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Metro East Center for Conditioning and Health v. Qwest Communications International

June 27, 2002


Appeal from the United States District Court for the Southern District of Illinois. No. 01-CV-0399-DRH--David R. Herndon, Judge.

Before Easterbrook, Manion, and Kanne, Circuit Judges.

The opinion of the court was delivered by: Easterbrook, Circuit Judge.


When Metro East Center for Conditioning and Health chose a new vendor for local phone service, it neglected to name an interstate carrier, so one was assigned at random--Qwest Communications, which played that role for six months (February through July 2001) before Metro East specified a different carrier. Qwest's tariff on file with the Federal Communications Commission had two pertinent provisions: First, it set the monthly minimum fee per line (the "presubscription charge") that each customer must pay; second, it provided that any dispute would be resolved by arbitration. (We use the past tense because the tariff was canceled on July 31, 2001, as part of the FCC's detariffing program. Today Qwest uses a published statement of rates and rules, which presumably may be varied by customer-specific contracts. But the tariff was in force when the parties' dispute arose and thus governs its resolution.) Metro East contends that it uses Centrex service so that the monthly fee was 45ó per line; Qwest believes that Metro East is not a Centrex user and that the tariff therefore specified a monthly charge of $4.25. The total in contention is about $80, and the simplified procedures of arbitration are especially attractive for small-stakes disputes. But Metro East believes that the controversy is so small that neither arbitration nor ordinary litigation makes sense. It filed this suit seeking to represent a class of all customers who qualify for but did not receive the 45ó monthly rate under the tariff. Qwest replied with a motion to dismiss the suit and compel arbitration.

Qwest's Interstate Tariff No. 3 says, among other things:

Any claim, controversy or dispute, whether sounding in contract, statute, tort, fraud, misrepresentation, or other legal theory, related directly or indirectly to the Services, whenever brought and whether between the Company and the Customer or between the Company or the Customer and the employees, agents or affiliated businesses of the other party, shall be resolved by arbitration as prescribed in this section. The Federal Arbitration Act, 9 U.S.C. §§ 1-15, not state law, shall govern the arbitrability of all claims.

Under §3 of the Federal Arbitration Act, 9 U.S.C. §3, only the parties' "agreement" supports arbitration. Yet a tariff is a set of terms created and filed unilaterally by a carrier. Customers do not "agree" to these terms, though they are binding unless the federal agency with which they have been filed disapproves them. See, e.g., AT&T v. Central Office Telephone, Inc., 524 U.S. 214 (1998); Cahnmann v. Sprint Corp., 133 F.3d 484 (7th Cir. 1998). No private agreement can displace a tariff's terms. See Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116 (1990). Because the Federal Arbitration Act makes an "agreement" essential, the district court concluded, Qwest's customers need not arbitrate any dispute with it. 182 F. Supp. 2d 726 (S.D. Ill. 2002). The order denying Qwest's motion to compel arbitration is immediately appealable under 9 U.S.C. §16(a)(1)(B).

The district court's approach has a "gotcha!" quality: The clause requiring arbitration refers to the Federal Arbitration Act and as a consequence precludes arbitration. Yet it is almost never right to read legal language as self-defeating. The district judge understood the clause as saying: "Every dispute must be arbitrated, provided, however, that no dispute is arbitrable." Why would someone put such a clause in a tariff, a contract, or any other document? People draft documents to achieve some objective, and although the meaning of words can be elusive even after taking into account both linguistic and economic contexts, see Beanstalk Group, Inc. v. AM General Corp., 283 F.3d 856 (7th Cir. 2002), and some words may turn out to be redundant or otherwise carry no weight, it is not sensible to construe a substantial passage of a legal text as pointless. When one sentence seems to cancel out the rest of a subsection, it is essential to ask whether that sentence must devastate its surrounding language. Is there no alternative reading of either the contract or the Arbitration Act that will enable the whole clause to survive?

It isn't hard to think of one: An "agreement" for purposes of §3 means no more than an offer and acceptance that produces a legally binding document. Tariffs, like contracts, have that quality. The tariff is an offer that the customer accepts by using the product. The terms have legal effect; indeed, by virtue of federal law a tariff is more conclusive than a contract and is said to have the status of a regulation, see Cahnmann, 133 F.3d at 488, though a tariff also may be enforced through suit just as a contract may be enforced. No surprise that we have referred to tariffs as a species of contract. See, e.g., Arsberry v. Illinois, 244 F.3d 558, 562 (7th Cir. 2001). Accord, Atlantic & Gulf Stevedores, Inc. v. Alter Co., 617 F.2d 397, 401 n.16 (5th Cir. 1980); Penn Central Co. v. General Mills, Inc., 439 F.2d 1338, 1340 (8th Cir. 1971). Tariffs differ from private contracts only to the extent that they are not subject to alteration one customer (or one clause) at a time or to nullification by a court on grounds such as unconscionability. Instead a tariff must be enforced as written unless the regulatory agency intervenes. Metro East supposes that to form an "agreement" with Qwest it must engage in individual negotiation, clause by clause. A tariff is a take-it-or-leave-it proposition and thus not an "agreement" by these lights. Yet we have held that form contracts, offered on a take-it-or-leave-it basis, are agreements for purposes of the Arbitration Act. See, e.g., Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361 (7th Cir. 1999); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997). Cf. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (enforcing a forum-selection clause included among three pages of terms attached to a cruise ship ticket). Tariffs are no different on this dimension.

