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Wireless Companies Succeed In Routing Text Message Plaintiffs Into Arbitration

Posted  October 1, 2013

The U.S. District Court for the Southern District of New York has decided that the U.S. Supreme Court’s recent upholding of a contractual waiver of class arbitration prevents three messaging companies from escaping arbitration of their antitrust claims against a large group of wireless companies in the putative class action of In re: A2P SMS Antitrust Litigation.

Plaintiffs Club Texting Inc., TextPower Inc. and iSpeedbuy LLC are asserting a putative class action – based on claims that an antitrust conspiracy raised prices for bulk commercial text messages – against several providers of wireless service and others, including Sprint Nextel Corp., AT&T Mobility LLC, and Verizon Wireless LLC.

Judge Alison J. Nathan ordered most of the claims into arbitration, rejecting the plaintiffs’ arguments that the filing and administrative fees of arbitration made it an impracticable forum, citing the Supreme Court’s recent decision in Am. Express Co. v. Italian Colors Rest. (“American Express”), 133 S.Ct. 2304 (2013).

Plaintiffs sell transmitting services, which manage the transmission of mass texts used by businesses for advertising campaigns and other applications.  Plaintiffs allege that the defendant wireless service providers participated in a conspiracy that created a system that inflated the connectivity and per-message fees for such mass texts.

The court granted defendants’ motion to compel arbitration pursuant to the arbitration provision in the agreement plaintiffs had with Neustar, Inc., which leases the necessary codes for plaintiffs’ texts.  Although plaintiffs did not sue Neustar, defendants argued that plaintiffs’ dispute with them still fell within the scope of their agreement with Neustar, and thus was subject to arbitration.

The court agreed with defendants that they could enforce the Neustar agreement’s arbitration clause against plaintiffs under the principle of equitable estoppel, which permits non-signatories to an arbitration agreement to compel arbitration when they seek to resolve issues that are intertwined with the estopped party’s arbitration agreement.

Judge Nathan rejected the plaintiffs’ argument that the arbitration agreement is unenforceable in their case because the filing and administrative fees attached to arbitration are so high as to make access to the forum impracticable.  Judge Nathan held that plaintiffs’ allegations of high arbitration costs were insufficient to escape arbitration in light of the Supreme Court’s decision in American Express.  The court cited that decision’s statement that “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”  133 S.Ct, at 2310-11 (emphasis in original).

Judge Nathan held that plaintiffs’ failed to show any such deprivation of their right to pursue their claims. “Assuming that filing fees and administrative costs could in fact render a form impracticable, and that these costs in this case would be as high as plaintiffs claim, this ‘does not constitute the elimination of [plaintiffs’] right to pursue’ their claims in arbitration in this case.”

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