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Wireless Provider Gets What It Wanted; Now It’s Sorry

Wireless Provider Gets What It Wanted; Now It’s Sorry

By Spencer Wilson, Brayton-Thornton Attorney

Consumers walked away with a quiet but important victory Tuesday when the U.S. Supreme Court denied review in Southern Communications v. Thomas. This decision will allow a group of consumers to pursue their claims against their wireless service provider, Southern Communications, on a collective basis in arbitration. The High Court’s decision not to hear the case is significant given the Court’s recent obsession with arbitration and its consistent track record of issuing pro-corporation decisions in the arbitration context.

Several consumers alleged that they were ripped off by Southern Communications when the wireless service provider charged them an illegal early termination fee designed to stifle competition with other cellular service providers. The consumers could not sue Southern Communications in court, however, due to an arbitration clause the company included in its customer cellular service agreements. Accordingly, the plaintiffs filed a demand for class arbitration with the American Arbitration Association.

Southern Communications got what it wanted—to confine its customers’ grievances to arbitration, where the arbitrator’s actions were all but shielded from judicial review. However, things did not go according to plan. Southern Communications lost the first major issue before the arbitrator—whether the arbitration clause in the company’s wireless contract permits class proceedings.

The arbitrator’s decision was based on Southern Communications’ own drafting of its arbitration agreement, which did not explicitly address the availability of class procedures in arbitration. After carefully reviewing the intent of the parties, based on the language of the contract and the applicable contract law, the arbitrator held that the contract permits the plaintiffs to proceed on a class-action basis in arbitration.

Naturally, Southern Communications was upset—the entire point of including an arbitration clause in its service agreement was to stifle legal claims by its customers, increase chances of victory, and shield those victories from judicial scrutiny. The company appealed and both the District Court and the Eleventh Circuit Court of Appeals upheld the arbitrator’s decision, finding that the arbitrator’s decision was based on his interpretation of the parties’ contract and applicable state contract law. The courts relied heavily on Oxford v. Sutter Health Plans and Stolt-Nielsen v. AnimalFeeds, two recent Supreme Court cases examining the question of whether an arbitrator could interpret an arbitration agreement to permit class proceedings, absent explicit language on the matter. Undeterred, Southern Communications petitioned the U.S. Supreme Court to exercise its narrow powers of review and to second-guess the arbitrator’s contract interpretation. Public Justice opposed the petition.

This case is significant because it illustrates how corporations only favor arbitration when it is to their advantage. Corporations love to include arbitration agreements in their contracts with consumers. These provisions allow corporations to control a variety of important factors, including who will decide the case, where the arbitration will be held, and who will pay for the arbitration. Additionally, because the Federal Arbitration Act provides very limited grounds for judicial review of arbitration decisions, victories in arbitration are, for the most part, final.

When faced with consumer challenges to these provisions, corporations laud the benefits of arbitration: they say it saves time, saves money, and clears the dockets of the courts. But those are only the arguments they make when they win. When they lose, as in this case, arbitration suddenly becomes unfair. 

Here, Southern Communications messed up. They wanted their case to go to arbitration, knowing that an arbitrator—not a judge—would have the final say in interpreting their service contract and deciding the merits of the case. They got their wish. It turns out their wish wasn’t very well thought out. Talk about buyer’s remorse.

Given its track record on arbitration issues, it would not have been an incredible surprise if the Supreme Court had granted Southern Communications a second wish by granting review in this case. I was relieved that the Court held the company to the consequences of its own decision.

photo credit: patrick h. lauke via photopin cc