Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-06567/USCOURTS-cand-4_06-cv-06567-5/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RUSSELL BRADBERRY, individually and

on behalf of a class of similarly

situated individuals,

Plaintiff,

 v.

T-MOBILE USA, INC., a Delaware

corporation,

Defendant.

 /

No. C 06-6567 CW

ORDER DENYING

WITHOUT PREJUDICE

DEFENDANT'S

MOTION TO STAY

PENDING APPEAL

AND GRANTING

DEFENDANT'S

REQUEST FOR

JUDICIAL NOTICE

Defendant T-Mobile USA, Inc., has filed a motion to stay all

proceedings in this case pending its interlocutory appeal of this

Court's decision denying its motion to compel arbitration. 

Defendant has also requested judicial notice of the statements of

three of its employees and two documents filed previously in this

case. Plaintiff Russell Bradberry opposes the motion to stay, but

does not oppose the request for judicial notice. This matter was

taken under submission on the papers. Having considered all of the

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papers filed by the parties, the Court DENIES without prejudice

Defendant's motion to stay all proceedings and GRANTS Defendant's

request for judicial notice.

BACKGROUND

Plaintiff's action alleges that Defendant schemed to cheat its

customers by charging them for cell phone services purchased by

previous customers who used the same phone number in the past.

Defendant moved to compel arbitration based on the terms of

its contract with Plaintiff. On April 27, 2007, this Court issued

an order denying Defendant's motion to compel arbitration,

reasoning that the class action waiver clause of the contract was

procedurally and substantively unconscionable and thus

unenforceable. Order Denying Arbitration (April 27 Ord.) at 10-14. 

Therefore, the mandatory arbitration clause did not apply, because 

the contract invalidates the arbitration clause if the class action

waiver is not enforceable. April 27 Ord. at 14. Defendant filed

an interlocutory appeal of the April 27 Order. Defendant then

filed this motion to stay all proceedings in this case pending

resolution of its appeal. 

LEGAL STANDARD 

Some jurisdictions hold that the trial court must stay

proceedings while a denial of a motion to compel arbitration is

appealed. See, e.g., Bradford-Scott Data Corp. v. Physician

Computer Network, 128 F.3d 504, 505-06 (7th Cir. 1997); Ehleiter v.

Grapetree Shores, Inc., 482 F.3d 207, 215, n.6 (3rd Cir. 2007). 

However, the Ninth Circuit has held that a district court has

discretion to decide whether to grant a stay, reasoning that a

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mandatory stay

would allow a defendant to stall a trial simply by bringing a

frivolous motion to compel arbitration. The system created by

the Federal Arbitration Act allows the district court to

evaluate the merits of the movant's claim and if, for

instance, the court finds that the motion presents a

substantial question, to stay the proceedings pending an

appeal from its refusal to compel arbitration. See, e.g., Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826, 829 (D.C.

Cir. 1987) (district court, after denying appellant's motion

to compel arbitration, granted its motion for a stay pending

appeal because it found appellant's claim raised issues of

first impression and that appellant would suffer substantial

harm if the action were not stayed); C.B.S. Employees Federal

Credit Union v. Donaldson, 716 F. Supp. 307 (W.D. Tenn. 1989)

(developing test to determine whether district court should

stay trial proceedings pending appeal from denial of motion to

stay proceedings pending arbitration). This is a proper

subject for the exercise of discretion by the trial court. 

Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir.

1990). If the appeal is successful, any judgment rendered in the

trial court will be vacated and the parties will be required to

arbitrate the claim. Id. at 1410. Britton refers to two cases

which provide guidance as to how a trial court should exercise

discretion regarding whether to grant a stay pending an appeal. 

Id. at 1412.

The first is C.B.S. Employees Federal Credit Union v.

Donaldson, 716 F. Supp. 307, 309 (W.D. Tenn. 1989), in which the

court determined that a stay pending appeal of the denial of a

motion to compel arbitration falls under Federal Rule of Civil

Procedure 62(c) and thus is subject to the four part test set out

by the United States Supreme Court in Hilton v. Braunskill, 481

U.S. 770, 776 (1987). C.B.S., 716 F. Supp. at 309. The Hilton

test balances

(1) whether the stay applicant has made a strong showing that

he is likely to succeed on the merits; (2) whether the

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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.

Hilton, 481 U.S. at 776.

The second case cited in Britton, 916 F.2d at 1412, is Pearce

v. Hutton, 828 F.2d 826, 829 (D.C. Cir. 1987). In Pearce, both

defendants, Bell and Hutton, moved to compel arbitration. The

district court denied their motions and they appealed. The D.C.

