KAHN V. SPRINT NEXTEL CORPORATION et al
Filing
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OPINION fld. Signed by Judge Susan D. Wigenton on 9/4/13. (sr, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
/D- L1420
IN RE: SPRINT PREMIUM DATA PLAN
MARKETING AND SALES PRACTICES
LITIGATION
Civil Action No. l-& cv 633+
(SDW)(MCA)
OPINION
September 4. 2013
WIGENTON. District .ludge.
Before this Court is Defendant Sprint Spectrum L.P.’s motion to compel bilateral arbitration
and dismiss or stay all actions pursuant the Federal Arbitration Act, Federal Rule of Civil Procedure
12(b)(l). and 12(b)(6). This Court, having considered the parties’ supplemental submissions, decides
this matter without oral argument pursuant to Federal Rule of Civil Procedure 78. For the reasons
stated below, this Court GRANTS Defendants motion to compel arbitration.
I.
FACTUAL and PROCEDURAL BACKGROUND
Given the extensive procedural history of this case, only a brief recitation of the facts and
procedural posture is provided.
This case involves Plaintiffs Cameron Comstock, Arlene Baisa
Lockhart, Shalimar Guerra, Gene Lockhart, Matt Tillman, Scott Tallal, and Craig Morris,
(collectively “Plaintiffs”) and their grievances against Defendant Sprint Spectrum L.P. (“Sprint”).
On July 15, 2011, Sprint moved to compel arbitration with Plaintiffs. (See Dkt. No. 37.) On March
12, 2012, this Court entered an opinion and order finding that Plaintiffs’ claims were subject to
arbitration and that the arbitration agreement (“Arbitration Agreement”) was valid in almost every
respect save for the issue of unconscionahility. (See Dkt. No. 47-48.) The parties were ordered to
engage in limited discovery to permit this Court to determine whether the Arbitration Agreement,
was substantively unconscionable due to prohibitive costs. (See id.)
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Having completed their limited discovery in compliance with this Court’s March 12, 2012
order, the parties now return for this Court’s determination of the validity of the Arbitration
Agreement.
II.
LEGAL STANDARD
“The final phrase of
§
2 [of the Federal Arbitration Act (“FAA”)]
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permits arbitration
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agreements to be declared unenforceable ‘upon such grounds as exist at law or in equity for the
revocation of any contract.’” .4T&T Mobiliti’ LLC
‘i’.
Concepcion, 131 S. Ct. 1740. 1746 (2011)
(“Concepcion”). “This saving clause permits agreements to arbitrate to be invalidated by generally
applicable contract defenses, such as fraud, duress, or unconscionability.” Id. For an agreement to
be unconscionable, it must be found to be both procedurally and substantively unconscionable. See
Antkowiak v. Tax Masters, 455 Fed. Appx. 1 56, 159 (3d Cir. 2011). “In addressing a claim that an
arbitration clause is unconscionable. we apply the ordinary state law principles
.
.
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of the involved
state or territory.” Nino v. Jewehy Exchange, Inc., 609 F.3d 191, 200 (3d Cir. 2010).
This Court previously found that it was not clear under California law whether the Arbitration
Agreement was procedurally unconscionable.
Consequently, this Court turned to the issue of
substantive unconscionability to determine the validity of the Arbitration Agreement. Despite the
rule enunciated in Nino, the issue of substantive unconscionability in this case is governed by federal
law given the language in the Arbitration Agreement. See Farudu v. Superior Court, 176 Cal. App.
2
4th 1554, 1577 (Cal. Ct. App. 2009) (stating that, in that case, determination of substantive
unconscionability was governed by California pursuant to the language of the arbitration agreement).
This Court will focus on California law since only California Plaintiffs remain in this case. (See Dkt. Nos. 76, 87.)
The Arbitration Agreement states that the FAA governs the arbitration provision and “all questions of whether a dispute
is subject to arbitration.” (Dkt. No. 37-6, Dccl. of Stephanie Miller (“Miller Dccl.”) Ex. A,
p. 12.)
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i.
Substantive Unconseionabilitv
Concerning substantive unconscionability, there are two cases that provide controlling law.
The first case that is instructive on substantive unconscionahility is Green Tree Fin. Corp. v.
Randolph, 531 U.S. 79 (2000). In Green Tree the Court held that an arbitration agreement that did
not have a specific provision regarding costs would be unenforceable under the FAA if it made
arbitration prohibitively expensive.” Green 7)ee Fin. C’oip., 531 U.S. at 92. The Court further
stated that the party opposing arbitration was responsible for showing the likelihood of costs being
‘prohibitive.” Id.
