Verizon's Arbitration Agreement in Hidden Fee Case 'Valid and Enforceable,' Says Its Reply Brief

The district court order denying Verizon’s motion to compel arbitration in a class action over hidden fees in consumers’ wireless service bills should be reversed, said the carrier in a Monday reply brief (docket 22:16020) in the 9th U.S. Circuit Appeals Court, challenging the lower court’s denial of Verizon’s motion to compel the disputes of 27 California consumers to arbitration (see 2303270034).

In the alternative, the order should be vacated and the case remanded for further proceedings, said defendant-appellant Verizon. The district court erred by declining to send the question of unconscionability to the arbitrator, said the carrier.

U.S. District Judge Edward Chen for Northern California, who denied Verizon’s motion to compel, “was shocked by the content” of the arbitration agreement and “correctly refused to compel arbitration under its illusory, unconscionable and inseverable terms,” said the consumers’ March answering brief. An arbitration agreement “that requires claimants to wait decades or longer for a hearing, allows statutes of limitation to tick away and subjects claimants to unlawful restrictions on what evidence they can obtain and what damages they can seek is not an alternative to litigation,” it said.

The plaintiff-appellees argued the arbitration process Verizon is attempting to foist upon consumers is an inferior and unfair forum that violates claimants’ rights under federal and state law. Advocacy group the American Association for Justice said in March corporations like Verizon “fought for years to close the courts to consumers and restrict claims brought against them to individual arbitration,” and forced arbitration requirements, including class-action bans, “are now a ubiquitous part of most consumer contracts.” Individual arbitration is the “one remaining pathway to pursue claims,” it said.

Verizon’s arbitration agreement is “valid and enforceable,” said the carrier’s Monday reply brief, saying both the arbitration agreement’s delegation of questions of arbitrability to the arbitrator and the Federal Arbitration Act’s rule of severability “prohibited the court from adjudicating plaintiffs’ challenge to the arbitration agreement.” The district court addressed those challenges and decided them “incorrectly,” it said.

Plaintiffs “continue to advocate for an exception for unsophisticated consumers” to the “settled rule” that incorporation of the rules of the American Arbitration Association (AAA) constitutes “a clear and unmistakable delegation of arbitrability,” Verizon said. On plaintiffs’ argument that an unsophisticated party could make the “reasonable inference” that the enforceability of an arbitration agreement is a matter for determination by a court, “such a rule would amount to a presumption that an unsophisticated party does not understand what the words in a contract mean,” it said.

Every appeals court to have considered the arbitration agreement issue “refused to create such an exception,” Verizon said, saying an exception has “no foothold in the text of the Federal Arbitration Act,” no basis in the U.S. Supreme Court’s precedents on arbitrability, and “conflicts with the objective theory of contract formation.” Plaintiffs’ new arguments on appeal, that the delegation provision is unconscionable and illusory, “fare no better,” it said. The federal rule of severability prohibits a court from invalidating an arbitration agreement, it said.

On their challenge of the agreement’s mass-arbitration provision, plaintiffs are “incorrect” that mass arbitration would require them to wait “decades or longer” for access to an arbitrator to determine threshold questions of arbitrability, Verizon said. It noted AAA rules that dispute proceedings are to occur “within reasonable time, without undue delay” but also said if the arbitrator were to uphold the mass-arbitration provision, other plaintiffs may be unable to obtain immediate decisions on other questions of arbitrability. “At that point, the mass-arbitration provision may require the plaintiffs to wait before proceeding.”

The district court violated the federal rule of severability by assessing the unconscionability of the six-month notice provision, the punitive-damages waiver and the integration clause, which are contractual provisions outside the arbitration agreement, said the reply. The court also erred in its unconscionability analysis, it said. Plaintiffs “severely distort several of the contract’s clauses” and ignore their plain meaning, it said. The appeals court should “reject plaintiffs’ attempt to manufacture unconscionability by misreading the contract.”