Damato v. Time Warner Cable, Inc.

LORRAINE DAMATO, LOUIS MCLAUGHLIN, KATHLEEN MCNALLY,MICHAEL NASOFF, DIANA MANWARING, NATALIE LENETT,BLEU MARAQUIN, CHRIS YOOSEFI, and GABRIEL BROOKS,Individually and on Behalf of All Others Similarly Situated, Plaintiffs,

v.TIME WARNER CABLE, INC., Defendant.

13-CV-994 (ARR)(RML)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

Dated: July 30, 2013

OPINION AND ORDER

ROSS, United States District Judge:

Plaintiffs in this putative class action suit subscribed to defendant Time Warner Cable, Inc.'s ("TWC" or "the company") cable internet service in New York, New Jersey, and California. As part of TWC's service, the company provided a modem to its subscribers. In October 2012, the company instituted a "Modem Lease Fee," which required subscribers to pay $3.95 per month to lease TWC's modem. Plaintiffs brought suit on their own behalf and on behalf of others similarly situated, challenging the Modem Lease Fee as a breach of TWC's Residential Services Subscriber Agreement ("the Subscriber Agreement") and a violation of multiple state consumer protection laws. Plaintiffs sought damages as well as injunctive and declaratory relief. Before the court is TWC's motion to stay or dismiss the action pending arbitration, based on the binding arbitration clause contained within the Subscriber Agreement. For reasons explained below, the motion is granted and the action is stayed.

BACKGROUND

For the purposes of the present motion, the following facts are not in dispute: Plaintiffs' action stems from what they term TWC's "October Surprise," a postcard sent to subscribers around October 15, 2012, informing them that a Modem Lease Fee of $3.95 per month would thereafter be applied to cable internet accounts that used the company's modems. Compl., Dkt. #1, ¶ 37. Plaintiffs allege that the Modem Lease Fee was not really a lease fee at all, but rather was a veiled price hike for internet service. Id. ¶¶ 40-41. Moreover, plaintiffs allege, TWC engaged in various tactics meant to conceal from subscribers the imposition of the fee, the reasons for the fee, and how to avoid the fee. Id. ¶¶ 42-46. According to plaintiffs, the manner in which TWC instituted the fee violated numerous promises TWC made to its customers, including a promise to give thirty-days notice in advance of any price or service change, id. ¶¶ 47-50, a promise not to charge for its modems, id. ¶¶ 54-58, a promise that TWC would only charge fees for "new or additional equipment," id. ¶¶ 59-61, and a promise not to raise prices for customers subject to a set price plan, id. ¶¶ 65-69. Plaintiffs also complain that, under the terms of the Subscriber Agreement, TWC could not change its policy with respect to modems without amending that agreement, which it failed to do. Id. ¶ 79-81. In addition to these and other claims for breach of contract, plaintiffs bring statutory claims for relief under the New York Consumer Fraud Statute, N.Y. Gen. Bus. L. § 349, the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-19, the California Consumers Legal Remedies Act, Cal. Civ. Code § 1750, and the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200. The merits of these claims are not currently before the court.

It is undisputed that all subscribers to TWC's internet service are subject to the Subscriber Agreement. It is also undisputed that the current version of the SubscriberAgreement contains a bold, all-caps notice on the first page that reads as follows:

THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE,[] WHICH SAYS THAT YOU AND TWC . . . AGREE TO RESOLVE CERTAIN DISPUTES THROUGH ARBITRATION. YOU HAVE THE RIGHT TO OPT OUT OF THIS PART OF THE AGREEMENT. SEE SECTION 15.

Compl., Ex. B, Dkt. #1, at 58. A majority of the plaintiffs dispute, however, that they received a version of the Subscriber Agreement with this notification. They allege that mention of the arbitration clause was buried in a one-time notification on the second page of their bill sent in May 2010, which stated, "You have a new Time Warner cable subscriber agreement, which contains an arbitration clause and other important terms. You can review the new agreement and, if you wish, 'opt out' of the arbitration clause at [TWC's website]" Pls.' Mem. of Law in Opp'n to Def.'s Mot. to Stay or Dismiss This Action Pending Arbitration ("Pls.' Opp'n Mem.") 53 n.20; see Decl. of Steven L. Wittels in Opp'n to Def.'s Mot. to Stay or Dismiss Pending Arbitration ("Wittels Decl."), Dkt. #16, Ex. 43. The bill notice omitted the fact that there was a time limitation of thirty days in which customers could opt out of the arbitration agreement. Several of the plaintiffs allege they were altogether unaware of the arbitration clause. See Wittels Decl., Exs. 37, 38, 45, 47.¹ In any case, it is undisputed that § 15 of the current Subscriber Agreement reads as follows:

