Patricia Rowe PA et al v. AT&T Inc et al
Filing
45
ORDER granting 14 Motion to Compel; granting 14 Motion to Stay pending outcome of arbitration; denying 13 Motion to Dismiss. Signed by Honorable G Ross Anderson, Jr on 1/15/14.(alew, )
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
)
)
)
)
)
)
Plaintiff,
)
)
vs.
)
)
AT&T, Inc.; AT&T Corp.; BellSouth
)
Telecommunications, LLC formerly
)
BellSouth Telecommunications, Inc.;
and Evergreen Telecom Services, LLC, )
)
)
Defendants.
________________________________ )
Patricia Rowe P.A. and Dr. Patricia
S. Rowe, individually and on behalf
of other persons and entities
similarly situated,
C/A No.: 6:13-cv-01206-GRA
ORDER
(Written Opinion)
This litigation arises out of Plaintiff Dr. Patricia Rowe’s purchase of
telecommunication services from Defendants AT&T Inc., AT&T Corp., and BellSouth
Telecommunications, LLC (“BellSouth”) (collectively “AT&T”) for her business.
Plaintiff contends that as a result of an automatic renewal provisions contained in her
original services contract, AT&T charged her, and many other similarly situated
customers, an early termination fee. Arguing that AT&T has been fraudulent and
deceptive, Plaintiff looks to this Court to remedy AT&T’s widespread practice of
unauthorized contract renewals and early termination fees (“ETFs”).
Defendants have not responded to the merits of Plaintiff’s putative class-action
complaint.
Instead, AT&T argues that Plaintiff cannot seek relief in this Court
because the “BellSouth Service Agreement for Business Services Bundled Offerings
in South Carolina” (the “BSA”) requires Plaintiff to submit all of her claims to binding
arbitration. Plaintiff disagrees, asserting that she, and other customers like her, never
Page 1 of 26
agreed to arbitrate or waive the right to participate in a class action regarding an early
termination fee. Plaintiff further contends that the BSA is unconscionable.
This matter is formally before this Court based on two motions. The first is
Defendant AT&T Inc.’s amended and re-urged motion to dismiss for lack of personal
jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2). The second is Defendants AT&T
Inc., AT&T Corp., and BellSouth’s amended and re-urged motion to compel
arbitration of all claims asserted by Plaintiff in her amended & restated complaint.
After reviewing the parties’ submissions and the statements of counsel at the hearing
on these motions, this Court DENIES Defendant AT&T Inc.’s motion to dismiss and
GRANTS Defendants’ motion to compel arbitration and stay proceedings.
Background
On
November
8,
2007,
Plaintiff
contracted
with
AT&T
to
receive
telecommunications services at her chiropractic business for a twelve-month period
and signed the “BellSouth Welcoming Rewards Promotion Agreement” (the “WRPA”).
ECF No. 24-1.
The WRPA specifies that it includes “terms incorporated by
reference,” including terms listed on BellSouth’s website. Id. at 2. Plaintiff signed the
contract under an acknowledgment stating: “[b]y signing or indicating acceptance, I
acknowledge and accept all terms of the Agreement as set forth above, including all
terms set forth in the ‘Service Agreement, Service Descriptions and Price Lists’ found
at http://cpr.bellsouth.com/bst/product_line.htm.” Id. at 4. Several months prior to
Plaintiff signing her contract, a copy of the BSA applicable to her was posted on
AT&T’s (then BellSouth’s) website at http://cpr.bellsouth.com/bst/product_line.htm
(the web address mentioned in the acknowledgment).
Page 2 of 26
See ECF No. 14-2.
In
addition, AT&T contracted with a third-party vendor to mail new customers an
information package that included, among other things, the BSA. See ECF Nos. 14-1
& 14-3. The BSA contained the following pertinent provisions:
BY APPLYING FOR, SUBSCRIBING TO, USING, OR PAYING FOR
THE ORDERED SERVICE, YOU AGREE TO BE BOUND BY THE
CHARGES, TERMS, AND CONDITIONS SET FORTH IN THIS
AGREEMENT. IF YOU DO NOT AGREE WITH THE PROVISIONS OF
THIS AGREEMENT, DO NOT USE THE SERVICES AND CANCEL
THIS AGREEMENT IMMEDIATELY BY CONTACTING BellSouth AT
1-800-753-8172.
...
THIS AGREEMENT REQUIRES THE USE OF ARBITRATION TO
RESOLVE CERTAIN DISPUTES AND OTHERWISE LIMTS THE
REMEDIES AVAILABLE TO YOU IN THE EVENT OF A DISPUTE.
PLEASE READ SECTIONS 6 AND 8.
...
8. DISPUTE RESOLUTION INDEPENDENT ARBITRATION
PLEASE READ THIS SECTION 8 CAREFULLY. THIS SECTION 8
SETS FORTH THE PROCEDURE FOR THE RESOLUTION OF
DISPUTES UNDER THIS AGREEMENT THROUGH FINAL AND
BINDING ARBITRATION BEFORE A NEUTRAL ARBITRATOR
INSTEAD OF IN A COURT BEFORE A JUDGE OR JURY OR
THROUGH CLASS ACTION. . . . EXCEPT AS PROVIDED IN THIS
SECTION 8, ALL DISPUTES ARISING OUT OF OR RELATED TO
THIS AGREEMENT (WHETHER BASED IN CONTRACT, TORT,
STATUTE, FRAUD, MISREPRESENTATION OR ANY OTHER LEGAL
OR EQUITABLE THEORY), INCLUDING ANY DISPUTE BASED ON
ANY SERVICE OR ADVERTISING OF THE SERVICE RELATED TO
THIS AGREEMENT, SHALL BE RESOLVED BY FINAL AND BINDING
ARBITRATION, WHICH SHALL BE GOVERNED BY THE FEDERAL
ARBITRATION ACT (“FAA”), 9 U.S.C. §§ 1-16.
