Boomer, Frank H. v. AT&T Corporation

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-2667
FRANK H. BOOMER,
ON BEHALF OF HIMSELF AND
ALL OTHERS SIMILARLY SITUATED,
Plaintiff-Appellee,
v.
AT&T CORPORATION,
A NEW YORK CORPORATION,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 0847—John W. Darrah, Judge.
____________
ARGUED SEPTEMBER 5, 2002—DECIDED OCTOBER 3, 2002*
____________
Before COFFEY, MANION, and DIANE P. WOOD, Circuit
Judges.
MANION, Circuit Judge. Frank Boomer filed a putative
class action lawsuit against AT&T, alleging that AT&T
overcharged its customers for contributions to the federal
*
This opinion was originally released in typescript.
2 No. 02-2667
Universal Services Fund. AT&T moved to compel arbitra-
tion and to dismiss or stay the pending action, arguing that
after the Federal Communications Commission (“FCC”) dis-
continued the filing of tariffs by telecommunication provid-
ers, AT&T had entered into a Consumer Service Agreement
(“CSA”) with Boomer which prohibited class actions and
mandated arbitration. Boomer argued that the arbitration
clause was unconscionable under Illinois law and he sought
a declaratory judgment accordingly. The district court
denied Boomer summary judgment on his declaratory
judgment claim and denied AT&T’s motion to compel
arbitration and its motion to dismiss or stay the case. AT&T
appeals, arguing that Boomer’s state law challenge to the
terms and conditions of the CSA is preempted by the
Federal Communications Act of 1934, and Boomer is
therefore bound by the CSA’s arbitration clause. We agree
and accordingly REVERSE.
I.
Prior to 2001, the Federal Communications Act of 1934
(“Communications Act”), as amended by the Telecommuni-
cations Act of 1996, required long-distance carriers like
AT&T to set forth their charges and other terms and condi-
tions of service in tariffs filed with the FCC. 47 U.S.C. § 203.
Under the “filed tariff doctrine,” customers were bound
by the terms of the tariff even if they had never seen the
tariff, and even if the consumers had been promised ser-
vice under different rates, terms or conditions. See AT&T
v. Central Office Telephone, Inc., 524 U.S. 214, 222 (1998).
Additionally, customers were bound by the rates, terms,
and conditions contained in the tariff unless the FCC
determined that a tariff provision violated the substan-
tive requirements of the Communications Act and the tar-
iff was thereafter modified. Id.
No. 02-2667 3
Over time, however, the FCC began entering orders
exempting “nondominant carriers” (defined as those lacking
market power) from the tariff-filing requirements of Section
203 of the Communications Act. But the Supreme Court
invalidated these orders, holding that the FCC lacked the
authority under the Communications Act to exempt certain
carriers from the tariff-filing requirement of Section 203. See
MCI Telecommunications Corp. v. AT&T Corp., 512 U.S. 218,
234 (1994). However, when Congress passed the Telecom-
munications Act of 1996, it expressly gave the FCC the
authority to forbear from applying the tariff-filing require-
ment if, among other things, the FCC determined that the
“enforcement of such regulation or provision is not neces-
sary to ensure that the charges, practices, classifications, or
regulations . . . are just and reasonable and are not unjustly
or unreasonably discriminatory.” 47 U.S.C. § 160(a)(1).
Armed with this new authority, the FCC issued a series of
orders providing that AT&T and other long-distance
carriers were no longer required to file tariffs. See Inter-
state Interexchange Marketplace, 11 FCC Rcd. 20,730 (1996);
Interstate Interexchange Marketplace, 12 FCC Rcd. 15,014
(1997); Interstate Interexchange Marketplace, 14 FCC Rcd. 6004
(1999) (“Detariffing Orders”). Instead, the carriers were now
required to provide customers with notice of the rates,
terms, and conditions of service, and to offer customers
service under such terms and conditions. The customers in
turn could accept or reject the carrier’s offer. The FCC
anticipated that carriers would enter into such contracts
through the use of “short, standard contracts.” 11 FCC Rcd.
at 20,736 (¶ 57).
After the FCC issued its detariffing orders, in June 2001
AT&T began mailing proposed Consumer Service Agree-
ments (“CSAs”) to residential customers for their consid-
4 No. 02-2667
eration. AT&T mailed each customer three documents: the
CSA, a letter explaining why the CSA was being sent, and
a list of anticipated frequently asked questions with explan-
atory responses (“CSA Mailing”). The CSA Mailing was sent
to Boomer in June 2001 in an envelope, separate from his
monthly bill. On the outside of the envelope was typed:
“ATTENTION: Important information concerning your
AT&T service enclosed.”
The letter included with the CSA Mailing explained
that AT&T was enclosing a “copy of the new AT&T Con-
sumer Services Agreement containing the terms and con-
ditions for our state-to-state and international consumer
long distance services,” and that “[t]his Agreement will
begin to apply to these AT&T services on August 1, 2001.”
The letter also explained that because of recent changes
adopted by the FCC, the details of the service agreement
were being provided directly to the customer. Addition-
ally, the letter informed customers that “[t]he Agreement
also describes our new binding arbitration process, which
uses an objective third party rather than a jury for resolv-
ing any disputes that may arise.” The letter further in-
formed customers that they would “accept the terms of
the Agreement simply by continuing to use or pay for any
AT&T state-to-state or international consumer calling
service.”
The CSA included with the letter expanded on these
points. On the first page of the CSA, AT&T explained in
bold and capitalized text that:
BY ENROLLING IN, USING, OR PAYING FOR
THE SERVICES, YOU AGREE TO THE PRICES,
CHARGES, TERMS AND CONDITIONS IN THIS
AGREEMENT. IF YOU DO NOT AGREE TO THESE
PRICES, CHARGES, TERMS AND CONDITIONS,
DO NOT USE THE SERVICES, AND CANCEL THE
No. 02-2667 5
SERVICES IMMEDIATELY BY CALLING AT&T
AT 1-888-288-4099* FOR FURTHER DIRECTIONS.
Also significant for purposes of this appeal is Section 7,
entitled “dispute resolution.” That section began in bold
and capitalized text, stating:
IT IS IMPORTANT THAT YOU READ THIS ENTIRE
SECTION CAREFULLY. THIS SECTION PROVIDES
FOR RESOLUTION OF DISPUTES THROUGH
FINAL AND BINDING ARBITRATION BEFORE A
NEUTRAL ARBITRATOR INSTEAD OF IN A
COURT BY A JUDGE OR JURY OR THROUGH A
CLASS ACTION. YOU CONTINUE TO HAVE CER-
TAIN RIGHTS TO OBTAIN RELIEF FROM A FED-
ERAL OR STATE REGULATORY AGENCY.
The CSA then detailed the arbitration requirement, provid-
ing:
a. Binding Arbitration. The arbitration process
established by this section is governed by the Federal
Arbitration Act (“FAA”), 9 U.S.C. § 1-16. You have the
right to take any dispute that qualifies to small claims
court rather than arbitration. All other disputes aris-
ing out of or related to this Agreement (whether based
in contract, tort, statute, fraud, misrepresentation or any
other legal or equitable theory) must be resolved by
final and binding arbitration. This includes any dispute
based on any product, service or advertising having a
connection with this Agreement and any dispute not
finally resolved by a small claims court. The arbitration
will be conducted by one arbitrator using the proce-
dures described by this Section 7.
