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United States District Court, S.D. New York

May 17, 2004.


The opinion of the court was delivered by: DENISE COTE, District Judge


In this consolidated antitrust action brought against the nation's five largest providers of wireless telephone service for allegedly tying the sales of handsets to the sale of service, defendants Cingular Wireless LLC and Pacific Telesis Mobile Services LLC (collectively "Cingular") have brought a motion to strike the plaintiffs' class action allegations against Cingular based on the existence of arbitration clauses in the "overwhelming majority" of Cingular's contracts with its customers.*fn1 Cingular contends that those arbitration clauses must be enforced and since those customers who did not have arbitration clauses in their contracts cannot be readily identified, the plaintiffs will not be able to prevail on any motion they bring to certify a class. This Opinion considers the intersection of the law concerning the class action device and arbitration agreements.

  The plaintiffs contend, inter alia, that the arbitration clauses are unenforceable and that Cingular has waived its right to rely on the clauses through its conduct in this litigation.*fn2 Six named plaintiffs are current or former Cingular subscribers and Cingular has not moved to compel arbitration as to any of them. In addition, Cingular requested that plaintiffs' counsel not file additional actions on behalf of Cingular customers, and that they litigate through this MDL proceeding the five suits that had already been filed. That litigation has survived a motion to dismiss. The defendants substantially completed their document production some weeks ago, and fact discovery is scheduled to conclude on October 8, 2004. The plaintiffs also point out that Cingular did not assert the existence of any arbitration agreement as an affirmative defense in its answer.

  Federal policy strongly favors arbitration. Oldroyd v. Elmira Savings Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998). A party waives its right to arbitrate, however, "if it engages in protracted litigation that results in prejudice to the opposing party." S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 83 (2d Cir. 1998)(citation omitted). Waiver is an equitable defense that is decided by a court. Doctor's Assoc., Inc. v. Distaju, 66 F.3d 438, 454-56 (2d Cir. 1995). In the context of litigation other than litigation brought on behalf of a class, the standards for evaluating a waiver are well established.

  While waiver of arbitration is not to be lightly inferred, the issue is fact-specific and there are no bright-line rules. Factors to consider include (1) the time elapsed from the commencement of the litigation to the request for arbitration; (2) the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery); and (3) proof of prejudice, including taking advantage of pre-trial discovery not available in arbitration, delay, and expense. Latona Trucking, 159 F.3d at 83 (citation omitted). See also Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25-26 (2d Cir. 1995); Distajo, 66 F.3d at 457. "The key to the waiver analysis is prejudice." Thyssen, Inc. v. Calypso Shipping Corp., 310 F.3d 102, 105 (2d Cir. 2002). There are two types of prejudice: substantive prejudice, such as when a party loses a motion on the merits and the attempts, in effect to relitigate the issue by invoking arbitration; and prejudice due to excessive cost and time delay. Id. If there is a doubt as to the existence of a waiver, the doubt must be resolved in favor of arbitration. PPG Indus., Inc. v. Webster Auto Parts Inc., 128 F.3d 103, 107 (2d Cir. 1997). In other words, the court should decide these issues with a "healthy regard for the policy of promoting arbitration." Leadertex, 67 F.3d at 25. See also Oldroyd, 134 F.3d at 76. Arbitration agreements, however, are "as enforceable as other contracts, but not more so." Opals On Ice Lingerie v. Body Lines Inc., 320 F.3d 362, 369 (2d Cir. 2003) (emphasis in original).

  As noted, Cingular does not seek to enforce any arbitration clause vis a vis any of the named plaintiffs. As the analysis set forth below shows, it has in any event clearly waived its right to do so.

 1. Time Elapsed

  This litigation has been pending for approximately two years. The litigation is composed of five putative class actions, the first of which was filed on April 5, 2002, and the last of which was filed on September 30, 2002. The actions were filed in this district, the District of Massachusetts, the Northern District of California, the Southern District of Texas, and the Northern District of Illinois. On March 5, 2003, the Judicial Panel on Multi-District Litigation (the "MDL Panel") granted defendants' motion to transfer all pending actions to the Southern District of New York. The plaintiffs consented to the motion.

 2. Amount of Litigation

  This case has been actively litigated for at least a year and a half. The first of the five actions — Brook v. AT&T Cellular Services, 02 Civ. 2637 (the "Brook Action") — was filed in this district on April 5, 2002, and assigned on June 14 to the Honorable Milton Pollack. In June, the defendants moved to dismiss the Brook Action. The case was eventually reassigned to this Court on October 24.*fn3 At a conference on November 19, the plaintiffs gave notice of an intent to file a further amendment to the complaint in the Brook Action. With the understanding that this would, with identified exceptions, be essentially the final amendment, it was agreed that an amended pleading would be filed and that the pending motions to dismiss would be dismissed as moot. The amended complaint was filed on January 9, and the defendants moved to dismiss the pleading.

