The Arkansas Supreme Court on Thursday denied Alltel Corp.'s request to order arbitration for former customers who sued the telecom company over paying a $200 early cancellation penalty.
The ruling clears the way for a class-action lawsuit to go forward in Saline County Circuit Court on Jan. 5.
The class involves about 70,000 accounts with an estimated 110,000-120,000 subscriber lines. The plaintiffs alleged that Alltel violated the Arkansas Deceptive Trade Practices Act and unjustly benefitted by requiring an early termination fee from its cellular phone customers, according to the Arkansas Supreme Court's opinion, released Thursday morning.
More: Read the Arkansas Supreme Court's entire opinion here (PDF).
Alltel Corp. of Little Rock was sold in 2009 to Verizon Wireless for $28.1 billion.
One of the reasons Arkansas Supreme Court rejected Alltel's motion to compel arbitration was because the arbitration agreement in Alltel's "Terms and Conditions" wasn't equal to the consumers and the company.
"Here, despite both Alltel and its customers being bound to the remedy of arbitration, Alltel, and only Alltel, was permitted to reject that remedy without consequence," Associate Justice Paul Danielson wrote in the opinion.
Justice Courtney Hudson Goodson penned a dissenting opinion, which Justices Karen R. Baker and Cliff Hoofman also joined.
Scott Poynter, of Emerson Poynter LLP of Little Rock, one of the attorneys for the plaintiffs, told Arkansas Business Thursday that he was "very grateful and happy with the decision from the Supreme Court."
The case highlights a growing trend of companies adding language to contracts and terms of agreement that require any disputes that arise to be handled in arbitration. Once there, the complaint is decided by an arbitrator rather than in the courts with a judge or jury deciding the case.
In her dissent, Goodson said she couldn’t join the majority opinion for two reasons.
"First, the majority disregards precedent by not returning this case to the circuit court to rule on a threshold issue of contract formation that was raised by the parties but not ruled on by the circuit court," Goodson wrote. "Second, the majority affirms the mutuality-of-obligation issue based on its own construction of the arbitration agreement, when no party in this case has advanced that argument."
Goodson said in deciding to grant a motion to compel arbitration, two thresholds must be met: a valid agreement to arbitrate between the parties and if such an agreement exists.
Goodson cited a previous case involving Bank of the Ozarks Inc. of Little Rock.
"The circuit court did not rule on that issue," Goodson wrote. "Instead, the court denied the motion to compel arbitration based on the equitable defense that the arbitration agreement was unconscionable. Recognizing that a question concerning existence of a valid arbitration agreement is a threshold issue, this court reversed and remanded for the circuit court to resolve the issue of mutual assent.
"Essentially, this court announced a new rule, holding that a circuit court must decide the threshold issue of contract formation before determining whether the claims fall within the scope of the arbitration agreement and before considering any defenses that might otherwise invalidate the agreement," the dissenting opinion said.