Amicus Curiae Brief — Hatch v. Cellco Partnership (No. 05-1159)

sf

No. 05-1159

In the Supreme Court

of the Gnited States

| OFFICE OF THE CLERK

MIKE HATCH,

Attorney General of Minnesota

Petitioner,

, -

CELLCO PARTNERSHIP,

DBA VERIZON WIRELESS, ET. AL.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

AMICI CURIAE BRIEF OF MICHIGAN, ALASKA,

ARKANSAS, CONNECTICUT, DELAWARE, FLORIDA,

IDAHO, ILLINOIS, INDIANA, IOWA, KENTUCKY,

LOUISIANA, MAINE, MARYLAND, MASSACHUSETTS,

MISSISSIPPI, MISSOURI, MONTANA, NEBRASKA,

NEVADA, NEW JERSEY, NEW MEXICO, NORTH

CAROLINA, NORTH DAKOTA, OKLAHOMA, OREGON,

PENNSYLVANIA, RHODE ISLAND, SOUTH DAKOTA,

TENNESSEE, TEXAS, UTAH, VERMONT, WEST VIRGINIA,

WISCONSIN, AND WYOMING SUPPORTING PETITIONER

Michael A. Cox

Attorney General

State of Michigan

Thomas L. Casey

Solicitor General

Counsel of Record

P. O. Box 30212

Lansing, Michigan 48909

Gyn a (517) 373-1124

Mot lsh ti se. John R. Liskey

SA ee wanS Assistant Attorney General

snl igs Attorneys for Amici Curiae

[ Additional counsel on inside front cover]

State of Alaska

David W. Marquez

Attorney Generai

P.O. Box 110300

Juneau, AK 99811

State of Arkansas

Mike Beebe

Attorney General

323 Center Street

Suite 200

Little Rock, AR 72201

State of Connecticut

Richard Blumenthal

Attorney General

110 Sherman Street

Hartford, CT 06105

State of Delaware

Carl C. Danberg

Attorney General

820 N. French Street

Wilmington, DE 19801

State of Florida

Charles J. Crist, Jr.

Attorney General

The Capitol PL-01

Tallahassee, FL 32399

State of Idaho

Lawrence G. Wasden

Attorney General

P.O. Box 83720

Boise, ID 83720-0010

State of Illinois

Lisa Madigan

Attorney General

100 West Randolph Street

Chicago, IL 60601

State of Indiana

Steve Carter

Attorney General

IN Govt Center South

Fifth Floor

302 W. Washington Street

Indianapolis, Indiana 46204

State of Iowa

Tom Miller

Attorney General

1305 E. Walnut Street

Des Moines, IA 50319

State of Kentucky

Gregory D. Stumbo

Attorney General

Capitol Building, Suite 118

700 Capitol Avenue

Frankfort, KY 40601-3449

State of Louisiana

Charles C. Foti, Jr.

Attorney General

1885 North 3” St.

Baton Rouge, LA 70802

State of Maine

Steven Rowe

Attorney General

6 State House Station

Augusta, ME 04333

State of Maryland

J. Joseph Curran, Jr.

Attorney General

200 St. Paul Place

Baltimore, MD 21202

State of Massachusetts

Thomas F. Reilly

Attorney General

Commonwealth of

Massachusetts

One Ashburton Place

Boston, MA 02108

State of Mississippi

Jim Hood

Attorney General

P.O. Box 220

Jackson, MS 39205

State of Missouri

Jeremiah W. (Jay) Nixon

Attorney General

Supreme Court Building

207 West High Street

Jefferson City, MO 65101

State of Montana

Mike McGrath

Attorney General

P.O. Box 201401

Helena, MT 59620-1401

il

State of Nebraska

Jon Bruning

Attorney General

Nebraska Dept. of Justice

P.O. Box 98920

Lincoln, NE 68509

State of Nevada

George J. Chanos

Attorney General

Nevada Dept. of Justice

100 North Carson Street

Carson City, NV 89701

State of New Jersey

Zulima V. Farber

Attorney General

R.J. Hughes Justice

Complex

25 Market Street

P.O. Box 080

Trenton, NJ 08625-0080

State of New Mexico

Patricia A. Madrid

Attorney General

407 Galisteo Street

Bataan Memorial Bldg,

Room 260

Santa Fe, NM 87501

State of Nerth Carolina

Roy Cooper

Attorney General

Post Office Box 629

Raleigh, NC 27602-0629

State of North Dakota

Wayne Stenehjem

Attorney General

600 E. Boulevard Avenue

Bismarck, ND 58505-0040

State of Oklahoma

W.A. Drew Edmondson

Attorney General

2300 N. Lincoln Boulevard

Suite 112

Oklahoma City, OK

73105-4894

State of Oregon

Hardy Myers

Attorney General

1162 Court St., N.E.

Salem, OR 97301

State of Pennsylvania

Thomas W. Corbett, Jr.

Attorney General

16" Fl., Strawberry Square

Harrisburg, PA 17120

State of Rhede Island

Patrick Lynch

Attorney General

150 South Main Street

Providence, RI 02903

State of South Dakota

Larry Long

Attorney Genera!

