Californians fed up with being charged for ending their cell
phone service prematurely won a major victory in a Bay Area court
decision that concluded such fees violate state law.

In a preliminary ruling Monday, Alameda County Superior Court Judge
Bonnie Sabraw said Sprint Nextel must pay California mobile-phone
consumers $18.2 million as part of a class-action lawsuit challenging
early termination fees.

Though the decision could be appealed, it's the first in the country to
declare the fees illegal in a state and could affect other similar
lawsuits, with broad implications for the nation's fast-growing legions
of cell phone users.

The judge - who is overseeing several other suits against
telecommunications companies that involve similar fees - also told the
company to stop trying to collect $54.7 million from other customers
who haven't yet paid the charges they were assessed. The suit said
about 2 million Californians were assessed the fee.

Whether Sabraw's ruling will stand isn't clear. Experts say an appeal
is likely, and the Federal Communications Commission is considering
imposing a rule - backed by the wireless industry - which might decree
that only federal authorities can regulate early termination fees.

Sprint Nextel also argued in the lawsuit that such fees - which ranged
from $150 to $200 - were outside the purview of California law. But
Sabraw rejected that argument.

"This is a terrific ruling," said


Chicago attorney Jay
Edelson, who was not part of the case but has filed about 50 other
suits nationwide against various cell phone charges.


 

"The
phone companies have a tremendous amount of power," he added. "They
lock you into long-term contracts and then they allow all these charges
to be put on your bill. We have to make sure that consumers are
protected."

"We are disappointed," said Sprint Nextel spokesman Matthew Sullivan.
But he added that Sabraw's ruling was tentative and that she has given
Sprint Nextel's attorneys the opportunity to file a rebuttal before she
considers making it permanent.

Sullivan noted that similar suits have been filed in other states, but
that Sabraw's decision was the first he knows of declaring such fees
illegal.

Several other industry experts agreed, including John Walls, a
spokesman with the CTIA, a Washington-based organization that
represents the wireless telecommunications industry.

"I don't know of any state that has gone to this extent," he said,
adding that his group believes it makes more sense to have such fees
solely policed by the federal government.

'National framework'

"A consistent, uniform, national framework of standards is the
best-case scenario for consumers and for the industry to serve
consumers," he said. "If you allow 50 states to regulate and legislate
in 50 different ways, you can create a very confusing and obviously
inefficient service."

At a public hearing last month, FCC Chairman Kevin Martin sketched out
a plan in which cancellation fees would be reduced over the life of the
cell phone contract. Three companies - T-Mobile, AT&T and Verizon
Wireless - already do that, and Sprint said it would begin prorating
its fees next year.

The commission also is trying to resolve whether states have any role
in regulating early termination fees, which are among the biggest
source of complaints among wireless consumers, said spokesman Robert
Kenny.

Fees or 'rates'?

He said the agency may decide to define such fees as "rates," which are
subject to federal regulation under federal law. But if that happened,
it is unclear how that might affect lawsuits in California and other
states, Kenny said.

"That is something that will have to be addressed," he added, noting
that the FCC hopes to resolve the issue by the end of the year.

Chris Murray, senior legal counsel for Consumers Union, said he hoped
the California court decision would "drive a stake through the heart"
of the industry's desire to remove state courts and state regulators
from overseeing the fees.

That view was seconded by Scott Bursor, a lawyer for the victorious
Sprint Nextel customers, who said the FCC likely would be persuaded by
Sabraw's logic that states should have a role in policing the fees. If
the FCC does limit state oversight, "it will get reversed" by the
courts, he added.

On June 12, a jury in the Alameda County lawsuit ruled in favor of
Sprint Nextel, determining that its customers who canceled their
service early had breached their contracts with the company and that
early termination fees were warranted.

But in overruling that decision, Sabraw said the jurors appear to have
erred in assuming the fees were valid, and she took issue with the way
Sprint Nextel determined that its customers owed the fees.

"Sprint did no damage analysis that considered the lost revenue from
contracts, the avoidable costs and Sprint's expected lost profits from
contract terminations," she said.

Nonetheless, Sabraw preserved a portion of the jury's verdict and used
that to scale back the amount of refunds the suit initially had sought.

 

 

Contact Steve Johnson at sjohnson@mercurynews.com or (408) 920-5043.

 


The Associated Press contributed to this report.