United States District Court, S.D. New York
May 17, 2004.
IN RE WIRELESS TELEPHONE SERVICES ANTITRUST LITIGATION, This Document Relates to: ALL ACTIONS
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION AND ORDER
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
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.