Judge Rules Sprint Early Termination Fees Illegal

Antiglobalism writes to tell us that an Alameda County Judge has ruled against Sprint Nextel in a class-action lawsuit, awarding customers $18.2 million in restitution for early termination fees. "Though the decision could be appealed, it's the first in the country to declare the fees illegal in a state and could affect other similar lawsuits, with broad implications for the nation's fast-growing legions of cell phone users. The judge - who is overseeing several other suits against telecommunications companies that involve similar fees - also told the company to stop trying to collect $54.7 million from other customers who haven't yet paid the charges they were assessed. The suit said about 2 million Californians were assessed the fee."

Comments

Key Legal Principles:

[sampson7]

Two very interesting things about this decision. First, the Judge appears to have over-ruled the factual findings made by the jury -- a fairly unusual practice, and one that is not likely to be upheld on appeal. Second, the Judge appears to have returned to "first principles" of contract law in reacher her decision -- good for her. We need more of this type of rational thinking.

There are two key points in the article (couldn't the actual opinion) hitting these points:

On June 12, a jury in the Alameda County lawsuit ruled in favor of Sprint Nextel, determining that its customers who canceled their service early had breached their contracts with the company and that early termination fees were warranted.

But in overruling that decision, Sabraw said the jurors appear to have erred in assuming the fees were valid, and she took issue with the way Sprint Nextel determined that its customers owed the fees.

Interesting; because judges are usually very reluctant to over-ride decisions made by juries. Generally, juries make findings of fact and the Judge makes the finding of law. Here, the Judge said that the Jury clearly erred in finding the contracts valid. Which makes me think that the Jury instructions were extremely poorly written, or that the Judge feels very strongly that the plaintiffs made the legal side of their case so well that "no reasonable jury" would have returned the decision that it did. (Also, I note that the Jury appears to have awarded damages despite finding that the contracts were valid -- this semi-contradictory result may have persuaded the judge to go in the direction she did.)

The second interesting argument:

"Sprint did no damage analysis that considered the lost revenue from contracts, the avoidable costs and Sprint's expected lost profits from contract terminations," she said.

YES! It is a founding principle of contract law that the non-breaching party's damage recovery is limited to its actual losses and its cost to make up the breaching party's violation of the agreement. Traditionally, a contract that agreed to damages in excess of the non-breaching party's actual exposure (i.e., punative damages) were ruled invalid and "reformed" by the court into something reasonable.

However, the courts over the past few decades have been relunctant to follow this principle -- instead, most consumer contracts today contain a "liquidated damages" clause, where the parties agree ahead of time on an estimate of what the actual damages would be. To me, fundamental principles of contract law dictate that an agreement to excessive liquidated damages clauses (particularly in consumer contracts) should not be upheld. I'm glad to see a court finally moving in that direction.