Reply Brief — Cellco Partnership v. Litman

Siprame Court. US.

Za) -" ER

\ No. 10-398 DEC 3~ 2010

IN THE

Supreme Court of the United States

CELLCO PARTNERSHIP

D/B/A VERIZON WIRELESS,

Petitioner,

v.

KEITH LITMAN, ET AL,

Respondents.

ON PETITION FOR A Writ or CERTIORARI TO THE

UNITED STaTes Court OF APPEALS FOR THE Tuirp Cincurr

REPLY BRIEF

————— ——

-—

PHILIP R. SELLINGER ANDREW G. McBribDE

Topp L. SCHLEIFSTEIN Counsel of Record

GREENBERG TRAURIG, LLP THomaAs R. McCarruy

200 Park Avenue J. MICHAEL CONNOLLY

Florham Park, NJ 07932 Wivey Rei LLP

(973) 360-7900 1776 K Street, N.W.

Washington, DC 20006

(202) 719-7000

amcbride@wileyrein.com

December 9, 2010 Attorneys for Petitioner

233820 ce

COUNSEL PRESS

(800) 274 3321 + (800) 359-O859

i

TABLE OF CONTENTS

Page

TABLE OF COMTBIED siscinscasscansenuxnes i

TABLE OF CITED AUTHORITIES ......... ii

REPLY BRIEF FOR PETITIONER ......... 1

I. Respondents Concede That The Petition

Satisfies The Rule 10 Standard For

Granting Cortierert ...sccccvscssianens |

Il. This Petition Should Be Granted So That

The Court May Consider The Full Extent

Of FAA Preemption And Ensure Proper

Resolution Of The Question Presented

Here And In Concepcion. ..............- 3

CONCLUSION... ccasdscscscccscmusauneuasune 10

i

TABLE OF CITED AUTHORITIES

Page

CASES

AT&T Mobility LLC v. Concepcion,

Di GED én cc ccsdsceseccsdnsscncatnss 1.2.4

Conn. Dep't of Income Maint. v. Heckler,

471 U.S. 524 (1985)... 2... ccc wees cece cence 5

Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213 (1985) .. 0. cee www c wees cc eees 6

Doctor’s Assocs., Inc. v. Casarotto,

517 U.S. GB1 (1996)... ccc cccccccenecees 7,8

Gilmer v. Interstate/Johnson Lane Corp.,

BOO US. BO CIGB1) 2.25 ccc cnccwcccencsccses 7

Homa v. Am. Express Co.,

No. 06-2985, 2010 WL 4116481

(D.N.J. Oct. 18, 2010) .......... 22 eee ee ee 2

Mitsubishi Motors Corp. .

Soler Chrysler-Plymouth, Inc.,

473 U.S. G14 (19BB) 2... cc ccccccccccsccceces 6-7

Nat’ R.R. Passenger Corp. v. Consol. Rail Corp.,

892 F.2d 1066 (D.C. Cir. 1990) ..........-.--- 6

Perry v. Thomas,

482 U.S. 48B (1987)... www ences ese escccene 7

ul

Cited Authorities

Rent-A-Center, West, Inc. v. Jackson,

BOW &. CO 2TFZ (BOND) onc ccc cee ectcese

Rodriguez de Quijas v. Shearson/

Am. Express, Inc.,

ite i ie | ee res

Shearson/Am. Express Inc. v. McMahon,

ek: |

Sitogum Holdings, Inc. v. Ropes,

352 N.J. Super. 555 (N.J. Super. Ct. 2002) ...

Sobel v. Cellco P’ship,

No. 10-CV-3312 (D.N.J. Oct. 29, 2010) . 2.2...

