Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Cell phone carriers denied stay of class arbitration pending appeal, (Sep 2, 2014)

By Greg Hammond, J.D.

A group of cell phone carriers—including AT&T Mobility LLC, Cellco Partnership d/b/a Verizon Wireless, Sprint Nextel Corp., T-Mobile USA, Inc., and U.S. Cellular Corp.—could not stay an order holding that an arbitrator must decide whether claims can be brought as a class or on an individual basis. In denying the carriers’ motion to stay the May 29 order, the federal district court in New York City determined that: (1) it was not clear whether the appeal was procedurally proper; (2) the balance of hardships did not tip decidedly in the carriers’ favor; and (3) a stay will only modestly serve the public interest (In re A2P SMS Antitrust Litigation, August 27, 2014, Nathan, A.).

Background. Mass texting and SMS marketing company Club Texting, Inc. filed a putative class action against a group of cell phone carriers, alleging that they engaged in a four-step plan to create a system to extract the maximum amount of inflated fees from their consumers, through the common short codes (CSC) system. CSCs are 5 or 6 digit numbers leased to businesses and institutions for the purpose of sending application-to-person text messages (A2Ps). On May 29, the court signed an order holding that the issue of whether the parties’ Registration Sublicense Agreement required class or individual arbitration was a decision for the arbitrator to decide. The carriers filed a notice of appeal to the Second Circuit, and moved to stay the order.

Courts consider four factors in determining whether to stay their own order during the pendency of an appeal: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. According to the court, the likelihood of success and irreparable injury factors are “critical” in the analysis. In addition, the “serious questions standard” is applied when a district court is asked to stay its own order.

Serious questions. First, the court concluded that there were serious questions regarding the appealability of its May 29 order, as it may not be considered a “final” decision that is appealable under the Federal Arbitration Act (FAA); the order was not a refusal of a stay of action that would be appealable under the FAA; and the order was not a denial of a petition to order arbitration that would be appealable under the FAA. However, because there were also serious questions going to the merits of the carriers’ appeal, the court determined that this factor is neutral.

Balance of hardships. The court also found that the balance of hardships did not tip decidedly in the carriers’ favor. Specifically, it determined that: (1) the plaintiffs would not be harmed by a stay, as the issue of whether the plaintiffs had the financial wherewithal to pursue individual arbitrations did not have any bearing on the effect of the court’s order regarding class-wide relief; and (2) there would be little harm to the carriers without the stay, as the possible expenditure of additional resources was insufficient to tip the scales decidedly in their favor. Additionally, it was determined that a stay would only modestly serve the public interest, as it could possibly save “some arbitral resources.” Nevertheless, because a balance of all the factors weighed against the stay, the carriers’ motion to stay the May 29 order was denied.

The case number is 12-CV-2656.

Attorneys: Robert N. Kaplan (Kaplan Fox & Kilsheimer LLP) for Club Texting, Inc. Luke A. Connelly (Winston & Strawn LLP) for Cellco Partnership. Archis A. Parasharami (Mayer Brown LLP) for AT&T Mobility LLC. John E. Schmidtlein (Williams & Connelly LLP) for Sprint Nextel Corp. Joel Murray Cohen (Davis Polk & Wardwell LLP) for T-Mobile U.S.A., Inc. Eamon Paul Joyce (Sidley Austin LLP) for U.S. Cellular Corp.

Companies: Club Texting, Inc.; Cellco Partnership; AT&T Mobility LLC; Sprint Nextel Corp.; T-Mobile U.S.A., Inc.; U.S. Cellular Corp.

Cases: Antitrust NewYorkNews