Section 7 then detailed the arbitration filing procedures
and explained that any disputes involving $10,000 or less
would be conducted in accordance with the rules of the
6 No. 02-2667
Consumer Arbitration Rules of the American Arbitra-
tion Association (“AAA”), and claims in excess of that
amount would be resolved under the AAA’s Commercial
Arbitration Rules. The CSA further provided that consum-
ers filing an arbitration claim for less than $1,000 would
only be required to pay a $20 filing fee, and that AT&T
would cover the remaining costs of arbitration. AT&T later
amended the CSA to further reduce the potential arbitration
expense, providing that AT&T would pay all but a $20 filing
fee for customers with disputes up to $10,000 and all but
$375 for claims between $10,000 and $75,000.
Additionally, Section 7 of the CSA provided—once again
in bold and capitalized text—that:
NO DISPUTE MAY BE JOINED WITH ANOTHER
LAWSUIT, OR IN AN ARBITRATION WITH A
DISPUTE OF ANY OTHER PERSON, OR RESOLVED
ON A CLASS-WIDE BASIS, THE ARBITRATOR
MAY NOT AWARD DAMAGES THAT ARE
BARRED BY THIS AGREEMENT AND MAY NOT
AWARD PUNITIVE DAMAGES OR ATTORNEYS’
FEES UNLESS SUCH DAMAGES OR FEES ARE
EXPRESSLY AUTHORIZED BY A STATUTE, YOU
AND AT&T BOTH WAIVE ANY CLAIMS FOR AN
AWARD OF DAMAGES THAT ARE EXCLUDED
UNDER THIS AGREEMENT.
Boomer did not contact AT&T to cancel his services, but
instead continued to use AT&T’s long-distance services.
Notwithstanding the CSA’s prohibition of class actions
and its arbitration clause, Boomer filed a putative class
action against AT&T, alleging that AT&T was overbilling
No. 02-2667 7
1
him for the federal Universal Service Fee charge. In his
amended putative class action complaint, Boomer presented
six counts: Count I requested an accounting of the Universal
Service Fee Charge; Count II alleged a violation of the
Illinois Consumer Fraud Act and the Deceptive Business
Practices Act; Count III alleged unjust enrichment; Count IV
sought a declaratory judgment that the arbitration clause
contained in Section 7 of the CSA was unconscionable and
otherwise invalid; Count V alleged that the arbitration
clause violated the Illinois Consumer Fraud Act and the
Deceptive Business Practices Act; and Count VI alleged that
the CSA violated the Communications Act.
AT&T responded to Boomer’s suit by filing a motion to
compel arbitration and to dismiss or stay the proceed-
ings pursuant to the Federal Arbitration Act. In support of
its motion, AT&T submitted the declaration of Ellen Reid,
the AT&T employee who had overseen the mailing of the
CSAs to AT&T customers. Reid’s declaration authenticated
the CSA Mailing material and established that AT&T had in
fact mailed Boomer the CSA Mailing in June 2001 and that
the mailing was sent by third-class mail with forwarding
service. AT&T did not receive notice from the postal service
indicating that Boomer had not received the mailing. Her
declaration also stated that Boomer continued to be enrolled
in AT&T’s long-distance service.
1
In passing the Telecommunications Act of 1996, Congress
authorized the FCC to assess a “Universal Service Fee” on long-
distance carriers based on a percentage of the carrier’s past
revenues, 47 U.S.C. § 254, although carriers may charge con-
sumers to recover the cost of these contributions. See 12 FCC
Rcd. 8776 (¶773). The Universal Service Fees are then used to
subsidize telecommunication services for customers in high
cost areas, schools and libraries. 47 U.S.C. § 254.
8 No. 02-2667
Boomer for his part filed a motion for partial summary
judgment on Counts IV and V, arguing that the arbitra-
tion clause was, as a matter of law, unconscionable and
violated the Illinois Consumer Fraud Act and the Deceptive
Business Practices Act. The district court denied Boomer’s
motion for partial summary judgment and denied AT&T’s
motion to compel arbitration and to dismiss or stay the
proceedings, on the grounds that “[g]enuine issues of
material fact exist as to the validity of the arbitration
2
clause.” AT&T appeals.
II.
On appeal, AT&T argues that the district court erred in
denying its motion to compel arbitration and to dismiss
or stay Boomer’s suit pending arbitration. Boomer re-
sponded to AT&T’s appeal by filing a motion to dismiss the
appeal for lack of jurisdiction. A motions panel of this court
ordered that Boomer’s motion to dismiss be considered by
the merits panel. Accordingly, before considering the merits
of AT&T’s appeal, we first consider Boomer’s motion to
dismiss this appeal for lack of jurisdiction.
2
At oral argument, AT&T agreed that this appeal involves only
Boomer’s individual claim against AT&T, and not the putative
class that Boomer sought to represent. See Harold Washington
Party v. Cook County, Illinois Democratic Party, 984 F.2d 875, 878
(7th Cir. 1993) (if a putative class is not certified by the dis-
trict court, the plaintiff’s appeal concerns only the plaintiff’s
individual claim).
No. 02-2667 9
A. Motion to Dismiss for Lack of Jurisdiction
In his motion to dismiss for lack of jurisdiction, Boomer
argues that this court lacks jurisdiction to consider AT&T’s
appeal because the district court had not conclusively
ruled on the validity of the arbitration clause, but had
merely concluded that it could not resolve the issue at the
summary judgment stage. Therefore, according to Boomer,
the district court’s order is not final and appealable.
Although a decision must generally be final to be
appealable, there are several exceptions to this rule. Sec-
tion 16 of the Federal Arbitration Act provides one such
basis for immediate appeal, providing: “(a) An appeal may
be taken from—(1) an order—(A) refusing a stay of any
action under section 3 of this title, (B) denying a petition
under section 4 of this title to order arbitration to proceed.”
9 U.S.C. § 16(a)(1)(A) and (B).
In this case, the district court entered an order expressly
stating: “AT&T’s Motion to Compel Arbitration and to
Dismiss or Stay Proceedings is denied.” The court reiterated
this point in its closing sentence, noting: “For the reasons
stated above, Plaintiff’s Motion for Partial Summary
Judgment is denied. Defendant’s Motion to Compel Arbitra-
tion and to Dismiss or Stay Proceedings is denied.” None-
theless, Boomer contends that this court lacks jurisdiction
over this appeal because the district court also entered a
minute order which directed the parties “to confer and
advise the Court within 10 days as to whether a separate
trial should be ordered on [the arbitration counts] before the
remaining counts of Plaintiff’s Amended Complaint . . . .”
This, according to Boomer, demonstrates that the district
court intended to revisit the question of arbitrability and
thus had not rendered a final decision on this issue.
