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Judge Rules Sprint Early Termination Fees Illegal 343

Posted by ScuttleMonkey
from the bad-news-for-lock-in dept.
Antiglobalism writes to tell us that an Alameda County Judge has ruled against Sprint Nextel in a class-action lawsuit, awarding customers $18.2 million in restitution for 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."
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Judge Rules Sprint Early Termination Fees Illegal

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  • Case Law Precedent? (Score:2, Interesting)

    by conner_bw (120497)

    This sounds like a good time to get one of those $199 subsidized iPhones and walk away from the contract.

    But isn't the whole mortgage crisis [dissidentvoice.org] based on the same principle? People walking away from their contracts?

    • by Osurak (1013927) on Thursday July 31, 2008 @01:34PM (#24419981)

      This sounds like a good time to get one of those $199 subsidized iPhones and walk away from the contract.

      But isn't the whole mortgage crisis [dissidentvoice.org] based on the same principle? People walking away from their contracts?

      No, the mortgage crisis was caused by a combination of irresponsible lending practices by lenders and people attempting to live beyond their means. People walking away from the contracts was an effect, not a cause.

      • Re: (Score:2, Insightful)

        Lendee: My boss is a dick and I have no proof of employment! Morgtage Broker: We get commissions anyway so we'll get you a "Liar's loan" for the downpayment and the bigger the morgtage the bigger the commish! you just have to pay interest on the loan at market rates. Lendee: Awsome, so the government will subsidize my american dream? Morgtage Broker: Exactly.
      • by Red Flayer (890720) on Thursday July 31, 2008 @01:54PM (#24420375) Journal
        To be a little more complete, the easily available credit also increased demand on real estate, thus driving prices upward drastically... and the combination of tightened credit availability and a slower economy has now caused prices to fall, leaving people in a negative equity situation.

        Some of the problem is people signing stupid loans (A 5-1 ARM with a ridiculous teaser rate?). Because credit tightened up, in order to sell the home (or refinance) before the fixed period was up (almost everyone's plan), they would need to take a loss... which they couldn't do because they were in a negative equity situation.

        I think that more so than people choosing to live beyond their means, it was people paying too much for properties they bought... the necessary market correction in property prices left a lot of people in bad shape. Speculation that property prices would continue rising is as much to blame as bad lending practices and poor budgeting.
        • by AuMatar (183847) on Thursday July 31, 2008 @02:01PM (#24420481)

          ARM5-1 isn't a stupid loan. Its a low rate for 5 years. The idea is that before the 5 years are up you either sell, or refinance to avoid the higher rate (possibly to another 5-1, possibly not). It's actually a smart idea if you don't plan on living there 30 years. Now if you want a bad loan, look at interest only, 3 month ARMs, and negative amortization loans.

          • by Red Flayer (890720) on Thursday July 31, 2008 @02:08PM (#24420611) Journal
            It's a stupid loan if you do not foresee a collapse in property prices in your area due to near-future restrictions on easy credit. This is what happened to many tens of thousands of people, and why so many people are hammered by a negative equity situation. They cannot sell, because they owe more than the vlaue of their home and do not have cash reserves... and theycannot afford their ballooned payments.

            Sure, the lender will (if they are smart) renegotiate with the borrower... but many borrowers find it a better proposition to walk away and declare bankruptcy.

            Yes, IO 3 month ARMs are REALLY bad... unless you're just flipping the property. Negative amortisation loans, same deal. Either case, you better know what's going on in the housing market locally before you jump in.
          • An I/O loan would be great if you were on a variable income - perhaps self-employed or on commission.

            That way you can make IO payments in the leaner months and when you get a big check you can pay down your loan.

            There's nothing inherently bad about ARMs either and even NegAms have a place.

            The real problem here is that people signed things without reading them over and understanding them. What percentage of the general public could even work out a loan payment?

            I had a slightly surreal experience buying a car

            • If the finance guy are a car dealership is that slow, i dread to imagine where the average person is.

              Not being good at math in your head qualifies as "slow"? I had no idea.

              • Re: (Score:3, Informative)

                The point was that he's the *finance* guy, and the calculation was 20000/60, not usually a challenging task for someone who works with numbers all day.

