Litman v. Cellco Partnership ( 2010 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 08-4103
_____________
KEITH LITMAN; ROBERT WACHTEL,
Individually and on behalf of all others
similarly situated,
Appellants,
v.
CELLCO PARTNERSHIP
d/b/a Verizon Wireless
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 07-cv-4886)
District Judge: Honorable Freda Wolfson
_______________
Argued November 5, 2009
Before: SCIRICA, JORDAN and COWEN, Circuit Judges.
(Filed: May 21, 2010)
_______________
William R. Weinstein [ARGUED]
Sanford, Wittels & Heisler, LLP
950 Third Avenue - 10 th Fl.
New York, NY 10022
Steven L. Wittels
Sanford, Wittels Heisler, LLP
440 West Street - 2 nd Fl.
Fort Lee, NJ 07024
Counsel for Appellants
Philip R. Sellinger
Todd L. Schleifstein
Greenberg Traurig, LLP
200 Park Avenue
Florham Park, NJ 07932
Andrew G. McBride [ARGUED]
Elbert Lin
Wiley Rein LLP
1776 K Street NW
Washington, DC 20006
Counsel for Appellee
Alan S. Kaplinsky
Jeremy T. Rosenblum
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street - 51 st Fl.
Philadelphia, PA 19103
Counsel for Amicus Appellees
_______________
OPINION OF THE COURT
_______________
JORDAN, Circuit Judge.
Appellants Keith Litman and Robert Wachtel appeal from an order of the United
States District Court for the District of New Jersey compelling arbitration and dismissing
their case. For the following reasons, we will vacate the District Court’s order and
remand for further proceedings consistent with this opinion.
2
I. Background
Litman and Wachtel brought this putative class action against Cellco Partnership
d/b/a Verizon Wireless (“Verizon”) based on Verizon’s alleged unlawful imposition of
administrative charges on class members’ cell phone accounts.1 The complaint asserts
breach of contract, unjust enrichment, and violations of the New Jersey Consumer Fraud
Act, N.J. Stat. Ann. § 56:8-1, et seq. Verizon moved to compel arbitration pursuant to an
arbitration clause in the relevant customer agreements, which mandates individual
arbitration of disputes. In other words, the arbitration clause prohibits class arbitrations.2
In response to the motion, Litman and Wachtel countered that the arbitration
clause in their customer agreements was unenforceable because, pursuant to Muhammad
v. County Bank of Rehoboth Beach, Delaware, arbitration provisions in contracts of
adhesion that prohibit use of a class action mechanism for low-value claims are
unconscionable under New Jersey law. 912 A.2d 88, 100 (N.J. 2006) (“We hold ... that
the presence of the class-arbitration waiver in [plaintiff’s] consumer arbitration agreement
renders that agreement unconscionable.”). Verizon agreed for purposes of the motion that
Muhammad applies to the parties’ dispute, but argued that Muhammad is preempted by
the Federal Arbitration Act (“FAA”).
1
Specifically, Litman and Wachtel argue that, in September of 2005, Verizon imposed
a bogus monthly administrative charge of forty cents on its customers and increased that
charge to seventy cents in March of 2007.
2
The arbitration clause also provides that the agreement to arbitrate is inapplicable in
the event that the class-arbitration provision is found to be unenforceable.
3
The District Court, relying on our decision in Gay v. Creditinform, 511 F.3d 369(3d Cir. 2007), agreed with Verizon and dismissed the case in favor of arbitration. The
Court found the instant matter to be indistinguishable from Gay, which it understood as
concluding that the FAA preempted Pennsylvania case law stating that class-arbitration
waivers in contracts of adhesion are unconscionable. Litman and Wachtel timely
appealed.
After the opening and answering briefs were submitted to us, another panel of our
Court issued its decision in Homa v. American Express Co., 558 F.3d 225 (3d Cir. 2009).
As more fully described herein, the Homa opinion distinguished Gay and held that the
FAA does not preempt Muhammad. Id. at 230. In the wake of Homa, Litman and
Wachtel moved for summary reversal of the District Court’s order compelling arbitration
and moved to forego oral argument. Verizon opposed both motions, urging us to
disregard Homa because it irreconcilably conflicts with Gay.3 Thereafter, we granted
Verizon’s motion to stay the appeal pending our en banc decision in Puleo v. Chase Bank,
— F.3d —, No. 08-3837, 2010 WL 1838762 (3d Cir. May 10, 2010) (en banc).
3
Amici, American Financial Services Association, Chamber of Commerce of the
United States of America, and Consumer Bankers Association, filed a brief in support of
Verizon likewise asserting that Homa disregarded Gay and therefore should itself be
disregarded.
4
II. Discussion 4
Preliminarily, we note, as we did in Homa, that Gay’s discussion of the application
of the FAA to Pennsylvania law appears to be dicta. Homa, 558 F.3d at 229. Homa was
admittedly ambivalent in its treatment of Gay’s discussion of Pennsylvania law, see id.,558 F.3d at 230 (“Whether dicta or not ....”), however, in our recently filed Puleo opinion,
we again referred to this aspect of Gay as dicta, Puleo, 2010 WL 1838762, at *3, n.2
(“[I]t is worth noting our agreement that Gay’s discussion of Pennsylvania law was
indeed dicta, since our holding in Gay was that Virginia law governed the parties’
arbitration agreement.”), which it plainly is, because Gay held that Virginia law, not
Pennsylvania law, governed the parties’ dispute. Gay, 511 F.3d at 390-92. Thus, the
discussion of Pennsylvania case law in Gay was “not essential to the decision” in that
case, even if it might have been “briefed, and argued by counsel, and ... passed on by the
court.” B LACK’S L AW D ICTIONARY (9th ed. 2009). As such, that portion of Gay is not
binding on subsequent panels of this Court. See Am. Civil Liberties Union of N.J. ex rel.
