EDWARD M. CHEN, District Judge.
Plaintiffs Marcus A. Roberts, Kenneth A. Chewey, Ashley M. Chewey, and James Krenn (collectively, "Plaintiffs") have filed a class action against Defendant AT&T Mobility LLC ("AT&T"), asserting statutory, tort, and warranty claims based on AT&T's "deceptive and unfair trade practice of marketing its wireless service plans as being `unlimited,' when in fact those plans are subject to a number of limiting conditions [in particular, throttling
Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby
The parties do not dispute that Plaintiffs entered into contracts with AT&T in order to obtain wireless service. The parties also do not dispute that each of the agreements contained an arbitration provision.
In its motion, AT&T contends that the Court should enforce the arbitration agreements and compel arbitration. In response, Plaintiffs essentially raise three arguments as to why arbitration should not be compelled: (1) because, if this Court were to compel arbitration, that would be state action that would violate their First Amendment rights — more specifically, the right to petition a court for a redress of grievances
Each of the above arguments turns on the applicability of the First Amendment. But, as both parties recognize, in order for Plaintiffs to have a First Amendment claim, they must first show state action. See Grogan v. Blooming Grove Volunteer Ambulance Corps, 768 F.3d 259, 263 (2d Cir. 2014) ("Because the United States Constitution regulates only the Government, not private parties, a litigant like Grogan who alleges that her constitutional rights have been violated must first establish that the challenged conduct constitutes state action.") (internal quotation marks omitted)); cf. Hudgens v. NLRB, 424 U.S. 507, 513 (1976) ("It is, of course, a commonplace that the constitutional guarantee of free speech is a guarantee only against abridgment by government, federal or state."). Plaintiffs acknowledge that the arbitration agreements are contracts between private actors. Nevertheless, they assert, there would still be state action in the instant case upon this Court's enforcement of that private agreement.
As a starting point, the Court finds no merit to Plaintiffs' assertion that the mere fact of judicial enforcement automatically establishes state action. The Ninth Circuit rejected that position in Ohno v. Yasuma, 723 F.3d 984 (9th Cir. 2013). More specifically, in Ohno, the Ninth Circuit rejected the defendant's contention that judicial enforcement of a foreign-country money judgment against it — through application of California's Uniform Foreign Country Money Judgments Recognition Act — "constitute[d] domestic state action triggering constitutional scrutiny."
Id. at 994 (emphasis in original).
The Ohno court further explained:
Id. at 993 (emphasis in original and added). "[T]he source of the alleged constitutional harm is . . . Japanese tort law, created and enforced through Japanese governmental entities," and so "the claimed constitutional deprivation cannot be traced to a right, privilege, or rule of conduct imposed by a domestic governmental entity or individual." Id. at 994. The act of enforcement of the Japanese judgment by the U.S. court did not constitute state action causing a constitutional deprivation.
To the extent Plaintiffs have relied on Shelley v. Kraemer, 334 U.S. 1 (1948),
Indeed, in discussing the reach of Shelley, the Ohno court pointed out that, "[i]n the context of First Amendment challenges to speech-restrictive provisions in private agreements or contracts, domestic judicial enforcement of terms that could not be enacted by the government has not ordinarily been considered state action." Id. (emphasis added.) In addition, and more on point to the case at bar, the Ninth Circuit stated that, "in the context of judicial confirmation of arbitral awards, . . . [courts have] held that `mere confirmation of a private arbitration award by a district court is insufficient state action to trigger the application of the Due Process Clause.'" Id. at 999. While the Ninth Circuit did state that it did "not mean to adopt or sanction any of [these] cases," id. at 999 n.17, its reference to the cases — particularly the latter group — is still telling.
Furthermore, a Ninth Circuit decision that pre-dates Ohno is in strong accord with the above cases. More specifically, in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998), overruled on other grounds, EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742 (9th Cir. 2003), the plaintiff — a broker-dealer in the securities industry — sued her employer for employment discrimination. The plaintiff had signed a securities industry form that included an arbitration provision. The form also required the plaintiff to abide by the rules of the New York Stock Exchange ("NYSE") and National Association of Securities Dealers ("NASD"), and each of these organizations had a rule that required arbitration. The plaintiff argued, nevertheless, that she could not be compelled to arbitration because "the arbitration agreement imposes an unconstitutional condition of employment," requiring her "to forfeit her Fifth Amendment right to due process, her Seventh Amendment right to a jury trial, and her right to an Article III judicial forum." Id. at 1200. According to the district court, "the essential prerequisite of state action was lacking" for the due process claim, and the Ninth Circuit agreed, stating "no state action is present in simply enforcing that agreement." Id. at 1201.