                • Re: (Score:3, Insightful)

                  by Red Flayer (890720)

                  The point was that he's the *finance* guy, and the calculation was 20000/60, not usually a challenging task for someone who works with numbers all day.

                  Except his job is not to work with numbers all day. His job is to make you feel good about your purchase and borrowing decision, since he's the last person you spend significant time with before you take delivery. It helps compensate for the slimey feeling you get after dealing with the sales slob and the sales manager.

                  YMMV. My experience is pretty much

            • Re: (Score:3, Interesting)

              by swillden (191260)

              An I/O loan would be great if you were on a variable income - perhaps self-employed or on commission

              It also makes a lot of sense for people who are planning to be in a home for a short time and need to free their income up for other things.

              I'm going to be buying a house in a couple of months, and I want the closest thing to interest-only I can get. I'm buying because (a) there's not much of anything available for rent in the small town (pop. 1000) I'm moving to, (b) I think I can make some money by fixing the home up for when I re-sell it (there's also good reason to expect a real-estate boom in the ar

          • Re: (Score:3, Interesting)

            by geekoid (135745)

            there is no guarantee the house will be higher value in later years, especially 5 years away.
            It's a bad loan, and a bad investment.

            Of course, I am extremely hardline. I wouild make it illegal to have a home loan longer then 10 years, and not allow balloon payments.

            Yes, people would still get homes, they would lust need to become more reasonably priced.

            The cost of a home compared to income has become stupid. Compare it to 40 years ago.

            Yes, I do own a home, my second one in fact.

        • To be a little more complete, the easily available credit also increased demand on real estate, thus driving prices upward drastically... and the combination of tightened credit availability and a slower economy has now caused prices to fall, leaving people in a negative equity situation.

          Better yet, define that as a feedback loop - increased demand for real estate gave people a lot of equity they could use for even *more* easily available credit! Yay!

          So you had people taking out loans they couldn't affo

          • Fun game of merry-go-round for a lot of stupid people...while it lasted.

            But an even more fun game for those of us who sold in 06 or early 07 and are now looking at buying on the cheap.

            A coworker of mine sold his house in April 06 for $825,000. He just bought the same house back, with about 40k in improvements, for $675,000. There were two successive owners in the time he did not own the house. I wish I had his foresight... but I didn't get into the game until 2004, so my profits were much lower.

      • Re: (Score:2, Flamebait)

        by linzeal (197905)

        The insane jumps in "fair market" valuation and the reasons for them are to blame. Manipulation of markets, flipping the properties, shopping for appraisals and far more nefarious dealings set the bar lower for ethics in yet another field in America. People everywhere were making money off real estate and most of them were idiots. Welcome to America, where as long as a gaggle of lawyers can successfully defend injustice or impeach justice in a court of law that lawyers (senators, judges and supreme court

      • Re: (Score:3, Interesting)

        by squarooticus (5092)

        Actually, the root cause is that the availability of artificially cheap money (read: credit) by the Federal Reserve misprices risk: this has resulted inâ"at leastâ"the tech bubble in the late 90's and the housing bubble in the 00's.

        Since no one in power recognizes or at least wants to admit that the Fed is the cause of these problems, expect a new bubble to appear soon.

        • Re: (Score:3, Insightful)

          by Red Flayer (890720)

          Actually, the root cause is that the availability of artificially cheap money (read: credit) by the Federal Reserve misprices risk: this has resulted inâ"at leastâ"the tech bubble in the late 90's and the housing bubble in the 00's.

          Ah yes, the old "it's the Fed!" canard. It has nothing to do whatsoever with relaxation of regulatory controls on the bankig industry that are not within the scope of the Fed. Right.

          Since no one in power recognizes or at least wants to admit that the Fed is the caus

      • by SydShamino (547793) on Thursday July 31, 2008 @02:31PM (#24421003)

        Yes, creating risky or bad debt by giving loans to people who cannot afford them was a key part of the problem.

        But the reason the crisis has exacerbated, and badly hurt major financial institutions (CitiBank, IndyMac) is because the process of debt selling allowed bad debt to be masked as good debt. There were insufficient safeguards to make sure that the people (investors, businesses, financial institutions, etc.) that put their money into these debts knew that they were as risky as they truly were.

