Vernon v. Qwest Communications International, Inc.

Citations: 925 F. Supp. 2d 1185; 2013 WL 752155; 2013 U.S. Dist. LEXIS 35843Docket: Civil Action No. 09-cv-01840-RBJ-CBS

Court: District Court, D. Colorado; February 26, 2013; Federal District Court

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Plaintiffs objected to an order from Magistrate Judge Craig B. Shaffer that granted defendants' motion to compel arbitration and stayed proceedings. The District Judge, R. Brooke Jackson, denied the objection and upheld the magistrate's decision. Plaintiffs, former customers of Qwest, participated in the "Price for Life" program, which involved a minimum two-year contract guaranteeing discounted rates, with a $200 early cancellation fee for terminations within the first two years. The Subscriber Agreement governing the program included a mandatory arbitration clause for disputes and prohibited class action claims. Customers could enroll via phone or online, with phone enrollees notified of the terms through a recorded message, and online enrollees required to confirm agreement by checking a box. Additionally, upon installation of the service, users were presented with a notification on their computer screens reiterating the importance of the Subscriber Agreement, which included arbitration terms. A license agreement presented during installation did not contain an arbitration clause, but warned that accepting the license would not negate acceptance of the Subscriber Agreement's terms.

Customers enrolled in the Price for Life program received a welcome letter outlining important service terms, including a reference to the High-Speed Internet Subscriber Agreement available online. The letter informed customers of arbitration clauses and limitations on liability, instructing them to cancel within 30 days if they disagreed. Some plaintiffs do not recall receiving the letter but do not dispute its receipt. The plaintiffs, four individuals who left the program within two years, have faced a $200 early cancellation fee, which they challenge as invalid. They initiated a class action in the Western District of Washington in 2008 but the case was transferred to another district in August 2009 after initial motions. Defendants filed motions to dismiss and compel arbitration, with the dismissal motion later deemed moot following the plaintiffs' Third Amended Complaint. The motion to compel arbitration was stayed pending a Supreme Court decision, which ultimately led to the magistrate judge granting the motion. The plaintiffs contest the classification of the motion to compel arbitration as non-dispositive, arguing it should be reviewed de novo. The legal standing on this issue is unclear, with differing rulings across various jurisdictions. Some courts treat such motions as non-dispositive, while others consider them dispositive, leading to varied interpretations.

Determining whether an individual has agreed to arbitrate a dispute relies on state contract law principles, with courts reviewing legal determinations de novo. The district court can review an arbitrator’s decision, but this review is narrow. Plaintiffs assert that compelling arbitration would effectively terminate their case, prompting a de novo review of the magistrate judge's decision. They argue that class actions are the only viable means to pursue their claims, which conflicts with the principles of arbitration and the Federal Arbitration Act, particularly without mutual consent. To proceed with their claims in federal court, plaintiffs must demonstrate either a lack of agreement to arbitrate, that the arbitration clause is unenforceable, or that the defendants have waived their right to enforce it. The magistrate judge disagreed with the plaintiffs' arguments, and since they did not object to his analysis on waiver, that part of the order does not require review. The appeal focuses on two main issues: whether the plaintiffs agreed to arbitrate and if so, whether the arbitration agreement is enforceable. 

The plaintiffs contend they did not assent to the arbitration clause because it was presented in a convoluted manner, making it difficult to locate. None signed the Subscriber Agreement conventionally; the only exception was Mr. Moore, who received it with a welcome letter temporarily. The others were required to locate the agreement on Qwest's website but did not do so. They argue their lack of knowledge regarding the terms negates assent. A related case, Grosvenor v. Qwest Corp., found similar disputes, where the court denied a motion to compel arbitration due to unresolved material factual issues regarding the plaintiff's receipt and acknowledgment of the Subscriber Agreement.

Following discovery on the contract formation issue, the parties filed cross-motions for summary judgment regarding the existence of a binding arbitration agreement. Judge Krieger found the terms of the Subscriber Agreement to be reasonably conspicuous, determining that Mr. Grosvenor accepted all terms and was thereby obligated to arbitrate. The author concurs with Judge Krieger and Magistrate Judge Shaffer's analyses, affirming the conspicuous nature of the agreement and the plaintiffs' clear assent to its terms.

Although the plaintiffs had to visit Qwest's website to view the Subscriber Agreement (except for Mr. Moore), they received sufficient notice about an arbitration clause and the limitations on Qwest's liability. Throughout the enrollment process, consumers were directed to the Subscriber Agreement and explicitly informed that by proceeding, they agreed to its terms. They were also allowed a 30-day cancellation period if they were uncomfortable with the terms.

