Roberts et al v. AT&T Mobility LLC, No. 3:2015cv03418 - Document 60 (N.D. Cal. 2016)

Court Description: AMENDED ORDER granting 25 Defendant's Motion to Compel Arbitration; and Staying Proceedings. Signed by Judge Edward M. Chen on 4/27/2016. (emclc2, COURT STAFF) (Filed on 4/27/2016)
Download PDF
1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 MARCUS A. ROBERTS, et al., 7 Plaintiffs, 8 v. 9 10 AT&T MOBILITY LLC, 11 Defendant. AMENDED ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION; AND STAYING PROCEEDINGS Docket No. 25 12 For the Northern District of California United States District Court Case No. 15-cv-03418-EMC Plaintiffs Marcus A. Roberts, Kenneth A. Chewey, Ashley M. Chewey, and James Krenn 13 14 (collectively, “Plaintiffs”) have filed a class action against Defendant AT&T Mobility LLC 15 (“AT&T”), asserting statutory, tort, and warranty claims based on AT&T s “deceptive and unfair 16 trade practice of marketing its wireless service plans as being „unlimited, when in fact those plans 17 are subject to a number of limiting conditions [in particular, throttling1] that either are not 18 disclosed or inadequately disclosed to consumers.” FAC ¶ 1. Currently pending before the Court 19 is AT&T s motion to compel arbitration. AT&T s motion relies largely on the fact that the 20 Supreme Court upheld AT&T s arbitration provision in AT&T Mobility LLC v. Concepcion, 563 21 U.S. 333 (2011) (holding that arbitration agreement should be enforced under the Federal 22 Arbitration Act (“FAA”); California s Discover Bank rule – which deemed class waivers in 23 consumer arbitration agreements substantively unconscionable – was preempted by the FAA). In 24 response, Plaintiffs argue that the Concepcion Court never addressed the specific issues now 25 raised – i.e., that enforcement of the arbitration agreements would violate their rights as protected 26 27 28 1 Throttling is the intentional slowing of customers data speed once they reach certain data usage thresholds. See Mot. at 2. 1 by the Petition Clause of the First Amendment. Having considered the parties briefs and accompanying submissions, as well as the oral 2 3 argument of counsel, the Court hereby GRANTS AT&T s motion to compel arbitration.2 The 4 Court further stays this lawsuit pending arbitration. See 9 U.S.C. § 3. I. 5 DISCUSSION The parties do not dispute that Plaintiffs entered into contracts with AT&T in order to 6 7 obtain wireless service. The parties also do not dispute that each of the agreements contained an 8 arbitration provision. In its motion, AT&T contends that the Court should enforce the arbitration agreements and 9 should not be compelled: (1) because, if this Court were to compel arbitration, that would be state 12 For the Northern District of California compel arbitration. In response, Plaintiffs essentially raise three arguments as to why arbitration 11 United States District Court 10 action that would violate their First Amendment rights – more specifically, the right to petition a 13 court for a redress of grievances3; (2) because, even though the arbitration provision allows a 14 claim to be brought in small claims court, that court is not an adequate forum and therefore their 15 First Amendment rights have still been abridged; and (3) because the FAA must be construed as 16 not applying to consumer actions in order to avoid a constitutional problem (i.e., the constitutional 17 avoidance doctrine). Each of the above arguments turns on the applicability of the First Amendment. But, as 18 19 both parties recognize, in order for Plaintiffs to have a First Amendment claim, they must first 20 show state action. See Grogan v. Blooming Grove Volunteer Ambulance Corps, 768 F.3d 259, 21 22 23 24 2 After the Court issued an order granting AT&T s motion to compel arbitration (Docket No. 50), Plaintiffs sought leave to file a motion to reconsider. The Court granted leave (Docket No. 55), and upon reconsideration, amends the order herein to address matters raised by the additional briefs. 3 25 26 27 28 See U.S. Const., amend. 1 (providing that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances”); see also Borough of Duryea v. Guarnieri, 131 S. Ct. 2488, 2494 (2011) (stating that “the Petition Clause protects the right of individuals to appeal to courts and other forums established by the government for resolution of legal disputes[;] „[t]he right of access to courts for redress of wrongs is an aspect of the First Amendment right to petition the government ”). 2 1 263 (2d Cir. 2014) (“Because the United States Constitution regulates only the Government, not 2 private parties, a litigant like Grogan who alleges that her constitutional rights have been violated 3 must first establish that the challenged conduct constitutes state action.”) (internal quotation marks 4 omitted)); cf. Hudgens v. NLRB, 424 U.S. 507, 513 (1976) (“It is, of course, a commonplace that 5 the constitutional guarantee of free speech is a guarantee only against abridgment by government, 6 federal or state.”). Plaintiffs acknowledge that the arbitration agreements are contracts between 7 private actors. Nevertheless, they assert, there would still be state action in the instant case upon 8 this Court s enforcement of that private agreement. 