Plaintiffs have pointed to no authority holding that judicial enforcement, particularly of an arbitration award, constitutes state action.
Finally, the Court takes note that, in many private contracts, there are provisions that arguably affect access to the courts or otherwise implicate significant rights, such as choice-of-venue, choice-of-law, statute-of-limitations, and limitations-on-damages provisions. Although these provisions may be subject to restrictions imposed by statutory and/or common law (e.g., the doctrine of unconscionability, violation of public policy), courts have not held that judicial enforcement of these provisions, particularly as found in contracts between private parties, raises constitutional claims. See, e.g., Soltani v. W. & S. Life Ins. Co., 258 F.3d 1038, 1045 (9th Cir. 2001) (holding that a six-month statute-of-limitations provision was enforceable); Severn Peanut Co. v. Indus. Fumigant Co., 807 F.3d 88, 92 (4th Cir. 2015) (rejecting assertion that consequential damages exclusion in contract was not enforceable).
In their papers, Plaintiffs argued that, nevertheless, there is state action based on Congress's enactment of the FAA. See Opp'n at 4. This argument is similar to that rejected by the Ninth Circuit in Duffield. There, the plaintiff argued that "state action is present because `federal law requires all broker-dealers to register with a national securities exchange (i.e., the NYSE or NASD), and to abide by the rules of that exchange — including its mandatory arbitration rules — as a condition of their continued employment.'" Id. at 1200. The Ninth Circuit rejected the argument, stating that
Id. at 1201 (emphasis added).
The court acknowledged that, in 1993 — two years before the plaintiff's employer actually invoked the arbitration agreement — the Securities and Exchange Commission ("SEC") had "adopted a regulation that required all broker-dealers to be registered with at least one of the securities organizations of which [the plaintiff's employer] was a member — i.e., the NASD and the NYSE — before effecting any securities transaction." Id. That "current requirement that new employees register with a national securities exchange `constitutes government action of the purest sort.'" Id. Nevertheless, the Ninth Circuit was not persuaded by the plaintiff's argument that this new regulation provided the requisite state action. The court noted:
Id. at 1201 (emphasis in original and added).
The instant case is similar to Duffield in that, here, while Congress did enact the FAA, the mere enactment of the statute did not cause the deprivation of their constitutional rights. See id. (noting that "[s]tate action can be present . . . only to the extent that there is `a sufficiently close nexus between the State and the challenged action'") (emphasis in original).
Plaintiffs rely still on Denver Area Educational Telecommunications Consortium, Inc. v. Federal Communications Commission, 518 U.S. 727 (1996), in arguing that a congressional statute or a court's interpretation thereof "that enables private action to restrict citizens' First Amendment rights constitutes a state action." Opp'n at 4.
Congress enacted the three challenged provisions "in an effort to control sexually explicit programming over access channels." Id. The first provision, which concerned leased channels, permitted a cable operator to enforce a policy of prohibiting programming that the operator reasonably believed described or depicted sex-related material in a patently offensive manner. See id. The second provision, which also concerned leased channels, required cable operators to segregate and block similar programming if they decided to permit its broadcast rather than prohibit it. See id. at 735. Finally, the third provision was similar to the first provision but applied to public access channels. See id.
A plurality of the Supreme Court held that the first provision was constitutional. In addressing the existence of state action, the plurality took note of the lower appellate court's analysis that there was no First Amendment violation
Id. at 737.
The plurality acknowledged "the First Amendment, the terms of which apply to governmental action, ordinarily does not itself throw into constitutional doubt the decisions of private citizens to permit, or to restrict, speech — and this is so ordinarily even where those decisions take place within the framework of a regulatory regime such as broadcasting." Id. (emphasis in original). But apparently, the plurality assumed there was state action because the plaintiffs were challenging an act of Congress, i.e., its enactment of the provision, which in turn was being carried out by the FCC. See also Docket No. 59 (Opp'n at 3) (AT&T arguing that "the FCC was the party `charged with the deprivation' of the plaintiffs' First Amendment rights, [and thus] the enactment of the statute alone was sufficient state action to trigger constitutional protections under Lugar"). That being said, the plurality provided no clear analysis as to why congressional action permitting private conduct amounted to state action in that particular instance.