Circuit affirmed the district court's decision to stay Hutton's

trial because the denial of his motion to compel arbitration

presented a question of first impression and he would suffer

substantial harm if he were forced to proceed with trial but his

appeal were later successful. Id. at 829. On the other hand, the

D.C. Circuit affirmed the district court's decision to deny Bell's

motion to stay because it was "clear that there is no arbitration

agreement between plaintiff and Bell." Id. Defendant's motion

does not present a matter of first impression. This Court relied

on Ninth Circuit cases which directly addressed the

unconscionability of a class action waiver. 

Defendant cites three cases with almost identical facts that

are now pending before the Ninth Circuit. Winig v. Cingular

Wireless, LLC, 2006 U.S. Dist. LEXIS 83116 (N.D. Cal.); Laster v.

T-Mobile USA, Inc., 2006 U.S. Dist. LEXIS 88855 (N.D. Cal.); Ford

v. Verisign, Inc. et al., 2006 U.S. Dist. LEXIS 88856 (S.D. Cal.). 

In each of these cases, a customer filed a class action suit

against a cell phone company. In each case the customer's contract

contained provisions similar to the provisions contained in the

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1 Discover Bank held that a class action waiver in a consumer

contract of adhesion is substantively unconscionable if (1) it is

"in a setting in which disputes between the contracting parties

predictably involve small amounts of damages" and (2) the lawsuit

involves allegations of "a scheme to deliberately cheat large

numbers of consumers out of individually small sums of money."

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contract in the instant case: an arbitration clause, a class action

waiver clause and a clause which nullified the arbitration clause

if the class action waiver was found to be invalid. In each case

the defendant company's motion to compel arbitration was denied

because the class action waiver was deemed unconscionable based, in

part, on Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-163

(2005).1 Laster, 2006 U.S. Dist. LEXIS 88855 at *2; Winig v.

Cingular Wireless, LLC, 2006 U.S. Dist. LEXIS 73137, *8-12 (N.D.

Cal.); Ford, 2006 U.S. Dist. LEXIS 88856 at *1-3. In each case,

the defendant filed a motion to stay pending appeal, and the

district court granted the stay, reasoning that the appeal

satisfied the substantial question element of Britton because the

Ninth Circuit has not addressed the California Supreme Court's

holding in Discover Bank. These courts also found that the balance

of the other equities under the Hilton test favored a stay. 

Laster, 2006 U.S. Dist. LEXIS 88855 at *8-9; Winig, 2006 U.S. Dist.

LEXIS 83116 at *4-5; Ford, 2006 U.S. Dist. LEXIS 88856 at *5-7.

JUDICIAL NOTICE

Under Rule 201 of the Federal Rules of Evidence, a court may

take judicial notice of facts that are not subject to reasonable

dispute because they are either generally known or capable of

accurate and ready determination. See, e.g., Lee v. City of Los

Angeles, 250 F.3d 668, 688-690 (9th Cir. 2001); Interstate Natural

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Gas Co. v. Southern California Gas Co., 209 F.2d 380, 385 (9th Cir.

1953).

Defendant requests judicial notice of statements by three of

its employees regarding its billing policies (Chang Dec., Docket 

# 57, exhibit A), details of interactions between its customer

service representatives and Plaintiff (Dudanake Dec., Docket # 57,

exhibit B), and its billing inserts (Richardson Dec., Docket # 57,

exhibit E). Defendant has also requested judicial notice of two

documents previously filed in this case: the Motion to Compel

Arbitration (Docket # 57, exhibit C) and the Order Denying

Defendant's Motion to Compel Arbitration (Docket # 57, exhibit D). 

Plaintiff has not objected. Therefore, the Request for Judicial

Notice is GRANTED.

DISCUSSION

I. Substantial Question

Defendant argues that in its appeal, as well as the appeals of

the orders denying motions to compel arbitration in Laster, Ford

and Winig, the Ninth Circuit will find that the holding of Discover

Bank is incorrect and that the Federal Arbitration Act (FAA), 9

U.S.C. § 1 et seq., preempts California contract law. 

Defendant further argues that, even if the holding of Discover

Bank is found correct, it does not apply to the class action waiver

in this case because its contract with Plaintiff contained

consumer-friendly provisions and there was no surprise to

Plaintiff. Defendant also claims that Plaintiff did not plead a

scheme to defraud consumers.