Unlike the agreement in Green Tree, here the Arbitration Agreement is not silent as to
arbitration costs. instead, the Arbitration Agreement contains a clear fee-splitting provision. (Miller
DecI. Ex. A, p. 12.) The Arbitration Agreement states that the parties are jointly responsible for
arbitration costs; however, Sprint agrees to cover arbitration administrative and filing fees in excess
of $25 if the customer is seeking to recover less than SI 000, or the cost of court filing fees in the
applicablejurisdiction if the claim is for more than $1000. (See id.)
The second instructive case on the issue of substantive unconscionahility is Blair v. Scott, 283
F.3d 595 (3d Cir. 2002). In Blair, the Third Circuit addressed fee-splitting provisions in light of
Green Tree. The Blair court stated that the presence of fee-splitting alone is not enough to make an
arbitration agreement unconscionable. See Blair v. Scott Specialty Gases, 283 F.3d 595, 610 (3d Cir.
2002).
The Third Circuit further stated that for it to hold the mere existence of a fee-splitting
provision to be per se unconscionable ‘would run counter to the strong federal preference for
arbitration and the liberal policy regarding arbitration.” Id.
Blair established a test to determine whether a fee-splitting provision is prohibitive under
Green Tree. The test consisted of two separate parts. First, a court must look at the projected costs
that would apply according to the arbitration rules set forth in the agreement. See Blair, 283 F.3d at
3
607-08. Second, a court must look at the individual plaintiffs ability to pay the projected costs. See
Id.; Antkowiak, 455 Fed. App’x at 160 (applying the same test). It is Plaintiffs’ responsibility to make
a showing as to both factors. See Pant/a
i’.
lAP Worldwide Servs., VL Inc., 368 F.3d 269, 285 (3d
Cir. 2004). The B/air test is based on the original Green Tree standard. See Green Tree Fin. Corp.,
531 U.S. 607-08.
III.
DISCUSSION
a. Projected Costs
Regarding projected costs, Plaintiffs argue that the costs of individual arbitration would
be prohibitive because: (I) “Sprint’s failure to specify arhitral rules or a method for the selection of
[ani arbitrator causes increased costs,” (2) “data on the administrative costs of arbitration under
Sprint’s agreement shows that those costs always exceed the amount in controversy,” (3) “the use of
experts in similar individual arbitrations shows that Plaintiffs would likely incur substantial expert
costs that [can] not be recovered,” and (4) Plaintiffs would incur substantial and prohibitive expenses
for attorneys’ fees and costs in arbitration. (See Dkt. No. 110, PIs.’ Br. 1.)
Regarding Plaintiffs’ first point, Plaintiffs state that “Sprint’s failure to specify arbitral rules
in advance imposes additional layers of cost and delay on the arbitration process, requiring court
action
—
and the attendant [expenses]
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[to secure an arbitrator].” (See id. 2.) To support their
argument, Plaintiffs refer to evidence demonstrating that since 2010, twelve Sprint subscribers have
attempted to initiate individual arbitration with Sprint, but seven out of the twelve withdrew their
arbitration demands. (See Id,) (citing Dkt. No. 109-1, Revised Supplemental Deci. of Scott A. Bursor
(“Revised Bursor DecI.”)
¶ 22.) Of the five remaining arbitration demands, court action was required
for the appointment of an arbitrator in at least three. (See Id.) Plaintiffs highlight that the filing fee in
federal court is $350. (See Revised Bursor Dccl.
¶ 30.)
This Court notes that the filing fee is currently $400.
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This Court finds Plaintiffs’ argument unpersuasive.
Plaintiffs’ argument is misleading
because it presumes that court action will he required to choose an arbitrator if they proceeded with
individual arbitration against Sprint. The pertinent portion of the Arbitration Agreement states:
Unless we each agree otherwise, the Arbitration will be conducted by a single neutral
arbitrator and will take place in the county of the last billing address of the Device.
We will agree on the arbitrator, and if we cannot agree, then the arbitrator will be
appointed by the court as provided by the FAA.
(Miller Dccl. Ex. A, at 12.) Plaintiffs’ reference to the three instances in which court action was
required to choose an arbitrator does not establish the filing fee in federal court as a projected cost.
Instead, it shows that there is a possibility that court action and thereby a filing fee may be required
in selecting an arbitrator. Notably, Sprint has provided documents showing that it has the practice
and policy of paying thr arbitral costs when customers seek individual arbitration. (See Dkt. No. 95
DecI. of Pamela E. Benton (“Benton Dccl,”)
¶ 3.) Therefore. Plaintiffs’ first assertion of projected
costs pertaining to the logistics of the arbitral process is insufficient.
Regarding Plaintiffs’ second point, that costs of arbitration would exceed the amount in
controversy, this argument is misplaced as it does not set forth any projected costs. Plaintiffs repeat
this argument for the second part of the Blair test. Therefore, this Court addresses the merits of
Plaintiffs’ argument infra section III (b).
Regarding Plaintiffs’ third point, Plaintiffs argue that they will incur substantial expert fees
that they will not be able to recover. Plaintiffs are unable to provide any evidence pertaining to
arbitrations between Sprint and its customers.