9 A. Judicial Enforcement As a starting point, the Court finds no merit to Plaintiffs assertion that the mere fact of 10 judicial enforcement automatically establishes state action. The Ninth Circuit rejected that 12 For the Northern District of California United States District Court 11 position in Ohno v. Yasuma, 723 F.3d 984 (9th Cir. 2013). More specifically, in Ohno, the Ninth 13 Circuit rejected the defendant s contention that judicial enforcement of a foreign-country money 14 judgment against it – through application of California s Uniform Foreign Country Money 15 Judgments Recognition Act – “constitute[d] domestic state action triggering constitutional 16 scrutiny.”4 Id. at 986. The court stated: 17 [T]here is no doubt that the district court s decision in this case applying California s Uniform Act – legislation that is itself the result of governmental action – constitutes state action for purposes of constitutional scrutiny. But that truism does not resolve our question, which is: Should the substance of the underlying Japanese monetary damages judgment, resulting from a lawsuit in Japan between two private parties, be ascribed to the district court s enforcement of the judgment under the Uniform Act and so subjected to constitutional scrutiny? 18 19 20 21 22 23 Id. at 994 (emphasis in original). The Ohno court further explained: 24 25 Recognizing and enforcing a foreign-country judgment is distinct from rendering that judgment in the first place. The district court, in 26 27 4 28 The defendant argued that “the Religion Clauses [of the First Amendment] would bar a court in the United States from rendering the same judgment in the first instance.” Ohno, 723 F.3d at 992. 3 2 giving effect to the judgment issued in Japan, has not participated in the action the [defendant] claims is unconstitutional – namely, judging the truth or falsity of the [defendant s] religious teachings or imposing liability for the consequences of religious expression. 3 Id. at 993 (emphasis in original and added). “[T]he source of the alleged constitutional harm is . . . 4 Japanese tort law, created and enforced through Japanese governmental entities,” and so “the 5 claimed constitutional deprivation cannot be traced to a right, privilege, or rule of conduct 6 imposed by a domestic governmental entity or individual.” Id. at 994. The act of enforcement of 7 the Japanese judgment by the U.S. court did not constitute state action causing a constitutional 8 deprivation. 1 To the extent Plaintiffs have relied on Shelley v. Kraemer, 334 U.S. 1 (1948),5 see Mot. at 9 necessary to establish a constitutional claim, the Court is not persuaded. In Ohno, the Ninth 12 For the Northern District of California 3-4, to support the position that judicial enforcement itself provides the requisite state action 11 United States District Court 10 Circuit made clear that “Shelley s attribution of state action to judicial enforcement has generally 13 been confined to the context of discrimination claims under the Equal Protection Clause.” Id. at 14 998. Indeed, in discussing the reach of Shelley, the Ohno court pointed out that, “[i]n the 15 16 context of First Amendment challenges to speech-restrictive provisions in private agreements or 17 contracts, domestic judicial enforcement of terms that could not be enacted by the government has 18 not ordinarily been considered state action.” Id. (emphasis added.) In addition, and more on point 19 to the case at bar, the Ninth Circuit stated that, “in the context of judicial confirmation of arbitral 20 awards, . . . [courts have] held that „mere confirmation of a private arbitration award by a district 21 court is insufficient state action to trigger the application of the Due Process Clause. ” Id. at 999. 22 While the Ninth Circuit did state that it did “not mean to adopt or sanction any of [these] cases,” 23 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 24 25 5 26 27 28 In Shelley, the Supreme Court noted that racially restrictive covenants applicable to real properties were, in and of themselves, private agreements but that, once the agreements were judicially enforced by state courts, there was the requisite state action to give rise to a constitutional claim. See Shelley, 334 U.S. at 19 (stating that, “but for the active intervention of the state courts, supported by the full panoply of state power, petitioners would have been free to occupy the properties in question without restraint”). 4 1 above cases. More specifically, in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 2 1998), overruled on other grounds, EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742 3 (9th Cir. 2003), the plaintiff – a broker-dealer in the securities industry – sued her employer for 4 employment discrimination. The plaintiff had signed a securities industry form that included an 5 arbitration provision. The form also required the plaintiff to abide by the rules of the New York 6 Stock Exchange (“NYSE”) and National Association of Securities Dealers (“NASD”), and each of 7 these organizations had a rule that required arbitration. The plaintiff argued, nevertheless, that she 8 could not be compelled to arbitration because “the arbitration agreement imposes an 9 unconstitutional condition of employment,” requiring her “to forfeit her Fifth Amendment right to forum.” Id. at 1200. According to the district court, “the essential prerequisite of state action was 12 For the Northern District of California due process, her Seventh Amendment right to a jury trial, and her right to an Article III judicial 11 United States District Court 10 lacking” for the due process claim, and the Ninth Circuit agreed, stating “no state action is present 13 in simply enforcing that agreement.” Id. at 1201. 