MacClelland v. Cellco P'ship

609 F.Supp.3d 1024

Teresa MACCLELLAND, et al., Plaintiffs,

v.CELLCO PARTNERSHIP, et al., Defendants.

Case No. 21-cv-08592-EMC

United States District Court, N.D. California.

Signed July 1, 2022

Paul Karl Lukacs, Hattis & Lukacs, Thousand Oaks, CA, Stephen DeNittis, Pro Hac Vice, DeNittis Osefchen Prince, P.C., Marlton, NJ, Che Corrington, Pro Hac Vice, Daniel Morley Hattis, Hattis and Lukacs, Bellevue, WA, for Plaintiffs.

Crystal Nix-Hines, Shon Morgan, Quinn Emanual Urquhart & Sullivan LLP, Los Angeles, CA, for Defendant Cellco Partnership.

Crystal Nix-Hines, Shon Morgan, Marina Lev, Quinn Emanuel Urquhart & Sullivan, LLP, Los Angeles, CA, Los Angeles, CA, for Defendant Verizon Communications Inc.

ORDER DENYING DEFENDANTS’ MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS, AND DENYING DEFENDANTS’ REQUEST FOR LEAVE TO FILE NOTIFICATION OF CHANGE TO CUSTOMER AGREEMENT

Docket Nos. 20, 43

EDWARD M. CHEN, United States District Judge

I. INTRODUCTION

Plaintiffs, individually, as private attorneys general, and on behalf of a putative class of other customers similarly situated, allege that Defendants Cellco Partnership d/b/a Verizon Wireless and Verizon Communications Inc. (collectively, "Verizon"), engaged in false advertising by failing to disclose an "Administrative Charge" for wireless services, and misrepresenting that the fee is a tax or government regulation. Plaintiffs assert claims under California law pursuant to the Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law seeking public injunctive relief, private injunctive relief, and restitution.

Now pending is Verizon's motion to compel the entirety of the action to arbitration subject to an arbitration agreement that prohibits non-individualized relief. Docket No. 20 (Motion to Compel Arbitration, or "MTC"). For the following reasons, the Court DENIES Verizon's motion to compel arbitration.

II. BACKGROUND

A. Summary of Allegations

In the operative complaint, Plaintiffs allege that Verizon has engaged, and continues to engage, in a false advertising scheme because Verizon publicly advertises flat monthly rates for its wireless service plans but then charges higher rates "by padding the bill with an invented and undisclosed" extra charge of $1.95 per month (which Verizon calls the "Administrative Charge"). See Docket No. 10 (First Amended Complaint or "FAC") ¶ 1. The FAC alleges that the "Administrative Charge" was concocted by Verizon beginning in September 2005 as a means to covertly increase customers’ rates. Id. ¶¶ 1–2. Since 2005, Verizon has allegedly improperly collected over $1 billion in additional charges from its California subscribers through use of Administrative Charges. Id. ¶ 2.

Plaintiffs bring claims individually, as private attorneys general, and on behalf of a putative class consisting of "[a]ll individual consumers in California who currently subscribe or formerly subscribed to a postpaid wireless service plan from Verizon and were charged what Verizon labeled an ‘Administrative Charge’ within the applicable statutes of limitations." Id. ¶ 501. Plaintiffs bring claims under the Consumer Legal Remedies Act ("CLRA"), California Civil Code § 1750 et seq. , False Advertising Law ("FAL"), Cal. Bus. & Prof. Code § 17500 et seq. , and Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq. Id. ¶¶ 511–567. As an alternative to their statutory claims, Plaintiffs also bring a claim alleging breach of the implied covenant of good faith and fair dealing. Id. ¶ 569. The FAC seeks public injunctive relief to stop Verizon's allegedly ongoing false and deceptive price advertising to the general public under the UCL, FAL, and CLRA. Id. ¶¶ 531, 548, 566, Prayer § A. Under the CLRA, FAL, and UCL, Plaintiffs also seek, on behalf of themselves and the proposed class, restitution, damages, attorneys’ fees, and a private injunction ordering Verizon to "adequately and accurately disclose to its subscribers the existence of the Administrative Charge, its true nature or basis, and its amount, including on all of Verizon's customer bills." Prayer § B, C.

