Reply Brief — T-Mobile USA, Inc. v. Ford (No. 07-1103)

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No. 07-110

INTHE L SUPREME COURT US

Supreme Court of the United States

T-MOBILE USA, INC., VERISIGN, INC.,

JAMSTER INTERNATIONAL SARL,

Petitioners,

Vv.

CHARLES FORD, CAROL FOX DE STEFANO,

INDIVIDUALLY, AND ON BEHALF OF OTHER PERSONS

SIMILARLY SITUATED AND THE GENERAL PUBLIC,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

REPLY BRIEF IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

JAMES C. GRANT CARTER G. PHILLIPS*

SHELLEY M. HALL PAUL J. ZIDLICKY

STOKES LAWRENCE, P.S. PETER C. PFAFFENROTH

800 Fifth Avenue JAMES C. OWENS

Suite 4000 SIDLEY AUSTIN LLP

Seattle, WA 98104-3179 1501 K Street, N.W.

(206) 626-6000 Washington, D.C. 20005

(202) 736-8000

Counsel for Petitioner T-Mobile USA, Inc.

April 8, 2008 *Counsel of Record

(Additional counsel on inside cover)

(PRE, SOTERA SISTERS AE ERY RIAN 2 Ge EUR MR GRD I

VWiLson-Epes Printine Co., inc. — (202)788-0086 — Wasrancron, D.C. 20002

LAURENCE J. HUTT

RONALD L. JOHNSTON

SEAN MORRIS

JOHN R. DANOS

ARNOLD & PORTER LLP

777 S. Figueroa Street

44th Floor

Los Angeles, CA 90017

(213) 243-4000

Counsel for Petitioners VeriSign, Inc.

and Jamster International Sarl

TABLE OF CONTENTS

TABLE OF AUTHORITIES

REPLY BRIEF IN SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

A.The “Question Presented” Properly

Frames The Issues And Facts Of This

B.The Decision Below Conflicts With

Rulings By Numerous Other Courts

C.The Decision Below Violates The FAA

Andi Is Preempted

CONCLUSION

‘i

TABLE OF AUTHORITIES

CASES

Cregg v. Ministor Ventures, 148 Cal. App.

3d 1107 (1983)

Gay v. CreditInform, 511 F.3d 369 (8d Cir.

1, 2, 4, 5, 10

Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20 (1991) 3, 10, 11

Jenkins v. First Am. Cash Advance of Ga.,

LLC, 400 F.3d 868 (11th Cir. 2005), cert.

denied, 546 U.S. 1214 (2006)

Johnson v. West Suburban Bank, 225 F.3d

366 (3d Cir. 2000)

Livingston v. Associates Fin., Inc., 339 F.3d

553 (7th Cir. 2003)

Lowden v. T-Mobile USA, Inc., 512 F.3d

1213 (9th Cir. 2008)

Moses H. Cone Mem’ Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983)

Perry v. Thomas, 482 U.S. 483 (1987)

Shroyer v. New Cingular Wireless Servs.,

Inc., 498 F.3d 976 (Sth Cir. 2007)

Snowden v. CheckPoint Check Cashing,

290 F.3d 631 (4th Cir. 2002)

Southland Corp. v. Keating, 465 US. 1

T-Mobile USA, Inc. v. Laster, No. 07-976

(filed Jan. 23, 2008)

Tillman v. Commercial Credit Loans, Inc.,

655 S.E.2d 362 (N.C. 2008)

Tunkl v. Regents, 383 P.2d 441 (Cal. 1963)..

Vilner v. Crocker Natl Bank, 89 Cal. App.

3d 732 (1979)

Volt Info. Scis., Inc. v. Board of Trs., 489

U.S. 46% (1989)

TABLE OF AUTHORITIES—continued

STATUTES

OTHER AUTHORITY

1 Witkin, Summary of California Law

(10th ed. 2005)

REPLY BRIEF IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

In their Petition, T-Mobile USA, Inc., VeriSign,

Inc., and Jamster International Sarl (together,

“petitioners”) showed that the Ninth Circuit’s refusal

to enforce the terms of the parties’ agreement to

arbitrate individually conflicts with the Third

Circuit’s decision in Gay v. Creditinform, 511 F.3d

369 (3d Cir. 2007), the decisions of three additional

federal circuit courts, and this Court’s decisions

applying Section 2 of the Federal Arbitration Act

(“FAA”). Pet. 3-5 & n.2. Petitioners further showed

that this case presents a recurring issue of national

importance that affects contracts benefiting countless

consumers and businesses: whether state-law uncon-

scionability principles may be employed to discrim-

inate against and prevent the enforcement of the

terms of agreements to arbitrate individually in cases

involving claims by a consumer. Jd. at 2-5, 11-12.

