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Kristen Schatz and Patrick Witty, Individually and On Behalf of All v. Cellco Partnership D/B/A/ Verizon Wireless

February 3, 2012

KRISTEN SCHATZ AND PATRICK WITTY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
CELLCO PARTNERSHIP D/B/A/ VERIZON WIRELESS, DEFENDANT.



The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION AND ORDER

Before the Court is a motion, pursuant to sections 3 and 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et seq., by plaintiffs Kristen Schatz ("Schatz") and Patrick Witty ("Witty," and, together, the "plaintiffs") to compel defendant Cellco Partnership d/b/a Verizon Wireless ("Verizon") to arbitrate. The plaintiffs ask the Court (1) to order Verizon to arbitrate a claim, pursuant to the New Jersey Consumer Fraud Act, N.J.S.A. §§ 56:8-1 et seq., or, alternatively, the New York General Business Law § 349, for "general injunctive relief" benefitting all Verizon customers currently being charged $99.99 per month for Verizon's Nationwide Unlimited Plan ("NUP"), and (2) to declare invalid a provision in the parties' arbitration agreement that purports to limit the arbitrators' power to award such relief. Since the Court already has referred all claims in this action to arbitration, and since the question of the availability of "general injunctive relief" must be left to the arbitrators in the first instance, the plaintiffs' motion is denied without prejudice to plaintiffs' right to move to vacate any future arbitration award.

BACKGROUND

Plaintiff Schatz was a customer of Verizon. (Amended Complaint ("AC") ¶ 27.) Pursuant to a two-year contract with Verizon, Schatz obtained cell-phone service from Verizon under its Nationwide Unlimited Plan ("NUP"). (Id.) Schatz paid $99.99 per month for this service. (Id.) On January 18, 2010, Verizon lowered the price of its NUP from $99.99 per month to $69.99 per month. (Id. ¶ 30.) Verizon, however, did not notify Schatz of this change and did not reduce her monthly payments. (See id. ¶¶ 30-31.) In April 2010, when Schatz learned of Verizon's decision to reduce the price of the NUP, she called Verizon and requested that she be charged the lower amount. (Id. ¶ 31.) Verizon agreed without objection, but refused to refund Schatz the excess she had paid between the time Verizon enacted the price decrease and the time Schatz requested it. (Id.) Schatz alleges that Verizon's conduct amounts to a breach of its obligations under a Customer Agreement to which Schatz agreed as part of her contract with Verizon. (See id. ¶ 36.) Schatz represents that the Customer Agreement requires Verizon to notify its customers of any changes in the NUP and that customers agree to the terms of any change by continuing to use the NUP after such notice is given. (See id. ¶ 29.) Schatz also alleges that Verizon's conduct violates the New Jersey Consumer Fraud Act, or, alternatively, the New York General Business Law § 349. (See id. ¶ 42-43.)

In July 2010, Schatz filed this putative class action "on behalf of all Verizon wireless telephone customers with the individual Nationwide Unlimited Plan ('NUP') as of January 18, 2010 who were charged amounts in excess of the $69.99 monthly price that became effective for the NUP on January 18, 2010." (Id. ¶ 19.) The plaintiffs sought relief on behalf of the class to require, among other things, "Verizon to specifically perform its Customer Agreement with all customers entitled to but not yet being charged the $69.99 price for their NUP." (Id., "Prayer for Relief" ¶ D.) On November 1, 2010, Verizon moved to compel arbitration of Schatz's individual claim based on an arbitration provision in the Customer Agreement that provides,

You and Verizon Wireless both agree to resolve disputes only by arbitration or in small claims court. There's no judge or jury in arbitration, and the procedures may be different, but an arbitrator can award the same damages and relief, and must honor the same terms in this agreement, as a court would. If the law allows for an award of attorneys' fees, an arbitrator can award them too. We also both agree that:

