Opinion
Civil No. 04-2981 (JRT/SRN).
September 3, 2004
Andrew G. McBride, WILEY REIN FIELDING, Washington, DC, and Jeffrey John Keyes, BRIGGS MORGAN; Minneapolis, MN, for plaintiffs Cellco Partnership, Verizon Wireless (VAW) LLC, Duluth MSA Limited Partnership.
Jeffrey John Keyes, BRIGGS MORGAN, Minneapolis, MN, for plaintiffs Midwest Wireless Holdings L.L.C.; Midwest Wireless Communications L.L.C.; American Cellular Corporation; Rural Cellular Corporation.
Kenneth Schifman, SPRINT CORPORATION, Overland Park, KS, and Teresa J. Kimker, HALLELAND LEWIS NILAN SIPKINS JOHNSON, Minneapolis, MN, for plaintiffs Sprint Spectrum L.P. and WirelessCo, L.P.
Seamus C. Duffy, DRINKER BIDDLE REATH, Philadelphia, PA, and Barbara P. Berens, KELLY BERENS, Minneapolis, MN, for plaintiff ATT Wireless Services of Minnesota, Inc.;
Michael R. Drysdale, DORSEY WHITNEY-MINNEAPOLIS, Minneapolis, MN, and Daniel B. Rapport, FRIEDMAN KAPLAN SEILER ADELMAN LLP, New York, NY, for plaintiffs VoiceStream Minneapolis, Inc. and T-Mobile USA, Inc.
Michael J. Vanselow, Cassandra Opperman O'Hern and Brian Sande, Assistant Attorneys General, OFFICE OF THE MINNESOTA ATTORNEY GENERAL, St. Paul, MN, for defendant.
MEMORANDUM OPINION AND ORDER ON PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION
Plaintiffs, a group of national and regional wireless carriers, challenge Article 5 of H.F. No. 2151, Minn. Sess. L. CH. 261 ("Article 5"), and seek a preliminary injunction to prevent implementation and enforcement of the new law. Plaintiffs maintain that Article 5 is illegal and unenforceable for a variety of reasons, and principally argue that the law constitutes rate regulation and is therefore preempted. Article 5 was scheduled to go into effect at the beginning of July, however, on June 29, 2004, after two oral arguments, and extensive briefing, the Court granted a Temporary Restraining Order enjoining the law's implementation until the Court could further consider plaintiffs' motion for a preliminary injunction. At defendant's request, the Court permitted additional briefing after the Temporary Restraining Order issued, but before the Court ruled on the preliminary injunction.
All plaintiffs have joined in the motion for a preliminary injunction. ( See Docket Nos. 4, 5, 14, 32, and 34.)
The Court reiterates its opinion that the question of whether Article 5 constitutes impermissible rate regulation or whether it simply codifies consumers' rights to a balanced and fair contract is a close issue. Nonetheless, for the reasons discussed below, the Court is persuaded that the majority of Article 5 is lawful, and therefore dissolves the Temporary Restraining Order. As set forth below, the Court grants the following, limited preliminary injunction. The Court will stay implementation of this Order until September 15, 2004.
BACKGROUND
I. Congress's Regulation of the Telecommunications Industry
Congress governs and regulates the telecommunications industry through the Federal Communications Act. States are prohibited from regulating "the entry of or the rates charged by any commercial mobile service or any private mobile service." 47 U.S.C. § 332(c)(3)(A). The statute also has a "savings clause" which provides, "except that this paragraph shall not prohibit a State from regulating the other terms and conditions of commercial mobile services." See also 47 U.S.C. § 414 ("Nothing in this chapter shall in any way abridge or alter the remedies now existing at common law or by statute, but the provision of this chapter are in addition to such remedies.").
II. Article 5
The Minnesota Legislature passed the bill titled the "Consumer Protections for Wireless Consumers" statute (also referred to as the "Wireless Consumer Protection State" or "Article 5") with overwhelming bipartisan support. The challenged law provides:
Subd. 3. [PROVIDER-INITIATED CHANGE.] A provider must notify the customer in writing of any proposed substantive change in the contract between the provider and the customer 60 days before the change is proposed to take effect. The change only becomes effective if the customer opts in to the change by affirmatively accepting the change prior to the proposed effective date in writing or by oral authorization which is recorded by the provider and maintained for the duration of the contract period. If the customer does not affirmatively opt in to accept the proposed substantive change, then the original contract terms shall apply.
