Fromer v. Comcast Corp. et al
Filing
79
ORDER denying 57 Motion to Compel. Signed by Judge Stefan R. Underhill on 8/21/12. (Hungerford, A.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
ROBERT FROMER,
Plaintiff,
No. 3:09cv2076 (SRU)
v.
COMCAST CORP., et al.,
Defendants.
RULING ON MOTION TO COMPEL ARBITRATION
This case involves a putative class action brought by a Comcast subscriber who is
attempting to sue the defendants under the Connecticut Unfair Trade Practices Act (“CUTPA”)
and the Sherman Act. An arbitration agreement exists between the two parties, and at issue here
is whether the class action waiver provision of that agreement is enforceable.
At the time the parties wrote their briefs, there was some question whether the Second
Circuit’s doctrine on class arbitration had been overruled by the Supreme Court’s decision in
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Two days before the oral argument
on the motion to compel, the Second Circuit issued an opinion holding that the Second Circuit’s
doctrine had not been overruled. In re American Express Merchants Litig., 667 F.3d 204 (2d
Cir. 2012) (“American Express III”).
During the hearing, I granted the parties’ request to submit supplemental briefing in light
of American Express III and the issues raised during oral argument. The parties submitted
additional briefs, which I have reviewed. For the reasons that follow, the defendants’ motion to
compel arbitration, doc. 57, is DENIED.
I.
Background
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The plaintiff, Robert Fromer, is a customer of Comcast Corporation, Comcast of
Connecticut, Inc., Comcast Cable Communications, LLC, and Comcast Cable Communications
Holdings, Inc. (collectively, “Comcast”). Fromer first subscribed to Comcast’s cable television
service on October 21, 1999, and to its high-speed internet service on April 18, 2002. Defs.’
Mot. to Compel Arbitration (“Defs.’ Mot. to Compel”), Ex. 1 at ¶ 5. In July 2007, Comcast
included an arbitration notice along with Fromer’s monthly bill. Id. at ¶ 7; Defs.’ Mot. to
Compel, Ex. A.
On July 26, 2007, Fromer began subscribing to Comcast Digital Voice. Defs.’ Mot. to
Compel, Ex. 1 at ¶ 9. When Comcast connected Fromer’s Digital Voice service, it installed an
embedded media terminal adapter (“eMTA”).1 Id. at ¶ 10. At that time Comcast also gave
Fromer a work order. Id. The work order stated:
If this Work Order relates to the initial installation of services, I acknowledge
receipt of Comcast’s Welcome Kit(s) which contain the Comcast subscriber
agreement(s), the Comcast subscriber privacy notice(s) and the other important
information about the service(s). I agree to be bound by the Comcast subscriber
agreement(s) which constitute the agreement(s) between Comcast and me for the
service(s).
Defs.’ Mot. to Compel, Ex. B at 1. The welcome kit included an arbitration agreement. Defs.’
Mot. to Compel, Ex. C at 20-22.
In March 2008, Comcast included a Subscriber Agreement with Fromer’s monthly bill.
Defs.’ Mot. to Compel, Ex. 1 at ¶ 14. The 2008 Subscriber Agreement also contained an
arbitration clause. Defs.’ Mot. to Compel, Ex. D at 9-11. The arbitration agreement provided:
If you have a Dispute (as defined below) with Comcast that cannot be resolved
through the informal dispute resolution process described in this Agreement, you
1
“An eMTA is a device that allows a Digital Voice subscriber to make phone calls, as well as to
access the Internet for data services, over a HSI [high-speed internet] connection.” Id. at ¶ 10.
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or Comcast may elect to arbitrate that Dispute in accordance with the terms of this
Arbitration Provision rather than litigate the Dispute in court.
Id. at 9. Under the agreement, a “dispute” is defined as:
[A]ny dispute, claim or controversy between you and Comcast regarding any
aspect of your relationship with Comcast that has accrued or may thereafter
accrue, whether based in contract, statute, regulation, ordinance, tort (including,
but not limited to, fraud, misrepresentation, fraudulent inducement, negligence or
any other intentional tort), or any other legal or equitable theory.