Southland Corp. v. Keating,

WOE REET bb cond hose aka weejuagaciass

Stutson v. United States,

WA MAG ROMEO) bovine dagc cs euenasavens

Supak & Sons Mfg. Co. v. Pervel Indus., Inc.,

593 F.2d 135 (4th Cir. 1979) .. 2.00.0.

Zimmerman v. Cohen,

SOE RNs BC TAMIR 55 irenec dd daoseseacannes

Pave

Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

WOO SIO AUDITS gw sc oan Fen cs

6

9

6

9

]

REPLY BRIEF FOR PETITIONER

This case presents the Court with a unique

opportunity to put to rest the difficult set of issues raised

by the intersection of the FAA with state contract law.

Those issues have been briefed and argued before the

Court in Concepcion and this case presents an ideal

companion case to Concepcion. It focuses on a different

part of Section 2 of the FAA to arrive at a more textually

based and more easily applied resolution of the

preemption issue.

Even if this ease were not independently worthy of

the Court’s attention, it would have to be held in light

of Concepcion. The overarching legal issue in the two

cases—whether the FAA preempts | state

unconscionability law that nullifies bilateral arbitration

clauses—is identical as between the two cases. Indeed,

Respondent concedes as much, noting the factual and

legal identity of this case to Concepcion.

I. Respondents Concede That The Petition Satisfies

The Rule 10 Standard For Granting Certiorari.

As Petitioner has explained, and Respondents have

conceded, this case and AT&T Mobility LLC v.

Concepcion, No. 09-893, are virtually identical cases

presenting the same question ot federal law. See Pet. at

11-12; Opp. at 1 (“(T]his case is substantially factually

identical to Concepcion and closely tracks the legal

arguments raised there.”).' The question in each case is

whether the FAA preempts States from conditioning the

enforcement of arbitration agreements on the

1. References to “Opp.” are to Respondents’ brief in

opposition; references to “Pet.” are to the petition.

2

availability of class-wide arbitration. See Pet. at i; Opp.

at 1 (“The Court has already granted certiorari, and

heard oral argument... in |Concepcion| on the issue

whether the FAA preempts generally applicable state

contract law providing that a class action ban in an

arbitration agreement can be unconscionable and

unenforceable in certain cireumstances.”). Indeed, the

bulk of Respondents’ Opposition addresses the merits

of this question. Respondents argue at length that the

New Jersey Supreme Court in Mukammad—which

itself is derivative of the Discover Bank case at issue in

Concepcion, see Pet. at 11-12—applied generally

applicable unconscionability principles in finding a class-

action waiver unenforceable. Opp. at 15-24. As Petitioner

has explained, Respondents’ argument lacks merit. See

Pet. at 22-30. But in any event, the similarities between

this case and Concepcion dictate that the Court should

at a minimum hold the petition pending its decision in

Concepcion. See Stutson v. United States, 516 U.S. 163,

181 (1996) (Sealia, J., dissenting) (“We regularly hold

cases that involve the same issue as a case on which

certiorari has been granted|.|”).*

2. Numerous federal district courts have recognized the

strong identity of issues between this case and Concepcion and

have stayed further proceedings in cases involving Verizon

Wireless’s arbitration clause pending this Court’s ruling in

Concepcion. See, e.g., Homa v. Am. Express Co., No. 06-2985,

2010 WL 4116481, at *8 (D.N.J. Oct. 18, 2010) (“Advancing this

litigation while the issue of FAA preemption/preclusion with

respect to voiding class-arbitration waivers based upon state

law unconscionability principles—an identical, and dispositive,

issue in Homa, Litman, and Concepcion —is squarely before

the Supreme Court may be an exercise in futility.”); see also

Order at 2, Sobel v. Cellco P’ship, No. 10-CV-3312 (D.N.J. Oct.

29, 2010) (“[Blecause the issues in contention in Concepcion

Cont'd

Il. This Petition Should Be Granted So That The

Court May Consider The Full Extent Of FAA

Preemption And Ensure Proper Resolution Of

The Question Presented Here And In Concepcion.

The petition should be granted to allow the Court

to consider the full sweep of Section 2 preemption and

thus ensure proper resolution of the preemption

question before the Court in this case and in Concepcion.

As explained supra, both this case and Concepcion

present the question whether the FAA preempts States

from conditioning the enforcement of arbitration

agreements on the availability of class-wide arbitration.

