Class Action Challenging Sprint’s Mandatory Arbitration/Class Action Waiver Clause Properly Dismissed because no Dispute Existed between Plaintiffs and Sprint so no Present Controversy, thus Plaintiffs Lacked Standing to Prosecute Class Action’s Claims, and because Claim for Declaratory Relief Within Trial Court’s Discretion to Dismiss California Supreme Court Holds
Plaintiff filed a class action against Sprint Spectrum L.P. alleging violations of California’s Unfair Competition Law (UCL); the class action complaint was amended following the passage of Proposition 64 because the original plaintiff was not a Sprint customer, and the class action complaint went through three more amendments – two following trial court orders sustaining demurrers to the class action with leave to amend – eventually resulting in a fourth amended class action complaint that alleged three causes of action: “violation of the UCL; violation of the CLRA [California’s Consumer Legal Remedies Act]; and for declaratory relief.” Meyer v. Sprint Spectrum L.P., ___ Cal.App.4th ___ (Cal. January 29, 2009) [Slip Opn., at 2]. According to the allegations underlying the class action, portions of Sprint’s customer service agreement were unconscionable and thus unenforceable because they “(1) required that the parties to submit disputes under the customer service agreement to binding arbitration…; (2) waived the right to resolve disputes through a jury trial; (3) waived class action in arbitration; (4) failed to provide for discovery before arbitration; (5) split the cost of arbitration; (6) disclaimed warranties and limited liability; (7) permitted Sprint to unilaterally change the terms of the customer service agreement; (8) imposed a 60-day limitation period for initiating billing disputes; and (9) imposed a $150 early-termination fee.” Id. Defense attorneys again demurred to the class action complaint, arguing that the named plaintiffs lacked standing to prosecute the action, id., at 3. The trial court sustained the demurrer and dismissed the class action, this time without leave to amend; in part, the trial court concluded that “[p]laintiffs have not shown they were personally damaged or that the allegedly unconscionable or illegal provisions have been enforced against them.” Id. Plaintiffs appealed and the California Court of Appeal affirmed: the appellate court held that “(1) plaintiffs could not demonstrate an ‘injury in fact,’ which is a prerequisite to asserting a claim under the UCL; (2) without any showing of damage, plaintiffs had no standing to sue under the CLRA; and (3) plaintiffs had alleged no actual controversy between them and Sprint, and that therefore declaratory relief was not available.” Id. The California Supreme Court granted plaintiffs’ petition for review, and affirmed dismissal of the class action complaint.
The Supreme Court noted that it was faced with two questions: “First, whether under these circumstances, a plaintiff may obtain injunctive relief to compel the removal of the allegedly unconscionable provisions under the [CLRA]. Second, whether a plaintiff may obtain declaratory relief…to declare these provisions unlawful and unenforceable.” Meyer, at 1. The Court first concluded that because plaintiffs did not suffer any damage as a result of Sprint’s allegedly unlawful practice, they lacked standing to prosecute the CLRA class action claims. Id. The premise of the CLRA claim is that Sprint “[r]epresent[ed] that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law,” specifically, by “[i]nserting an unconscionable provision in the contract.” Id. As noted above, plaintiffs’ argument was that Sprint included “various unconscionable provisions in the arbitration agreement and various other unlawful restrictions on remedies and penalties” in the customer service agreement. Id., at 3-4. Importantly, plaintiffs admitted that no present dispute existed between them and Sprint; rather, the class action “can be characterized as a preemptive lawsuit to strike these terms should any dispute arise.” Id., at 4. The question before the Supreme Court is whether the CLRA permits such preemptive suits, id. Based on its interpretation of the statute, see id., at 4-10, the Supreme Court agreed with Sprint that plaintiffs had not “suffer[ed] any damage as a result of” the practices challenged by the class action, id., at 5. Put simply, “Sprint had not sought to enforce any unconscionable term against plaintiffs, [and] Sprint has not actually imposed additional transaction costs on plaintiffs.” Id., at 9. The Supreme Court concluded that “it would contort the statutory language to conclude that the preemptive expenditure of fees for this litigation means that Sprint’s alleged unlawful practices had caused ‘damage’ at the time the lawsuit was filed.” Id. The Court held that California’s Legislature “did not want the costs of a lawsuit to be incurred when no damage could yet be demonstrated.” Id., at 14.
The Supreme Court then addressed whether California law (specifically, Civil Code section 1060), permitted the class action’s declaratory relief claim. See Meyer, at 14. The class action sought “judgment declaring the arbitration and other remedial provisions in question unconscionable and unlawful.” Id. The Court admitted that a present controversy existed between plaintiffs and Sprint as to whether certain portions of the consumer service agreement were unconscionable and unenforceable, id., at 16, however, “when resolution of the controversy over future remedies would have little practical effect in terms of altering parties’ behavior, courts have considerable discretion…to deny declaratory relief because it ‘is not necessary or proper at the time under all the circumstances,’” id., at 17. The Supreme Court held that the trial court did not err in denying plaintiffs’ effort to seek declaratory relief because “plaintiffs have not with any particularity alleged that the resolution of the declaratory relief action concerning contractual remedies would, at this point, have any practical consequences.” Id. Specifically, “[n]o dispute has arisen that would cause these remedial provisions to come into play, and plaintiffs do not allege that the continuation of the contractual relationship depends on the resolution of these questions.” Id. Accordingly, the Supreme Court affirmed the trial court’s order dismissing the class action complaint without leave to amend. Id., at 18.
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