Id. The agreement also said that the arbitrators were to determine “the validity, enforceability or
scope of this Arbitration Provision (with the exception of the enforceability of the class action
waiver clause provided in paragraph F(2)).” Id.
The arbitration agreement contained an opt-out provision:
IF YOU DO NOT WISH TO BE BOUND BY THIS ARBITRATION
PROVISION, YOU MUST NOTIFY COMCAST IN WRITING WITHIN
THIRTY (30) DAYS OF THE DATE THAT YOU FIRST RECEIVE THIS
AGREEMENT . . . .
YOUR DECISION TO OPT OUT OF THIS
ARBITRATION PROVISION WILL HAVE NO ADVERSE EFFECT ON
YOUR RELATIONSHIP WITH COMCAST OR THE DELIVERY OF
SERVICES TO YOU BY COMCAST.
Id. at 10.
Additionally, the arbitration agreement contained a class action waiver:
THERE SHALL BE NO RIGHT OR AUTHORITY FOR ANY CLAIMS TO BE
ARBITRATED OR LITIGATED ON A CLASS ACTION OR
CONSOLIDATED BASIS OR ON BASES INVOLVING CLAIMS BROUGHT
IN A PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE
GENERAL PUBLIC (SUCH AS A PRIVATE ATTORNEY GENERAL),
OTHER SUBSCRIBERS, OR OTHER PERSONS SIMILARLY SITUATED
UNLESS THE STATUTE UNDER WHICH YOU ARE SUING PROVIDES
OTHERWISE.
Id. “If the class action waiver clause is found to be illegal or unenforceable, the entire
Arbitration Provision will be unenforceable, and the dispute will be decided by a court.” Id. at
11.
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On December 21, 2009, Fromer brought a class action against Comcast alleging (1) a
violation of the Sherman Antitrust Act for unlawful bundling of the DV service with the eMTA
modem, and (2) violation of CUTPA. Doc. 1. Comcast has now filed a motion to compel
arbitration on both counts. Doc. 57.
II.
Discussion
A. The Arbitration Agreement and the Federal Arbitration Act Govern These Claims
Fromer does not dispute that both the Sherman Act and the CUTPA claims fall within the
bounds of the arbitration agreement. That agreement allows for arbitration of any dispute, claim,
or controversy between Fromer and Comcast regarding any aspect of Fromer’s relationship with
Comcast; it is clear that the claim of unfair bundling falls within the reach of the arbitration
agreement. It is also clear that the Federal Arbitration Act (“FAA”) applies here, because this is
a contract “evidencing a transaction involving commerce.” 9 U.S.C. § 16(2).
Fromer also does not allege that the arbitration agreement was procedurally
unconscionable. Instead, Fromer argues that the class action waiver renders the arbitration
agreement substantively unconscionable, and therefore, unenforceable.
B. The American Express Line of Cases
In Green Tea Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), the Supreme
Court enforced an arbitration agreement between a financial institution and a consumer
attempting to bring a claim under the Truth in Lending Act. The plaintiff in Green Tea argued
that,
the arbitration agreement’s silence with respect to costs and fees creates a “risk”
that she will be required to bear prohibitive arbitration costs if she pursues her
claims in an arbitral forum, and thereby forces her to forgo any claims she may
have against petitioners. Therefore, she argues, she is unable to vindicate her
statutory rights in arbitration.
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Id. at 90. The Court acknowledged that “[i]t may well be that the existence of large arbitration
costs could preclude a litigant such as [the plaintiff] from effectively vindicating her federal
statutory rights in the arbitral forum.” Id. The Court refused to prohibit arbitration, however,
because the plaintiff had failed to show that she would “bear such costs if she goes to
arbitration.” Id. “[W]here, as here, a party seeks to invalidate an arbitration agreement on the
ground that arbitration would be prohibitively expensive, that party bears the burden of showing
the likelihood of incurring such costs.” Id. at 92.
