Sherman v. AT&T Inc. et al

Filing 30

MEMORANDUM Opinion and Order Signed by the Honorable Virginia M. Kendall on 3/26/2012. Mailed notice by judge's staff. (srb,)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
)
)
RICHARD SHERMAN, individually and on
)
behalf of similarly-situated persons,
)
11 C 5857
)
Plaintiff,
)
Judge Virginia M. Kendall
v.
)
)
AT&T INC., a Delaware corporation; AT&T
TELEHOLDINGS, INC. d/b/a AT&T Midwest, )
)
a Delaware corporation; and SBC INTERNET
)
SERVICES, INC. d/b/a AT&T Internet
)
Services, a California corporation,
)
)
Defendants.

MEMORANDUM OPINION AND ORDER
Plaintiff Richard Sherman (“Sherman”) filed suit against Defendants AT&T Inc., a Delaware
corporation; AT&T Teleholdings Inc. d/b/a AT&T Midwest, a Delaware corporation; and SBC
Internet Services Inc. d/b/a AT&T Internet Services, a California corporation (collectively,
“AT&T”).1 The suit alleges breach of contract, violations of the Illinois Consumer Fraud and
Deceptive Business Practices Act, 815 ICLS 505/1, et seq, and alternatively, unjust enrichment.
AT&T moves to compel arbitration of Sherman’s claims and seeks a stay of proceedings in this
Court pending the outcome of such arbitration. For the reasons set forth below, AT&T’s Motion
to Compel Arbitration is granted, and the current judicial proceedings are stayed pending the
outcome of arbitration.

1

AT&T Inc. was voluntarily dismissed without prejudice for lack of personal jurisdiction. (Doc. 20).

BACKGROUND
Sherman resides in Illinois and called AT&T on February 25, 2011, to speak with an AT&T
salesperson to order residential internet service. (Doc. 1-1, Complaint ¶16). The internet plan
was subject to AT&T’s Internet and Conditions (“IT&C”) presented on its website, which lists
the pricing plans and states that “[o]ther conditions and restrictions apply.” (Complaint, Ex. D).
Sherman activated his internet service on March 3, 2011. (Doc. 15, Ex. 3, p. 5). To activate his
internet service, he was required to complete an online registration process, during which he was
asked to check a box labeled “I have read and agree to the AT&T Terms of Service, Acceptable
Use Policy, AT&T and Yahoo Privacy Policies, Wi-Fi Terms of Service.” On that same screen,
“AT&T Terms of Service” linked to the AT&T Terms of Service (“Terms”). (Doc. 15, Ex. 3, p.
7). If Sherman did not check the box, he would not have been able to proceed with the
activation process and never would have received service. (Doc. 15, Ex. 3, p. 2-3). The Terms
include an arbitration provision that requires its parties to “arbitrate all disputes and claims”
between them “based in whole or in part upon” the internet service, on an individual basis.
(Doc. 15, Ex. 3, p. 21).
In May 2011, AT&T revised its Terms, and pursuant to the change-in-terms-provision,
provided notice to its customers by sending them an email containing information about the
revision, a link to the full text of the Terms and a reminder that “[b]y continuing to use the
Service, you are agreeing” to the Terms. (Doc. 15, Ex. 3, p. 31-32). The revision changed the
dispute resolution provision only by changing the mailing address to where customers could
send notices of their disputes.

(Doc. 15, Ex. 3, p. 50). On July 26, 2011, Sherman filed suit

individually and while seeking to represent a class of similarly-situated persons, alleging that

2

AT&T systematically overcharged consumers for residential internet service by advertising
promotional plans and yet billing customers at standard rates. (Doc. 1-1).
STANDARD OF REVIEW
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 2, provides that a written arbitration
agreement contained within a commercial contract “shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the revocation of any contract.” The FAA
evidences a strong federal policy favoring arbitration and “mandates that district courts shall
direct the parties to proceed to arbitration on issues as to which an arbitration agreement has
been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S. Ct. 1238, 84 L. Ed.
2d 158 (1985). Arbitration may be compelled by the Court pursuant to the FAA whenever there
is a written arbitration agreement, a dispute falling with the agreement’s scope, and a refusal by
one of the parties to submit to arbitration. See Zurich American Ins. Co. v. Watts Industries, Inc.,
417 F.3d 682, 687 (7th Cir. 2005). Recently, the Supreme Court reemphasized that Section 2
promotes arbitration so as to “facilitate streamlined proceedings.”
Concepcion, 131 S. Ct. 1741 (2011).