14 Plaintiffs have pointed to no authority holding that judicial enforcement, particularly of an 15 arbitration award, constitutes state action.6 In fact, as the Ohno court noted, the authority is to the 16 contrary. For example, in Davis v. Prudential Securities, Inc., 59 F.3d 1186 (11th Cir. 1995), the 17 defendant appealed to the Eleventh Circuit after the district court confirmed the arbitration panel s 18 award of punitive damages. The defendant argued, inter alia, that the punitive damages award 19 violated its due process rights, more specifically, “because arbitration lacks the procedural 20 protections and meaningful judicial review required for the imposition of punitive damages.” Id. 21 at 1190. The Eleventh Circuit rejected the argument. It noted first that “the state action element 22 of a due process claim is absent in private arbitration cases” because private arbitration is by itself 23 “a voluntary contractual agreement of the parties.” Id. at 1191. As to the defendant s assertion 24 that the district court s confirmation of the punitive damages award provided the requisite state 25 26 27 28 6 To the extent Plaintiffs have suggested that enforcement here is the equivalent of or comparable to a court-ordered injunction, the Court does not agree. The enforcement of the arbitration agreements would not “require[] the [C]ourt to take such an active role in, or to exercise sustained supervision of, the [arbitration agreements or even the arbitrations themselves] that it becomes appropriate to review the [C]ourt s activities as governmental actions.” Ohno, 723 F.3d at 1000. 5 the defendant was offering a “Shelley v. Kraemer theory that a court s enforcement of a private 3 contract constitutes state action” but “[t]he holding of Shelley . . . has not been extended beyond 4 the context of race discrimination.” Id. See also Katz v. Cellco P’ship, No. 12 CV 9193 (VB), 5 2013 U.S. Dist. LEXIS 176784, at *10, 17 (S.D.N.Y. Dec. 12, 2013) (in a case where plaintiff 6 argued that “application of the FAA to his state law claims violates Article III of the Constitution 7 – both the structural protections of our tripartite system of government (i.e., separation of powers) 8 and his personal right to have his claims adjudicated before an independent Article III judge,” 9 agreeing with defendant that “there is insufficient state action for plaintiff to maintain an action 10 under Article III”; stating that “the fact that Verizon sought a court order compelling arbitration 11 does not transform enforcement of the parties arbitration agreement into state action”), vacated in 12 For the Northern District of California action, the court disagreed. The Eleventh Circuit echoed the Ninth Circuit s analysis in Ohno that 2 United States District Court 1 part on other grounds, No. 14-138, 2015 U.S. App. LEXIS 13055 (2d Cir. July 28, 2015); Smith v. 13 Argenbright, Inc., No. 99 C 7368, 1999 U.S. Dist. LEXIS 19827, at *8 (N.D. Ill. Dec. 27, 1999) 14 (stating that “[w]e do not believe that our limited power to conduct an after-the-fact review of an 15 arbitration panel for bias constitutes the requisite governmental action to implicate Batson”); 16 Cremin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 957 F. Supp. 1460, 1468 (N.D. Ill. 1997) 17 (rejecting contention that defendant was “using a government official, i.e., this Court, to enforce 18 the arbitration rules that will inevitably deprive her of due process”; “refus[ing] to hold that every 19 time a Court enforces a private arrangement it potentially violates one party s constitutional 20 rights”); United States v. Am. Soc’y of Composers, Authors & Publ’rs, 708 F. Supp. 95, 97 21 (S.D.N.Y. 1989) (stating that “[t]he mere approval by this Court of the use of arbitration did not 22 create any state action[;] [i]ndeed, under [party s] strained interpretation . . . , all arbitrations could 23 be subject to due process limitations through the simple act of appealing the arbitrator s decisions 24 to the court system”). At bottom, “[government] permission of a private choice cannot support a 25 finding of state action.” Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 54 (1999). 26 Finally, the Court takes note that, in many private contracts, there are provisions that 27 arguably affect access to the courts or otherwise implicate significant rights, such as choice-of- 28 venue, choice-of-law, statute-of-limitations, and limitations-on-damages provisions. Although 6 1 these provisions may be subject to restrictions imposed by statutory and/or common law (e.g., the 2 doctrine of unconscionability, violation of public policy), courts have not held that judicial 3 enforcement of these provisions, particularly as found in contracts between private parties, raises 4 constitutional claims. See, e.g., Soltani v. W. & S. Life Ins. Co., 258 F.3d 1038, 1045 (9th Cir. 5 2001) (holding that a six-month statute-of-limitations provision was enforceable); Severn Peanut 6 Co. v. Indus. Fumigant Co., 807 F.3d 88, 92 (4th Cir. 2015) (rejecting assertion that consequential 7 damages exclusion in contract was not enforceable). 8 B. The FAA and Its Interpretation Congress s enactment of the FAA. See Opp n at 4. This argument is similar to that rejected by 11 the Ninth Circuit in Duffield. There, the plaintiff argued that “state action is present because 12 For the Northern District of California In their papers, Plaintiffs argued that, nevertheless, there is state action based on 10 United States District Court 9 „federal law requires all broker-dealers to register with a national securities exchange (i.e., the 13 NYSE or NASD), and to abide by the rules of that exchange – including its mandatory arbitration 14 rules – as a condition of their continued employment. ” Id. at 1200. The Ninth Circuit rejected 15 the argument, stating that 16 17 18 19 20 21 22 [t]he rules of NASD and the NYSE are not fairly attributable to the government unless they carry the force of federal law. And prior to 1993, no federal statute or regulation required [the plaintiff] to register with the securities exchanges, much less to sign Form U-4 or to arbitrate employment disputes. Thus, when [the plaintiff] signed her Form U-4 in 1988 and thereby waived her rights to litigate employment-related disputes in a judicial forum, she did not do so because of any state action. Id. at 1201 (emphasis added). The court acknowledged