Although the Supreme Court’s pronouncement in Green Tea was technically dicta, it still
evidenced that the Supreme Court envisioned that arbitration agreements could be voided where
arbitration would be so expensive as to preclude a litigant from vindicating her rights. The
Second Circuit created a framework for employing Green Tea in In re American Express
Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009) (“American Express I”). In that case, the
plaintiffs attempted to bring a tying antitrust claim under the Sherman Act and the Clayton Act;
the defendant sought to compel arbitration. The arbitration clause at issue contained a class
action waiver provision. The Second Circuit held that the class action waiver provision could
not be enforced because the plaintiffs’ antitrust claims could, “for all intents and purposes, only
be pursued through the aggregation of individual claims, either in class action litigation or in
class arbitration.” Id. at 317. The Court held that the plaintiffs could not pursue their claims
individually because, with expert fees, the costs of the case could be as much as $1 million, and
no plaintiff could expect to receive more than $38,500. Id. Moreover, although the Sherman Act
allowed a plaintiff, if successful, to “recover threefold the damages by him sustained, and the
cost of suit, including a reasonable attorney’s fee,” that would still leave the plaintiff unable to
pay the expert witness fees. Id. at 317-18 (internal citations omitted). The Second Circuit also
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noted that the possibility of attorneys’ fees was insufficient to overcome this problem, because
no plaintiff was assured of victory, and potential plaintiffs had to factor the risk of losing into
their calculations of the risks and benefits of litigation. Id. at 318.
Shortly after the Second Circuit issued its decision in American Express I, the Supreme
Court decided Stolt-Nielsen S.A. v. AnimalFeeds Int’l, 130 S. Ct. 1758 (2010). The plaintiff in
that case had attempted to bring a class arbitration. The arbitration agreement was silent with
regard to whether class arbitrations were permissible, and the Supreme Court held that “a party
may not be compelled under the FAA to submit to class arbitration unless there is a contractual
basis for concluding that the party agreed to do so.” Id. at 1775.
After the Supreme Court decided Stolt-Nielsen, it vacated the Second Circuit’s decision
in American Express I and ordered the Second Circuit to reconsider its decision in light of StoltNielsen. The Second Circuit responded with In re American Express Merchants Litigation, 634
F.3d 187 (2d Cir. 2011) (“American Express II”), which reaffirmed the holding in American
Express I. The Court noted that “Stolt-Nielsen states that parties cannot be forced to engage in a
class arbitration absent a contractual agreement to do so,” but concluded that “[i]t does not
follow, as Amex urges, that a contractual clause barring class arbitration is per se
unenforceable.” Id. at 193. The Court remarked that class actions are an important vehicle for
vindicating statutory rights, and that public policy concerns can bar enforcement of an agreement
to arbitrate. Id. at 194, 197. Because the record made clear that the cost of arbitration could be
prohibitive, the plaintiffs were effectively deprived of the statutory protections of antitrust laws,
and the class action waiver was void. Id. at 197-99.
A little more than a month after the Second Circuit decided American Express II, the
Supreme Court issued AT&T Mobility, LLC v. Concepcion. The Court held that California’s
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Discover Bank rule, which classified most class arbitration waivers as unconscionable, was
preempted by the FAA. In doing so, the Court discussed the dangers of class actions in the
arbitration setting: class action arbitration often involved absent parties, sacrificed arbitration’s
informality, and increased the risk to defendants, since “[t]he absence of multilayered review
makes it more likely that errors will go uncorrected.” 131 S. Ct. at 1750-52.
