Holman et al v. Apple, Inc. et al

Filing 116

Brief re 115 MOTION to Compel Arbitration and to Dismiss Claims Pursuant to the Federal Arbitration Act filed byAT&T Mobility, LLC. (Attachments: # 1 Attachment)(Related document(s) 115 ) (Falk, Donald) (Filed on 6/27/2008)

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Holman et al v. Apple, Inc. et al Doc. 116 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Daniel A. Sasse, Esq. (CA Bar No. 236234) CROWELL & MORING LLP 3 Park Plaza, 20th Floor Irvine, CA 92614-8505 Telephone: (949) 263-8400 Facsimile: (949) 263-8414 Email: dsasse@crowell.com Donald M. Falk (CA Bar No. 150256) MAYER BROWN LLP Two Palo Alto Square, Suite 300 3000 El Camino Real Palo Alto, CA 94306-2112 Telephone: (650) 331-2000 Facsimile: (650) 331-2060 Email: dfalk@mayerbrown.com Attorneys for Defendant AT&T Mobility LLC UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION Case No. 07-05152-JW MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF DEFENDANT AT&T MOBILITY LLC TO COMPEL ARBITRATION AND TO DISMISS CLAIMS PURSUANT TO THE FEDERAL ARBITRATION ACT Date: September 12, 2008 Time: 9:00 a.m. Honorable James Ware IN RE APPLE & AT&TM ANTI-TRUST LITIGATION MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW Dockets.Justia.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 III. IV. B. 3. 2. TABLE OF CONTENTS STATEMENT OF ISSUE TO BE DECIDED............................................................................... 1 INTRODUCTION ......................................................................................................................... 1 BACKGROUND ........................................................................................................................... 1 ARGUMENT ................................................................................................................................. 4 I. II. THE FAA MANDATES ENFORCING THE ARBITRATION AGREEMENTS ........... 4 PLAINTIFFS CANNOT AVOID THEIR OBLIGATION TO ARBITRATE ON AN INDIVIDUAL BASIS BY INVOKING STATE UNCONSCIONABILITY LAW .................................................................................................................................. 5 A. Plaintiffs' Arbitration Agreements Are Not Unconscionable Under New York, Washington, Or California Law .................................................................. 5 1. Kliegerman's Arbitration Agreement Is Enforceable Under New York Law ................................................................................................... 5 The Arbitration Agreements Are Enforceable Under California Law ............................................................................................................ 7 a. b. The California Plaintiffs Can Establish At Most Only A Modest Degree Of Procedural Unconscionability ......................... 8 Under California Law, ATTM's Arbitration Provision Is Not Substantively Unconscionable At All, Much Less Greatly So .................................................................................... 10 Holman's Arbitration Agreement Is Enforceable Under Washington Law ...................................................................................... 14 a. b. ATTM's Arbitration Provision Is Not Substantively Unconscionable Under Washington Law .................................... 15 Holman's Arbitration Agreement Is Not Procedurally Unconscionable Under Washington Law .................................... 17 The FAA Would Preempt Any State-Law Rule Under Which ATTM's Arbitration Provision Could Be Deemed Unenforceable .................................... 18 1. The FAA Expressly Preempts Any Distortion Of Unconscionability Doctrine That Would Invalidate The Arbitration Clause Here .............................................................................................. 18 A State-Law Rule That Precludes An Individual Arbitration Requirement Under The Circumstances Here Would Conflict With The Purposes of the FAA And Therefore Would Be Preempted............. 20 2. PLAINTIFFS' MMWA CLAIM IS ARBITRABLE ....................................................... 23 CONCLUSION ................................................................................................................ 25 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Cases: TABLE OF AUTHORITIES Page(s) Abela v. Gen. Motors Corp., 677 N.W.2d 325 (Mich. 2004) ...................................................... 24 Adler v. Fred Lind Manor, 103 P.3d 773 (Wash. 2004) ........................................................ 14, 15 Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) ..................................................... 22 Am. Software, Inc. v. Ali, 54 Cal. Rptr. 2d 477 (Ct. App. 1996) ................................................. 19 Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669 (Cal. 2000) .......................... 7, 8 Aron v. U-Haul Co., 49 Cal. Rptr. 3d 555 (Ct. App. 2006) ....................................................... 8, 9 Belton v. Comcast Cable Holdings, LLC, 60 Cal. Rptr. 3d 631 (Ct. App. 2007) ................ 8, 9, 10 Bischoff v. DirecTV, Inc., 180 F. Supp. 2d 1097 (C.D. Cal. 2002).............................................. 10 Blitz v. AT&T Wireless Servs., Inc., No. 054-00281 (Mo. Cir. Ct. Nov. 28, 2005)..................... 23 Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989) ........................................ 20 Boomer v. AT&T Corp., 309 F.3d 404 (7th Cir. 2002) ................................................................ 13 Borowiec v. Gateway 2000, Inc., 808 N.E.2d 957 (Ill. 2004)...................................................... 24 Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569 (App. Div. 1998) ........................................ 6, 7 Carbajal v. H & R Block Tax Servs., Inc., 372 F.3d 903 (7th Cir. 2004) .................................... 19 Cal. Grocers Ass'n, Inc. v. Bank of Am., 27 Cal. Rptr. 2d 396 (Ct. App. 1994) ........................... 8 Carideo v. Dell, Inc., 520 F. Supp. 2d 1241 (W.D. Wash. 2007) .......................................... 16, 17 Childs v. Levitt, 543 N.Y.S.2d 51 (App. Div. 1989).................................................................... 19 Davis v. S. Energy Homes, Inc., 305 F.3d 1268 (11th Cir. 2002).......................................... 23, 24 Dean Witter Reynolds, Inc. v. Super. Ct., 259 Cal. Rptr. 789 (Ct. App. 1989) ............................. 9 Discover Bank v. Super. Ct., 113 P.3d 1100 (Cal. 2005)...................................................... passim Dombrowski v. Gen. Motors Corp., 318 F. Supp. 2d 850 (D. Ariz. 2004) .................................. 23 Dominion Video Satellite, Inc. v. Echostar Satellite L.L.C., 430 F.3d 1269 (10th Cir. 2005)...................................................................................................................... 22 Douglas v. U.S. Dist. Ct., 495 F.3d 1062 (9th Cir. 2007) .............................................................. 6 Edgar v. MITE Corp., 457 U.S. 624 (1982) ................................................................................ 20 EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) ........................................................................ 4 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Enderlin v. XM Satellite Radio Holdings, Inc., 2008 WL 830262 (E.D. Ark. Mar. 25, 2008)...................................................................................................... 14 Engalla v. Permanente Med. Group, Inc., 938 P.2d 903 (Cal. 1997) .......................................... 14 Foley v. Interactive Data Corp., 765 P.2d 373 (Cal. 1988)......................................................... 