Boomer, Frank H. v. AT&T Corporation

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 02-2667

FRANK H. BOOMER,

ON BEHALF OF HIMSELF AND

ALL OTHERS SIMILARLY SITUATED,

Plaintiff-Appellee,

v.

AT&T CORPORATION,

A NEW YORK CORPORATION,

Defendant-Appellant.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 02 C 0847—John W. Darrah, Judge.

____________

ARGUED SEPTEMBER 5, 2002—DECIDED OCTOBER 3, 2002*

____________

Before COFFEY, MANION, and DIANE P. WOOD, Circuit

Judges.

MANION, Circuit Judge. Frank Boomer filed a putative

class action lawsuit against AT&T, alleging that AT&T

overcharged its customers for contributions to the federal

*

This opinion was originally released in typescript.

2 No. 02-2667

Universal Services Fund. AT&T moved to compel arbitra-

tion and to dismiss or stay the pending action, arguing that

after the Federal Communications Commission (“FCC”) dis-

continued the filing of tariffs by telecommunication provid-

ers, AT&T had entered into a Consumer Service Agreement

(“CSA”) with Boomer which prohibited class actions and

mandated arbitration. Boomer argued that the arbitration

clause was unconscionable under Illinois law and he sought

a declaratory judgment accordingly. The district court

denied Boomer summary judgment on his declaratory

judgment claim and denied AT&T’s motion to compel

arbitration and its motion to dismiss or stay the case. AT&T

appeals, arguing that Boomer’s state law challenge to the

terms and conditions of the CSA is preempted by the

Federal Communications Act of 1934, and Boomer is

therefore bound by the CSA’s arbitration clause. We agree

and accordingly REVERSE.

I.

Prior to 2001, the Federal Communications Act of 1934

(“Communications Act”), as amended by the Telecommuni-

cations Act of 1996, required long-distance carriers like

AT&T to set forth their charges and other terms and condi-

tions of service in tariffs filed with the FCC. 47 U.S.C. § 203.

Under the “filed tariff doctrine,” customers were bound

by the terms of the tariff even if they had never seen the

tariff, and even if the consumers had been promised ser-

vice under different rates, terms or conditions. See AT&T

v. Central Office Telephone, Inc., 524 U.S. 214, 222 (1998).

Additionally, customers were bound by the rates, terms,

and conditions contained in the tariff unless the FCC

determined that a tariff provision violated the substan-

tive requirements of the Communications Act and the tar-

iff was thereafter modified. Id.

No. 02-2667 3

Over time, however, the FCC began entering orders

exempting “nondominant carriers” (defined as those lacking

market power) from the tariff-filing requirements of Section

203 of the Communications Act. But the Supreme Court

invalidated these orders, holding that the FCC lacked the

authority under the Communications Act to exempt certain

carriers from the tariff-filing requirement of Section 203. See

MCI Telecommunications Corp. v. AT&T Corp., 512 U.S. 218,

234 (1994). However, when Congress passed the Telecom-

munications Act of 1996, it expressly gave the FCC the

authority to forbear from applying the tariff-filing require-

ment if, among other things, the FCC determined that the

“enforcement of such regulation or provision is not neces-

sary to ensure that the charges, practices, classifications, or

regulations . . . are just and reasonable and are not unjustly

or unreasonably discriminatory.” 47 U.S.C. § 160(a)(1).

Armed with this new authority, the FCC issued a series of

orders providing that AT&T and other long-distance

carriers were no longer required to file tariffs. See Inter-

state Interexchange Marketplace, 11 FCC Rcd. 20,730 (1996);

Interstate Interexchange Marketplace, 12 FCC Rcd. 15,014

(1997); Interstate Interexchange Marketplace, 14 FCC Rcd. 6004

(1999) (“Detariffing Orders”). Instead, the carriers were now

required to provide customers with notice of the rates,

terms, and conditions of service, and to offer customers

service under such terms and conditions. The customers in

turn could accept or reject the carrier’s offer. The FCC

anticipated that carriers would enter into such contracts

through the use of “short, standard contracts.” 11 FCC Rcd.

at 20,736 (¶ 57).

After the FCC issued its detariffing orders, in June 2001

AT&T began mailing proposed Consumer Service Agree-

ments (“CSAs”) to residential customers for their consid-

4 No. 02-2667

eration. AT&T mailed each customer three documents: the

CSA, a letter explaining why the CSA was being sent, and

a list of anticipated frequently asked questions with explan-

atory responses (“CSA Mailing”). The CSA Mailing was sent

to Boomer in June 2001 in an envelope, separate from his

monthly bill. On the outside of the envelope was typed:

“ATTENTION: Important information concerning your

AT&T service enclosed.”

The letter included with the CSA Mailing explained

that AT&T was enclosing a “copy of the new AT&T Con-

sumer Services Agreement containing the terms and con-

ditions for our state-to-state and international consumer

long distance services,” and that “[t]his Agreement will

begin to apply to these AT&T services on August 1, 2001.”

The letter also explained that because of recent changes

adopted by the FCC, the details of the service agreement

were being provided directly to the customer. Addition-

ally, the letter informed customers that “[t]he Agreement

also describes our new binding arbitration process, which

uses an objective third party rather than a jury for resolv-

ing any disputes that may arise.” The letter further in-

formed customers that they would “accept the terms of

the Agreement simply by continuing to use or pay for any

AT&T state-to-state or international consumer calling

service.”

The CSA included with the letter expanded on these

points. On the first page of the CSA, AT&T explained in

bold and capitalized text that:

BY ENROLLING IN, USING, OR PAYING FOR

THE SERVICES, YOU AGREE TO THE PRICES,

CHARGES, TERMS AND CONDITIONS IN THIS

AGREEMENT. IF YOU DO NOT AGREE TO THESE

PRICES, CHARGES, TERMS AND CONDITIONS,

DO NOT USE THE SERVICES, AND CANCEL THE

No. 02-2667 5

SERVICES IMMEDIATELY BY CALLING AT&T

AT 1-888-288-4099* FOR FURTHER DIRECTIONS.

Also significant for purposes of this appeal is Section 7,

entitled “dispute resolution.” That section began in bold

and capitalized text, stating:

IT IS IMPORTANT THAT YOU READ THIS ENTIRE

SECTION CAREFULLY. THIS SECTION PROVIDES

FOR RESOLUTION OF DISPUTES THROUGH

FINAL AND BINDING ARBITRATION BEFORE A

NEUTRAL ARBITRATOR INSTEAD OF IN A

COURT BY A JUDGE OR JURY OR THROUGH A

CLASS ACTION. YOU CONTINUE TO HAVE CER-

TAIN RIGHTS TO OBTAIN RELIEF FROM A FED-

ERAL OR STATE REGULATORY AGENCY.

The CSA then detailed the arbitration requirement, provid-

ing:

a. Binding Arbitration. The arbitration process

established by this section is governed by the Federal

Arbitration Act (“FAA”), 9 U.S.C. § 1-16. You have the

right to take any dispute that qualifies to small claims

court rather than arbitration. All other disputes aris-

ing out of or related to this Agreement (whether based

in contract, tort, statute, fraud, misrepresentation or any

other legal or equitable theory) must be resolved by

final and binding arbitration. This includes any dispute

based on any product, service or advertising having a

connection with this Agreement and any dispute not

finally resolved by a small claims court. The arbitration

will be conducted by one arbitrator using the proce-

dures described by this Section 7.

