By Cecilia Kang
Washington Post Staff Writer
Wednesday, July 30, 2008
Sprint Nextel was wrong to charge customers penalty fees of $73 million for early termination of cellphone contracts, a California court ruled yesterday, offering encouragement to customers of other companies who have filed similar suits around the nation.
Sprint must pay $18.3 million in cash to users who paid early-termination fees; another $54.8 million must be credited to users who were charged but didn't pay the fees, Alameda County Superior Court Judge Bonnie Sabraw said in her decision, which is open to comment until Aug. 5, when the final ruling will be made.
The penalties are not legal under California law, the judge said. They are not rates, as argued by the carriers, which allows consumers to sue in state courts.
Although the decision only affects California customers, Sprint, T-Mobile and other wireless carriers are trying to protect themselves from suits there and in other states by lobbying the Federal Communications Commission to adopt new federal rules governing such penalties, removing them from state jurisdiction.
"This gives great momentum to cases in other states," said Pamela Gilbert, a Washington attorney representing the California plaintiffs. "And if the FCC turns around now and gives the companies the get-out-of-court-free card, it means the FCC is going to be condoning what was past illegal behavior and letting the companies off the hook for illegal behavior."
Sprint said the decision underscores the need for a national policy on early termination fees. Other carriers, including Verizon, also have lobbied the FCC for such a policy.
"A national regulatory framework protects customers from a confusing patchwork of state regulations," said Matthew Sullivan, a spokesman for Sprint. He said the company hasn't determined whether it will fight the decision, saying it is focused on responding to the proposed rule.
This month Verizon Wireless settled its early-termination lawsuits for $21 million. The company, which is a joint venture between Verizon Communications and Britain's Vodafone Group, said the litigation was a distraction for the company.
Carriers charge $150 to $200 in early-termination fees on two-year contracts, a tactic consumer groups say is used to lock in subscribers so they can't move to competitors. Those contract terms are often applied even when a subscriber moves to a region where the carrier doesn't offer service. And in the case of Sprint, a family with four phone lines can be charged as much as $700 for leaving a family plan early, according to the suit.
The carriers argue that the fees are necessary to make up for the costs they incur offering lower prices on phones and devices.
The wireless trade group CTIA has filed a petition asking the FCC to determine that the fees are really rates so that the agency can cement its authority over them. Joe Walls, a spokesman for the CTIA, said the California decision wouldn't necessarily prevent the FCC from doing so.
"This is just the latest step," he said.