that, in 1993 – two years before the plaintiff s employer actually 23 invoked the arbitration agreement – the Securities and Exchange Commission (“SEC”) had 24 “adopted a regulation that required all broker-dealers to be registered with at least one of the 25 securities organizations of which [the plaintiff s employer] was a member – i.e., the NASD and 26 the NYSE – before effecting any securities transaction.” Id. That “current requirement that new 27 employees register with a national securities exchange „constitutes government action of the purest 28 sort. ” Id. Nevertheless, the Ninth Circuit was not persuaded by the plaintiff s argument that this 7 1 new regulation provided the requisite state action. The court noted: 2 State action can be present . . . only to the extent that there is “a sufficiently close nexus between the State and the challenged action”; the action that [the plaintiff] challenges in her constitutional claims is the requirement that she waive her right to litigate employment-related disputes. Since agreements to arbitrate are “valid, irrevocable, and enforceable” to the same extent as any other contract, it is immaterial that years after [the plaintiff] signed her Form U-4 containing the arbitration provision, federal law required other employees like her to register with securities exchanges or even that it compelled her to remain registered. No federal law required [the plaintiff] to waive her right to litigate employmentrelated disputes by signing the Form U-4 in 1988, and no state action is present in simply enforcing that agreement. Insofar as [the plaintiff] argues that the “challenged action” is the requirement that she actually arbitrate her lawsuit, that requirement is found in her private contract, not in federal law. 3 4 5 6 7 8 9 10 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 12 For the Northern District of California United States District Court 11 13 mere enactment of the statute did not cause the deprivation of their constitutional rights. See id. 14 (noting that “[s]tate action can be present . . . only to the extent that there is „a sufficiently close 15 nexus between the State and the challenged action ”) (emphasis in original). Plaintiffs rely still on Denver Area Educational Telecommunications Consortium, Inc. v. 16 17 Federal Communications Commission, 518 U.S. 727 (1996), in arguing that a congressional 18 statute or a court s interpretation thereof “that enables private action to restrict citizens First 19 Amendment rights constitutes a state action.” Opp n at 4.7 In Denver Area, the plaintiffs sued, 20 7 21 22 23 24 25 26 27 28 This argument briefly alluded to in their initial brief is developed more thoroughly in Plaintiffs motion for reconsideration. See Docket No. 54 (motion to reconsider). AT&T argues, in its opposition to the motion to reconsider, that reconsideration should be denied because Plaintiffs “Denver Area argument was not adequately „presented to the Court. ” Docket No. 59 (Opp n at 6). AT&T points out that Plaintiffs purported best case (so identified at the hearing on the motion to compel arbitration) was embedded in one out of 132 footnotes in their opposition brief. AT&T also argues that Plaintiffs fleshing out of Denver Area during the hearing on the motion to compel arbitration was improper. See King v. Hausfeld, No. C-13-0237, 2013 U.S. Dist. LEXIS 51116, at *17 (N.D. Cal. Apr. 9, 2013) (finding that plaintiff waived an argument because he raised the argument “for the first time in a supplemental filing submitted the day before the hearing and without leave of court” and he “offer[ed] no explanation for failing to raise the argument”). The Court agrees with AT&T that it would well be within its rights in deeming the Denver Area argument waived. Although, in their opposition brief, Plaintiffs cited Denver Area in support of the above proposition, they certainly did not address the issue as it was argued at the hearing nor did they brief the issue as it has now been briefed in the motion for reconsideration. The twentyfive page limitation for the opposition brief, see Docket No. 54 (Mot. at 5 n.5), is no excuse. 8 1 inter alia, the FCC, claiming that three provisions of the Cable Television Consumer Protection 2 and Competition Act of 1992 – which sought to regulate the broadcasting of “patently offensive” 3 sex-related material on cable television – violated their First Amendment rights. The provisions at 4 issue applied to programs broadcast over cable on what are known as “leased access channels” and 5 “public, educational, or governmental channels.” “A „leased channel is a channel that federal law 6 requires a cable system operator to reserve for commercial lease by unaffiliated third parties. ” Id. 7 at 734. Public access channels “are channels that, over the years, local governments have required 8 cable system operators to set aside for public, educational, or governmental purposes as part of the 9 consideration an operator gives in return for permission to install cables under city streets and to law, in respect to public access channels) prohibited cable system operators from exercising any 12 For the Northern District of California use public rights-of-way.” Id. “Between 1984 and 1992, federal law (as had much pre-1984 state 11 United States District Court 10 editorial control over the content of any program broadcast over either leased or public access 13 channels.” Id. (emphasis in original). 