Section 7 then detailed the arbitration filing procedures

and explained that any disputes involving $10,000 or less

would be conducted in accordance with the rules of the

6 No. 02-2667

Consumer Arbitration Rules of the American Arbitra-

tion Association (“AAA”), and claims in excess of that

amount would be resolved under the AAA’s Commercial

Arbitration Rules. The CSA further provided that consum-

ers filing an arbitration claim for less than $1,000 would

only be required to pay a $20 filing fee, and that AT&T

would cover the remaining costs of arbitration. AT&T later

amended the CSA to further reduce the potential arbitration

expense, providing that AT&T would pay all but a $20 filing

fee for customers with disputes up to $10,000 and all but

$375 for claims between $10,000 and $75,000.

Additionally, Section 7 of the CSA provided—once again

in bold and capitalized text—that:

NO DISPUTE MAY BE JOINED WITH ANOTHER

LAWSUIT, OR IN AN ARBITRATION WITH A

DISPUTE OF ANY OTHER PERSON, OR RESOLVED

ON A CLASS-WIDE BASIS, THE ARBITRATOR

MAY NOT AWARD DAMAGES THAT ARE

BARRED BY THIS AGREEMENT AND MAY NOT

AWARD PUNITIVE DAMAGES OR ATTORNEYS’

FEES UNLESS SUCH DAMAGES OR FEES ARE

EXPRESSLY AUTHORIZED BY A STATUTE, YOU

AND AT&T BOTH WAIVE ANY CLAIMS FOR AN

AWARD OF DAMAGES THAT ARE EXCLUDED

UNDER THIS AGREEMENT.

Boomer did not contact AT&T to cancel his services, but

instead continued to use AT&T’s long-distance services.

Notwithstanding the CSA’s prohibition of class actions

and its arbitration clause, Boomer filed a putative class

action against AT&T, alleging that AT&T was overbilling

No. 02-2667 7

1

him for the federal Universal Service Fee charge. In his

amended putative class action complaint, Boomer presented

six counts: Count I requested an accounting of the Universal

Service Fee Charge; Count II alleged a violation of the

Illinois Consumer Fraud Act and the Deceptive Business

Practices Act; Count III alleged unjust enrichment; Count IV

sought a declaratory judgment that the arbitration clause

contained in Section 7 of the CSA was unconscionable and

otherwise invalid; Count V alleged that the arbitration

clause violated the Illinois Consumer Fraud Act and the

Deceptive Business Practices Act; and Count VI alleged that

the CSA violated the Communications Act.

AT&T responded to Boomer’s suit by filing a motion to

compel arbitration and to dismiss or stay the proceed-

ings pursuant to the Federal Arbitration Act. In support of

its motion, AT&T submitted the declaration of Ellen Reid,

the AT&T employee who had overseen the mailing of the

CSAs to AT&T customers. Reid’s declaration authenticated

the CSA Mailing material and established that AT&T had in

fact mailed Boomer the CSA Mailing in June 2001 and that

the mailing was sent by third-class mail with forwarding

service. AT&T did not receive notice from the postal service

indicating that Boomer had not received the mailing. Her

declaration also stated that Boomer continued to be enrolled

in AT&T’s long-distance service.

1

In passing the Telecommunications Act of 1996, Congress

authorized the FCC to assess a “Universal Service Fee” on long-

distance carriers based on a percentage of the carrier’s past

revenues, 47 U.S.C. § 254, although carriers may charge con-

sumers to recover the cost of these contributions. See 12 FCC

Rcd. 8776 (¶773). The Universal Service Fees are then used to

subsidize telecommunication services for customers in high

cost areas, schools and libraries. 47 U.S.C. § 254.

8 No. 02-2667

Boomer for his part filed a motion for partial summary

judgment on Counts IV and V, arguing that the arbitra-

tion clause was, as a matter of law, unconscionable and

violated the Illinois Consumer Fraud Act and the Deceptive

Business Practices Act. The district court denied Boomer’s

motion for partial summary judgment and denied AT&T’s

motion to compel arbitration and to dismiss or stay the

proceedings, on the grounds that “[g]enuine issues of

material fact exist as to the validity of the arbitration

2

clause.” AT&T appeals.

II.

On appeal, AT&T argues that the district court erred in

denying its motion to compel arbitration and to dismiss

or stay Boomer’s suit pending arbitration. Boomer re-

sponded to AT&T’s appeal by filing a motion to dismiss the

appeal for lack of jurisdiction. A motions panel of this court

ordered that Boomer’s motion to dismiss be considered by

the merits panel. Accordingly, before considering the merits

of AT&T’s appeal, we first consider Boomer’s motion to

dismiss this appeal for lack of jurisdiction.

2

At oral argument, AT&T agreed that this appeal involves only

Boomer’s individual claim against AT&T, and not the putative

class that Boomer sought to represent. See Harold Washington

Party v. Cook County, Illinois Democratic Party, 984 F.2d 875, 878

(7th Cir. 1993) (if a putative class is not certified by the dis-

trict court, the plaintiff’s appeal concerns only the plaintiff’s

individual claim).

No. 02-2667 9

A. Motion to Dismiss for Lack of Jurisdiction

In his motion to dismiss for lack of jurisdiction, Boomer

argues that this court lacks jurisdiction to consider AT&T’s

appeal because the district court had not conclusively

ruled on the validity of the arbitration clause, but had

merely concluded that it could not resolve the issue at the

summary judgment stage. Therefore, according to Boomer,

the district court’s order is not final and appealable.

Although a decision must generally be final to be

appealable, there are several exceptions to this rule. Sec-

tion 16 of the Federal Arbitration Act provides one such

basis for immediate appeal, providing: “(a) An appeal may

be taken from—(1) an order—(A) refusing a stay of any

action under section 3 of this title, (B) denying a petition

under section 4 of this title to order arbitration to proceed.”

9 U.S.C. § 16(a)(1)(A) and (B).

In this case, the district court entered an order expressly

stating: “AT&T’s Motion to Compel Arbitration and to

Dismiss or Stay Proceedings is denied.” The court reiterated

this point in its closing sentence, noting: “For the reasons

stated above, Plaintiff’s Motion for Partial Summary

Judgment is denied. Defendant’s Motion to Compel Arbitra-

tion and to Dismiss or Stay Proceedings is denied.” None-

theless, Boomer contends that this court lacks jurisdiction

over this appeal because the district court also entered a

minute order which directed the parties “to confer and

advise the Court within 10 days as to whether a separate

trial should be ordered on [the arbitration counts] before the

remaining counts of Plaintiff’s Amended Complaint . . . .”

This, according to Boomer, demonstrates that the district

court intended to revisit the question of arbitrability and

thus had not rendered a final decision on this issue.

