Court Opinion

ID: 2995765
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:22:16.32006+00
Date Added: 2024-06-11T13:24:06.231287
License: Public Domain

In the
 United States Court of Appeals
                For the Seventh Circuit
                        ____________

No. 02-1359
METRO EAST CENTER FOR CONDITIONING AND HEALTH,
                                           Plaintiff-Appellee,
                              v.

QWEST COMMUNICATIONS INTERNATIONAL, INC.,
                                        Defendant-Appellant.
                        ____________
           Appeal from the United States District Court
                for the Southern District of Illinois.
        No. 01-CV-0399-DRH—David R. Herndon, Judge.
                        ____________
      ARGUED JUNE 6, 2002—DECIDED JUNE 27, 2002
                     ____________

 Before EASTERBROOK, MANION, and KANNE, Circuit
Judges.
  EASTERBROOK, Circuit Judge. When Metro East Center
for Conditioning and Health chose a new vendor for local
phone service, it neglected to name an interstate carrier,
so one was assigned at random—Qwest Communications,
which played that role for six months (February through
July 2001) before Metro East specified a different car-
rier. Qwest’s tariff on file with the Federal Communica-
tions Commission had two pertinent provisions: First, it set
the monthly minimum fee per line (the “presubscription
charge”) that each customer must pay; second, it provided
2                                                 No. 02-1359

that any dispute would be resolved by arbitration. (We use
the past tense because the tariff was canceled on July 31,
2001, as part of the FCC’s detariffing program. Today Qwest
uses a published statement of rates and rules, which pre-
sumably may be varied by customer-specific contracts. But
the tariff was in force when the parties’ dispute arose and
thus governs its resolution.) Metro East contends that it
uses Centrex service so that the monthly fee was 45¢ per
line; Qwest believes that Metro East is not a Centrex user
and that the tariff therefore specified a monthly charge of
$4.25. The total in contention is about $80, and the simpli-
fied procedures of arbitration are especially attractive for
small-stakes disputes. But Metro East believes that the
controversy is so small that neither arbitration nor ordinary
litigation makes sense. It filed this suit seeking to represent
a class of all customers who qualify for but did not receive
the 45¢ monthly rate under the tariff. Qwest replied with a
motion to dismiss the suit and compel arbitration.
    Qwest’s Interstate Tariff No. 3 says, among other things:
     Any claim, controversy or dispute, whether sound-
     ing in contract, statute, tort, fraud, misrepresenta-
     tion, or other legal theory, related directly or in-
     directly to the Services, whenever brought and
     whether between the Company and the Customer
     or between the Company or the Customer and the
     employees, agents or affiliated businesses of the
     other party, shall be resolved by arbitration as
     prescribed in this section. The Federal Arbitration
     Act, 9 U.S.C. §§ 1-15, not state law, shall govern the
     arbitrability of all claims.
Under §3 of the Federal Arbitration Act, 9 U.S.C. §3, only
the parties’ “agreement” supports arbitration. Yet a tariff is
a set of terms created and filed unilaterally by a carrier.
Customers do not “agree” to these terms, though they are
binding unless the federal agency with which they have
No. 02-1359                                                3