Lander v. Schundler, 168 F.3d 92, 98 n.6 (3d Cir. 1999) (“[W]e have repeatedly held that
dicta are not binding.”).
4
The District Court’s jurisdiction was based on diversity of citizenship pursuant to the
Class Action Fairness Act of 2005. See 28 U.S.C. § 1332(d). We have jurisdiction over
this appeal pursuant to 9 U.S.C. § 16(a)(3). Our review of the District Court’s decision to
compel arbitration is plenary. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 531
(3d Cir. 2005) (citing Bouriez v. Carnegie Mellon Univ., 359 F.3d 292, 294 (3d Cir.
2004)).
5
Thus, the panel addressing Homa was not bound by that portion of the Gay
decision. Moreover – and here we may wander into dicta ourselves – we cannot conclude
that Homa and Gay are irreconcilable. According to Verizon, Gay requires preemption of
Muhammad because Muhammad is indistinguishable from Thibodeau v. Comcast Corp.,
912 A.2d 874 (Pa. Super. Ct. 2006), one of the Pennsylvania cases Gay found to be
preempted. Gay, 511 F.3d at 395 (“We, however, reject Lytle and Thibodeau for we do
not agree with them as there is no escape from the fact that they deal with agreements to
arbitrate, rather than with contracts in general ... .”). As Verizon sees it, Homa’s
conclusion to the contrary is therefore in conflict with Gay. The dicta in Gay interpreted
Pennsylvania case law to “hold that an agreement to arbitrate may be unconscionable
simply because it is an agreement to arbitrate,” and the preemption determination that
followed was based on that construction. Gay, 511 F.3d at 395. By contrast, in Homa, we
read Muhammad to apply general principles of contract interpretation in its invalidation of
the class-arbitration waiver. Homa, 558 F.3d at 230. Muhammad did not say that
arbitration itself is unconscionable, but instead held that “[a]s a matter of generally
applicable state contract law, it was unconscionable for defendants to deprive [plaintiff] of
the mechanism of a class-wide action, whether in arbitration or in court litigation.”
Muhammad, 912 A.2d at 100-101. Since Muhammad did not evince hostility toward
arbitration clauses, which was the concern in Gay, it did not conflict with the FAA. See
Homa, 558 F.3d at 230; see also Puleo, 2010 WL 1838762, at *3, n.2 (“[T]he New Jersey
6
case law at issue in Homa did not evince hostility toward arbitration clauses, which was
the concern about Pennsylvania law expressed in Gay.”).
We also explained in Homa that Gay could not be read as a “blanket prohibition on
unconscionability challenges to class-arbitration provisions” since the FAA permits the
use of generally applicable contract defenses to attack arbitration agreements. Homa, 558
F.3d at 230; see 9 U.S.C. § 2 (contractual arbitration provisions “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.”). Verizon may be correct that Muhammad bears many
similarities to Thibodeau, but any tension between the dicta in Gay and the holding in
Homa is not beyond resolution, as we have discussed. See Int’l Bros. of Elec. Workers,
Local 803, AFL-CIO v. N.L.R.B., 826 F.2d 1283, 1293 n.17 (3d Cir. 1987) (“[A]s a panel
of this Court, it is our duty to harmonize our decisions where it is possible to do so.
Consideration of alleged inconsistencies between published opinions and the
determination whether to overrule an opinion of this Court is reserved for in banc
review.”).
More importantly, Homa is prior precedent that is directly on point and binding on
us. See Garcia v. Att’y Gen. of U.S., 553 F.3d 724, 727 (3d Cir. 2009) (“We are bound by
precedential opinions of our Court unless they have been reversed by an en banc
proceeding or have been adversely affected by an opinion of the Supreme Court.”); see
also Third Circuit Internal Operating Procedure 9.1 (“[T]he holding of a panel in a
7
precedential opinion is binding on subsequent panels.”). We are not in a position to
reexamine Homa, and, since it controls here, we will vacate the District Court’s order
compelling arbitration and remand for further proceedings.5
III. Conclusion
Homa concluded that the FAA does not preempt Muhammad and, therefore, Homa
governs the outcome of this case. Accordingly, the District Court’s order compelling
arbitration is vacated and the matter is remanded for further proceedings consistent with
this opinion.
5
We note that the Supreme Court’s recent ruling in Stolt-Nielson S.A. v. AnimalFeeds
International Corp., — S. Ct. —, 2010 WL 1655826 (Apr. 27, 2010), does not alter our
analysis and conclusion. The Stolt-Nielson Court addressed the specific question of
“whether imposing class arbitration on parties whose arbitration clauses are ‘silent” on
that issue is consistent with the [FAA].” Id. at *4. It did not consider the distinct issues
of state law preemption and unconscionability. In fact, the en banc Court in Puleo
expressly cited Stolt-Nielson without then questioning whether it precluded an
unconscionability determination. See Puleo, 2010 WL 1838762, at *6 n.5.
8