10 No. 02-2667

We acknowledge that the district court intended to

reconsider the question of arbitrability following further

fact finding and possibly a trial. However, that does not

defeat this court’s jurisdiction. The plain language of Sec-

tion 16(a)(1) provides for an appeal from “an order refus-

ing a stay” or “denying a petition to order arbitration

to proceed,” and the district court in this case expressly

did both. Applying Section 16(a)(1) in Koveleskie v. SBC

Capital Markets, Inc., 167 F.3d 361, 363 (7th Cir. 1999), we

held that a district court’s denial of a motion to compel

arbitration was immediately appealable even though the

district court had held that further discovery was needed

before it could conclusively rule on a motion to compel

arbitration. In fact, jurisdiction is even clearer in this

case than in Koveleskie, because here the district court

expressly denied AT&T’s Motion to Compel Arbitration,

whereas in Koveleskie, the district court’s order merely stated

that discovery was needed “before a decision can be reached

on the arbitration issue.” Id. at 363. Nonetheless, in

Koveleskie, we held that because “there is no doubt from the

record that the district court denied the defendant’s motion

and clearly meant to foreclose arbitration,” id., an immedi-

ate appeal could proceed under Section 16(a) of the Arbitra-

tion Act.

Both the Third and Fourth Circuits have likewise con-

cluded that a denial of a motion to compel arbitration

is immediately appealable under Section 16(a)(1) of the

FAA, even if further discovery is required or the district

court intends to revisit the issue. See Snowden v. Check-

point Check Cashing, 290 F.3d 631, 635-36 (4th Cir. 2002);

Sandvik AB v. Advent Inter. Corp., 220 F.3d 99, 102-04 (3d

Cir. 2000). The Third Circuit’s decision in Sandvik pro-

vides a thorough analysis of the issue and one that bears

repeating. The reason a denial of a motion to compel arbi-

No. 02-2667 11

tration is immediately appealable is because “[t]he lan-

guage of § 16 provides for appeals of orders denying arbi-

tration, and it makes no distinction between orders deny-

ing arbitration and ‘final orders’ that accomplish the

same end.” Id. at 102. The language of § 16(a)(1)(C) fur-

ther illustrates that point. As Sandvik explained, § 16(a)(3)

of “the FAA contains a catch-all provision regarding

any ‘final decision with respect to an arbitration that is

subject to this title,’ id. § 16(a)(3).” Id. at 103. Thus, to

interpret § 16(a)(1) as Sandvik (and here Boomer) would

have, namely as applying only to “final decisions,” means

“the provision providing for appeals from denials of or-

ders to arbitrate [would become] surplusage in light of

the more expansive language in § 16(a)(3).” Id. Thus, “[t]he

more natural reading would therefore be to treat all orders

declining to compel arbitration as reviewable.” Id. More-

over, the language of § 16(a)(1)(C) “reflects that Congress

decided to use the word ‘final’ in one part of the statute, but

declined to do so in the section that declares that or-

ders denying motions to compel arbitration are indeed ap-

pealable.” Id. This reasoning defeats Boomer’s argument

that the district court’s order denying a motion to com-

pel arbitration must be final to be appealable. Addition-

ally, the fact that “the statute provides a list of interlocu-

tory arbitration-related orders that are not appealable,

see id. § 16(b),” demonstrates that Congress intended what

it said in subsection 16(a)—that a denial of the motion

to compel arbitration is immediately appealable. Id. Fi-

nally, as Sandvik noted, “jurisdiction comports with the

purposes of the FAA. Refusing [a defendant’s] appeal

could circumvent the FAA’s clear purpose of enforcing

binding arbitration agreements,” by forcing the defen-

dant to undergo a full-blown trial before a determina-

tion as to “whether it was legally obligated to participate

in such a trial in the first instance.” Id. at 104. For all of

12 No. 02-2667

these reasons, we conclude that § 16(a) of the Arbitration

Act allows for an immediate appeal of the denial of a

3

motion to compel arbitration.

Alternatively, Boomer claims that this court lacks juris-

diction because after the district court entered its order

denying AT&T’s motion to compel arbitration, the Judicial

Panel for Multi-District Litigation entered an order trans-

ferring Boomer’s case to the District Court of Kansas.

Initially, we note that it is questionable as to whether the

Judicial Panel’s order transferring the case to the District

Court of Kansas was effective, because that transfer order

was not filed with the District Court of Kansas until the

day after AT&T filed its notice of appeal. Under 28 U.S.C.

§ 1407(c), a Multi-District transfer order becomes effec-

tive only after it is “filed in the office of the clerk of the

district court of the transferee district.” 28 U.S.C. § 1407(c).

Because AT&T filed its notice of appeal prior to the fil-

ing of the transfer order, it would seem that the transfer

order is ineffective. See, e.g., Kusay v. United States, 62 F.3d

192, 193 (7th Cir. 1995) (“[T]he filing of a notice of ap-

3

Boomer also relies on this court’s decision in McCaskill v. SCI

Management Corp., 298 F.3d 677 (7th Cir. 2002), wherein we

stated that “[a]n appeal may be taken from a ‘final decision with

respect to an arbitration,’ but not from an interlocutory order

staying the action or ‘compelling arbitration.’ 9 U.S.C. §§ 16(a)(3),

(b)(1), (b)(3).” Id. at 678. However, this language does not help

Boomer because this case does not involve an order “staying

the action or compelling arbitration,” but rather an order deny-

ing a motion to compel arbitration and denying the motion

to stay the action. While the FAA prohibits interlocutory appeals

of motions compelling arbitration and granting stays, 9 U.S.C.

§§ 16(b)(1), (b)(3), Section 16(a)(1) allows immediate appeals

from the denial of such motions. 9 U.S.C. § 16(a)(1).

No. 02-2667 13

peal . . . divests the district court of its control over those

aspects of the case involved in the appeal.”).

However, we need not determine the validity of the

transfer order because even if a transfer order entered after

a notice of appeal is filed were valid, this court nonethe-

less has jurisdiction under 28 U.S.C. § 1294(1) to hear

AT&T’s appeal from the district court’s order denying

AT&T’s motion to compel arbitration. That section provides

that “appeals from reviewable decisions of the district . . .

courts shall be taken [f]rom a district court of the United

States to the court of appeals for the circuit embracing the

district.” 28 U.S.C. § 1294(1). In this case, the “reviewable

decision” at issue was entered by the Northern District of

Illinois. Therefore, jurisdiction is appropriate in this court.

See, e.g., TechnoSteel, LLC v. Beers Const. Co., 271 F.3d 151, 154

(4th Cir. 2001) (holding that the Fourth Circuit had jurisdic-

tion to hear an appeal from a South Carolina district court’s

order denying a motion to compel arbitration, even though

the district court also transferred the case to a Georgia

district court).