1302 E. Hwy 14, Ste. 1

Pierre, SD 57501-8501

ili

State of Tennessee

Paul G. Summers

Attorney General

P.O. Box 20207

Nashville, TN 37202-0207

State of Texas

Greg Abbott

Attorney General

Capitol Station

P.O. Box 12548

Austin, TX 78701-2548

State of Utah

Mark Shurtleff

Attorney General

Utah State Capitol

Complex

East Office Bldg., Ste. 320

Salt Lake City, UT 84114

State of Vermont

William H. Sorrell

Attorney General

109 State Street

Montpelier, VT 05609

State of West Virginia

Darrell V. McGraw, Jr.

Attorney General

State Capitol, Room 26-E

Charleston, WV 25305

State of Wisconsin

Peggy A. Lautenschlager

Attorney General

17 West Main Street

Madison, WI 53702

State of Wyoming

Patrick J. Crank

Attorney General

123 State Capitol

Cheyenne, WY 82002

i

TABLE OF CONTENTS

eT POU IEE I ich disasccendseveesivhesnantpniviionnaisiaemecenies il

INTEREST OF AMICI CURIAE .....ccscsecevsssseovensvesereseevessosesees 1

SUMMARY OF ARGUMENT ..cccccersecseveessscesteresereesssortoorseesoes 2

ARGUMENTS FOR GRANTING THE PETITION ............... +

A. The Constitution preserves the States’

RISIOTIC DOLCE PO WETS. .....0cccccsecssercersenssesseseseseesees 4

B. States must be vigilant in protecting

consumers against unconscionable contracts. ..... 5

C. The Minnesota statute furthers the goals and

policies of the federal Act. ............:ccsssssseeesseeeees 8

D. Federal preemption law respects historic

Ne I III asiviccrcisscetibstctiinscectnndniateeiies 11

E. The Minnesota consumer protection statute is

not rate regulation under 47 U.S.C. §

FERIA: criciccnincsmnsccvickicinishebntecviaidibaipbietease 13

CONCLUSION

ii

TABLE OF AUTHORITIES

Cases

Bates v. Dow Agrosciences, LLC,

544 U.S. 5 EZ DAL. T7GB CA) vcccccecesescccrcveosars 11, 12

Brown v. Washington/Baltimore Cellular, Inc.,

109 F. Supp.2d 421 (D. Md. 2000) ....c.ccsecccssccescocoresseseceses 17

Cellco Partnership v. Hatch,

2004 U.S. Dist. LEXIS 18464 (D. Minn. 2004)........... 6, 19

Cellco Partnership v. Hatch,

431 F.3d. 1077 (8" Cir. 2005)........cssssssesseseeeeee 2, 11, 14, 15

Cellular Telecomm's Indus. Ass'n. v. FCC,

PENG Fc ee Cres Miele OD icnceshnrerncssansccccesichbctneninia 9,10

Fedor v. Cingular Wireless Corp.,

Be Fe ee ie kickin essai eceb dices 18

Florida Lime & Avocado Growers, Inc. v. Paul,

Te aie A einen tieiventvccnn eenkininvorseaiiianiinedutniiibivitianien 7

General Motors Corp. v. Abrams,

BE ce ls Ge iichiccsiccspcencrecenudsacevnctienenbaaneesiain 6

Gregory v. Ashcroft,

ep i lactis cis chess sccnbenstansoishsessulnepisivelaicnensh inkin 4

In Pet. of Hawaii Pub Util Comm'n,

Fe Fe PRES te iia teseencaptiivisericcstiinttnniisitianinlmien 15

In the Matter of Southwestern Bell Mobile Systems, Inc.,

BO FES ie Re a eta esinntinsirinndinnidininnlntaniien 16

In the Matter of Wireless Consumers Alliance,

Fo A An: A Pe I aitcteeninterernetiniintinmneneiiianns 16

Iowa v. U.S. Cellular Corp.,

No. 90197 (S.D. lowa August 7, 2000) (2000

a i kcipainipcabicich hacstaitsinstinleinehiiomeetinidaibeniaainpaiadiedabaig 18

iti

Medtronic, Inc. v. Lohr,

518 U.S. 470 (1996) ..ccccrcccosscocescocsesercoccrseerosenocsosesorsesueenes 11

Rice v. Santa Fe Elevator Corp.,

331 U.S. 218 (1947).....cccccorsressccessercccesceossersecrscevossnestssscasess 5

Volt Info. Scis. v. Bd of Trs.,

489 U.S. 468 (1989)......ccrcccoscoorcoccsercssoreerseesessevosecsossereees son aa

West Coast Hotel Co. v. Parrish,

SOD US. 379 (1937) nec rsccrsscccsecvscencnosseseovoonsesecccecccessesevenessors 5

Wisconsin Public Intervenor v. Mortier,

SOT U.S. SIT (AGG) cavicscscnrcssssivescosesvcsssesovastecsovassvnndecweoteees 5

Statutes

47 US.C. § FSALCS KA) ocrecccrcsecsovcaccsvesnccoosevessseesssoosesones passim

47 USAC. § FSZLCNGYEB) cnresccocccccsecercesesecssecctovessessocteccssuneveces 15

Minn. Stat. Ann. § 325F.695 (2006 Supp.)..........sssscseseeee y ee

Minn. Stat. Ann. § 325F.695(1)(d) (2006 Supp) ............+. 13, 14

Minn. Stat. Ann. § 325F.695(3) (2006 Supp) ........:ssessserees 9, 13

Constitutional Provisions

Os es SE FIRE FE) ci ccciscicesanteannsvcenienenigiieodeebtednatantaeniiibighininta 4