...
DISPUTES UNDER THIS AGREEMENT MAY NOT BE (A) RESOLVED
ON A CLASS-WIDE BASIS, (B) JOINED WITH ANOTHER LAWSUIT,
OR (C) JOINED IN ANY ARBITRATION OF A DISPUTE OF ANY
OTHER PERSON.
...
ECF No. 24-5 (emphasis in original).
Page 3 of 26
Plaintiff continued service and paid for such services with AT&T far exceeding
the original 12-month term included in the signed WRPA and exceeding the 36-month
term on a BellSouth Long Distance, Inc. Auto Renew Term Plan Agreement, which
Plaintiff utilized. ECF No. 24 at 6. In May 2012, Plaintiff decided to discontinue her
business telecommunications services with AT&T and contacted AT&T by telephone
to discontinue her services. Id. It was at this time that Plaintiff was informed she
would owe an early termination fee. Id. The AT&T representative informed Plaintiff
that notice of an automatic renewal for 36 months had been included in her May 5,
2010 invoice. Id. The May 5, 2010 three-page monthly billing statement included a
heading titled “NEWS YOU CAN USE” and contained the following provision:
AUTOMATIC RENEWAL
Continued Savings! Although your local service agreement is scheduled
to expire in approximately 180 days, it is also scheduled to
automatically renew. There’s nothing you need to do. Simply enjoy the
ongoing savings every month, based on the terms and conditions of
your existing agreement. If you wish not to renew your agreement,
please call 1.866.843.1258 for direction about the notification of your
intent not to renew that you must provide, in writing, at least 60 days
prior to expiration date.
ECF No. 24-8 at 3.
The AT&T representative further informed Plaintiff that
termination of her services would result in a $600 early termination fee, which was
then added to Plaintiff’s May 5, 2012 AT&T invoice. ECF Nos. 24 at 8, 24-9 at 10.
On May 29, 2012, AT&T mailed Plaintiff an invoice detailing the following:
We recently sent you a final bill for your former telephone service. Our
records indicate that $649.72 is past due and payment has not yet been
received.
Please send us your payment today or call so that we can make
arrangements for payment which are convenient for you.
If your payment is already on the way, please accept our thanks.
Page 4 of 26
If you have any questions, please call 1-877-977-2187.
Account Representative
AT&T Accounts Receivable Center, AT&T South Carolina
ECF No. 24-9 at 11. This invoice also included instructions on “HOW TO PAY YOUR
BILL.” Id. Plaintiff’s final bill was revised and dated June 5, 2012 indicating her
outstanding balance to be $652.31. Id. at 13. Plaintiff paid the bill “[u]nder duress
that her credit rating would be compromised . . . with a letter protesting the early
termination charge.” ECF No. 24 at 9.
On May 3, 2013, Plaintiff instituted this action against Defendants AT&T Inc.,
AT&T Corp., BellSouth, and ABC Company. ECF No. 1. On September 24, 2013,
Defendant AT&T Inc. filed a motion to dismiss for lack of jurisdiction, ECF No. 13, and
Defendants AT&T Inc., AT&T Corp., and BellSouth, filed a motion to compel
arbitration and stay litigation, ECF No. 14.
On October 19, 2013, Plaintiff filed
responses in opposition to both motions, ECF Nos. 21–22, and also filed an amended
and restated complaint, adding Defendant Evergreen Telecom Services, LLC and
asserting additional causes of action, ECF No. 24. In the amended and restated
complaint, Plaintiff makes the following claims and requests for relief against
Defendants: (1) violations of Section 201(b) of the Federal Communications Act
(“FCA”), 47 U.S.C. § 201(b); (2) conversion; (3) violations of the Racketeer Influenced
and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961; (4) unjust enrichment; (5)
money had and received; (6) declaratory relief pursuant to 28 U.S.C. § 2201; (7)
injunction; (8) punitive damages; (9) negligent misrepresentation; (10) unfair business
practices; (11) unfair trade practices; and (12) civil conspiracy. ECF No. 24. Plaintiff
Page 5 of 26
claims that AT&T improperly charged her, and other customers like her, an early
termination fee for cancelling a contract that had been unilaterally renewed. Id.
On November 4, 2013, Defendant AT&T Inc. replied to Plaintiff’s response in
opposition of its motion to dismiss, ECF No. 31, and Defendants replied to Plaintiff’s
response in opposition of their motion to compel arbitration, ECF No. 32.
On
November 11, 2013, Defendant AT&T Inc. filed an amended and re-urged motion to
dismiss under Rule 12(b)(2) for lack of jurisdiction, ECF No. 33, and Defendants
AT&T Inc., AT&T Corp., and BellSouth filed an amended and re-urged motion to
compel arbitration and stay litigation, ECF No. 34, indicating that the prior briefings
filed by the parties relating to the pending motions apply to Plaintiff’s amended and
restated complaint. On November 12, 2013, Plaintiff filed a sur-reply to Defendants’
motion to compel. ECF No. 36. On November 20, 2013, Plaintiff filed responses to
the amended and re-urged motions, incorporating her previous filings with this Court
and asking this Court to deny the requested relief. ECF Nos. 38–39. On December
3, 2013, this Court heard arguments on the pending motions1. ECF No. 40. After the
hearing, on December 11, 2013, Defendants AT&T Inc., AT&T Corp., and BellSouth
sent a letter to this Court addressing an issue raised by Plaintiff at the hearing. ECF
No. 42. Plaintiff responded with her own letter on December 15, 2013. ECF No. 43.