As petitioners previously explained, this case

presents the same question as in 7-Mobile USA, Inc.

v. Laster, No. 07-976 (filed Jan. 23, 2008), a case in

which this Court has requested a response that is

now due on April 25, 2008. Efficiency dictates that

the petitions in both cases be considered together,

and respondents have offered no reason why that

course should not be followed. Moreover, because

Laster involves a single set of claims, rather than the

different theories of liability advanced against

different defendants here (Opp. 3), Laster is a more

suitable vehicle for addressing the fundamental

issues that these cases present.

Respondents’ brief in opposition does not seriously

contest the significance of the questions presented in

the petition. Instead, respondents seek to avoid

review through a number of insubstantial arguments.

First, they mischaracterize the question presented

here (Opp. 7-8), which involves a challenge to the

Ninth Circuit's refusal to enforce individual

arbitration as set forth in the parties’ agreement and

not its subsequent enforcement of a severance

provision that only became relevant after the court

below violated the FAA by striking down the parties’

chosen arbitration procedures. Second, in arguing

that there is no circuit conflict on the question

presented here (id. at 9-11), respondents badly

misconstrue Gay v. CreditInform, 511 F.3d 369 (3d

Cir. 2007), ignore that the Ninth Circuit explicitly

“declin[ed] . . . to follow” Gay, see Lowden v. T-Mobile

USA, Inc., 512 F.3d 1213, 1221 n.3 (9th Cir. 2008),

and neither mention nor discuss the numerous other

contrary circuit court decisions that hold that

individual arbitration is apprupriate for the effective

resolution of claims by consumers. See Pet. 3-4 &

n.2. Finally, in arguing that state law can preclude

parties from choosing the procedures that will apply

in arbitration (Opp. 8-9), respondents ignore that this

Court has ruled that “the uniqueness of an

agreement to arbitrate” may not be used as the basis

for an unconscionability finding subverting arbitra-

tion. See Perry v. Thomas, 482 U.S. 483, 492 n.9

(1987). They also do not address that the Third

Circuit, in Gay, applied Perry to hold that state law

unconscionability principles could deny parties their

federal right to enforce individual arbitration, which

represents the heartland of alternative dispute

resolution. Gay, 511 F.3d at 395.

In sum, the question presented raises an important

issue that has generated a conflict among the federal

circuits and warrants resolution by this Court. The

petition for certiorari should be held pending the

Court’s disposition of T-Mobile USA, Inc. v. Laster,

No. 07-976 (filed Jan. 23, 2008), and then disposed of

accordingly.

A. The “Question Presented” Properly

Frames The Issues And Facts Of This

Case.

Respondents lead with the argument that the

“Question Presented” is not “applicable to the facts

and circumstances of this action.” Opp. 7-8. That

claim is baseless.

Here, the parties agreed to arbitrate on an

individual basis any disputes arising out of their

contracts with petitioner T-Mobile. Pet. App. 30a. As

this Court has explained, the FAA was enacted to

ensure the enforcement of the procedures chosen by

parties to resolve their disputés. E.g., Volt Info. Scis.,

Inc. v. Board of Trs., 489 U.S. 468, 479 (1989); 9

U.S.C. § 4. Indeed, a principal benefit of arbitration

is that “by agreeing to arbitrate, a party ‘trades the

procedures and opportunity for review of the court-

room for the simplicity, informality, and expedition of

arbitration.” Gilmer v. Interstate/Johnson Lane

Corp., 500 U.S. 20, 31 (1991). Here, the district court

and Ninth Circuit refused to enforce an essential

term of the parties’ arbitration clause—their

agreement to arbitrate individually—on grounds that

petitioners contend violate the FAA. See Pet. 4-5; see

also Pet. for Certiorari at 25-29, T-Mobile USA, Inc.

v. Laster, No. 07-976 (filed Jan. 23, 2008). The

question whether the Ninth Circuit violated the FAA

when it refused to enforce individual arbitration is

thus squarely presented in this case.