This Court found that Plaintiff did properly plead a scheme to

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2

 Defendant also argues that if the stay is denied, it will be

denied its contractual right to arbitrate. However, because

Defendant's motion to stay is denied without prejudice, it may move

to stay when the trial date approaches. 

3 Plaintiff argues that Defendant's withdrawal of its motion

to delay filing an answer constitutes an implicit admission that

Defendant will not suffer irreparable injury if this Court denies a

stay. Plaintiff also argues that Defendant has "refused to file

[an Answer], notwithstanding this Court's May 7, 2007 order." 

This Court ordered Defendant "to answer or otherwise plead in

response to the Amended Complaint by 5/14/07." Case Management

Order at 1. Defendant indicates that it withdrew its motion for

extension of time to answer because it filed this motion to stay

the entire proceeding. Reply to Opposition at 3:1-9. Because it

filed the motion to stay, Defendant did not disregard the Court's

order. Plaintiff's argument is unpersuasive.

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defraud consumers in his First Amended Complaint (FAC), April 27

Ord. at 13-14, and found Defendant's argument that Discover Bank is

distinguishable unpersuasive, id. at 13. Nonetheless, Defendant's

appeal presents a substantial legal question. 

II. Balance of Equities

A. Irreparable Injury to Defendant

Defendant cites Alascom, Inc. v. ITT North Electric Co., 727

F.2d 1419, 1422 (9th Cir. 1984) and Bradford-Scott, 128 F.3d at

505-06, in support of its contention that a denial of a stay would

constitute "irreparable harm" because of the added costs of

litigating to conclusion. Winig, Ford and Laster also cite these

cases in support of their holdings that a denial of a stay would

constitute irreparable harm to the movant. Laster, 2006 U.S. Dist.

LEXIS 88855 at *9; Winig, 2006 U.S. Dist. LEXIS 83116 at *6-7;

Ford, 2006 U.S. Dist. LEXIS 88856 at *7. The Court finds this

reasoning to be unpersuasive, because Alascom and Bradford-Scott

are distinguishable.2 3

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4 Before the 1988 and 1990 amendments to the FAA, a party

whose motion to compel arbitration was denied did not have a

statutory right to an immediate interlocutory appeal of that

denial. See 9 U.S.C. § 16.

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Alascom authorized an immediate interlocutory appeal of a

denial of a motion to compel arbitration, instead of requiring the

moving party first to go through a trial before it could appeal. 

Alascom, 727 F.2d at 1422.4 Alascom reasoned that if a party "must

undergo the expense and delay of a trial before being able to

appeal, the advantages of arbitration -- speed and economy -- are

lost forever." Alascom, 727 F.2d at 1422 (internal quotations

omitted). It might be reasonable to infer that the Ninth Circuit's

holding leads to the conclusion that denying a stay pending appeal

would necessarily cause irreparable harm, if it were not for the

Ninth Circuit's holding six years later in Britton, 916 F.2d at

1412, that whether to stay pending appeal is within the discretion

of the district court. 

Bradford-Scott is a Seventh Circuit case which criticizes and

rejects Britton. 128 F.3d at 506. Its holding is in direct

conflict with the Ninth Circuit's holding in Britton, 916 F.2d at

1412, which vests discretion to grant a stay to the trial court.

Defendant focuses on the cost of continued litigation while

its appeal is pending as its major harm. However, this Court

indicated that a stay would be appropriate when the trial date

approaches or if discovery were burdensome. Transcript of March

30, 2007 Hearing at 24:7-17. The cost of some pretrial litigation

does not constitute an irreparable harm to Defendant.

B. Substantial Injury to Plaintiff

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5 Defendant also argues that if the stay is not granted there

is a risk of inconsistent rulings. The Ninth Circuit has explained

that if a denial of a motion to compel arbitration is reversed,

then any ruling by the district court would be vacated and

arbitration will proceed. Britton, 916 F.2d at 1410. Therefore,

if Defendant's appeal is successful there is no significant risk of

inconsistent rulings. 

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Defendant argues that Plaintiff will not suffer "substantial

harm," pointing out that Plaintiff's "claim is relatively small"

and the "case is in its infancy."

Winig found that a similarly situated plaintiff "will have

suffered little additional injury as a result of the stay" when the

claim is small. Winig, 2006 U.S. Dist. LEXIS 83116 at *7. On the

other hand, both Laster and Ford acknowledged that delaying a

plaintiff's day in court constituted a substantial injury to the

plaintiff. Laster, 2006 U.S. Dist. LEXIS 88855 at *9; Ford, 2006

U.S. Dist. LEXIS 88856 at *8. 