14 Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344 (Ct. App. 2007) ............................... 9, 10, 13 Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007) ...................................................................... 23 Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824 (N.Y. 1988) ................................... 5, 6 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) .................................................... 23 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) ............................................................... 22 Green Tree Fin. Corp.­Ala. v. Randolph, 531 U.S. 79 (2000) .................................................... 23 Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008) .................................................. 22 Harris v. Shearson Hayden Stone, Inc., 441 N.Y.S.2d 70 (App. Div. 1981) ................................ 6 Harrison v. Nissan Motor Corp., 111 F.3d 343 (3d Cir. 1997) ................................................... 24 Hayes v. County Bank, 811 N.Y.S.2d 741 (App. Div. 2006) ........................................................ 6 Herbert v. Lankershim, 71 P.2d 220 (Cal. 1937) ........................................................................... 8 Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) ......................................................... 10 Howell v. Cappaert Manufactured Housing, Inc., 819 So. 2d 461 (La. Ct. App. 2002) ................................................................................................................ 24 Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159 (5th Cir. 2004)........................................................................................................................ 18 In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480 (Tex. 2001)..................................... 24, 25 Kaltwasser v. Cingular Wireless LLC, 543 F. Supp. 2d 1124 (N.D. Cal. 2008) ................... 13, 14 Koehl v. Verio, Inc., 48 Cal. Rptr. 3d 749 (Ct. App. 2006) ......................................................... 19 Koons Ford of Baltimore, Inc. v. Lobach, 919 A.2d 722 (Md. 2007) ........................................ 24 La Salle Nat'l Bank Ass'n v. Kosarovich, 820 N.Y.S.2d 144 (App. Div. 2006) .......................... 6 Livadas v. Bradshaw, 512 U.S. 107 (1994) ................................................................................. 22 Lowden v. T-Mobile USA, Inc., 512 F.3d 1213 (9th Cir. 2008)............................................ passim Luna v. Household Fin. Corp. III, 236 F. Supp. 2d 1166 (W.D. Wash. 2002)............................ 17 Mandel v. Liebman, 100 N.E.2d 149 (N.Y. 1951) ......................................................................... 6 -2- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Marin Storage & Trucking, Inc. v. Benco Contracting & Eng'g, Inc., 107 Cal. Rptr. 2d 645 (Ct. App. 2001) ................................................................................................... 8 McDaniel v. Gateway Computer Corp., 2004 WL 2260497 (Ohio Ct. App. Sept. 24, 2004) ................................................................................................................................ 24 Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003) ......................................................................... 21 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ................ 21, 23 Montgomery Ward & Co. v. Annuity Bd. of S. Baptist Convention, 556 P.2d 552 (Wash. Ct. App. 1976) ........................................................................................................... 20 Moody v. Sears, Roebuck & Co., 2007 WL 2582193 (N.C. Super. Ct. May 7, 2007) ............................................................................................... 12 Morris v. Redwood Empire Bancorp, 27 Cal. Rptr. 3d 797 (Ct. App. 2005) ................................ 9 Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)............................... 20 New York State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995) ............................................................................................................... 20 Odell v. Moss, 62 P. 555 (Cal. 1900) ............................................................................................. 8 Olson v. The Bon, Inc., 183 P.3d 359 (Wash. Ct. App. 2008) ............................................... 16, 17 Omstead v. Dell, Inc., 533 F. Supp. 2d 1012 (N.D. Cal. 2008) ..................................................... 9 Palamara v. Kings Family Rests., 2008 WL 1818453 (W.D. Pa. Apr. 22, 2008) ....................... 12 Parkerson v. Smith, 817 So. 2d 529 (Miss. 2002) ....................................................................... 24 Patriot Mfg., Inc. v. Jackson, 929 So. 2d 997 (Ala. 2005) .......................................................... 24 Perry v. Thomas, 482 U.S. 483 (1987) .................................................................................... 9, 18 Preston v. Ferrer, 128 S. Ct. 978 (2008) ................................................................... 14, 18, 21, 23 Provencher v. Dell, Inc., 409 F. Supp. 2d 1196 (C.D. Cal. 2006) ................................................. 9 Pyburn v. Bill Heard Chevvrolet, 63 S.W.3d 351 (Tenn. Ct. App. 2001) ................................... 23 Ranieri v. Bell Atl. Mobile, 759 N.Y.S.2d 448 (App. Div. 2003) .................................................. 6 Results Oriented, Inc. v. Crawford, 538 S.E.2d 73 (Ga. Ct. App. 2000) ..................................... 24 Riensche v. Cingular Wireless LLC, 2007 WL 3407137 (W.D. Wash. Nov. 9, 2007) ..................................................................................................... 9 Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. at 481 ................................... 23, 25 Rosenfeld v. Port Auth. of New York, 108 F. Supp. 2d 156 (E.D.N.Y. 2000) ............................... 7 Santisas v. Goodin, 951 P.2d 399 (Cal. 1998) ............................................................................. 11 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -3- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Schultz v. AT&T Wireless Servs., Inc., 376 F. Supp. 2d 685 (N.D. W. Va. 2005) ...................... 23 Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007)................................................ 15, 16, 17 Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (1987) ........................................... 23, 24 Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007) ................. passim Sparling v. Hoffman Constr. Co., 864 F.2d 635 (9th Cir. 1988) ................................................. 25 Stiener v. Apple Computer, Inc., 2008 WL 691720 (N.D. Cal. Mar. 12, 2008) .............. 10, 13, 14 Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir. 2006)......................... 12 Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862 (Ct. App. 2002) ................................................. 9 Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053 (9th Cir. 2004)........................................................................................................................ 25 Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003) ............................................................................. 18 Tjart v. Smith Barney, Inc., 28 P.3d 823 (Wash. Ct. App. 2001) ................................................ 17 Tsadilas v. Providian Nat'l Bank, 786 N.Y.S.2d 478 (App. Div. 2004) ....................................... 6 United States v. Corum, 362 F.3d 489 (8th Cir. 2004) .................................................................. 