CELLPHONE FEE TERMINATION CASES.

CELLPHONE FEE TERMINATION CASES.

A124038

A124048

No. RG04-137699

No. 4332

Court Of Appeal Of The State Of California

First Appellate District

Division Five

Filed 06/28/10

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Bruiniers, J.

This is a consolidated appeal in one of several coordinated class actions that challenge wireless telephone carriers' imposition of early termination fees (ETF's) on customers seeking to cancel cellular telephone contracts. The defendant/respondent in this proceeding is Cellco Partnership doing business as Verizon Wireless (Verizon). The case against Verizon (White v. Cellco Partnership (RG04-137699) (White)) proceeded to jury trial on June 16, 2008, in the Alameda County Superior Court on the claims of California class members. On July 8, 2008, after plaintiffs/respondents¹ had rested their case and the defense presentation had commenced, the parties advised the court that they had signed a memorandum of understanding outlining the terms of settlement. The settlement also encompassed claims of nationwide certified class claimants (excluding California class members) in a proceeding then pending before the American Arbitration Association (AAA), as well as two actions filed in federal district courts.

The terms of the settlement required Verizon to provide a common fund of $21 million, from which all legal fees and costs, including notice and administrative costs, would be paid and from which class members who had actually paid or had been assessed an ETF would be reimbursed, with pro rata reduction, if required, based on the number of claimants. The trial court granted preliminary approval on July 11, 2008. At a noticed hearing on November 6, 2008, appellants² objected to final approval, contending that notice of the settlement was inadequate, and that the settlement terms were not fair, reasonable and adequate. Appellants further challenge the propriety of incentive payments awarded to four named class representatives. The trial court approved the settlement. We affirm.

I. Factual and Procedural Background

Verizon is a national cellular telephone service provider. In common with a number of other providers, Verizon charged ETF's to subscribers who cancelled service agreements prior to the scheduled termination dates. Verizon charged a flat fee of $175, regardless of when the cancellation occurred in the contract term.

Plaintiffs in the underlying case initially filed suit on July 23, 2003, in Alameda County against Verizon and six other cellular service providers alleging that the ETF's violated California consumer protection laws, and constituted unauthorized penalties under Civil Code section 1671.³ (Marlowe v. AT&T Corporation (Super. Ct. Alameda County, complaint filed 2003, No. RG03-108118).) This action and others were coordinated under Judicial Council order (Code Civ. Proc., § 404.3; Cal. Rules of Court, rule 3.524)⁴ before Judge Ronald Sabraw in the Alameda County Superior Court as the Cellphone Termination Fee Cases (JCCP No. 4332).) (Gatton, supra, 152 Cal.App.4th at p. 575, fn. 1.)

Pursuant to case management orders in the coordination proceedings, the ETF claims against Verizon were separately pled in a consolidated amended complaint in White. On June 9, 2006, Judge Ronald Sabraw certified a class in that action and in related cases defined as:" 'All persons who (1) had a wireless telephone personal account with [Verizon] with a California area code and a California billing address[] who (2) cancelled the account at any time from July 23, 1999, through [March 18, 2007], and (3) were charged an early termination fee in connection with that cancellation.' "⁵ The class certification was "expressly predicated" on an "aggregate approach to monetary relief and the related setoff and cross-claim issues." Thus, if the ETF's were found to be illegal and unenforceable, the wireless carriers would still potentially be entitled to offset against any class recovery for their actual damages in the form of lost profits.⁶

By orders dated April 4, 2008, and May 12, 2008, the Superior Court severed the case against Verizon (and against Sprint) from the coordinated proceeding for purposesof trial. Trial in the White case commenced on June 16, 2008, before Judge Bonnie Sabraw, shortly following a June 12, 2008 jury verdict in the Sprint case. Plaintiffs rested their case on July 2, 2008. A settlement in principle was reached by the parties on July 8, 2008. The trial judge granted preliminary approval of the proposed settlement on July 11, 2008.⁷

The Settlement Classes

The preliminary approval order certified two settlement classes, an " 'ETF Assessed Class, ' " encompassing all Verizon contract customers in the United States who were billed a flat-rate ETF by Verizon Wireless and/or its legacy companies from July 23, 1999, until the effective date of the publication notice, whether or not any portion of the ETF was actually paid; and a " 'Subscriber Class, ' " defined as all persons in the United States who were or are parties to a contract for a wireless telephone personal account with Verizon Wireless and its legacy companies that included or includes a provision for a flat-rate ETF from July 23, 1999, through the effective date of the publication notice.