Indeed, the parties’ inclusion of a severance pro-

vision in the event that individual arbitration were

deemed unenforceable underscores the importance

that the parties attached to that aspect of their

arbitration agreement. Petitioners do not challenge

the lower courts’ enforcement of the severance

provision, but instead attack the antecedent deter-

mination that individual arbitration agreed to by the

parties is not enforceable in accordance with their

agreement's terms. See 9 U.S.C. § 4. This case

squarely presents that issue, which, as shown below, |

implicates a substantial conflict among the federal

courts of appeals.

B. The Decision Below Conflicts With

Rulings By Numerous Other Courts.

Respondents’ argument (Opp. 9-11), that there is no

conflict among the federal courts is based upon (i) a

misreading of the Third Circuit's decision in Gay, and

(ii) a refusal to address multiple decisions of other

courts of appeals that uphold individual arbitration

because it allows for the effective vindication of

statutory rights in cases involving causes of action

indistinguishable from those at issue here.

1. Respondents’ discussion of the Third Circuit’s

ruling in Gay is not a fair reading of that decision.

See Opp. 10. In Gay, the Third Circuit ruled that

state-law decisions holding that agreements to

resolve consumer claims by individual arbitration

were unconscionable must give way to the FAA’s

federal mandate that such agreements be enforced.

511 F.3d at 394. That ruling did not turn on any

claim that “the statutes upon which [plaintiff] based

her claims required a judicial forum” or that “a

specific statute provided her the right to assert her

claims as a class action.” Opp. 10 (emphasis in orig-

inal). To the contrary, the Third Circuit explained

that state unconscionability law was preempted by

the FAA because the state decisions improperly “rely

on the uniqueness of an agreement to arbitrate as a

basis for a state-law holding that enforcement would

be unconscionable.” 511 F.3d at 394 (quoting Perry,

482 U.S. at 492 n.9).

That ruling by the Third Circuit is in conflict with

the Ninth Circuit’s rejection, in the ruling below, of

the “argument that California [unconscionability] law

is preempted by the [FAA].” Pet. App. 3a (following

Shroyer v. New Cingular Wireless Servs., Inc., 498

F.3d 976, 987-93 (9th Cir. 2007)). And, although

respondents assert that the Ninth Circuit’s decision

in Lowden, 512 F.3d at 1221, is distinguishable from

Gay, they never attempt to explain how, Opp. 10-11,

while they studiously avoid the Ninth Circuit’s

explicit choice not to “follow” Gay. 512 F.3d at 1221

n.3.

What respondents cannot avoid is that the Gay

cu.rt considered and rejected the very argument that

the court below accepted: that state unconscionability

law could be employed as a basis for denying the

parties’ federal right under the FAA to arbitrate

disputes individually. See Gay, 511 F.3d at 394

(quoting Perry, 482 U.S. at 492 n.9) The Third

Circuit in Gay ruled that even though state law

“cases are written ostensibly to apply general prin-

ciples of contract law, they hold that an agreement to

arbitrate may be unconscionable simply because it is

an agreement to arbitrate.” Id. at 395. As such, the

Third Circuit ruling that Pennsylvania unconscion-

ability law was preempted by the FAA is in conflict

with the Ninth Circuit’s decision in this case. See id.

(following Perry, 482 U.S. at 492 n.9).!

1 Respondents likewise assert that Tillman v. Commercial

Credit Loans, Inc., 655 S.E.2d 362 (N.C. 2008), does not conflict

with Gay. Opp. 11. Tillman relied upon state policy to rule that

a class waiver in an arbitration agreement was unenforceable.

2. In addition, respondents say nothing in

response to petitioners’ showing that the decision

below conflicts with decisions from four separate

circuits, which hold that individual arbitration allows

for effective vindication of claims by consumers. Pet.

3-4 & n.2; see also Pet. for Certiorari at 11-25, T-

Mobile USA, Inc. v. Laster, No. 07-976 (filed Jan. 23,

2008).