Other Authorities

Black's Law Dictionary, (5" Ed. 1979)........ssscscssssssessesensesesens 7

H.R. Rep. No. 103-111, 103 Cong. 1* Sess. (1993),

reprinted in 1993 U.S. Code Cong. & Admin. News,

SD Fi iiiictsicesh vbscudeniettitibabaiiteiebasuindveasduaddeiacaaiviiaejelnmaonieiens 8

National Consumer Law Center, Unfair and Deceptive

Acts and Practices, Section 1.1, (6 Ed. 2004) ............:00+ 6

The Federalist No. 45, pp. 288-294 (James Madison)

(Cintas Rowsiber Fak., B9GE) co icccsvsccsectioneseserensvostorinienheaies 4

INTEREST OF AMICI CURIAE

States have a fundamental interest in enacting laws that serve

to protect their citizens. The issue presented here is the validity

of Minnesota's wireless consumer protection act that ensures its

citizens have notice and an opportunity to consent prior to certain

changes in their wireless telephone contracts. The purpose of the

law is to protect citizens from unconscionable contract

provisions. The Minnesota law was enacted, in part, based on

testimony provided at a legislative hearing where a citizen

testified that the term of his cell phone contract was unilaterally

changed from a month-to-month contract to a one-year contract

without his knowledge. The Minnesota Legislature enacted the

wireless consumer protection act to address these concerns among

others.

The inherent right of the State to protect its citizens as

Minnesota has done is one of those rights that has never been

ceded to the federal government. The 10™ Amendment of the

Constitution provides that States retain those powers not

expressly delegated to the federal government. This principle

serves as the bedrock of our federalist system of government.

In addition to enacting the State law based on its inherent

rights, Minnesota predicated its enactment of this law based on a

clear and manifest intent as expressed by Congress when it set

forth the federal—State regulatory scheme for the wireless

telephone industry. The Federal Communications Act

specifically preserves to the States the right to regulate certain

terms and conditions of wireless contracts. Nevertheless, the

Court of Appeals overturned the Minnesota statute. The States

have a substantial interest in ensuring that their citizens are

protected from unconscionable contract provisions and have

express Congressional authority to provide protections for

wireless telephone consumers. Amici States, therefore, have a

substantial interest in this Court granting review.

SUMMARY OF ARGUMENT

The Constitution preserves to the States the authority to enact

consumer protection laws as part of their historic police powers.

Such laws can provide citizens a redress against unconscionable

contract provisions and ensure that they have a bargaining

position that prevents contracts of adhesion. States have

traditionally exercised rights in this area. Minnesota enacted a

law exercising this authority.’ At public hearings, the Minnesota

Legislature heard complaints from citizens regarding unilateral

changes in their cell phone contracts.” In one example, a month-

to-month contract was changed to a one-year contract without

notice to the citizen. The contract also instituted an early

termination fee if canceled prior to the one year. In an attempt to

address problems of this nature, the Legislature enacted a statute

that required companies to provide customers with a notice and

consent provision for certain key terms of their cell phone

contracts.

This is exactly the type of situation that States have

traditionally regulated and one that the Constitution protects. The

Court of Appeals nevertheless overturned the Minnesota statute.”

The Court incorrectly found that the Minnesota statute was

preempted by federal law. The Court of Appeals should have

interpreted the State and federal statutes in a way that gave them

both effect because there was no clear and manifest intent

expressed by Congress to preempt this type of state law. Such an

analysis would achieve the harmony between State and federal

law that our Founders intended and the Tenth Amendment

requires. The Court of Appeals ignored the States’ role in

enacting consumer protections of this nature and has therefore

invaded sovereign State rights protected by the Tenth

Amendment.

' Minn. Stat. Ann. § 325F.695 (2006 Supp).

? C.A. App. 0333-36.

* Pet. App. 1a-15a (431 F.3d. 1077 (8” Cir. 2005)).

When Congress enacted § 332(c)(3)A)* of the Federal

Communications Act it expressly reserved to the States authority

over certain terms and conditions of cell phone contracts. While

Congress prohibited States from regulating "the entry of or the

rates charged" for wireless telephone providers, the federal Act

specifically preserved to the States the right to regulate the "other

terms and conditions" of contracts between providers and

consumers.”

Not only did Minnesota enact this law pursuant to its

traditional and historic State police powers but also pursuant to

the express authority preserved to it by Congress. Under the

Court of Appeals’ interpretation, the rate prohibition language of

the federal Act preempted Minnesota's consumer protection

efforts.© This was incorrect. The Minnesota statute, which

required reasonable notice and consent prior to a unilateral

change in the terms and conditions of a contract, does not conflict

with the federal statute. The Court of Appeals’ decision has

thwarted the intent of Congress that specifically reserved

consumer protection powers to the States and fails to respect the

States’ inherent and constitutional powers to protect their citizens.