been filed disapproves them. See, e.g., AT&T v. Central
Office Telephone, Inc., 524 U.S. 214 (1998); Cahnmann v.
Sprint Corp., 133 F.3d 484 (7th Cir. 1998). No private
agreement can displace a tariff’s terms. See Maislin
Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116
(1990). Because the Federal Arbitration Act makes an
“agreement” essential, the district court concluded, Qwest’s
customers need not arbitrate any dispute with it. 182 F.
Supp. 2d 726 (S.D. Ill. 2002). The order denying Qwest’s
motion to compel arbitration is immediately appealable
under 9 U.S.C. §16(a)(1)(B).
  The district court’s approach has a “gotcha!” quality: The
clause requiring arbitration refers to the Federal Arbitra-
tion Act and as a consequence precludes arbitration. Yet it
is almost never right to read legal language as self-defeat-
ing. The district judge understood the clause as saying:
“Every dispute must be arbitrated, provided, however, that
no dispute is arbitrable.” Why would someone put such a
clause in a tariff, a contract, or any other document? People
draft documents to achieve some objective, and although
the meaning of words can be elusive even after taking
into account both linguistic and economic contexts, see
Beanstalk Group, Inc. v. AM General Corp., 283 F.3d 856
(7th Cir. 2002), and some words may turn out to be redun-
dant or otherwise carry no weight, it is not sensible to
construe a substantial passage of a legal text as pointless.
When one sentence seems to cancel out the rest of a sub-
section, it is essential to ask whether that sentence must
devastate its surrounding language. Is there no alternative
reading of either the contract or the Arbitration Act that
will enable the whole clause to survive?
  It isn’t hard to think of one: An “agreement” for purposes
of §3 means no more than an offer and acceptance that
produces a legally binding document. Tariffs, like contracts,
have that quality. The tariff is an offer that the customer
accepts by using the product. The terms have legal effect;
4                                                No. 02-1359

indeed, by virtue of federal law a tariff is more conclusive
than a contract and is said to have the status of a regula-
tion, see Cahnmann, 133 F.3d at 488, though a tariff also
may be enforced through suit just as a contract may be
enforced. No surprise that we have referred to tariffs as a
species of contract. See, e.g., Arsberry v. Illinois, 244 F.3d
558, 562 (7th Cir. 2001). Accord, Atlantic & Gulf Stevedores,
Inc. v. Alter Co., 617 F.2d 397, 401 n.16 (5th Cir. 1980);
Penn Central Co. v. General Mills, Inc., 439 F.2d 1338, 1340
(8th Cir. 1971). Tariffs differ from private contracts only to
the extent that they are not subject to alteration one
customer (or one clause) at a time or to nullification by a
court on grounds such as unconscionability. Instead a tariff
must be enforced as written unless the regulatory agency
intervenes. Metro East supposes that to form an “agree-
ment” with Qwest it must engage in individual negotiation,
clause by clause. A tariff is a take-it-or-leave-it proposition
and thus not an “agreement” by these lights. Yet we have
held that form contracts, offered on a take-it-or-leave-it
basis, are agreements for purposes of the Arbitration Act.
See, e.g., Koveleskie v. SBC Capital Markets, Inc., 167 F.3d
361 (7th Cir. 1999); Hill v. Gateway 2000, Inc., 105 F.3d
1147 (7th Cir. 1997). Cf. Carnival Cruise Lines, Inc. v.
Shute, 499 U.S. 585 (1991) (enforcing a forum-selection
clause included among three pages of terms attached to
a cruise ship ticket). Tariffs are no different on this dimen-
sion.
  Arbitration often comes with the territory, so to speak—
for example, with a job or with membership in the National
Association of Securities Dealers. See, e.g., Circuit City
Stores, Inc. v. Adams, 532 U.S. 105 (2001); Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995); J.E. Liss
& Co. v. Levin, 201 F.3d 848 (7th Cir. 2000). Although these
requirements may be non-negotiable—one cannot join the
NASD without accepting its arbitration regimen, and often
an investor cannot trade securities through NASD mem-
No. 02-1359                                                 5