Subd. 4. [CUSTOMER-INITIATED CHANGE.] If the customer proposes to the provider any change in the terms of an existing contract, the provider must clearly disclose to the customer orally or electronically any substantive change to the existing contract terms that would result from the customer's proposed change. The customer's proposed change is only effective if the provider agrees to the proposed change and the customer agrees to any resulting changes in the contract. The provider must maintain recorded or electronic verification of the disclosure for the duration of the contract period.
"Substantive change" is defined in Subdivision 1 as:
(d). "Substantive change" means a modification to, or addition or deletion of, a term or condition in a contract that could result in an increase in the charge to the customer under that contract or that could result in an extension of the term of that contract. "Substantive change" includes a modification in the provider's administration of an existing contract term or condition. A price increase that includes only the actual amount of any increase in taxes or fees, which the government requires the provider to impose upon the customer, is not a substantive change for the purposes of this section.
In defense of the legality of Article 5, defendant submitted transcripts of the testimony and debate in the Minnesota House and Senate related to the new law. (Cohran Aff'd.) The House and Senate heard testimony from consumers who believed that their wireless contracts had been changed without their knowledge or consent. Representatives of wireless companies also testified before the legislators; the wireless representatives suggested that the new law was unnecessary, and indicated that consumers had adequate protections through the Consumer Code for Wireless Service, and through complaints to government entities such as the Attorney General's Office. The bill's sponsors represented that the bill is designed to give cell phone users the opportunity to opt-out of cell phone contracts if a provider unilaterally alters the contract. (Cohran Aff'd at Attachment 3.) According to the sponsors, Article 5 simply requires wireless providers to inform consumers of the extra-contractual result of requested changes.
The Consumer Code for Wireless Service ("CCWS") is a voluntary code of conduct to which many plaintiffs adhere. The CCWS is intended "to provide consumers with information to help them make informed choices when selecting wireless service, to help ensure that consumers understand their wireless service and rate plans, and to continue to provide wireless service that meets consumers' needs." The CCWS contains provisions regarding disclosure of rates, service areas, and other policies and practices.
Lawmakers also heard testimony from consumers about when notification of potential changes to established contracts would be useful. Consumers testified that the notification of substantial changes in contracts (such as an extension of a contract term, or a switch from month-to-month to year-to-year) must occur at the time the consumer signs up for the change if the notification is to be effective. In addition, the transcripts reveal discussions about whether an opt in or an opt out provision would better balance the competing interests at issue in Article 5.
ANALYSIS
In its previous Opinion and Order, the Court analyzed the Dataphase factors, and determined that plaintiffs had shown some likelihood of success on the merits, and that on the whole, the Dataphase factors favored some limited relief. The Court has more fully considered the parties positions, and provides the following additional analysis of the Dataphase factors, incorporating by reference its previous Opinion and Order.
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
I. Likelihood of Success on the Merits
The Court centered its previous analysis on the preemption arguments; the parties additional briefing continued in this vein, and therefore the Court will continue to focus on the preemption issue. The Court notes that defendant has reserved its opposition to any other claim and arguments plaintiffs may assert; in addition, plaintiffs address briefly the argument that Article 5 is void for vagueness.
As the Court noted, 47 U.S.C. § 332(c)(3)(A) prevents states from regulating either the entry or the rates of wireless services. Congress did not, however, preempt all state laws that impact commercial mobile services. The statute, by its terms, provides an exception by allowing states to regulate the "other terms and conditions" of commercial mobile services. 47 U.S.C. § 332(c)(3)(A); Smith v. GTE Corp., 236 F.3d 1292, 1313 (11th Cir. 2001). Congress's intent is made clear in the legislative history, which reveals:
it is the intent of the Committee that the states still would be able to regulate the terms and conditions of these [wireless] services. By "terms and conditions," the Committee intends to include such matters as customer billing information and practices and billing disputes and other consumer protection matters. . . . This list is intended to be illustrative only and not meant to preclude other matters generally understood to fall under "terms and conditions."
H.R. Rep. No. 103-111, 103rd Con, 1st Sess. (1993), reprinted in 1993 U.S.C.C.A.N. 378, 588 (emphasis added).