On December 20, 2013, in its second letter submitted to this Court, AT&T responded
to the arguments and case law raised in Plaintiff’s letter. ECF No. 44.
1
The scheduled hearing was for Defendant’s motion to dismiss for lack of jurisdiction and
Defendants’ motion to compel arbitration and to stay. ECF No. 30. However, this Court
chose not to proceed with arguments on Defendant’s motion to dismiss under Rule 12(b)(2);
rather, this Court issued a ruling based on the parties’ submissions. See ECF No. 41 at 3–5.
Page 6 of 26
Discussion
I.
Motion to Dismiss for Lack of Personal Jurisdiction
A.
Standard of Review
When personal jurisdiction is challenged by motion under Federal Rule of Civil
Procedure 12(b)(2), the plaintiff has the burden of showing that jurisdiction exists.
See Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 402 (4th
Cir. 2003). “[T]he plaintiff ultimately bears the burden of proving to the district court
judge the existence of jurisdiction over the defendant by a preponderance of the
evidence.” New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290,
294 (4th Cir. 2005). However, when the court addresses the issue of jurisdiction on
the basis of pleadings, motion papers, and supporting legal memoranda without an
evidentiary hearing, the plaintiff need only establish a prima facie case of personal
jurisdiction.2 Id.; Carefirst of Md., Inc., 334 F.3d at 396. In deciding such a motion,
the court “must construe all relevant pleading allegations in the light most favorable to
Plaintiffs, assume credibility, and draw the most favorable inferences for the
existence of jurisdiction.” New Wellington Fin. Corp., 416 F.3d at 294; see also
Precept Med. Prods., Inc. v. Klus, 282 F. Supp. 2d 381, 385 (W.D.N.C. 2003) (“[F]or
the purposes of a Rule 12(b)(2) motion, the Court will accept the Plaintiff’s version of
disputed facts.”). A plaintiff’s claim for personal jurisdiction may be established by
pointing to affidavits or other relevant evidence, see New Wellington Fin. Corp., 416
F.3d at 294, and must also be based “on specific facts set forth in the record.” Magic
Toyota, Inc. v. Se. Toyota Distribs., Inc., 784 F. Supp. 306, 310 (D.S.C. 1992).
2
As stated above, this Court dispensed with arguments on Defendant AT&T Inc.’s motion to
dismiss, and based its ruling on the parties’ submissions. See ECF No. 41 at 3–5.
Page 7 of 26
B.
Analysis
To validly assert personal jurisdiction over a non-resident defendant, two
conditions must be satisfied. Christian Sci. Bd. of Dirs. of the First Church of Christ v.
Nolan, 259 F.3d 209, 215 (4th Cir. 2001). First, the exercise of jurisdiction must be
authorized by the long-arm statute of the forum state, and second, the exercise of
personal jurisdiction must not “overstep the bounds” of Fourteenth Amendment due
process. Anita’s New Mexico Style Mexican Food, Inc. v. Anita’s Mexican Foods
Corp., 201 F.3d 314, 317 (4th Cir. 2000). South Carolina’s long-arm statute3 has
been construed “to extend personal jurisdiction to the constitutional limits imposed by
federal due process.” Foster v. Arletty 3 Sarl, 278 F.3d 409, 414 (4th Cir. 2002); see
also Cockrell v. Hillerich & Bradsby Co., 611 S.E.2d 505, 508 (S.C. 2005). Thus, to
comport with both South Carolina law and the Due Process Clause of the Fourteenth
Amendment, a plaintiff must demonstrate that: (1) the non-resident defendant has
“minimum contacts” in this forum and (2) requiring the defendant to defend its interest
in this state “does not offend traditional notions of fair play and substantial justice.”
3
A court may exercise personal jurisdiction over a person who acts directly or by an agent as
to a cause of action arising from the person's:
(1) transacting any business in this State;
(2) contracting to supply services or things in the State;
(3) commission of a tortious act in whole or in part in this State;
(4) causing tortious injury or death in this State by an act or omission outside this
State if he regularly does or solicits business, or engages in any other persistent
course of conduct, or derives substantial revenue from goods used or consumed or
services rendered in this State;
(5) having an interest in, using, or possessing real property in this State;
(6) contracting to insure any person, property, or risk located within this State at the
time of contracting;
(7) entry into a contract to be performed in whole or in part by either party in this
State; or
(8) production, manufacture, or distribution of goods with the reasonable expectation
that those goods are to be used or consumed in this State and are so used or
consumed.
S.C. Code Ann. § 36-2-803(A).
Page 8 of 26
Foster, 278 F.3d at 414 (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945)).
A defendant has sufficient minimum contacts with a state when “the
defendant’s conduct and connection with the forum State are such that he should
reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980).
The analytical framework for determining whether minimum contacts exist
differs according to whether a defendant is subject to general or specific personal
jurisdiction. A court has general jurisdiction over an out-of-state defendant “when [the
defendant’s] affiliations with the State are so ‘continuous and systematic’ as to render
them essentially at home in the forum state.” Goodyear Dunlop Tires Operations,
S.A. v. Brown, ___ U.S. ___, ___, 131 S.Ct. 2846, 2851 (2011) (quoting Int’l Shoe
Co., 326 U.S. at 317). On the other hand, a court has specific jurisdiction over parties
when the claims “arise out of or relate to” the defendant’s contacts with the forum
state.
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472–73 (1985) (citing
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984)).
It is undisputed that Defendant AT&T Inc. is incorporated in Delaware and its
principal place of business is in Texas.