bers without committing to arbitrate—they remain “agree-
ments” because the person could have chosen to do some-
thing else. A would-be securities dealer may elect a differ-
ent occupation; by making a living at securities trading
he agrees to live by the rules applicable to securities deal-
ers. Likewise a business such as Metro East that wants
to make interstate phone calls can shop among tens of
rivals for the best combination of price and terms. If cus-
tomers value the ability to litigate by more than the in-
cremental cost of litigation compared with arbitration, then
one or more of the carriers will offer that option. Even if
none does, the price the carriers charge in competition will
reflect the terms of the transaction.
   So this tariff does not suffer from a self-inflicted wound.
Metro East has “agreed” to arbitrate within the meaning of
§3. Nonetheless, Metro East insists, it should be entitled to
litigate because arbitration is too expensive for an $80 dis-
pute (the filing fee alone is greater), because arbitrators
need not entertain class actions, and so on. This is the sort
of litany that the Federal Arbitration Act is supposed to
silence; arbitration has disadvantages compared with liti-
gation but has benefits too, and private parties are entitled
to choose in order to maximize their own satisfaction. An
arbitral forum can serve as a sort of small-claims tribu-
nal in a way that a federal district court cannot. If arbitra-
tion offers benefits to Qwest and detriments to customers
such as Metro East, these benefits are reflected in a lower
cost of doing business that in competition are passed along
to customers. There is lots of competition in interstate tele-
communications service. Customers therefore are compen-
sated through lower rates for any net loss they may ex-
perience in arbitration. They can’t accept the lower rates
(recall that Metro East contends that it is entitled to an es-
pecially favorable fee of 45¢ per line per month) while
avoiding the means that made lower rates possible.
6                                                No. 02-1359

   What is more, arbitration may offer net benefits to all
concerned. The filing fee for arbitration exceeds the stakes
of this $80 dispute—but so does the filing fee for litigation
in a federal district court, and the discovery procedures of
litigation may be more expensive for both sides than are the
procedures used in arbitration. Qwest’s tariff calls for arbi-
tration under the auspices of the American Arbitration As-
sociation, using its expedited procedures without discovery.
This curtails the cost of the proceedings and allows swift
resolution of small disputes on written submissions. A firm
such as Metro East can provide documents (from itself or its
local carrier) supporting its contention that it has Centrex
service without opening itself to expensive discovery. This
seems to give the customer the upper hand: without dis-
covery, Qwest would not find it easy to meet Metro East’s
proof about the nature of its phone switch.
  None of this matters, however, because the decision is
not ours to make. Under the Arbitration Act, expressly
incorporated into the tariff, an agreement to arbitrate
must be enforced to the same extent as any other contract
would be enforced. Metro East does not contend that any
legal rule would nullify terms of the tariff viewed as ordi-
nary contractual clauses. 9 U.S.C. §2. To the extent that
Metro East argues that arbitration is unfair or unjust be-
cause it interferes with some other federal objective—the
sort of argument offered by four Justices in dissent in Green
Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000)—it
runs smack into the filed-rate doctrine (sometimes called
the filed-tariff doctrine because it covers terms as well as
rates). It is the regulatory agency (here the FCC) that pos-
sesses exclusive authority to set aside rates, terms, condi-
tions, and other ingredients of a tariff. By incorporating
the Federal Arbitration Act, the tariff authorizes the court
to decide whether a dispute is arbitrable under §3 (as we
have done); this role does not offend the filed-tariff doctrine
because the tariff itself commands application of the Arbi-
No. 02-1359                                                7

