T-Mobile has admitted using fake ringtones for billions of failed calls. But deceived customers are unlikely to recover anything.
Yesterday, T-Mobile announced that it was planning to acquire Sprint for $26.5 billion. If allowed by antitrust regulators, the merger would create the second-largest mobile service provider in the country. But this post isn't about that massive deal. It's about the massive con T-Mobile ran on customers for a decade.
The Con
For the past decade, T-Mobile customers have been the victims of a deceptive course of action affecting hundreds of millions of calls each year.
When the calls failed to connect, T-Mobile would play a false ringtone to deceive the customers into thinking that the problem was something other than T-Mobile’s network.
And although T-Mobile has admitted to this conduct in its consent decree with the Federal Communications Commission and agreed to pay a $40 million fine, under the settlement affected customers receive no compensation.
When the decree was announced, FCC Commissioner Mignon Clyburn took the unusual step of issuing a separate statement dissenting from the settlement.
What has been overlooked, until now, is that T-Mobile's customers are also barred from joining together to seek compensation from T-Mobile.
The Getaway
T-Mobile's terms of service contain both an arbitration clause and a class action waiver. Together, they effectively function as an exculpatory clause for the company.
The reason is simple: in general, T-Mobile's deceptive conduct appears to have inflicted small harms on large groups of people. As such, the costs of pursuing the claims on an individual basis would be irrationally expensive.
Only when aggregated do the benefits begin to outweigh the costs. But, of course, T-Mobile's terms of service prevent customers joining together to seek relief.
A Note on the Law
As U.S. Supreme Court watchers know well, a challenge to the validity of the class arbitration waiver would be futile.
In 2011, and again in 2013, the Supreme Court upheld the validity of class arbitration waivers, even when the plaintiffs demonstrated that the waivers were effectively exculpatory clauses because pursuing the claims on an individual basis would be prohibitively expensive.
In American Express v. Italian Colors Restaurant (2013), for instance, Justice Scalia explained that in enacting the Federal Arbitration Act, Congress required courts to "rigorously enforce" arbitration clauses according to their terms, unless "overridden by a contrary congressional command." He added that "the FAA's command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims."
This year, the Court is weighing whether to extend the validity of class arbitration waivers to the employment context. And ironically enough, the issue comes to the Court in a trio of consolidated cases: Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA.
The question presented is "Whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act."
The Court's decision on this question is expected in the near future.
About the Author
Tom Cummins is the founder of Potomac Litigation. He litigates complex cases, including class actions, in state and federal courts.
His recent briefs to the U.S. Supreme Court are available here and here, and the Court's decisions on those cases are available here and here.
His scholarship about the U.S. Supreme Court has been featured on SCOTUSBlog. A sampling is available here.
A sampling of his scholarship on the macroeconomic inefficiencies of procedural clauses like class arbitration waivers is available here.