The Settlement Terms

The settlement terms require Verizon to pay $21 million to a fund for the benefit of the national settlement classes, without reversion of any amounts to Verizon. Class members who paid one or more flat-rate ETF's will receive full credit as an "Allowed Claim" for amounts which the claims administrator verifies as paid based on a review of Verizon's records. The money will be distributed pro rata on each Allowed Claim in proportion to the total number of such claims to the extent that there are insufficient funds to pay all claims in full. Class members who claim that they paid a flat-rate ETF but are unable to offer any proof of such payment will receive an Allowed Claim of $25, as will class members who allege that they suffered harm as a result of having been charged a flat-rate ETF that they did not pay. The settlement further prohibits Verizonfrom including a flat-rate ETF in any new customer agreements for a wireless service personal account in the United States for a period of two years.

Settlement of Related Proceedings

The settlement includes a release of the settlement classes' ETF claims against Verizon, including the claims asserted in three other pending actions.

The Brown Arbitration

Brown v. Cellco Partnership (Cir. Ct. Palm Beach County, Fla., complaint filed May 17, 2004, No. 50 2004CA005063MB-AI) (Brown) is an action asserting both ETF and handset locking claims against Verizon.⁸ The lead plaintiff, Brown, filed a demand for class arbitration with the AAA. The AAA granted Brown's motion to certify two 49-state classes (excluding persons with a California area code and California billing address): (1) a "Payer Class: All persons in the United States who were charged an [ETF] pursuant to a [Verizon] Customer Service Agreement which contained an arbitration clause from November 1, 2000 through November 16, 2006..."; and (2) a "Subscriber Class: All persons in the United States who were parties to a contract for a wireless telephone personal account with Verizon that included a provision for an [ETF] and included an arbitration clause from November 1, 2000 through November 16, 2006...." Two of the class representatives from Brown, Brown and Schroer, joined with the White plaintiffs to represent the nationwide settlement classes.⁹

The Waudby Litigation

Waudby v. Verizon Wireless (D.N.J., complaint filed Jan. 26, 2007, No. 07-0470) (Waudby) asserted essentially the same claims then pending in the Brown arbitration and sought to certify a nationwide class.¹⁰ The arbitrator in Brown granted a motion to enjoin the Waudby litigation in March 2008.

The Gentry Litigation

Gentry v. Cellco Partnership (C.D.Cal., complaint filed Nov. 4, 2005, No. CV-05-07888) asserted similar ETF claims against Verizon. The case was stayed on March 22, 2006, on Verizon's motion pending resolution of ETF proceedings before the Federal Communications Commission (FCC).

The Settlement Notices

The Stipulation and Agreement of Settlement provided for notice to the classes in three forms: (1) a mail notice to be sent to the last known addresses of the ETF Assessed Class; (2) a one page short-form publication notice for publication in print media; and (3) a more detailed long-form publication notice for posting on an internet referral site. Following preliminary approval of the settlement, including the forms of notice, the trial judge made a further sua sponte review of the form of class notice proposed in the settlement and held a subsequent hearing on July 15, 2008. As a result of that hearing the court issued an order requiring the parties to redraft the notices "with the goal of making it easy to understand for non-lawyers" and to make certain that the notice clearly explained the rights and obligations of class members in connection with the settlement. The court sought to "ensure that the notice provides absent class members with a clear picture of not only what the settlement provides, but also what it does not provide and whether it changes any existing contractual relationships between Verizon and absent class members." The parties submitted revised notices, which were approved by the court subject to some additional changes. The approved mail notice was mailed by theappointed settlement administrator to 2, 771, 109 identified ETF Assessed Class members¹¹ and the short-form publication notice was published in 17 newspapers...