tration Act’s standards. But any broader claim, such as that
arbitration is an inappropriate practice in the telecommuni-
cations business or transgresses some aspect of the federal
statutes that the FCC administers, is an argument for the
FCC alone. A customer who objects to any part of a tariff
may ask the FCC to suspend or annul the tariff and is
entitled to judicial review of an unfavorable decision. 47
U.S.C. §§ 204(a)(2)(C), 402. But Metro East has not initi-
ated an administrative proceeding—and Qwest informed
us at oral argument that none of its other customers has
sought administrative review of the arbitration requirement
nor, to its knowledge, has any customer of any carrier pro-
tested before the FCC any arbitration provision in a telecom-
munications tariff. This suggests that most customers find
arbitration a valuable cost-saver; certainly it affords no
reason to suppose that the FCC thinks arbitration improper
and just hasn’t got ‘round to purging it from Qwest’s
Interstate Tariff No. 3.
   Metro East relies heavily on McCaskill v. SCI Manage-
ment Corp., 285 F.3d 623 (7th Cir. 2002), for the proposition
that an arbitration clause is invalid if the parties’ agree-
ment includes a provision for the allocation of attorneys’
fees at variance with otherwise-applicable law. According to
Metro East, McCaskill held an arbitration agreement cov-
ering employment disputes invalid because it adopted the
American Rule under which each side bears its own legal
expenses, see Alyeska Pipeline Service Co. v. Wilderness
Society, 421 U.S. 240 (1975), while Title VII of the Civil
Rights Act of 1964 creates a fee-shifting regimen allowing
a prevailing employee to recover legal fees from the em-
ployer. See Christiansburg Garment Co. v. EEOC, 434 U.S.
412 (1978). This approach applies here, Metro East con-
tends, because the Federal Communications Act provides
for fee shifting, 47 U.S.C. §206, while Qwest’s tariff speci-
fies use of the American Rule. Metro East overstates
McCaskill’s holding, because the employer in that case
8                                               No. 02-1359

conceded that the American Rule would not be used in the
arbitration and forfeited additional arguments as well. The
employer did not, for example, contend in McCaskill that
it is the arbitrator, not a judge, who must determine in
the first instance what rules for the allocation of legal
expenses are applicable. Although some language in
McCaskill could be read to decide issues on which the par-
ties had not engaged, rehearing has been granted in that
case to consider more fully the effects of the employer’s
forfeitures. Because McCaskill has been withdrawn, it re-
mains open to decision in this circuit whether parties to
a contract may agree to replace a fee-shifting system with
the American Rule, whether the right party to make this
decision is the arbitrator or the judge, and whether, if
a contractual choice of the American Rule is indeed forbid-
den, this spoils the entire arbitration clause.
  As far as we know, the Supreme Court has never held
that any entitlement is outside the domain of contract, un-
less the statute forbids waiver (as §206 of the Communica-
tions Act does not). Every day criminal defendants waive
the most fundamental rights, such as the right to jury trial
and proof beyond a reasonable doubt, in exchange for lower
sentences or other benefits. See United States v. Krilich,
159 F.3d 1020 (7th Cir. 1998) (collecting authority). Public
employees can and do waive constitutional rights—includ-
ing the right of political speech—in exchange for employ-
ment. See, e.g., CSC v. Letter Carriers, 413 U.S. 548 (1973);
Snepp v. United States, 444 U.S. 507 (1980). Political can-
didates can surrender some of their speech rights in ex-
change for a federal subsidy. See Buckley v. Valeo, 424 U.S.
1, 57 n.65 (1976). Perhaps, then, telephone users can sur-
render rights to attorneys’ fees in return for more immedi-
ate benefits, such as lower monthly charges. Contracts
about attorneys’ fees, in particular, have been challenged
and sustained. Evans v. Jeff D., 475 U.S. 717 (1986), a case
that McCaskill did not mention, holds that plaintiffs may
No. 02-1359                                                 9

