Cellphone Termination Fee Cases
193 Cal. App. 4th 298
Cal. Ct. App.2011Background
- Consolidated consumer class actions against Sprint alleging ETF charges violated California law and were unenforceable penalties under Civil Code 1671(d).
- Trial court enjoined ETF collection, awarded restitution of $73,775,975 to class, and found actual damages greater than collected ETFs; setoff negated recovery.
- Court held ETFs were unlawful penalties and not valid liquidated damages; determined damages under CLRA, UCL, unjust enrichment, and money had and received.
- Jury found class breached contracts; verdict on damages (uncollected ETFs) equaled $225,697,433; court granted partial new trial on damages and setoff.
- Sprint appealed, plaintiffs cross-appealed, focusing on federal preemption under the FCA and the application of 1671(d).
- Court ultimately affirmed in part, remanding for retrial on damages and offset calculations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §332(c)(3)(A) preempts state claims about ETFs. | Ayyad contends ETFs are not rates; state law remedies apply. | Sprint argues ETFs are rates; preemption applies. | Not preempted; ETFs are not rates under §332(c)(3)(A). |
| Whether ETFs are liquidated damages under §1671(d). | ETF was a penalty; improper under reasonable endeavor test. | ETF is liquidated damages; valid if reasonable endeavor shown. | ETFs functioned as penalties; failed reasonable endeavor; invalid under §1671(d). |
| Whether ETFs constituted alternative performance or true liquidated damages. | ETFs were liquidated damages, not true alternative performance. | ETF could be viewed as alternative performance. | ETF provisions were liquidated damages, not true alternative performance; invalid under §1671(d). |
| Whether the trial record supported the setoff against damages; and whether damages should be retried. | Setoff and damages determined inconsistent with instructions. | Damages offset appropriately reflected actual losses. | Remand for retrial on damages and offset calculation; judgment affirmed overall. |
| Whether California law claims were properly applied given preemption discussion. | State law claims available; preemption only for true rate regulation. | Federal preemption bars state remedies that affect rates. | California law claims valid; not preempted by FCA. |
Key Cases Cited
- Spielholz v. Superior Court, 86 Cal.App.4th 1366 (Cal. Ct. App. 2001) (preemption framework and saving clause guidance)
- Pacific Bell Wireless, LLC v. Public Utilities Comm., 140 Cal.App.4th 718 (Cal. Ct. App. 2006) (FCA preemption limited; penalties not necessarily rates)
- Ball v. GTE Mobilnet of California, 81 Cal.App.4th 529 (Cal. Ct. App. 2000) (rates vs. terms/conditions distinction in preemption analysis)
- Hitz v. First Interstate Bank, 38 Cal.App.4th 274 (Cal. Ct. App. 1995) (reasonable endeavor test for liquidated damages)
- Garrett v. Coast & Southern Fed. Sav. & Loan Assn., 9 Cal.3d 731 (Cal. 1973) (two-part test for validity of liquidated damages; impracticability and reasonable endeavor)
- Utility Consumers’ Action Network v. AT&T Broadband of Southern Cal., Inc., 135 Cal.App.4th 1023 (Cal. Ct. App. 2006) (reasonable endeavor focuses on motivation/purpose and effect of liquidated damages)