B. Motion to Compel Arbitration

Having concluded that we have jurisdiction over this

appeal, we turn to the merits. As noted, AT&T argues on

appeal that the district court erred in denying its motion

to compel arbitration because Section 7 of the CSA re-

quired arbitration. Boomer initially contends that because

the CSA does not constitute a valid contract under Illi-

nois law, he never agreed to the arbitration clause. Alter-

natively, Boomer argues that the arbitration clause con-

tained in the CSA is invalid because it is unconscionable

under Illinois law and violates the Illinois Consumer Fraud

Act. AT&T responds by arguing that because Boomer

14 No. 02-2667

continued using his AT&T service, he accepted the terms

of the CSA, including the arbitration provision. AT&T

further contends that the Communications Act preempts

Boomer’s state law challenges to the validity of the arbitra-

tion clause. We first consider whether the CSA consti-

tutes a contract, and then address the issue of preemption.

1. Was the CSA a Contract?

Boomer maintains that the CSA did not constitute a valid

4

contract under Illinois law. Initially we note that while

Boomer alleged in his complaint that he did not recall

receiving the CSA mailing, on appeal he does not claim that

he did not receive the CSA Mailing. Nor does he claim that

he attempted to cancel his service with AT&T. Rather,

Boomer argues that the CSA Mailing did not constitute

an offer, that his silence did not constitute an accept-

ance, that there was no consideration supporting the arbi-

tration clause, and that AT&T committed fraud.

Boomer first claims that the CSA did not constitute

an offer because AT&T customers “would not recognize

AT&T’s mailing with the CSA as an offer to a contract.”

However, the letter accompanying the CSA clearly and

explicitly stated that “[e]nclosed is your copy of the new

AT&T Consumer Services Agreement containing the

terms and conditions for our state-to-state and interna-

tional consumer long distance services. This Agreement

4

Although AT&T argues that the Communications Act preempts

state law as to the validity of contractual terms and conditions,

AT&T and Boomer both maintain that Illinois state law governs

questions of contract formation. Therefore for purposes of appeal

we will assume that Illinois state law determines whether a

contract was formed.

No. 02-2667 15

will begin to apply to these AT&T services on August 1,

2001.” The cover letter further explained that the consumer

was “accept[ing] the terms of the Agreement simply by

continuing to use or pay for any AT&T state-to-state or

international consumer calling service.” Additionally, the

CSA explained in bold, capitalized text at the beginning

of the CSA that “BY ENROLLING IN, USING, OR PAY-

ING FOR THE SERVICES, YOU AGREE TO THE

PRICES, CHARGES, TERMS AND CONDITIONS IN

THIS AGREEMENT.” This plain, unambiguous language

makes clear that the CSA constituted an offer. See Architec-

tural Metal Sys., Inc. v. Consolidated Sys., Inc., 58 F.3d 1227,

1229 (7th Cir. 1995), citing McCarty v. Verson Allsteel Press

Co., 411 N.E.2d 936, 943 (Ill. App. 1980) (“The test for an

offer is whether it induces a reasonable belief in the re-

cipient that he can, by accepting, bind the sender.”). See

also, Restatement (Second) of Contracts § 24 (1981) (“An

offer is the manifestation of willingness to enter into a

bargain, so made as to justify another person in understand-

ing that his assent to that bargain is invited and

will conclude it.”).

Next, Boomer contends that his continued use of

AT&T’s long-distance service did not constitute an ac-

ceptance of AT&T’s offer. In support of this argument,

Boomer cites Section 69 of the Restatement (Second) of

Contracts, which provides:

(1) Where an offeree fails to reply to an offer, his silence

and inaction operate as an acceptance in the following

cases only:

(a) Where an offeree takes the benefit of offered

services with reasonable opportunity to reject

them and reason to know that they were offered

with the expectation of compensation.

16 No. 02-2667

Boomer argues that he did not have a reasonable op-

portunity to reject the offer, and therefore his continued use

of AT&T services did not constitute an acceptance.

This argument also fails because the CSA Mailing clearly

provided a mechanism for rejecting AT&T’s offer: The cover

letter stated in bold capitalized letters that “IF YOU DO

NOT AGREE TO THESE PRICES, CHARGES, TERMS

AND CONDITIONS, DO NOT USE THE SERVICES,

AND CANCEL THE SERVICES IMMEDIATELY BY

CALLING AT&T AT 1-888-288-4099.” Thus, Boomer had a

reasonable opportunity to reject AT&T’s offer, but nonethe-

less continued to use his AT&T services—services that were

offered with the clear and explicit expectation of compensa-

tion. Under these circumstances, Boomer’s silence consti-

tuted an acceptance. See, e.g., Hill v. Gateway 2000, Inc., 105

F.3d 1147, 1148-49 (7th Cir. 1997) (concluding that under

Illinois law the plaintiffs’ silence constituted an accept of the

terms and conditions— including an arbitration clause—set

forth on a form contract included in the box which con-

tained the computer that the plaintiffs had ordered from the

5

defendant and which they accepted).

5

The district court distinguished Gateway by noting that in

Gateway the Hills had admitted to receiving the form contract,

but failed to read it, whereas in this case Boomer does not admit

that he received the CSA Mailing. However, as noted above,

Boomer does not contend that he did not receive the mailing—

just that he does not remember receiving it. Where a letter is

properly addressed and mailed, there is “a presumption that

it reached its destination in usual time and was actually re-

ceived by the person to whom it was addressed.” See Hagner

v. United States, 285 U.S. 427, 430 (1932). In this case, AT&T

presented proof through the Declaration of Ellen Reid, the AT&T

employee who oversaw the mailing of the CSA to AT&T cus-

(continued...)

No. 02-2667 17

Boomer further challenges the existence of a contract

by arguing that there was no consideration for the CSA.

In support of this argument, Boomer first points to the

following language: “[B]e assured that your AT&T service

or billing will not change under the AT&T Consumer

Services Agreement.” Boomer claims that this language

shows that he received nothing in exchange for his agree-

ment to arbitration. This argument is misplaced—in ex-

change for his agreement to arbitrate, AT&T agreed to

provide continued telephone services. It is true that when

there is an existing contractual obligation, a promise to

continue performing that legal obligation lacks consider-

ation. But AT&T had no legal obligation to continue provid-

ing Boomer with telephone services. Therefore, Boomer

received something of legal value—continued service—in

exchange for his promise to arbitrate.

That AT&T could have canceled Boomer’s telephone

services is actually Boomer’s second basis for claiming a

lack of consideration: Boomer asserts that because AT&T

expressly told him that if he did not agree to the terms

of the CSA, it would cancel his service, there was no

“bargained-for exchange,” and thus no consideration.

5

(...continued)

tomers, verifying that proper mailing procedures were followed.

Boomer does not present any conflicting evidence in this re-

gard. Thus, we must presume that Boomer received the mailing.

Id. See also Godfrey v. United States, 997 F.2d 335, 338 (7th Cir.

1993) (a presumption exists that a mailing is received where

there is “proof of procedures followed in the regular course

of operations which give rise to a strong inference that the

[correspondence] was properly addressed and mailed”). In any

event, on appeal Boomer does not claim that the CSA did not

constitute an offer because he did not receive the CSA mailing.

