Judge misdials in Sprint ruling on early termination fees
Excerpt from Judge Bonnie Sabraw's ruling, in which she said the jury verdict was 'troublesome because it can be read in several different ways.'
A California state judge handed down a surprising and oddly reasoned verdict Thursday: Sprint Nextel's early termination fees for cell phone customers are illegal.
My colleague Maggie Reardon wrote an article about the 38-page ruling, which orders Sprint to pay $18.25 million to California customers who were charged termination fees. Customers charged fees who never paid them get a credit of $54.75 million.
You can imagine how much of this will go to the members of the supposed class that was harmed, and how much to the plaintiff's lawyers. In the Grand Theft Auto: San Andreas class action suit over sex scenes, there were supposedly millions of people "harmed"--out of which a mere 2,676 actually filed the paperwork.
The Sprint suit arose after a collection of plaintiffs' lawyers claimed that the $200 early termination fee was an "unconscionable" contract, in violation of California civil code 1770(a)(19). They also claimed the fees were "unfair" because it involves "rights, remedies, or obligations" that are "prohibited by law" (1770(a)(14)).
The surprise is that Judge Bonnie Sabraw bought it. Sabraw, an Alameda County superior court judge who is about to retire, admitted she had no idea what the jury's verdict meant and went so far as to offer four possible interpretations. Writing that the verdict was "troublesome because it can be read in several different ways," she picked the fourth option based on her interpretation of the jury's questions, and awarded the damages accordingly. She concluded that the early termination fee "is a violation of law."
Sabraw appeared to base her ruling on her belief that Sprint could have charged customers a pro-rated cancellation charge, so someone who cancels with one month left pays less than someone with nearly two years to go. She wrote: "Sprint did not prove that its motivation and purpose...was to estimate Sprint's damages."
Her analysis means that if Sprint had charged customers higher overall termination fees that happened to be pro-rated--Sprint's average lost monthly recurring charge per early termination was $651.12--the practice might have been perfectly legal. (Who says lawyers never help anyone?)
If this seems like muddled thinking, it's probably because it reflects the logic of this lawsuit. Think of it: Someone has to pay for the cost of the handset. The customer either pays upfront or, if it's subsidized by the carrier, over time in the form of an early termination fee that--in Sprint's case--was $200.
U.S. carriers seem to have concluded that Americans like paying lower upfront costs, preferring to amortize the cost over two years. This isn't really surprising, given a spendthrift U.S. shopping culture and consumers' affection for monthly payment plans. The credit markets are also deeper in the U.S., which may be another reason why two-year plans are more common than in Europe and Asia. (For comparison's sake, in Germany, T-Mobile's contract-free first-generation iPhone cost E999 ($1,560), and one with a two-year contract cost E399 ($622), a $938 difference.)
No consumer, of course, is ever forced to sign a two-year contract. I bought a Motorola Razr in 2005 and paid more to be contract-free (it was a bad move, in retrospect, since I stayed with AT&T for the next two years). It's true that the iPhone now requires you to sign a contract; you have to weigh the costs of the contract vs. the benefits of the device.
That brings us to the moral issue. If you're an adult who voluntarily signed a contract knowing that you should expect an early termination fee of $200, why would you turn around and file a lawsuit claiming you didn't like it?
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If the contract was illegal and you realized it after you signed it, isn't a suit a predictable action? Sorry, I don't see the "moral issue." Had the jury determined the contract was legal, you'd have a point, but not in the present circumstances.
"(a) The following unfair methods of competition and unfair or
deceptive acts or practices undertaken by any person in a
transaction intended to result or which results in the sale or lease
of goods or services to any consumer are unlawful:"
"(19) Inserting an unconscionable provision in the contract."
(I shall simply state in preface that I am a native of the Republic of California.)
You couldn't be more wrong here, Mr. McCullagh. Certain predatory corporate practices just don't fly out West: Sprint should have read the law before they created their boilerplate contracts. File it away under, "Another satisfied [corporate] customer."
Jonathan Warkentien
#1) while you are forced to pay an ETF if you cancel the contract early, the cell phone companies are under no obligation to keep your contract for the entire period. Ask those cell phone users that were cancelled by sprint. They recieved no $200 check for sprints choice not to keep them on as customers. Now I dont know about you, but when I sign a contact i think that both members must live up to the terms of the contract.
