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Class Action Defense Cases–Pendergast v. Sprint: Eleventh Circuit Certifies To Florida Supreme Court Questions Concerning Validity And Enforceability Of Class Action Waiver In Cellular Service Provider’s Mandatory Arbitration Clause

In Class Action Against Sprint Challenging Wireless Telephone Roaming Charges, Whether District Court Erred in Granting Defense Motion to Compel Arbitration of Plaintiff’s Individual Claims Pursuant to Mandatory Arbitration Clause with Class Action Waiver Warranted Certification to Florida Supreme Court because of Uncertainty in Intermediate Appellate Court Opinions Eleventh Circuit Holds

Plaintiff filed a putative class action in Florida federal court against Sprint Solutions and Sprint Spectrum for violations of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA) and for breach of contract and negligent misrepresentation; specifically, the class action complaint alleged that Sprint “charg[ed] improper roaming fees for calls placed within Sprint’s coverage areas.” Pendergast v. Sprint Nextel Corp., 592 F.3d 1119, 2010 WL 6745, *1, *11 (11th Cir. 2010). The class action complaint improper prayed for monetary damages, as well as declaratory and injunctive relief, and estimated plaintiff’s individual damages to be $20.00. Id. Defense attorneys moved to compel arbitration of plaintiff’s claims on an individual basis, seeking to enforce a mandatory arbitration clause and class action waiver in the Terms and Conditions of plaintiff’s service agreement. Id. The district court granted Sprint’s motion, concluding that under Florida law the arbitration clause and class action waiver were valid, and ordered plaintiff to pursue arbitration of his individual claim, id. Plaintiff appealed; he did not contest the arbitration clause itself but, rather, challenged the class action waiver as procedurally and substantively unconscionable. Id. Further, “because Plaintiff’s contract provides the arbitration and class action waiver clauses are not severable, Plaintiff claims the arbitration clause fails because the class action waiver is unenforceable.” Id. The Eleventh Circuit expressed doubt as to the correct application of state law in this case because of a conflict among decisions in the Florida intermediate appellate courts. Accordingly, the Circuit Court, at page *22, certified the following questions to the Florida Supreme Court:

(1) Must Florida courts evaluate both procedural and substantive unconscionability simultaneously in a balancing or sliding scale approach, or may courts consider either procedural or substantive unconscionability independently and conclude their analysis if either one is lacking?

(2) Is the class action waiver provision in Plaintiff’s contract with Sprint procedurally unconscionable under Florida law?

(3) Is the class action waiver provision in Plaintiff’s contract with Sprint substantively unconscionable under Florida law?

(4) Is the class action waiver provision in Plaintiff’s contract with Sprint void under Florida law for any other reason?

By way of background, in 2001, plaintiff purchased a wireless telephone from Sprint and agreed to a two-year service contract for Sprint wireless telephone service. Pendergast, at *1-*3. Plaintiff’s two-year contract was subject to Sprint’s then-applicable Terms and Conditions, a copy of which was provided in the box sent to plaintiff with the phone. Id. In 2003, plaintiff purchased another wireless telephone from Sprint, keeping his original account number phone number. Id., at *3. Again, a copy of Sprint’s Terms and Conditions were included with the phone. Id. Finally, in 2005 plaintiff purchased yet another wireless telephone from Sprint, receiving a “discount” off its regular price, and yet again obtained a copy of Sprint’s Terms and Conditions. Id.,at *3-*6. At all times, Sprint’s Terms and Conditions contained the mandatory arbitration clause and class action waiver. In December 2006, Sprint sent plaintiff an invoice that provided him with advance notice of a change to its Terms and Conditions, effective January 1, 2007. Id., at *6-*7. According to the notice, “You must have the legal capacity to accept the Agreement. You accept the Agreement when you do any of the following: (a) sign a contract with us on paper or electronically; (b) accept Agreement through an oral or electronic statement; (c) attempt to or in any way use the Services; (d) pay for the Services; or (e) open any package or start any program that says you are accepting the Agreement when doing so. If you don’t want to accept the Agreement, don’t do any of these things.” Id., at *7 (emphasis in original). Similarly, in December 2007, Sprint sent plaintiff an invoice containing advance notice of amendments to the Terms and Conditions of his usage of Sprint’s service, effective January 1, 2008. Id., at *9. As early as 2004, the terms and conditions applicable to plaintiff’s account included a mandatory requirement that plaintiff arbitrate any dispute with Sprint, and further contained a class action waiver, requiring that any dispute be arbitrated on an individual basis. Id., at *6. Plaintiff remained a Sprint customer until January 20, 2008, when he switched to another service provider without notifying Sprint. Id., at *11.