Plaintiff argues that he is at risk of loss of evidence. 

Defendant argues that the risk of lost evidence is speculative. 

However, the risk of lost evidence weighs against granting a stay. 

This risk and the delay in litigation constitute a substantial

injury to Plaintiff, even though his claim is relatively small.

C. The Public Interest

 Defendant argues that the public interest would be served by

granting a stay pending appeal in order to conserve potentially

wasted judicial resources. Plaintiff argues that the public

interest lies in preventing delay in litigation so that the

allegedly fraudulent activities of Defendant may be stopped.5

1. Judicial Resources

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Defendant's argument is supported by the Laster, Winig and

Ford courts, which all held that the public interest lies in

conservation of judicial resources. Laster, 2006 U.S. Dist. LEXIS

88855 at *10; Winig, 2006 U.S. Dist. LEXIS 83116 at *8-10; Ford,

2006 U.S. Dist. LEXIS 88856 at *8-9. Therefore, the Court will

address the likelihood of success of the appeal to determine the

probability that judicial resources will be conserved.

Ting v. AT&T, 319 F.3d 1126, 1150 (9th Cir. 2003), and Ingle

v. Circuit City Stores, 328 F.3d 1165, 1175-76 (9th Cir. 2003),

criticized the California appellate court's holding in Discover

Bank v. Superior Court, 105 Cal. App. 4th. 326, 339-348 (2003),

that section 2 of the FAA preempts general California contract law. 

Ting rejected 

the reasoning in Discover Bank . . . [which] held that

"section 2 of the FAA, which mandates enforcement of

arbitration agreements, preempts any otherwise applicable

California judicial law finding class action waivers to be

substantively unconscionable and invalid." Discover [Bank], 105 Cal. App. 4th at 345. . . . [This] conclusion runs

contrary to the plain text of § 2 of the FAA as well as

established federal judicial precedent interpreting the

section. Section 2 of the FAA provides that arbitration

agreements are generally enforceable "save upon such grounds

as exist at law or in equity for the revocation of any

contract." 9 U.S.C. § 2. The Supreme Court has emphasized

that "generally applicable contract defenses, such as fraud,

duress, or unconscionability, may be applied to invalidate

arbitration agreements without contravening § 2 [of the FAA]."

Doctor's Assoc., 517 U.S. at 687. 

Ting, 328 F.3d at 1176, fn. 15. In Discover Bank, 36 Cal. 4th. at

163-67, the California Supreme Court reversed the court of appeal,

based on reasoning similar to that of the Ninth Circuit. This

undermines Defendant's chances of success on appeal. Further, this

Court did not rely on Discover Bank as the sole authority for the

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finding that the class action waiver clause was substantively

unconscionable, but relied on other Ninth Circuit cases. April 27

Ord. at 12-13.

Because Defendant does not have a strong likelihood of success

on appeal, a stay may not result in the conservation of judicial

resources. Therefore, the public interest in judicial economy does

not strongly favor granting a stay.

2. Enjoining Fraudulent Activity

The Winig and Laster courts acknowledged that there was public

interest in preventing illegal activities, but the Winig court

reasoned that the requested stay would not materially affect that

interest, and the Laster court reasoned that the interest in

judicial economy outweighed the cost of delaying the redress of the

plaintiff's injuries. Laster, 2006 U.S. Dist. LEXIS 88855 at *10;

Winig, 2006 U.S. Dist. LEXIS 83116 at *9-10. 

If the allegations of fraud have merit, any delay harms the

public interest. Unlike Plaintiff, the putative class members may

not be aware of the harm Defendant's actions are allegedly causing

them. A delay of proceedings will allow any harm to the putative

class members to continue, and therefore may materially affect the

public interest in vindicating the rights of consumers. 

Defendant has established that its appeal presents a

substantial question, but the balance of equities does not favor

granting a stay of all proceedings at this time. Defendant will

not suffer irreparable harm if pretrial litigation proceeds,

Plaintiff and the putative class will suffer substantial hardship

if all litigation is stayed, and the public interest does not favor

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delaying litigation.

CONCLUSION

Based on the foregoing, the motion to stay proceedings pending

appeal of the denial of the motion to compel arbitration (Docket 

# 56) is DENIED without prejudice to refiling if discovery becomes

burdensome or if the trial date approaches. The request for

judicial notice (Docket # 57) is GRANTED. 

IT IS SO ORDERED.

Dated: 8/2/07 

CLAUDIA WILKEN

United States District Judge

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