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.