#2) While someone does have to pay for the cell phone, the cell phone companies will NOT cell you a base line cell phone. The cheapest one that Verizon would sell me when I lost mine was $200. I now have a tracfone that sells for $15. Where are the $15 from Verizon? They sell you the $15, but they would rather get the $200 out of you for a new one or even better the $200 for the ETF.
#3) The first two bring the final logical conclusion of the ETF fees. They have no reason to want to keep you as a customer as long as there is an ETF. They can give as bad of customer service as they want to, because in the end they would rather have the ETF thena actually provide you service anyway. These ETFs are exactly why the cell phone companies always have the worst customer service ratings.
Now I actually dont think that ETFs are all bad and should be made illegal. I think there are good reasons for having ETFs. But unless there is some regulation governing ETFs, customers are going to continue to be given the short end of the stick. And i think whether or not you are pro or con ETF, it is clear that customers have recieved the raw deal.
When I got the outrageous bill, I told them to stuff it and considered the hostage fee and what they cost me even - and I was terminating my service. The support guy agreed that they ended up costing me money - but refused to credit me unless I stayed with their service! Several years later I am still being persued by a zombie debt collection agency called Assett Acceptance over this. Thanks alot Sprint.
After that whole episode, I have a phobia about ever calling my current provider to upgrade anything. Whenever I've changed services, there have been "migration fees" involved. Cingular / AT&T once charged me a $180 "migration fee" when they merged to convert one account to the other - and it was all the same company! When they decided to switch their name back to AT&T, I wasn't going to fall for that again and bailed to T-Mobile.
Declan, you're a fine Irish lad, but get a clue.
The consumer has no bargaining power. You say, "I think this fee should only be $100." They say, "Take a hike." Sure, you signed a contract, but this contract was never negotiated over. It was presented as take it or leave it (if it was ever "presented" at all).
Now, when all providers have identical contracts, what is a consumer to do?
The consumer has no choice but to sign.
You can handle being forced to sign, but the terms you're forced to sign should be somewhat fare shouldn't they?
"The surprise is that Judge Bonnie Sabraw bought it. Sabraw, an Alameda County superior court judge who is about to retire, admitted she had no idea what the jury's verdict meant and went so far as to offer four possible interpretations. Writing that the verdict was "troublesome because it can be read in several different ways," she picked the fourth option based on her interpretation of the jury's questions, and awarded the damages accordingly. She concluded that the early termination fee "is a violation of law." "
It's hard to know where to start with this travesty. It appears McCullagh doesn't actually understand what a judge actually does.
As an initial matter, I don't know if the judge's decision is correct. But McCullagh's ignorance is revealed by the fact has chosen to criticize the decision for all the wrong reasons. Juries frequently come back with nonsensical decisions. Judge Sabraw, according to the description, did precisely what she is supposed to do: she provided possible interpretations, and gave her reasoning for selecting one in particular. Only somebody who doesn't understand the relationship between a judge and jury would see this as grounds for criticizing the decision. Indeed, from McCullagh's comments, it would appear that he's never actually read a legal decision in his life.
Moreover, he mashes together two completely different issues, a factual one sent to the jury and a legal question, which is a question for the judge. It's even in the original article, which he apparently didn't read very closely. "Alameda County Superior Court Judge Bonnie Sabraw had further split the case leaving a jury to answer the question of whether customers had in fact broken their contracts with Sprint. ... But it was the judge, herself, who decided whether or not the contracts were even legal."
McCullagh's hamfisted writing makes it appear as if the Judge's conclusion was related to the jury's answer when they were to distinct areas of the case.
He compounds his apparent ignorance by including pejorative irrelevancies such as the fact that the judge is about to retire, implying throughout the paragraph that she must be a fool.
The whole article is absolutely horrendous on its face without needing to read the decision.
I don't know how anyone can come to that conclusion. Most carriers charge more for less if you don't sign a two year contract, if they allow you to get a plan at all. The only one that I know that offers the same plans with or without a contract is T-mobile with their Flex-pay plan.
If I want to add the 9.99$ a month Tmobile@HOME service to my EXISTING TMOBILE ACCOUNT, I am FORCED TO SIGN A 2 YEAR CONTRACT with a 200$ early termination fee EVEN THOUGH I AM NOT GETTING ANY TELEPHONES!!!!!
Please, this illegal and immoral greed-grab by the cell companies must end.