All that is clear is that the plurality refused to adopt the state action analysis suggested by other Supreme Court Justices — e.g., Justice Kennedy's take that "leased access channels are like a common carrier." Denver Area, 518 U.S. at 739-40. The plurality also rejected Justice Thomas's reasoning that "the case is simply because the cable operator who owns the system over which access channels are broadcast, like a bookstore owner with respect to what it displays on the shelves, has a predominant First Amendment interest." Id. at 740. According to the plurality, "[b]oth categorical approaches suffer from the same flaws: They import law developed in very different contexts into a new and changing environment, and they lack the flexibility necessary to allow government to respond to very serious practical problems without sacrificing the free exchange of ideas the First Amendment is designed to protect." Id.; see also id. at 741-42 (stating that "no definitive choice among competing analogies (broadcast, common carrier, bookstore) allows us to declare a rigid single standard, good for now and for all future media and purposes"). The plurality concluded that, "aware as we are of the changes taking place in the law, the technology, and the industrial structure related to telecommunications, we believe it unwise and unnecessary definitively to pick one analogy or one specific set of words now." Id. at 742.
Id. at 743 (emphasis in original).
As indicated by the above, while the majority of the Justices assumed that the challenged Act's grant of authority to cable operators permitting them to prohibit or limit certain programs based on content constituted state action, Denver Area does not establish the broad pronouncement Plaintiffs assert. The plurality did not overturn (nor could it), e.g., Flagg Bros., Inc. v. Brooks, 436 U.S. 149 (1978), where the Supreme Court addressed "whether a warehouseman's proposed sale of goods entrusted to him for storage, as permitted by New York Uniform Commercial Code § 7-210, is an action properly attributable to the State of New York," and concluded that there was no state action because "a State's mere acquiescence in a private action [does not] convert[] that action into that of the State" — even taking into account that "the State has embodied its decision not to act in statutory form." Id. at 164-65 (emphasis added). Subsequent to Denver Area, the Court has continued to adhere to the general proposition that a law permitting private conduct does not constitute state action. See Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 53-54 (1999) (stating that, while "the State's decision to provide insurers the option of deferring payment for unnecessary and unreasonable treatment pending review can in some sense be seen as encouraging them to do just that[,] . . . this kind of subtle encouragement is no more significant than that which inheres in the State's creation or modification of any legal remedy"; adding that "our cases will not tolerate the imposition of Fourteenth Amendment restraints on private action by the simple device of characterizing the State's inaction as authorization or encouragement") (internal quotation marks omitted).
The plurality's assumption of state action in Denver Area must be seen in its proper context. The issue before the Court concerned regulatory legislation particular to cable operators who are often given unique monopolistic power over a single cable system linking broadcasters with the community, and who are "unusually involved" with the government via, e.g., given rights of way and access to governmental facilities. Denver Area, 518 U.S. at 739. Such operators are arguably more like common carriers such as telephone companies rather than editors such as newspapers. While the plurality portion of the Court's opinion (in contrast to the opinion of Justice Kennedy concurring in part and dissenting in part) did not commit to any clear rationale as to why there is sufficient state action allowing application of the First Amendment, the plurality opinion was driven by the particular context of the case, informed in part by technology and "the industrial structural related to telecommunications," id. at 741, a structure which conferred monopolistic-like power and involved a close interrelationship with governmental regulation. Again, as noted above, the plurality opinion recognize that "the First Amendment, the terms of which apply to governmental action, ordinarily does not itself throw into constitutional doubt the decisions of private citizens to permit, or to restrict, speech — and this is so ordinarily even where those decisions take place within the framework of a regulatory regime such as broadcasting." Id. at 737 (emphasis in original).
In any event, no clear state action analysis commanded the votes of a majority of the Justices. Thus, Denver Area did not establish a categorical rule that a statute which permits private parties to restrict the speech or other rights of private citizens constitutes as a general matter state action.
At the hearing, Plaintiffs conceded that they did actually not have a problem with passage of the FAA per se. Rather, Plaintiffs took the position that it was judicial interpretation of the FAA that provided the requisite state action.