        Consider the Freddie Mac situation. As a quasi-private company, Freddie Mac is directed to make a profit. However, as a quasi-government entity, they have special rights such as the right to use the Federal Reserve as their bank, and the right to guaranteed loans at preset rates. These guarantees made Freddie Mac have an impeccable credit rating, despite the fact that, to continue growing their profit, they kept buying more and more debt that was downright awful.

        In other words, Freddie Mac's credit rating didn't reflect the junk nature of their assets. The same is true for CitiBank and IndyMac and other banks that held debt that they may-or-may-not have known was bad, but wasn't being shown as bad on their books.

        Things that could have prevented this:
        1) Congress has decided that our country is more stable when people own their own residence, so it encourages home ownership. Freddie Mac exists for this reason. I think this conflicts greatly with their charge to earn a profit. Wikipedia says this: "Both Alan Greenspan and Ben Bernanke have spoken publicly in favor of greater regulation of the GSEs, because of the size of their holdings and the widespread perception that they are government backed.", which to me indicates that they agree. This quasi-goverment thing doesn't work. They should have been government owned, or privatized completely.

        2) To avoid your home-town bank from getting its fingers (and your money) dirty in less-than-reliable debt, the depression-era Glass-Steagall Act [wikipedia.org], among other things, prevented banks from offering things like investments and insurance. The late-90s Gramm-Leach-Bliley Act [wikipedia.org] repealed those parts, allowing banks, insurance companies, and investment firms to co-mingle. It's been argued that this relaxation of regulation also contributed to the crisis, as it allowed institutions that need to be stable for financial security (banks) to engage in the riskier activities of investment firms.

    • by riceboy50 (631755) on Thursday July 31, 2008 @01:40PM (#24420095)
      I thought it had to do with irresponsible lending by the banks/borrowing by home buyers. Basically, the bar was lowered considerably by taking on high-risk mortgages as ARMs (Adjustable Rate Mortgages). When they tried to adjust the rate, the risk came back to bite them in the ass and the irresponsible borrower could not afford to pay it.
      • by grocer (718489) on Thursday July 31, 2008 @02:04PM (#24420539)
        An adjustable rate mortgage, in and of out itself is not bad. In fact, before the reforms brought on by Great Depression centralized home lending into one system, the local bank would give you a ballon loan for 5 or 10 years, then refinance it or bounce it, and so on until the house was yours. 30 year mortgages were an effect of the federal banking system and didn't become common until post-WW II.

        The high risk mortgage comes in where people were allowed to outright lie about their income and took on mortgage products traditionally used by people who had sterling credit. But the key is the outright lie there...if you're making 20K and then the broker has fluffed and self-reported your income to 50K or 60K, it doesn't matter what kind of loan you have, it's going bad.

        On top of that, everybody went "Real Estate always goes UP!!!" which is flat out wrong and then used that to rate a loan that should have been a D into a B or C, thus putting a whole lot less risk on paper and making mortgage backed securities look like treasury bonds when they more like junk bonds.
    • I was just wondering if this will cause a ripple effect to the legality of penalties for early exit from any contract, not just a cell phone contract.

      Any lawyers out there care to offer an opinion?

    • by Lumpy (12016)

      Nope the mortgage crisis was from idiots buying more house than they could afford and now defaulting on it.

      • by compro01 (777531)

        Which has always happened. The problem was lenders underrating the risk and puffing up the credit rating, which in turn puffed up the credit rating of their mortgage-backed bonds, which allowed them to sell them better.

  • by flanksteak (69032) * on Thursday July 31, 2008 @01:33PM (#24419945) Homepage

    Prorated termination costs seem reasonable, especially given the subsidies on the hardware. I was surprised to see that Sprint is the only company that doesn't prorate. I figured the wireless companies would avoid any change that makes it easier for customers to change providers. When selling a commodity it's essential to avoid the profit-killing, competing-on-price, race to the bottom.

    This will be appealed, so I don't see anything changing in the short term. The figures on the $55 million in uncollected fees is impressive. It would be interesting to know how much of that would be profit after subtracting the depreciated cost of subsidized hardware.