14 Congress enacted the three challenged provisions “in an effort to control sexually explicit 15 programming over access channels.” Id. The first provision, which concerned leased channels, 16 permitted a cable operator to enforce a policy of prohibiting programming that the operator 17 reasonably believed described or depicted sex-related material in a patently offensive manner. See 18 id. The second provision, which also concerned leased channels, required cable operators to 19 segregate and block similar programming if they decided to permit its broadcast rather than 20 prohibit it. See id. at 735. Finally, the third provision was similar to the first provision but applied 21 to public access channels. See id. 22 A plurality of the Supreme Court held that the first provision was constitutional. In 23 addressing the existence of state action, the plurality took note of the lower appellate court s 24 analysis that there was no First Amendment violation 25 26 because the First Amendment prohibits only “Congress” . . . , not private individuals, from “abridging the freedom of speech.” 27 28 Nevertheless, given the importance of the issues herein, the Court addresses the merits of Plaintiffs Denver Area argument. 9 Although the court said that it found no “state action,” it could not have meant that phrase literally for, of course, petitioners attack (as “abridging . . . speech”) a congressional statute – which, by definition, is an Act of “Congress.” More likely, the court viewed this statute s “permissive” provisions as not themselves restricting speech, but, rather, as simply reaffirming the authority to pick and choose programming that a private entity, say, a private broadcaster, would have had in the absence of intervention by any federal, or local, governmental entity. 1 2 3 4 5 6 Id. at 737. 7 The plurality acknowledged “the First Amendment, the terms of which apply to 8 governmental action, ordinarily does not itself throw into constitutional doubt the decisions of 9 private citizens to permit, or to restrict, speech – and this is so ordinarily even where those (emphasis in original). But apparently, the plurality assumed there was state action because the 12 For the Northern District of California decisions take place within the framework of a regulatory regime such as broadcasting.” Id. 11 United States District Court 10 plaintiffs were challenging an act of Congress, i.e., its enactment of the provision, which in turn 13 was being carried out by the FCC. See also Docket No. 59 (Opp n at 3) (AT&T arguing that “the 14 FCC was the party „charged with the deprivation of the plaintiffs First Amendment rights, [and 15 thus] the enactment of the statute alone was sufficient state action to trigger constitutional 16 protections under Lugar”). That being said, the plurality provided no clear analysis as to why 17 congressional action permitting private conduct amounted to state action in that particular 18 instance. 19 All that is clear is that the plurality refused to adopt the state action analysis suggested by 20 other Supreme Court Justices – e.g., Justice Kennedy s take that “leased access channels are like a 21 common carrier.” Denver Area, 518 U.S. at 739-40. The plurality also rejected Justice Thomas s 22 reasoning that “the case is simply because the cable operator who owns the system over which 23 access channels are broadcast, like a bookstore owner with respect to what it displays on the 24 shelves, has a predominant First Amendment interest.” Id. at 740. According to the plurality, 25 “[b]oth categorical approaches suffer from the same flaws: They import law developed in very 26 different contexts into a new and changing environment, and they lack the flexibility necessary to 27 allow government to respond to very serious practical problems without sacrificing the free 28 exchange of ideas the First Amendment is designed to protect.” Id.; see also id. at 741-42 (stating 10 1 that “no definitive choice among competing analogies (broadcast, common carrier, bookstore) 2 allows us to declare a rigid single standard, good for now and for all future media and purposes”). 3 The plurality concluded that, “aware as we are of the changes taking place in the law, the 4 technology, and the industrial structure related to telecommunications, we believe it unwise and 5 unnecessary definitively to pick one analogy or one specific set of words now.” Id. at 742. 6 7 8 9 10 12 For the Northern District of California United States District Court 11 13 14 15 Rather than decide [such] issues, we can decide these cases more narrowly, by closely scrutinizing [the provision] to assure that it properly addresses an extremely important problem, without imposing, in light of the relevant interests, an unnecessary great restriction on speech. The importance of the interest at stake here – protecting children from exposure to patently offensive depictions of sex; the accommodation of the interests of programmers in maintaining access channels and of cable operators in editing the contents of their channels; the similarity of the problem and its solution to those at issue in Pacifica, and the flexibility inherent in an approach that permits cable operators to make editorial decisions, lead us to conclude that [the provision is a sufficiently tailored response to an extraordinarily important problem. Id. at 743 (emphasis in original). As indicated by the above, while the majority of the Justices assumed that the challenged 16 Act s grant of authority to cable operators permitting them to prohibit or limit certain programs 17 based on content constituted state action, Denver Area does not establish the broad 18 pronouncement Plaintiffs assert. The plurality did not overturn (nor could it), e.g., Flagg Bros., 19 Inc. v. Brooks, 436 U.S. 149 (1978), where the Supreme Court addressed “whether a 20 warehouseman s proposed sale of goods entrusted to him for storage, as permitted by New York 21 Uniform Commercial Code § 7-210, is an action properly attributable to the State of New York,” 22 and concluded that there was no state action because “a State s mere acquiescence in a private 23 action [does not] convert[] that action into that of the State” – even taking into account that “the 24 State has embodied its decision not to act in statutory form.” Id. at 164-65 (emphasis added). 