Further, Plaintiff does not argue that
Defendant AT&T Inc. has any physical presence within the state of South Carolina.
Unlike Defendants BellSouth and AT&T Corp., Defendant AT&T Inc. is not registered
to conduct business in South Carolina, and has no authorized individual or
corporation that accepts service of process or otherwise acts as an agent in South
Carolina. In this case, it is clear to this Court that Defendant AT&T Inc. does not have
‘systematic and continuous’ contacts with South Carolina sufficient to support general
Page 9 of 26
jurisdiction.
As such, this Court must determine whether Defendant AT&T Inc.’s
contacts related to this case are sufficient to subject Defendant AT&T Inc. to specific
jurisdiction in South Carolina.
Plaintiff asserts that personal jurisdiction exists over Defendant AT&T Inc.
based on theories of agency. ECF No. 22. That is, Plaintiff argues that BellSouth,
AT&T Corp., or AT&T Intellectual Properties, Inc., are the agents of Defendant AT&T
Inc. ECF No. 22 at 11. From this premise, Plaintiff argues that Defendant AT&T Inc.
was transacting business in, contracting to supply services or things, and committed
a tortious act in South Carolina by virtue of BellSouth’s, AT&T Corp.’s, or AT&T
Intellectual Properties, Inc.’s activities. Id. at 11–12; see S.C. Code Ann. § 36-2803(A). Plaintiff further argues that Defendant AT&T Inc. is subject to jurisdiction in
South Carolina because as “the successor in interest via merger” to BellSouth (“the
named party to the contract that Plaintiff signed in this case”), Defendant AT&T Inc.
“ratif[ied] a continuing tort in South Carolina.”
Id. at 15.
Specifically, Plaintiff
suggests Defendant AT&T Inc. “is the ultimate party responsible for sending a hidden
notice of renewal and later charging ETFs” because “AT&T Inc., through its officers
and directors, had to know of, or approve the collection of ETFs and chose not to
disassociate itself, or stop its subsidiaries from charging ETFs to customers in South
Carolina, the Southeast region, or to the public at large”—as indicated by the 888
consumer complaints in Georgia and 419 complaints in South Carolina. Id.; see also
ECF Nos. 24-10, 24-11, & 24-12. Defendant AT&T Inc. denies that BellSouth, AT&T
Corp., or any other corporation in the AT&T family was its agent in South Carolina,
contending that these are separate and legitimate corporations. ECF No. 31 at 7.
Page 10 of 26
Generally, when considering whether jurisdiction may be asserted over the
non-resident parent corporation solely on the basis of the subsidiary’s contacts with
the forum, courts presume independence between the parent and the subsidiary.
Toney v. Family Dollar Stores, Inc., 273 F. Supp. 2d 757, 761 (S.D.W. Va. 2003).
However, this presumption may be overcome by showing other facts beyond the
subsidiary’s mere presence in the corporate family. Id. For example, where the
parent corporation exerts significant control over the activities of the subsidiary. See
Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 61 (4th Cir. 1993); DeWitt Truck Brokers,
Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 683 (4th Cir. 1976). In addition, an
“agent’s actions may be attributed to the principal, for purposes of personal
jurisdiction, if the principal later ratifies the agent’s conduct.” Mitrano v. Hawes, 377
F.3d 402, 407 (4th Cir. 2004) (internal citations omitted).
In this case, the documents exchanged between the parties promote AT&T as
one solidified business. Furthermore, AT&T Inc. and its subsidiaries file consolidated
tax returns and issue consolidated financial statements. In its annual reports and in
its Securities and Exchange Commission 10-Q reports, AT&T Inc. refers to itself as
“AT&T” or “the Company,” defined to mean AT&T Inc. together with its “majorityowned subsidiaries and affiliates.” ECF No. 22-2 at 8. These annual reports show
AT&T Inc. considered itself and its subsidiaries to be an integrated, national
telecommunication services conglomerate. Moreover, this Court agrees with Plaintiff
that AT&T Inc. was aware of the ETFs and consumer complaints and did not stop this
practice.
Accordingly, this Court holds that AT&T Inc., through its relation with
BellSouth or AT&T Corp., has subjected itself to this Court’s jurisdiction pursuant to
Page 11 of 26
South Carolina law as a result of the South Carolina-based activities of AT&T Corp.
or BellSouth.
II.
Motion to Compel Arbitration
A.
Standard of Review
The Federal Arbitration Act (“FAA”) establishes a “strong federal public policy
in favor of enforcing arbitration agreements,” and is designed to “ensure judicial
enforcement of privately made agreements to arbitrate.” Dean Witter Reynolds, Inc.
v. Byrd, 470 U.S. 213, 217–19 (1985). The FAA was enacted by Congress in 1925
“to reverse the longstanding judicial hostility to arbitration agreements that had
existed at English common law and had been adopted by American courts, and to
place arbitration agreements on the same footing as other contracts.” Snowden v.
CheckPoint Check Cashing, 290 F.3d 631, 639 (4th Cir. 2002) (quoting Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). “Underlying this policy is
Congress’ view that arbitration constitutes a more efficient dispute resolution process
than litigation.”
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500 (4th Cir. 2002)
(internal citations omitted).
The FAA provides that arbitration clauses in contracts involving interstate
commerce “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. Under the
FAA, a district court must compel arbitration and stay court proceedings if the parties
have agreed to arbitrate their dispute. Id. §§ 2, 3. But, if the validity of the arbitration
agreement is in issue, a district court must first decide if the arbitration clause is
enforceable against the parties. Id. § 4. “[A]ny doubts concerning the scope of
Page 12 of 26
arbitrable issues should be resolved in favor of arbitration.” Drews Distrib., Inc. v.