And both this case and Concepcion focus on the text of

the savings clause in Section 2 of the FAA, which

preserves state law that serves as a ground “for the

revocation of any contract.” But Concepcion focuses

principally on only one requirement of the savings clause

(“any contract”), whereas this case focuses on both of

Section 2’s requirements (“revoecation” and “any

contract”). Thus, this case presents the Court with the

opportunity to consider the entirety of Section 2's

savings clause and the full scope of Section 2

preemption. And because state law must be both a

ground for “revocation” and applicable to “any contract”

in order to avoid the preemptive sweep of Section 2,

consideration of both requirements may be necessary

for a final resolution of the FAA preemption question

Cont'd

are similar to the case at bar, the outcome of that case may

substantially affect or be dispositive of this action.”). At a

minimum, a hold of this petition is necessary to ensure that the

Third Circuit may apply this Court's guidance in Concepcion to

the numerous similar eases pending within its jurisdiction.

4

presented here and in Concepcion. A grant of certiorari

thus is warranted.

As shown in the Petition, the proper construction of

the term “revocation” applies only to those state laws

that deal with the circumstances surrounding the

making of the contract (such as fraud, duress, or

“procedural” unconscionability) and not to notions of

“substantive” unconscionability that the court below and

in Concepcion applied to invalidate otherwise valid

arbitration clauses. This construction of the term

“revocation” would resolve the question presented in

these cases in a manner faithful to the text, structure,

and history of the FAA, and it would provide an

administrable rule for the lower courts. Perhaps more

importantly, properly construing the term “revocation”

would permit the Court to avoid the line drawing

necessitated by the “any contract” requirement of

Section 2’s savings clause (and the case-by-case

litigation it is likely to produce). See, e.g., Hr’g Tr. at

35:6-10, Nov. 9, 2010, AT&T Mobility v. Concepcion, No.

09-893 (“How would you propose to distinguish between

facially neutral contract law defenses that implicitly

discriminate against arbitration and those that do not?

What’s the test you would use to tell the difference

between the two?”) (Sotomayor, J.).*

Respondents do not dispute that this case is an

appropriate vehicle for considering the “revocation”

3. Respondents in Concepcion conceded at argument that

the “any contract” language in Section 2 preempts States from

applying facially neutral contract-law defenses in a way that

discriminates against arbitration. See, e.g., Hr’g Tr. at 35:17-19,

Nov. 9, 2010, AT&T Mobility v. Concepcion, No. 09-893 (“The

Cont'd

5)

requirement of Section 2. Instead, Respondents attempt

to engage on the merits of this issue of statutory

construction, implicitly conceding that this issue is both

properly presented and worthy of review. See Opp. at

24-32.

However, Respondents do not dispute that, as a

matter of standard canons of statutory construction, the

Section 2 term “revocation” must have a distinct

meaning. That is, Congress’s use of three adjectives in

Section 2 to describe the status of arbitration

agreements under federal law—“valid, irrevocable, and

enforceable”—but only the one noun “revocation”

(which has the same root as “irrevocable”) in the savings

clause means that grounds for “revocation” do not

include those grounds that relate to “validlity]” or

“enforceablility].”* Nor do Respondents deny that the

meaning of the term “revocation” is tied to the “making”

of the agreement to arbitrate under Section 4 of the

Cont'd

Court says this is facially nondiscriminatory law, it’s generally

applicable, but there’s a limit on that.”). The only point of

contention with regard to this argument is over where to draw

the line between applications of facially neutral contract law

that discriminate against arbitration and those that do not. /d.

at 35:6-10.

4. See Conn. Deptt of Income Maint. v. Heckler, 471 U.S.

524, 5380 n.15 (1985) (“It is a familiar principle of statutory

construction that courts should give effect, if possible, to every

word that Congress has used in a statute.”). Respondents’

assertion that there is an “unbroken linkage of invalidity,

unenforceability and revocability—including substantive

unconscionability—under § 2,” see Opp. at 28, is thus

inconsistent with the clear text of Section 2.