10 No. 02-2667
We acknowledge that the district court intended to
reconsider the question of arbitrability following further
fact finding and possibly a trial. However, that does not
defeat this court’s jurisdiction. The plain language of Sec-
tion 16(a)(1) provides for an appeal from “an order refus-
ing a stay” or “denying a petition to order arbitration
to proceed,” and the district court in this case expressly
did both. Applying Section 16(a)(1) in Koveleskie v. SBC
Capital Markets, Inc., 167 F.3d 361, 363 (7th Cir. 1999), we
held that a district court’s denial of a motion to compel
arbitration was immediately appealable even though the
district court had held that further discovery was needed
before it could conclusively rule on a motion to compel
arbitration. In fact, jurisdiction is even clearer in this
case than in Koveleskie, because here the district court
expressly denied AT&T’s Motion to Compel Arbitration,
whereas in Koveleskie, the district court’s order merely stated
that discovery was needed “before a decision can be reached
on the arbitration issue.” Id. at 363. Nonetheless, in
Koveleskie, we held that because “there is no doubt from the
record that the district court denied the defendant’s motion
and clearly meant to foreclose arbitration,” id., an immedi-
ate appeal could proceed under Section 16(a) of the Arbitra-
tion Act.
Both the Third and Fourth Circuits have likewise con-
cluded that a denial of a motion to compel arbitration
is immediately appealable under Section 16(a)(1) of the
FAA, even if further discovery is required or the district
court intends to revisit the issue. See Snowden v. Check-
point Check Cashing, 290 F.3d 631, 635-36 (4th Cir. 2002);
Sandvik AB v. Advent Inter. Corp., 220 F.3d 99, 102-04 (3d
Cir. 2000). The Third Circuit’s decision in Sandvik pro-
vides a thorough analysis of the issue and one that bears
repeating. The reason a denial of a motion to compel arbi-
No. 02-2667 11
tration is immediately appealable is because “[t]he lan-
guage of § 16 provides for appeals of orders denying arbi-
tration, and it makes no distinction between orders deny-
ing arbitration and ‘final orders’ that accomplish the
same end.” Id. at 102. The language of § 16(a)(1)(C) fur-
ther illustrates that point. As Sandvik explained, § 16(a)(3)
of “the FAA contains a catch-all provision regarding
any ‘final decision with respect to an arbitration that is
subject to this title,’ id. § 16(a)(3).” Id. at 103. Thus, to
interpret § 16(a)(1) as Sandvik (and here Boomer) would
have, namely as applying only to “final decisions,” means
“the provision providing for appeals from denials of or-
ders to arbitrate [would become] surplusage in light of
the more expansive language in § 16(a)(3).” Id. Thus, “[t]he
more natural reading would therefore be to treat all orders
declining to compel arbitration as reviewable.” Id. More-
over, the language of § 16(a)(1)(C) “reflects that Congress
decided to use the word ‘final’ in one part of the statute, but
declined to do so in the section that declares that or-
ders denying motions to compel arbitration are indeed ap-
pealable.” Id. This reasoning defeats Boomer’s argument
that the district court’s order denying a motion to com-
pel arbitration must be final to be appealable. Addition-
ally, the fact that “the statute provides a list of interlocu-
tory arbitration-related orders that are not appealable,
see id. § 16(b),” demonstrates that Congress intended what
it said in subsection 16(a)—that a denial of the motion
to compel arbitration is immediately appealable. Id. Fi-
nally, as Sandvik noted, “jurisdiction comports with the
purposes of the FAA. Refusing [a defendant’s] appeal
could circumvent the FAA’s clear purpose of enforcing
binding arbitration agreements,” by forcing the defen-
dant to undergo a full-blown trial before a determina-
tion as to “whether it was legally obligated to participate
in such a trial in the first instance.” Id. at 104. For all of
12 No. 02-2667
these reasons, we conclude that § 16(a) of the Arbitration
Act allows for an immediate appeal of the denial of a
3
motion to compel arbitration.
Alternatively, Boomer claims that this court lacks juris-
diction because after the district court entered its order
denying AT&T’s motion to compel arbitration, the Judicial
Panel for Multi-District Litigation entered an order trans-
ferring Boomer’s case to the District Court of Kansas.
Initially, we note that it is questionable as to whether the
Judicial Panel’s order transferring the case to the District
Court of Kansas was effective, because that transfer order
was not filed with the District Court of Kansas until the
day after AT&T filed its notice of appeal. Under 28 U.S.C.
§ 1407(c), a Multi-District transfer order becomes effec-
tive only after it is “filed in the office of the clerk of the
district court of the transferee district.” 28 U.S.C. § 1407(c).
Because AT&T filed its notice of appeal prior to the fil-
ing of the transfer order, it would seem that the transfer
order is ineffective. See, e.g., Kusay v. United States, 62 F.3d
192, 193 (7th Cir. 1995) (“[T]he filing of a notice of ap-
3
Boomer also relies on this court’s decision in McCaskill v. SCI
Management Corp., 298 F.3d 677 (7th Cir. 2002), wherein we
stated that “[a]n appeal may be taken from a ‘final decision with
respect to an arbitration,’ but not from an interlocutory order
staying the action or ‘compelling arbitration.’ 9 U.S.C. §§ 16(a)(3),
(b)(1), (b)(3).” Id. at 678. However, this language does not help
Boomer because this case does not involve an order “staying
the action or compelling arbitration,” but rather an order deny-
ing a motion to compel arbitration and denying the motion
to stay the action. While the FAA prohibits interlocutory appeals
of motions compelling arbitration and granting stays, 9 U.S.C.
§§ 16(b)(1), (b)(3), Section 16(a)(1) allows immediate appeals
from the denial of such motions. 9 U.S.C. § 16(a)(1).
No. 02-2667 13
peal . . . divests the district court of its control over those
aspects of the case involved in the appeal.”).
However, we need not determine the validity of the
transfer order because even if a transfer order entered after
a notice of appeal is filed were valid, this court nonethe-
less has jurisdiction under 28 U.S.C. § 1294(1) to hear
AT&T’s appeal from the district court’s order denying
AT&T’s motion to compel arbitration. That section provides
that “appeals from reviewable decisions of the district . . .
courts shall be taken [f]rom a district court of the United
States to the court of appeals for the circuit embracing the
district.” 28 U.S.C. § 1294(1). In this case, the “reviewable
decision” at issue was entered by the Northern District of
Illinois. Therefore, jurisdiction is appropriate in this court.
See, e.g., TechnoSteel, LLC v. Beers Const. Co., 271 F.3d 151, 154
(4th Cir. 2001) (holding that the Fourth Circuit had jurisdic-
tion to hear an appeal from a South Carolina district court’s
order denying a motion to compel arbitration, even though
the district court also transferred the case to a Georgia
district court).
