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Richard Sherman, Individually and On Behalf of Similarly-Situated v. At&T Inc.

March 26, 2012

RICHARD SHERMAN, INDIVIDUALLY AND ON BEHALF OF SIMILARLY-SITUATED PERSONS,
PLAINTIFF,
v.
AT&T INC., A DELAWARE CORPORATION; AT&T TELEHOLDINGS, INC. D/B/A AT&T MIDWEST, A DELAWARE CORPORATION; AND SBC INTERNET SERVICES, INC. D/B/A AT&T INTERNET SERVICES, A CALIFORNIA CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff Richard Sherman ("Sherman") filed suit against Defendants AT&T Inc., a Delaware corporation; AT&T Teleholdings Inc. d/b/a AT&T Midwest, a Delaware corporation; and SBC Internet Services Inc. d/b/a AT&T Internet Services, a California corporation (collectively, "AT&T").*fn1 The suit alleges breach of contract, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ICLS 505/1, et seq, and alternatively, unjust enrichment. AT&T moves to compel arbitration of Sherman's claims and seeks a stay of proceedings in this Court pending the outcome of such arbitration. For the reasons set forth below, AT&T's Motion to Compel Arbitration is granted, and the current judicial proceedings are stayed pending the outcome of arbitration.

BACKGROUND

Sherman resides in Illinois and called AT&T on February 25, 2011, to speak with an AT&T salesperson to order residential internet service. (Doc. 1-1, Complaint ¶16). The internet plan was subject to AT&T's Internet and Conditions ("IT&C") presented on its website, which lists the pricing plans and states that "[o]ther conditions and restrictions apply." (Complaint, Ex. D). Sherman activated his internet service on March 3, 2011. (Doc. 15, Ex. 3, p. 5). To activate his internet service, he was required to complete an online registration process, during which he was asked to check a box labeled "I have read and agree to the AT&T Terms of Service, Acceptable Use Policy, AT&T and Yahoo Privacy Policies, Wi-Fi Terms of Service." On that same screen, "AT&T Terms of Service" linked to the AT&T Terms of Service ("Terms"). (Doc. 15, Ex. 3, p. 7). If Sherman did not check the box, he would not have been able to proceed with the activation process and never would have received service. (Doc. 15, Ex. 3, p. 2-3). The Terms include an arbitration provision that requires its parties to "arbitrate all disputes and claims" between them "based in whole or in part upon" the internet service, on an individual basis. (Doc. 15, Ex. 3, p. 21).

In May 2011, AT&T revised its Terms, and pursuant to the change-in-terms-provision, provided notice to its customers by sending them an email containing information about the revision, a link to the full text of the Terms and a reminder that "[b]y continuing to use the Service, you are agreeing" to the Terms. (Doc. 15, Ex. 3, p. 31-32). The revision changed the dispute resolution provision only by changing the mailing address to where customers could send notices of their disputes. (Doc. 15, Ex. 3, p. 50). On July 26, 2011, Sherman filed suit individually and while seeking to represent a class of similarly-situated persons, alleging that AT&T systematically overcharged consumers for residential internet service by advertising promotional plans and yet billing customers at standard rates. (Doc. 1-1).

STANDARD OF REVIEW

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, provides that a written arbitration agreement contained within a commercial contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The FAA evidences a strong federal policy favoring arbitration and "mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985). Arbitration may be compelled by the Court pursuant to the FAA whenever there is a written arbitration agreement, a dispute falling with the agreement's scope, and a refusal by one of the parties to submit to arbitration. See Zurich American Ins. Co. v. Watts Industries, Inc., 417 F.3d 682, 687 (7th Cir. 2005). Recently, the Supreme Court reemphasized that Section 2 promotes arbitration so as to "facilitate streamlined proceedings." AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1741 (2011). This "liberal federal policy favoring arbitration agreements" applies "notwithstanding any state substantive or procedural policies to the contrary." Id. at 1749 (quotations omitted).

DISCUSSION

The contract for internet service at issue here falls within the FAA because its arbitration agreement is "written" and in a contract "evidencing a transaction involving commerce." 9 U.S.C. § 2; see Utah Lighthouse Ministry v. Found. for Apologetic Info. & Research, 527 F.3d 1045, 1054 (10th Cir. 2008) ("the Internet is generally an instrumentality of interstate commerce"). Furthermore, the arbitration provision explicitly states that the contract "evidences a transaction in interstate commerce, and thus the [FAA] governs the interpretation and enforcement of this provision." (Doc. 15, Ex. 3, p. 22). This Court may compel Sherman to arbitrate his dispute with AT&T and stay the current judicial proceedings, because there is a written arbitration agreement, their dispute falls with the agreement's scope, and Sherman refuses to submit to arbitration.

Nevertheless, Sherman argues that he never agreed to arbitrate his dispute because the contract he believes he formed when he ordered internet service is not subject to the Terms to which he agreed when he activated his service. Sherman additionally argues that even if the Terms are valid, they were not expressly incorporated by the IT&C and were unavailable at the time of contract formation, thereby rendering the Terms unconscionable under Illinois law. Finally, Sherman argues that the Terms lack mutuality and are therefore unenforceable under Illinois law.

I. AT&T's Terms Govern the Parties' Contract

Sherman argues that he formed a contract with AT&T on February 25, 2011, when he spoke with an AT&T representative to order internet service, and that the representative made no mention of an arbitration requirement. However, AT&T is not required to have its sales representative read the arbitration provision aloud to potential customers in order for them to be bound by it. See, e.g., James v. McDonald's Corp., 417 F.3d 672, 678 (7th Cir. 2005) ("To require McDonald's cashiers to recite to each and every customer the fourteen pages of the Official Rules, and then have each customer sign an agreement to be bound by the rules, would be unreasonable and unworkable."). Vendors may enclose the full legal terms within their products rather than reciting them prior to purchase, for practical purposes:

If the staff at the other end of the phone for direct-sales operations . . . had to read the four-page statement of terms before taking the buyer's credit card number, the droning voice would anesthetize rather than enlighten potential buyers. Others would hang up in a rage over the waste of their time. And oral recitation would not avoid customers' assertions (whether true or feigned) that the clerk did not read term X to them, or that they did not remember or understand it. . . . Competent adults are bound by such agreements, read or unread.

Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1149 (7th Cir. 1997). Consequently, Sherman may be bound by the arbitration provision even if the sales representative did not ...


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