25 Subsequent to Denver Area, the Court has continued to adhere to the general proposition that a 26 law permitting private conduct does not constitute state action. See Am. Mfrs. Mut. Ins. Co. v. 27 Sullivan, 526 U.S. 40, 53-54 (1999) (stating that, while “the State s decision to provide insurers 28 the option of deferring payment for unnecessary and unreasonable treatment pending review can 11 1 in some sense be seen as encouraging them to do just that[,] . . . this kind of subtle encouragement 2 is no more significant than that which inheres in the State s creation or modification of any legal 3 remedy”; adding that “our cases will not tolerate the imposition of Fourteenth Amendment 4 restraints on private action by the simple device of characterizing the State's inaction as 5 authorization or encouragement”) (internal quotation marks omitted). The plurality s assumption of state action in Denver Area must be seen in its proper 6 7 context. The issue before the Court concerned regulatory legislation particular to cable operators 8 who are often given unique monopolistic power over a single cable system linking broadcasters 9 with the community, and who are “unusually involved” with the government via, e.g., given rights arguably more like common carriers such as telephone companies rather than editors such as 12 For the Northern District of California of way and access to governmental facilities. Denver Area, 518 U.S. at 739. Such operators are 11 United States District Court 10 newspapers. While the plurality portion of the Court s opinion (in contrast to the opinion of 13 Justice Kennedy concurring in part and dissenting in part) did not commit to any clear rationale as 14 to why there is sufficient state action allowing application of the First Amendment, the plurality 15 opinion was driven by the particular context of the case, informed in part by technology and “the 16 industrial structural related to telecommunications,” id. at 741, a structure which conferred 17 monopolistic-like power and involved a close interrelationship with governmental regulation. 18 Again, as noted above, the plurality opinion recognize that “the First Amendment, the terms of 19 which apply to governmental action, ordinarily does not itself throw into constitutional doubt the 20 decisions of private citizens to permit, or to restrict, speech – and this is so ordinarily even where 21 those decisions take place within the framework of a regulatory regime such as broadcasting.” Id. 22 at 737 (emphasis in original). 23 In any event, no clear state action analysis commanded the votes of a majority of the 24 Justices. Thus, Denver Area did not establish a categorical rule that a statute which permits 25 private parties to restrict the speech or other rights of private citizens constitutes as a general 26 matter state action.8 27 8 28 AT&T argues Denver Area is distinguishable because the defendant was the FCC – the government itself – charged with enforcement of the challenged law, not a private business as in 12 At the hearing, Plaintiffs conceded that they did actually not have a problem with passage 1 2 of the FAA per se. Rather, Plaintiffs took the position that it was judicial interpretation of the 3 FAA that provided the requisite state action.9 In particular, Plaintiffs argued that, if this Court 4 were to compel arbitration, it would be interpreting the FAA as applying to consumer adhesion 5 contracts (and not just contracts between businessmen or merchants), and this interpretation would 6 be the source of Plaintiffs constitutional injury. But this asserted constitutional injury is 7 predicated on the contract being one of adhesion – i.e., where the consumer did not knowingly 8 and/or voluntarily agree to arbitration and forfeits access to the courts. Thus, the source of the 9 alleged constitutional deprivation when a consumer is involved is not the judicial interpretation of unwitting consumer. See Am. Mfrs., 526 U.S. at 50 (asking whether “the allegedly 12 For the Northern District of California the FAA; rather, the source is AT&T s private conduct in purportedly forcing arbitration on an 11 United States District Court 10 unconstitutional conduct [is] fairly attributable to the State”) (emphasis omitted). As the court 13 held in Ohno, a court giving effect to a private contract does not constitutionalize the contract. See 14 Ohno, 723 F.3d at 993 (stating that “[t]he district court, in giving effect to the judgment issued in 15 Japan, has not participated in the action the [defendant] claims is unconstitutional – namely, 16 judging the truth or falsity of the [defendant s] religious teachings or imposing liability for the 17 consequences of religious expression”). 18 At the hearing, Plaintiffs also argued that, if the Court were to compel arbitration, then it 19 would be interpreting the FAA as heavily favoring arbitration and encouraging private parties to 20 employ pre-dispute arbitration clauses, and this interpretation would also be the source of 21 22 23 the instant case. This distinction, however, does not fully explain why governmental permission of private conduct constituted state action. 9 24 25 26 27 28 The Court acknowledges that, at the hearing, Plaintiffs emphasized that the enactment of the FAA by Congress was significant in that, prior to that time, arbitration agreements were typically not enforced, not only with respect to consumer contracts but also with respect to commercial contracts. Cf. Concepcion, 563 U.S. at 339 (noting that “[t]he FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements”). However, the Court does not understand Plaintiffs to be taking the position that the enactment of the FAA, in and of itself, is a constitutional problem. Furthermore, it would be inconsistent for Plaintiffs to take that position given that, as discussed below, Plaintiffs main contention is that the FAA should be considered unconstitutional only with respect to its application vis-à-vis consumer contracts, and not, e.g., commercial contracts. 