5 United States v. Locke, 529 U.S. 89 (2000) ................................................................................. 20 Villa Milano Homeowners Ass'n v. Il Davorge, 102 Cal. Rptr. 2d 1 (Ct. App. 2000) ........................................................................................................................................ 9 Walker v. DaimlerChrysler Corp., 856 N.E.2d 90 (Ind. Ct. App.) .............................................. 24 Walton v. Rose Mobile Homes LLC, 298 F.3d 470 (5th Cir. 2002) ................................. 23, 24, 25 Wayne v. Staples, Inc., 37 Cal. Rptr. 3d 544 (Ct. App. 2006) ....................................................... 9 Yeagley v. Wells Fargo & Co., 2008 WL 171083 (N.D. Cal. Jan. 18, 2008) .............................. 12 Zuver v. Airtouch Commc'ns, Inc., 103 P.3d 753 (Wash. 2004) ........................................... 15, 17 Statutes, Regulations, and Rules: Cal. Code Civ. Proc. § 116.221 ..................................................................................................... 2 Class Action Fairness Act of 2005, PUB. L. NO. 109-2, 119 Stat. 4, § 2(a)(3) ............................ 12 Disabled Persons Act, Cal. Civ. Code § 54.3(a) .......................................................................... 11 Fair Credit Reporting Act, 15 U.S.C. § 1681n(a) ........................................................................ 11 Federal Arbitration Act, 9 U.S.C. §§ 1­16 ........................................................................... passim 9 U.S.C. § 2 ..................................................................................................................... passim MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -4- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 U.S.C. § 10 .......................................................................................................................... 22 Magnusson-Moss Warranty Act, 15 U.S.C. §§ 2301­12 ............................................ 1, 23, 24, 25 15 U.S.C. § 2310(a)(3)(C) ..................................................................................................... 24 Sherman Antitrust Act, 15 U.S.C. § 2............................................................................................ 1 64 Fed. Reg. 19,700 (1999) ......................................................................................................... 24 Fed. R. Civ. P. 11(b) ...................................................................................................................... 3 Other Authorities: Jonathan R. Bunch, Note, To Be Announced: Silence from the United States Supreme Court and Disagreement Among Lower Courts Suggest an Uncertain Future for Class-Wide Arbitration, 2004 J. DISP. RESOL. 259 .............................................. 21 Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 UCLA L. REV. 1303 (2006) ............................................ 11 Gail Hillebrand & Daniel Torrence, Claims Procedures in Large Consumer Class Actions and Equitable Distribution of Benefits, 28 SANTA CLARA L. REV. 747 (1988) ..................................................................................................................................... 12 Joint Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comms. on the Judiciary, 68th Cong., 1st Sess. (1924) ........................................................................... 22 Christopher R. Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation, 49 UCLA L. REV. 991 (2002) ..................................................................................................................................... 12 S. REP. NO. 91-876 (1970) ........................................................................................................... 24 1 Joseph Story, COMMENTARIES ON EQUITY JURISPRUDENCE (14th ed. 1918) .............................. 8 James Tharin & Brian Blockovich, Coupons and the Class Action Fairness Act, 18 GEO. J. LEGAL ETHICS 1443 (2005)................................................................................... 12 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -5- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 STATEMENT OF ISSUE TO BE DECIDED Whether the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1­16, requires plaintiffs to pursue their claims against defendant AT&T Mobility LLC ("ATTM") in accordance with their arbitration agreements. INTRODUCTION When plaintiffs obtained wireless service from ATTM, they each agreed to resolve their disputes with ATTM in individual arbitration or small claims court. The FAA requires them to honor their promises. We expect plaintiffs to oppose this motion by arguing that (1) their arbitration agreements are unconscionable because they require that disputes be resolved on an individual basis and (2) their claim under the Magnusson-Moss Warranty Act ("MMWA") is not arbitrable. Those arguments should be rejected. First, the unprecedentedly pro-consumer features of ATTM's arbitration provision more than adequately substitute for the class-action device. Under that provision, customers arbitrate for free and would recover at least $5,000 and double attorneys' fees if the arbitrator awards them an amount greater than ATTM's settlement offer. Accordingly, even if state law did preclude enforcement of ATTM's arbitration provision merely because the provision requires traditional, individual arbitration, that state law would be preempted by the FAA. Second, the Supreme Court has made clear that federal statutory claims are arbitrable unless Congress intends to preclude arbitration under a given statute, and as the weight of authority makes clear, Congress did not intend to do so in enacting the MMWA. BACKGROUND The plaintiffs--residents of New York, California, and Washington--each purchased at least one iPhone and activated it for use with ATTM's network. Rev. Consol. Am. Compl. ¶¶ 13­21, 31. They allege that ATTM and Apple, Inc., which manufactures the iPhone, have violated Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2), the MMWA (15 U.S.C. §§ 2301­12), and the consumer laws of 42 states and the District of Columbia. Rev. Consol. Am. Compl. ¶ 1.1 1 Plaintiffs request actual, treble, and punitive damages, injunctive relief, and (cont'd) A number of counts in the complaint are directed at Apple alone. See Rev. Consol. Am. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 attorneys' fees and costs (id. pp. 36­37) on behalf of classes of (i) iPhone purchasers nationwide and (ii) iPhone purchasers in 42 states and the District of Columbia (id. ¶¶ 108­09). In filing their lawsuit, however, plaintiffs have ignored that, when they activated their iPhones, they expressly agreed to pursue their disputes against ATTM in individual arbitration or small claims court. Whether a purchaser of an iPhone is an existing ATTM subscriber or a new customer, he or she must use the iTunes program to activate the iPhone for use with ATTM's network. Declaration of Neal S. Berinhout ¶¶ 28­29. During that activation process, the customer must click on a check box next to the statement "I have read and agree to the AT&T Service Agreement"; the text of that Agreement, in turn, is displayed immediately above the check box in a printable text box. Id. ¶ 28 & Ex. 9. The first sentence in the text box explains that, by clicking on the check box below, the customer agrees to be "bound" to "the Terms of Service, including the binding arbitration clause." Id. The arbitration provision in the Service Agreement states that "[ATTM] and you agree to arbitrate all disputes and claims between us" or to pursue such disputes in small claims court. Id. Ex. 9 at 4 (emphasis in original). The provision specifies that arbitration must be conducted on an individual rather than class-wide basis. Id. Ex. 9 at 5­6. To ATTM's knowledge, its revised arbitration provision is the most pro-consumer arbitration provision in the country. See Declaration of Richard A. Nagareda ¶ 11. The provision includes the following pro-consumer features (Berinhout Dec. Ex. 9 at 4­6): Cost-free arbitration: "[ATTM] will pay all [American Arbitration Association ("AAA")] filing, administration and arbitrator fees" unless the arbitrator determines that the claim "is frivolous or brought for an improper purpose (as measured by the standards set forth in Federal Rule of Civil Procedure 11(b))";2 $5,000 or $7,500 minimum award: If the arbitrator awards the customer relief that is greater than "[ATTM]'s last written settlement offer made before an arbitrator was selected," ATTM must pay the customer the greater of: the amount of the award; $5,000; or the jurisdictional maximum of the customer's local small claims court--which in California is $7,500 (Cal. Code Civ. Proc. § 116.221); Compl. ¶¶ 8, 11, 122­32, 163­74. 