In response to Concepcion, the Second Circuit requested additional briefing on whether
American Express II was inconsistent with Concepcion. The result was American Express III,
which again held the arbitration agreement to be invalid. The Second Circuit first noted that
American Express II had not been overruled by Concepcion: Concepcion invalidated state
procedures that were inconsistent with the FAA, while American Express II rested on a
“vindication of statutory rights analysis, which is part of the federal substantive law of
arbitrability.” 667 F.3d at 213 (emphasis added) (internal citations omitted). The Court
remarked that Stolt-Nielsen and Concepcion do not “require that all class-action waivers be
deemed per se unenforceable,” id. at 214, and that Green Tree had not been overruled by
Concepcion. Id. at 216. The Court then held that when an arbitration agreement effectively
prevents the exercise of statutory rights, the agreement is void. As in American Express I and
American Express II, the Court held that the costs of arbitration were so high – and the amount
that could plausibly be recovered so low – that rational actors were unlikely to arbitrate. It is
clear, then, that the American Express line of cases is still the law of the Second Circuit.
Comcast next argues that I should decline to follow American Express III because the
Second Circuit neglected to consider that its decision violated the Rules Enabling Act. Comcast
argues that a refusal to enforce the arbitration agreement would elevate Federal Rule of Civil
Procedure 23 into a substantive right. Comcast argues that because the American Express III
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Court did not discuss the Rules Enabling Act, I may consider whether the Rules Enabling Act
prohibits the outcome reached by the Second Circuit. This argument is misguided for two
reasons. First, the cases cited by Comcast do not stand for the proposition that a district court
may decline to follow an appellate court if it determines that the appellate court’s decision was
incorrect for reasons not considered by the higher court. Instead, in the main case cited by
Comcast, the district court held that the Second Circuit had not reached the legal issue in
question, and thus that there was no precedent to follow. Jackson v. Ashcroft, No. 3:02cv1739,
2003 WL 22272593, at *3-4 (D. Conn. Sept. 28, 2003). The Court did not hold that the Second
Circuit would have ruled differently if it had reached the question at issue, but instead held that
the Second Circuit had not needed to reach that question.2
Moreover, the parties in the American Express III action discussed the Rules Enabling
Act issue. The appellees in that action, like Comcast here, argued that the invalidation of the
arbitration agreement would allow Rule 23 to enlarge a substantive right, in conflict with the
Rules Enabling Act. Br. for Defs.-Appellees at 21. The appellants countered that the question
was not whether the class action wavier should be struck down because it limited a procedural
right; instead, they argued that it must struck down because it limited substantive statutory rights.
“It is not the Federal Rules of Civil Procedure that place limitations upon the FAA, . . . but
substantive federal statutes, such as the Sherman and Clayton Acts.” Reply Br. for Pls.Appellants at 7-8. Thus, although the Second Circuit did not discuss the Rules Enabling Act in
2
Another case cited by Comcast, R.B. Ventures, Ltd. v. Shane, dealt not with precedential effect,
but with collateral estoppel. No. 91cv5678, 1999 WL 632840 (S.D.N.Y., Aug. 18, 1999).
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American Express III, it was clearly aware of the arguments, and did not find them persuasive.3
This court, therefore, must follow American Express III.
Finally, Comcast argues that, even if I am bound by American Express III, the facts here
are distinguishable. Specifically, Comcast argues that the plaintiffs in American Express III
could not have opted out of the arbitration agreement without terminating the entire contract.
Fromer, on the other hand, had the ability to opt out of the arbitration provision of his agreement.
Nevertheless, the distinction is unimportant. An inability to opt out of an arbitration agreement
affects the agreement’s procedural unconscionability. What is at issue in this case is whether the
agreement was substantively unconscionable. Indeed, the Court in American Express III did not
mention the lack of an opt-out provision as a basis of its decision. Thus, American Express III
applies to this case.
C. Viability of Claims without Class Action
Under American Express III, if Fromer can show that the class action waiver here
effectively precludes him from pursuing federal statutory remedies, the waiver is void.
