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From Antitrust Law Daily, September 17, 2013

Arbitration agreement requires stay of action challenging restrictions on A2P text message senders

By Jeffrey May, J.D.

Antitrust claims brought by mobile marketers against five of the six largest wireless service providers in the nation and others over alleged restrictions on the delivery of application-to-person text messages (A2Ps) have been stayed by the federal district court in New York City pending resolution of claims that are subject to arbitration (In re A2P SMS Antitrust Litigation, September 16, 2013, Nathan, A.).

The action was brought on behalf of a putative class of businesses that sent, through so-called “aggregators,” A2P text messages (as opposed to person-to-person or P2P text messages) to large numbers of wireless subscribers simultaneously using “common short codes” (CSCs). Aggregators are intermediaries between the complaining businesses and the wireless service providers. CSCs are 5 or 6 digit numbers that are leased to businesses and institutions (CSC Lessees) for the purpose of sending A2P SMS.

The businesses must obtain the CSC lease from Neustar, Inc. under a “Registrant Sublicense Agreement” (RS Agreement) that contains an arbitration provision. That arbitration provision “is at the heart of the current dispute regarding whether certain Defendants can compel arbitration of Plaintiffs’ claims,” the court noted.

The plaintiffs, represented by Club Texting Inc., alleged that the defendants engaged in a four-step plan to create a system to extract the maximum amount of inflated fees from their consumers by means of the CSC system. They contended that the wireless service providers refused to deal with CSC Lessees seeking to transmit A2P SMS through traditional 10-digit telephone numbers, issued under the North American Numbering Plan and regulated by the Federal Communications Commission. In addition, the defendants allegedly conspired to inflate “unnecessary fees” for lessees to connect to the wireless providers through the aggregators. Lastly, the defendants allegedly conspired to monopolize the market for the transmission of A2P SMS by requiring transmission through CSCs leased on coordinated terms through joint selling agent Neustar.

The court ruled that wireless service providers AT&T Mobility LLC, Cellco Partnership (Verizon Wireless), Sprint Nextel Corporation, T-Mobile USA, Inc., and U.S. Cellular Corporation, along with a cellular telecommunications and wireless services trade association, and a company that provided CSC monitoring and compliance services to the trade association could enforce the arbitration provision in the RS Agreement. Even though these defendants were not signatories to the agreement, equity estopped the plaintiffs from arguing that the agreement did not apply. The claims arose from the subject matter of the RS Agreement and there was a “close relationship” between the parties. It was telling, according to the court, that the plaintiffs did not name Neustar as a defendant in the action in light of the arbitration clause.

The federal antitrust claims fell within the broad scope of the RS Agreement’s arbitration provision, the court also ruled. The plaintiffs unsuccessfully argued that the arbitration provision was limited to claims under substantive Virginia law.

The court ruled that the plaintiffs would be required to arbitrate claims against individual aggregator defendants as well. For the most part, the same reasoning that applied to compel arbitration of claims against the wireless service providers applied against the aggregator defendants.

Lastly, the court rejected the plaintiffs’ argument that, because the agreements did not allow for class-wide arbitration, the arbitration agreements were unenforceable. The plaintiffs contended that because the costs of individually arbitrating the complex antitrust claims in their complaint would preclude them from bringing this action, they would be improperly denied “effective vindication.” However, the plaintiffs failed to demonstrate that the administrative costs and filing fees associated with arbitration would amount to a statutory deprivation of their right to pursue their claims.

The case is No. 12 CV 2656 (AJN).

Attorneys: Robert N. Kaplan (Kaplan Fox & Kilsheimer LLP) for Club Texting, Inc. Luke A. Connelly (Winston & Strawn LLP) for Cellco Partnership.

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

MainStory: TopStory Antitrust NewYorkNews

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