America's second largest wireless company, Verizon
Wireless, has enjoyed great success over the last few years.
It accumulated over 65.7 million customers in the U.S. and
aggressively acquired
many small rural wireless providers in recent years. It
also sailed mostly unscathed through several contentious issues, such
as its cooperation
with government wiretapping/phone surveillance, recently exposed
to the public eye.
Now the company faces a serious threat as a
new suit is brewing that dwarfs all past class action suits.
The suit takes issue with Verizon's early termination fees (ETFs) and
has a class of over 70 million people in the U.S. The
four-year-old case appeared before the American Arbitration
Association in White Plains, NY -- a test to see if it could
proceed.
The senior arbitrator/mediator for the Association,
Eugene I. Farber, certified
the group's class certification, clearing the way for the case to
go to trial.
Farber, a former federal judge had this to say
about the case in his 35-page statement, "I find the claimants
have complied with the criteria for class certification. My
decision is also motivated by my conclusion that as a matter of
equity and fairness, millions of class members are entitled to
adjudication of the central common questions of fact or law in this
arbitration related to whether the $175 early termination fee imposed
by respondents Cellco Partnership d/b/a Verizon Wireless … is based
upon an unenforceable liquidated damage clause."
Scott
Bursor, counsel for the plaintiffs, hailed the decision as a
"tremendous victory for Verizon Wireless subscribers."
He
stated that the decision was a major landmark in legal history as it
marked the biggest class ever to be certified in arbitration.
He added, "It is also the biggest class ever certified on a
contested motion in forum, litigation, or arbitration of any kind."
Legal experts estimate the payout may be around a billion
dollars.
Verizon would not comment on the case. It is
thought that the company may appeal the arbitrator's decision in
federal appeals court, but the decision likely will not be able to be
appealed. Legal analysts say that only the final ruling could
likely be challenged by appeal.
In 2006, Verizon took steps to
soften the blow of early termination fees by implementing a proration
plan for ETFs. The plan takes money off the total fee for each
month of your contract you serve, so you are not hit with a full fee
for terminating late in your contract. Competitors T-Mobile USA
Inc., Sprint Nextel Corp. and AT&T Mobility also announced
similar proration schemes.
Many cell
phone companies have been hit by lawsuits over ETFs in past
years, but never on this scale. Since 2005, the national
cellular association CTIA has petitioned the Federal Communications
Commission to rule that ETFs are part of the wireless rate structure
and are preempted by federal law. They have poured large
amounts of money into this lobbying to little avail, though the
commission has expressed openness to holding hearings on this and a
variety of other issues. If such a measure was passed, it could
grant cell phone carriers partial immunity from ETF class action
suits.
For now, Verizon and the plaintiffs must prepare to
square off in court sometime mid to late this year.