6

FAA. See Pet. at 15-16.° Indeed, Respondents do not

even bother to consider the text or structure of the FAA

at all.

Likewise, Respondents do not dispute that the

decisions of multiple courts (including this one) support

the construction of the term “revocation” as referring

to grounds for invalidating a contract that relate solely

to the procedural circumstances surrounding its

formation. See Pet. at 16-17 (discussing Nat'l R.R.

Passenger Corp. v. Consol. Rail Corp., 892 F.2d 1066,

1070 (D.C. Cir. 1990), Supak & Sons Mfg. Co. v. Pervel

Indus., Inc., 593 F.2d 135, 187 (4th Cir. 1979), and Dean

Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)).

In particular, Respondents ignore the fact that

Petitioner’s construction of this key statutory term is

consistent with not only the text of the FAA, but also

this Court’s repeated admonition that fraud and other

procedural defects are the type of grounds that survive

Section 2 preemption. See Skearson/Am. Express Inc.

v. McMahon, 482 U.S. 220, 226 (1987) (“Absent a well-

founded claim that an arbitration agreement resulted

from the sort of fraud or excessive economic power that

‘would provide grounds for the revocation of any

contract,’ the Arbitration Act ‘provides no basis for

disfavoring agreements to arbitrate statutory claims by

skewing the otherwise hospitable inquiry into

arbitrability.””) (quoting Mitsubishi Motors Corn. v.

©. Respondents’ contention that the “failure to comply

therewith” language in Section 4 “obviously implicates issues

of ‘validity’ and ‘enforceability,’"” Opp. at 28-29 n.3, makes no

sense at all. This language relates solely to the parties’

performance of the arbitration agreement, an issue that is

immaterial to this case.

a

i

Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985))

(emphasis added); see also Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 33 (1991); Rodriguez de Quijas

v. Shearson/¢ ». Express, Inc., 490 U.S. 477, 483-84

(1989); Prim aint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395, 403-04 (1967).

Instead, Respondents advance three weak merits

arguments. First, Respondents argue that Petitioner’s

construction of the term “revocation” is contrary to this

Court’s decisions in Rent-A-Center, West, Inc. v.

Jackson, 130 S. Ct. 2772 (2010), Perry v. Thomas, 482

U.S. 483 (1987), and Doctor’s Assocs., Inc. v. Casarotto,

517 U.S. 681 (1996). But none of these decisions even

purports to construe the meaning of the term

“revocation.”

The Court in Rent-A-Center had no reason to

confront this interpretive issue as it was immaterial to

the question presented. The relevant question was

whether Jackson’s unconscionability arguments went

to the enforceability of the delegation provision or the

arbitration agreement as a whole, not whether (and to

what extent) unconscionability defenses are preempted

by the FAA. See Rent-A-Center, 1380 8S. Ct. at 2775.

Similarly, the Perry Court “decline[d] to address [the]

claim that the arbitration agreement in this case

constitutes an unconscionable, unenforceable contract

of adhesion” because the issue was not resolved in the

lower court. 482 U.S. at 492 n.9.°

6. Perry’s statement, in a footnote, that “state law, whether

of legislative or judicial origin, is applicable if that law arose to

govern issues concerning the validity, revocability, and

Cont'd

8

Finally, although Doctor’s Associates states that

“generally applicable contract defenses, such as fraud,

duress, or unconscionability, may be applied to invalidate

arbitration agreements without contravening § 2,” 517

U.S. at 687, this statement was no part of the holding in

that case. Indeed, the Court rested its decision on the

“any contract” language of Section 2; it made no effort

to divine the meaning of the term “revocation” in Section

2. Id. And, in any event, given that the issue in that

case related to a Montana notice requirement for

arbitration agreements, to the extent that Doctor’s

Associates concerns unconscionability at all, it is best

understood as a “procedural unconscionability” case, as

it relates to the making of an arbitration agreement.

These cases thus are consistent with the text of the FAA

and the precedent relied upon by Petitioner. See Pet. at

14-22.'

