Court Opinion

ID: 213545
Source: CourtListenerOpinion
Date Created: 2011-03-29 17:18:40+00
Date Added: 2024-06-11T08:15:42.827741
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

CHAD MINNICK; LINDA STEPHENSON;       
DONALD SCHULTZ; STEPHEN                      No. 10-35228
REIMERS; COREY JELINSKI; VICTORIA              D.C. No.
BARTLEY; CHRISTOPHER CUHEL;               2:09-cv-00912-MJP
KAREN GREFSRUD; RITA MCVICKER;            Western District of
JOSH KELLER; GLENN REYNOLDS;                 Washington,
EVA GIROD, on behalf of
themselves and all those similarly             Seattle
situated,                                     ORDER
             Plaintiffs-Appellants,         CERTIFYING
                                           QUESTION TO
                v.                         THE SUPREME
CLEARWIRE US LLC; DOES, 1                    COURT OF
through 10,                                WASHINGTON
            Defendants-Appellees.
                                      
                   Filed March 29, 2011

   Before: Betty B. Fletcher, Ferdinand F. Fernandez and
               Jay S. Bybee, Circuit Judges.

                        COUNSEL

Jonathan K. Tycko, Tycko & Zavareei LLP, Washington, Dis-
trict of Columbia, for the plaintiff-appellant.

Stephen M. Rummage, Davis Wright Tremaine LLP, Seattle,
Washington, for the defendant-appellee.

                           4187
4188                 MINNICK v. CLEARWIRE
                           ORDER

   This case presents an issue of Washington state contract
law. We must decide whether the fees that an internet and
telephone service provider charges customers who cancel ser-
vice before the expiration of a fixed-term contract are (a)
alternative performance provisions or (b) liquidated damages.
No appellate court ruling from Washington to date provides
direct guidance on the legality of such fees. Accordingly, we
respectfully ask the Washington Supreme Court to exercise its
discretion to accept and decide the certified question below.
See Wash. Rev. Code § 2.60.020.

                     I.   BACKGROUND

   Defendant-Appellee Clearwire US LLC (“Clearwire”) pro-
vides wireless internet and telephone services. Subscribers to
Clearwire’s services are required to enter into a Service
Agreement that sets forth the terms of the subscription. Sub-
scribers may select a month-to-month contract with no obliga-
tions beyond payment of a monthly subscription charge.
Alternatively, subscribers may enter into a fixed-term Service
Agreement, under which customers commit to paying for ser-
vice for either one or two years. However, subscribers who
choose the fixed-term contract and later cancel their service
before the end of the contract term are subject to an “early ter-
mination fee” or “ETF.” For customers who entered into a
fixed-term Service Agreement before March 7, 2007, and then
cancelled their service, Clearwire charged a flat ETF of $180.
For customers who entered into a fixed-term Service Agree-
ment on or after March 7, 2007, the ETF starts at $220, and
is reduced by $5 for each month the customer remained sub-
scribed, if the contract was for two years; or the ETF is
reduced by $10 for each month the customer remained sub-
scribed, if the contract was for one year. For subscribers to a
term account under the “Clear” brand (as opposed to the
“Clearwire” brand), the ETF is $120, less $4 for each full
month of service after the beginning of the contract. Depend-
                     MINNICK v. CLEARWIRE                  4189
ing on how much time remains on the contract, the ETF
charged may be more or less than the sum of the remaining
monthly payments.

   Plaintiffs-Appellants (“Minnick”) are twelve subscribers or
former subscribers to Clearwire’s services. They argue that
the ETF constitutes an unlawful penalty, and propose to repre-
sent a class of Clearwire customers who are similarly situated.
Specifically, Minnick challenges the provision in the Service
Agreement which permits Clearwire to charge customers an
ETF if service is terminated before the end of the fixed con-
tract term.

  On April 12, 2009, Minnick filed an original complaint
against Clearwire in Washington Superior Court for King
County, seeking certification as a class action representing all
Clearwire subscribers on fixed-term contracts. On May 27,
2009, Minnick filed a First Amended Complaint, alleging
seven causes of action. The claim relevant to this certification
order alleges that the ETFs are unlawful penalties in violation
of Washington common law.

   Clearwire moved on July 2, 2009 to remove the case to the
United States District Court for the Western District of Wash-
ington, pursuant to the Class Action Fairness Act of 2005, 28
U.S.C. § 1332(d). On July 23, 2009, Clearwire filed a Rule
12(b)(6) motion to dismiss all of Minnick’s claims for failure
to state a claim. The district court granted the motion to dis-
miss on February 5, 2010.

                      II.   DISCUSSION

   On appeal to the Ninth Circuit, Minnick contends the dis-
trict court erred in holding that the ETF operated as an alter-
native performance provision instead of as a liquidated
damages clause. Minnick argues that the ETF is a liquidated
damages clause and, as such, an unlawful penalty. See Walter
Implement, Inc. v. Focht, 730 P.2d 1340 (Wash. 1987); Wat-
4190                 MINNICK v. CLEARWIRE
son v. Ingram, 851 P.2d 761 (Wash. Ct. App. 1993). See gen-
erally CORBIN ON CONTRACTS § 58.1 (2005); 24 WILLISTON ON
CONTRACTS § 65:1 (4th ed., 2010). By contrast, Clearwire
argues that the district court is correct and that the ETF is not
a liquidated damages provision, but an alternative perfor-
mance provision. See Chandler v. Doran Co., 267 P.2d 907
(Wash. 1954). See generally CORBIN § 58.18; WILLISTON
§ 66:106.

