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Boomer v. AT&T Corp.

October 03, 2002

FRANK H. BOOMER, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLEE,
v.
AT&T CORPORATION, A NEW YORK CORPORATION, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 02 C 0847--John W. Darrah, Judge.

Before Coffey, Manion, and Diane P. Wood, Circuit Judges.

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

ARGUED SEPTEMBER 5, 2002

Frank Boomer filed a putative class action lawsuit against AT&T, alleging that AT&T overcharged its customers for contributions to the federal Universal Services Fund. AT&T moved to compel arbitration and to dismiss or stay the pending action, arguing that after the Federal Communications Commission ("FCC") discontinued the filing of tariffs by telecommunication providers, AT&T had entered into a Consumer Service Agreement ("CSA") with Boomer which prohibited class actions and mandated arbitration. Boomer argued that the arbitration clause was unconscionable under Illinois law and he sought a declaratory judgment accordingly. The district court denied Boomer summary judgment on his declaratory judgment claim and denied AT&T's motion to compel arbitration and its motion to dismiss or stay the case. AT&T appeals, arguing that Boomer's state law challenge to the terms and conditions of the CSA is preempted by the Federal Communications Act of 1934, and Boomer is therefore bound by the CSA's arbitration clause. We agree and accordingly REVERSE.

I.

Prior to 2001, the Communications Act of 1934 ("Communications Act"), as amended by the Telecommunications Act of 1996, required long distance carriers like AT&T to set forth their charges and other terms and conditions of service in tariffs filed with the FCC. 47 U.S.C. § 203. Under the "filed tariff doctrine," customers were bound by the terms of the tariff even if they had never seen the tariff, and even if the consumers had been promised service under different rates, terms or conditions. See AT&T v. Central Office Telephone, Inc., 524 U.S. 214, 222 (1998). Additionally, customers were bound by the rates, terms, and conditions contained in the tariff unless the FCC determined that a tariff provision violated the substantive requirements of the Communications Act and the tariff was thereafter modified. Id.

Over time, however, the FCC began entering orders exempting "nondominant carriers" (defined as those lacking market power) from the tariff-filing requirements of Section 203 of the Communications Act. But the Supreme Court invalidated these orders, holding that the FCC lacked the authority under the Communications Act to exempt certain carriers from the tariff-filing requirement of Section 203. See MCI Telecommunications Corp. v. AT&T Corp., 512 U.S. 218, 234 (1994). However, when Congress passed the Telecommunications Act of 1996, it expressly gave the FCC the authority to forbear from applying the tariff-filing requirement if, among other things, the FCC determined that the "enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations. . . are just and reasonable and are not unjustly or unreasonably discriminatory." 47 U.S.C. § 160(a)(1).

Armed with this new authority, the FCC issued a series of orders providing that AT&T and other long-distance carriers were no longer required to file tariffs. See Interstate Interexchange Marketplace, 11 FCC Rcd. 20,730 (1996); Interstate Interexchange Marketplace, 12 FCC Rcd. 15,014 (1997); Interstate Interexchange Marketplace, 14 FCC Rcd. 6004 (1999) ("Detariffing Orders"). Instead, the carriers were now required to provide customers with notice of the rates, terms, and conditions of service, and to offer customers service under such terms and conditions. The customers in turn could accept or reject the carrier's offer. The FCC anticipated that carriers would enter into such contracts through the use of "short, standard contracts." 11 FCC Rcd. at 20,736 (¶ 57).

After the FCC issued its detariffing orders, in June 2001 AT&T began mailing proposed Customer Service Agreements ("CSAs") to residential customers for their consideration. AT&T mailed each customer three documents: the CSA, a letter explaining why the CSA was being sent, and a list of anticipated frequently asked questions with explanatory responses ("CSA Mailing"). The CSA Mailing was sent to Boomer in June 2001 in an envelope, separate from his monthly bill. On the outside of the envelope was typed: "ATTENTION: Important information concerning your AT&T service enclosed."

The letter included with the CSA Mailing explained that AT&T was enclosing a "copy of the new AT&T Consumer Services Agreement containing the terms and conditions for our state-to-state and international consumer long distance services," and that "[t]his Agreement will begin to apply to these AT&T services on August 1, 2001." The letter also explained that because of recent changes adopted by the FCC, the details of the service agreement were being provided directly to the customer. Additionally, the letter informed customers that "[t]he Agreement also describes our new binding arbitration process, which uses an objective third party rather than a jury for resolving any disputes that may arise." The letter further informed customers that they would "accept the terms of the Agreement simply by continuing to use or pay for any AT&T state-to-state or international consumer calling service."