AT&T Mobility LLC v.

This “liberal federal policy favoring arbitration

agreements” applies “notwithstanding any state substantive or procedural policies to the
contrary.” Id. at 1749 (quotations omitted).
DISCUSSION
The contract for internet service at issue here falls within the FAA because its arbitration
agreement is “written” and in a contract “evidencing a transaction involving commerce.” 9
U.S.C. § 2; see Utah Lighthouse Ministry v. Found. for Apologetic Info. & Research, 527 F.3d
1045, 1054 (10th Cir. 2008) (“the Internet is generally an instrumentality of interstate
commerce”). Furthermore, the arbitration provision explicitly states that the contract “evidences
3

a transaction in interstate commerce, and thus the [FAA] governs the interpretation and
enforcement of this provision.” (Doc. 15, Ex. 3, p. 22). This Court may compel Sherman to
arbitrate his dispute with AT&T and stay the current judicial proceedings, because there is a
written arbitration agreement, their dispute falls with the agreement’s scope, and Sherman
refuses to submit to arbitration.
Nevertheless, Sherman argues that he never agreed to arbitrate his dispute because the
contract he believes he formed when he ordered internet service is not subject to the Terms to
which he agreed when he activated his service. Sherman additionally argues that even if the
Terms are valid, they were not expressly incorporated by the IT&C and were unavailable at the
time of contract formation, thereby rendering the Terms unconscionable under Illinois law.
Finally, Sherman argues that the Terms lack mutuality and are therefore unenforceable under
Illinois law.
I.

AT&T’s Terms Govern the Parties’ Contract

Sherman argues that he formed a contract with AT&T on February 25, 2011, when he spoke
with an AT&T representative to order internet service, and that the representative made no
mention of an arbitration requirement.

However, AT&T is not required to have its sales

representative read the arbitration provision aloud to potential customers in order for them to be
bound by it. See, e.g., James v. McDonald’s Corp., 417 F.3d 672, 678 (7th Cir. 2005) (“To
require McDonald’s cashiers to recite to each and every customer the fourteen pages of the
Official Rules, and then have each customer sign an agreement to be bound by the rules, would
be unreasonable and unworkable.”). Vendors may enclose the full legal terms within their
products rather than reciting them prior to purchase, for practical purposes:

4

If the staff at the other end of the phone for direct-sales operations . . . had to read
the four-page statement of terms before taking the buyer’s credit card number, the
droning voice would anesthetize rather than enlighten potential buyers. Others
would hang up in a rage over the waste of their time. And oral recitation would
not avoid customers’ assertions (whether true or feigned) that the clerk did not
read term X to them, or that they did not remember or understand it. . . .
Competent adults are bound by such agreements, read or unread.
Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1149 (7th Cir. 1997). Consequently, Sherman may
be bound by the arbitration provision even if the sales representative did not read him the
provision when executing his order.
Sherman also argues that his conversation with the AT&T representative constitutes the
meeting of the minds of himself and AT&T, and because the on-screen IT&C neither mention
arbitration nor incorporate the Terms explicitly by reference, he never agreed to arbitrate.
However, the brief IT&C explicitly state that “other conditions and restrictions apply” to the
pricing plans listed on-screen. (Doc. 1-1, Ex. D). Furthermore, Sherman was not billed when he
placed his order on February 25, 2011, but rather, when he activated his internet service on
March 3, 2011. As part of that activation process, he actively assented to the full terms and
conditions when he clicked “I have read and agree to the AT&T Terms of Service [.]” (Doc. 15,
Ex. 3, p. 7). The Seventh Circuit has repeatedly upheld such a process of informing a customer
of the full terms and conditions of his contract after his initial order. See Hill, supra (under
Illinois law, computer-purchaser who ordered a computer by phone was bound by the arbitration
provision of the purchase contract contained in the computer box because he had an opportunity
to return the computer after reading it); see Boomer v. AT&T Corp., 309 F.3d 404, 415 (7th Cir.
2002) (under Illinois law, telephone service-customer who received AT&T’s mailed notice of
new terms—including a new arbitration provision—accepted those terms by continuing to use
his AT&T telephone service rather than rejecting the terms); see also ProCD, Inc. v. Zeidenberg,
5