18 No. 02-2667

This argument also fails, however, because, contrary to

Boomer’s position, the “bargained-for exchange” require-

ment does not prohibit the execution of form contracts

presented on a take-it-or-leave-it basis. See Metro East Center

for Conditioning and Health v. Qwest Communica-

tions International, Inc., 294 F.3d 924, 926 (7th Cir. 2002) (“Yet

we have held that form contracts, offered on a take-it-or-

leave-it basis, are agreements for purposes of the Arbitration

Act.”). See, e.g., Koveleskie v. SBC Capital Markets, Inc., 167

F.3d 361, 367 (7th Cir. 1999); Hill v. Gateway 2000, Inc., 105

F.3d 1147, 1148 (7th Cir. 1997). Rather, under general

contract principles a bargained-for exchange exists if one

party’s promise induces the other party’s promise or

performance. See Hartbarger v. SCA Services, Inc., 558 N.E.2d

596, 604 (Ill. App. 1990) (“A performance or return promise

is bargained for if it is sought by the promisor in exchange

for his promise and is given by the promisee in exchange for

that promise.”) (quoting Restatement (Second) of Contracts

§ 71 (1981)). See also, Restatement (Second) of Contracts § 71,

comment b at 173 (1981) (“ ‘Bargained for.’ In the typical

bargain, the consideration and the promise bear a reciprocal

relation of motive or inducement: the consideration induces

the making of the promise and the promise induces the fur-

nishing of the consideration.”). In this case, AT&T’s promise

to continue telephone services (something it was not

obligated to do) induced Boomer’s corresponding promise

(among other things) to arbitrate, and thus there was a

bargained-for exchange and consideration. See, e.g., Metro

East, 294 F.3d at 926 (explaining that although the agree-

ment’s provision for arbitration may be non-negotiable, it is

nonetheless an agreement “because the person could have

chosen to do something else”).

Next Boomer argues that AT&T committed fraud by

deemphasizing the CSA and presenting it as a non-event,

No. 02-2667 19

whereas in reality by so inducing customers to agree to

the CSA they waived valuable rights. Boomer, however,

fails to point to any language in the CSA Mailing or in

the accompanying CSA that was false or misleading.

Moreover, the cover letter clearly and explicitly highlighted

the differences between the CSA and the previous terms

contained in the tariff, noting that “[t]he Agreement

also describes our new binding arbitration process, . . . .”

Thus, the plain language of the CSA Mailing negates

Boomer’s claim of fraud.

In sum, the CSA Mailing constituted an offer and Boom-

er’s continued use of AT&T services constituted an ac-

ceptance. Consideration supported each party’s promises

and Boomer failed to present any evidence of fraud. Accord-

ingly, the CSA constituted a contract, and as such estab-

lished the terms and conditions governing AT&T’s relation-

ship with Boomer, one of which was an arbitration clause.

Based on this clause, AT&T moved to compel arbitration of

Boomer’s claims against it. Boomer, however, contends that

even if the CSA is a contract, the arbitration clause should

not be enforced because it is unconscionable and violates

the Illinois Consumer Fraud Act and the Deceptive Business

Practices Act. AT&T responds that the Communications Act

preempts Boomer’s state law challenges to the validity of

the arbitration clause. We now turn to the question of

preemption.

2. Preemption of the Arbitration Clause

The doctrine of preemption emanates from the Supremacy

Clause: “This Constitution, and the Laws of the United

States which shall be made in Pursuance thereof . . . shall be

the Supreme Law of the land.” U.S. Const., Art. VI,

cl. 2. Because federal law is the supreme law of the land,

20 No. 02-2667

it preempts state laws that “interfere with, or are contrary

to, federal law.” Hillsborough County v. Automated Med-

ical Laboratories, Inc., 471 U.S. 707, 712 (1985). A federal

law may preempt a state law expressly, impliedly through

the doctrine of conflict preemption, or through the doc-

trine of field (also known as complete) preemption. Gracia v.

Volva Europa Truck, N.V., 112 F.3d 291, 294 (7th Cir. 1997).

With express preemption, a federal statute explicitly

provides that it overrides state law. Id. Implied conflict

preemption occurs where “it is impossible for a private

party to comply with both state and federal requirements,

. . . or where state law stands as an obstacle to the accom-

plishment and execution of the full purposes and objectives

of Congress.” Freightliner Corp. v. Myrick, 514 U.S. 280, 287

(1995) (internal quotations omitted). Finally, field (complete)

preemption exists when “Congress . . . so completely

preempt[s] a particular area, that any civil complaint raising

that select group of claims is necessarily federal in charac-

ter.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64

(1987). On appeal, AT&T argues that Boomer’s state law

challenges to the validity of the arbitration clause are

preempted either impliedly through conflict preemption

or through the doctrine of field (complete) preemption,

and therefore, AT&T maintains, the arbitration clause

governs and the district court should have granted its

motion to compel arbitration and to stay the proceedings.

a) Implied Preemption

As summarized above, implied preemption exists if it

is either impossible to comply with both state and federal

law, or if state law conflicts with a federal objective. Gracia,

112 F.3d at 294. AT&T contends that a state law chal-

No. 02-2667 21

lenge to the validity of the arbitration clause violates Con-

gress’s objective in passing the Communications Act, and

specifically conflicts with the objectives of Sections 201(b)

and 202(a) of the Communications Act.

Section 201(b) of the Communications Act provides:

All charges, practices, classifications, and regulations

for and in connection with such communication service,

shall be just and reasonable, and any such charge,

practice, classification or regulation that is unjust or

unreasonable is declared to be unlawful.

47 U.S.C. § 201(b).

Section 202(a) states:

It shall be unlawful for any common carrier to make any

unjust or unreasonable discrimination in charges,

practices, classifications, regulations, facilities, or ser-

vices for or in connection with like communication

service, directly or indirectly, by any means or device,

or to make or give any undue or unreasonable prefer-

ence of advantage to any particular person, class of

persons, or locality or to subject any particular person,

class of persons, or locality to any undue or unreason-

able prejudice or disadvantage.

47 U.S.C. § 202(a) (emphasis added).

Based on these provisions, AT&T claims that a state law

challenge to the validity of the arbitration clause is pre-

empted. For three main reasons, we agree. First, these

provisions, and the Communications Act in general,

demonstrate a congressional intent that customers of

individual long-distance carriers receive uniform terms

and conditions of service; however, allowing a state law

challenge to the CSA’s arbitration clause would result

22 No. 02-2667

in customers receiving different terms based on their

locality. Second, the incorporation of the arbitration

clause in the CSA allows AT&T to offer lower rates, and

allowing state law to invalidate this clause will affect the

rates AT&T offers, resulting in discriminatory rate struc-

tures. Third, Section 201 declares unlawful rates, terms

and conditions which are not just and reasonable, demon-

strating Congress’s intent that federal law govern the

validity of the terms and conditions of long-distance service

contracts.

First, Sections 201 and 202, read together, demonstrate

a congressional intent that individual long-distance cus-

tomers throughout the United States receive uniform rates,

terms and conditions of service. See, e.g., American Tele-

phone & Telegraph Co. v. Central Office Telephone, Inc., 524

U.S. 214, 223 (1998) (“It is that antidiscriminatory policy

which lies at ‘the heart of the common-carrier section of

the Communications Act.’ ”) (citing MCI Telecommunica-

tions Corp. v. American Telephone & Telegraph Co., 512 U.S.