I agree with the judge. This has zero to do with keeping customers to justify 'real' handset costs....it has everything to do with holding people hostage and bilking them on the back end if they want to leave...EVEN IF THE QUALITY OF THE CELL SERVICE MASSIVELY DECLINES OVER 2 YEARS, AS IT DID WITH SPRINT, WHO SO MASSIVELY OVERSOLD THEIR NETWORK without building new capacity that calls would only last 30 seconds before they were dropped..always. Want to leave them? 300$....even if they have totally not spent a nickel adding capacity while they oversold their network.
Get the story straight, and use your brain. Kthanks.
and the monthly bill?????? that's the bread and butter. i don't get even the business practice of choosing the loss of a customer w/monthly payments in favor of a $200 penalty. it's plain old fashioned '**** you, we're the phone company" logic. "we can do whatever we want"
it burns me bad to see these companies cry about losing money. and the truth of the matter has never been clearer than in Verizon's out of court settlement on the first day of trial... and in the almost $75 Million that Sprint Nextel has been ordered to pay.
again................. fees that these companies CAN afford to pay.... WAHHHHHHHHH WAHHHHHHHH I'm AT&T I want MORE WAHHHHHHHH WAHHHHHHH POOOR ME AT&T, SPRINT NEXTEL, T-MOBILE, WAHHHHHHHHHHHWAHHHHHWAHHHH
poor things!
This reminds me of the common rationalization for illegally downloading movies and music instead of purchasing the content legally: "Well, CD's and DVD's are too expensive, I can't afford to pay that much." Cell phones are not necessities for life, cell phones are a luxury. Customer's have the option to buy prepaid phones without a contract, but they dislike the handset options, and feel that it is unfair that a cell phone company would charge them an early termination fee that they agreed to in their contract. If you do not like it, do not sign the contract. That is it, simple and clear. Cell phone providers will cease to subsidize phones when it ceases to become profitable for them, and at that point all of the discounts customers have come to expect will disappear. Only people who are able to pay 400-800 dollars upfront will have cell phones that do anything but make phone calls and text message, and everyone else will have the equivalent of prepaid phones.
This is a moot point anyway. There is no way this survives appeal.
http://ictcenter.blogspot.com/2007/09/one-way-to-get-out-of-cell-phone.html
The sites referenced charge a small fee ($20 or so) to find people willing to buy out the remainder of your contract. It's great for people who find themselves working or living in a roaming area for their current carrier.
I'm not affiliated with a cell provider, the author, or any bloggers.
No, that's not it at all. It was illegal because a fixed amount showed that it was not related to amounts lost. Calculating lost revenue based on what they would have made had the customer pay the bill in full for the remainder of the contract simply makes no sense.
If I agree to buy a car for $50,000 and I terminate my contract, would anybody argue that the loss to the dealership is $50,000, therefore I should pay them $50,000 and not get the car? At most, the dealer "loses" the difference between dealer cost and selling price. It's more like a few hundred dollars. But the real loss is the amount they paid the staff for the time spent with me after the deal closed. Since ultimately, I didn't like the deal, the problem is that I should have told them earlier. The effort they went through after I said yes was what they wasted time and money on.
So what does a phone company really lose? They don't get revenue from the former customer, but they don't provide service either. So if we look at the average monthly profit for the phone company, divided by the size of the customer base, we find what they "lose." But if they earn that amount for providing service, and they want a termination fee but will not provide service after receiving it, then a fair amount should be lower.
Nobody would sign a contract unless there were some benefit compared to paying the monthly rate. If the benefit is a discounted phone, what the company loses, if anything, is the below wholesale cost of the phone minus the portion that the customer pays. If the rate stays the same at the end of the contract, and the contract period starts up again if the customer gets a new subsidized phone, the the phone itself is the only factor that's relevant.
If the car dealer argued that he could have sold the car to somebody else, it would be a weak argument. It's not as if the manufacturer would not have sent them another one. And Sprint can't argue that had they not sold you the service, they could have sold it to somebody else. Loss of future revenue is simply irrelevant.
Besides, they are talking out of both sides of their mouthes. They sign up customers, give a discount on a phone, and impose a penalty for breaking the contract. They also lock the phone to a single carrier. If the contract ends normally, they can't claim that the lock is warranted, since their is no subsidy. If the contract ends early, they can't claim that it's fair to lock the phone and at the same time charge the penalty. If it's truly to make up for the cost of subsidizing the phone, then why lock it and also make the customer pay for it?