Because federal jurisdiction was premised on diversity, Florida law controls. Pendergast, at *12. Federal law therefore requires reliance on the decisions of Florida’s highest court, and if it has not addressed the issue, then on the state’s intermediate appellate courts “unless there is persuasive evidence that the highest state court would rule otherwise.” Id. (citation omitted). The Eleventh Circuit noted, “‘Where there is any doubt as to the application of state law, a federal court should certify the question to the state supreme court to avoid making unnecessary Erie “guesses” and to offer the state court the opportunity to interpret or change existing law.’” Id. (citation omitted). Such a circumstance existed here, the Circuit Court concluded, because of conflicts among Florida appellate court decisions. For example, with respect to whether Florida requires a showing of both substantive and procedural unconscionability, the Circuit Court noted that the district court correctly interpreted Florida law “as requiring a showing of both procedural and substantive unconscionability,” but added that there was nevertheless “some tension in Florida law regarding the analytical framework courts should use in evaluating both procedural and substantive unconscionability.” Id., at *12-*14. Specifically, “Must courts evaluate both prongs simultaneously in a balancing exercise, or may courts stop the analysis after finding either procedural or substantive unconscionability to be independently lacking?” Id., at *13. See also id. (discussing conflict among Florida court opinions). “As a result of this tension, there is a question as to the analytical method-balancing, sliding scale or independent analysis-courts should use in considering procedural and substantive unconscionability issues under Florida law, which we conclude should be certified to the Florida Supreme Court.” Id., at *14.

With respect to the merits, the Eleventh Circuit found that “Whatever the approach used, it also is not clear whether Sprint’s contract with the Plaintiff is procedurally unconscionable under Florida law.” Pendergast, at *14. The district court found that Plaintiff “had a meaningful choice” of alternate providers and “could have rejected the class action waiver within 14 days of signing his 2005 agreement” and switched his phone number to another mobile phone carrier without agreeing to a class action waiver. Id. Plaintiff cited Florida law supporting a finding that Sprint’s class action waiver was procedurally unconscionable, see id., at *15, but another Florida opinion held that “the arbitration clause/class action waiver in a mobile phone contract was not procedurally unconscionable,” see id. Other cases cited by the parties reflected that the outcome “depends highly on the particular facts of the case.” Id. This was particularly problematic here, because “[t]he facts of this case are different from all of the above Florida decisions, and it is not clear what a Florida court would do if this case were presented to it.” Id., at *16. The Circuit Court concluded that “we cannot determine whether a Florida court would find Sprint’s contract under the particular facts of this case procedurally unconscionable” and held, “Given the unsettled state of Florida law, the enormous number of mobile phone contracts these days, and the frequency of these types of unconscionability claims, we conclude the question of whether Sprint’s contract is procedurally unconscionable should be certified to the Florida Supreme Court.” Id., at *18.

Similarly, with respect to substantive unconscionability, the Eleventh Circuit explained that some Florida cases support plaintiff’s argument “(1) that his improper roaming fees claim is too small to litigate individually; (2) he will be unable to find legal representation because attorneys will not be able to pool plaintiffs as a class and collect fees from the class award; and (3) thus the class action waiver effectively bars him from bringing suit at all.” Pendergast, at *18. However, the facts of this case are “materially different” from the cases cited by plaintiff, “making the substantive unconscionability issue in this particular case an unsettled question under Florida law.” Id., at *19. Plaintiff’s argument that Florida law prohibits Sprint from modifying the service agreements “without new consideration and the mutual consent of the parties” also warranted certification to the Florida Supreme Court, though it would appear that this argument lacks merit. Id., at *20. Finally, plaintiff’s claim that the class action waiver is void as contrary to “the remedial purposes of the FDUTPA” warrants certification because, again, there are Florida appellate court opinions going both ways on the issue. See id., at *21-*22. Accordingly, the Circuit Court certified the questions set forth above to the Florida Supreme Court. Id., at *22-*23.

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