2 In the event that an arbitrator concludes that a consumer's claim is frivolous, the AAA's consumer arbitration rules would cap a consumer's arbitration costs at $125. See Berinhout Dec. Ex. 7 (AAA, Supplementary Procedures for Consumer-Related Disputes § C-8). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -2- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Double attorneys' fees: If the arbitrator awards the customer more than ATTM's last written settlement offer, then "[ATTM] will * * * pay [the customer's] attorney, if any, twice the amount of attorneys' fees, and reimburse any expenses, that [the] attorney reasonably accrues for investigating, preparing, and pursuing [the] claim in arbitration";3 ATTM disclaims right to seek attorneys' fees: "Although under some laws [ATTM] may have a right to an award of attorneys' fees and expenses if it prevails in an arbitration, [ATTM] agrees that it will not seek such an award [from the customer]"; Small claims court option: Either party may bring a claim in small claims court; No confidentiality requirement: The parties need not keep the arbitration confidential; Full remedies available: The arbitrator can award the same remedies to individual consumers (including punitive damages and injunctions) that a court could award; Flexible consumer procedures: Arbitration will be conducted under the AAA's Commercial Dispute Resolution Procedures and the Supplementary Procedures for Consumer-Related Disputes, which the AAA designed with consumers in mind; Conveniently located hearing: Arbitration will take place "in the county * * * of [the customer's] billing address"; and Choice of in-person, telephonic, or no hearing: For claims of $10,000 or less, customers have the exclusive right to choose whether the arbitrator will conduct an inperson hearing, a hearing by telephone, or a "desk" arbitration in which "the arbitration will be conducted solely on the basis of documents submitted to the arbitrator."4 In addition, ATTM has tailored other aspects of the dispute-resolution process to ensure its effectiveness for consumers. In particular, customers can obtain redress informally without the need for arbitration by contacting ATTM's customer care department by phone or by e-mail. Id. ¶ 18. In April 2008, for example, representatives dispensed more than 6.5 million credits worth about $139 million for customer concerns and complaints. Id. ¶ 19. From April 2007 to April 2008, representatives dispensed more than $1.3 billion in credits. Id. A customer who is dissatisfied with the resolution offered by the customer care department can take the next step--as required by ATTM's arbitration provision--of providing ATTM with notice of the dispute. Id. ¶ 21. That is as simple as sending a letter to ATTM or 3 This attorney premium "supplements any right to attorneys' fees and expenses [that the customer] may have under applicable law." Berinhout Dec. Ex. 9 at 5. Thus, even if an arbitrator were to award a customer less than ATTM's last settlement offer, the customer would be entitled to an attorneys' fee award to the same extent as if the claim had been brought in court. 4 Under the AAA rules that would otherwise apply, either party may insist on a hearing in cases involving claims of $10,000 or less. See Berinhout Dec. Ex. 7 (AAA, Supplementary Procedures for Consumer-Related Disputes §§ C-5, C-6). For claims exceeding $10,000, a hearing would be held unless both parties agreed to forgo it. See id. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -3- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 filling out and mailing a one-page Notice of Dispute form that ATTM has posted on its web site. Id. ¶ 18 & Ex. 8. ATTM generally responds to a notice of dispute with a written settlement offer. Id. ¶ 23. If ATTM and the customer cannot resolve the dispute within 30 days, the customer may begin the formal arbitration process. Id. Ex. 2 at 2. To do so, the customer need only fill out a one-page Demand for Arbitration form and send copies to the AAA and to ATTM. Customers may obtain a copy of the form from the AAA's web site or use a simplified form that ATTM has posted on its website. See id. ¶ 16 & Exs. 4­5. To further assist its customers, ATTM's website includes a layperson's guide on how to arbitrate a claim. Id. ¶ 15 & Ex. 3.5 In response to plaintiffs' lawsuit, ATTM sent plaintiffs' counsel a letter advising them of the parties' agreements to arbitrate and requesting that plaintiffs dismiss their complaint and pursue their claims against ATTM in arbitration (or small claims court) in accordance with their agreements. Plaintiffs failed to respond.6 ARGUMENT I. THE FAA MANDATES ENFORCING THE ARBITRATION AGREEMENTS. The FAA mandates that written agreements to arbitrate disputes "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. Congress enacted the FAA to "reverse the longstanding judicial hostility to arbitration agreements * * *[,] to place [these] agreements upon the same footing as other contracts[,] * * * [and to] manifest a liberal federal policy favoring arbitration agreements." quotation marks omitted). An arbitration agreement must meet two basic conditions for the FAA to apply: (1) the 5 EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (internal Many ATTM customers have found individual arbitration to be a viable dispute resolution mechanism: From December 23, 2006 through June 13, 2008, ATTM received more than 600 notices of disputes or demands for arbitration. Berinhout Dec. ¶ 22. In addition, as noted above, ATTM's provision gives customers the option of filing claims in small claims court. ATTM responded to more than 1,100 such claims from 2005 through 2007. Id. ¶ 25. 6 Because ATTM has moved to compel arbitration, the issue before the Court with respect to plaintiffs' claims against ATTM is whether those claims should proceed in an arbitral forum rather than in this Court. Nevertheless, ATTM agrees that, on the merits--for the reasons stated in Apple's motion to dismiss--plaintiffs have failed to state a claim upon which relief can be granted against either defendant. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -4- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 agreement must be "written"; and (2) it must be in a contract "evidencing a transaction involving commerce." 