    The disappearance of the 1-year contract bugs me, but at least it's easier to move up and down in rate plans once you've signed up.

    And yes, it would be nice to have the option to buy unlocked phones from any vendor and use them with any provider, but I'd bet that less than a quarter of the customer base would make use of this on a regular basis. TMobile comes closest to supporting this now, but I left them when I got an IPhone and really do miss dealing with them. Their customer service web site is far superior to AT&T's.

    • by Rayeth (1335201) on Thursday July 31, 2008 @01:37PM (#24420043)
      The subsidized phone cost is really the root of this problem. I wonder if America would just be better off if we moved to a system like in Europe and Asia, where phones cost much more, and the plans are significantly reduced.
      • by Rob Kaper (5960) on Thursday July 31, 2008 @01:45PM (#24420197) Homepage

        Plenty of people in Europe have subsidised phones on contract. Of course you can also go pre-paid, or buy a phone seperately, or get a SIM-only contract.. but there's no system in Europe in place which prevents subsidised phones.

        The big difference is probably that we can get any phone from any store with basically any out of half a dozen different operators while in the US in most areas you have fewer choices of providers, if what I've been hearing here is correct.

        • Buy me out (Score:4, Informative)

          by Sockatume (732728) on Thursday July 31, 2008 @02:01PM (#24420487)
          Also, operators (particularly resellers like Carphone Warehouse) are willing to "buy out" contracts to encourage people to switch. They eat the termination fee on your behalf. Phone Company X gets its subsidy, Phone Company Y gets its customer, Customer gets his free or cheap phone.
        • I recently tried to get my girlfriend signed up with Roger's, using an existing phone, sans-contract.

          Rogers no longer seems to allow *any* of their (weekend/evening/friends/etc) rate plans other than a by-the-minute plan without a contract. This doesn't work for my girlfriend, as she'll be out of the country for 4-6 months near the end of this year and early next, and doesn't want to be paying for a phone that's unused.

          So we had to go with Telus, which tends to have much crappier building penetration (the T

      • Re: (Score:3, Interesting)

        by flanksteak (69032) *

        I don't know about Asia, but I know in the UK all providers offer free phones for 18-24 month contracts. Termination fees are prorated, in that you have to pay for the remaining months on the contract. If you get cold feet early on, this is a helluva lot more than the $200 you have to pay Sprint today.

        The primary difference is that it's much easier to buy any old (or new) phone and buy a sim on any provider. The networks aren't anywhere near as locked down as they are here.

      • by QuantumRiff (120817) on Thursday July 31, 2008 @01:50PM (#24420301)

        The problem is, that if you bring your own phone, (or purchase outright) you are still paying for the subsidized cost in the plans.. Personally, it would make alot more sense to me if they split out the bill so that your Cell Service was (for example) $45, and the Phone purchase was $5 each month. (instead of a $50/month plan). Then, there would actually be a benefit to bringing in your own phone. Cable Internet companies, at least in my area, do this, I pay for internet, and I pay $x/month on top for the "cable modem rental fee".

      • The subsidized phone cost is really the root of this problem. I wonder if America would just be better off if we moved to a system like in Europe and Asia, where phones cost much more, and the plans are significantly reduced.

        At least in Europe, plan length is reduced (and much more commonly prepaid per minute than in the US), not cost, at least for voice.

      • Re: (Score:2, Interesting)

        by mc900ftjesus (671151)

        You can do this in the US, the big problem is that you qualify for better monthly rates with a contract, this shouldn't be allowed. Phone costs are arbitrary in comparison to your plan.

        In two years, a $99/month plan costs you $2376 before taxes. A $300 phone isn't such a big deal is it?

      • Re: (Score:3, Interesting)

        by superdave80 (1226592)
        This would be a good thing, but ONLY if phones were required to be used on any network. Imagine shelling out $500 up front for a phone with company X. Then after a month or two, you realize that their service/coverage/whatever sucks. Then you try to switch to company Y, only to find out that your $500 phone ONLY works on company X's network. That $500 for the phone starts to look a lot like an early disconnect fee.
      • I wonder if America would just be better off if we moved to a system like in Europe and Asia, where phones cost much more, and the plans are significantly reduced.