In contrast to the Ninth Circuit, four different

circuits have upheld individual arbitration in cases

involving small claims by consumers because

individual arbitration allows for the _ effective

vindication of statutory rights. See Pet. 4 n.2. (citing

cases). For example, in Johnson v. West Suburban

Bank, 225 F.3d 366, 373 (8d Cir. 2000), then-Chief

Judge Becker ruled that individual arbitration

allowed for the effective vindication of substantive

rights because it did “not eliminate plaintiff

incentives to assert rights under the [Truth In

Lending Act}.” Id. at 374.

In Snowden v. CheckPoint Check Cashing, 290 F.3d

631 (4th Cir. 2002), the Fourth Circuit lkewise

rejected a consumer's claim that an agreement to

arbitrate individually was unconscionable on the

alleged ground that “without the class action vehicle,

[plaintiff] will be unable to maintain her legal

representation given the small amount of her

individual damages.” Jd. at 638. Instead, the court

ruled that plaintiffs fears about the loss of her legal

representation were unfounded because “[a]ttorneys’

fees” were recoverable by a prevailing plaintiff in

655 S.E.2d at 373. As the dissent noted, the majority failed to

consider whether this Court’s jurisprudence or the FAA

preempted state law, id. at 386-87 (Newby, J., dissenting), and

created a direct conflict between the majority's ruling and Gay,

id. at 387.

arbitration. Id. at 638-39. Accord Livingston v.

Associates Fin., Inc., 339 F.3d 553, 559 (7th Cir.

2003).

And, in Jenkins v. First American Cash Advance of

Georgia, LLC, 400 F.3d 868 (11th Cir. 2005), cert.

denied, 546 U.S. 1214 (2006), the Eleventh Circuit

held that the denial of a class-action mechanism was

not unconscionable. Id. at 877-78. Instead, the court

ruled that the availability of attorney’s fees under the

arbitration agreement provided plaintiffs with

effective access to legal representation, and therefore

“arbitration agreements prohibiting class action relief

do not necessarily choke off the supply of lawyers

willing to pursue claims on behalf of debtors.” Id. at

878 (internal quotation marks omitted).

Here, of course, there is no dispute that

respondents would be entitled to recover reasonable

attorneys’ fees and costs if they prevail on their

underlying claims. Pet. App. 12a & n.4. Under the

rulings in the Third, Fourth, Seventh, and Eleventh ©

Circuits, individual arbitration should have been

enforced as a matter of federal law because

respondents would be able effectively to vindicate

their statutory rights. Yet, because respondents

brought their claim in California, the parties’

agreement to arbitrate individually was deemed

unconscionable by the Ninth Circuit, which has held

that even when a party may recover reasonable

attorneys’ fees and costs, individual arbitration is

nevertheless unenforceable. See Shroyer v. New. »

Cingular Wireless Servs., Inc., 498 F.3d 976, 986 (Sth

Cir. 2007).

In short, there is a plain and stark conflict between

the decision below and decisions of other federal

courts of appeals across the country.

C. The Decision Below Violates The FAA

And Is Preempted.

Finally, respondents argue on the merits that

application of the FAA to compel enforcement of the

arbitration clause in this case would afford special

treatment to contracts to arbitrate by precluding

enforcement of generally-applicable contract law.

Opp. 8-9." As shown above, respondents’ arguments

implicate issues that have generated conflicts among

the lower courts and that warrant resolution by this

Court. In all events, respondents’ arguments should

be rejected on the merits.

Section 2 of the FAA mandates the enforcement of

agreements to arbitrate except upon grounds

available for the “revocation of any contract.” 9

U.S.C. § 2. In Southland Corp. v. Keating, 465 U.S. 1

(1984), this Court reversed the California Supreme

Court’s refusal to enforce an agreement to arbitrate

based on a state law that prohibited agreements to

“waive compliance with any provision” of state

franchise law. Id. at 10. This Court held that that

provision of state franchise law was preempted

because it was not “a ground that exists at law or in

equity ‘for the revocation of any contract.” Id. at 16

n.11 (emphasis added by the Court) (quoting 9 U.S.C.