At the hearing, Plaintiffs also argued that, if the Court were to compel arbitration, then it would be interpreting the FAA as heavily favoring arbitration and encouraging private parties to employ pre-dispute arbitration clauses, and this interpretation would also be the source of Plaintiffs' constitutional injury. Because this specific argument was not raised in Plaintiffs' papers, the Court could disregard it as waived.
However, this argument for state action presents a plausible theory and should be examined. Plaintiffs' argument rests on authority holding that
Duffield, 144 F.3d at 1200 (quoting Lugar v. Edmondson Oil Co., 457 U.S. 922, 936 (1982)
In Duffield itself, the court held that the SEC did not sufficiently influence private conduct because it had not:
Id. at 1202 (emphasis added).
Plaintiffs' position in the instant case is not without force — factually, there is a stronger case for encouragement here compared to, e.g., Duffield, 114 F.3d at 1202 (there was no SEC rule or regulation that "`specifies arbitration as the favored means of resolving employer-employee disputes'") (emphasis added). Here, as discussed below, the Supreme Court has held that the FAA embodies a policy favoring arbitration. And Plaintiffs have cited evidence suggesting that evolution of recent jurisprudence in this area has in fact led to increasing use of arbitration to displace judicial remedies, particularly in the field of consumer rights. See Opp'n at 9 (noting, e.g., that the AAA's "statistics on consumer arbitrations filed after January 1, 2003 . . . lists only 1,335 total consumer-initiated arbitrations against AT&T," and 86% of "those arbitrations were initiated by clients of the law firm Bursor & Fisher, who were attempting to prevent a proposed merger between AT&T and T-Mobile").
Nonetheless, Plaintiffs have not established the requisite degree of government coercion or encouragement sufficient under existing case law to establish state action. First, the FAA on its face indicates that an arbitration agreement — like any other agreement — may be challenged on "such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. It purports to put arbitration agreements on equal, not more favorable, ground with other contracts.
Second, the Supreme Court's interpretation of the FAA, while acknowledging a general policy favoring of arbitration, is expressly predicated on the stated purpose of putting arbitration agreements on equal footing with all other contracts and preventing the disfavorable treatment of such agreements. As explained by the Supreme Court in Concepcion:
Concepcion, 563 U.S. at 339 (emphasis added); see also Hall St. Assocs., L.L.C. v. Mattel, Ic., 552 U.S. 576, 581 (2008) (stating that "Congress enacted the FAA to replace judicial indisposition to arbitration with a `national policy favoring [it] and plac[ing] arbitration agreements on equal footing with all other contracts'") (emphasis added); EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (stating that, "[b]ecause the FAA is `at bottom a policy guaranteeing the enforcement of private contractual arrangements,' we look first to whether the parties agreed to arbitrate a dispute, not to general policy goals, to determine the scope of the agreement").
The problem as identified in Concepcion was that arbitration agreements were being singled out simply because arbitration was the subject matter of the agreement. See Concepcion, 563 U.S. at 339 (stating that the "savings clause" in § 2 of the FAA "permits agreements to arbitrate to be invalidated by `generally applicable contract defenses, such as fraud, duress, or unconscionability,' but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue"). While it may be argued (as Plaintiffs have here) that, in safeguarding the enforceability of arbitration clauses against even well-established defenses based, e.g., on unconscionability and countervailing policy concerns embodied in other laws and statutes (see, e.g., id. at 357 (Breyer, J., dissenting); Am. Express Co. v. Italian Colors Rest., 133 S.Ct. 2304, 2313 (2013) (Kagan, J., dissenting)), the Supreme Court's interpretation of the FAA has swung the pendulum to the point of actually encouraging businesses to impose pre-dispute arbitration clauses (and Plaintiffs have cited some empirical evidence so indicating), no court has yet to hold or suggest there is sufficient encouragement or coercion by virtue of the FAA to implicate state action under Lugar.
Because under the current state of the law, there is no state action in the instant case, Plaintiffs lack a viable First Amendment challenge to the arbitration agreements. As Plaintiffs have not challenged the arbitration agreements on any other bases, the Court grants AT&T's motion to compel arbitration. Furthermore, as requested by AT&T, the Court stays this action pending the resolution of the arbitration. See 9 U.S.C. § 3.
This order disposes of Docket No. 25.