Congress's intended reservation to the states of the ability to legislate consumer protection matters is not surprising, considering the "long history of [states] regulating against unfair business practices." Cedar Rapids Cellular Telephone v. Miller, 280 F.3d 874, 880 (8th Cir. 2002). "Federal telecommunications law implicitly acknowledges the importance of this interest [the interest in protecting the public] by leaving states some latitude to `protect the public safety and welfare' and `safeguard the rights of consumers.'" Id. (quoting 47 U.S.C. § 253(b)).
Even with this explicit reservation to the states of "other terms and conditions," it is clear that if Article 5 is "rate regulation," it is preempted. The parties vigorously dispute whether Article 5 is such regulation. While "rates" seems easily defined, the line between impermissible rate regulation, and permitted state regulation is not clearly demarked in the statute or case law. See, e.g., Phillips v. ATT Wireless, No. 4:04-CV-40240, 2004 WL 1737385 (S.D. Iowa July 29, 2004) (discussing whether an early termination fee amounted to a "rate"). A law is not preempted merely because the law could increase wireless providers' costs of doing business. Cellular Telecommunications Indus. Ass'n v. F.C.C., 168 F.3d 1332, 1336 (D.C. Cir. 1999). Plaintiffs strongly argue that Article 5 is "rate" regulation. Defendant describes Article 5 as a consumer protection bill that, while it might implicate rates, in no way regulates them.
The parties do not suggest that Article 5 regulates market entry.
Several courts have deemed various general regulatory statutes or common law theories of recovery not preempted. See, e.g., Fedor v. Cingular Wireless Corp., 355 F.3d 1069, 1074 (7th Cir. 2004) (holding not preempted a putative class action alleging breach of contract, and characterizing the relief sought as "an accounting problem" the remedy for which would require the cell phone companies, at most to (1) adjust billing systems or (2) alter contracts to provide that roaming charges are billed separately — neither of which amounted to preempted rate regulation); In re Long Distance Telecommunications Litig., 831 F.2d 627 (6th Cir. 1987) (holding not preempted plaintiffs' state law claims that providers failed to inform customers of practices for charging for uncompleted calls); but see, e.g., Bastien v. ATT Wireless Serv., Inc., 205 F.3d 983, 987 (7th Cir. 2000) (plaintiff's claims, ostensibly for breach of contract, were preempted because the claims would have required ATT to exceed the FCC's requirements regarding towers, signals, and rates).
Article 5 certainly implicates rates. It defines "substantial change" as any "modification to, or addition or deletion of, a term or condition in a contract that could result in an increase in the charge to the customer under that contract." Article 5, subd. 1(d) (emphasis added). Although Article 5 is directed at wireless providers, the Court is no longer convinced that the law presents impermissible rate regulation. Article 5 manifests basic principles of contract law. Nothing in the law prevents wireless providers from charging any rate the market will bear. Nothing in the law caps wireless rates. Similarly, the law does not dictates whether a particular billing method is unreasonable. Cf. In re Southwestern Bell Mobile Sys., Inc., 14 F.C.C.R. 19898, 1999 WL 1062835, at ¶ 23 (F.C.C. November 18, 1999) (FCC finding that lawsuits challenging the practice of billing in whole minute increments constituted such rate regulation). Instead, the law requires notice and informed consent to contract changes. As the FCC has observed, state law claims relating to the "disclosure of rates and rate practices are not generally preempted under Section 332." Id. at ¶ 23. Article 5 requires wireless providers to disclose rates, to obtain consent to rate increases, and to honor contractual obligations. Article 5 also prohibits changes to established contracts absent informed consent to those changes. In the view of the Court, this is not rate regulation, as that term has been defined by the FCC and the courts.
On the other hand, the Court remains convinced that Article 5 conflicts with FCC regulations regarding the federal Universal Service Fund ("USF"). FCC regulations require wireless carriers to remit to the FCC monetary support for the USF, and the Code of Federal Regulations expressly authorizes wireless carriers to recoup USF fees by recovering them directly from customers. 47 C.F.R. § 54.712(a). The plain language of Article 5 seems to prevent plaintiffs from continuing to recover the USF fees directly from customers because Article 5 exempts from its notice and opt-in policy only those fees that are required by the federal government to be collected. Providers are authorized, but not required, to pass USF and other similar fees, such as those for enhanced 911 services, through to their consumers. Because the plain language of the statute appears to conflict with federal policy, the Court will continue to enjoin implementation and enforcement of this portion of the statute.