        I long for the days when this was reality. I remember dropping $200 for a phone and then choosing my service plan and not being tied to a contract. I had the same phone number for almost 10 years. Every few months I would look to see if there was a better plan available from my provider. Never happened the rates I had were consistently lower then newer rates and I would be required to go back on contract. What finally broke me down was needing to switch from TDMA to the newer networks. Two years late

    • by oodaloop (1229816)
      Well, SlashDev seems to think so.
    • by wealthychef (584778) * on Thursday July 31, 2008 @01:45PM (#24420201)
      it would be nice to have the option to buy unlocked phones from any vendor and use them with any provider, but I'd bet that less than a quarter of the customer base would make use of this on a regular basis.

      Maybe only a quarter of the customer base would use it, but everyone would benefit by the increase in competition that would result.

    • by jyoull (512280)

      While it's not true for every company in every business, cellular companies in particular might, just for a change, try to avoid the "profit-killing, competing-on-price, race to the bottom" by offering other, non-price-bound differentiators.

      An obvious differentiator would be some combination of responsive customer service + treating-customers-like-adults + a clear explanation of services available for purchase.

      Right now all the money that would go into creating such differentiators is being poured into adve

      • by flanksteak (69032) *

        Better customer service for a commodity purchase isn't usually enough of a differentiator for the average American consumer. Most of us don't even care about quality over price (WalMart!). Nextel used to push the business angle but ever since they got absorbed by Sprint you don't see those ads anymore.

        Only Verizon really pushes quality in their advertising, and they're really talking more about call quality than customer support.

        Most US phone providers focus on specific price reductions (Alltel's ads about

        • by jyoull (512280)

          Ah, they don't need to MARKET the customer service stuff, they need to DO it.

          Even without the $$$ lock-in, there is an implicit switching cost to changing carriers, consisting of the search-and-compare cost + time spent making the actual change.

          I'm suggesting they spend some money on retention rather than spending most of it on attempts to snipe from other carriers. This is the basis of the downward spiral to price-based differentiation.

          I suspect that the primary motive to jump carriers is to get a free ne

    • I wanted an Iphone, but would rather stick with T-Mobile (I was an original Voicestream customer, have been with them almost 7 years). Good luck!
      • by flanksteak (69032) *
        Thanks. I actually got the phone for free (company xmas party prize), so I figured what the hell. Call quality is definitely poorer compared to my PEBL on TMobile, but I haven't figured out if its the phone or the network. Email and web browsing is the best, though. Maybe by the time the contract runs out I'll be able to go back to TMobile with an Android phone.
    • by gad_zuki! (70830)

      >Prorated termination costs seem reasonable, especially given the subsidies on the hardware.

      Not everyone gets discounted hardware. I bought my current PDA used off ebay and got no break from Sprint on my monthly charges. I'm paying for your whole because of this broken system. I should have the right to break my contract if I didnt get a free phone.

      Not to mention, Sprint adds 2 more years for most changes. Discounted text plan? 2 year renewal. 2nd line? 2 year renewal. Move to family plan. 2 year renewa

    • I agree completely, T-Mobile's service (at least where I am in Texas) is on par with AT&T and their data plan rates are much competitive, though they're not 3G I can deal perfectly well with edge while I'm on my phone. I'm getting directions or checking sports scores, not streaming video. I only wish they weren't jacking up their text rates like everybody else.
  • If this goes through without appeal, other suits will follow and that will certainly impact plan pricing, since a large number of users don't want to leave their current provider because of those early termination fees.
  • I don't understand (Score:4, Insightful)

    by FredFredrickson (1177871) * on Thursday July 31, 2008 @01:33PM (#24419961) Homepage Journal
    The article was light on details.. why did they decide that fees that are clearly stated in a contract before people entered the contract are now illegal?

    I hate cell companies as much as anybody, but that's how they subsidise those cheap phone prices.
    • by rcw-work (30090) on Thursday July 31, 2008 @01:46PM (#24420231)

      The article was light on details.. why did they decide that fees that are clearly stated in a contract before people entered the contract are now illegal?