15. Unless you Opt Out, You are Agreeing to Resolve Certain Disputes Through Arbitration.

(a) Our goal is resolve Disputes² fairly and quickly. However, if we cannot resolve a Dispute with you, then, except as described elsewhere in Section 15, each of us agrees to submit the Dispute to the American Arbitration Association for resolution under its Commercial Arbitration Rules or, by separate mutual agreement, to another arbitration institution. As an alternative, you may bring your claim in your local small claims[] court, if its rules permit it.

(b) You may bring claims only on your own behalf, and not on behalf of any official or other person, or any class of people. Only claims for money damages may be submitted to arbitration; claims for injunctive orders or similar relief must be brought in a court. You may not combine a claim that is subject to arbitration under this Agreement with a claim that is not eligible for arbitration under this Agreement. The arbitrator will decide whether a dispute can be arbitrated.

(c) The arbitrator will issue a decision in writing but will not provide an explanation for the award unless you or TWC requests one. Any arbitration award over $75,000 may be appealed to a three-person panel appointed by the same arbitration institution that rendered the original award. Any such appeal must be filed within 30 days and the appeal will be decided, based on the institution's appeal rules, within 120 days of filing.

(d) Before you initiate an arbitration proceeding, you may request that we advance on your behalf (1) the arbitration filing fees (but only to the extent they exceed your local small claims court filing fees) and (2) the portion of the arbitrator's costs for which you would normally be responsible. If TWC wins the arbitration, you will reimburse us for these advances. TWC will, of course, pay any fees or costs required under the law where you live.

(e) You may opt out of this agreement's arbitration provision. If you do so, neither you nor TWC can require the other to participate in an arbitration proceeding. To opt out, you must notify TWC in writing within 30 days of the date that you first became subject to this arbitration provision. . . .

(f) If the prohibition against class action and other claims brought on behalf of third parties contained in Section 15(b) is found to be unenforceable, then all of Section 15 will be null and void. This arbitration clause will survive the termination of your Services.

Compl., Ex. B, Dkt. #1, at 65-66 (citations to the arbitration clause will hereinafter be noted as "Subscriber Agreement § 15").

The Subscriber Agreement contains several other provisions that are relevant here. First, § 8 of the agreement provides that TWC may change its agreements with its customers or its prices "by amending the on-line version of the relevant document." Id. at 63. The section provides that if a customer "continue[s] to use the Services following any change in our Customer Agreements, prices or other polices, [the customer] will have accepted the changes (in other words, made them legally binding)." Id. If the customer does not agree to the changes, she may contact her local TWC office and cancel her service. Id. Section 8 also provides that "[a]ny changes to our Customer Agreements are intended to be prospective only. In other words, the amended version of the relevant document only becomes binding on you as of the date that we make the change." Id. Second, § 10 of the Subscriber Agreement limits TWC's liability as follows: "EXCEPT FOR [certain service credits described in previous sections], TWC WILL NOT BE LIABLE TO YOU FOR ANY LOSSES OR DAMAGES OF ANY KIND BASED ON BREACHES OF THIS AGREEMENT OR YOUR RELATIONSHIP WITH US, REGARDLESS OF THE BASIS OF ANY CLAIM." Id. at 64. Third, the Subscriber Agreement limits the time in which a customer (but not TWC) can bring a legal action to one year. Id. at 65.

TWC now moves to compel arbitration based on the Subscriber Agreement.

DISCUSSION

I. Legal Principles

The Federal Arbitration Act ("FAA") was passed "in response to widespread judicial hostility to arbitration." Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308-09(2013). It provides:

A written provision in any maritime transaction or contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be 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. The Supreme Court has described this provision as reflecting "both a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011) (internal citations and quotation marks omitted). The strength of this federal policy, the Second Circuit has commented, is "difficult to overstate." Arciniaga v. Gen. Motors Corp., 460 F.3d 231, 234 (2d Cir. 2006). The savings clause of § 2, however, "permits agreements to arbitrate to be invalidated by generally...