86 F.3d 1447 (7th Cir. 1996) (terms inside a box of software bind consumers who use the
software after having an opportunity to read the terms and to reject them by returning the
product); see also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (a forum-selection
clause that was included among three pages of terms attached to a cruise ship ticket was
enforceable). Therefore, Sherman’s assent when he activated his service constituted acceptance
of the Terms, regardless of whether he believes he participated in a “meeting of the minds” when
he placed his order with an AT&T sales representative.
Next, Sherman argues that because he has presented a genuine issue of material fact as to
whether he had sufficient notice of the Terms when he placed his order, the Court should
proceed to a trial on the validity of the Terms. “[S]ignif[ying] agreement by clicking on a box
on the screen” is “common in Internet commerce.” Treiber & Straub, Inc. v. UPS, 474 F.3d 379,
382 (7th Cir. 2007). This type of assent is called clickwrap, in which a webpage user manifests
his assent to the terms of a contract by actively clicking an “accept” button in order to proceed.
See Van Tassell v. United Mktg. Group, LLC, 795 F. Supp. 2d 770, 790 (N.D. Ill. 2011)
(describing various means of demonstrating contractual mutual assent on the internet). The
clickwrap process of checking a box next to hyperlinked terms generally provides adequate
notice. See Treiber & Straub, 474 F.3d at 385 (finding a clickwrap process to have “provided
adequate notice” to customers when it required clicking assent, the terms repeated the disclaimer
of liability several times and referred to the pertinent parts of the contract that was also available
on the business’s website); see also DeJohn v. The .TV Corp. Int’l, 245 F. Supp.2d 913, 919
(N.D. Ill. 2003) (finding internet contract terms enforceable when a webpage user had
opportunity to click on hyperlinked terms and “failure to read a contract is not a get out of jail
free card”). Here, notice would have come from Sherman’s checking a box labeled “I have read
6

and agree to the AT&T Terms of Service”“ where “AT&T Terms of Service” linked to the
Terms. (Doc. 15, Ex. 3, p. 7). Sherman does not deny and cannot deny that he actively clicked
that he accepted the hyperlinked Terms, because he would have been unable to proceed with the
activation process and would never have received his internet service without clicking his assent.
The Terms contain clear and reasonable language, in capital letters, that the customer and AT&T
agree to waive the right to a trial by jury and to participate in a class action, (Doc. 15, Ex. 3,
p.22), and repeat that this binding arbitration agreement affects the customer’s rights (p. 21), in
capital letters (p. 24). Sherman has not raised a genuine issue of material fact that the Terms do
not provide reasonable notice. Consequently, Sherman had adequate notice of the Terms, to
which he assented at the time of his activation of internet service.
II.

AT&T’s Arbitration Provision is Not Unconscionable

Sherman next claims that even if the Terms are valid, they were unavailable at the time of
contract formation, and neither bargained for nor expressly incorporated by the IT&C. Relying
on factors identified in Razor v. Hyundai Motor America, Sherman argues that these aspects of
AT&T’s process make the Terms procedurally unconscionable under Illinois law. 222 Ill.2d 75
(Ill. 2006). Procedural unconscionability refers to “a situation where a term is so difficult to
find, read, or understand that the plaintiff cannot fairly be said to have been aware he was
agreeing to it, and also takes into account a lack of bargaining power.” Id. at 100. The facts
already establish that Sherman had a full and fair opportunity to review the Terms prior to
activating his service and before he had ever been billed for service. What’s more, in May 2011,
AT&T revised its Terms, and pursuant to its change-in-terms-provision (Doc. 15, Ex. 3, p. 9),
provided notice to its customers by sending them an email containing information about the
revision, a link to the full text of the Terms and a reminder that “[b]y continuing to use the
7

