Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003) (full-text).
Factual Background Edit
Following a new FCC detariffing regulation, defendant AT&T was required to establish contracts with its customers and to allow customers to opt out of contracting if customers so chose. AT&T began implementing its detariffing obligation in the summer of 2000. The contracts AT&T created with its customers included a series of provisions intended to limit customers' rights and remedies in the event of a dispute with AT&T. The provisions limited AT&T's liability for claims other than negligence to the amount of charges for service during the affected period and required binding arbitration on all claims.
Before presenting the CSA to its customers, AT&T conducted extensive market research designed to predict how consumers would react to the CSA, which AT&T planned to mail with a cover letter and a set of frequently asked questions. AT&T's cover letter stated in bold text “[P]lease be assured that your AT&T service or billing will not change under the AT&T Consumer Services Agreement (‘CSA’); there's nothing you need to do.” AT&T's market study concluded that most customers “would stop reading and discard the letter” after reading this disclaimer. AT&T did not change the substance of the letter as a result of its market research. Indeed, internal AT&T documents indicate that the letter was specifically intended to make customers less alert to the details of the CSA. According to AT&T's research, only 25 percent of its customers were likely to open the separate mailing, approximately 10 percent would not even look at it, and only 30 percent would actually read the entire contract.
Sometime in July 2001, plaintiff Ting received, opened, and read the mailing from AT&T. Like most of AT&T's customers, she was not aware of AT&T's obligation under mandatory detariffing to forge contracts with its residential customers and was not expecting a contract from AT&T. The CSA and letter advised customers that by continuing to use or to pay for AT&T's service, the customer was accepting the terms of the CSA through the so-called “negative option.” The second paragraph of the CSA itself provided that, in the event a customer did not wish to be bound by the CSA, the customer could call a toll-free number and cancel his or her AT&T service.
The cover letter advised customers that the CSA described AT&T's “new binding arbitration process, which used an objective third party rather than a jury for resolving any disputes that may arise.” The letter never mentioned the word “contract,” but instead spoke of “providing information” to customers. Finally, the CSA did not include a provision informing customers that federal law would govern its relationship with AT&T, but instead included an express New York state law choice-of-law provision.
Trial Court Proceedings Edit
Plaintiffs Ting and Consumer Action brought a state-court class action against AT&T for declaratory and injunctive relief, alleging that the Legal Remedies Provisions violate California's consumer protection and contract laws. AT&T claimed that the federal 1934 Communications Act contained a principle against “discriminatory rates” which preempted the state law claim brought against it, relying on the court’s decision in Boomer v. AT&T Corp. The district court concluded that the 1934 Communications Act preempted state law in the detariffed environment because Congress removed the filing requirement with the intention of ending the preemptive regime of the filed rate doctrine.