1. Expense of Antitrust Claims
3
Comcast also argues that the Second Circuit failed to consider the fact that its decision violated
the American Rule on attorneys’ fees. Under the American Rule, “each party is to bear its own
costs of litigation, unmitigated by any fee-shifting exceptions.” Arbor Hill Concerned Citizens
Neighborhood Ass’n v. Cnty. of Albany, 522 F.3d 182, 186 (2d Cir. 2008). According to
Comcast, American Express III is contrary to the American Rule “because it provides access to
class-action procedures and fees even though the Sherman Act – which should be the controlling
statutory pronouncement on the issue – does not.” Defs.’ Supp. Memo. at 6. As noted above, I
cannot ignore American Express III just because the Second Circuit did not expressly discuss the
American Rule argument. In any case, Comcast’s argument is unconvincing. American Express
III does not require the parties to cover each other’s fees. Instead, it merely protects access to
statutory remedies.
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The party who “seeks to invalidate an arbitration agreement on the ground that arbitration
would be prohibitively expensive . . . bears the burden of showing the likelihood of incurring
such costs.” American Express III, 667 F.3d at 217 (internal citations omitted). Fromer has
produced evidence that economic proof in his case “will require professional services costing in
the neighborhood of $500,000 to $750,000.” Pl.’s Opp’n to Def.’s Supplemental Mot., Ex. 1 at 5
(Decl. of Economist Gordon Rausser). Comcast suggests there may be evidentiary issues related
to Fromer’s submission. “[D]oes the Court accept the . . . affidavit at face value? Will there be
an evidentiary hearing of battling experts?” Def.’s Supplemental Mot. at 8. I need not engage
these questions, however, because Comcast has not introduced any countervailing evidence.
Fromer states that the monthly Comcast charges for eMTA are just a few dollars a month.
Fromer’s eMTA was installed in July 2007, so he has only been billed for those charges
approximately fifty-five times. Assuming the monthly charge is approximately $3 (see Defs.’
Mot. to Compel, Ex. F), Fromer’s damages amount to $165. The Sherman Act allows for treble
damages, so Fromer could expect to recover $495. That means Fromer can expect to recover
approximately $1 for every $202 spent in litigation; in American Express, no plaintiff could
expect to recover more than $1 for every $26 spent.
2. Chance to Recover Fees
Comcast argues that Fromer can vindicate his rights in arbitration because of the
availability of attorneys’ fees.4 Comcast is correct that the Clayton Act provides for reasonable
4
The arbitration agreement itself only provides for filing fees. The arbitration agreement
provides that “Comcast will advance all arbitration filing fees and arbitrator’s costs and expenses
upon your written request given prior to the commencement of the arbitration. You are
responsible for all additional costs that you incur in the arbitration, including, but not limited to,
attorneys or expert witnesses.” Defs.’ Mot. to Compel, Ex. D at 10 (emphasis added).
Moreover, if the arbitration concludes in Comcast’s favor, Fromer is required to reimburse
Comcast for the arbitration fees. Id.
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attorneys’ fees. 15 U.S.C. § 15. Nevertheless, the Second Circuit considered and rejected that
very argument in American Express III. The Second Circuit concluded that the possibility of
attorneys’ fees was insufficient to convince potential plaintiffs to pursue their claims. “Even
with respect to reasonable attorney’s fees, which are shifted under Section 4 of the Clayton Act,
the plaintiffs must include the risk of losing, and thereby not recovering any fees, in their
evaluation of their suit’s potential costs.” American Express III, 667 F.3d at 218 (internal
citations omitted). Therefore, because the class action waiver in this case effectively precludes
Fromer from pursuing federal statutory remedies, the class arbitration waiver is void.
The arbitration agreement provides that “[i]f the class action waiver is found to be illegal
or unenforceable, the entire Arbitration Provision will be unenforceable, and the dispute will be
decided by a Court.” Defs.’ Mot. to Compel, Ex. D at 11. The arbitration agreement, therefore,
is unenforceable with respect to the antitrust claims.
D. CUTPA Claim
Fromer has also alleged violations of CUTPA. Fromer argues that the arbitration
agreement cannot be enforced with regards to his CUTPA claim for same reasons that his
antitrust claim cannot be arbitrated; i.e., CUTPA depends upon the private cause of action for its
enforcement, and those statutory rights contained within it cannot be vindicated without the
availability of class actions. Fromer’s argument, however, misses the most crucial distinction
between the CUTPA claim and the antitrust claim: CUTPA is a state statute, while the Sherman
Act is a federal statute.