B. Motion to Compel Arbitration
Having concluded that we have jurisdiction over this
appeal, we turn to the merits. As noted, AT&T argues on
appeal that the district court erred in denying its motion
to compel arbitration because Section 7 of the CSA re-
quired arbitration. Boomer initially contends that because
the CSA does not constitute a valid contract under Illi-
nois law, he never agreed to the arbitration clause. Alter-
natively, Boomer argues that the arbitration clause con-
tained in the CSA is invalid because it is unconscionable
under Illinois law and violates the Illinois Consumer Fraud
Act. AT&T responds by arguing that because Boomer
14 No. 02-2667
continued using his AT&T service, he accepted the terms
of the CSA, including the arbitration provision. AT&T
further contends that the Communications Act preempts
Boomer’s state law challenges to the validity of the arbitra-
tion clause. We first consider whether the CSA consti-
tutes a contract, and then address the issue of preemption.
1. Was the CSA a Contract?
Boomer maintains that the CSA did not constitute a valid
4
contract under Illinois law. Initially we note that while
Boomer alleged in his complaint that he did not recall
receiving the CSA mailing, on appeal he does not claim that
he did not receive the CSA Mailing. Nor does he claim that
he attempted to cancel his service with AT&T. Rather,
Boomer argues that the CSA Mailing did not constitute
an offer, that his silence did not constitute an accept-
ance, that there was no consideration supporting the arbi-
tration clause, and that AT&T committed fraud.
Boomer first claims that the CSA did not constitute
an offer because AT&T customers “would not recognize
AT&T’s mailing with the CSA as an offer to a contract.”
However, the letter accompanying the CSA clearly and
explicitly stated that “[e]nclosed is your copy of the new
AT&T Consumer Services Agreement containing the
terms and conditions for our state-to-state and interna-
tional consumer long distance services. This Agreement
4
Although AT&T argues that the Communications Act preempts
state law as to the validity of contractual terms and conditions,
AT&T and Boomer both maintain that Illinois state law governs
questions of contract formation. Therefore for purposes of appeal
we will assume that Illinois state law determines whether a
contract was formed.
No. 02-2667 15
will begin to apply to these AT&T services on August 1,
2001.” The cover letter further explained that the consumer
was “accept[ing] the terms of the Agreement simply by
continuing to use or pay for any AT&T state-to-state or
international consumer calling service.” Additionally, the
CSA explained in bold, capitalized text at the beginning
of the CSA that “BY ENROLLING IN, USING, OR PAY-
ING FOR THE SERVICES, YOU AGREE TO THE
PRICES, CHARGES, TERMS AND CONDITIONS IN
THIS AGREEMENT.” This plain, unambiguous language
makes clear that the CSA constituted an offer. See Architec-
tural Metal Sys., Inc. v. Consolidated Sys., Inc., 58 F.3d 1227,
1229 (7th Cir. 1995), citing McCarty v. Verson Allsteel Press
Co., 411 N.E.2d 936, 943 (Ill. App. 1980) (“The test for an
offer is whether it induces a reasonable belief in the re-
cipient that he can, by accepting, bind the sender.”). See
also, Restatement (Second) of Contracts § 24 (1981) (“An
offer is the manifestation of willingness to enter into a
bargain, so made as to justify another person in understand-
ing that his assent to that bargain is invited and
will conclude it.”).
Next, Boomer contends that his continued use of
AT&T’s long-distance service did not constitute an ac-
ceptance of AT&T’s offer. In support of this argument,
Boomer cites Section 69 of the Restatement (Second) of
Contracts, which provides:
(1) Where an offeree fails to reply to an offer, his silence
and inaction operate as an acceptance in the following
cases only:
(a) Where an offeree takes the benefit of offered
services with reasonable opportunity to reject
them and reason to know that they were offered
with the expectation of compensation.
16 No. 02-2667
Boomer argues that he did not have a reasonable op-
portunity to reject the offer, and therefore his continued use
of AT&T services did not constitute an acceptance.
This argument also fails because the CSA Mailing clearly
provided a mechanism for rejecting AT&T’s offer: The cover
letter stated in bold capitalized letters that “IF YOU DO
NOT AGREE TO THESE PRICES, CHARGES, TERMS
AND CONDITIONS, DO NOT USE THE SERVICES,
AND CANCEL THE SERVICES IMMEDIATELY BY
CALLING AT&T AT 1-888-288-4099.” Thus, Boomer had a
reasonable opportunity to reject AT&T’s offer, but nonethe-
less continued to use his AT&T services—services that were
offered with the clear and explicit expectation of compensa-
tion. Under these circumstances, Boomer’s silence consti-
tuted an acceptance. See, e.g., Hill v. Gateway 2000, Inc., 105
F.3d 1147, 1148-49 (7th Cir. 1997) (concluding that under
Illinois law the plaintiffs’ silence constituted an accept of the
terms and conditions— including an arbitration clause—set
forth on a form contract included in the box which con-
tained the computer that the plaintiffs had ordered from the
5
defendant and which they accepted).
5
The district court distinguished Gateway by noting that in
Gateway the Hills had admitted to receiving the form contract,
but failed to read it, whereas in this case Boomer does not admit
that he received the CSA Mailing. However, as noted above,
Boomer does not contend that he did not receive the mailing—
just that he does not remember receiving it. Where a letter is
properly addressed and mailed, there is “a presumption that
it reached its destination in usual time and was actually re-
ceived by the person to whom it was addressed.” See Hagner
v. United States, 285 U.S. 427, 430 (1932). In this case, AT&T
presented proof through the Declaration of Ellen Reid, the AT&T
employee who oversaw the mailing of the CSA to AT&T cus-
(continued...)
No. 02-2667 17
Boomer further challenges the existence of a contract
by arguing that there was no consideration for the CSA.
In support of this argument, Boomer first points to the
following language: “[B]e assured that your AT&T service
or billing will not change under the AT&T Consumer
Services Agreement.” Boomer claims that this language
shows that he received nothing in exchange for his agree-
ment to arbitration. This argument is misplaced—in ex-
change for his agreement to arbitrate, AT&T agreed to
provide continued telephone services. It is true that when
there is an existing contractual obligation, a promise to
continue performing that legal obligation lacks consider-
ation. But AT&T had no legal obligation to continue provid-
ing Boomer with telephone services. Therefore, Boomer
received something of legal value—continued service—in
exchange for his promise to arbitrate.
That AT&T could have canceled Boomer’s telephone
services is actually Boomer’s second basis for claiming a
lack of consideration: Boomer asserts that because AT&T
expressly told him that if he did not agree to the terms
of the CSA, it would cancel his service, there was no
“bargained-for exchange,” and thus no consideration.
5
(...continued)
tomers, verifying that proper mailing procedures were followed.
Boomer does not present any conflicting evidence in this re-
gard. Thus, we must presume that Boomer received the mailing.
Id. See also Godfrey v. United States, 997 F.2d 335, 338 (7th Cir.
1993) (a presumption exists that a mailing is received where
there is “proof of procedures followed in the regular course
of operations which give rise to a strong inference that the
[correspondence] was properly addressed and mailed”). In any
event, on appeal Boomer does not claim that the CSA did not
constitute an offer because he did not receive the CSA mailing.
