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Cell Phone Industry Losing Its Treasured Arbitration Clauses

Supreme Court refuses to hear T-Mobile's appeal

By Martin H. Bosworth
ConsumerAffairs.com

May 27, 2008 

The Supreme Court chose to pass up the case and refused to hear two similar cases that also dealt with arbitration clauses in T-Mobile's cell phone contracts.

The Court's refusal to hear the cases means that the earlier decision of the Ninth Circuit Court of Appeals, which found that T-Mobile's contract clause mandating arbitration for customer disputes was unenforceable under Washington state law, stands.

The decision also means that a class action lawsuit filed against T-Mobile over its contracts' arbitration provisions can go forward, and it may impact a separate lawsuit filed against T-Mobile in California over the company's use of "termination fees" against customers who seek to cancel contracts early.

In both cases, T-Mobile argued that by signing contracts that include arbitration clauses, customers were voluntarily waiving their rights to have disputes against the company heard in a court of law.

T-Mobile also argued that federal laws mandating the enforcement of arbitration clauses should supersede state laws limiting the ability of companies to ban class actions.

Arbitration is heavily favored by industry, and clauses mandating arbitration to settle customer disputes can be found in contracts for everything from cellphones, to cable service, to credit cards. But consumers regularly end up on the losing side of disputes settled through arbitration, and often have to pay thousands of dollars in costs and travel great distances to even have their claims heard.

The Ninth Circuit had previously ruled that an arbitration clause found in Cingular/AT&T's contracts was "unconscionable," clearing a similar lawsuit against the company to proceed.

The wireless industry, like many others, has been scrambling to enact voluntary reforms of its practices in order to avoid potential litigation.

T-Mobile joined the other major wireless carriers in choosing to prorate its termination fees rather than buckle to proposed legislation that would limit the fees it could charge.

Verizon Wireless has been negotiating with the FCC to craft an industry-wide proposal for prorating termination fees over the course of a wireless contract, and for enabling customers to change plans without incurring new fees. But the proposal would also block the numerous individual and class-action lawsuits over the fees, and would supersede state laws governing the fees with weaker federal regulations.

Industry insiders speculate that Verizon may also be spearheading the proposal to solidify its market advantage over struggling rivals T-Mobile and Sprint.

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