218 (1994)). Yet, a state law challenge to the validity of

the terms and conditions of a telephone service agree-

ment would result in the application of fifty bodies of

law, and this would inevitably lead to customers in dif-

ferent states receiving different terms and conditions.

Boomer’s own lawsuit demonstrates this point, as he

not only challenges the validity of the arbitration clause,

but also the validity of the attorney’s fees provision and

6

the clause prohibiting class action lawsuits. Absent preemp-

6

While Boomer challenges the validity of the CSA’s provision

concerning the right to attorney’s fees and the clause prohibit-

ing the use of a class action, because we conclude that arbitra-

tion is required, these other challenges must be decided by the

(continued...)

No. 02-2667 23

tion, there is nothing to prevent similar state law challenges

to the CSA’s other terms and conditions. This will result in

patchwork contracts, because under some states’ laws some

clauses will be upheld and other invalidated, while under

other states’ laws, it may well be the opposite. This conflicts

with Section 202’s prohibition on providing advantages or

preferences to customers based on their “locality.” 47 U.S.C.

§ 202.

Second, a state law challenge to an arbitration clause (or

for that matter a provision prohibiting class actions) not

only affects the uniformity of that term, but it also threatens

to destroy the consistency of rates offered consumers

throughout the United States. As we recognized in Metro

East, 294 F.3d 924, arbitration offers cost-saving benefits to

telecommunication providers and “these benefits are

6

(...continued)

arbitrator in the first instance. Metro East, 294 F.3d at 929. See

also Larry’s United Super, Inc. v. Werries, 253 F.3d 1083, 1086

(8th Cir. 2001) (holding that on appeal from an order denying

a motion to compel arbitration, a court may only determine

whether a dispute is subject to arbitration; other contractual

challenges must be determined by the arbitrator). Of course

in considering Boomer’s other challenges, the arbitrator will

be required to apply the appropriate law, which given our

holding today means that the Communications Act pre-

empts other state law challenges to the validity of the terms

and conditions contained in the CSA. Cf. Metro East, 294 F.3d

at 929 (“An arbitrator has no more power to alter a tariff’s rate

than does a judge; and because Central Office Telephone treats

conditions and other tariff terms as part of the rates, it may

follow that an arbitrator must take the whole tariff as he finds

it, in order to avoid any possibility of discriminatory applica-

tion (that bugbear of rate-regulation systems, and the main tar-

get of the filed-rate doctrine).”).

24 No. 02-2667

reflected in a lower cost of doing business that in competi-

tion are passed along to customers.” Id. at 927. However, if

in some states arbitration clauses are stricken as unconscio-

nable or illegal under various states’ consumer protection

laws, whereas in other states such provisions are validated,

the overall cost savings will be reduced. AT&T and other

providers would then be faced with three options—

increase the rates of those living in litigation (as opposed

to arbitration) states, increase everyone’s rates, or leave

rates the same. The first option results in differing rates

which violates the intent (if not the terms, see infra at 26

n.8), of the Communications Act. See Central Office, 524

U.S. at 223 (“[T]he policy of nondiscriminatory rates is

violated when similarly situated customers pay different

rates for the same services.”). The second and third op-

7

tions (the latter of which is economically unrealistic),

7

It is unreasonable to assume that rates would remain the same

even if the arbitration clause were invalidated because, as

Metro East recognized, arbitration offers cost-saving benefits to

telecommunication providers and “these benefits are reflected

in a lower cost of doing business that in competition are passed

along to customers.” Id. at 927. Realistically, then, without the

arbitration provision, AT&T and other carriers would be forced to

increase rates across the board in order to prevent discriminatory

pricing. Besides being unfair to customers who must now pay

higher rates while still subject to arbitration clauses (held valid in

their home states), this outcome conflicts with Congress’s intent

in passing the Telecommunications Act of 1996. Specifically, in

passing the Telecommunications Act of 1996, Congress sought “to

promote competition and reduce regulation in order to secure

lower prices and higher quality services for American telecom-

munications consumers . . . .” Preamble, Telecommunications Act

of 1996, Pub. L. No. 104-104, 110 State. 56 (1996). Moreover, if the

(continued...)

No. 02-2667 25

while on their face do not vary the rates consumers re-

ceive, nonetheless constitute “discrimination in charges.”

As the Supreme Court recognized in Central Office,

“rates . . . do not exist in isolation,” id. at 223, and “ ‘dis-

crimination in charges’ . . . can come in the form of

a lower price for an equivalent service or in the form of

an enhanced service for an equivalent price.” Id. at 223

(quoting Competitive Telecommunications Assn. v. FCC, 998

F.2d 1058, 1062 (D.C. Cir. 1993)). Thus, if AT&T charges

its customers the same rate, but provides different terms

and conditions for service, that too is a form of “discrimi-

nation in charges.” Accordingly, even if AT&T leaves its

rates the same (or increases everyone’s rates), consumers

will still face discriminatory charges, as some customers

will be bound by the arbitration clause and others will

not be. Those not bound will obtain that same rate with-

out subjecting themselves to the terms and conditions

which made that rate possible. See Metro East, 294 F.3d

7

(...continued)

detariffing provisions of the Telecommunications Act subject the

terms of nationwide long-distance form contracts to state law

attack, the transactional costs and litigation expenses would also

increase. Carriers would then face the continuous cost of court

challenges and the added expense of revising and distribut-

ing modified CSAs which conform with new state court rul-

ings. Consumers would bear the brunt of this through higher

prices for telephone service. This too is at odds with Congress’s

intent. It also belies the FCC’s belief that the transactional

costs of detariffing would be fixed and short-lived. See, 11 FCC

Rcd. at 20,736 (¶ 57) (recognizing that detariffing would result

in some “increased administrative costs,” but anticipating

those costs to be initial (and fixed) costs only resulting from

“the shift to a detariffed environment . . . (such as the cost

of developing short, standard contracts)”) (emphasis added).

26 No. 02-2667

at 927 (“Customers therefore are compensated through

lower rates for any net loss they may experience in arbi-

tration. They can’t accept the lower rates . . . while avoiding

the means that made lower rates possible.”).

Of course, Section 202(a) only prohibits “undue” or

“unreasonable” discrimination, and thus it is possible that

AT&T could justify its disparate charges because state law

caused the discrimination by invalidating the arbitration

clause in some states, but not others. See, e.g., Panatronic,

USA v. AT&T Corp., 287 F.3d 840, 844 (9th Cir. 2002)

(“A difference in price is not unreasonable if there is a

neutral, rational basis underlying [the disparity].”) (internal

quotes omitted). However, allowing state law to determine

the validity of the various terms and conditions agreed

upon by long-distance providers and their customers will

create a labyrinth of rates, terms and conditions and this

violates Congress’s intent in passing the Communications

8

Act.

Third, it is clear from Section 201(b) that Congress in-

tended federal law to govern the validity of the rates, terms

and conditions of long-distance service contracts.