      Because cell phone companies aren't willing to negotiate contracts with consumers, and the few cell phone companies that consumers can choose from all have equally evil contracts.

      Also, contracts are only valid if there's a quid pro quo - if there's no prorating, the judge may take that into account.

      In the end, contracts are only binding if they are legal - you can't sell yourself into slavery, you can't contract out a hit on someone, etc etc.

    • by manekineko2 (1052430) on Thursday July 31, 2008 @01:47PM (#24420245)

      According to this article, it was a violation of California's unfair business practices act:
      http://www.baltimoresun.com/business/bal-bz.sprint30jul30,0,2416808.story [baltimoresun.com]

      "Wireless carriers say early termination fees are necessary so the companies can recover the cost of mobile phones, which they subsidize when customers sign long-term service contracts.

      But the judge in her ruling said the contracts were "implemented primarily as a means to discourage customers from leaving" and that the company gave little regard to the cost of broken contracts."

      And remember, in the United States, just because something is clearly stated in a contract doesn't mean the contract is enforceable. For instance, a contract to make yourself a slave will not be enforced by a court.

    • by UID30 (176734)
      While I haven't read TFA, I'd imagine that the early termination fees contradicted some interpretation of a law on the books in the state of CA. Vague? Well, yes. and no. Welcome to the law.

      IMO, threat of early termination fees keeps subscribers paying far past the point of subsidizing cheap phones. Telcos take a back seat only to oil companies on the scumbag scale. I get a reminder of that every month in the mail.
    • by mr_matticus (928346) on Thursday July 31, 2008 @02:04PM (#24420529)

      The problem is twofold. One, the ETF is charged indiscriminately, regardless of the value of the subsidy. This means that it is a deterrent from switching carriers for those who owe no subsidy. Two, Sprint does not prorate its ETF (or did not, as of this lawsuit) like e.g., AT&T does.

      Addressing both of these concerns with a subsidy-recovery fee would be perfectly enforceable. The summary's implication that this may start a domino effect is a relatively obtuse statement.

      Penalties for breaking contracts are upheld daily by law if disclosed. Penalties that are in no small part cost recovery, doubly so. However, it's been clear for many years that the cellular companies don't actually care about just covering their losses--otherwise they'd be able to tell you at any given point what your prorata share of the original hardware subsidy is. You as a consumer should also have the the right to pay the remaining subsidy amount plus a nominal penalty for processing ($~25), and then be placed on a month-to-month plan or walk away.

    • by phorm (591458)

      I've seen a lot of issues with "popular" cellular providers taking a dump in customer service. Previously, Telus was the big dog in town and would regularly screw customers over. In my hometown their grid was becoming overloaded, and I had a period of 4-5 months where calls mysteriously never made it through (straight to voicemail, and not due to my phone because others experienced the same issue).

      Now I'm on Rogers - as with many I made the switch - and while my actual phone service is improved I'm startin

  • by Mesa MIke (1193721) on Thursday July 31, 2008 @01:35PM (#24420011) Homepage

    Surely EULAs are even less enforceable than signed contracts?

    • Re: (Score:3, Informative)

      by b96miata (620163)
      More disturbing to me is the fact that he overruled a jury.

      From TFA:
      " 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
      • by Anonymous Cowpat (788193) on Thursday July 31, 2008 @02:03PM (#24420525) Journal

        I'd be more disturbed if the judge didn't have the power to overule a jury when they're wrong.

        The argument is that the jury made a decision that the contract was breached, given that the fees clause was valid.

        The judge has now ruled, as a matter of law, that the fees clause was not valid, which makes the jury's judgement of the facts at best irrelevant. Presumably there is now no fact to be tried by a jury - the part of the contract that the customers have supposedly breached is invalid, therefore no breach could have occured, therefore no fees.