Left untouched, the Court of Appeals' decision undermines

these traditional and historic State police powers that are so

important to our republic.

&

oo

* 47 U.S.C. § 332(c)(3)(A).

* 47 U.S.C. § 332(ch3XA).

* Minn. Stat. Ann. § 325F.695 (2006 Supp).

ARGUMENTS FOR GRANTING THE PETITION

A. The Constitution preserves the States’ historic police

powers.

The Constitution created a federal government of limited

powers. "The powers not delegated to the United States by the

Constitution, nor prohibited by it to the States, are reserved to the

States respectively, or to the people."’ The States thus retain

substantial sovereign authority under our constitutional system.

As James Madison put it, "[t]he powers delegated by the

proposed Constitution to the federal government, are few and

defined. Those which are to remain in the State governments are

numerous and indefinite."®

Citing precedent dating back more than 120 years, this Court

in Gregory v. Ashcroft held’:

"The people of each State compose a State, having its

own government, and endowed with all the functions

essential to separate and independent existence,’ .. .

"Without the States in union, there could be no such

political body as the United States.’ Not only, therefore,

can there be no loss of separate and independent

autonomy to the States, through their union under the

Constitution, but it may be not unreasonably said that the

preservation of the States, and the maintenance c: their

governments, are as much within the design and care of

the Constitution as the preservation of the Union and the

maintenance of the National government. The

Constitution, in all its provisions, looks to an

indestructible Union, composed of indestructible States."

Texas v. White, 74 U.S. 700, 7 Wall. 700, 725, 19 L. Ed.

7 U.S. Const., Am. X.

* The Federalist No. 45, p. 292 (James Madison) (Clinton Rossiter Ed., 1961).

° Gregory v. Ashcroft, 501 U.S. 452, 457 (1992)Internal citations omitted).

227 (1869), quoting Lane County v. Oregon, 74 U.S. 71, 7

Wall. 71, 76, 19 L. Ed. 101 (1869).

This Court has repeatedly acknowledged its overriding

respect for States’ rights preserved by the 10'" Amendment. In

Wisconsin Public Intervenor the Court set forth the starting point

for a preemption analysis when it observed, "[w]hen considering

pre-emption, ‘we start with the assumption that the historic police

powers of the States were not to be superseded by the Federal Act

unless that was the clear and manifest purpose of Congress."""°

B. States must be vigilant in protecting consumers

against unconscionable contracts.

Imagine entering into a month-to-month cell phone contract

and subsequently calling to cancel it because you found another

provider that better met your needs. You were told that your

contract had been extended into a one-year contract. You were

advised that the only way you could cancel would be to pay a

$150 early termination fee. And, to make matters worse, if you

did not pay the early termination fee, the matter would be referred

to a collection bureau and become part of your permanent credit

history. This is exactly the situation that the Minnesota

Legislature has tried to address.

Without any means of redress, wireless telephone companies

can routinely trap consumers into contracts using old fashioned

"bait and switch" tactics. They could set incredibly low rates that

have unlimited usage only to switch such terms and conditions at

a later time, imposing the early termination fees as well. This is a

situation that calls for State oversight.

Misuse of bargaining power leads to unconscionable contracts

and States must be able to legislate against such matters."!

° Wisconsin Public Intervenor v. Mortier, 501 U.S. 597, 605 (1991) quoting

Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).

"' See e.g. West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937).

Consumer protection law is a field traditionally regulated by the

States.'* Indeed, all fifty States and the District of Columbia have

enacted consumer protection statutes designed to protect

consumers from unfair, deceptive, and abusive business practices

in the marketplace.’

Though the right of citizens to contract is well established,

this right is not absolute. Fundamental with the private right to

contract is the public right to regulate in the common interest to

prevent one party from exercising its freedom of contract to work

the public harm.

The Minnesota Legislature enacted the consumer protections

for wireless customers act in 2004.'* Minnesota's right to enact

laws that protect its consumers is well established. The

controversy that this case presents is whether the notice and

consent provisions of the State statute are a regulation of the

"rates charged" by cell phone providers and therefore preempted

by federal law. As fully explained in Minnesota's petition, the

Minnesota Legislature enacted the law to regulate contracts, not

rates. As the District recognized below, this is plainly evident

from an examination of the law itself’:

[The Minnesota law] manifests basic principles of

contract law. Nothing in the law prevents wireless

providers from charging any rate the market will bear.

Nothing in the law caps wireless rates. Similarly, the law

does not dictates [sic] whether a particular billing method

is unreasonable. Cf. In re Southwestern Bell Mobile Sys.,

Inc., 14 F.C.C.R. 19898, 1999 WL 1062835, at P 23

(F.C.C. November 18, 1999) (FCC finding that lawsuits

challenging the practice of billing in whole minute

2 See e.g. General Motors Corp. v. Abrams, 897 F.2d 34 (2d Cir. 1990).

"8 National Consumer Law Center, Unfair and Deceptive Acts and Practices,

’ Section 1.1, (6" Ed. 2004).

'* Minn. Stat. Ann. § 325F.695 (2006 Supp).