(1) The Federal Arbitration Act applies to this agreement. Except for small claims court cases that qualify, any dispute that results from this agreement or from the Services you receive from us (or from any advertising for any products or Services) will be resolved by one or more neutral arbitrators before the American Arbitration Association ("AAA") or Better Business Bureau ("BBB"). (Customer Agreement 12-13.*fn1 ) Section 3 of the Customer Agreement's arbitration provision provides, "This agreement doesn't allow class arbitrations even if the AAA or BBB procedures or rules would. The arbitrator may award money or injunctive relief only in favor of the individual party and only to the extent necessary to provide relief warranted by that party's individual claim." (Id.) The plaintiffs' current motion seeks to declare invalid the second sentence of section 3.

The plaintiffs originally opposed Verizon's motion on the ground that the provision barring class arbitration (the "class waiver") was unenforceable. Then, on April 27, 2011, the Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), and held that a California state-law rule that rendered class waivers unenforceable under California's law of unconscionability was preempted by the FAA. Id. at 1753. This Court then directed the parties to address the effect of Concepcion on Verizon's motion to compel arbitration. In a letter dated May 11, 2011, the plaintiffs informed the Court that they "have determined not to challenge the applicability to Verizon's motion to compel arbitration of the majority's holding in Concepcion-that states are preempted under the [FAA] from holding class action waivers in arbitration agreements to be unconscionable and unenforceable." (Letter from William R. Weinstein, May 11, 2011, at 1.*fn2 ) Because the Concepcion issue "was the sole focus," (id.), of Verizon's motion, the Court granted Verizon's motion to compel arbitration. (See Order, May 13, 2011, Docket No. 23.) The Court also granted the plaintiffs' request for leave to file their current motion, which seeks an order (1) compelling Verizon to arbitrate the plaintiffs' claims under the New Jersey Consumer Fraud Act, or, alternatively, the New York General Business Law § 349,*fn3 and (2) declaring invalid the second sentence of section 3 of the parties' arbitration agreement, which purports to limit the scope of remedies the arbitrators may award.

LEGAL STANDARD

Section 2 of the FAA makes agreements to arbitrate "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. Section 2 reflects the "'liberal federal policy favoring arbitration.'" Concepcion, 131 S. Ct. at 1745 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). This policy extends to agreements to arbitrate certain statutory claims. See, e.g., 14 Penn Plaza LLC v. Pyett, 129 S. Ct. 1456, 1474 (2009); Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79, 89 (2000). However, "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral forum." Preston v. Ferrer, 552 U.S. 346, 359 (2008) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). Thus, where the parties have agreed to arbitrate statutory claims, and where Congress has not manifested an intent that such claims should not be arbitrated, the agreement will be enforced, "so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum." Mitsubishi, 473 U.S. at 637.

The Supreme Court, in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), addressed an argument that an arbitration agreement would interfere with the plaintiff's ability to vindicate her rights under the federal Truth in Lending Act ("TILA") because the arbitration agreement was silent on the issue of attorneys' fees and costs. The plaintiff argued that the agreement's silence on the issue could render arbitration prohibitively expensive and thus deprive her of the ability to assert her statutory claim. The Supreme Court rejected this argument. It stated that "where, as here, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs." Id. at 92. For the plaintiff in Randolph, "[t]he 'risk' that [she would] be saddled with prohibitive costs [was] too speculative to justify the invalidation of an arbitration agreement." Id. at 91.

In PacifiCare Health Systems, Inc. v. Book, 538 U.S. 401 (2003), the Supreme Court considered an argument that a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., could not be subject to arbitration because the parties' arbitration agreement prohibited punitive damages, while RICO allowed treble damages. The Court declined to determine in the first instance whether the contract's ban on punitive damages in fact prohibited treble damages. See id. at 406-07. The Court held, "[W]e should not, on the basis of 'mere speculation' that an arbitrator might interpret these ambiguous agreements in a manner that casts their enforceability into doubt, take upon ourselves the authority to decide the antecedent question of how the ambiguity is to be resolved." Id. at 406-07 (quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 541 (1995)). The Court continued, "[S]ince we do not know how the arbitrator will construe the remedial limitations, the questions whether they render the parties' agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance are unusually abstract. [Accordingly,] the proper course is to compel arbitration." Id. at 407.