As a result, Plaintiffs refer to seven arbitrations
between AT&T and its subscribers, but primarily rely on one particular arbitration (“AT&T
Arbitration”). Plaintiffs contend that the AT&T Arbitration is similar to theirs in that the Plaintiff in
the AT&T Arbitration was also challenging data charges. (See Revised Bursor Dccl. ¶4.) Plaintiffs
opine that since expert testimony was required in the AT&T Arbitration, the same would be required
for arbitration against Sprint. (See id.) Plaintiffs state that the expert fees in the AT&T Arbitration,
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which totaled $100,040.61, would he similar if Plaintiffs were to seek individual arbitration against
Sprint. (See id.
¶
6.) Sprint counters PIaintiffs argument with a more detailed comparison of the
AT&T Arbitration and this case. (See Dkt. No. 94 Ex. A.) Sprint clarifies that the claims in the
AT&T Arbitration involved overstatement of the amount of actual data used by the AT&T
subscriber, charges for data transactions not linked to usage by the subscriber, and the accuracy of
AT&T’s billing system in reflecting the details of data usage. (See id. 1-4.) Sprint argues that given
the differences in the nature of the claims in the AT&T Arbitration and those at issue here, the
existence of and amount of expert fees in the AT&T arbitration are not comparable to this case.
Plaintiffs also rely on the AT&T Arbitration to argue that their attorneys’ fees and expenses
would exceed those in the AT&’l’ Arbitration. (See id ¶‘ 9, 1 8-20.) Plaintiffs’ explanation, however,
is conclusory.
(See Revised Bursor DecI.
¶
20)(stating that based on Scott Bursor’s experience
individual arbitration by Plaintiffs against Sprint would exceed the attorneys’ fees and expenses in
the AT&T Arbitration.) Without more, Plaintiffs have failed to sufficiently demonstrate that the
attorneys’ fees and expenses in the AT&T arbitration are a fair representation of projected attorneys’
fees and expenses for arbitration against Sprint.
b. .4bilitvtoPm’
Despite complying with this Court’s March 12, 2012 order requiring Plaintiffs to submit
an affidavit detailing their financial information, Plaintiffs argue that their finances should not be the
focus of this Court’s analysis. (See PIs.’ Br. 7) (citing Green Tree). Instead. Plaintiffs argue that this
Court should focus on their ability to effectively vindicate their claims through individual arbitration.
(See id.) Plaintiffs argue that the high costs associated with pursuing individual arbitration with
Sprint preclude them from effectively vindicating their claims. (See Dkt. No. 113, Letter Br. 2.)
Additionally, Plaintiffs argue that they cannot effectively vindicate their claims against Sprint
because the arbitral costs will be greater than the best possible recovery. (See Pis.’ Br. 8.)
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In
making these arguments, Plaintiffs have invoked the effective vindication exception to enforcing
arbitration agreements.
The effective vindication exception reflects the Supreme Court’s
“willingness to invalidate, on public policy’ grounds, arbitration agreements that operat[e1
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as a
prospective waiver of a party’s right to pursue statutory remedies.” American Express Co. v. Italian
Colors Restaurant, 133 S.Ct. 2304, 2310 (2013) (quoting Mitsubishi Motors Corp. v. So/er ChryslerPlymouth, Inc., 473 U.S. 614, 637,
it
19 (1985). “The exception finds its origin in the desire to
prevent prospective waiver of a party’s right to pursue statutory remedies[.)” Id. (quoting
Mitsubishi Motors Corp., 473 U.S. at 637, n.19) (emphasis added).
Here, Plaintiffs’ arguments fail for two reasons.
First, regarding Plaintiff’s argument
concerning access to the arbitral forum, as previously mentioned, Sprint has proffered evidence
demonstrating that it has the practice and policy of paying for arbitral costs when customers seek
individual arbitration. (See Benton Dccl.
¶ 3.) Therefore, Plaintiffs ability to pursue their statutory
remedies through arbitration would not be hindered. Next, Plaintiffs second argument has already
been addressed by our highest court. The Supreme Court clarified in italian Colors that “the fact that
it is not worth the expense involved in proving a statutory remedy does not constitute the elimination
of the right to pursue that remedy.” American Express Co., 133 S.Ct. at 2311 (emphasis added).
Accordingly, Plaintiffs’ effective vindication arguments are unavailing.
Given Plaintiffs’ inability to prove substantive unconscionability, this Court finds that
Sprints Arbitration Agreement is enforceable.
IV.
CONCLUSION
For the foregoing reasons. this Court GRANTS Defendants’ motion to compel arbitration.
s/Susan D. Wigenton, U.S.D.J.
Orig:
Cc:
Clerk
Madeline Cox Arleo, U.S.M.J.
Parties
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