Silicon Gaming, Inc., 245 F.3d 347, 349 (4th Cir. 2001) (quoting Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)). “A court should
not deny a request to arbitrate an issue unless it may be said with positive assurance
that the arbitration clause is not susceptible of an interpretation that covers the
asserted dispute.” Id. at 349–350 (internal quotations omitted). However, “a party
cannot be required to submit to arbitration any dispute which he has not agreed so to
submit.” United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582 (1960). A party can compel arbitration by establishing: (1) the existence of a
dispute between the parties; (2) a written agreement that includes an arbitration
provision purporting to cover the dispute and that is enforceable under general
principles of contract law; (3) the relationship of the transaction, as evidenced by the
agreement, to interstate or foreign commerce; and (4) the failure, neglect, or refusal
of a party to arbitrate the dispute. Am. Gen. Life & Accident Ins. Co. v. Wood, 429
F.3d 83, 87 (4th Cir. 2005).
“[E]ven though arbitration has a favored place, there still must be an underlying
agreement between the parties to arbitrate.”
Adkins, 303 F.3d at 501 (internal
quotations omitted). “Whether a party agreed to arbitrate a particular dispute is a
question of state law governing contract formation.” Id. (citing First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). “Generally applicable contract defenses,
such as fraud, duress, or unconscionablity, may be applied to invalidate arbitration
agreements without contravening § 2” of the FAA.
Casarotto, 517 U.S. 681, 682 (1996).
Doctor’s Assocs., Inc. v.
“[T]he party resisting arbitration bears the
Page 13 of 26
burden of proving that the claims at issue are unsuitable for arbitration.” Green Tree
Fin. Corp.–Ala. v. Randolph, 531 U.S. 79, 81 (2000).
B.
Analysis
In this case, Plaintiff disputes the existence of only one of the four
prerequisites for compelling arbitration. It is clear that there is a dispute between the
parties, that the contract signed by Plaintiff involves interstate commerce since AT&T
provides telephone services to customers world-wide, and that Plaintiff has refused to
submit her claims to arbitration. At issue in this case, then, is whether an enforceable
arbitration provision exists under general principles of contract law.
AT&T argues that Plaintiff must settle her disputes with AT&T through
arbitration, pursuant to the terms and conditions of her contract. ECF No. 14. In
response, Plaintiff asserts that she, and others similarly situated, did not assent to
arbitrate or waive the right to participate in a class action. ECF No. 21. In addition,
Plaintiff argues that if this Court finds she did assent to the arbitration clause, it is
nevertheless unenforceable and invalid under South Carolina law because it is
unconscionable. Id. In its reply, AT&T argues that Plaintiff is bound to an arbitration
agreement, that the FAA governs the arbitration agreement, and that the arbitration
agreement is not unconscionable. ECF No. 32. In its sur-reply, Plaintiff asserts that
the claims at issue are not within the scope of arbitrable issues and that the
arbitration clauses
in the various
agreements
surrounding
unconscionable and unenforceable in their entirety. ECF No. 36.
Page 14 of 26
this
case
are
Despite Plaintiff’s many arguments against compelling arbitration, she has not
met her burden of proving that her claims are unsuitable for arbitration. See Green
Tree, 531 U.S. at 81. This Court will discuss each of Plaintiff’s arguments below.
1.
Agreement to Arbitrate
Plaintiff argues that she did not consent to the document containing an early
termination fee and automatic renewal provision, the “BellSouth Simple Savings
Program 2006-2007 Agreement” (“SSPA”), and that she did not waive her right to
participate in a class action. ECF No. 21 at 4–5. Plaintiff suggests that after she
physically signed by hand the WRPA, a representative from Evergreen Telecom
Services, LLC signed her up for business telephone services and presented the
SSPA, if at all, to her by a fax, “several days later without any affirmative action on
her part to assent to its terms.” Id. at 5 n.12.
Defendants argue that Plaintiff’s assertions surrounding the SSPA are
misplaced because “AT&T is not contending that [Plaintiff] used the Internet to
manifest assent to an ‘online agreement’[;] [r]ather, AT&T is relying on the contract
that [she] physically signed by hand and attached to the complaint.” ECF No. 32 at 4.
Defendants argue that there is no dispute surrounding the WRPA because Plaintiff
admittedly signed the WRPA and entered into that contract, which incorporates
additional terms by reference. ECF No. 32 at 2, 4; see ECF Nos. 24 at 5, 24-1 at 2–
4. Defendants have demonstrated that Plaintiff agreed to arbitrate by showing that
Plaintiff agreed to Defendants’ terms of service. See ECF No. 32 at 2–3. Defendants
have established that those incorporated terms were maintained on the website
specified above her signature, and that the terms incorporated by reference included
Page 15 of 26
the BSA, which contained an agreement to arbitrate “all disputes arising out of or
related to this agreement,” and a requirement that the arbitration take place
individually, rather than on a class-wide basis. ECF No. 14-2; see also ECF No. 24-5
¶8.4 Plaintiff’s argument that she could not have seen the incorporated terms online
because she “does not use a computer to access the internet,” ECF No. 21 at 11,
does not rise to the necessary level for escaping the obligation of the incorporated
contract provision. See First Baptist Church of Timmonsville v. George A. Creed &
Son, Inc., 281 S.E.2d 121, 123 (S.C. 1981) (“[I]n the absence of a showing of fraud,
mistake, unfair dealing or the like, a party to a contract incorporating an arbitration
provision cannot escape the obligation of such a provision by simply declaring: ‘But I
did not read the whole agreement’”); Brown v. Green Tree Servs., LLC, 585 F.Supp.