The CSA included with the letter expanded on these points. On the first page of the CSA, AT&T explained in bold and capitalized text that:

BY ENROLLING IN, USING, OR PAYING FOR THE SERVICES, YOU AGREE TO THE PRICES, CHARGES, TERMS AND CONDITIONS IN THIS AGREEMENT. IF YOU DO NOT AGREE TO THESE PRICES, CHARGES, TERMS AND CONDITIONS, DO NOT USE THE SERVICES, AND CANCEL THE SERVICES IMMEDIATELY BY CALLING AT&T AT 1-888-288-4099* FOR FURTHER DIRECTIONS.

Also significant for purposes of this appeal is Section 7, entitled "dispute resolution." That section began in bold and capitalized text, stating:

IT IS IMPORTANT THAT YOU READ THIS ENTIRE SECTION CAREFULLY. THIS SECTION PROVIDES FOR RESOLUTION OF DISPUTES THROUGH FINAL AND BINDING ARBITRATION BEFORE A NEUTRAL ARBITRATOR INSTEAD OF IN A COURT BY A JUDGE OR JURY OR THROUGH A CLASS ACTION. YOU CONTINUE TO HAVE CERTAIN RIGHTS TO OBTAIN RELIEF FROM A FEDERAL OR STATE REGULATORY AGENCY.

The CSA then detailed the arbitration requirement, providing:

a. Binding Arbitration.

The arbitration process established by this section is governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 - 16. You have the right to take any dispute that qualifies to small claims court rather than arbitration. All other disputes arising out of or related to this Agreement (whether based in contract, tort, statute, fraud, misrepresentation or any other legal or equitable theory) must be resolved by final and binding arbitration. This includes any dispute based on any product, service or advertising having a connection with this Agreement and any dispute not finally resolved by a small claims court. The arbitration will be conducted by one arbitrator using the procedures described by this Section 7.

Section 7 then detailed the arbitration filing procedures and explained that any disputes involving $10,000 or less would be conducted in accordance with the rules of the Consumer Arbitration Rules of the American Arbitration Association, and claims in excess of that amount would be resolved under the AAA's Commercial Arbitration Rules.

The CSA further provided that consumers filing an arbitration claim for less than $1,000 would only be required to pay a $20 filing fee, and that AT&T would cover the remaining costs of arbitration. AT&T later amended the CSA to further reduce the potential arbitration expense, providing that AT&T would pay all but a $20 filing fee for customers with disputes up to $10,000 and all but $375 for claims between $10,000 and $75,000.

Additionally, Section 7 of the CSA provided--once again in bold and capitalized text--that:

NO DISPUTE MAY BE JOINED WITH ANOTHER LAWSUIT, OR IN AN ARBITRATION WITH A DISPUTE OF ANY OTHER PERSON, OR RESOLVED ON A CLASS-WIDE BASIS, THE ARBITRATOR MAY NOT AWARD DAMAGES THAT ARE BARRED BY THIS AGREEMENT AND MAY NOT AWARD PUNITIVE DAMAGES OR ATTORNEYS' FEES UNLESS SUCH DAMAGES OR FEES ARE EXPRESSLY AUTHORIZED BY A STATUTE, YOU AND AT&T BOTH WAIVE ANY CLAIMS FOR AN AWARD OF DAMAGES THAT ARE EXCLUDED UNDER THIS AGREEMENT.

Boomer did not contact AT&T to cancel his services, but instead continued to use AT&T's long distance services. Notwithstanding the CSA's prohibition of class actions and its arbitration clause, Boomer filed a putative class action against AT&T, alleging that AT&T was overbilling him for the federal Universal Service Fee charge. *fn1 In his amended putative class action complaint, Boomer presented six counts: Count I requested an accounting of the Universal Service Fee Charge; Count II alleged a violation of the Illinois Consumer Fraud Act and the Deceptive Business Practices Act; Count III alleged unjust enrichment; Count IV sought a declaratory judgment that the arbitration clause contained in Section 7 of the CSA was unconscionable and otherwise invalid; ...


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