Arbitration often comes with the territory, so to speak-- for example, with a job or with membership in the National Association of Securities Dealers. See, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995); J.E. Liss & Co. v. Levin, 201 F.3d 848 (7th Cir. 2000). Although these requirements may be non-negotiable--one cannot join the NASD without accepting its arbitration regimen, and often an investor cannot trade securities through NASD members without committing to arbitrate--they remain "agreements" because the person could have chosen to do something else. A would-be securities dealer may elect a different occupation; by making a living at securities trading he agrees to live by the rules applicable to securities dealers. Likewise a business such as Metro East that wants to make interstate phone calls can shop among tens of rivals for the best combination of price and terms. If customers value the ability to litigate by more than the incremental cost of litigation compared with arbitration, then one or more of the carriers will offer that option. Even if none does, the price the carriers charge in competition will reflect the terms of the transaction.

So this tariff does not suffer from a self-inflicted wound. Metro East has "agreed" to arbitrate within the meaning of §3. Nonetheless, Metro East insists, it should be entitled to litigate because arbitration is too expensive for an $80 dispute (the filing fee alone is greater), because arbitrators need not entertain class actions, and so on. This is the sort of litany that the Federal Arbitration Act is supposed to silence; arbitration has disadvantages compared with litigation but has benefits too, and private parties are entitled to choose in order to maximize their own satisfaction. An arbitral forum can serve as a sort of small-claims tribunal in a way that a federal district court cannot. If arbitration offers benefits to Qwest and detriments to customers such as Metro East, these benefits are reflected in a lower cost of doing business that in competition are passed along to customers. There is lots of competition in interstate telecommunications service. Customers therefore are compensated through lower rates for any net loss they may experience in arbitration. They can't accept the lower rates (recall that Metro East contends that it is entitled to an especially favorable fee of 45ó per line per month) while avoiding the means that made lower rates possible.

What is more, arbitration may offer net benefits to all concerned. The filing fee for arbitration exceeds the stakes of this $80 dispute--but so does the filing fee for litigation in a federal district court, and the discovery procedures of litigation may be more expensive for both sides than are the procedures used in arbitration. Qwest's tariff calls for arbitration under the auspices of the American Arbitration Association, using its expedited procedures without discovery. This curtails the cost of the proceedings and allows swift resolution of small disputes on written submissions. A firm such as Metro East can provide documents (from itself or its local carrier) supporting its contention that it has Centrex service without opening itself to expensive discovery. This seems to give the customer the upper hand: without discovery, Qwest would not find it easy to meet Metro East's proof about the nature of its phone switch.

None of this matters, however, because the decision is not ours to make. Under the Arbitration Act, expressly incorporated into the tariff, an agreement to arbitrate must be enforced to the same extent as any other contract would be enforced. Metro East does not contend that any legal rule would nullify terms of the tariff viewed as ordinary contractual clauses. 9 U.S.C. §2. To the extent that Metro East argues that arbitration is unfair or unjust because it interferes with some other federal objective--the sort of argument offered by four Justices in dissent in Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000)--it runs smack into the filed-rate doctrine (sometimes called the filed-tariff doctrine because it covers terms as well as rates). It is the regulatory agency (here the FCC) that possesses exclusive authority to set aside rates, terms, conditions, and other ingredients of a tariff. By incorporating the Federal Arbitration Act, the tariff authorizes the court to decide whether a dispute is arbitrable under §3 (as we have done); this role does not offend the filed-tariff doctrine because the tariff itself commands application of the Arbitration Act's standards. But any broader claim, such as that arbitration is an inappropriate practice in the telecommunications business or transgresses some aspect of the federal statutes that the FCC administers, is an argument for the

FCC alone. A customer who objects to any part of a tariff may ask the FCC to suspend or annul the tariff and is entitled to judicial review of an unfavorable decision. 47 U.S.C. ยงยง 204(a)(2)(C), 402. But Metro East has not initiated an administrative proceeding--and Qwest informed us at oral argument that none of its other customers has sought administrative review of the arbitration requirement nor, to its knowledge, has any customer of any carrier protested before the FCC any arbitration provision in a telecommunications tariff. This suggests that most customers find arbitration a valuable cost-saver; ...

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