2d 770, 777 (D.S.C. 2008) (affirming that “every contracting party owes a duty to the
other party to the contract and to the public to learn the contents of a document
before he signs it”). If a party could get out of a contract by arguing that she did not
read it, contracts would be meaningless.
This Court agrees with Defendants that Plaintiff entered into a business
contract for telephone services, the WRPA, which incorporates by reference an
arbitration agreement.
As the Fourth Circuit has emphasized, a clause requiring
arbitration of disputes “arising out of or related to this Agreement” is “capable of an
4
In her amended complaint, Plaintiff attaches an “AT&T Business Service Agreement.” ECF
No. 24-6. Defendants argue that “[e]ven if the contract [Plaintiff] signed and [she] attached to
[her] complaint incorporated those terms instead of the [terms in the] BSA—and it does not—
the result would be the same: Both sets of terms include an arbitration agreement that waives
class actions.” ECF No. 32 at 3 n.2. However, at the hearing, Plaintiff’s attorney referenced
specific provisions of the BSA. ECF No. 41 at 10. Therefore, this Court finds that the
appropriate document incorporated by reference into the WRPA is the BSA.
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expansive reach” and embraces a “broad scope of arbitrable issues.” Am. Recovery
Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 93 (4th Cir. 1996); see also
J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir.
1988).
Plaintiff’s claims, arising from a dispute over whether she was properly
assessed an early termination fee, therefore, arise out of her contract with AT&T for
telephone services (the WRPA) and fall within the scope of the arbitration clause in
the BSA. Accordingly, Plaintiff agreed to arbitrate her claims and she should be held
to the terms of the agreement—provided they are valid and enforceable.
2.
Enforceability under South Carolina Law
Plaintiff next argues that the arbitration provision is unconscionable under
South Carolina law because it precludes class action lawsuits as part of a contract of
adhesion, it limits liability, and it includes prohibitive arbitration costs. ECF Nos. 21 at
8 & 35 at 5.
“In analyzing claims of unconscionability in the context of arbitration
agreements, the Fourth Circuit has instructed courts to focus generally on whether
the arbitration clause is geared towards achieving an unbiased decision by a neutral
decision maker.” Simpson v. MSA of Myrtle Beach, Inc., 644 S.E.2d 663, 669 (S.C.
2007) (citing Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir. 1999)).
Under limited circumstances, “equity may require invalidation of an arbitration
agreement that is unconscionable.” Murray v. United Food & Commercial Workers,
289 F.3d 297, 302 (4th Cir. 2002). An arbitration agreement, under South Carolina
law, is unconscionable and unenforceable when there is an “absence of meaningful
choice” combined with “oppressive, one-sided terms.” Simpson, 644 S.E.2d at 669.
Page 17 of 26
An inquiry into unconscionability requires that a court first address “whether a
contract was ‘tainted by an absence of meaningful choice.’” Id. (quoting Carlson v.
Gen. Motors Corp., 883 F.2d 287, 295 (4th Cir. 1989)). In making this determination,
courts should take into account the nature of the injuries suffered by the
plaintiff; whether the plaintiff is a substantial business concern; the
relative disparity in the parties’ bargaining power; the parties’ relative
sophistication; whether there is an element of surprise in the inclusion of
the challenged clause; and the conspicuousness of the clause.
Simpson, 644 S.E.2d at 669. Second, in inquiring into unconscionability, a court must
examine the terms of the agreement, and assess whether the terms are “so
oppressive that no reasonable person would make them and no fair and honest
person would accept them.”
Fanning v. Fritz’s Pontiac-Cadillac-Buick, Inc., 472
S.E.2d 242, 245 (S.C. 1996).
In addressing the issue of absence of meaningful choice, Plaintiff contends
that the contract she entered into, which incorporates the arbitration provision by
reference, and the other “agreements in question,” are adhesion contracts. ECF No.
21 at 10. Adhesion contracts are standard form contracts offered on a take-it-orleave-it basis with terms that are not negotiable. Simpson, 644 S.E.2d at 669 (citing
Munoz v. Green Tree Fin. Corp., 542 S.E.2d 360, 365 (2001)). Plaintiff concedes that
adhesion contracts are not per se unconscionable. ECF No. 21 at 10; see Lackey v.
Green Tree Fin. Corp., 498 S.E.2d 898, 902 (S.C. App. 1998). Plaintiff further argues
that, as “the owner of a small business with no legal training,” she does not possess
“sophisticated business judgment” and could not “understand the implications” of the
arbitration agreement. ECF No. 21 at 11. Plaintiff also asserts that “there was a
strong element of surprise in BellSouth’s attempt to bind Plaintiffs to multiple
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agreements with conflicting and inconsistent terms.” Id. Moreover, Plaintiff argues
that she lacked any meaningful choice in waiving her right to participate in a class
action. Id. at 8. Thus, Plaintiff implies that she was forced to enter into an arbitration
agreement with Defendants.
The “mere fact that one party to the contract is larger than the other” cannot be
the basis of a finding of unconscionability of an arbitration clause in a contract.
Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 733 (4th Cir. 1991); see also AT&T
Mobility, LLC v. Concepcion, ___ U.S. ___, ___, 131 S.Ct. 1740, 1750 (2011)
(explaining that “the times in which consumer contracts were anything other than
adhesive are long past”). Likewise, “[i]nequality of bargaining power alone will not
invalidate an arbitration agreement.” Munoz, 542 S.E.2d at 365 n.5 (internal citations
omitted). Moreover, as previously stated, a party to a contract has a duty to read the
contract and learn its contents before signing it. Burwell v. S.C. Nat’l. Bank, 340
S.E.2d 786, 789 (S.C. 1986); see also Munoz, 542 S.E.2d at 365 (recognizing that “a
person who can read is bound to read an agreement before signing it”); Cont’l
Jewelry Co. v. Kerhulas, 134 S.E. 505, 507 (S.C. 1926) (emphasizing that a
defendant who is “not capable of reading understandingly for himself” has a “duty . . .
to read the contract he was requested to sign, or to have it read and explained to him
by some other person”). Further, in Concepcion, the United States Supreme Court,
addressing the enforceability of a class action waiver, held that “[r]equiring the
availability of classwide arbitration interferes with the fundamental attributes of
arbitration and thus creates a scheme inconsistent with the FAA.” 131 S.Ct. at 1748.