  On March 12, 2003, the MDL Panel transferred the other four actions to this Court. The parties had agreed to stay those actions pending the MDL transfer. At a July 29 conference, transfer and consolidation issues were addressed. It was agreed that if the Brook Action survived the pending motion to dismiss, that the plaintiffs would be permitted to amend their pleading of the market definition, and that the five actions would be consolidated. An Order of August 11, consolidated the five actions for pretrial purposes, and an Opinion of August 12 granted the motions to dismiss in part. In re Wireless Tel. Serv. Antitrust Litig., No. 02 Civ. 2637 (DLC), 2003 WL 21912603 (S.D.N.Y. Aug. 12, 2003). The tying claim contained in the plaintiffs' first claim survived.

  A schedule for the litigation was set at an October 3 conference. In particular, document production was to be substantially completed by February 20, 2004. At a conference on November 6, the Court announced that it did not appear, based on a review of the parties' submissions, that there was a discrete dispositive issue within the tying claim that could be the focus of early discovery and motion practice.*fn4 A schedule was set for the remainder of the litigation. The plaintiffs and defendants were unanimous in requesting that the class certification motion be made after all discovery had concluded.

  On December 23, one defendant, VoiceStream, moved for summary judgment on the ground that its service agreements do not require consumers to purchase handsets from it. At the January 21 conference, the Court denied VoiceStream's request to stay discovery pending the resolution of its motion. Its summary judgment motion was denied in an Opinion of April 9, 2004. In re Wireless Tel. Serv. Antitrust Litig., No. 02 Civ. 2637 (DLC), 2004 WL 764833 (S.D.N.Y. Apr. 9, 2004).

  On January 5, 2004, Cingular brought the instant motion. Each of the other defendants indicated that they also had arbitration clauses in their agreements with customers, but did not intend to assert that the clauses were a bar to class certification until the class certification motion was brought.

  At a January 30 conference, the defendants confirmed that their document productions would be substantially complete by February 20.*fn5 The Court set limits on the number of depositions that the plaintiffs and the defendants could take. An Order of April 12, extended fact discovery to October 8. Expert discovery will close on January 21, 2005, and the plaintiffs' motion for class certification will be filed on February 18. 3. Proof of Prejudice

  Both types of prejudice appear to exist here. Cingular has lost its motion to dismiss the tying claim. The named plaintiffs and their counsel have also made a substantial investment in this litigation that they would not have made if they did not believe that it could be brought as a class action. As Cingular acknowledges, this litigation would not have been litigated in the manner just described unless the class action vehicle were available. Moreover, at the defendants' request,' plaintiffs' counsel did not file the additional complaints on behalf of other named plaintiffs which they had drafted and which they expected to file in 2003.

  The issue raised by this motion is not, however, whether Cingular has waived its right to assert the existence of arbitration agreements and to compel arbitration as to the named plaintiffs, but whether it has waived that right as to absent class members. The parties have not pointed to any law addressing the issue, and the only federal court case this Court has found that analyzes in any detail a defendant's waiver of arbitration as to absent class members is Allied Sanitation, Inc. v. Waste Management Holdings, Inc., 97 F. Supp.2d 320 (E.D.N.Y. 2000). In Allied Sanitation, the Honorable Frederic Block held in the context of a securities class action that the defendant had not waived its right to demand arbitration as to a putative member of the class, specifically one of the defendant's major shareholders, by failing to raise the existence of the arbitration agreement with that shareholder when it opposed class certification. Id. at 330. Judge Block noted that it was unclear when that major shareholder learned that it was a member of the class, id. at 329, that the defendant had a strong incentive to try to settle any dispute with that major shareholder, id. at 330, and that the shareholder had the right to opt out of the litigation and to institute its own lawsuit against the defendant or invoke the arbitration agreement, id. Judge Block concluded that the defendant had not used the litigation up to that point "to disadvantage" the absent class member in arbitration. Id. at 333.

  Cingular's motion to strike the allegations in the amended complaint that this action is brought on behalf of a class must be denied. It is, at the very least, premature.*fn6 The plaintiffs assert that they will be able to show through discovery that the arbitration clauses in the Cingular contracts are unenforceable. They must be permitted an opportunity to make that showing.

  While the plaintiffs request that Cingular's motion be denied with prejudice, solely on the basis of a waiver analysis, the parties' submissions do not sufficiently address the intersection of the law of waiver and class actions to permit such a ruling. Whether and in what circumstances a defendant's conduct of litigation may waive its right to enforce an arbitration agreement as to absent class members is a question that the parties may have another opportunity to address should Cingular or one of its co-defendants seek to rely on the existence of an arbitration clause when confronted with the plaintiffs' motion for class certification.


  The motion to strike class action allegations from the complaint, made by defendant Cingular on January 5, 2004, is denied.


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