18 No. 02-2667
This argument also fails, however, because, contrary to
Boomer’s position, the “bargained-for exchange” require-
ment does not prohibit the execution of form contracts
presented on a take-it-or-leave-it basis. See Metro East Center
for Conditioning and Health v. Qwest Communica-
tions International, Inc., 294 F.3d 924, 926 (7th Cir. 2002) (“Yet
we have held that form contracts, offered on a take-it-or-
leave-it basis, are agreements for purposes of the Arbitration
Act.”). See, e.g., Koveleskie v. SBC Capital Markets, Inc., 167
F.3d 361, 367 (7th Cir. 1999); Hill v. Gateway 2000, Inc., 105
F.3d 1147, 1148 (7th Cir. 1997). Rather, under general
contract principles a bargained-for exchange exists if one
party’s promise induces the other party’s promise or
performance. See Hartbarger v. SCA Services, Inc., 558 N.E.2d
596, 604 (Ill. App. 1990) (“A performance or return promise
is bargained for if it is sought by the promisor in exchange
for his promise and is given by the promisee in exchange for
that promise.”) (quoting Restatement (Second) of Contracts
§ 71 (1981)). See also, Restatement (Second) of Contracts § 71,
comment b at 173 (1981) (“ ‘Bargained for.’ In the typical
bargain, the consideration and the promise bear a reciprocal
relation of motive or inducement: the consideration induces
the making of the promise and the promise induces the fur-
nishing of the consideration.”). In this case, AT&T’s promise
to continue telephone services (something it was not
obligated to do) induced Boomer’s corresponding promise
(among other things) to arbitrate, and thus there was a
bargained-for exchange and consideration. See, e.g., Metro
East, 294 F.3d at 926 (explaining that although the agree-
ment’s provision for arbitration may be non-negotiable, it is
nonetheless an agreement “because the person could have
chosen to do something else”).
Next Boomer argues that AT&T committed fraud by
deemphasizing the CSA and presenting it as a non-event,
No. 02-2667 19
whereas in reality by so inducing customers to agree to
the CSA they waived valuable rights. Boomer, however,
fails to point to any language in the CSA Mailing or in
the accompanying CSA that was false or misleading.
Moreover, the cover letter clearly and explicitly highlighted
the differences between the CSA and the previous terms
contained in the tariff, noting that “[t]he Agreement
also describes our new binding arbitration process, . . . .”
Thus, the plain language of the CSA Mailing negates
Boomer’s claim of fraud.
In sum, the CSA Mailing constituted an offer and Boom-
er’s continued use of AT&T services constituted an ac-
ceptance. Consideration supported each party’s promises
and Boomer failed to present any evidence of fraud. Accord-
ingly, the CSA constituted a contract, and as such estab-
lished the terms and conditions governing AT&T’s relation-
ship with Boomer, one of which was an arbitration clause.
Based on this clause, AT&T moved to compel arbitration of
Boomer’s claims against it. Boomer, however, contends that
even if the CSA is a contract, the arbitration clause should
not be enforced because it is unconscionable and violates
the Illinois Consumer Fraud Act and the Deceptive Business
Practices Act. AT&T responds that the Communications Act
preempts Boomer’s state law challenges to the validity of
the arbitration clause. We now turn to the question of
preemption.
2. Preemption of the Arbitration Clause
The doctrine of preemption emanates from the Supremacy
Clause: “This Constitution, and the Laws of the United
States which shall be made in Pursuance thereof . . . shall be
the Supreme Law of the land.” U.S. Const., Art. VI,
cl. 2. Because federal law is the supreme law of the land,
20 No. 02-2667
it preempts state laws that “interfere with, or are contrary
to, federal law.” Hillsborough County v. Automated Med-
ical Laboratories, Inc., 471 U.S. 707, 712 (1985). A federal
law may preempt a state law expressly, impliedly through
the doctrine of conflict preemption, or through the doc-
trine of field (also known as complete) preemption. Gracia v.
Volva Europa Truck, N.V., 112 F.3d 291, 294 (7th Cir. 1997).
With express preemption, a federal statute explicitly
provides that it overrides state law. Id. Implied conflict
preemption occurs where “it is impossible for a private
party to comply with both state and federal requirements,
. . . or where state law stands as an obstacle to the accom-
plishment and execution of the full purposes and objectives
of Congress.” Freightliner Corp. v. Myrick, 514 U.S. 280, 287
(1995) (internal quotations omitted). Finally, field (complete)
preemption exists when “Congress . . . so completely
preempt[s] a particular area, that any civil complaint raising
that select group of claims is necessarily federal in charac-
ter.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64
(1987). On appeal, AT&T argues that Boomer’s state law
challenges to the validity of the arbitration clause are
preempted either impliedly through conflict preemption
or through the doctrine of field (complete) preemption,
and therefore, AT&T maintains, the arbitration clause
governs and the district court should have granted its
motion to compel arbitration and to stay the proceedings.
a) Implied Preemption
As summarized above, implied preemption exists if it
is either impossible to comply with both state and federal
law, or if state law conflicts with a federal objective. Gracia,
112 F.3d at 294. AT&T contends that a state law chal-
No. 02-2667 21
lenge to the validity of the arbitration clause violates Con-
gress’s objective in passing the Communications Act, and
specifically conflicts with the objectives of Sections 201(b)
and 202(a) of the Communications Act.
Section 201(b) of the Communications Act provides:
All charges, practices, classifications, and regulations
for and in connection with such communication service,
shall be just and reasonable, and any such charge,
practice, classification or regulation that is unjust or
unreasonable is declared to be unlawful.
47 U.S.C. § 201(b).
Section 202(a) states:
It shall be unlawful for any common carrier to make any
unjust or unreasonable discrimination in charges,
practices, classifications, regulations, facilities, or ser-
vices for or in connection with like communication
service, directly or indirectly, by any means or device,
or to make or give any undue or unreasonable prefer-
ence of advantage to any particular person, class of
persons, or locality or to subject any particular person,
class of persons, or locality to any undue or unreason-
able prejudice or disadvantage.
47 U.S.C. § 202(a) (emphasis added).
Based on these provisions, AT&T claims that a state law
challenge to the validity of the arbitration clause is pre-
empted. For three main reasons, we agree. First, these
provisions, and the Communications Act in general,
demonstrate a congressional intent that customers of
individual long-distance carriers receive uniform terms
and conditions of service; however, allowing a state law
challenge to the CSA’s arbitration clause would result
22 No. 02-2667
in customers receiving different terms based on their
locality. Second, the incorporation of the arbitration
clause in the CSA allows AT&T to offer lower rates, and
allowing state law to invalidate this clause will affect the
rates AT&T offers, resulting in discriminatory rate struc-
tures. Third, Section 201 declares unlawful rates, terms
and conditions which are not just and reasonable, demon-
strating Congress’s intent that federal law govern the
validity of the terms and conditions of long-distance service
contracts.
First, Sections 201 and 202, read together, demonstrate
a congressional intent that individual long-distance cus-
tomers throughout the United States receive uniform rates,
terms and conditions of service. See, e.g., American Tele-
phone & Telegraph Co. v. Central Office Telephone, Inc., 524
U.S. 214, 223 (1998) (“It is that antidiscriminatory policy
which lies at ‘the heart of the common-carrier section of
the Communications Act.’ ”) (citing MCI Telecommunica-
tions Corp. v. American Telephone & Telegraph Co., 512 U.S.