B. Procedural Background

On November 3, 2021, Plaintiffs Teresa MacClelland, Karen Umberger, and Scott Willits filed the complaint. Docket No. 1. On November 10, 2021, Plaintiffs sent a demand letter to Verizon that described their claims and this dispute. Docket No. 29 (Opposition to Motion to Compel, or "MTC Opp.") at 8. On December 31, 2021, Plaintiffs filed the operative FAC, adding 24 additional Plaintiffs. Docket No. 10. Verizon then moved to compel arbitration and stay proceedings. Docket No. 20. On May 19, 2022, the Court heard oral argument regarding Verizon's motion to compel arbitration. Docket No. 42. Almost three weeks later, Verizon requested leave to file a "notification of change" to Verizon's Customer Agreement ("Agreement") that addressed a statute of limitations issue that the Court had raised during the hearing. Docket No. 43. Plaintiffs then filed an opposition to Verizon's motion for leave. Docket No. 46. On June 23, 2022, the Court granted leave for the parties to submit supplemental briefing to address Viking River Cruises, Inc. v. Moriana , ––– U.S. ––––, 142 S. Ct. 1906, 213 L.Ed.2d 179 (2022). Docket No. 50.

C. Arbitration Agreement

Before activating his or her wireless service, each plaintiff was required to accept the Agreement. Docket No. 21 (Declaration of Lacey Kennedy, or "Kennedy Decl.") ¶¶ 3–5. Over time, Verizon has made minor adjustments to its Agreement over time, but every version of the Agreement contained an arbitration clause that required arbitration and expressly prohibited class arbitrations. MTC at 3; Docket No. 21-1 (Agreement) ¶ 3.

Plaintiffs do not dispute that they assented to the arbitration agreement. MTC Opp. at 8. Nor do they contest Verizon's legal argument that their claims fall within the scope of the arbitration clause. Id. at 8. Instead, Plaintiffs argue that the dispute resolution provisions are permeated with unconscionability and are thus unenforceable. Id. at 8. The relevant provisions of the Agreement are excerpted and discussed below.

III. LEGAL STANDARD

Neither party disputes the application of the Federal Arbitration Act ("FAA"). Under the FAA, an agreement to arbitrate "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 final clause of § 2, its saving clause, "permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 340, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (quoting Doctor's Associates, Inc. v. Casarotto , 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) ).

IV. DISCUSSION

In ruling on a motion to compel arbitration, a district court must decide "(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc. , 207 F.3d 1126, 1130 (9th Cir. 2000). "If the response is affirmative on both counts, then [absent application of the savings clause] the Act requires the court to enforce the arbitration agreement in accordance with its terms." Id.

Accordingly, the Court will first address whether there is an arbitration agreement between the parties.

A. Whether An Agreement to Arbitrate Exists

The initial question of whether an agreement to arbitrate exists has a simple answer. Plaintiffs do not dispute that the Agreement, and its arbitration provision, constitute an agreement to which they assented. MTC Opp. at 8. Before activating his or her wireless service, each plaintiff was required to accept the Agreement. Kennedy Decl. ¶¶ 3–5. While Verizon has made minor adjustments to its Agreement over time, every version of the Agreement contained an arbitration clause that required arbitration and expressly prohibited class arbitrations. MTC at 3; Agreement ¶ 3.

Accordingly, an agreement to arbitrate exists.

B. Whether Plaintiffs’ Claims Are Covered By the Agreement

The next question is whether Plaintiffs’ claims are within the scope of the arbitration agreement. This again has a straightforward answer—Plaintiffs do not contest Verizon's legal argument that their claims fall within the scope of the arbitration clause. MTC Opp. at 8.

Instead, Plaintiffs argue that the dispute resolution provisions are permeated with unconscionability and are thus unenforceable. Id. Verizon responds that the parties agreed to delegate the interpretation and enforcement of the Agreement to the arbitrator, so any questions of unconscionability must be determined by the arbitrator in the first instance. Reply at 2–3. The Court now turns to the threshold question of delegation of arbitrability.

C. Delegation of Arbitrability

Verizon presents two arguments regarding the purported delegation of arbitrability. First, on reply, Verizon argues for the first time that all of Plaintiffs’ arguments about contract invalidity must be decided in the first instance by the arbitrator given the arbitration provision's incorporation by reference of the AAA rules. See Reply at 1 (contending that the arbitration clause's incorporation of the AAA rules is "clear and unmistakable evidence" that the parties intended to delegate challenges to arbitrability to the arbitrator).

In general, "whether the court or the arbitrator decides arbitrability is ‘an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.’ " Oracle Am., Inc. v. Myriad Grp. A.G. , 724 F.3d 1069, 1072 (9th Cir. 2013) (citation and internal quotation marks omitted). There is no presumption in favor of arbitration of arbitrability. See, e.g., Rent-A-Ctr., W., Inc. v. Jackson , 561 U.S. 63, 69...