Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Class-wide arbitration question certified for appeal in text message case, (Mar 3, 2015)

By Greg Hammond, J.D.

In an antitrust class action brought by mobile marketers against five of the six largest wireless service providers and others, over alleged restrictions on the delivery of application-to-person text messages (A2Ps), the federal district court in New York has certified for interlocutory appeal a May 2014 order that it was up to an arbitrator, and not the court, to decide whether class arbitration was available. The court framed the question of law as “who decides—the court or the arbitrator—whether an arbitration agreement permits class arbitration?” The court determined that there was no U.S. Supreme Court or Second Circuit precedent regarding the question and that an appeal would materially advance the ultimate conclusion of the litigation (In re A2P SMS Antitrust Litigation, March 2, 2015, 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. On May 29, 2014, the court issued a decision, holding that the issue of whether the parties’ registration sublicense agreement required class or individual arbitration was for the arbitrator to decide. The Second Circuit denied the carriers’ notice of appeal, finding that it lacked jurisdiction because the court’s May 2014 order did not constitute an appealable order. The defendants then moved for certification of an interlocutory appeal under 28 U.S.C. § 1292(b).

Certification. Under Section 1292(b), a district court may certify an otherwise non-final order for interlocutory appeal if the court is of the opinion that such order (1) involves a controlling question of law (2) as to which there is substantial ground for difference of opinion and (3) that an immediate appeal from the order may materially advance the ultimate termination of the litigation.

The court first noted that it has already observed that the issue of who makes the initial determination regarding class arbitration is particularly difficult because there is no U.S. Supreme Court or Second Circuit precedent on point, demonstrating substantial ground for difference of opinion.

Next, the court determined that its May 2014 order involves a controlling question of law because it involves a procedural determination that may significantly affect the conduct of the litigation. Specifically, reversal of the order would require the court to decide whether the plaintiffs’ claims against the cell phone carriers may proceed as a class in arbitration, which will shape the remainder of the litigation. Conversely, if the May 2014 order is affirmed, there would be no basis for vacating the arbitration panel’s initial determination in the district court. The May 2014 order presents a pure question of law, the court stated: “who decides—the court or the arbitrator—whether an arbitration agreement permits class arbitration?”

The court noted that, regardless of whether it certifies an appeal now, the Second Circuit will still be confronted with an appeal of this issue prior to any final judgment, given each party’s stance. Resolving the question of whether class arbitration is available will have a “momentous effect” on the litigation because it will likely affect the overall length of the litigation. The motion to certify for interlocutory appeal was therefore granted.

The case is number 12-CV-2656 (AJN).

Attorneys: 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.; US Cellular Corp.

Cases: Antitrust NewYorkNews