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Bess v. DirecTV

August 24, 2004

[5] CHARLOTTE BESS, PLAINTIFF-APPELLEE,
v.
DIRECTV, INC., DEFENDANT-APPELLANT.



[6] Appeal from the Circuit Court of St. Clair County No. 99-L-55A. Honorable Robert P. LeChien, Judge, presiding.

[7] The opinion of the court was delivered by: Justice Donovan

[8]  This appeal arises from an order of the circuit court of St. Clair County denying the motion of DirecTV, Inc. (DirecTV), to stay proceedings in a class action suit and to compel arbitration. The motion was based upon the DirecTV "Customer Agreement" with plaintiff, Charlotte Bess. That agreement recites that any claim asserted by either party against the other, if not resolved informally, "will be resolved only by binding arbitration," to be conducted under the commercial arbitration rules of the American Arbitration Association. The court found the arbitration provision to be "substantively unconscionable and unenforceable" and denied DirecTV's motion to stay and to compel arbitration. DirecTV filed a timely notice of interlocutory appeal. We have jurisdiction over the instant appeal pursuant to Illinois Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)). See Caudle v. Sears, Roebuck & Co., 245 Ill. App. 3d 959, 962, 614 N.E.2d 1312, 1315 (1993).

[9]  Background

[10]   DirecTV provides television programming services via satellite to consumers throughout the nation. To obtain these services, a potential DirecTV subscriber typically first purchases from an independent retailer the equipment necessary to receive a satellite signal. The potential customer then calls DirecTV and selects one or more of DirecTV's programming packages. DirecTV then activates the subscriber's service and mails the customer a copy of the parties' written contract, entitled "Customer Agreement" (Customer Agreement), along with his or her first bill. The Customer Agreement sets forth the parties' rights and obligations and explains the terms and conditions pursuant to which DirecTV provides its service.

[11]   On November 28, 1999, Bess activated her DirecTV satellite programming service. The same day, DirecTV mailed to Bess a copy of the October 1999 Customer Agreement, along with her first billing statement. The Customer Agreement sets forth the terms of the agreement between DirecTV and its customers, including that DirecTV will send Bess a billing statement once every 30 days, that payment of the outstanding balance is due in full each month, and that if Bess's payment is not received by DirecTV before her next statement is issued, she may be charged an administrative late fee of up to $5. This administrative late fee is the subject of Bess's complaint.

[12]   The Customer Agreement contains informal and formal dispute-resolution clauses. Under the informal dispute-resolution clause, paragraph 8(a), the complaining party must first notify the other of a claim at least 60 days in advance of starting any formal proceeding, so that an informal resolution of the claim can be attempted. Paragraph 8 of the Customer Agreement provides that all disputes "relating to" the Customer Agreement or to DirecTV services not resolved informally are to be submitted to binding arbitration. The arbitration provision, paragraph 8(b), states:

[13]   "Formal Resolution. Except as provided in Section 8(d), if we cannot resolve a Claim informally, any Claim either of us asserts will be resolved only by binding arbitration. The arbitration will be conducted under the Commercial Arbitration Rules of the American Arbitration Association that are in effect at the time the arbitration is initiated (referred to as the 'AAA Rules') and under the rules set forth in this Agreement. If there is a conflict between the AAA Rules and the rules set forth in this Agreement, the rules set forth in this Agreement will govern. ARBITRATION MEANS THAT YOU WAIVE YOUR RIGHT TO A JURY TRIAL. If you initiate the arbitration, you agree to pay a fee of $125 or, if less and you tell us in writing, the amount that you would pay to initiate a lawsuit against us in the appropriate court of law in your state. We agree to pay any additional fee or deposit required by the American Arbitration Association in excess of your filing fee. We also agree to pay the costs of the arbitration proceeding up to a maximum of one-half day (four hours) of hearings. Other fees, such as attorney's fees, expenses of travel to the arbitration[,] and the costs of a proceeding that goes beyond one-half day[,] will be paid in accordance with the AAA Rules. The arbitration will be held at a location within one hundred miles of your residence unless you and we both agree to another location."

[14]   The Customer Agreement also specified the method by which Bess could accept or rejects its terms:

[15]   "THIS DOCUMENT DESCRIBES THE TERMS AND CONDITIONS REGARDING YOUR RECEIPT AND PAYMENT OF DIRECTV SERVICE. IF YOU DO NOT ACCEPT THESE TERMS, PLEASE NOTIFY US IMMEDIATELY AND WE WILL CANCEL YOUR SERVICE. IF YOU AGREE, IT WILL MEAN THAT YOU ACCEPT THESE TERMS AND, ACCORDINGLY, THEY WILL BE LEGALLY BINDING ON YOU."

[16]   Bess did not cancel her service upon her receipt of the October 1999 Customer Agreement and, in fact, was still a DirecTV customer at the time of this appeal.

[17]   On November 22, 2000, Bess filed her first amended complaint in the circuit court of St. Clair County. Her complaint alleges that DirecTV violated Illinois law by charging its subscribers a $5 late fee when payments are not received on time. The gist of Bess's complaint is that DirecTV's true costs for late-paying customers are far below that charged as a late fee. Bess argues that DirecTV's practice constitutes unjust enrichment and violates both Illinois common law concerning liquidated damages and the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2000)).

[18]   By letter dated December 4, 2000, DirecTV notified Bess that it intended to avail itself of the parties' contractual dispute-resolution clause. On December 7, 2000, DirecTV moved the court to compel arbitration and to stay Bess's action so that the arbitration contemplated by the parties' agreement could proceed. On March 27, 2003, the court denied DirecTV's motion, concluding that the parties' arbitration agreement was unconscionable and unenforceable. In support of its decision, the trial court relied on the California case of Szetela v. Discover Bank, 97 Cal. App. 4th 1094, 118 Cal. Rptr. 2d 862 (2002), which held that a provision in an arbitration agreement expressly prohibiting class actions violated public policy.

[19]   The Federal Arbitration Act

[20]   Congress enacted the Federal Arbitration Act (FAA) (9 U.S.C. §1 et seq. (2000)) in 1925 "to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts[] and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 114 L.Ed. 2d 26, 36, 111 S.Ct. 1647, 1651 ...


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