RCR Wireless News

Verizon Wireless faces class action over ETFs Potential payout could reach $1B

By Jeffrey Silva, January 28, 2008 – 1:30 pm EDT

An arbitrator has certified a huge class action against Verizon Wireless that potentially could cost the No. 2 mobile phone carrier close to $1 billion in refunds of early termination fees.

“I find the claimants have complied with the criteria for class certification,” wrote Eugene I. Farber, a former federal judge and senior arbitrator-mediator for the American Arbitration Association in White Plains, N.Y. “My decision is also motivated by my conclusion that as a matter of equity and fairness, millions of class members are entitled to adjudication of the central common questions of fact or law in this arbitration related to whether the $175 early termination fee imposed by respondents Cellco Partnership d/b/a Verizon Wireless … is based upon an unenforceable liquidated damage clause.”

A trial date has not been set, but could begin by the middle or latter part of this year.

“This ruling is a tremendous victory for Verizon Wireless subscribers,” said Scott Bursor, counsel for the plaintiffs. “After four years of extremely hard-fought litigation in several courts and in arbitration, this ruling ensures that Verizon customers who have been charged illegal early termination fees will have an opportunity to prove their claims on a class-wide basis and to seek a refund of nearly a billion dollars worth of illegal charges.”

Bursor said Farber’s 35-page ruling to certify the class action has historical significance. “It is the largest class ever certified in arbitration, with approximately 70 million members of the subscriber class,” he said. “It is also the largest class ever certified on a contested motion in any type of forum, litigation or arbitration.”

A Verizon Wireless spokesperson declined to comment because the arbitration remains pending. Verizon Wireless is believed to have challenged Farber’s ruling in federal appeals court. However, it is unclear whether the arbitrator’s action — not a final decision on the merits of the case itself — can be appealed as a legal matter.

In 2006,Verizon Wireless announced a new policy to prorate ETFs. T-Mobile USA Inc., Sprint Nextel Corp. and AT&T Mobility subsequently announced similar ETF policy changes last year. Senate legislation co-sponsored by Sens. Amy Klobuchar (D-Minn.) and Jay Rockefeller (D-W.Va.) would mandate prorated ETFs for the entire cellular industry.

ETFs have triggered a slew of lawsuits against mobile phone carriers in recent years. National cellular association CTIA petitioned the Federal Communications Commission in 2005 to declare ETFs part of the wireless rate structure and therefore preempted by federal law. FCC Chairman Kevin Martin has signaled he will not grant CTIA’s petition, but plans to hold one or more hearings on the imposition of penalty fees in a variety of communications sectors.