The Court of Appeals for the District of Columbia Circuit has taken from these cases two propositions:

[F]irst, that the party resisting arbitration on the ground that the terms of an arbitration agreement interfere with the effective vindication of statutory rights bears the burden of showing the likelihood of such interference, and second, that this burden cannot be carried by "mere speculation" about how an arbitrator "might" interpret or apply the agreement.

Booker v. Robert Half Int'l, Inc., 413 F.3d 77, 81 (D.C. Cir. 2005) (emphasis in original).

In addition, the Second Circuit Court of Appeals recently has applied these principles, in the context of an antitrust action, to hold that if a plaintiff can "adequately demonstrate[]" that the provisions of an arbitration agreement "would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiff[]," the arbitration agreement may be unenforceable. See In re Am. Express Merchant's Litig., 554 F.3d 300, 304 (2d Cir. 2009) ("Am. Express I") (finding a class waiver in an arbitration agreement unenforceable where the plaintiffs made a "substantial demonstration" that "they would incur prohibitive costs if compelled to arbitrate under the class action waiver," such that "an inability to pursue arbitration on a class basis would be tantamount to an inability to assert their claims at all"), vacated sub nom. Am. Express Co. v. Italian Colors Rest., 130 S. Ct. 2401 (2010), reaff'd, 634 F.3d. 187 (2d Cir. 2011) ("Am. Express II").*fn4 In the American Express cases, the Second Circuit relied on the "federal substantive law of arbitrability," Am. Express II, 634 F.3d at 194, and its reasoning has not been overruled expressly by the Supreme Court's decision in Concepcion. Indeed, the Second Circuit reaffirmed the holdings of its American Express decisions in light of Concepcion, see In re American Express Merchants' Litigation, No. 06-1871-cv (2d Cir. Feb. 1, 2012) ("Am. Express III"), and those decisions today remain the law in this Circuit.*fn5

DISCUSSION

In arbitration, the plaintiffs wish to seek what they call "general injunctive relief" under either the New York or New Jersey consumer-protection statute. This means the plaintiffs wish to obtain an injunction requiring Verizon to lower the monthly price of its NUP for all customers who still are being charged the higher rate of $99.99 per month. In addition, if the plaintiffs' amended complaint is any indication, in arbitration they also will seek compensatory damages, punitive damages, a declaration that Verizon's conduct violates the consumer protection statutes and the Customer Agreement, and attorneys' fees.

The underlying relief plaintiffs seek in this motion is an order declaring unenforceable the second sentence of section 3 of the arbitration agreement-which limits the relief an arbitrator may award to "money or injunctive relief only in favor of the individual party and only to the extent necessary to provide relief warranted by that party's individual claim" (Customer Agreement at 13)-on the ground that it prevents plaintiffs from vindicating their asserted statutory rights under the applicable consumer-protection statute.

"In analyzing a given vindication of statutory rights claim, [the Court] must first decide who the proper decision maker is for such a claim: an arbitrator or a court." Kristian v. Comcast Corp., 446 F.3d 25, 37 (1st Cir. 2006).

In Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), the Supreme Court reiterated that "question[s] of arbitrability" are presumptively for the court, not the arbitrator, unless the parties have "clearly and unmistakably" agreed otherwise. Id. at 83. The Court in Howsam recognized two categories of disputes that constitute clear questions of arbitrability. The first category includes "dispute[s] about whether the parties are bound by a given arbitration clause." Id. at 84. The second category encompasses "disagreement[s] about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy." Id. These "question[s] of arbitrability" are left to the court because they refer to the kind of narrow circumstance[s] where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought ...


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