumer Protection and Competition Act of 1992 (the "Cable Act"). See 47 U.S.C. § 552(b); 47 C.F.R. §§ 76.1-76.1909. Those regulations provide, in relevant part, as follows:
Customers will be notified of any changes in rates, programming services or channel positions as soon as possible in writing. Notice must be given to subscribers a minimum of thirty (30) days in advance of such changes if the change is within the control of the cable operator. In addition, the cable operator shall notify subscribers 30 days in advance of any significant changes in the other information required by § 76.1602.47 C.F.R. § 76.1603(b). Section 76.1602 provides that: "[T]he cable operator shall provide written information on each of the following areas at the time of installation of service, at least annually to all subscribers, and at any time upon request: . . . (2) Prices and options for programming services and conditions of subscription to programming and other services." 47 C.F.R. § 76.1602 (emphasis added).
The purpose of the notice requirement is "to ensure that consumers have sufficient warning about rate and service changes so they can choose to disconnect their service prior to the implementation of the changes." H.R. Rep. No. 104-204, at 112 (1995), reprinted in 1996 U.S.C.C.A.N. 10, 79 (emphasis added). While cable companies were given wide discretion to provide notice by any reasonable means, the requirement that such notice be given 30 days before any change is implemented was deemed critical to achieving the purpose of the regulation. Id.
It is undisputed that the Cable Act regulations apply to the present controversy. Accordingly, Comcast was required to give Plaintiffs 30 days notice of any significant change to their conditions of subscription in order for those contractual amendments to validly take effect.
Comcast contends that Plaintiffs Caroline Cutler, Marc Dambrosio, Stanford Glaberson, Kenneth Saffren and Barbi Weinberg, all of whom reside in the Philadelphia region, are bound by the arbitration clause incorporated in the preprinted Work Order forms used by Comcast which were initially distributed December 2001. The uncontested record, however, establishes that none of the Philadelphia region Plaintiffs received 30 days prior notice that Comcast was amending their subscription agreements to require the arbitration of disputes. Indeed, Comcast admits that no such notice was given. (See Gribschaw Dep. at 128.) By abolishing the parties' rights to have their disputes heard in a court of law, this amendment constituted a "significant change to the conditions of subscription" under 47 C.F.R. § 76.1603(b). Consequently, Comcast's attempt to amend the subscription agreements of the six Philadelphia region Plaintiffs to include an arbitration agreement without giving 30 days notice violates § 76.1603(b).
Comcast seeks to compel the arbitration of Philadelphia Plaintiff Marc Dambrosio's claims based on arbitration clauses contained in Work Order forms given to Mr. Dambrosio in 2004, after this lawsuit was filed. These clauses are not enforceable in the present action unless Comcast can establish 1) that the clauses either did not significantly change Dambrosio's original subscription agreement, or that Comcast gave him 30 days prior notice; and 2)that the parties intended the arbitration clause to apply retroactively to the present dispute. The record is devoid of any such evidence. See McNulty v. HR Block, Inc., 843 A.2d 1267, 1272 (Pa.Super. 2004) (scope of arbitration agreement is determined by surrounding circumstances as well as parties' circumstances and objectives at the time the contract was made.) Accordingly, the Court finds that Comcast and Mr. Dambrosio have not entered into an enforceable arbitration agreement.
Comcast argues that its failure to comply with the notice provision of the regulations is irrelevant in the instant matter, as suit was filed more than 30 days after the Plaintiffs would have received the Work Orders containing the arbitration clause. The notice provision of § 76.1603(b) was, however, introduced for the sole purpose of allowing consumers to opt out of continuing service before changes to their subscription agreements take place. H.R. Rep. No. 104 at 112, reprinted in 1996 U.S.C.C.A.N. 10, 79. By failing to give notice of the proposed changes, Comcast deprived Plaintiffs of any opportunity to withdraw from continuing service prior to the changes taking effect.
Contractual provisions that violate judicially announced or legislatively drafted public policy are void and unenforceable. See American Ass'n of Meat Processors v. Casualty, 588 A.2d 491, 495 (Pa. 1991) ("an agreement which violates a provision of a statute . . . is illegal and void"); Fed. Land Bank of St. Louis v. Walker, 571 N.E.2d 242, 244 (Ill.App.Ct. 1991) (contracts are illegal and unenforceable if outlawed by Congress); Pryor v. Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 569 (3d Cir. 2002) (contract term that violates public policy is void and unenforceable). Accordingly, the Court finds that the Philadelphia region arbitration clauses are unenforceable as to Plaintiffs Caroline Cutler, Marc Dambrosio, Stanford Glaberson, Kenneth Saffren and Barbi Weinberg.
Comcast also contends that Chicago Plaintiffs Eric Brislawn, Joan Evanchuk-Kind, Michael Kellman, and Lawrence Rudman are bound by the arbitration clause that appears in the 2002/2003 Policies Practices (the "2002/2003 clause"). It is, however, undisputed that Comcast did not give 30 days prior notice of the amendment adding the 2002/2003 clause to the Chicago Plaintiffs' cable services subscription agreements. Defendants argue that such notice was not necessary, as an arbitration clause was first added to the subscriber agreements in a 2001 Policies Practices booklet. In accordance with the Cable Act regulations, this booklet gave all customers 30 days notice of the changes and their effective date.
Comcast, however, does not seek to enforce the 2001 arbitration clause; it has moved solely to compel arbitration based on the 2002/2003 clause. As discussed above, Comcast was required under the applicable regulations to give its customers 30 days prior notice of "significant changes" to their conditions to subscription. See 47 C.F.R. § 76.1603(b). Comcast was thus required to provide 30 days prior notice of the new arbitration clause in the 2002/2003 Policies Practices unless that clause was not significantly different from the 2001 arbitration clause.
The 2001 arbitration clause differs from the 2002/2003 clause in several respects. The 2001 clause provides for arbitration under the rules of the American Arbitration Association, while the 2002/2003 clause allows the consumer to elect arbitration under the rules of either the American Arbitration Association, the Judicial Arbitration Mediation Service, or the National Arbitration Forum. In addition, the 2001 arbitration clause provides the application of federal or Colorado law, while the 2002/2003 clause contains no choice of law provision. The 2001 arbitration clause explicitly deals with retroactivity and the severability of unenforceable portions of the agreement, while the 2002/2003 clause is silent on both matters. Finally, the 2001 clause requires that consumers pay their "share" of the arbitration association's fees and the arbitrator's costs and expenses, while Comcast agrees to bear those expenses in the 2002/2003 clause. The Court concludes that the 2002/2003 clause differs so substantially from the arbitration clause introduced in 2001 that it constitutes a significant change to the prior conditions of subscription.
Accordingly, Comcast was required to give the Chicago Plaintiffs 30 days advance notice of the changes in the 2002/2003 clause. Comcast's failure to provide Plaintiffs with the necessary statutory notice directly contravenes the Cable Act regulations. Therefore, the 2002/2003 arbitration clause in Comcast's Chicago Policies Practices is unenforceable.
Plaintiffs also argue that the Chicago and Philadelphia arbitration clauses are invalid as unconscionable under state law. (Pls.' Mem. at 21.) As the Court has found those clauses to be unenforceable, it need not reach the question of whether the arbitration clauses are substantively and procedurally unconscionable.