                               A

   Washington case law defines an alternative performance
contract as an agreement where “a party promises to render
some one of two or more alternative performances either one
of which is mutually agreed upon as the bargained-for equiva-
lent given in exchange for the return performance by the other
party.” Chandler, 267 P.2d at 910 (quoting 5 CORBIN ON
CONTRACTS § 1079, at 379). What distinguishes an alternative
performance provision from a liquidated damages clause is
that parties to an alternative performance contract “intend[ ]
to give a real option” to the performing party, id. at 910, and
do not intend for one of the options to function as “a device
to assure performance of the [other] option,” id. at 911.
Whether the obligated party was given a “real option”
depends on “whether the money payment [option] is equiva-
lent to performance of the [other] option, and the relative
value of the performances.” Bellvue School District No. 405
v. Bentley, 684 P.2d 793, 796 (Wash. Ct. App. 1984). Because
the relative value of the alternative performances can change
over time, Washington courts instruct us that “[t]he time at
which the value of the alternatives is to be judged is at the
time of contracting.” Id.

   Applying this framework from Washington caselaw, we
believe that the outcome of the current case is unclear. Our
understanding of Washington law is that the ETF would be a
valid alternative performance contract if (1) subscribers had
a “real option” between remaining subscribed for the full term
                     MINNICK v. CLEARWIRE                   4191
or paying the ETF, and (2) there exists a reasonable relation-
ship between the two choices. With respect to the “real
option” factor, the cases do not give much guidance on what
factors we should consider to determine whether subscribers
have a “true option” between remaining subscribed or paying
the ETF. On the one hand, the numerous subscribers to Clear-
wire’s services might not have the same type of bargaining
power enjoyed by the obligated parties in past cases, where
the contracts were directly negotiated. See, e.g., Chandler,
267 P.2d at 912 (noting the extensive negotiations between
the parties); Bentley, 684 P.2d at 795 (alternative contract that
permitted schoolteacher to take paid sabbatical on condition
that she return to teach for two years, or repay the salary she
received during the sabbatical, was directly negotiated as part
of a collective bargaining agreement). On the other hand, in
the mass communications field, it should not be surprising to
find a standard contract. The real question is whether the con-
tract presents Clearwire’s subscribers with a “real option”
between paying monthly subscriber fees through the course of
the contract, or terminating the contract and paying a one-time
ETF.

   To determine whether a reasonable relationship between
the options exists, we must compare the relative value of the
alternatives. Chandler, 267 P.2d at 912. If the “relative values
of the alternatives are so disproportionate as to be unequal,”
then the contract cannot be a valid alternative performance
contract. Id. From the point of view of a subscriber who
wishes to cancel, the relative value between the two options
depends on how much time is left on the contract. As dis-
cussed above, the ETF in most cases decreases by $5 or $10
for every month the customer remains subscribed. Presum-
ably, however, each monthly payment is significantly greater
than either $5 or $10. Since the ETF in most cases starts out
at $220 (which presumably is significantly more than a few
months’ worth of payments), it appears that for subscribers
who cancel early into their term the ETF is less than the sum
of the remaining monthly payments. By contrast, the ETF is
4192                  MINNICK v. CLEARWIRE
greater than the sum of the remaining payments for subscrib-
ers who cancel near the end of their term. In other words,
early in the contract it is likely in a subscriber’s economic
interest to pay the ETF rather than complete the contract,
while a subscriber who is near the end of his contract will
have an economic incentive to complete the contract rather
than pay the ETF. However, Washington courts also instruct
us to judge the relative value of the performance alternatives
from the point of view of the time of contracting, not at the
time the customer elects to cancel. Bentley, 684 P.2d at 796.
At the time of contracting, the customer presumably is not
certain whether he will remain subscribed for the full term or
not, although he may well be able to estimate his general
options over the life of the contract. Washington cases do not
provide much guidance on how to value these kind of perfor-
mance alternatives.

                               B

   ETFs appear to be a common feature of service contracts
between telecommunications companies and subscribers. But
we are aware of no published decisions from Washington
courts opining on whether such ETFs are alternative perfor-
mance provisions or liquidated damages clauses. This case
therefore presents a “question of state law . . . which has not
been clearly determined and does not involve a question
determined by reference to the United States Constitution.”
Wash. R. App. P. 16.16.

               III.   CERTIFIED QUESTION

   In light of the foregoing discussion, we respectfully certify
the following question to the Washington Supreme Court:

    Does Washington law treat the ETF at issue in this
    case as an alternative performance provision, or as a
    liquidated damages clause?
                     MINNICK v. CLEARWIRE                    4193
   We do not intend the form of this question to limit the
Washington Supreme Court’s consideration of the issues rele-
vant to disposing of this matter. If the Washington Supreme
Court decides to consider this certified question, it may refor-
mulate the issue in light of the parties’ contentions or other
relevant considerations.

                         IV.   ORDER

   The Clerk shall forward a certified copy of this order to the
Washington Supreme Court accompanied by a copy of this
court’s docket of this case. Further proceedings in our court
on the certified question are stayed pending the Washington
Supreme Court’s decision, and this case is withdrawn from
submission. This panel retains jurisdiction over further pro-
ceedings upon receiving a decision from the Washington
Supreme Court. The parties shall notify the Clerk within one
week after the Washington Supreme Court accepts or rejects
certification. If the Washington Supreme Court accepts the
certified question, we designate Appellants to file the first
brief before the Washington Supreme Court in accordance
with Wash. R. App. P. § 16.16(e)(1). The parties shall also
file a joint status report to our court every six months after the
date of acceptance, or more frequently if circumstances war-
rant.

  It is so ORDERED.