13 1 Plaintiffs constitutional injury. Because this specific argument was not raised in Plaintiffs 2 papers, the Court could disregard it as waived. However, this argument for state action presents a plausible theory and should be 3 4 examined. Plaintiffs argument rests on authority holding that 5 “[a] State normally can be held responsible for a private decision only when it has exercised coercive power or has provided such significant encouragement, either overt or covert, that the choice must be deemed that of the State. Mere approval or acquiescence in the initiatives or a private party is not sufficient to justify holding the State responsible for these initiatives.” 6 7 8 9 Duffield, 144 F.3d at 1200 (quoting Lugar v. Edmondson Oil Co., 457 U.S. 922, 936 (1982)10). In Duffield itself, the court held that the SEC did not sufficiently influence private conduct 10 because it had not: 12 For the Northern District of California United States District Court 11 moved beyond mere approval of private action into the realm of “encouragement, endorsement, and participation” of that action . . . with regard to the NASD s and NYSE s compulsory arbitration requirements. “To begin with the obvious, there is nothing in the [Securities Exchange Act of 1934] and there is no Commission rule or regulation that specifies arbitration as the favored means of resolving employer-employee disputes.” . . . This puts the role of the SEC in a critically different light than that of the Federal Railroad Administration in Skinner, which drafted regulations making plain its “strong preference for [drug] testing,” explicitly conferred on railroads the authority to conduct such tests, required railroads and employees to perform such tests, and codified its right to receive certain biological samples. 13 14 15 16 17 18 19 20 Id. at 1202 (emphasis added).11 Plaintiffs position in the instant case is not without force – factually, there is a stronger 21 22 23 24 25 26 27 28 10 Lugar identifies two additional state action tests, i.e., as to whether the actions of private entities are fairly attributable to the state. See Duffield, 144 F.3d at 1200. Plaintiffs have not invoked either of these tests, relying instead only on the encouragement test. 11 In Duffield, the plaintiff also invoked state action based on a completely different test – i.e., “„the private party has exercised powers that are traditionally the exclusive prerogative of the State. ” Duffield, 144 F.3d at 1200. The Ninth Circuit explained that argument lacked merit because “[w]e have long held that, since dispute resolution is not an „exclusive governmental function, neither private arbitration nor the judicial act of enforcing it under the FAA constitutes state action.” Id. Plaintiffs have not invoked the government function state action test in the instant case. 14 1 case for encouragement here compared to, e.g., Duffield, 114 F.3d at 1202 (there was no SEC rule 2 or regulation that “„specifies arbitration as the favored means of resolving employer-employee 3 disputes ”) (emphasis added). Here, as discussed below, the Supreme Court has held that the FAA 4 embodies a policy favoring arbitration. And Plaintiffs have cited evidence suggesting that 5 evolution of recent jurisprudence in this area has in fact led to increasing use of arbitration to 6 displace judicial remedies, particularly in the field of consumer rights. See Opp n at 9 (noting, 7 e.g., that the AAA s “statistics on consumer arbitrations filed after January 1, 2003 . . . lists only 8 1,335 total consumer-initiated arbitrations against AT&T,” and 86% of “those arbitrations were 9 initiated by clients of the law firm Bursor & Fisher, who were attempting to prevent a proposed 10 Nonetheless, Plaintiffs have not established the requisite degree of government coercion or 12 For the Northern District of California United States District Court 11 merger between AT&T and T-Mobile”). encouragement sufficient under existing case law to establish state action. First, the FAA on its 13 face indicates that an arbitration agreement – like any other agreement – may be challenged on 14 “such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It 15 purports to put arbitration agreements on equal, not more favorable, ground with other contracts. 16 Second, the Supreme Court s interpretation of the FAA, while acknowledging a general 17 policy favoring of arbitration, is expressly predicated on the stated purpose of putting arbitration 18 agreements on equal footing with all other contracts and preventing the disfavorable treatment of 19 such agreements. As explained by the Supreme Court in Concepcion: 20 21 22 23 24 25 26 27 28 The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements. Section 2, the “primary substantive provision of the Act,” provides, in relevant part, as follows: “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” We have described this provision as reflecting both a “liberal federal policy favoring arbitration,” and the “fundamental principle that arbitration is a matter of contract.” In line with these principles, 15 courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms. 1 2 Concepcion, 563 U.S. at 339 (emphasis added); see also Hall St. Assocs., L.L.C. v. Mattel, Ic., 552 3 4 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 5 footing with all other contracts ”) (emphasis added); EEOC v. Waffle House, Inc., 534 U.S. 279, 6 294 (2002) (stating that, “[b]ecause the FAA is „at bottom a policy guaranteeing the enforcement 7 of private contractual arrangements, we look first to whether the parties agreed to arbitrate a 8 dispute, not to general policy goals, to determine the scope of the agreement”). 