Service, you are agreeing” to the Terms. (Doc. 15, Ex. 3, ps. 31-32). The revision changed the
dispute resolution provision only by changing the mailing address to where customers could
send notices of their disputes. (Doc. 15, Ex. 3, p. 50). The revised Terms repeat thrice in bold
capital letters on the front page that the customer should read the agreement carefully and that
“paragraph 13 requires arbitration on an individual basis to resolve disputes, rather than jury
trials or class actions.” (Doc. 15, Ex. 3, p. 37). The Terms are not difficult to find, read or
understand, and consequently AT&T’s process is not procedurally unconscionable.
Further, it is irrelevant that the Terms were drawn up by AT&T without Sherman’s input or
bargaining, because even a “whole deal . . . offered on a take-it-or leave-it basis” does not
constitute a contract of adhesion under Illinois law, since “few consumer contracts are negotiated
one clause at a time.” Carbajal v. H&R Block Tax Servs., 372 F.3d 903, 906 (7th Cir. 2004).
Finally, that the arbitration provision limits AT&T’s class action liability does not diminish its
enforceability. See, e.g., Concepcion, 131 S. Ct. at 1744 (“the FAA prohibits States from
conditioning the enforceability of certain arbitration agreements on the availability of classwide
arbitration procedures”). The Court finds that Sherman agreed to a contract with a change-interms-provision and subject to other conditions, was presented readily-accessible Terms prior to
activation, and was granted a full and fair opportunity to abort his activation process and later to
review the revisions. Compare Kinkel v. Cingular Wireless, LLC, 223 Ill.2d 1 (2006) (contract
was not procedurally unconscionable because plaintiff-purchaser had terms in her possession and
could have read them; however, contract was substantively unconscionable because it failed to
provide a cost-effective mechanism for individual remedies in either a judicial or an arbitral
forum). Consequently, AT&T’s arbitration provision is not procedurally unconscionable.

8

III.

AT&T’s Arbitration Provision Does Not Lack Mutuality

Finally, Sherman argues that the Court should not enforce the arbitration provision because it
only covers claims against AT&T and lacks mutuality under Illinois law. However, so long as
Sherman received consideration for the arbitration agreement, Illinois courts will enforce
AT&T’s arbitration provision. Bishop v. We Care Hair Dev. Corp., 738 N.E.2d 610, 622 (Ill.
App. Ct. 2000) (“the proposition that an arbitration agreement is not mutually binding where one
party reserves the option to raise and resolve the majority of disputes in a court rather than
through arbitration . . . cannot be reconciled with Illinois law” because “mutuality of obligation
is not essential if the requirement of consideration has been met”). Sherman does not dispute
that he received consideration for the whole contract, but rather, that the arbitration agreement is
an “independent contract” that requires independent consideration. Here, AT&T’s Terms are not
an “independent contract” because AT&T had offered Sherman—prior to his activation and
billing—both internet service and advantageous arbitration terms, including AT&T’s
commitment to pay all arbitration filing, administration and arbitrator fees unless the claim is
frivolous; and even if frivolous, so long as the claim is less than $10,000, Sherman’s fee would
be capped at $125. (Doc. 15, Ex. 3, p. 14). Thus, Sherman has received adequate consideration
for AT&T’s Terms, including its arbitration provision, as part of the broader agreement of the
purchase order and IT&C’s subject-to-change clause. See Tortoriello v. Gerald Nissan of N.
Aurora, Inc., 379 Ill. App. 3d 214, 238 (Ill. App. Ct. 2d Dist. 2008) (“where the promise to
arbitrate is part of a clause within a larger contract” and is supported by consideration, “the
arbitration clause does not suffer for lack of mutuality of obligation”); see also Boomer, 309
F.3d at 419 (“arbitration offers cost-saving benefits” that are “reflected in a lower cost of doing
business that in competition are passed along to customers”).
9

CONCLUSION AND ORDER
Sherman has failed to set forth facts to show that AT&T’s arbitration provision is invalid,
unconscionable or lacking mutuality.

Consequently, AT&T’s arbitration provision is

enforceable, and the Court grants AT&T’s Motion to Compel Arbitration. The current judicial
proceedings are stayed pending the outcome of arbitration.

__________________________________________
Virginia M. Kendall
United States District Court Judge
Northern District of Illinois
Date: March 26, 2012

10