Pet. App. at 25a (2004 U.S. Dist. LEXIS 18464, 12-13 (D. Minn. 2004)).

increments constituted such rate regulation). Instead, the

law requires notice and informed consent to contract

changes. As the FCC has observed, state law claims

relating to the "disclosure of rates and rate practices are

not generally preempted under Section 332." 14 F.C.C.R.

19898 at P 23. [The Minnesota law] requires wireless

providers to disclose rates, to obtain consent to rate

increases, and to honor contractual obligations. [The

Minnesota law] also prohibits changes to established

contracts absent informed consent to those changes.

No industry should, in the name of freedom to contract, be

allowed to eviscerate the rights of the people to enact laws that

extend such basic protections.

These consumer protection statutes are exactly the kind of

"historic police powers of the States" that were recognized in

Florida Lime & Avocado Growers v. Paul.'®

The requisite review to determine if any given contract

complies with State law is generally a factual matter properly left

to the States. The Court of Appeals’ decision, if allowed to stand,

will invade the province of the States to determine whether

certain contract provisions are unconscionable. The Court of

Appeals' decision wholly ignores the importani role that

consumer protection statutes play in preventing and deterring

unfair practices in the marketplace.

The necessity to preserve States' rights in contractual matters

is further evidenced when one observes the long history of

voiding contracts of adhesion.

Black's Law Dictionary defines an "adhesion contract" as'’:

'© Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 144-146

(1963).

'” Black's Law Dictionary (5"" Ed. 1979).

Standardized contract form offered to consumers of goods

and services on essentially [a] "take it or leave it" basis

without affording [the] consumer realistic opportunity to

bargain and under such conditions that [the] consumer

cannot obtain desired product or services except by

acquiescing in form contract. [A] distinctive feature of

adhesion contract is that [the] weaker party has no

realistic Choice as to its terms.

States are well within their constitutionally protected rights to

enact laws that provide consumer protection against

unconscionable provisions in cell phone contracts. The two

parties are in unequal bargaining positions as evidenced, in part,

by the fact that the contracts are offered on a "take it or leave it"

basis. Because States need to protect their citizens against

unilateral and unconscionable contract amendments, it is

important for this Court to review the Court of Appeals’ decision.

C. The Minnesota statute furthers the goals and policies

of the federal Act.

Congress expressly permitted the States to regulate the terms

and conditions of cell phone contracts. The Act and its legislative

history set forth a relatively decentralized scheme that preserves a

broad role for State regulation. The Act states, "no State or local

government shall have any authority to regulate the entry of or

the rates charged by any commercial mobile service or any

private mobile service, except that this paragraph shall not

prohibit a State from regulating the other terms and conditions of

commercial mobile services.

The legislative history makes this even more clear, as stated

in the House Report”:

" 47 U.S.C. § 332(c\3)(A).

" H.R. Rep. No. 103-111, 103 Cong. 1“ Sess. (1993), reprinted in 1993 U.S.

Code Cong. & Admin. News, 378, 588 (emphasis added).

Section 332(c}<3) provides that state or local governments

cannot impose rate or entry regulation on private land

mobile service or commercial mobile services; this

paragraph further stipulates that nothing here shall

preclude a state from regulating the other terms and

conditions of commercial mobile services. It is the intent

of the Committee that the states still would be able to

regulate the terms and conditions of these services. By

"terms and conditions," the Committee intends to include

such matters as customer billing intormation and practices

and billing disputes and other consumer protection

matters .. . or such other matters as fail within a state's

lawful authority. This list is intended to be illustrative

only and not meant to preclude other matters generally

understood to fall under "terms and conditions."

The Minnesota statute states, in part”:

A provider must notify the customer in writing of any

proposed substantive change in the contract between the

provider and the customer 60 days before the change is

proposed to take effect... . If the customer does not

affirmatively opt in to accept the proposed substantive

change, then the original contract terms shall apply.

The Minnesota statute is an example of exactly the type of

oversight that Congress intended for the States to maintain. The

Court of Appeals, however, overturned the Minnesota statute, in

part, because it concluded that the 60-day notice provision

impacted rates.

The Court in Cellular Telecomm's Indus. Ass'v. v. FCC,”

rejected similar arguments in its decision upholding a Texas

*° Minn. Stat. Ann. § 325F.695(3) (2006 Supp).

*! Cellular Telecomm's Indus. Ass'n. v. FCC, 168 F.3d 1332 (D.C. Cir. 1999).

10

statute requiring providers to make contributions to a state fund,

by stating, in part’”:

Here the idea is that the Texas contribution requirements

are impermissible rate regulation because they increase

the wireless service provider's costs of doing business in

the state and thus impact the rates charged to customers.

One might say the same about local siting laws or state

consumer protection laws. They too increase the cost of

doing business. Yet a House Committee cited these laws

as examples of the variety of permissible regulation of the

"other terms and conditions." The Commission offered

other such examples, including some drawn from its

previous decisions. To equate state action that may

increase the cost of doing business with rate regulation

would, the Commission reasonably concluded, forbid

nearly all forms of state regulation, a result at odds with

the "other terms and conditions" portion of the first

sentence.

The Court of Appeals in the present case should have applied

the same analysis. The potential impact a statute might have on

rates should not invalidate the State statute. The ability to

regulate unilateral changes to contracts is exactly the type of

consumer protection measure that Congress intended for the

States to regulate irrespective of an indirect affect on rates,

revenues or costs.”