In Concepcion, the Supreme Court held that the FAA preempted state law that, in effect,
required the availability of class-wide arbitration. 131 S. Ct. at 1748. In American Express III,
the Second Circuit made clear that its holding was not precluded by Concepcion, because
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Concepcion had not addressed “whether a class-action arbitration waiver clause is enforceable
even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to
preclude their ability to vindicate their federal statutory rights.” 667 F.3d at 212 (emphasis
added). The Second Circuit then engaged in a lengthy discussion about the necessity of
vindicating federal statutory rights. The Court concluded, “[e]radicating the private enforcement
component from our antitrust law scheme cannot be what Congress intended when it included
strong private enforcement mechanisms and incentives in the antitrust statutes.” Id. at 218.
Judge Pooler, the author of American Express III, emphasized in her concurrence to the
denial of the rehearing en banc that the distinction between Concepcion and American Express
III was that the former dealt with state law, while the latter dealt with federal statutory law.
“While Concepcion addresses state contract rights, Amex III deals with federal statutory rights –
a significant distinction.” In re American Express Merchants’ Litig., 681 F.3d 139, 140 (2d Cir.
2001) (Pooler, J., concurring). She continued,
Because its analysis focused wholly on the issue of preemption of state law by
federal law, Concepcion is silent on the holdings of the Court’s earlier cases
which enforce arbitration clauses only when those clauses permit parties to
effectively vindicate their federal statutory rights.
In stark contrast, Amex III raises a different issue: whether the FAA always
trumps rights created by a competing federal statute, as opposed to rights existing
under a common law of unconscionability. At issue here is not the right to
proceed as a class, but the ability to effectively vindicate a federal statutory right
that predates the FAA.
Id. The reasoning in American Express III does not apply to the CUTPA claim, and the inability
to vindicate that statutory right does not provide a basis for the arbitration agreement
unenforceable with regard to that claim.
Fromer also argues that the CUTPA claim should not be arbitrated because the demise of
the class action waiver with regard to the antitrust claim leads to the demise of the arbitration
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agreement as a whole. In support, he points to the language of the arbitration agreement, which
provides: “[i]f the class action waiver is found to be illegal or unenforceable, the entire
Arbitration Provision will be unenforceable, and the dispute will be decided by a court.” Defs.’
Mot. to Compel, Ex. D at 11.
Comcast argues that this clause does not destroy arbitration for the CUTPA claim,
because the class action waiver has only been deemed unenforceable with regards to the antitrust
claim. In other words, the question is whether the arbitration agreement was intended to stand
and fall with respect to each claim, or with respect to each lawsuit.
Under the arbitration agreement, a “dispute” is defined as:
[A]ny dispute, claim or controversy between you and Comcast regarding any
aspect of your relationship with Comcast that has accrued or may thereafter
accrue, whether based in contract, statute, regulation, ordinance, tort (including,
but not limited to, fraud, misrepresentation, fraudulent inducement, negligence or
any other intentional tort), or any other legal or equitable theory.
Defs.’ Mot. to Compel, Ex. D at 9. The breadth of that definition suggests that a
“dispute” is more akin to a lawsuit than a claim. It is also difficult to imagine that the
parties intended to pursue analogous claims in both federal court and arbitration. Such a
strategy would be inefficient, wasteful, and duplicative. Thus, because the class action
waiver was found to be unenforceable with regard to the antitrust claim, “the entire
Arbitration Provision [is] unenforceable.”
III.
Conclusion
For the reasons stated above, I DENY the defendants’ motion to compel arbitration, doc.
57. It is so ordered. Dated at Bridgeport, Connecticut, this 21st day of August 2012.
/s/ Stefan R. Underhill
Stefan R. Underhill
United States District Judge
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