9 U.S.C. § 2. These conditions are satisfied here: Plaintiffs' arbitration agreements are in writing (see page 2, supra), and their service agreements involve commerce, as "telephones, even when used intrastate, are instrumentalities of interstate commerce." United States v. Corum, 362 F.3d 489, 493 (8th Cir. 2004) . Because plaintiffs' claims indisputably fall within the all-encompassing scope of their arbitration agreements, the Court should compel arbitration and stay this action. We nonetheless expect plaintiffs to contend that their arbitration agreements are unenforceable, but as we explain below, any such arguments would lack merit. II. PLAINTIFFS CANNOT AVOID THEIR OBLIGATION TO ARBITRATE ON AN INDIVIDUAL BASIS BY INVOKING STATE UNCONSCIONABILITY LAW. The choice-of-law provision in each plaintiff's service agreement states that "[t]he law of the state of your billing address shall govern this Agreement except to the extent that such law is preempted by or inconsistent with applicable federal law." Berinhout Dec. Ex. 9 at 6. Kliegerman has a New York billing address, Holman has a Washington billing address, Lee has either a New York or California billing address, and the remaining plaintiffs have California billing addresses. See Rev. Consol. Am. Compl. ¶¶ 14­21.7 Accordingly, any unconscionability attack would arise under the laws of those three states. As we explain below, ATTM's arbitration provision is fully enforceable under those states' laws. But if ATTM's arbitration provision were unenforceable under the law of a particular state, that law would be preempted by the FAA. A. Plaintiffs' Arbitration Agreements Are Not Unconscionable Under New York, Washington, Or California Law. 1. Kliegerman's Arbitration Agreement Is Enforceable Under New York Law. Under New York law, "[a]n unconscionable contract has been defined as one which `is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms.'" 7 Gillman v. Chase ATTM has not been able to identify plaintiff Michael G. Lee. See Berinhout Dec. ¶ 49. But based on his allegation that he activated his iPhone in California and now lives in New York (Rev. Consol. Am. Compl. ¶ 17), he likely has either a California or New York billing address. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -5- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Manhattan Bank, N.A., 534 N.E.2d 824, 828 (N.Y. 1988) (quoting Mandel v. Liebman, 100 N.E.2d 149, 152 (N.Y. 1951)); see also La Salle Nat'l Bank Ass'n v. Kosarovich, 820 N.Y.S.2d 144, 146 (App. Div. 2006) (a contract is unconscionable if "no reasonable and competent person would accept [its] terms, which are so inequitable as to shock the conscience") (internal quotation marks omitted). Agreeing to arbitrate on an individual basis does not meet that standard. To the contrary, New York courts have repeatedly held that arbitration agreements that prohibit class-wide adjudication are not unconscionable. For example, New York's intermediate appellate court has held that "a contractual proscription against class actions" contained in a standardized cellular service agreement "is neither unconscionable nor violative of public policy." Ranieri v. Bell Atl. Mobile, 759 N.Y.S.2d 448, 449 (App. Div. 2003).8 arbitration provision therefore is not substantively unconscionable under New York law. Moreover, other than in "exceptional cases" in which a contract is "so outrageous as to warrant holding it unenforceable on the ground of substantive unconscionability alone," a party claiming unconscionability must establish procedural unconscionability as well. Gillman, 534 N.E.2d at 829. Under New York law, procedural unconscionability "requires an examination of the contract formation process" for such matters as "whether deceptive or high-pressured tactics were employed, the use of fine print in the contract, the experience and education of the part y claiming unconscionability, and whether there was disparity in bargaining power." Id. at 828. Kliegerman cannot claim that he was pressured or deceived into agreeing to arbitration. To activate his iPhone, he clicked on a box stating that he had "read and agree[d] to the AT&T Service Agreement" that was displayed immediately above in a printable text box. Berinhout Dec. ¶ 28 & Ex. 10 at 7. And the very first sentence in the text box notified him that the terms of service included a "binding arbitration clause." Id. Kliegerman was free to decline arbitration 8 ATTM's See also Hayes v. County Bank, 811 N.Y.S.2d 741, 743 (App. Div. 2006); Tsadilas v. Providian Nat'l Bank, 786 N.Y.S.2d 478, 480 (App. Div. 2004); Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569, 573 (App. Div. 1998) (a consumer's preference for a class-action lawsuit "does not alter the binding effect of the valid arbitration clause contained in [his] agreement"); Harris v. Shearson Hayden Stone, Inc., 441 N.Y.S.2d 70 74­75 (App. Div. 1981), aff'd, 435 N.E.2d 1097 (N.Y. 1982); accord, e.g., Douglas v. U.S. Dist. Ct., 495 F.3d 1062, 1068 (9th Cir. 2007) ("[class] waivers aren't substantively unconscionable under New York law"), cert denied sub nom. Talk Am., Inc. v. Douglas, 128 S. Ct. 1472 (2008). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -6- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and to obtain wireless service elsewhere; indeed, at least one wireless carrier does not require arbitration as a condition of service.9 See Declaration of Kevin Ranlett ¶¶ 8­9; see also Rosenfeld v. Port Auth. of New York, 108 F. Supp. 2d 156, 164­65 (E.D.N.Y. 2000) (E-ZPass agreement was not procedurally unconscionable because customers "remain[ed] free" to reject their form contracts and "continue to use traditional cash toll lanes"). Moreover, following activation, ATTM mailed Kliegerman a Terms of Service booklet that disclosed the arbitration provision at the top of the very first page. Berinhout Dec. Ex. 12 at 1 ("This Agreement requires the use of arbitration to resolve disputes * * *.") (emphasis in original). And Kliegerman had 14 days to cancel service without having to pay an early-termination fee. See id. Ex. 13.10 In addition, Kliegerman claims on his web site to be a sophisticated real estate broker and thus has a great deal of experience with reading contracts.11 Accordingly, Kliegerman's arbitration agreement is not procedurally unconscionable.12 2. The Arbitration Agreements Are Enforceable Under California Law. The California plaintiffs--Rivello, Smith, Macasaddu, Morikawa, Scotti, and Sesso (and possibly Lee (see page 5 n.7, supra))--must prove both procedural and substantive unconscionability. See, e.g., Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 9 Before obtaining his iPhones, Mr. Kliegerman had activated ATTM wireless service in March 2007. See Berinhout Dec. ¶ 40. In doing so, he would have received and agreed to the terms of service in effect at that time, including the agreement to arbitrate "all disputes and claims between us," See id. ¶ 40 & Ex. 12 at 12. Kliegerman, therefore, was on notice before purchasing his iPhone that ATTM requires arbitration as a condition of service. Moreover, the March 2007 arbitration agreement independently requires arbitration of Kliegerman's claims, which are within the broad scope of that earlier agreement. 10 Customers who return opened iPhones may be assessed a 10 percent restocking fee. Berinhout Dec. Ex. 13. But the Appellate Division has made clear that it is not procedurally unconscionable to require customers to pay the cost of returning a product in order to reject an arbitration provision in the terms enclosed with that product. See Brower, 676 N.Y.S.2d at 573 ("While returning the goods to avoid the formation of the contract entails affirmative action by the consumer, and even some expense, this may be seen as a trade-off for the convenience and savings for which the consumer presumably opted when he or she chose to make a purchase of such consequence by phone or mail as an alternative to on-site retail shopping."). 