forego attorneys’ fees under 42 U.S.C. §1988. We know from
Newton v. Rumery, 480 U.S. 386 (1987), that it is possible
to waive an entire civil-rights claim; waiver of fee-shifting
is a subset of that broader agreement. Cf. Dye v. Wargo, 253
F.3d 296 (7th Cir. 2001). Although the agreements in Evans
and Newton were forged after the events that gave rise to
the claims, while here the deal came earlier, this distinction
is not necessarily dispositive. A pre- versus post-dispute
line has been drawn by a few statutes, such as the Fair
Labor Standards Act, but §206 of the Communications Act
is not among them.
   One aspect of personal liberty is the entitlement to ex-
change statutory rights for something valued more highly.
Instead of offering a benefit only to a person who is re-
quired to arbitrate or litigate, a fee-shifting statute may
provide a benefit more widely to the extent that it changes
the terms of trade; the customer sells the entitlement
back to the phone company for cash (in the form of lower
rates). The more valuable the right, the more the customer
can get in exchange. Thus identifying a high-value legal
right does not show that the right must be off limits to
economic activity between consenting adults. The Supreme
Court has held that cognovit notes—that is, agreements
bypassing suit and permitting the lender to register a
judgment without judicial approval, in exchange for a lower
rate of interest—are compatible with the Constitution, D.H.
Overmyer Co. v. Frick Co., 405 U.S. 174 (1972), and we re-
cently enforced a deal with a similar confession-of-judgment
feature. See Society of Lloyd’s v. Ashenden, 233 F.3d 473
(7th Cir. 2000). A contract specifying use of the American
Rule in arbitration is well short of a cognovit clause; and
if the latter can be valid, why not the former?
  Once again, however, the decision is not ours to make. If
the provision in the tariff calling for use of the American
Rule is unlawful under the Communications Act, then the
right forum for complaint is the Federal Communications
10                                              No. 02-1359

Commission—though it is conceivable that the arbitrator
may play a role too. Many decisions, of which Prima Paint
Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), is
the leading example, hold that defenses to performance—
even those that logically defeat arbitration—belong to the
arbitrator as long as there is no doubt that the parties
agreed to arbitrate. See Sphere Drake Insurance Ltd. v. All
American Insurance Co., 256 F.3d 587 (7th Cir. 2001)
(discussing this doctrine and its limits). Three courts of
appeals have held that under Prima Paint the arbitrator
determines whether contractual limitations on remedies are
valid. See Larry’s United Super, Inc. v. Werries, 253 F.3d
1083 (8th Cir. 2001); MCI Telecommunications Corp. v.
Matrix Communications Corp., 135 F.3d 27, 33 n.12 (1st
Cir. 1998); Great Western Mortgage Corp. v. Peacock, 110
F.3d 222 (3d Cir. 1997). How this interacts with the filed-
rate doctrine is an open question. An arbitrator has no more
power to alter a tariff’s rate than does a judge; and because
Central Office Telephone treats conditions and other tariff
terms as part of the rates, it may follow that an arbitrator
must take the whole tariff as he finds it, in order to avoid
any possibility of discriminatory application (that bugbear
of rate-regulation systems, and the main target of the filed-
rate doctrine). This suggests that only the FCC may consider
an objection to the tariff’s specification of the American
Rule. All that matters today, however, is the doctrine that
a court cannot annul any part of a tariff, no matter how
telling the objection.
  Metro East has one last argument: that the district court
did not “invalidate” any part of a tariff (which the filed-
tariff doctrine forbids) but instead held the arbitration
clause “unenforceable”. That’s your classic distinction with-
out a difference. What, exactly, is the legal line between
holding part of a tariff “invalid” and holding it “unenforce-
able”? No case of which we are aware holds that a court
may declare part of a tariff “unenforceable” and refuse to
No. 02-1359                                                   11

apply it. That would invade the province of the agency just
as surely as any declaration that the clause is “invalid.”
  Qwest is entitled to enforce its tariff unless and until the
FCC  intervenes. Accordingly, the district court should have
granted Qwest’s motion to compel arbitration. Metro East
tells us that it views arbitration as pointless; that is its call,
for no provision in the tariff requires the customer to pur-
sue every dispute to the bitter end. A customer may decide
not to throw good money after bad. Therefore the judgment
of the district court is reversed, and the case is remanded
for dismissal unless Metro East promptly informs the dis-
trict judge that it prefers to arbitrate. In that event, the
district court should enter an order staying the litigation
and requiring the parties to arbitrate this $80 dispute.

A true Copy:
       Teste:

                          ________________________________
                          Clerk of the United States Court of
                            Appeals for the Seventh Circuit

                     USCA-97-C-006—6-27-02