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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 2007

## Text

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

2

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

3

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

4

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

5

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.

6

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.

7

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.

8

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.

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.”

10

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

11

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,

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.

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

April 8, 2008 *Counsel of Record

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_0666%3A3. Public record. Not legal advice.