Commercial Law: Consumer Challenging Verizon’s Early Termination Fee

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ContractBy Justin Banford

Jason Klein of Baltimore is doing something all of us have wished to do at one point or another. He is suing his cable company.

After careful consideration Mr. Klein ordered Verizon High Speed Internet (“HSI”) online as part of the Double Freedom Bundled Services in October 2010. In doing so Klein agreed to the standardized Verizon Online Terms of Service (“TOS”). The TOS includes provision that, if Klein were to choose to terminate telephone, Internet or both services “between months 2 and 12,” an early termination fee (“ETF”) would be applied and discount on any remaining service would discontinued. Klein cancelled his service after two months of service. Verizon charged him a $135 EFT. In May 2011, Klein, after carefully considering options provided by Verizon’s competitors, subscribed to Verizon again, agreeing again to Verizon’s TOS. Klein continues to use Verizon’s HSI.

Klein agreed to Verizon’s TOS in both October 2010 and May 2011. These agreements addressed both conditions of service and procedures for future modifications to the terms. Verizon committed to providing notice of revisions “by posting revisions to the Website Announcements page, or sending an email to the email address (customers) provide to receive communications.” On June 20, 2012, Verizon proposed contract modifications to the TOS and sent these modifications to Klein via email. Evidence shows that Klein received and opened the email. Verizon’s email to Klein explained that, “the terms now require that you and Verizon resolves disputes only by arbitration or in small claims court.” The new TOS further specifies, “the Federal Arbitration Act and the substantive laws of the state of the customer’s billing address… will be applied to govern, construe, and enforce all of the rights and duties of the parties arising from or relating in any way to the subject matter of this Agreement.” The email also stated that, “by continuing to use the services after the date of this notice, [customers] accept and agree to abide by the revised terms.”

Klein, serving as the putative named representative, filed a class action suit on July 11,2012 in federal court in the Eastern District of Virginia (Klein v. Verizon Communications, Inc., Case No. 1:12-cv-757 (GBL/IDD)). Klein’s sole claim for relief is predicated on Section 59.1-200(A) (13) of the Virginia Consumer Protection Act (“VCPA”), which prohibits a “liquidated damage clause” or “penalty clause” that is “void or unenforceable under any otherwise applicable laws of the Commonwealth, or under federal statues or regulations.” Klein asserted that Verizon engaged in a prohibited practice by “using in a contract and by collecting liquidated damages that are unenforceable under the common law.”

Verizon responded to Klein’s suit by refunding Klein the $135 ETF and submitting an Offer of Judgment pursuant to Federal Rule of Civil Procedure 68. A Rule 68 Offer allows a defendant to service an offer of judgment on the plaintiff and makes the plaintiff who rejects the offer liable for post-offer costs if the plaintiff fails to improve on the offer at trial. Verizon offered Klein $1,000, his costs and reasonable attorney fees. Klein rejected the Rule 68 Offer and intends to pursue the VCPA claim. Verizon moved to compel arbitration under the revised TOS sent to Klein by email.

Judge Lee granted Verizon’s Motion to Compel Arbitration, finding that Klein’s continued use of services after notice of contract modifications assented to the contractual modifications because  the terms of the agreement between the parties explicitly provided that continued use of services after notice of a contractual modifications is sufficient to assent to any modifications. At no point did Klein expressly refute Verizon’s contentions regarding Klein’s receipt of the email, nor did he provide any indication that he objected to the modifications at any time prior to submitting his Opposition to Verizon’s Motion to Compel Arbitration. Because the parties previously agreed that continued use of services sufficiently inferred consent to contract modifications, the Court held that Klein’s continued use of Verizon’s services after he received the proposed modifications is assent to the proposed contract terms, including the arbitration provision. Additionally, the Court held that the arbitration clause retroactively applies to the parties’ disputes predating the clause, because the broad language of the clause demonstrates intent for contract modifications to apply retroactively. Recall that Verizon charged Klein $135 EFT after he first canceled the service, that he then resumed services and only after that did Verizon amend the TOS to compel dispute arbitration. Finally, the Court dismissed Klein’s argument that the arbitration provision is an adhesion contract and unconscionable. A contract of “adhesion” has been defined as one “that is drafted unilaterally by the dominant party and the presented on a  ‘take-it-or-leave-it’ basis to the weaker party who has no real opportunity to bargain about its terms.” Although the TOS was an adhesion contact, the Court determined its terms were not substantively inconsiderable as the court considered whether the terms are oppressive, present an unfair surprise or impose “an egregious imbalance in the obligation and rights.”

Jason Klein could have accepted a refund of the ETF and $1,000. Instead he is fighting the good fight for all of us beleaguered by dubious fees. However, due to the retroactive applicability of Verizon’s email modifications to its TOS, Klein’s VCPA claim will be heard not in the light of day, but before an arbitrator. The arbitrator will arrive between noon and 6:00… please stay on the line to complete our customer satisfaction survey.

 

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