The Fourth Circuit has held that the Supreme Court’s holding in Concepcion “plainly
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prohibited application of the general contract defense of unconscionability to
invalidate an otherwise valid arbitration agreement” on the basis that it contains a
class action waiver. Muriithi v. Shuttle Exp., Inc., 712 F.3d 173, 180 (4th Cir. 2013).
In this case, Plaintiff is not excused from the specific contract she signed and, as
Defendants made clear, “if she could not understand the obligations she was
undertaking when she signed the contract on behalf of her business, it was her duty
to seek out assistance in having the contract explained.” ECF No. 32 at 11. In
addition, this Court is not persuaded that Plaintiff was surprised by the terms of the
arbitration agreement and class action waiver because by signing the contract she
manifested her assent to be bound by its terms. Accordingly, Plaintiff fails to present
evidence of circumstances showing an absence of meaningful choice sufficient to
defeat Defendants’ motion.
Plaintiff also argues that the arbitration clause is unconscionable because it
limits potential remedies and claims. ECF No. 21 at 12, 14. Plaintiff argues that the
limitation of remedies is one-sided because the arbitration agreement limits
“BellSouth’s total liability” to “the amount of charges paid by you for any service under
this agreement.” ECF No. 24-5, ¶ 6.c. The arbitration agreement also requires that
customers waive their rights in advance, “except where prohibited by law,” to claims
for “indirect, incidental, special or consequential damages.” Id. at ¶ 6.b.
Plaintiff
relies on Simpson to support her assertion that the arbitration provision contains
oppressive and one-sided terms. ECF No. 21 at 12. In Simpson, the South Carolina
Supreme Court, finding that the arbitration clause in an automobile purchase
agreement prevented the plaintiff from receiving the mandatory statutory remedies to
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which he may have been entitled under the South Carolina Unfair Trade Practices Act
(“SCUTPA”), held “that the provision in the arbitration clause dictating that the
dealer’s judicial remedies supersede the consumer’s arbitral remedies” was “onesided and oppressive” and did not “promote a neutral and unbiased arbitral forum.”
644 S.E.2d at 672. Plaintiff also relies on an out of circuit, Supreme Court of Vermont
case, Glassford v. BrickKicker, 35 A.3d 1044 (Vt. 2011), for the proposition that
contractual provisions limiting liability to service costs while still requiring arbitration,
which inevitably costs more than the amount of the liability limit, creates an illusory
remedy, and is therefore unconscionable. ECF No. 21 at 15–16.
In this case, Plaintiff seeks relief under RICO requesting treble damages,
damages under the FCA, damages pursuant to various state unfair and deceptive
trade practice laws, and unjust enrichment.5 The United States Supreme Court has
held that in cases where it is uncertain how the arbitrator will construe remedial
limitations, “the proper course is to compel arbitration.” PacifiCare Health Sys., Inc. v.
Book, 538 U.S. 401, 406–07 (2003) (holding that “the issue of whether statutory
treble damages under RICO statute were barred was not yet ripe because there was
some question as to whether treble damages were punitive or compensatory, and it
was unclear how an arbitrator would rule on the issue”); see also Carolina Care Plan,
Inc. v. United HealthCare Servs., Inc., 606 S.E.2d 752, 759 (S.C. 2004) (holding that
complaints about the unavailability of treble damages under the SCUTPA must first
be presented to the arbitrator). Accordingly, this Court will not speculate that the
5
The requested relief is only a sample of the relief Plaintiff seeks in her amended complaint,
which contains twelve causes of action. See ECF No. 24.
Page 21 of 26
arbitration agreement deprives Plaintiff of all remedies or creates illusory remedies;
instead, Plaintiff must first pursue her remedies through arbitration.
Plaintiff further alleges that the arbitration agreement lacks mutuality and is
therefore unconscionable “when combined with a consumer’s lack of meaningful
choice in agreeing to arbitrate.” ECF No. 21 at 14.
Defendants assert that “the
arbitration agreement is . . . fully mutual,” because it “imposes reciprocal obligations
on AT&T and [Plaintiff] to arbitrate” their disputes, with a single exception that debts
can be handled in court. Moreover, the Supreme Court of South Carolina has held
that “a lack of mutuality of remedy does not invalidate a contract.” Munoz, 542 S.E.2d
at 365; see also Gadberry v. Rental Servs. Corp., 2011 WL 766991, at *3 (D.S.C.
Feb. 24, 2011) (“[M]utuality is not a requirement for a valid arbitration agreement.”).
Plaintiff’s argument, therefore, fails.