As excerpted above, that section requires all charges and

practices related to communication service to be just and

reasonable, and it declares unlawful any unjust or un-

reasonable charges or practices. 47 U.S.C. § 201(b). This

language demonstrates Congress’s intent that federal

8

On the other hand, if the resulting discrimination was not

considered “reasonable,” then AT&T would be in violation of

Section 202(a). In that case, state law would not just conflict

with a federal objective, but it would directly conflict with fed-

eral law because it would be impossible for AT&T “to comply

with both state and federal requirements, . . . .” Freightliner Corp.

v. Myrick, 514 U.S. at 287.

No. 02-2667 27

law determine the reasonableness of the terms and con-

ditions of long-distance contracts. See also In re Long

Distance Telecomm. Lit., 831 F.2d 627, 631 (6th Cir. 1987)

(“Section 201(b) speaks in terms of reasonableness, and

the very charge of Count I is that the defendants engaged

in unreasonable practices. This is a determination that

‘Congress has placed squarely in the hands of the [FCC]’ ”)

(quoting Consolidated Rail Corp. v. National Ass’n of Recycl-

9

ing Indust. Inc., 449 U.S. 609, 612 (1981)). While Boomer

challenges the arbitration clause under the state law doc-

trine of unconscionability and various state consumer

protection statutes, in essence the question is the same—

9

Section 207 of the Communications Act authorizes “[a]ny

person claiming to be damaged by any common carrier subject to

the provisions of this chapter” to file a complaint with the FCC.

47 U.S.C. § 207. Additionally, Section 208 provides: “(a) Any

person, any body politic or municipal organization, or

State commission, complaining of anything done or omitted

to be done by any common carrier subject to this chapter, in

contravention of the provisions thereof, may apply to said

Commission by petition which shall briefly state the facts,

whereupon a statement of the complaint thus made shall

be forwarded by the Commission to such common carrier,

who shall be called upon to satisfy the complaint or to answer

the same in writing within a reasonable time to be specified

by the Commission.” 47 U.S.C. § 208. Boomer could have filed a

complaint with the FCC under Section 207 or Section 208, argu-

ing that the arbitration clause violates Section 201(b) because

it is unjust or unreasonable. Cf. In re Long Distance, 831 F.2d at

631 (concluding that FCC has primary jurisdiction to determine

if a term and condition of a long-distance service contract

constitute an unreasonable practice); Metro East, 294 F.3d at

927 (holding that FCC possesses exclusive authority to set aside

an arbitration clause contained in a filed tariff). However, Boomer

did not pursue this course of action.

28 No. 02-2667

whether the term is fair and reasonable. Permitting

such state law challenges would open the door for di-

rect conflicts between federal and state law on the validity

of terms and conditions contained in a long-distance service

contract. For example, the FCC specifically adopted a policy

encouraging the use of alternative dispute resolution in its

administrative procedures. 47 C.F.R. § 1.18. Also, in the

past, tariffs filed by other carriers have include arbitration

clauses and those clauses have been enforced. See Metro

East, 294 F.3d at 926-27. The FCC has also concluded that

class actions are “neither contemplated by, nor consistent

with” the Communications Act’s complaint remedies.

Krauss v. MCI, 14 FCC Rcd. 2770, 2775-76 (¶ 10). Yet, if

Boomer would have his way, arbitration provisions and

clauses prohibiting class actions would be illegal under state

law, even if they were considered “just and reasonable”

under federal law. The Supremacy Clause prohibits such an

outcome.

Boomer argues in response that following detariffing

federal law no longer preempts state law challenges to

the validity of contractual provisions. Specifically, Boomer

claims that because the FCC no longer requires long-

distance providers to file tariffs, 47 U.S.C. § 160, the

cases which had held that the Communications Act pre-

empts state law are now inapplicable. In support of his

position, Boomer cites Ting v. AT&T, 182 F.Supp. 2d 902

(N.D. Cal. 2002), a class action suit challenging, among other

things, the validity of AT&T’s arbitration clause under

California law. The court in Ting rejected AT&T’s preemp-

tion argument and its reliance on decisions rendered before

detariffing, concluding that “[i]n light of the clear purpose

of the filed rate doctrine, AT&T’s reliance on these cases is

misplaced.” Id. at 937.

No. 02-2667 29

Boomer is correct that the filed-rate doctrine and the tariff-

filing requirement demonstrated Congress’s intent

to preempt state law challenges to the terms and condi-

tions contained in the tariff. However, Section 203, which

required the filing of tariffs, merely served as a mecha-

nism by which the FCC could assure compliance with the

standards set forth in Sections 201 and 202. See MCI, 512

U.S. at 230 (“[T]his Court has repeatedly stressed that rate

filing was Congress’s chosen means of preventing unrea-

sonableness and discrimination in charges.”). Thus, the

filing requirement furthered the Communications Act’s

purpose of prohibiting and punishing unequal rates and

preventing discrimination. Id. Following detariffing, those

goals remain, as do the substantive requirements of Sec-

tions 201 and 202. It is just that now Congress believes

that these goals can be met without tariffs. In fact, in

authorizing the FCC to forego the tariff-filing require-

ment, Congress required the FCC to first assure itself

that the filing of a tariff was “not necessary to ensure that

the charges, practices, classifications, or regulations . . .

are just and reasonable and are not unjustly or unreason-

ably discriminatory.” 47 U.S.C. § 160(a)(1). Thus, even

though the FCC no longer mandates the filing of tariffs,

the congressional objective of providing uniform rates,

terms and conditions remains, as does the federal prohib-

ition on terms and conditions which are unjust or unrea-

sonable. Moreover, following detariffing, the FCC in-

tended customers to retain the right to challenge the

justness and reasonableness of long-distance providers’

charges and practices under Section 208. Interstate

Interexchange Marketplace, 11 FCC Rcd. at 20,730 (¶ 21).

Additionally, the FCC made clear that its decision elimi-

nating the tariff requirement did “not affect [the FCC’s]

enforcement of carriers’ obligations under sections 201

and 202.” Interstate Interexchange Marketplace, 12 FCC Rcd.

30 No. 02-2667

at 15,057 (¶ 77). Therefore, detariffing does not alter the

fundamental design of the Communications Act, nor modify

Congress’s objective of uniformity in terms and conditions

for all localities. Accordingly, we reject Boomer’s argument

10

and his reliance on Ting.

Boomer next contends that the FCC’s detariffing or-

ders support his position that federal law does not pre-

10

Boomer also argues that Ting collaterally estops AT&T from

challenging the validity of the arbitration clause because the court

in Ting held that the arbitration clause was unconscionable.

However, for collateral estoppel to bar subsequent litigation,

among other things, the issue sought to be precluded must be

the same as involved in the prior case. Chicago Truck Drivers,

Helpers & Warehouse Union (Independent) Pension Fund, 125

F.3d 526, 530 (7th Cir. 1997). In Ting, the question of unconscion-

ability involved California law, whereas in this case it involves

Illinois law, and therefore the issues are not the same. In

fact, because we conclude that Boomer’s state law challenge to

the arbitration clause is preempted by the Communications Act,

the issue of unconscionability is not even in play. Moreover,

while on appeal Boomer perfunctorily states in a footnote

that Ting collaterally estops AT&T from arguing that the Com-

munications Act preempts his state law challenges to the arbi-

tration clause, he fails to support this position with any legal

analysis or citation. Therefore he has waived that argument.

