Cellphone Termination Fee Cases

193 Cal. App. 4th 298

 

RULE:

A contractual agreement to replace a calculation of actual damages with liquidated damages does not transmute the calculation of contract damages (a traditional state function) into a wireless carrier's “rate” (a federal concern).

FACTS:

In a consumer class action against defendant wireless telephone carrier, the Superior Court of Alameda County, California, found early termination fees (ETFs) charged by the carrier to customers terminating service prior to expiration of defined contract periods to be unlawful penalties under Civ. Code, § 1671, subd. (d), enjoined their enforcement, and granted restitution/damages to the plaintiff class. The carrier appealed.

ISSUE:

Does a contractual agreement to replace a calculation of actual damages for early termination of cell phone carrier agreements with liquidated damages transmute the calculation of contract damages into a rate?

ANSWER:

No.

CONCLUSION:

The court affirmed the judgment of the trial court. The court held that the federal Communications Act, 47 U.S.C. § 332(c)(3)(A), did not preempt application of California law to the carrier's ETFs. A contractual agreement to replace a calculation of actual damages with liquidated damages did not transmute the calculation of contract damages (a traditional state function) into a wireless carrier's "rate" (a federal concern). Invalidation of the ETFs under California's consumer protection laws would have only an indirect and incidental effect on the carrier's rates. The evidence failed to establish any endeavor, reasonable or otherwise, to even approximate the carrier's actual damages flowing from breach of the term contracts by consumers, and instead reflected a marketing decision made with an entirely deterrent purpose and focus. The court rejected the carrier's claim that the ETFs provided an option of alternative performance by permitting subscribers to terminate contracts before the end of the agreement by paying a fee. The carrier had not met its burden of establishing that the predominant effect of the ETF provisions was to provide consumers with an alternate means of performing their contracts.

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