Lastly, Plaintiff argues that the arbitration agreement is unconscionable due to
the prohibitive costs of arbitration. ECF No. 35 at 5. Plaintiff argues that to remedy
her claims, AT&T will force Plaintiff to incur significant expenses related to arbitration,
and that enforcing such an agreement violates the Supreme Court’s holding in Green
Tree, 531 U.S. 79, and the principles established by the Fourth Circuit in Muriithi, 712
F.3d 173. In Green Tree, the Supreme Court noted that “[i]t may well be that the
existence of large arbitration costs could preclude a litigant . . . from effectively
vindicating her federal statutory rights in the arbitral forum.” 531 U.S. at 90; see also
Am. Exp. Co. v. Italian Colors Rest., ___ U.S. ___, ___, 133 S. Ct. 2304, 2310–11
(2013) (emphasizing that an arbitration agreement may be invalidated when “filing
and administration fees attached to arbitration [ ] are so high as to make access to
Page 22 of 26
the forum impracticable.”). However, the Green Tree Court held that “[t]he ‘risk’ that
[a litigant] will be saddled with prohibitive costs is too speculative to justify the
invalidation of an arbitration agreement.” Id. at 91. The party claiming prohibitive
arbitration costs “bears the ‘substantial’ burden of showing a likelihood of incurring
arbitration costs” and must “present sufficient evidence of: (1) the cost of arbitration;
(2) his ability to pay; and (3) the difference in cost between arbitration of his dispute
and litigation.” Muriithi, 712 F.3d at 181 (internal citations omitted). Here, Plaintiff
argues that the arbitration fee for simply filing the case is likely to be $975. ECF No.
43 at 1–2; see also ECF No. 14-4 at 41. Plaintiff, in her PowerPoint presentation,
which is not filed on the record, posits to this Court that hiring an arbitrator for one
day, based on the average daily rate of AAA arbitrator compensation in 2008 of
$1,225.00, would be roughly twice the early termination fee she is contesting ($600).
See also ECF No. 41 at 16 (arguing “the average arbitration cost is $600 a day”).
Additionally, Plaintiff estimates that she would have to pay $10,000, plus $30,000 in
expert fees, in order to prove her claim. ECF No. 41 at 39–40. However, the United
States Supreme Court has made clear that “the expense involved in proving a
statutory remedy does not constitute the elimination of the right to pursue that
remedy” and thus, cannot be considered in assessing the enforceability of an
arbitration agreement.
Am. Exp. Co., 133 S. Ct. at 2311 (emphasis in original).
Defendants argue that Plaintiff “has failed to meet her burden of showing that
arbitration costs preclude her from pursuing her claim.” ECF No. 44 at 3. In support,
Defendants assert that Plaintiff has not submitted any evidence on her ability to pay
the fees and that she has provided only mere speculation as to what her arbitral costs
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would be.
This Court agrees that Plaintiff’s argument is too speculative to bar
enforcement of the agreement. Accordingly, there is no basis to find that Plaintiff will
be saddled with prohibitive arbitration costs, or that Green Tree, 531 U.S. 79, would
bar enforcement of the arbitration agreement.
Moreover, this Court notes that Defendants’ have offered to pay all of Plaintiff’s
arbitration costs and fees if this case is referred to arbitration. ECF No. 14-6 at 4 n.2.
“A party’s agreement to pay all arbitration costs, when made in a timely manner such
as before a district court has ruled on the enforceability of the arbitration clause,
‘moots’ the issue and forecloses the possibility that the opposing party could endure
any prohibitive costs in the arbitration process.” Muriithi, 712 F.3d at 183 n.10
(internal citations omitted); see also Sydnor v. Conseco Fin. Servicing Corp., 252
F.3d 302 (4th Cir. 2001) (reversing the district court’s ruling “that the arbitration
agreement was unconscionable” because the district court was “presented with little
evidence from which [it] could have concluded that arbitration was prohibitively
expensive” and the party seeking enforcement of the arbitration provision
“represented to [the] court its willingness to pay arbitration fees arising from [the]
dispute.”); Dillow v. Household Intern. Inc., 2004 WL 5336055, at *3 (W.D. Va. Apr.
26, 2004) (denying a prohibitive cost challenge where one party “offered to pay all of
the [other party’s] individual arbitration fees.”) Therefore, in light of Fourth Circuit
precedent, Defendants’ offer to pay such costs forecloses the issue of prohibitive
costs as to Plaintiff.
Accordingly, this Court finds that Plaintiff has not met her burden to establish
unconscionability. She had the ability to access the terms of service incorporated by
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reference into the WRPA and was provided copies of such terms. She affirmatively
indicated that she acknowledged, agreed to, and accepted the terms of the WRPA,
which included the terms of service found at a specified website. Further, Plaintiff
has not shown that the arbitration costs were prohibitively expensive, or that the
arbitration provision was unfairly one-sided.
Conclusion
After construing all relevant pleading allegations in the light most favorable to
Plaintiff, assuming credibility, and drawing the most favorable inferences for the
existence of jurisdiction, this Court finds that Plaintiff has made a prima facie showing
of a jurisdictional basis as to Defendant AT&T Inc. based on minimum contacts.
Additionally, Plaintiff’s allegations are sufficient to make a prima facie showing that
the exercise of jurisdiction comports with traditional notions of fair play and
substantial justice. Moreover, for all of the foregoing reasons, this Court is satisfied
that the arbitration provision in the BSA, which is incorporated by reference into
Plaintiff’s signed WRPA, is legally enforceable and that Plaintiff’s claims are within the
broad scope of the arbitration provision.
IT IS THEREFORE ORDERED that Defendant AT&T Inc.’s motion to dismiss
for lack of jurisdiction is hereby DENIED.
IT IS FURTHER ORDERED that Defendants’ motion to compel arbitration is
hereby GRANTED.
Plaintiff shall be required to individually pursue her claims
against Defendants, if at all, by way of arbitration. All further proceedings in this case
are STAYED pending the outcome of the arbitration, at which time the parties are
directed to submit an agreed final order of dismissal.
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IT IS SO ORDERED.
January 15, 2014
Anderson, South Carolina
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