» Cellular Telecomm, 168 F.3d at 1336 (internal citation omitted).

3 Cellular Telecomm, 168 F.3d 1332.

11

D. Federal preemption law respects historic State police

powers.

The long history of federal preemption law is reflected in

Justice Thomas's concurrence in Bates v. Dow Agrosciences

24

EEC™

Today's decision thus comports with this Court's

increasing reluctance to expand federal statutes beyond

their terms through doctrines of implied pre-emption.

This reluctance reflects that pre-emption analysis is not

"[a] freewheeling judicial inquiry into whether a state

Statute is in tension with federal objectives," but an

inquiry into whether the ordinary meanings of state and

federal law conflict.

The Court of Appeals acknowledged” that it was bound by

this Court's decision in Medtronic, Inc. v. Lohr” and that the

scope of an express preemption clause "must rest primarily on ‘a

fair understanding of congressional purpose.’ Quoting

Medtronic, the Court went on to acknowledge that it must be

presumed that Congress did not intend preemption of historic

police powers of the States “unless that was [its] clear and

manifest purpose."*> While correctly citing the relevant inquiry,

the Court did not apply this analysis to the Minnesota statute.

_ The Court reasoned that because a 60-day notice might delay a

rate change, it was therefore tantamount to rate regulation and

must be preempted. That is where the Court erred. The federal

Act does not provide a "clear and manifest" preemption of the

Minnesota statute.

** Bates v. Dow Agrosciences, LLC, 544 U.S. 431; 125 S. Ct. 1788, 1807;

(2005) (internal citations omitted) (Thomas, J., concurring in the judgment in

part and dissenting in part).

* Pet. App. at 5a (431 F.3d at 1080).

© Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996).

*” Medtronic, 518 U.S. at 485-486.

** Pet. App. at 5a (431 F.3d at 1080).

12

To the contrary, the federal Act preserves to the States these

traditional consumer protections. The Court's inquiry should be

limited to the relevant statutory provisions and legislative history,

not a circuitous rationale. The Court went to some length

rationalizing the impact such a notice and consent provision

might have on rates. Such an inquiry was incorrect. The Court

should have looked at the federal statute and its legislative history

and stopped there. If there was any doubt as to the Congressional

intent (amici does not think there was) then the Court must

uphold the state statute. Instead the Court went further in its

analysis to fashion a finding of implied preemption. The Court

applied the wrong analysis.

This Court has enunciated the proper review in such a case

many times. This limited scope of review was recently confirmed

by this Court in Bates v. Dow”:

[W]e would nevertheless have a duty to accept the

reading that disfavors pre-emption. "[B]ecause the States

are independent sovereigns in our federal system, we have

long presumed that Congress does not cavalierly pre-empt

State-law causes of action." In areas of traditional state

regulation, we assume that a federal statute has not

supplanted state law unless Congress has made such an

intention "'clear and manifest.”

The Court of Appeals' inquiry should have been limited to

whether Congress clearly and manifestly intended to preempt

laws such as the Minnesota statute.” The goals and policies of

the federal Act include permitting States to regulate the "terms

and conditions" of cell phone contracts. The enforcement of the

Minnesota statute would give the State's citizens the protections

the Minnesota Legislature thought were needed. The Court of

” Bates v. Dow, 544 U.S. 431, __; 125 S. Ct. at 1801 (internal citation and

quotation marks omitted).

* See Doctor's Assocs. v. Casarotto, 517 U.S. 681, 685 (1996) and Volt Info.

Scis. v. Bd of Trs., 489 U.S. 468, 479 (1989).

13

Appeals' decision denies these citizens these legitimate

protections and ignores the clearly expressed state authority that

the Congress ‘ntended.

E. The ».:anesota consumer protection statute is not rate

regulation under 47 U.S.C. § 332(c)(3)(A).

The Court of Appeals concluded that subdivision 3 of the

Minnesota statute "effectively" regulated the rates of cell phone

service and was therefore preempted by § 332(c)(3)(A).

Subdivision 3 of the Minnesota statute states”:

Provider-initiated substantive change. A provider must

notify the customer in writing of any proposed

substantive change in the contract between the provider

and the customer 60 days before the change is proposed

to take effect. The change only becomes effective if the

customer opts in to the change by affirmatively accepting

the change prior to the proposed effective date in writing

or by oral authorization which is recorded by the provider

and maintained for the duration of the contract period. If

the customer does not affirmatively opt in to accept the

proposed substantive change, then the original contract

terms shall apply.

Subdivision 1 (d) defines "substantive change" as follows”:

"Substantive change" means a modification to, or addition

or deletion of, a term or condition in a contract that could

result in an increase in the charge to the customer under

that contract or that could result in an extension of the

term of that contract. "Substantive change” includes a

modification in the provider's administration of an

existing contract term or condition. A price increase that

* Minn. Stat. Ann. § 325F.695(3) (2006 Supp).

* Minn. Stat. Ann. § 325F.695(1)(d) (2006 Supp).

14

includes only the actual amount of any increase in taxes

‘or fees, which the government requires the provider to

impose upon the customer, is not a substantive change for

purposes of this section.