B. Void for Vagueness
Plaintiffs also assert that Article 5 is void for vagueness. Specifically, plaintiffs claim that Article 5's critical terms — such as "customer" and "substantive change" are impermissibly vague. Plaintiffs, as challengers to the statute, have the burden of establishing that the law is impermissibly vague in all of its applications. Village of Hoffman Estates v. Flipside, Hoffman Estates Inc., 455 U.S. 489, 497 (1982). Plaintiffs must also overcome the presumption that state statutes are constitutional. Fitz v. Dolyak, 712 F.2d 330, 333 (8th Cir. 1983) (state statutes are presumed constitutional). The Court applies a relaxed standard to this economic regulation which does not implicate fundamental rights and provides only for civil penalties. Village of Hoffman Estates v. The Flipside, Hoffman Estates, Inc., 455 U.S. 489 (1982).
Courts, including those in Minnesota, consistently uphold consumer protection and related laws against claims that the laws are impermissibly vague. For example, in United States v. Sun and Sand Imports, Ltd., Inc., 725 F.2d 184 (2d Cir. 1984), the Second Circuit upheld an economic regulation against a vagueness challenge. In that case, the challenger was a manufacturer and distributor of children's garments, some of which the Consumer Products Safety Commission classified as sleepwear, but which failed to comply with the Flammable Fabrics Act ("FFA"), 15 U.S.C. §§ 1191- 1204 (1982). The corporation argued that the FFA failed to give an adequate definition of children's sleepwear. See id. at 186. The Second Circuit held that there are "`few words [which] possess the precisions of mathematical symbols, [and] most statutes must deal with untold and unforeseen variations in factual situations.'" Id. at 187 (quoting Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 342 (1952)). The Second Circuit upheld the regulation, noting that statutes and regulations will not become "impermissibly vague simply because it may be difficult to determine whether marginal cases fall within their scope." Id. See also Kaufman v. ACS Sys., Inc., 2 Cal. Rptr. 3d 296 (Cal.Ct.App. 2003) (upholding Telephone Consumer Protection Act, which prohibits "unsolicited advertisement" defined as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission" in face of void for vagueness challenge); Harjoe v. Herz Financial, 108 S.W.3d 653 (Mo. 2003) (same); People by Vacco v. Chazy Hardware, Inc., 675 N.Y.S.2d 770 (N.Y.Sup. 1998) (price gouging statute not void for vagueness).
Minnesota courts follow similar logic; for example, in State v. Directory Pub. Servs, Inc., 1996 WL 12674 (Minn.Ct.App. Jan. 16, 1996), a business challenged several consumer protection laws, including Minnesota's Uniform Deceptive Trade Practices Act, and its False Statement in Advertising statute. The laws prohibited conduct including advertising that "cause[d] likelihood of confusion or of misunderstanding" and forbade advertisements that contained "any material assertion, representation, or statement of fact which is untrue, deceptive or misleading." The court rejected the challenge, referring to the dictionary definition of the terms "deceptive" and noting that a person of ordinary intelligence could understand what was forbidden by the laws. Id. at *4-5.
Minn. Stat. § 325D.44, subd. 1 (1994).
Minn. Stat. § 325F.67 (1994).
Although Article 5 is not free from ambiguity, plaintiffs have not shown a strong likelihood of success on their void for vagueness challenge to this consumer protection statute. The terms in the statute are common terms, with ordinary meanings, and the plaintiffs are adequately on notice as to what conduct is prohibited.
II. Irreparable Harm
The Court discussed plaintiffs' claims of irreparable harm in its previous Opinion and Order. Included in that discussion were plaintiffs' claims of lost customer goodwill, an inability to recover increases in federal program contributions, and the unrecoverable expenditures plaintiffs claimed they will be forced to make in an effort to comply with this law. These remain legitimate concerns. However, the Court did not previously devote substantial discussion to the harms faced by consumers, some of which are potentially irreparable. The Court therefore focuses in this Opinion and Order on the harms faced by Minnesota consumers.