§ 2). That holding applies equally here because, on

its face, the test crafted by the California Supreme

Court and adopted by the Ninth Circuit below applies

only to certain consumer contracts, and not “any

contract,” as required by Section 2 of the FAA. See

Opp. 5. Moreover, respondents cannot avoid preemp-

tion by arguing that the decision below applied a

court-made rule rather than a statute (Opp. 10),

because the preemptive effect of the FAA does not

depend on whether offending state law is “of legis-

lative or judicial origin.” Perry, 482 U.S. at 492 n.9.

Respondents further insist that the Ninth Circuit

merely applied the generally applicable principle that

California will not enforce contract provisions that

serve to exculpate a party from liability. Opp. 5-6.

Specifically, respondents rely upon the California

Supreme Court's invocation of California Civil Code

§ 1668 to justify the decision not to enforce the

arbitration agreement here. See id. at 5 (quoting

Discover Bank, 113 P.3d at 1110).?

But California law is clear that, “[djespite its broad

language, section 1668 does not apply to every

contract.” Vilner v. Crocker Natl Bank, 89 Cal. App.

3d 732, 735 (1979). On the contrary, that principle

applies only to the subset of contracts that involve

the “public interest.” Tunkl v. Regents, 383 P.2d 441

(Cal. 1963); see also Cregg v. Ministor Ventures, 148

Cal. App. 3d 1107, 1111 (1983) (same); 1 Witkin,

Summary of California Law § 660, at 737-38 (10th

ed. 2005) (same). Thus, § 1668, which underpins

Discover Bank and the decision below, does not

provide a basis for refusing to enforce an agreement

to arbitrate individually because it is not a “ground|]

as exist[s] in law or equity for the revocation of any

contract.” 9 U.S.C. § 2 (emphasis added).

Second, in any event, the suggestion that individual

arbitration would “exculpate” petitioners from liabil-

ity simply ignores the contrary decisions of multiple

federal courts of appeals, which have held that

individual arbitration allows consumers effectively to

vindicate their statutory rights. As the Third Circuit

2 Section 1668 provides: “All contracts which have for their

object, directly or indirectly, to exempt any one from

responsibility for his own fraud, or willful injury to the person or

property of another, or violation of law, whether willful or

negligent, are against the policy of the law.”

has explained, even where the potential recovery is

small, the prospect of recovering reasonable

attorneys’ fees ensures that such cases can be

prosecuted effectively through individual arbitration.

Johnson, 225 F.3d at 373.

The contrary conclusion adopted by the Ninth

Circuit in Shroyer, i.e., that the attorneys’ fees that

an arbitrator indisputably could award if respondents

prevail on their substantive claims would be

inadequate, hearkens back to the “longstanding

judicial hostility to arbitration agreements.” Gilmer,

500 U.S. at 24. Indeed, such a view is out of step

with this Courts decisions enforcing parties’

agreement to arbitrate over the past 25 years, and

cannot be reconciled with the “liberal federal policy

favoring arbitration agreements.” Moses H. Cone

Mem Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

(1983); cf. Gay, 511 F.3d at 393 n.17 (noting that in

consumer contracts generating small fees, businesses

have “a legitimate reason to seek to avoid expensive

litigation to resolve disputes with [their] customers

and instead resolve [their] disputes less formally and

probably less expensively in arbitration”). In all

events, if there were any doubt on this issue, “the

[FAA] establishes that, as a matter of federal law,

any doubts concerning the scope of arbitrable issues

should be resolved in favor of arbitration.” Moses H.

Cone, 460 U.S. at 24-25.

This case, like Laster, presents the important and

recurring issue of whether state unconscionability

law can be employed in a manner that, in practice,

applies only to arbitration agreements and which

“could result in a significant narrowing of the

application of the FAA.” Gay, 511 F.3d at 395. What

is at stake is nothing less than the ability of parties

to agree to trade the costs, delay and complexity of

litigation for the “simplicity, informality and

expedition of arbitration.” Gilmer, 500 U.S. at 31.

CONCLUSION

For these reasons, and those set forth in the

petition, the petition for a writ of certiorari should be

held pending the Court’s disposition of T-Mobile USA,

Inc. v. Laster, No. 07-976 (filed Jan. 23, 2008), and

then disposed of accordingly.

Respectfully submitted,