      • Re: (Score:3, Insightful)

        by hyperz69 (1226464)
        I guess Jury Nullification is dead... Long live Judicial Nullification.
      • Re: (Score:3, Informative)

        by Zordak (123132)
        Happens all the time. The judge has already decided her interpretation of the law (or even that there's insufficient evidence), but she sends it to the jury because a jury verdict is harder to overturn on appeal than a summary judgment. She was probably hoping that the jury would rule in favor of the customers, because it's less of a headache for her. They didn't, so she says, "Sorry, as a matter of law, this contract is not enforceable. So the jury's finding is moot, because it was based on the faulty
  • Bad News (Score:3, Interesting)

    by LBArrettAnderson (655246) on Thursday July 31, 2008 @01:38PM (#24420069)
    I hope that I read that wrong. You can get good deals by entering a long term agreement. I pay about $30 less per month for my collocation because I have a 2-year agreement. Are you saying that I should be able to pull out after a month and not have to pay anything? Even if my setup fee was waived because of the deal? That sounds unfair to the providers and if this continues it will result in higher prices for everyone.
    • that's certainly a good point, on the other hand why would someone choose to leave the plan at all if it were better than the competition?
    • Re:Bad News (Score:5, Interesting)

      by Solandri (704621) on Thursday July 31, 2008 @02:04PM (#24420537)

      I hope that I read that wrong. You can get good deals by entering a long term agreement. I pay about $30 less per month for my collocation because I have a 2-year agreement. Are you saying that I should be able to pull out after a month and not have to pay anything? Even if my setup fee was waived because of the deal? That sounds unfair to the providers and if this continues it will result in higher prices for everyone.

      You have it backwards. You aren't paying $30 less per month for being in a 2-year contract. People who aren't in a contract or who bought their own phones full price are paying $30 per month too much. The phone companies set up a pricing structure which included prorated charges and termination fees for subsidized phones, but didn't remove those charges for people whose phones weren't being subsidized. If I paid for my phone up-front or it's paid off, why should I be forced into a contract to get lower rates or be charged an early termination fee?

      The way it should work is there should be a base monthly fee for phone service and only phone service. If you want the phone company to give you a phone for a no-money-down (or $50-$100 down), then it should be structured as a loan and added on to your bill. If you end your service before the loan is repaid, you're on the hook for the balance of the loan - that's your termination fee. Those of us with old or fully paid for phones shouldn't be paying extra just because the phone company's pricing structure assumes everyone's phone is subsidized.

    • Re: (Score:3, Insightful)

      Nope that's not what is being said. They said the cell phone companies were screwing customers and that the termination fee didn't accurately reflect the cost of a broken contract.

      The ruling was in favor of the class action plaintiffs because cell phone companies have operated in collusion in regard to early termination fees. Whether that collusion was orchestrated, or merely a in indirectly agreed upon measure to weasel more money from clients, the result is the same.

    • by pembo13 (770295)
      It will only result in higher prices because they now have a new excuse to charge more, not because its going to cost them more. Why should I have to pay to stop paying, especially when there seem to be few alternatives.
  • What exactly are the charges? Did Sprint Nextel not describe the early termination fees in their contracts? Why would an early termination fee be illegal?
    • Re: (Score:3, Interesting)

      by DragonWriter (970822)

      What exactly are the charges? Did Sprint Nextel not describe the early termination fees in their contracts? Why would an early termination fee be illegal?

      Because early termination fees are liquidated damages, which are only permitted in certain cases (extremely roughly, where they serve as a reasonable proxy for actual damages that would otherwise be hard to pin down.) By not, for instance, prorating the early termination fee (which is notionally justified by the damage Sprint suffers due to subsidizing pho

  • Since Sprint operates in Canada, I wonder whether this can be taken as precedent in Canada as well. I'd be glad if it did.
    • Re: (Score:3, Interesting)

      Since Sprint operates in Canada, I wonder whether this can be taken as precedent in Canada as well. I'd be glad if it did.

      I guess we always figured that our companies down here, even if they operate elsewhere under the same name, tended to dish out exclusive abuses to those of us living here. Apologies if you are subjected to the same level of customer dis-service that passes as normal here.

      I recall previous discussions where European cell customers were astonished that we still pay to receive calls (and text messages) here in the states.