11 According to his web site, Kliegerman is a licensed real estate broker with "40+ years experience" in sales, leasing, and development of real estate. Ranlett Dec. ¶¶ 10­11 & Exs. 10­ 11 (capitalization and emphasis omitted). 12 As noted above (at page 5 n.7, supra), Lee may have a New York billing address. If so, then for the reasons we have explained, his arbitration agreement also is not substantively or procedurally unconscionable. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -7- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 690 (Cal. 2000). Procedural unconscionability involves "oppression" or "surprise" in the making of the agreement (id.), while substantive unconscionability focuses on whether the contractual term in question is so "overly harsh" or "one-sided" (id.) as to "shock the conscience." Belton v. Comcast Cable Holdings, LLC, 60 Cal. Rptr. 3d 631, 649­50 (Ct. App. 2007); Aron v. U-Haul Co., 49 Cal. Rptr. 3d 555, 564 (Ct. App. 2006). Put another way, the bargain that the term represents must be one that "`no man in his senses, and not under delusion, would make on the one hand, and [that] no honest and fair man would accept on the other.'" Herbert v. Lankershim, 71 P.2d 220, 257 (Cal. 1937) (quoting Odell v. Moss, 62 P. 555, 557 (Cal. 1900) (quoting in turn 1 Joseph Story, COMMENTARIES ON EQUITY JURISPRUDENCE § 244 (14th ed. 1918)); see also Cal. Grocers Ass'n, Inc. v. Bank of Am., 27 Cal. Rptr. 2d 396, 402 (Ct. App. 1994). In performing the unconscionability inquiry, California courts employ a "sliding scale": "the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." Armendariz, 6 P.3d at 690 (internal quotation marks omitted). In other words, if "the procedural unconscionability, although extant, [is] not great," the party attacking the term must prove "a greater degree of substantive unfairness." Marin Storage & Trucking, Inc. v. Benco Contracting & Eng'g, Inc., 107 Cal. Rptr. 2d 645, 656­57 (Ct. App. 2001). Under California's sliding-scale approach, ATTM's arbitration provision is fully enforceable. a. The California Plaintiffs Can Establish At Most Only A Modest Degree Of Procedural Unconscionability. We acknowledge that the manner in which iPhone purchasers agree to ATTM's arbitration provision involves a modest degree of procedural unconscionability under California law as interpreted by the Ninth Circuit. Although the plaintiffs could have obtained wireless service elsewhere without agreeing to arbitration (Ranlett Dec. ¶¶ 2­9), the Ninth Circuit held in Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007), that "a contract may be procedurally unconscionable under California law when the party with substantially greater bargaining power presents a `take-it-or-leave-it' contract to a customer--even if the customer has a meaningful choice as to service providers." Id. at 985 (internal quotation marks MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -8- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 omitted).13 As the California Court of Appeal has made clear, however, the non-negotiable nature of an agreement suffices only to establish "a minimal degree of procedural unconscionability." Gatton, 61 Cal. Rptr. 3d at 356. The California plaintiffs cannot establish any greater measure of oppression or surprise. An iPhone plainly is a "nonessential recreational" good that plaintiffs "always ha[d] the option of simply forgoing." Belton, 60 Cal. Rptr. 3d at 650 (cable music service is non-essential); see also Provencher v. Dell, Inc., 409 F. Supp. 2d 1196, 1202 (C.D. Cal. 2006) (personal computers are non-essential); cf. Riensche v. Cingular Wireless LLC, 2007 WL 3407137, at *8 (W.D. Wash. Nov. 9, 2007) ("telephone service, particularly cellular service, is not a necessity"). Moreover, as explained above, ATTM's arbitration provision is prominently disclosed during and after the activation process, and customers have 14 days to review their contracts and to cancel them without paying an early-termination fee. See page 7, supra. As Judge Hamilton recently has explained, "providing a consumer with an opportunity to rescind an agreement greatly diminishes any aspect of procedural unconscionability" under California law. Omstead v. Dell, Inc., 533 F. Supp. 2d 1012, 1036­37 (N.D. Cal. 2008).14 13 Although this Court is bound by this aspect of Shroyer, we submit that the Ninth Circuit erred in "follow[ing] the [California] courts that reject the notion that the existence of `marketplace alternatives' bars a finding of procedural unconscionability," and declining to follow the conflicting line of California cases that have held that there can be no procedural unconscionability when the customer has meaningful alternatives to contracting with the defendant. 498 F.3d at 985. The two competing lines of published cases reveal an unmistakable pattern. The cases that find non-negotiable form contracts to be per se procedurally unconscionable regardless of the availability of market alternatives all involve arbitration provisions. See Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344, 353­56 (Ct. App. 2007), cert den., 2008 WL 368871 (U.S. May 27, 2008); Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867 (Ct. App. 2002); Villa Milano Homeowners Ass'n v. Il Davorge, 102 Cal. Rptr. 2d 1, 5­ 6 (Ct. App. 2000). In contrast, the cases that reject the argument that form contracts are procedurally unconscionable when meaningful substitutes are available all involve other types of contractual provisions. See Belton, 60 Cal. Rptr. 3d at 650 (requirement that cable music subscribers receive basic cable television); Wayne v. Staples, Inc., 37 Cal. Rptr. 3d 544, 556 (Ct. App. 2006) (declared-value insurance for package shipping); Aron, 49 Cal. Rptr. 3d at 564 (rental truck refueling policy); Morris v. Redwood Empire Bancorp, 27 Cal. Rptr. 3d 797, 807 (Ct. App. 2005) (termination fee); Dean Witter Reynolds, Inc. v. Super. Ct., 259 Cal. Rptr. 789, 795 (Ct. App. 1989) (termination and annual fee). Because the conflict hinges entirely on whether an arbitration provision is at issue, reliance on the arbitration-specific rule violates the FAA, which forbids states from applying a different standard of procedural unconscionability to arbitration provisions than to other provisions. See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987) (courts cannot "rely on the uniqueness of an agreement to arbitrate as a basis for a statelaw holding that enforcement would be unconscionable"). 14 Additionally, plaintiffs Scotti, Rivello, Macasaddu, and Morikawa had previously MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -9- (cont'd) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In short, the fact that ATTM's arbitration provision is contained in a form contract implicates, at most, only a minimal quantum of procedural unconscionability.15 Accordingly, under California's sliding-scale approach, the California plaintiffs would have to "make a strong showing of substantive unconscionability to render [their] arbitration provision unenforceable." Gatton, 61 Cal. Rptr. 3d at 356 (emphasis added). As we next explain, plaintiffs cannot demonstrate that ATTM's arbitration provision is substantively unconscionable at all, much less make the requisite "strong showing" of substantive unfairness. b. Under California Law, ATTM's Arbitration Provision Is Not Substantively Unconscionable At All, Much Less Greatly So. (1). In Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), the California Supreme Court held that a class-arbitration prohibition in a credit-card issuer's arbitration provision was substantively unconscionable because it effectively "insulate[d]" the company from liability for the $29 claims at issue in that case. Id. at 1109. But the court made clear that it was not holding "that all class action waivers are necessarily unconscionable." Id. at 1110 (emphasis added). Rather, whether such a provision is substantively unconscionable turns on activated service with ATTM or its predecessor AT&T Wireless Services, Inc.. See Declaration of Cynthia Hennessy ¶¶ 9­10; Berinhout Dec. ¶¶ 44, 50­53, 56­61, 64. Each therefore had previously agreed to arbitration with ATTM (see id.) and was aware before purchasing his or her iPhone that arbitration is a condition of service with ATTM. ATTM also sent a copy of the revised 2006 arbitration provision to each of these plaintiffs in December 2006. See Berinhout Dec. ¶¶ 11, 45, 54, 62, 65. The 2006 revision to their existing arbitration agreements separately mandates arbitration of these plaintiffs' claims, which are within its broad scope. In addition, Scotti, Sesso, and Rivello each activated or renewed ATTM service for cell phone devices other than the iPhone (in March and October 2007 and May 2008, respectively), and in doing so again agreed to ATTM's revised 2006 arbitration provision. For that reason, too, those plaintiffs are required to arbitrate their claims. See id. ¶¶ 46­47, 66, 69 & Exs. 12, 19). 15 Judge Armstrong recently has ruled that the manner in which iPhone purchasers agree to ATTM's arbitration provision involves more than minimal procedural unconscionability based on her conclusion that the iPhone is unique and that the plaintiffs in the case before her were not given a copy of ATTM's terms of service at the time of purchase. See Stiener v. Apple Computer, Inc., 2008 WL 691720, at *8­*10 (N.D. Cal. Mar. 12, 2008), appeal pending, No. 0815612 (9th Cir.). But California law does not require that alternatives be perfect substitutes. See Belton, 60 Cal. Rptr. 3d at 650 (FM radio, internet broadcasts, CD players, and satellite music services are acceptable alternatives for cable television music service). And it is routine to delay the "revelation of full terms" until after the customer has paid for a product. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1149 (7th Cir. 1997); see also Bischoff v. DirecTV, Inc., 180 F. Supp. 2d 1097, 1105 (C.D. Cal. 2002) (applying California law) ("the economic and practical considerations involved in selling services to mass consumers * * * make it acceptable for terms and conditions to follow the initial transaction"). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -10- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 whether the plaintiff may feasibly vindicate "small" claims without using the class-action mechanism and, conversely, whether the class waiver threatens to insulate the company from liability for cheating its customers. Id. ATTM's revised arbitration provision is fully enforceable under Discover Bank as well as Shroyer, in which the Ninth Circuit held that the class waiver in an earlier version of ATTM's arbitration provision was substantively unconscionable under Discover Bank. Shroyer, 498 F.3d at 986­87. The earlier arbitration provision specified that ATTM (then Cingular) would pay the full cost of arbitration and, in addition, would pay the plaintiff's attorneys' fees if the arbitrator awarded the plaintiff the amount of his or her demand or more. Id. at 986. The Ninth Circuit held that those features were insufficient to render the class waiver enforceable under Discover Bank because "when the potential for individual gain is small, very few plaintiffs, if any, will pursue individual arbitration or litigation * * *. [Discover Bank] did not suggest that a [class action] waiver is unconscionable only when or because a plaintiff in arbitration may experience a net loss (including attorneys' fees and costs)." Id. (emphasis in original; citation omitted). ATTM's revised arbitration provision squarely addresses these concerns. As noted above, ATTM has built the necessary "individual gain" into its arbitration provision by providing that any California customer who obtains an arbitral award in excess of ATTM's last settlement offer will receive at least $7,500, while the customer's counsel (if any) will receive double attorneys' fees. See pages 2­3 & n.3, supra. These amounts far exceed the level of damages that Congress and the California Legislature have deemed sufficient to encourage individuals and their counsel to pursue statutory claims.16 The premiums available under ATTM's arbitration procedures also substantially exceed the typical incentive payments awarded to class representatives as part of court-approved class settlement agreements. See Theodore Eisenberg 16 See Nagareda Dec. ¶ 14 (citing $500 statutory damages provision in Telephone Consumer Protection Act and $1,000 statutory damages provision in Cable Act); 15 U.S.C. § 1681n(a) (statutory damages of between $100 and $1,000 available under Fair Credit Reporting Act); Cal. Civ. Code § 54.3(a) ($1,000 statutory damages under Disabled Persons Act). These legislative determinations of the amount needed to encourage vindication of statutory rights are entitled to great (if not dispositive) weight. See Santisas v. Goodin, 951 P.2d 399, 413 (Cal. 1998) (noting court's "reluctan[ce] to declare contractual provisions void or unenforceable on public policy grounds without firm legislative guidance"). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -11- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 UCLA L. REV. 1303, 1333 & tbl. 5 (2006) (finding median incentive award for class representatives in consumer and consumer credit cases to be $2,089 and $1,045, respectively). In light of the opportunities for "individual gain" that are built into ATTM's arbitration provision, the concerns that caused the California Supreme Court and the Ninth Circuit to invalidate the class-arbitration prohibitions in Discover Bank and Shroyer are inapplicable here. ATTM has not immunized itself from liability because ATTM's arbitration provision, and the premiums that are available under it, serve as affirmative inducements for customers to pursue their claims in arbitration and for lawyers to represent such customers. By contrast, studies of consumer class action settlements show that few consumers bother to file a claim when the amount that they would receive is small--as it inevitably would be if this case were certified as a class action and then settled.17 Moreover, ATTM's revised provision reduces burdens on customers by allowing them to choose to arbitrate by telephone or even by mail. See page 3, supra. The premium provisions also encourage ATTM to resolve disputes quickly--i.e., before arbitration--by making settlement offers that satisfy its customers. If it fails to resolve a claim, ATTM risks paying large premiums to the customer and counsel, as well as the full costs of arbitration, which can be 17 See, e.g., James Tharin & Brian Blockovich, Coupons and the Class Action Fairness Act, 18 GEO. J. LEGAL ETHICS 1443, 1445­46 (2005) (noting that the redemption rate of class action coupons ranges from one to three percent); Christopher R. Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation, 49 UCLA L. REV. 991, 1035 (2002) (reporting a study of ten consumer class action settlements in which the redemption rates varied from 3 to 13.1 percent); Gail Hillebrand & Daniel Torrence, Claims Procedures in Large Consumer Class Actions and Equitable Distribution of Benefits, 28 SANTA CLARA L. REV. 747, 753 (1988) (discussing three settlements in which the claims rates were 3, 10.5, and 18 percent); Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 649­50 (7th Cir. 2006) (noting that only a "paltry three percent" of class members had filed claims under the settlement); Palamara v. Kings Family Rests., 2008 WL 1818453, at *2 (W.D. Pa. Apr. 22, 2008) ("approximately 165 class members" out of 291,000 "had obtained a voucher" under the settlement, yielding a take rate of under 0.06 percent); Yeagley v. Wells Fargo & Co., 2008 WL 171083, at *2 (N.D. Cal. Jan. 18, 2008) ("less than one percent of the class chose to participate in the settlement"); Moody v. Sears, Roebuck & Co., 2007 WL 2582193, at *5 (N.C. Super. Ct. May 7, 2007) ("only 337 valid claims were filed out of a possible class of 1,500,000," yielding a take rate of just over 0.02 percent); see also Class Action Fairness Act of 2005, PUB. L. NO. 1092, 119 Stat. 4, § 2(a)(3) (congressional finding that "[c]lass members often receive little or no benefit from class actions, and are sometimes harmed"). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -12- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 substantial.18 That is true not only of the small number of disputes that might be susceptible to class-wide adjudication, but also for the vast majority of other disputes that are individualized.19 In short, ATTM's revised arbitration provision does not operate as an exculpatory clause. As Professor Nagareda explains, although some arbitration provisions containing classarbitration prohibitions may result in "the effective elimination of consumers' private rights of action" (Nagareda Dec. ¶ 7), ATTM's arbitration provision is not of that ilk. It "reduces dramatically the cost barriers to the bringing of individual consumer claims, is likely to facilitate the development of a market for fair settlements of such claims, and provides financial incentives for consumers (and their attorneys, if any) to pursue arbitration in the event that they are dissatisfied with whatever offer ATTM has made to settle their dispute." Id. ¶ 11. It therefore is not substantively unconscionable at all. At minimum, taking into account the (at most) modest level of procedural unconscionability, this unprecedentedly pro-consumer arbitration provision does not rise sufficiently high on the spectrum of substantive unconscionability to warrant refusing to enforce it. See Gatton, 61 Cal. Rptr. 3d at 356 (requiring "strong showing" of substantive unconscionability when the only basis for finding procedural unconscionability is the fact that contract is non-negotiable). (2). Two federal district court judges recently held that ATTM's revised arbitration provision is unconscionable under California law. See Kaltwasser v. Cingular Wireless LLC, 543 F. Supp. 2d 1124 (N.D. Cal. 2008), appeal pending, No. 08-15962 (9th Cir.); Stiener, supra, 2008 WL 691720. Those decisions, however, are fundamentally mistaken. First, the Kaltwasser court entirely failed to address the special premiums that ATTM's arbitration provision makes available to customers. Instead, the court treated Discover Bank as an across-the-board holding that all class-arbitration prohibitions in consumer form contracts are 18 If a customer selects an in-person hearing, ATTM must pay at least $1,700 in arbitration costs: $750 in administrative fees, a $200 case service fee, and $750 in arbitrator fees. See Berinhout Dec. Ex. 7 (AAA, Supplementary Procedures for Consumer-Related Disputes § C-8). 19 Moreover, the millions of customers who never have a dispute of any kind benefit from ATTM's arbitration provision in the form of lower prices for wireless services. See, e.g., Boomer v. AT&T Corp., 309 F.3d 404, 419 (7th Cir. 2002) ("arbitration offers cost-saving benefits * * * and these benefits are reflected in a lower cost of doing business that in competition are passed along to customers") (internal quotation marks omitted). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -13- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 unconscionable (see 543 F. Supp. 2d at 1131), no matter how pro-consumer the arbitration procedures may be. Yet the California Supreme Court distinctly warned that it was "not hold[ing] that all class action waivers are necessarily unconscionable." Discover Bank, 113 P.3d at 1110 (emphasis added). Kaltwasser's holding also rested on the court's conclusion that the arbitration provision is not mutual because ATTM is unlikely to bring a class action against its customers (543 F. Supp. 2d at 1131). Because California has no generally applicable requirement that all obligations in a contract be entirely mutual (see Foley v. Interactive Data Corp., 765 P.2d 373, 381 n.14 (Cal. 1988)), however, this differential treatment of an arbitration provision violates the FAA.20 The Stiener court likewise erred in treating California law as imposing an across-theboard ban on class-arbitration waivers. It held that ATTM "needs to show its Arbitration Agreement functions as well as a class action would" (2008 WL 691720, at *12) by proving "that all" putative class members "would recover more, on average," in individual arbitration than in the plaintiff's class action (id. at *13 (emphasis in original)). In so holding, the court erroneously reversed the burden of proof: It is the party opposing arbitration who must prove unconscionability. Engalla v. Permanente Med. Group, Inc., 938 P.2d 903, 915­16 (Cal. 1997). Moreover, the court's premise is misguided. What matters is whether the plaintiffs themselves would be effectively foreclosed from pursuing claims in individual arbitration. If unconscionability were measured by reference to the total potential relief for a putative class, then no class waiver could be enforceable, an outcome disavowed in Discover Bank itself. 3. Holman's Arbitration Agreement Is Enforceable Under Washington Law. Under Washington law, a contractual term may be invalidated if the party resisting its enforcement proves that it is substantively unconscionable without reference to the manner in which the contract was formed. Adler v. Fred Lind Manor, 103 P.3d 773, 781­82 (Wash. 2004). 20 See Preston v. Ferrer, 128 S. Ct. 978, 985 (2008) (FAA preempts provision of California Labor Code that "imposes prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally"); Enderlin v. XM Satellite Radio Holdings, Inc., 2008 WL 830262, at *10 (E.D. Ark. Mar. 25, 2008) ("Arkansas law requiring mutuality within the arbitration paragraph itself is preempted by the FAA because it places the arbitration clause on unequal footing with other contract terms that do not each have to be mutual."). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT ATTM'S MOTION TO COMPEL ARBITRATION AND TO DISMISS CLAIMS; CASE NO. 07-05152-JW -14- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 By contrast, the Washington Supreme Court has not yet resolved whether procedural unconscionability alone suffices to invalidate a contract. But as we explain below, Holman's arbitration agreement is fully enforceable under Washington law because it is neither substantively nor procedurally unconscionable. a. ATTM's Arbitration Provision Is Not Unconscionable Under Washington Law. Substantively Under Washington law, "[s]ubstantive unconscionability involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh. `Shocking to the conscience,' `monstrously harsh,' and `extremely calloused' are terms sometimes used to define substantive unconscionability." Zuver v. Airtouch Commc'ns, Inc., 103 P.3d 753, 759 (Wash. 2004) (citations omitted); see also Adler, 103 P.3d at 781 (same). ATTM's arbitration provision comes nowhere near that high threshold. In Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), the Washington Supreme Court invalidated an earlier arbitration provision used by ATTM's predecessor, Cingular Wireless LLC, in part because it contained a class waiver. Id. at 1003. But Scott did not create a categorical rule that all class waivers contained in arbitration provisions are substantively unconscionable. Rather, the court held that "only * *