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Judy Larson, Barry Hall, Joe Milliron, Tessie Robb, Willie Davis v. At&T Mobility LLC

June 29, 2012

JUDY LARSON, BARRY HALL, JOE MILLIRON, TESSIE ROBB, WILLIE DAVIS, ROMAN SASIK, DAVID DICKEY, STEVEN WRIGHT, JANE WALDMANN, ROBERT WISE, JACKIE THURMAN, RICHARD CHISOLM, MARY PITSIKOULIS, DEBRA LIVELY, JACQUELINE SIMS, KISHA ORR, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
v.
AT&T MOBILITY LLC, F/K/A CINGULAR WIRELESS LLC; SPRINT NEXTEL CORPORATION; SPRINT SPECTRUM, D/B/A/ SPRINT NEXTEL; NEXTEL FINANCE COMPANY, LINA GALLEGUILLOS; MICHAEL MOORE; ANTRANICK HARRENTSIAN, APPELLANTS IN NO. 10-1285, (PURSUANT TO FRAP 12(A)) BRAMSON, PLUTZIK, MAHLER & BIRKHAEUSER; LAW OFFICE OF SCOTT A. BURSOR; FRANKLIN & FRANKLIN; GILMAN & PASTOR; LAW OFFICES OF ANTHONY A. FERRIGNO; REICH, RADCLIFFE & KUTTLER; LAW OFFICES OF CARL HILLIARD; MAGER & GOLDSTEIN; LAW OFFICES OF JOSHUA P. DAVIS; CUNEO, GILBERT & LADUCA, APPELLANTS IN NO. 10-1477 (PURSUANT TO FRAP 12(A)) BRAMSON, PLUTZIK, MAHLER & BIRKHAEUSER; LAW OFFICE OF SCOTT A. BURSOR; FARUQI & FARUQI, APPELLANTS IN NO. 10-1486 (PURSUANT TO FRAP 12(A))
JESSICA HALL, APPELLANT IN NO. 10-1587 (PURSUANT TO FRAP 12(A))



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 07-cv-5325) District Judge: Hon. Jose L. Linares

The opinion of the court was delivered by: Jordan, Circuit Judge.

PRECEDENTIAL

Argued January 12, 2012

Before: McKEE, Chief Judge, FUENTES, and JORDAN, Circuit Judges.

OPINION OF THE COURT

Until late 2008, Sprint Nextel Corporation (collectively with its operating subsidiaries, including Sprint Spectrum L.P., "Sprint")included a flat-rate early termination fee ("ETF") provision in its cellular telephone contracts, which allowed it to charge a set fee to customers who terminated their contracts before the end date stated in the contract. Because many consumers believed that flat-rate ETFs were illegal penalties, various class action lawsuits were brought against cellular phone service providers who charged flat-rate ETFs, including Sprint. In the case before us now (the "Larson" action), the plaintiffs entered into negotiations with Sprint, and, after five months of mediation, the parties decided to settle the matter for $17.5 million, pursuant to the terms of their agreement (the "Settlement Agreement"). Over objections lodged by several class members, the United States District Court for the District of New Jersey certified the settlement class and approved the Settlement Agreement. Objectors Lina Galleguillos, Antranick Harrentsian, and Michael Moore (collectively, the "Galleguillos Objectors"), along with Jessica Hall, appealed.*fn1

Because the District Court did not adequately protect the rights of absent class members, we will vacate its order and remand the matter for further proceedings.

I.Background

A. Class Action and Settlement Agreement

A flat-rate ETF is one that does not vary during the term of the contract.*fn2 At the time the Larson class action was filed, if a Sprint customer terminated a contract prior to the end of the contract term, Sprint would impose a flat-rate ETF of approximately $200. The Larson plaintiffs filed their suit in the District Court on November 5, 2007, alleging that the flat-rate ETFs charged by AT&T Mobility, LLC ("AT&T") and Sprint were illegal penalties that violated the Federal Communications Act and state consumer protection laws. The Complaint was amended twice, with the Second Amended Complaint, as discussed in greater detail herein, being filed by five plaintiffs (the "Class Representatives"). Each of the Class Representatives was charged a flat-rate ETF by Sprint.*fn3

Sprint moved to dismiss the Larson action pursuant to Rules 12(b)(2) and 12(b)(6) of the Federal Rules of Civil Procedure, but before the District Court rendered a decision on that motion, the Class Representatives and Sprint entered into mediation of the dispute, under the guidance of a retired judge of the District Court. After approximately five months of negotiations, on December 3, 2008, the parties agreed to settle the matter for $17.5 million, comprised of $14 million in cash and $3.5 million in activation fee waivers, bonus minutes, and credit forgiveness (collectively, the "Common Fund").*fn4 In addition to the monetary relief, the Settlement Agreement also enjoined Sprint from entering into new fixed-term subscriber agreements containing flat-rate ETFs for a period of two years, effective January 1, 2009.*fn5 Along with ending the Larson action, the Settlement Agreement expressly resolved ten other lawsuits pending in various state courts, but it excepted certain claims that were being asserted in a California-only state court class action against Sprint captioned Ayyad v. Sprint Spectrum, LLP ("Ayyad").

