Tuesday, June 10, 2008
Class Action May Proceed Against Cellular Providers
By a MetNews Staff Writer
A group of plaintiffs who signed long term cellular phone service contracts with various providers may proceed with their action alleging that early termination fees contained in the contracts are unlawful liquidated damages provisions, the First District Court of Appeal ruled yesterday.
In an unpublished opinion, Div. Five concluded that Alameda Superior Court Judge Ronald Sabraw abused his discretion in denying class certification to the plaintiffs under the Consumer Legal Remedies Act because there was no basis for his finding of a fatal intra-class conflict.
Various plaintiffs filed suit against seven major cell phone providers in California for unfair business practices, based in part on the fact that defendants’ allegedly required customers to enter into service agreements including a requirement that customers pay early termination fees of between $150 and $200 per telephone number or unit to terminate service prior to the expiration of the contract.
They sought certification of a class of California consumers who were currently parties to contracts with defendants that included the early termination fee provision, and requested invalidation of the early termination fee provision.
The defendants argued that the early termination fees allowed them to recover the costs of providing up-front subsidies in long-term contracts, and that the elimination of such fees could force them to find other ways to recoup those costs, such as decreasing subsidies or increasing monthly fees.
Citing evidence that many current consumers had elected plans with the early termination fees and lower up-front costs over plans without the fee but with other fees and charges, Sabraw determined that class members who demonstrated a preference for long term contracts with the early termination fees would oppose the plaintiffs’ successful prosecution of the suit. Based on this potential intra-class conflict, he denied certification.
However, on appeal, retired First District Justice Lawrence Stevens, sitting by assignment, wrote that Sabraw had improperly considered the merits of the plaintiffs’ claims.
Stevens explained that a valid liquidated damages clause permits a party to recoup costs in the event of a breach. Thus, he wrote, assuming the early termination fee was a valid liquidated damages clause, the defendants could continue to offer contracts with low up-front costs and recoup their up-front subsidies over the life of the contract or by the early termination fee in the event of a breach.
An intra-class conflict between customers would arise if the defendants were barred from imposing a valid liquidated damages provision to recoup up-front subsidies and thereby had to increase start-up costs or raise month fees, Stevens reasoned. However, he noted, the validity of the early termination fee as a liquidated damage provision was the issue in dispute.
If the early termination fee did no amount to a reasonable approximation of defendants’ actual damages and in fact constituted unlawful penalties as the plaintiffs alleged, he wrote, there could be no conflict among the class members.
Concluding that the trial court’s reasoning was based upon evidence that went to the validity of the plaintiffs’ claims, Stevens wrote that the denial of certification was an abuse of discretion.
Justices Mark B. Simons and Henry E. Neeham joined Stevens in his opinion.
The case is In re Cellphone Termination Fee Cases, A115457.
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