  • by sampson7 (536545) on Thursday July 31, 2008 @01:55PM (#24420399)
    Two very interesting things about this decision. First, the Judge appears to have over-ruled the factual findings made by the jury -- a fairly unusual practice, and one that is not likely to be upheld on appeal. Second, the Judge appears to have returned to "first principles" of contract law in reacher her decision -- good for her. We need more of this type of rational thinking.

    There are two key points in the article (couldn't the actual opinion) hitting these points:

    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.

    Interesting; because judges are usually very reluctant to over-ride decisions made by juries. Generally, juries make findings of fact and the Judge makes the finding of law. Here, the Judge said that the Jury clearly erred in finding the contracts valid. Which makes me think that the Jury instructions were extremely poorly written, or that the Judge feels very strongly that the plaintiffs made the legal side of their case so well that "no reasonable jury" would have returned the decision that it did. (Also, I note that the Jury appears to have awarded damages despite finding that the contracts were valid -- this semi-contradictory result may have persuaded the judge to go in the direction she did.)

    The second interesting argument:

    "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.

    YES! It is a founding principle of contract law that the non-breaching party's damage recovery is limited to its actual losses and its cost to make up the breaching party's violation of the agreement. Traditionally, a contract that agreed to damages in excess of the non-breaching party's actual exposure (i.e., punative damages) were ruled invalid and "reformed" by the court into something reasonable.

    However, the courts over the past few decades have been relunctant to follow this principle -- instead, most consumer contracts today contain a "liquidated damages" clause, where the parties agree ahead of time on an estimate of what the actual damages would be. To me, fundamental principles of contract law dictate that an agreement to excessive liquidated damages clauses (particularly in consumer contracts) should not be upheld. I'm glad to see a court finally moving in that direction.

    • Re: (Score:3, Insightful)

      by Sockatume (732728)
      That actually sounds very equitable. If phone companies switched to a more reasonable termination penalty, perhaps pro-rata fee where you basically bought out your subsidised phone (which is an outstanding debt you owe to the company) then this decision would not affect them.
      • Re: (Score:3, Interesting)

        by Sockatume (732728)
        I should say, if Sprint switched to a more reasonable termination penalty - it sounds like others are more reasonable and may not be affected by this particular decision.
  • *whew* (Score:3, Funny)

    by AP31R0N (723649) on Thursday July 31, 2008 @02:08PM (#24420613)

    This is good news for Sarah Conner.

  • Sprint, very frequently, changed rates for various services under the contract. Contract law in most states allows one party to terminate the agreement without penalty when the other imposes material changes. In this situation, they have been known to lie [consumerist.com], which I experienced personally (specifically regarding their text message rate hikes). Glad to see both the market and now the courts punishing them for this ridiculous behavior.

  • by scorp1us (235526) on Thursday July 31, 2008 @02:31PM (#24420989) Journal

    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.

    Sorry, Charley, Tenth Amendment says no:
    The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

    You just can't make jurisdiction up, but they certainly do try. They'll try to call it "interstate commerce", even though that provision was meant to keep the interstate commerce unimpeded, and not to be a source of power grabs.

  • So, does this mean that any contract could potentially be reviewed by a court and parts of it thrown out? After the fact? In some cases, long after the contract was terminated?

    This seems a little uncomfortable to me. It sounds like the judge decided the fees weren't valid and that he decided Sprint didn't justify the fees in terms of actual monetary losses. I know lots of fees for non-compliance that aren't based in any way on monetary losses - the fee exists as a penalty.

    I suppose I could see a judge r

    • Re: (Score:3, Informative)

      by DragonWriter (970822)

      So, does this mean that any contract could potentially be reviewed by a court and parts of it thrown out?

      This ruling is a product of the fact that this has been a feature of contract law in this country since before this was a country, yes. It doesn't "mean" that in the sense that suddenly now that will become the case where it hadn't been before.

  • About damn time (Score:2, Interesting)

    I got into a battle with Verizon over termination fees years ago. After getting raped for going over the minutes in my plan, I opened an account with another carrier and moved my number. When Verizon tried to charge me for early termination, I explained that I had moved my number to a new carrier, which the courts had recently ruled was a consumer's right, but I would be happy to continue paying the monthly fee for my Verizon account ( I had a couple months left on my plan), and they could assign me a new

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