The Settlement Agreement provided for four different categories of claimants, three of which are relevant to this appeal:*fn6

Category I. -- Claimants Who Paid an ETF

(Other Than Category III or IV Class

Members):

A. Those Claimants who had a two-year term contract and terminated within the first six months of that contract term [or (B.) had a one-year term contract and terminated within the first three months of that contract term], and show sufficient proof that they paid an ETF including signing under penalty of perjury,[*fn7 ] shall be entitled to a payment of $25 from the Common Fund; or to the extent such Settlement Class Members desire to activate a new service line with Sprint Nextel: (i) a waiver of the approximately $36 activation fee normally charged by Sprint Nextel in connection with obtaining a new two-year contract to become a Sprint Nextel subscriber; and (ii) 100 free bonus minutes per month for the first year of that two-year contract. .

C. Those Claimants who had a two-year term contract and terminated at any time between the seventh to the twenty fourth month of that contract term [or (D.) had a one-year term contract and terminated within the fourth to twelfth month of that contract term], and show sufficient proof that they paid an ETF including signing under penalty of perjury, shall be entitled to a payment of $90 from the Common Fund; or to the extent such Settlement Class Members desire to activate a new service line with Sprint Nextel: (i) a waiver of the approximately $36 activation fee normally charged by Sprint Nextel in connection with obtaining a new two-year contract to become a Sprint Nextel subscriber; and (ii) 100 free bonus minutes per month for the first year of that two-year contract. .

E. Those Claimants who cannot show sufficient proof that they paid an ETF, but sign under penalty of perjury that they paid an ETF will receive $25 cash payment; or to the extent such Settlement Class Members desire to activate a new service line with Sprint Nextel:

(i) a waiver of the approximately $36 activation fee normally charged by Sprint Nextel in connection with obtaining a new two-year contract to become a Sprint Nextel subscriber; and (ii) 100 free bonus minutes per month for the first year of that two-year contract. .

Category II. -- Claimants Who Were Charged an

ETF But Did Not Pay the ETF:

A. Those Claimants who had a two-year term contract and terminated within the first six months of that contract term [or (B.) had a one-year term contract and terminated within the first three months of that contract term], and show sufficient proof that were charged an ETF, including signing under penalty of perjury, shall be entitled to $25 in credit relief, if the debt owed to Sprint Nextel is still owned by Sprint Nextel; or to the extent such Settlement Class Members desire to activate a new service line with Sprint Nextel:

(i) a waiver of the approximately $36 activation fee normally charged by Sprint Nextel in connection with obtaining a new two-year contract to become a Sprint Nextel subscriber; and (ii) 100 free bonus minutes per month for the first year of that two-year contract. .

C. Those Claimants who had a term contract and terminated after the seventh month of a two year term or terminated after the fourth month of a one year term, and show sufficient proof that they were charged an ETF, including signing under penalty of perjury, shall be entitled to (i) a $90 credit, if the debt owed to Sprint Nextel is still owned by Sprint Nextel; or

(ii) to the extent such Settlement Class Members desire to activate a new line of service with Sprint Nextel: (i) a waiver of the approximately $36 activation fee normally charged by Sprint Nextel [for] free activation in connection with obtaining a new two-year contract to become a Sprint Nextel subscriber; and (ii) 100 free bonus minutes per month for the first year of that two-year contract. .

Category IV. -- Claimants Whose Claim Arises After Notice to The Class But Before

January 1, 2011:

H. Any Claimant who has a wireless line of service under a term contract entered into before January 1, 2009 and is subject to a flat-rate ETF that terminates after the close of the notice period, whose Approved Claim arose after the notice for approval of Settlement is provided to the Settlement Class but before January 1, 2011, and who swears under penalty of perjury that they were harmed as a result of the flat-rate ETF will be entitled to either: (i) a Sprint Nextel prepaid 90 minute Long Distance Calling Card to be purchased out of the Common Fund; (ii) to the extent such Settlement Class Member desires to activate a new line of service with Sprint Nextel, a waiver of the approximately $36 activation fee normally charged by Sprint Nextel in connection with obtaining a new two-year contract to become a Sprint Nextel subscriber and 100 free bonus minutes per month for the first year of that two year contract; or (iii) 300 free text messages per month for six months. .

(Appellants‟ Joint Appendix ("AJA") at 283-291.)

The Settlement Agreement released Sprint from all ETF-related claims, including claims "arising from or relating to any decision by Sprint . to impose [or] collect . an Early Termination Fee, regardless of the basis for the customer‟s claim that the fee should or should not be imposed [or] collected." (AJA at 270.) The Settlement Agreement defined the "Claim Period" -- that is, the time frame in which eligible claimants are entitled to file a claim to acquire the relief set forth in the Settlement Agreement-- as "the period beginning 30 days after entry of the Preliminary Approval Order and ending 60 days after entry of the Final Approval Order and Judgment" related to the class settlement. (AJA at ...


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