218 (1994)). Yet, a state law challenge to the validity of
the terms and conditions of a telephone service agree-
ment would result in the application of fifty bodies of
law, and this would inevitably lead to customers in dif-
ferent states receiving different terms and conditions.
Boomer’s own lawsuit demonstrates this point, as he
not only challenges the validity of the arbitration clause,
but also the validity of the attorney’s fees provision and
6
the clause prohibiting class action lawsuits. Absent preemp-
6
While Boomer challenges the validity of the CSA’s provision
concerning the right to attorney’s fees and the clause prohibit-
ing the use of a class action, because we conclude that arbitra-
tion is required, these other challenges must be decided by the
(continued...)
No. 02-2667 23
tion, there is nothing to prevent similar state law challenges
to the CSA’s other terms and conditions. This will result in
patchwork contracts, because under some states’ laws some
clauses will be upheld and other invalidated, while under
other states’ laws, it may well be the opposite. This conflicts
with Section 202’s prohibition on providing advantages or
preferences to customers based on their “locality.” 47 U.S.C.
§ 202.
Second, a state law challenge to an arbitration clause (or
for that matter a provision prohibiting class actions) not
only affects the uniformity of that term, but it also threatens
to destroy the consistency of rates offered consumers
throughout the United States. As we recognized in Metro
East, 294 F.3d 924, arbitration offers cost-saving benefits to
telecommunication providers and “these benefits are
6
(...continued)
arbitrator in the first instance. Metro East, 294 F.3d at 929. See
also Larry’s United Super, Inc. v. Werries, 253 F.3d 1083, 1086
(8th Cir. 2001) (holding that on appeal from an order denying
a motion to compel arbitration, a court may only determine
whether a dispute is subject to arbitration; other contractual
challenges must be determined by the arbitrator). Of course
in considering Boomer’s other challenges, the arbitrator will
be required to apply the appropriate law, which given our
holding today means that the Communications Act pre-
empts other state law challenges to the validity of the terms
and conditions contained in the CSA. Cf. Metro East, 294 F.3d
at 929 (“An arbitrator has no more power to alter a tariff’s rate
than does a judge; and because Central Office Telephone treats
conditions and other tariff terms as part of the rates, it may
follow that an arbitrator must take the whole tariff as he finds
it, in order to avoid any possibility of discriminatory applica-
tion (that bugbear of rate-regulation systems, and the main tar-
get of the filed-rate doctrine).”).
24 No. 02-2667
reflected in a lower cost of doing business that in competi-
tion are passed along to customers.” Id. at 927. However, if
in some states arbitration clauses are stricken as unconscio-
nable or illegal under various states’ consumer protection
laws, whereas in other states such provisions are validated,
the overall cost savings will be reduced. AT&T and other
providers would then be faced with three options—
increase the rates of those living in litigation (as opposed
to arbitration) states, increase everyone’s rates, or leave
rates the same. The first option results in differing rates
which violates the intent (if not the terms, see infra at 26
n.8), of the Communications Act. See Central Office, 524
U.S. at 223 (“[T]he policy of nondiscriminatory rates is
violated when similarly situated customers pay different
rates for the same services.”). The second and third op-
7
tions (the latter of which is economically unrealistic),
7
It is unreasonable to assume that rates would remain the same
even if the arbitration clause were invalidated because, as
Metro East recognized, arbitration offers cost-saving benefits to
telecommunication providers and “these benefits are reflected
in a lower cost of doing business that in competition are passed
along to customers.” Id. at 927. Realistically, then, without the
arbitration provision, AT&T and other carriers would be forced to
increase rates across the board in order to prevent discriminatory
pricing. Besides being unfair to customers who must now pay
higher rates while still subject to arbitration clauses (held valid in
their home states), this outcome conflicts with Congress’s intent
in passing the Telecommunications Act of 1996. Specifically, in
passing the Telecommunications Act of 1996, Congress sought “to
promote competition and reduce regulation in order to secure
lower prices and higher quality services for American telecom-
munications consumers . . . .” Preamble, Telecommunications Act
of 1996, Pub. L. No. 104-104, 110 State. 56 (1996). Moreover, if the
(continued...)
No. 02-2667 25
while on their face do not vary the rates consumers re-
ceive, nonetheless constitute “discrimination in charges.”
As the Supreme Court recognized in Central Office,
“rates . . . do not exist in isolation,” id. at 223, and “ ‘dis-
crimination in charges’ . . . can come in the form of
a lower price for an equivalent service or in the form of
an enhanced service for an equivalent price.” Id. at 223
(quoting Competitive Telecommunications Assn. v. FCC, 998
F.2d 1058, 1062 (D.C. Cir. 1993)). Thus, if AT&T charges
its customers the same rate, but provides different terms
and conditions for service, that too is a form of “discrimi-
nation in charges.” Accordingly, even if AT&T leaves its
rates the same (or increases everyone’s rates), consumers
will still face discriminatory charges, as some customers
will be bound by the arbitration clause and others will
not be. Those not bound will obtain that same rate with-
out subjecting themselves to the terms and conditions
which made that rate possible. See Metro East, 294 F.3d
7
(...continued)
detariffing provisions of the Telecommunications Act subject the
terms of nationwide long-distance form contracts to state law
attack, the transactional costs and litigation expenses would also
increase. Carriers would then face the continuous cost of court
challenges and the added expense of revising and distribut-
ing modified CSAs which conform with new state court rul-
ings. Consumers would bear the brunt of this through higher
prices for telephone service. This too is at odds with Congress’s
intent. It also belies the FCC’s belief that the transactional
costs of detariffing would be fixed and short-lived. See, 11 FCC
Rcd. at 20,736 (¶ 57) (recognizing that detariffing would result
in some “increased administrative costs,” but anticipating
those costs to be initial (and fixed) costs only resulting from
“the shift to a detariffed environment . . . (such as the cost
of developing short, standard contracts)”) (emphasis added).
26 No. 02-2667
at 927 (“Customers therefore are compensated through
lower rates for any net loss they may experience in arbi-
tration. They can’t accept the lower rates . . . while avoiding
the means that made lower rates possible.”).
Of course, Section 202(a) only prohibits “undue” or
“unreasonable” discrimination, and thus it is possible that
AT&T could justify its disparate charges because state law
caused the discrimination by invalidating the arbitration
clause in some states, but not others. See, e.g., Panatronic,
USA v. AT&T Corp., 287 F.3d 840, 844 (9th Cir. 2002)
(“A difference in price is not unreasonable if there is a
neutral, rational basis underlying [the disparity].”) (internal
quotes omitted). However, allowing state law to determine
the validity of the various terms and conditions agreed
upon by long-distance providers and their customers will
create a labyrinth of rates, terms and conditions and this
violates Congress’s intent in passing the Communications
8
Act.
Third, it is clear from Section 201(b) that Congress in-
tended federal law to govern the validity of the rates, terms
and conditions of long-distance service contracts.
