WASHINGTON-The 8th U.S. Circuit Court of Appeals gutted Minnesota’s wireless consumer-protection law, defeating Attorney General Mike Hatch (D) and handing the mobile-phone industry a major legal victory at a time of increasing state intervention into the wireless business.
In reversing a lower court, the 8th Circuit unanimously said Minnesota’s wireless guidelines-including one requiring cellular carriers to give subscribers 60 days written notice of proposed contract changes-are pre-empted by federal law. Hatch, who is running for governor, signed the wireless consumer-protection measure into law on May 29, 2004. The action triggered a legal fight in which industry lawyers sought a preliminary injunction against the implementation and enforcement of the state’s Article 5 statute.
The 8th Circuit agreed with industry’s federal pre-emption argument.
“This statute effectively voids the terms of contracts currently used by providers in one industry, and substitutes by statute a different contractual arrangement,” said the 8th Circuit’s three-judge panel. “The existing contracts exemplify an `opt-out’ structure-that is, they permit the providers to affect rate increases upon reasonable notice to the consumer, whose continued use of the service binds him to the new rate unless he affirmatively declines to accept the changes. Subdivision 3 [the wireless consumer law] mandates an `opt-in’ contract structure: the provider cannot increase rates unless the customer affirmatively accepts the changes. … There is no indication that `opt-out’ contracts of the sort used by the providers are considered illusory under Minnesota’s consumer-protection statutes or its common law, and in fact, such contracts are generally accepted as legal and binding.”
Hatch’s office did not return a call for comment on the ruling and whether he would ask the U.S. Supreme Court to review the 8th Circuit decision.
Late last year, in an amicus brief filed with the 8th circuit, the Federal Communications Commission sided with industry in arguing the Minnesota wireless consumer law is pre-empted by U.S. law. At the same time, the FCC also has stated federal law does not generally pre-empt the award of monetary damages by state courts based on state consumer-protection laws.
The Minnesota law-which was to have become effective in July 2004-was put on hold pending the outcome of the mobile-phone carriers’ challenge before the federal appeals court in St. Louis.
Verizon Wireless urged the appeals court to give some deference to the FCC’s filing, but for various reasons the court chose not to act on the carrier’s request. Joining Verizon Wireless in the lawsuit were Midwest Wireless Communications L.L.C., Rural Cellular Corp, Sprint Spectrum L.L.P (now Sprint Nextel Corp.), AT&T Wireless Services Inc. (now Cingular Wireless L.L.C.) and T-Mobile USA Inc.
During the case Hatch argued, “This case embodies an attack by the wireless industry upon Minnesota’s sovereign authority to enact consumer-protection legislation. In establishing a shared-authority scheme with respect to wireless service, Congress expressly chose not to pre-empt states from exercising their core powers to enact consumer-protection laws.”
The 8th Circuit disagreed.
Congress in 1993 banned states from regulating rates and market entry of mobile-phone carriers, but left other terms and conditions of commercial wireless service to the states.
The 1993 law has been at the core of consumer, health and antenna-siting litigation, with little uniformity among court rulings.
Wireless carriers were represented in the Minnesota litigation by the law firm of Wiley Rein & Fielding L.L.P., which is defending cellular companies on health lawsuits.
In a press statement, Wiley Rein said the 8th Circuit’s ruling has implications beyond Minnesota.
“The court’s analysis provides the latest judicial interpretation of critical elements of the Communications Act and the scope of federal pre-emption, over which there has been much litigation,” the law firm stated. “This case provides a clear vindication of the standard contracts and practices used throughout the wireless industry. It also sends a warning to states considering similar regulation to weaken or invalidate lawful, mutually beneficial contract terms, that they should respect the limitations Congress put on their power over wireless rates and the practices and contract terms that directly effect those rates.”
The mobile-phone industry is fighting to scale back or overturn a California telecom consumer bill of rights. The battle is playing out at the California Public Utilities Commission and in the state legislature. Industry does not want California’s bill of rights to be a model for other states. Massachusetts is considering a bill of rights, which unlike California’s pending bill, specifically would cover cell-phone consumers.