9 The problem as identified in Concepcion was that arbitration agreements were being 10 singled out simply because arbitration was the subject matter of the agreement. See Concepcion, 12 For the Northern District of California United States District Court 11 563 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 13 unconscionability, but not by defenses that apply only to arbitration or that derive their meaning 14 from the fact that an agreement to arbitrate is at issue”). While it may be argued (as Plaintiffs 15 have here) that, in safeguarding the enforceability of arbitration clauses against even well16 established defenses based, e.g., on unconscionability and countervailing policy concerns 17 embodied in other laws and statutes (see, e.g., id. at 357 (Breyer, J., dissenting); Am. Express Co. 18 v. Italian Colors Rest., 133 S. Ct. 2304, 2313 (2013) (Kagan, J., dissenting)), the Supreme Court s 19 interpretation of the FAA has swung the pendulum to the point of actually encouraging businesses 20 to impose pre-dispute arbitration clauses (and Plaintiffs have cited some empirical evidence so 21 indicating), no court has yet to hold or suggest there is sufficient encouragement or coercion by 22 virtue of the FAA to implicate state action under Lugar.12 Whatever encouragement the FAA 23 gives to the implementation of pre-dispute arbitration clauses, it falls short of government conduct 24 in cases where state action has been found. See Brentwood Acad. v. Tenn. Secondary Sch. Ath. 25 Ass’n, 531 U.S. 288, 296 (2001) (stating that “a challenged activity may be state action when it 26 27 28 12 Moreover, it is worth noting that Plaintiffs argument here would apply not just to consumer contracts but commercial contracts as well. Accordingly, Plaintiffs sweeping argument would constitutionalize enforcement of all arbitration agreements made possible by the FAA. 16 1 results from the State s exercise of „coercive power, when the State provides „significant 2 encouragement, either overt or covert, or when a private actor operates as a „willful participant in 3 joint activity with the State or its agents ”); Flagg Bros., 436 U.S. at 164 (stating that “„a State is 4 responsible for the . . . act of a private party when the State, by its law, has compelled the fact ” 5 but “a State s mere acquiescence in a private action [does not] convert[] that action into that of the 6 State”; adding that “[i]t is quite immaterial [when] a State has embodied its decision not to act in 7 statutory form”); see also Grapentine v. Pawtucket Credit Union, 755 F.3d 29, 33 (1st Cir. 2014) 8 (taking note of “the principle set out in Flagg Brothers . . . that mere legislative sanction of a 9 private remedy does not constitute state action”); Apao v. Bank of N.Y., 324 F.3d 1091, 1094 (9th provisions [was held insufficient] to convert private conduct into state action[;] [t]he statute 12 For the Northern District of California Cir. 2003) (stating that, in Flagg Brothers, “the state s statutory authorization of self-help 11 United States District Court 10 neither encourages nor compels the procedure, but merely recognizes its legal effect”). Cf. 13 Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 615 (1989) (concluding that state 14 action for purposes of the Fourth Amendment was present because the “specific features of the 15 regulations [imposed by the Federal Railroad Administration] did more than adopt a passive 16 position toward the underlying private conduct”; “[t]he Government has removed all legal barriers 17 to the [drug] testing authorized by Subpart D, . . . has made plain not only its strong preference for 18 testing, but also its desire to share the fruits of such intrusions[,] . . . and has mandated that the 19 railroads not bargain away the authority to perform tests granted by Subpart D”); Howerton v. 20 Gabica, 708 F.2d 380, 383 (9th Cir. 1983) (noting that “„[t]here may be a deprivation within the 21 meaning of § 1983 not only when there has been an actual “taking” of property by a police officer, 22 but also when the officer assists in effectuating a repossession over the objection of a debtor or so 23 intimidates a debtor as to cause him to refrain from exercising his legal right to resist a 24 repossession ”). As noted above, no court has found that judicial enforcement of a private 25 arbitration clause constitutes state action for purposes of stating a federal constitutional claim. 13 26 13 27 28 The Eleventh Circuit relied on, inter alia, Flagg Bros. in holding that, “[i]n light of this narrow interpretation of state action, courts considering the issue have rejected the argument that the limited state action inherent in the confirmation of private arbitration awards mandates compliance with the Due Process Clause.” Davis, 59 F.3d at 1192. 17 II. 1 2 CONCLUSION Because under the current state of the law, there is no state action in the instant case, 3 Plaintiffs lack a viable First Amendment challenge to the arbitration agreements. As Plaintiffs 4 have not challenged the arbitration agreements on any other bases, the Court grants AT&T s 5 motion to compel arbitration. Furthermore, as requested by AT&T, the Court stays this action 6 pending the resolution of the arbitration. See 9 U.S.C. § 3. 7 This order disposes of Docket No. 25. 8 9 IT IS SO ORDERED. 10 12 For the Northern District of California United States District Court 11 13 Dated: April 27, 2016 ______________________________________ EDWARD M. CHEN United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18