Rekhi v. Wildwood Indust., Inc., 61 F.3d 1313, 1317 (7th Cir. 1995).

Finally, even had Boomer not waived this argument, because

the issue of preemption involves a pure question of law and

because Ting is currently on appeal to the Ninth Circuit, we

would still conclude that Ting has no preclusive effect. See,

e.g., Chicago Truck Drivers, 125 F.3d at 532-33 (holding that

collateral estoppel did not bar the defendant from relitigating

a pure question of law, and noting that that is especially true

“when the issue is of general interest and has not been resolved

by the highest appellate court that can resolve it”) (internal

quotation omitted).

No. 02-2667 31

empt his state law challenges to the validity of the arbi-

tration clause. Specifically, Boomer cites to the FCC’s

response to AT&T, Sprint and WorldCom’s request that

the FCC “[c]larify that federal, and not state, law gov-

erns the determination as to whether a nondominant in-

terexchange carrier’s rates, terms, and conditions . . . are

lawful,” 12 FCC Rcd. at 15,057 (¶ 76), wherein the FCC

stated:

We therefore agree with AT&T, Sprint, and WorldCom

that the Communications Act continues to govern

determinations as to whether rates, terms, and condi-

tions for interstate, domestic, interexchange services are

just and reasonable, and are not unjustly or unreason-

ably discriminatory. While the parties only sought

clarification that the Communications Act governs

the determination as to the lawfulness of rates, terms,

and conditions, we note that the Communications Act

does not govern other issues, such as contract formation

and breach of contract, that arise in a detariffed environ-

ment. As stated in the Second Report and Order, consum-

ers may have remedies under state consumer protection

and contract laws as to issues regarding the legal

relationship between the carrier and customer in a

detariffed regime.

12 FCC Rcd. at 15,057 (¶77).

Boomer focuses on the FCC’s pronouncement that “the

Communications Act does not govern other issues, such

as contract formation and breach of contract,” as well as

its statement that “consumers may have remedies under

state consumer protection and contract laws.” Boomer

argues that this language demonstrates that federal law

does not preempt his state law challenge to the validity

of the arbitration clause. That argument, however, ig-

nores the earlier language wherein the FCC stated that

32 No. 02-2667

“the Communications Act continues to govern determina-

tions as to whether rates, terms, and conditions . . . are just

and reasonable, and are not unjustly or unreasonably

discriminatory,” and the FCC’s statement that “the Commu-

nications Act governs the determination as to the lawfulness

of rates, terms and conditions, . . . .” Thus, while state law

may determine whether a contract has been formed, federal

law still governs the validity of the rates, terms and condi-

11

tions of the contract.

Finally, Boomer cites to the historical notes to 47 U.S.C.

§ 152 which provide: “This Act and the amendments

made by this Act shall not be construed to modify, impair,

or supersede Federal, State, or local law unless expressly

so provided in such Act or amendments.” 47 U.S.C. § 152,

Historical Statutory Notes. Boomer contends that this

savings clause demonstrates that Congress did not in-

tend to preempt state law challenges to the terms and

conditions of the CSA. However, Section 152 was passed

as part of the Telecommunications Act of 1996 and by its

own terms applies only to “[t]his Act and the amend-

ments made by this Act.” “This Act” is the Telecommun-

ications Act of 1996, and not the Communications Act

11

In Ting, the district court concluded that under California

law the doctrine of unconscionability concerns the formation of

a contract. However, whether state law treats unconscionabil-

ity as a doctrine preventing the formation of a contract or as

a defense barring enforcement of a term of a contract, the ef-

fect is the same—a contractual provision is declared illegal

under state law. Either way, the outcome conflicts with the

federal objective of the Communications Act. Accordingly, even if

under state law a challenge to the validity of a term or condition

of a long-distance service contract is characterized as an issue of

contract “formation,” that state law challenge is nonetheless

preempted.

No. 02-2667 33

of 1934, of which Sections 201 and 202 are part. Therefore,

rather than support Boomer’s position, the historical

notes to Section 152 confirm that the Telecommunica-

tions Act did not “modify, impair or supersede” Sections

201 and 202, and their goals of uniformity and non-discrimi-

nation.

In sum, in passing the Communications Act Congress

sought to ensure that consumers would receive uniform

rates and that consumers would not be discriminated

against based on their locality. Allowing state law chal-

lenges to the validity of the terms and conditions con-

tained in long-distance contracts, however, results in

the very discrimination Congress sought to prevent. More-

over, the arbitration clause serves to lower customers’ rates,

and thus an indirect result will be price discrimination,

either directly or indirectly (i.e., because customers paying

the same price receive different contractual rights). Finally,

Section 201(b) clearly demonstrates Congress’s intent that

federal law determine the fairness and reasonableness of

contractual terms, as opposed to state law principles such as

unconscionability. For all of these reasons, we conclude that

Boomer’s state law challenges to the validity of the arbitra-

tion clause are impliedly preempted by the Communica-

tions Act.

b) Field Preemption

In addition to arguing that Boomer’s state law chal-

lenges to the arbitration clause are preempted because

they conflict with the federal objective of the Commun-

ications Act, AT&T also contends that in passing the

Communications Act, Congress completely preempted

any state law regulation of long-distance contracts. Prior

to detariffing, this court held that the Federal Commun-

ications Act completely preempted state law challenges

34 No. 02-2667

to the terms and conditions contained in a filed tariff.

Cahnmann v. Sprint Corp., 133 F.3d 484, 489-90 (7th Cir.

1998). However, following detariffing, there appears to

be some role for state law, see 12 FCC Rcd. at 15,057 (¶77),

although it cannot operate to invalidate the rates, terms

or conditions of a long-distance service contract. It would

therefore seem that under the new detariffed regime federal

law no longer completely preempts state law. But we need

not resolve this issue today as Boomer’s state law challenges

to the arbitration clause are nonetheless preempted under

the doctrine of implied conflict preemption. Accordingly,

Boomer is bound by the arbitration clause and his claims

must be submitted to arbitration.

III.

Following detariffing, AT&T mailed Boomer an offer (in

the form of the CSA) to provide long-distance services.

Boomer accepted this offer by continuing to use AT&T’s

services, and therefore the CSA constitutes a contract.

Among other things, the CSA included an arbitration clause.

While Boomer contends that that clause is unconscionable

under state law and violates the Illinois Consumer Fraud

Act and the Deceptive Business Practices Act, the Commu-

nications Act preempts state law challenges to the validity

of contractual provisions because the Communications Act

seeks to promote the uniformity of rates, terms and condi-

tions, and state law challenges to the legality of contractual

provisions would destroy that objective. Accordingly,

Boomer cannot challenge the validity of the arbitration

clause under state law, and instead must submit to arbitra-

tion. We therefore REVERSE and compel arbitration of

Boomer’s claims. The underlying proceedings are further

stayed pending the outcome of arbitration.

No. 02-2667 35

A true Copy:

Teste:

_____________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—10-18-02