As excerpted above, that section requires all charges and
practices related to communication service to be just and
reasonable, and it declares unlawful any unjust or un-
reasonable charges or practices. 47 U.S.C. § 201(b). This
language demonstrates Congress’s intent that federal
8
On the other hand, if the resulting discrimination was not
considered “reasonable,” then AT&T would be in violation of
Section 202(a). In that case, state law would not just conflict
with a federal objective, but it would directly conflict with fed-
eral law because it would be impossible for AT&T “to comply
with both state and federal requirements, . . . .” Freightliner Corp.
v. Myrick, 514 U.S. at 287.
No. 02-2667 27
law determine the reasonableness of the terms and con-
ditions of long-distance contracts. See also In re Long
Distance Telecomm. Lit., 831 F.2d 627, 631 (6th Cir. 1987)
(“Section 201(b) speaks in terms of reasonableness, and
the very charge of Count I is that the defendants engaged
in unreasonable practices. This is a determination that
‘Congress has placed squarely in the hands of the [FCC]’ ”)
(quoting Consolidated Rail Corp. v. National Ass’n of Recycl-
9
ing Indust. Inc., 449 U.S. 609, 612 (1981)). While Boomer
challenges the arbitration clause under the state law doc-
trine of unconscionability and various state consumer
protection statutes, in essence the question is the same—
9
Section 207 of the Communications Act authorizes “[a]ny
person claiming to be damaged by any common carrier subject to
the provisions of this chapter” to file a complaint with the FCC.
47 U.S.C. § 207. Additionally, Section 208 provides: “(a) Any
person, any body politic or municipal organization, or
State commission, complaining of anything done or omitted
to be done by any common carrier subject to this chapter, in
contravention of the provisions thereof, may apply to said
Commission by petition which shall briefly state the facts,
whereupon a statement of the complaint thus made shall
be forwarded by the Commission to such common carrier,
who shall be called upon to satisfy the complaint or to answer
the same in writing within a reasonable time to be specified
by the Commission.” 47 U.S.C. § 208. Boomer could have filed a
complaint with the FCC under Section 207 or Section 208, argu-
ing that the arbitration clause violates Section 201(b) because
it is unjust or unreasonable. Cf. In re Long Distance, 831 F.2d at
631 (concluding that FCC has primary jurisdiction to determine
if a term and condition of a long-distance service contract
constitute an unreasonable practice); Metro East, 294 F.3d at
927 (holding that FCC possesses exclusive authority to set aside
an arbitration clause contained in a filed tariff). However, Boomer
did not pursue this course of action.
28 No. 02-2667
whether the term is fair and reasonable. Permitting
such state law challenges would open the door for di-
rect conflicts between federal and state law on the validity
of terms and conditions contained in a long-distance service
contract. For example, the FCC specifically adopted a policy
encouraging the use of alternative dispute resolution in its
administrative procedures. 47 C.F.R. § 1.18. Also, in the
past, tariffs filed by other carriers have include arbitration
clauses and those clauses have been enforced. See Metro
East, 294 F.3d at 926-27. The FCC has also concluded that
class actions are “neither contemplated by, nor consistent
with” the Communications Act’s complaint remedies.
Krauss v. MCI, 14 FCC Rcd. 2770, 2775-76 (¶ 10). Yet, if
Boomer would have his way, arbitration provisions and
clauses prohibiting class actions would be illegal under state
law, even if they were considered “just and reasonable”
under federal law. The Supremacy Clause prohibits such an
outcome.
Boomer argues in response that following detariffing
federal law no longer preempts state law challenges to
the validity of contractual provisions. Specifically, Boomer
claims that because the FCC no longer requires long-
distance providers to file tariffs, 47 U.S.C. § 160, the
cases which had held that the Communications Act pre-
empts state law are now inapplicable. In support of his
position, Boomer cites Ting v. AT&T, 182 F. Supp. 2d 902
(N.D. Cal. 2002), a class action suit challenging, among other
things, the validity of AT&T’s arbitration clause under
California law. The court in Ting rejected AT&T’s preemp-
tion argument and its reliance on decisions rendered before
detariffing, concluding that “[i]n light of the clear purpose
of the filed rate doctrine, AT&T’s reliance on these cases is
misplaced.” Id. at 937.
No. 02-2667 29
Boomer is correct that the filed-rate doctrine and the tariff-
filing requirement demonstrated Congress’s intent
to preempt state law challenges to the terms and condi-
tions contained in the tariff. However, Section 203, which
required the filing of tariffs, merely served as a mecha-
nism by which the FCC could assure compliance with the
standards set forth in Sections 201 and 202. See MCI, 512
U.S. at 230 (“[T]his Court has repeatedly stressed that rate
filing was Congress’s chosen means of preventing unrea-
sonableness and discrimination in charges.”). Thus, the
filing requirement furthered the Communications Act’s
purpose of prohibiting and punishing unequal rates and
preventing discrimination. Id. Following detariffing, those
goals remain, as do the substantive requirements of Sec-
tions 201 and 202. It is just that now Congress believes
that these goals can be met without tariffs. In fact, in
authorizing the FCC to forego the tariff-filing require-
ment, Congress required the FCC to first assure itself
that the filing of a tariff was “not necessary to ensure that
the charges, practices, classifications, or regulations . . .
are just and reasonable and are not unjustly or unreason-
ably discriminatory.” 47 U.S.C. § 160(a)(1). Thus, even
though the FCC no longer mandates the filing of tariffs,
the congressional objective of providing uniform rates,
terms and conditions remains, as does the federal prohib-
ition on terms and conditions which are unjust or unrea-
sonable. Moreover, following detariffing, the FCC in-
tended customers to retain the right to challenge the
justness and reasonableness of long-distance providers’
charges and practices under Section 208. Interstate
Interexchange Marketplace, 11 FCC Rcd. at 20,730 (¶ 21).
Additionally, the FCC made clear that its decision elimi-
nating the tariff requirement did “not affect [the FCC’s]
enforcement of carriers’ obligations under sections 201
and 202.” Interstate Interexchange Marketplace, 12 FCC Rcd.
30 No. 02-2667
at 15,057 (¶ 77). Therefore, detariffing does not alter the
fundamental design of the Communications Act, nor modify
Congress’s objective of uniformity in terms and conditions
for all localities. Accordingly, we reject Boomer’s argument
10
and his reliance on Ting.
Boomer next contends that the FCC’s detariffing or-
ders support his position that federal law does not pre-
10
Boomer also argues that Ting collaterally estops AT&T from
challenging the validity of the arbitration clause because the court
in Ting held that the arbitration clause was unconscionable.
However, for collateral estoppel to bar subsequent litigation,
among other things, the issue sought to be precluded must be
the same as involved in the prior case. Chicago Truck Drivers,
Helpers & Warehouse Union (Independent) Pension Fund, 125
F.3d 526, 530 (7th Cir. 1997). In Ting, the question of unconscion-
ability involved California law, whereas in this case it involves
Illinois law, and therefore the issues are not the same. In
fact, because we conclude that Boomer’s state law challenge to
the arbitration clause is preempted by the Communications Act,
the issue of unconscionability is not even in play. Moreover,
while on appeal Boomer perfunctorily states in a footnote
that Ting collaterally estops AT&T from arguing that the Com-
munications Act preempts his state law challenges to the arbi-
tration clause, he fails to support this position with any legal
analysis or citation. Therefore he has waived that argument.