The plaintiffs engaged with a clickwrap agreement, which is a common method where users consent to terms by clicking a dialog box. While some courts have challenged the adequacy of certain clickwrap procedures, the author agrees with Judge Krieger that the circumstances in this case differ significantly from those previous cases. Although the plaintiffs did not read the Subscriber Agreement, they accepted its terms by enrolling in the program, thus bearing the consequences of their decision. The author acknowledges the potential for a more user-friendly process but concludes that the plaintiffs had reasonable access to the agreement and were adequately warned about the terms, binding them to the arbitration and class action waiver provisions.

Plaintiffs argue that the arbitration agreement is unenforceable, claiming it is both illusory and unconscionable. They assert that Qwest's unilateral right to modify the Subscriber Agreement, including the arbitration clause, renders the contract illusory. This contention draws on precedent from Grosvenor, where the court deemed a similar arbitration clause unenforceable due to an unfettered modification ability, referencing Dumais v. American Golf Corp. In contrast, a magistrate judge found that the current agreement does not allow for unfettered modifications, citing Colorado law and the case of Hardin, which established that an employer's ability to amend an arbitration agreement could be limited. Hardin’s agreement included specific exceptions that prevented unrestricted modification, distinguishing it from Dumais. The magistrate judge concluded that reasonable minds could differ on whether the facts of the current case align more closely with Dumais or Hardin.

Qwest is not required to provide prior notice of changes to the Subscriber Agreement, but may modify terms by posting updates online or sending written notice, including emails. If a modification has a "material and adverse economic impact" on a subscriber, Qwest must give a 30-day notice, allowing the subscriber to terminate the service if they disagree with the change. This provision may appear inconsistent and ambiguous, potentially allowing Qwest to unilaterally alter the arbitration clause without notice, which could render it illusory. However, the interpretation presented argues that some notice is necessary. In scenarios where changes to the arbitration clause could be considered materially adverse, 30 days' notice would be required; otherwise, posting on the website suffices. This minimal notice requirement distinguishes the case from Dumais, aligning it with Hardin. If the court were to view the contract as allowing unrestrained modifications to the arbitration clause, it could lead to the conclusion that the entire Subscriber Agreement is illusory and unenforceable, a position that contradicts the Federal Arbitration Act and the Supreme Court's ruling in Concepcion. Furthermore, the magistrate judge noted that subscribers provided consideration for the dispute resolution provisions, which is consistent with Colorado contract law. The arbitration clause's enforceability does not hinge on mutual obligations, as long as consideration is present. Although subscribers can terminate their service upon receiving unfavorable modifications, they cannot reject such changes outright, and may incur a cancellation fee if they choose to end the service early. The benefits received under the Price for Life program were part of the bargain, reinforcing the conclusion that the arbitration agreement is not illusory.

Qwest's agreement has been upheld by three judges as having been assented to by subscribers, countering the plaintiffs' claim that the arbitration clause is illusory due to Qwest's unilateral modification rights. While such a modification right can be challenged, it does not necessarily invalidate this specific agreement. 

The issue of unconscionability was not addressed by Judge Krieger due to the finding of the arbitration agreement's illusory nature, but Judge Shaffer considered it and found no grounds for unconscionability under Colorado law. For a contract to be deemed unconscionable, it must exhibit both substantive and procedural unconscionability. The Colorado Supreme Court identifies seven relevant factors for evaluating unconscionability, with the first three focusing on procedural aspects related to unequal bargaining power, opportunity to read the agreement, and the visibility of the arbitration provision. 

Although the arbitration agreement was standardized and involved parties of unequal bargaining power, this alone is insufficient for a finding of procedural unconscionability. The plaintiffs had adequate notice of the arbitration agreement, which was clear and conspicuous, and they provided unambiguous consent. No circumstances surrounding the contract's formation indicated procedural unconscionability.

Regarding substantive unconscionability, while the terms of the Subscriber Agreement were found less favorable compared to other agreements, they did not reach a level of substantive unconscionability. The plaintiffs' obligation to pay half of the arbitrators' fees, capped at $125 for claims under $10,000, was compared to standard filing fees in courts, which are also present in arbitration, suggesting that the fees are not excessively burdensome.

The potential recovery for claims under the Subscriber Agreement is limited to the monthly and usage charges paid by the subscriber, a matter for the arbitrator to resolve. The Court noted that its ruling could lead to small claims being overlooked, yet states cannot impose procedures inconsistent with the Federal Arbitration Act (FAA). An interlocutory appeal is permitted under the FAA when a district court declines to compel arbitration. Disagreements exist among judges regarding the enforceability of the Subscriber Agreement, but the facts are undisputed, focusing on a significant legal question. Since plaintiffs cannot pursue classwide arbitration, an immediate appeal could expedite the litigation's resolution. Consequently, the Court denied the plaintiffs' objection to the Magistrate Judge's Order, affirmed the order to compel arbitration, and stayed the action pending arbitration or an immediate appeal.