The Court of Appeals concluded that the State statute may

affect rates, stating®’:

A waiting period on any proposed rate changes, whether

it be for 60 days or some shorter period pending a

customer's decision to "opt-in," has a clear and direct

effect on rates. We thus conclude that subdivision 3

effectively regulates rates, and is preempted by §

332(c)(3)(A).

The Court erred in its conclusion. The federal statute, 47

U.S.C. § 332(c)(3)(A), does not say that any state law that affects

rates is preempted. It only preempts a regulation of “rates

charged."** Minnesota does not set cell phone rates. It does not

review them. It simply provides consumers with an opportunity

to assent to increases proposed by the provider prior to their

taking effect, otherwise the original terms of the contract apply.

The Minnesota statute is a fundamental consumer protection

assuring that consumers get the deal they bargained for.”

The overly broad meaning given by the Court of Appeals to

"rates charged" in § 332 contrasts with many Federal

Communications Commission (FCC) and court decisions

construing the same language. The Court of Appeals refers to

several FCC decisions in analyzing the tension between the rate

regulation prohibition and the States' consumer protection

authority of the states.

* Pet. App. at 12a (431 F.3d at 1083).

4 AT U.S.C. § 332(cK3A).

5 It should be noted that Minn. Stat. Ann. § 325F.695 (1)(d) also governs

changes in the length of the contract term.

15

The Court of Appeals relied on Jn Pet. of Hawaii Pub Util

Comm'n,” for the proposition that even a 30-day review was "rate

regulation."*’ The Minnesota statute is distinguishable from the

Hawaii Case in that there is no review of the rates taking place by

the State of Minnesota. It is the consumer that is given the

opportunity to review the proposed change under the Minnesota

law, not State government. Furthermore, the Hawaii proceeding

was a petition under § 332(c)(3)(B) of the federal Act, which

permits States to retain their rate regulatory authority as

specifically provided by that subsection. It was not a case

deciding whether § 332(c)(3)(A) preempted Hawaii law.

Contrary to the Court of Appeals’ broad application of the

inopposite FCC ruling the agency's statement concluded™:

Establishing with particularity a demarcation between

preempted rate regulation and retained state authority

over terms and conditions requires a more fully developed

record than is present by the HPUC Petition and related

comments. Thus, we will not expound at any length on

this matter.

The FCC went on to say”’:

Complaint proceedings may concern carrier practices,

separate and apart from their rates. In consequence, it is

conceivable that matters might arise under state complaint

procedures that relate to "customer billing information

and practices and billing disputes and other consumer

matters." We view the statutory "other terms and

conditions" language as sufficiently flexible to permit

Hawaii to continue to conduct proceedings on complaints

*° In Pet. of Hawaii Pub Util Comm'n, 10 F.C.C.R. 7872 (1995)(emphasis

added).

*” Pet. App. at 7a (431 F.3d at 1080-1081).

* In Pet. of Hawaii, 10 F.C.C.R. at 7883 (@ 55) (emphasis added).

In Pet. of Hawaii, 10 F.C.C.R. at 7883 (4 56).

16

concerning such matters, to the extent that state law

provides for such proceedings.

The above language acknowledges that even the FCC

recognized that § 332(c)(3)(A)'s “other terms and conditions"

language allows for state consumer protections laws. The

language of the federal Act requires the broad reading of "other

terms and conditions" intended by Congress, not the narrow

reading given by the Court of Appeals.

Such a finding was also supported in Jn the Matter of

Southwestern Bell Mobile Systems, Inc.”° In that case, the FCC

determined that the wireless industry was not exempt from the

application of state contract and consumer fraud laws even if they

related to the disclosure of rates and rate practices. Southwestern

Bell reyected the notion that all claims that may be related to rates

are necessarily preempted by the Act*':

[T}he legislative history of Section 332 clarifies that

billing information, practices and disputes — all of which

might be regulated by state contract or consumer fraud

laws — fall within "other terms and conditions" which

states are allowed to regulate. Thus, state law claims

stemming from state contract or consumer fraud laws

governing disclosure of rates and rate practices are not

generally preempted under Section 332.

In yet another case, the FCC rejected the claim that various

State consumer, contract and tort claims were forms of

impermissible rate regulation in its decision In the Matter of

Wireless Consumers Alliance, the agency said*”:

“ In the Matter of Southwestern Bell Mobile Systems, Inc., 14 F.C.C.R. 19898

(1999).

‘! In the Matter of Southwestern Bell, 14 F.C.C.R. at 19908 (9 23).

“2 In the Matter of Wireless Consumers Alliance, 15 F.C.C.R. 17021, 17035—

17036 (2000) (4 27).

17

In short, we reject arguments by CMRS carriers that non-

disclosure and consumer fraud claims are in fact

disguised attacks on the reasonableness of the rate

charged for the service. A carrier may charge whatever

price it wishes and provide the level of service it wishes,

as long as it does not misrepresent either the price or the

quality of service. Conversely, a carrier that is charging a

"reasonable rate" for its services may still be subject to

damages for a non-disclosure or false advertising claim

under applicable state.law if it misrepresents what those

rates are or how they will apply, or if it fails to inform

consumers of other material terms, conditions, or

limitations on the service it is providing. We thus do not

agree with those commenters who allege that, for

consumer protection claims, any damage award or

damage calculation, including any refund or rebate, is

necessarily a ruling on the reasonableness of the price or

the functional equivalent of a retroactive rate adjustment.