Second, Respondents argue that “the legislative

history of the FAA contradicts Petitioner’s” theory of

preemption. Opp. at 29. However, Respondents rely on

Cont'd

enforceability of contracts generally,” 482 U.S. at 492 n.9, was

immaterial to that case and cannot in any event be reconciled

with the plain text of Section 2. See supra note 4 and

accompanying text.

7. To the extent that the lower courts might (mis)read any

of these cases as foreclosing the construction of the term

“revocation” advanced by Petitioner, this would stunt any

further development of the jurisprudence on this issue. Such a

risk counsels against a decision to delay considering the issue

until such time as the lower courts have more thoroughly

analyzed it.

9

only one passage from the FAA’s legislative history—a

passage that sets out a basis for the theory that the

FAA is a procedural, rather than preemptive, statute.

But this Court has already rejected that position based

upon its interpretation of the FAA as a whole. See

Southland Corp. v. Keating, 465 U.S. 1, 16 (1984)

(holding that the FAA “creat[ed] a substantive rule

applicable in state as well as federal courts,” and that

“Congress intended to foreclose state legislative

attempts to undercut the enforceability of arbitration

agreements”).

Third, Respondents argue that an arbitration

agreement can be “disregarded” for “overreaching,” and

they cite a New Jersey case, Sitogum Holdings, Inc. v.

Ropes, 352 N.J. Super. 555 (N.J. Super. Ct. 2002), for

the proposition that “overreach” means “substantive

unconscionability.” See Opp. at 31-32. But Respondents

misinterpret the term “overreach.” At the time of the

FAA’s enactment, “overreach” meant to defraud, not

merely to strike an unfair bargain. See The Century

Dictionary and Cyclopedia 4204 (1906) (“Overreach 1.

To overtake. 2. To reach beyond in any direction; rise

above; extend or go beyond. 3. To deceive by cunning,

artifice, or sagacity; cheat; outwit. 4. To reach or stretch

too far.”). Respondents’ reference to Sitogum Holdings,

which does not even define “overreach,” is simply off

the mark.® In any event, none of Respondents’

8. Respondents’ arguments regarding the

contemporaneous authorities cited by Petitioner are inapposite.

See Opp. at 31 (citing Zimmerman v. Cohen, 236 N.Y. 15, 19-20

(1923)). That a party to an arbitration agreement can waive its

right to compel arbitration by choosing to litigate is not at issue.

10

arguments detract from Petitioner’s construction of the

text and structure of the FAA, which Respondents do

not even bother to address.

In sum, the petition presents the Court with an

opportunity to resolve the thorny issues surrounding

FAA preemption of state unconscionability law with a

clear line rooted in the text of the FAA itself. If the

concept of “revocation” in the FAA's savings clause limits

the grounds upon which courts can invalidate arbitration

clauses to formation defects, then doctrines like

substantive unconscionability or alleged conflict with

“publie policy” simply do not apply. This Court would

not be obligated to wade into state unconscionability

law to determine whether it has been applied in an even-

handed manner, because substantive unconscionability

would be categorically excluded from the contract

defenses preserved by the FAA's savings clause. That

result, rooted in the text and history of the FAA, and

amenable to straightforward administration hy the

lower courts, is the correct result in both this case and

Concepcion.

CONCLUSION

For the foregoing reasons and those set out in the

petition, this Court should grant the petition for a writ

of certiorari.

1]

Respectfully submitted,

ANDREW G. MCBRIDE

Counsel of Record

Tuomas R. McCartuy

J. MICHAEL CONNOLLY

WILEY Rein LLP

1776 K Street, N.W.

Washington, DC 20006

(202) 719-7000

mebride@wileyrein.com

PHILIP R. SELLINGER

Topp L. SCHLEIFSTEIN

GREENBERG TRAURIG, LLP

200 PARK AVENUE

FLORHAM Park, NJ 07932

(973) 360-7900

Attorneys for Petitioner

December 9, 2010