Postpichal v. Cricket Wireless, LLC

Background

Ursula Freitas and Jamie Postpichal brought a class action under the Racketeer Influenced and Corrupt Organizations Act, alleging that Cricket Wireless advertised 4G service and sold 4G-capable phones in markets without actual 4G coverage. They alleged that customers paid for 4G phones and service but received slower and less expensive 3G coverage.

A prior order certified a class but excluded any class member whom Cricket could prove was subject to an arbitration agreement. Cricket moved to compel arbitration based on materials placed inside phone boxes. Before May 18, 2014, the boxes contained a Quick Start Guide with arbitration terms and a 60-day opt-out procedure. From May 18, 2014 onward, the boxes contained a Terms and Conditions booklet with arbitration terms but no express opt-out provision. The phone boxes and customer receipts also referred to the enclosed terms or arbitration.

Choice of Law and Contract Formation

The court applied the law of each class member’s state of residence at the time of purchase. Under the Federal Arbitration Act, a party seeking arbitration must show a valid written arbitration agreement and that the agreement covers the dispute.

The court rejected plaintiffs’ argument that Cricket’s “no contract” advertising prevented contract formation. It found that the advertising referred to the absence of an annual service commitment and did not, by itself, invalidate the arbitration provisions.

The court distinguished between the two sets of materials. The Quick Start Guide would likely be enforceable as an in-the-box contract in states following the approach of ProCD and Hill, because it provided an opportunity to reject the arbitration provision. The court identified those states as Delaware, Florida, Illinois, Indiana, Louisiana, Maine, Maryland, New York, Rhode Island, South Dakota, Tennessee, Washington, West Virginia, and Wisconsin. Customers who purchased before May 18, 2014, lived in one of those states at purchase, and did not opt out were likely subject to arbitration.

The court found the Terms and Conditions booklet unenforceable. Unlike the agreements in ProCD and Hill, it did not expressly provide either a return right or an opt-out procedure. The court also rejected Cricket’s argument that a seven-day return policy on its website supplied the required opportunity to reject, because that policy was not expressly included in the booklet and conflicted with the booklet’s acceptance provisions.

Under California law, the court found that class members did not assent to either the Quick Start Guide or the Terms and Conditions booklet. Failure to opt out did not establish assent, and Cricket did not show that customers signed or read the receipts, had a duty to respond, or retained a benefit in circumstances making silence acceptance. The court also found that California does not follow the in-the-box-contract approach used in ProCD and Hill.

For the remaining states, the court found that Cricket had not met its burden to prove valid written arbitration agreements. States applying the Uniform Commercial Code’s rule for additional contract terms would require express assent, which was absent here. The court also found the Quick Start Guide unenforceable under New Jersey law because its arbitration provision was inconspicuous, and the Terms and Conditions booklet unenforceable because it lacked an express right of rejection. The court declined to interpret the laws of states that had not squarely considered similar in-the-box contracts.

Scope of Arbitration and Discovery Evidence

The court found that the arbitration provisions, if enforceable, covered the dispute because the claims concerned Cricket’s services and advertising practices.

The court declined to strike the declaration of Katie Keser or its exhibits. Cricket’s failure to identify Keser in its initial disclosures was substantially justified because its initial witness left the company one day before the motion was due. The failure to produce related packaging documents during discovery was harmless because the court’s findings would have been the same without the evidence.

Disposition

The court modified the class definition to exclude all class members who purchased before May 18, 2014, resided at the time of purchase in Delaware, Florida, Illinois, Indiana, Louisiana, Maine, Maryland, New York, Rhode Island, South Dakota, Tennessee, Washington, West Virginia, or Wisconsin, and did not opt out of arbitration.

The court emphasized that it was not ordering those excluded people to arbitrate. They remained free to bring suit later and litigate individually whether arbitration applies. Cricket was ordered to identify every excluded person within 21 calendar days, and the parties’ counsel were required to meet and confer about providing notice. Class notice was delayed until the court resolved another pending motion to compel arbitration, which could further change the class definition.