In Sprint Victory, Judge Posner and the Seventh Circuit Hold That Arbitration Is Required in a TCPA Class Action Even Though the Alleged Violation Occurred After the Termination of the Contract
On May 11, 2015, in an opinion written by Judge Posner, the Seventh Circuit reversed an order denying Sprint’s motion to compel arbitration in a class action allegation violations of the Telephone Consumer Protection Act (“TCPA”). The thrust of the dispute was not whether there was a valid agreement to arbitrate between Sprint and the plaintiffs, but whether that agreement was broad enough to apply to conduct that occurred after the termination of the agreement. In Andermann v. Sprint Spectrum L.P., __ F.3d __, 2015 WL 2167846 (7th Cir. May 11, 2015), the Seven Circuit said it was.
The plaintiffs in the case, the Andermanns, signed up for cellphone service from U.S. Cellular in 2000 and renewed their contract, in two-year increments, for the next decade. They renewed their contract for the last time in 2012. The contract included an arbitration clause which provided that “any controversy or claim arising out of or relating to this agreement shall be resolved by binding arbitration” and that “this arbitration agreement survives the termination of this service agreement.” The contract also permitted U.S. Cellular to assign the contract.
In 2013, Sprint acquired U.S. Cellular, and U.S. Cellular assigned its customer’s contracts to Sprint. U.S. Cellular’s cellphones, however, were not compatible with Sprint’s network. Sprint sent letters to its new customers, including the Andermanns, informing them of the acquisition, explaining the incompatibility, and notifying them that their cellphone service would terminate on January 31, 2014 unless they obtained a new cellphone from Sprint or signed up with another cellular service company. Sprint also phoned its customers, including the Andermanns, in December 2013 to remind them that their service was about to expire and added that Sprint had “a great set of offers and devices available to fit their needs.” Sprint made six such calls to the Andermanns; the Andermanns claimed that all six calls violated the TCPA.
When Sprint moved to compel arbitration, the Andermanns argued that their claims did not “aris[e] out of or relat[e] to the agreement” because the Andermanns had terminated their cellphone service with Sprint (and thus had terminated the arbitration agreement) a few weeks before Sprint placed the calls. As a result, they claimed, the calls were unsolicited and for the purpose of advertising Sprint’s services, and thus in violation of the TCPA.
Sprint argued, and the Seventh Circuit agreed, that arbitration clauses still apply to conduct occurring after the termination of an agreement so long as the conduct had its “genesis” in the agreement. In this case, the Seventh Circuit found an “intimate relation” between Sprint’s phone calls and the parties’ agreement. The Court ruled: “The contract authorized an assignment [from U.S. Cellular to Sprint], and because of the incompatibility of the assignor’s (U.S. Cellular’s) cellphones and the assignee’s (Sprint’s) mobile phone network, Sprint had to terminate the U.S. Cellular customers, such as the Andermanns, whom it had acquired by virtue of the assignment; for they could not use their cellphones without switching to a different network. It was to prevent the loss of all these customers because of the incompatibility that Sprint had told them in the calls that it could offer them a substitute service. The calls gave rise to the dispute; and so the Andermanns were required to arbitrate the dispute.”
This case reaffirms the primacy of arbitration agreements and should provide guidance on the applicability of arbitration agreements to conduct occurring after the termination of an agreement.
Sheppard, Mullin, Richter & Hampton LLP is pleased to note that our own Fred Puglisi, Valerie Alterand Jay Ramsey obtained this victory, with assistance from Kenneth Rechtoris.