Class Action Defense Cases–Peck v. Cingular: Ninth Circuit Reverses Dismissal Of Class Action Holding That Federal Communications Act Did Not Preempt State Law Requiring Disclosure Of Line Item Charges

Sep 18, 2008 | By: Michael J. Hassen

Class Action Against Wireless Service Provider Challenging Whether Carrier may Pass Business tax through to Customers Without Specifically Disclosing it Service Contract not Preempted by FCA (Federal Communications Act) because State Law did not Seek to Regulate Rates but Rather “Other Terms and Conditions” of Wireless Service Ninth Circuit Holds

Plaintiff filed a class action in Washington state court against his wireless service provider, Cingular, alleging that it improperly passed on to its customers the “business and occupation tax” (B & O Tax) levied by the state; according to the class action complaint, Cingular’s monthly invoices to plaintiff included a $0.31 line item charge identified as “State B & O Surcharge,” which the class action alleged should not have been passed through to customers or, at the very least, should have been disclosed in Cingular’s contract with its customers. Peck v. Cingular Wireless, LLC, 535 F.3d 1053, 1054-55 (9th Cir. 2008). The class action sought recover for violation of Washington’s Consumer Protection Act (CPA), breach of contract, and unjust enrichment, and sought declaratory and injunctive relief, id., at 1055. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint, alleging that the claims therein were preempted by the Federal Communications Act (FCA), which “prohibits state regulation of telecommunications carriers’ rates.” Id. The district court followed an FCC opinion that the FCA preempted state laws that sought to regulate line item billing for cellular wireless services, and dismissed the class action claims as preempted by the FCA. Id. Plaintiff appealed the dismissal of his class action complaint, and the Ninth Circuit reversed. Id., at 1054.

The Ninth Circuit began by observing that “while a state may not regulate a wireless carrier’s rates, it may regulate the ‘other terms and conditions’ of wireless telephone service.” Peck, at 1056. But federal law “leaves its key terms undefined”: “‘It never states what constitutes rate and entry regulation or what comprises other terms and conditions of wireless service.’” Id. (quoting Cellular Telecomms. Indus. Ass’n v. FCC, 168 F.3d 1332, 1336 (D.C. Cir.1999)). The Circuit Court then observed, “When a statute is ambiguous or leaves key terms undefined, a court must defer to the federal agency’s interpretation of the statute, so long as such interpretation is reasonable.” Id. (citation omitted). As noted above, the FCC interpreted the FCA as barring states from regulating “rate structures” and “rate elements,” including line item charges; accordingly, “the FCC [has] concluded state laws that regulate line item charges in wireless bills were pre-empted by the FCA.” Id. The Eleventh Circuit rejected the FCC’s interpretation that rates include line item charges based on its conclusion that federal law “unambiguously preserved the ability of the States to regulate the use of line items in cellular wireless bills,” and vacated the FCC’s order that contained its interpretation of the applicable law. Id. (citation omitted). The Ninth Circuit explained that “as a result of the [Eleventh Circuit’s] vacatur of the Second Report and Order, there is no FCC ruling on the issue of whether ‘rates’ include line item charges.” Id., at 1057.

Turning to the merits, the Ninth Circuit held that Cingular was not precluded from passing the cost of the B & O Tax on to its customers, and that Washington state law was not seeking to prohibit such an act; rather, Washington state law “simply structures the contract’s negotiation and disclosure, mandating that businesses quote all prices inclusive of Washington’s B & O Tax. Peck, at 1057-58. Specifically, Washington law required Cingular to disclose the tax “‘during the course of negotiating a purchase price.’” Id., at 1058 (citation omitted). So interpreted, the Washington law at issue simply addressed “other terms and conditions” of wireless services, expressly excluded from federal preemption of rates. Id. Accordingly, the Ninth Circuit held that the FCA did not preempt Washington’s B & O Tax, id. It therefore reversed the dismissal of the class action complaint and remanded the matter to the district court.

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