Rekhi v. Wildwood Indust., Inc., 61 F.3d 1313, 1317 (7th Cir. 1995).
Finally, even had Boomer not waived this argument, because
the issue of preemption involves a pure question of law and
because Ting is currently on appeal to the Ninth Circuit, we
would still conclude that Ting has no preclusive effect. See,
e.g., Chicago Truck Drivers, 125 F.3d at 532-33 (holding that
collateral estoppel did not bar the defendant from relitigating
a pure question of law, and noting that that is especially true
“when the issue is of general interest and has not been resolved
by the highest appellate court that can resolve it”) (internal
quotation omitted).
No. 02-2667 31
empt his state law challenges to the validity of the arbi-
tration clause. Specifically, Boomer cites to the FCC’s
response to AT&T, Sprint and WorldCom’s request that
the FCC “[c]larify that federal, and not state, law gov-
erns the determination as to whether a nondominant in-
terexchange carrier’s rates, terms, and conditions . . . are
lawful,” 12 FCC Rcd. at 15,057 (¶ 76), wherein the FCC
stated:
We therefore agree with AT&T, Sprint, and WorldCom
that the Communications Act continues to govern
determinations as to whether rates, terms, and condi-
tions for interstate, domestic, interexchange services are
just and reasonable, and are not unjustly or unreason-
ably discriminatory. While the parties only sought
clarification that the Communications Act governs
the determination as to the lawfulness of rates, terms,
and conditions, we note that the Communications Act
does not govern other issues, such as contract formation
and breach of contract, that arise in a detariffed environ-
ment. As stated in the Second Report and Order, consum-
ers may have remedies under state consumer protection
and contract laws as to issues regarding the legal
relationship between the carrier and customer in a
detariffed regime.
12 FCC Rcd. at 15,057 (¶77).
Boomer focuses on the FCC’s pronouncement that “the
Communications Act does not govern other issues, such
as contract formation and breach of contract,” as well as
its statement that “consumers may have remedies under
state consumer protection and contract laws.” Boomer
argues that this language demonstrates that federal law
does not preempt his state law challenge to the validity
of the arbitration clause. That argument, however, ig-
nores the earlier language wherein the FCC stated that
32 No. 02-2667
“the Communications Act continues to govern determina-
tions as to whether rates, terms, and conditions . . . are just
and reasonable, and are not unjustly or unreasonably
discriminatory,” and the FCC’s statement that “the Commu-
nications Act governs the determination as to the lawfulness
of rates, terms and conditions, . . . .” Thus, while state law
may determine whether a contract has been formed, federal
law still governs the validity of the rates, terms and condi-
11
tions of the contract.
Finally, Boomer cites to the historical notes to 47 U.S.C.
§ 152 which provide: “This Act and the amendments
made by this Act shall not be construed to modify, impair,
or supersede Federal, State, or local law unless expressly
so provided in such Act or amendments.” 47 U.S.C. § 152,
Historical Statutory Notes. Boomer contends that this
savings clause demonstrates that Congress did not in-
tend to preempt state law challenges to the terms and
conditions of the CSA. However, Section 152 was passed
as part of the Telecommunications Act of 1996 and by its
own terms applies only to “[t]his Act and the amend-
ments made by this Act.” “This Act” is the Telecommun-
ications Act of 1996, and not the Communications Act
11
In Ting, the district court concluded that under California
law the doctrine of unconscionability concerns the formation of
a contract. However, whether state law treats unconscionabil-
ity as a doctrine preventing the formation of a contract or as
a defense barring enforcement of a term of a contract, the ef-
fect is the same—a contractual provision is declared illegal
under state law. Either way, the outcome conflicts with the
federal objective of the Communications Act. Accordingly, even if
under state law a challenge to the validity of a term or condition
of a long-distance service contract is characterized as an issue of
contract “formation,” that state law challenge is nonetheless
preempted.
No. 02-2667 33
of 1934, of which Sections 201 and 202 are part. Therefore,
rather than support Boomer’s position, the historical
notes to Section 152 confirm that the Telecommunica-
tions Act did not “modify, impair or supersede” Sections
201 and 202, and their goals of uniformity and non-discrimi-
nation.
In sum, in passing the Communications Act Congress
sought to ensure that consumers would receive uniform
rates and that consumers would not be discriminated
against based on their locality. Allowing state law chal-
lenges to the validity of the terms and conditions con-
tained in long-distance contracts, however, results in
the very discrimination Congress sought to prevent. More-
over, the arbitration clause serves to lower customers’ rates,
and thus an indirect result will be price discrimination,
either directly or indirectly (i.e., because customers paying
the same price receive different contractual rights). Finally,
Section 201(b) clearly demonstrates Congress’s intent that
federal law determine the fairness and reasonableness of
contractual terms, as opposed to state law principles such as
unconscionability. For all of these reasons, we conclude that
Boomer’s state law challenges to the validity of the arbitra-
tion clause are impliedly preempted by the Communica-
tions Act.
b) Field Preemption
In addition to arguing that Boomer’s state law chal-
lenges to the arbitration clause are preempted because
they conflict with the federal objective of the Commun-
ications Act, AT&T also contends that in passing the
Communications Act, Congress completely preempted
any state law regulation of long-distance contracts. Prior
to detariffing, this court held that the Federal Commun-
ications Act completely preempted state law challenges
34 No. 02-2667
to the terms and conditions contained in a filed tariff.
Cahnmann v. Sprint Corp., 133 F.3d 484, 489-90 (7th Cir.
1998). However, following detariffing, there appears to
be some role for state law, see 12 FCC Rcd. at 15,057 (¶77),
although it cannot operate to invalidate the rates, terms
or conditions of a long-distance service contract. It would
therefore seem that under the new detariffed regime federal
law no longer completely preempts state law. But we need
not resolve this issue today as Boomer’s state law challenges
to the arbitration clause are nonetheless preempted under
the doctrine of implied conflict preemption. Accordingly,
Boomer is bound by the arbitration clause and his claims
must be submitted to arbitration.
III.
Following detariffing, AT&T mailed Boomer an offer (in
the form of the CSA) to provide long-distance services.
Boomer accepted this offer by continuing to use AT&T’s
services, and therefore the CSA constitutes a contract.
Among other things, the CSA included an arbitration clause.
While Boomer contends that that clause is unconscionable
under state law and violates the Illinois Consumer Fraud
Act and the Deceptive Business Practices Act, the Commu-
nications Act preempts state law challenges to the validity
of contractual provisions because the Communications Act
seeks to promote the uniformity of rates, terms and condi-
tions, and state law challenges to the legality of contractual
provisions would destroy that objective. Accordingly,
Boomer cannot challenge the validity of the arbitration
clause under state law, and instead must submit to arbitra-
tion. We therefore REVERSE and compel arbitration of
Boomer’s claims. The underlying proceedings are further
stayed pending the outcome of arbitration.
No. 02-2667 35
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-18-02