A review of the hearing transcript reveals more significant harm to consumers than the Court discussed in its initial Opinion and Order. Minnesota consumers testified that they faced, at a minimum, frustration and stress in dealing with non-responsive customer service representatives. Consumers also testified about the excessive time lost in attempting to correct billing and other errors. Testimony reflected the feelings of helplessness faced by consumers who were forced to attempt to "disprove" that they had agreed to what the consumer believed to be an adverse contract change. Legislators heard testimony that consumers felt they were deprived the benefit of the bargain they had struck with the wireless provider. At least one wireless customer testified that she eventually gave up, and paid a disputed bill, in part because of fear of harm to her credit report. There was also testimony that wireless consumer service representatives inform consumers that the consumer may either pay the disputed fee to the wireless provider or pay it to a collection agency. The Minnesota legislature determined that these consumers faced significant harm, and the Court agrees with that determination.
III. Public Interest and Balance of Harms
The Court discussed the conflicting public interests in its previous Opinion and Order. Those competing interests include proper deference to the will of the legislature, Minnesota's interest in consumer protection, and the strong public interest in deferring to the will of Congress.
Plaintiffs argue that the record keeping requirements are onerous, and therefore the balance of harms tips in favor of continuing the injunctive relief. However, the Court is not convinced that the record keeping is quite as onerous as plaintiffs suggest. The requirement is quite similar to what plaintiff companies indicate is already done. Specifically, testimony at the legislative hearings regarding Article 5 and affidavits submitted by the plaintiffs reveal that when changes to contracts are proposed, it is the wireless providers' policy to send notification of the change to consumers, and to allow some period of time to renege on the change. Article 5 simply codifies these practices, and requires that the notification occur on the front-end of the transaction. The legislature was aware that the record keeping requirements would burden wireless providers, but the legislature heard testimony from consumers which supports the recordkeeping requirement. Specifically, consumers who disputed extension of contract terms, or other changes, indicated that wireless providers had not informed them of the adverse change, but that the wireless company claimed that it did. Consumers believed they were left with no recourse other than paying the disputed bill, and the legislature acted rationally, and within its authority, when it shifted the responsibility of maintaining records of such agreements to the wireless company. The legislature heard testimony that it would not be feasible for an individual consumer to hire an attorney to dispute the early termination fee. The consumer's alternative is to spend time, in some cases what appears to be a ridiculous amount of time, disputing the fee, only to have accounts turned over to collection agencies, and/or adversely affecting credit.
IV. Conclusion
Minnesota consumers can enforce contract rights through existing state common law and state statutes prohibiting unilateral changes in contracts. This is modern contract law at its most basic. It is therefore within the power of state legislatures to ensure that wireless providers honor existing contracts with consumers, without forcing consumers to go to court to enforce contracts against unilateral changes. Article 5 simply provides that assurance. The fact that Article 5 may impact the cost of doing business in the short run does not make it impermissible rate regulation under federal law. It is simply the state legislature doing what it has the power to do: protecting consumers from what it considers unlawful business practices. The Court will dissolve the Temporary Restraining Order, except to the extent the Order enjoined prohibition on "pass throughs" of federal fees, and allow Article 5 to go into effect on September 15, 2004.
ORDER
Based upon all of the files, records, and proceedings herein, and upon the argument of counsel, IT IS HEREBY ORDERED that:
1. Plaintiffs' motion for a preliminary injunction [Docket Nos. 4, 5, 14, 32, 34] is GRANTED IN PART.
2. Until further order of the Court, the defendant and any officers or employees of the State of Minnesota, are enjoined from taking action to prevent wireless communications providers from passing through to customers federally assessed fees, whether those fees "are required" to be passed through to customers or "permitted" to be passed through to customers. Such fees and fee increases are collectable without notice, and without a customer opt in. Further, no waiting period may apply before such fee increases are passed through.
3. No other provision of Article 5 is enjoined by this Order, and to the extent the Temporary Restraining Order prevented the implementation of other provisions of Article 5, the Temporary Restraining Order [Docket No. 47] is DISSOLVED.
4. The bond [Docket No. 48] posted in accordance with the Temporary Restraining Order shall be continued in accordance with Rule 65(c); and no additional bond shall be required.
5. This Order shall be stayed until September 15, 2004; the Temporary Restraining Order issued on June 29, 2004, shall remain in effect until this Order and Article 5 of H.F. No. 2151 take effect on September 15, 2004.