Federal Court Uses Service Contract to Dismiss Class Action Against Wireless Provider
On deck for this morning is another case that brings home the message: read those service contracts, folks, because they really can cut off your legal options.
In Minnick v. Clearwire US, LLC, 2010 WL 431879 (W.D. Wash. Feb. 05, 2010), customers sued the provider of wireless Internet and telephone service over the early termination fee ("ETF") contained in its contract. The wireless service, plaintiffs alleged, was unreliable, slow and often non-existent. But when they went to terminate service, the defendant pointed to the contract, which included an ETF of $220 less $5 per month of service the customer had since the beginning of the two year service contract.
US District Judge Marsha Pechman -- who has previously ruled on Microsoft matters discussed in this blog -- granted the defendant's motion to dismiss the complaint.
She began her analysis by looking at what law would apply. The contract provided that Washington or Delaware law would control. Plaintiffs identified no difference in the laws, so the court did not ultimately make a choice of law determination.
The gist of plaintiffs' causes of action was that the ETF was an unconscionable penalty and should be disregarded. The defendant convinced the court, however, that it was more analogous to an "alternative performance provision" that gave customers choices at the outset for how they would perform their obligations under the contract.
The court also analyzed UCC 2-302 -- even though this was a contract for services, not goods -- and observed that "unconscionability" is a defense to enforcement of a cause of action, but is not in itself a basis for restitutionary relief.
In analyzing the claim under Washington's Consumer Protection Act, the court noted that plaintiffs had two options: either the actions had to have the capacity to deceive a substantial portion of the public, or they had to constitute a per se unfair trade practice. The plaintiffs disclaimed a deception-based approach -- presumably since all of the contract terms were disclosed to customers before establishing service -- and instead relied on the "per se unlawful" prong of the CPA. But all they could point to were common law precedents about "unlawful penalties" in contracts. The Washington Supreme Court has held that the "per se unlawful" prong of the statute only applies to practices that the Legislature has declared unlawful. Thus, common law precedents did not cut it and the CPA count was dismissed.
Plaintiffs also asserted an unjust enrichment count. But "[u]nder Washington law, a plaintiff who is a party to a 'valid express contract is bound by the provisions of that contract' and may not bring a claim for unjust enrichment for issues arising under the contract's subject matter. Id. at *5 (citation omitted). Plaintiffs argued that they were merely engaging in "alternative pleading," but the court noted that the contract also had a severability provision, so even if the ETF provision were unenforceable, the remainder of the contract would survive and govern plaintiffs' payment obligations.
The court also rejected plaintiffs' breach of contract count based on the allegedly lousy service they received from the defendant. The contract provided that customer must notify the defendant in writing within 20 days if they disputed charges, and it limited damages to a credit for the customers' prorated monthly charges. Even these were not available absent a written request. Because the plaintiffs had not alleged compliance with these provisions, the court granted dismissal of the breach of contract count.
Finally, the court rejected the plaintiffs' count for false advertising under the CPA. The court noted that no plaintiff identified statements that they relied upon, and therefore "they have not alleged a plausible basis to identify CPA causation." Moreover, the court pointed to the FAQ section of the defendant's website, which "state[d] that the quality of service may vary depending on geography and modem placement."
Minnick is an important reminder that service contracts matter, and that they can be important tools to prevent class action litigation.