The Court of Appeals' incorrect construction of § 332's

prohibition of the regulation of "rates charged” also differs from

the approach taken by other courts. In Brown vy.

Washington/Baltimore Cellular, Inc.,® the court found that state

regulation of late fees was not preempted by § 3- 2(c)(3)(A). The

court said“:

For example, a claim of false advertising could lead to an

increased obligation to notify customers of charges,

which could in turn lead to an increase in rates. Congress

did not preempt all claims that would influence rates, but

only those that involve the reasonableness or lawfulness

of the rates themselves.

** Brown v. Washington/Baltimore Cellular, Inc., 109 F. Supp.2d 421 (D. Md.

2000).

“ Brown, 109 F. Supp.2d at 423.

18

The Coust of Appeals below concluded that if a State's law

provisions "affect" rates it must be preempted under §

332(c)(3)A). This is contrary to what the Court in Brown said,

"Congress did not preempt all claims that would influence

rates."*° The Court in Brown accurately reflects the plain

language of the federal Act as well as its legislative history. A

finding that a State law may affect the "rates charged" is not

prohibited under the federal Act.

In Fedor v. Cingular Wireless Corp.,*° the court held that a

challenge to the billing practice in the way the company billed for

minutes used was not preempted by the "rates charged"

prohibition of the federal Act. The court stated*’:

In other words, these claims address not the rates themselves,

but the conduct of [the company] in failing to adhere to those

rates. That is precisely the type of state law contract and tort

claims that are preserved for the states under § 332 as the

"terms and conditions" of commercial mobile services.

Finally, in Jowa v. U.S. Cellular Corp.,“® the court in

upholding consumer protection claims, noted that "[t]he claims do

not attempt to regulate rates, they merely require [company] to

fairly and adequately disclose its contract terms to consumers and

to refrain from unjust and oppressive business practices."*”

The cases cited above demonstrate that the Minnesota statute

should not be preempted. The State of Minnesota does not

regulate rates and does not review rates. The Minnesota statute

simply requires providers to give fair and meaningful disclosure

*° Brown, 109 F. Supp.2d at 423.

“© Fedor v. Cingular Wireless Corp., 355 F.3d 1069 (7" Cir. 2004).

*? Fedor, 355 F.3d at 1074.

** Jowa v. U.S. Cellular Corp., No. 90197 (S.D. lowa August 7, 2000) (2000

WL33915909).

” Iowa v. U.S. Cellular, No. 90197, 2000 WL39915909 at 11.

19

of substantive changes in contracts to its customers. As

previously referenced, the District Court said”’:

Nothing in the law prevents wireless providers from

charging any rate the market will bear. Nothing in the

law caps wireless rates. ... Instead, the law requires

notice and informed consent to contract changes.

Section 332(c)(3)(A) of the federal Act does not preempt the

Minnesota statute. The federal Act was not intended to supplant

State law such as the Minnesota law which does not regulate

"rates charged." The Minnesota Legislature has simply done

what it was authorized to do under 47 U.S.C. § 332(c)(3)(A).

CONCLUSION

The Court of Appeals’ decision casts a far-reaching net over

the terms of a cell phone contract. This decision makes it

impossible for any State to require fundamental notice and

consent prior to unilateral substantive changes to cell phone

service contracts. Such statutory authority is reserved to the

States by the Constitution unless preempted by a "clear and

manifest" intent expressed by Congress. In this instance,

Congress was careful to preserve such authority to the States.

The contract notice and consent provisions of the Minnesota

Statute give the consumer the right to enforce the original terms of

the contract. If the consumer does not have this fundamental

protection afforded by the Minnesota statute, cell phone providers

can increase charges to customers or extend their contract term

without notice. This would result in an impermissible imbalance

in the contractual relationship and violate 600 years of black letter

contract law. Unilateral changes to contracts result in contracts of

adhesion. Such contracts are voidable under traditional State

consumer protection principles, and nothing in the federal statute

” Pet. App. at 25a (2004 U.S. Dist. LEXIS 18464, 12-13).

20

undermines that State authority. The Minnesota statute simply

allows consumers an opportunity to get what they bargained for.

Congress has not preempted State authority to protect its

citizens regarding traditional consumer protections. Congress

went to great lengths to preserve these rights of the States and its

intention should not be undermined by a preemption claim.

James Madison agonized over “the supposition that the

operation of the federal government will by degrees prove fatal to

the State governments."°' We submit that this Court should

review the case below to assure that the Court of Appeals

decision does not erode the State authority that our Founders so

carefully cautioned against.

This Court should grant certiorari.

Respectfully submitted,

Michael A. Cox

Attorney General

State of Michigan

Thomas L. Casey

Solicitor General

Counsel of Record

P. O. Box 30212

Lansing, Michigan 48909

(517) 373-1124

John R. Liskey

Assistant Attorney General

Attorneys for Amici Curiae

Dated: May, 2006

*' The Federalist No. 45, p. 289 (emphasis added).

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