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Union Ink Co., Inc. v. AT&T Corp.

June 28, 2002


On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Bergen County, L-8974-99.

Before Judges Kestin, Steinberg and Alley.

The opinion of the court was delivered by: Kestin, J.A.D.


Argued: November 5, 2001

Plaintiffs appeal from the trial court's order dismissing the class action complaint "pursuant to federal pre-emption principles" applied under 47 U.S.C.A. § 332(c)(3), a section of the Communications Act, 47 U.S.C.A. § 151 to § 1110. As originally filed, the complaint alleged violations of the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106; common law fraud, breach of contract, unjust enrichment, and negligent misrepresentation. Plaintiffs have since withdrawn the breach of contract and unjust enrichment claims. In considering whether plaintiffs' remaining claims are pre-empted by federal law we must begin with a detailed understanding of what they entail.

The gravamina of those remaining claims are based on plaintiffs' assertions that defendants misrepresented the quality and reliability of their cellular phone service, the "Digital One Rate" plan (the Plan), in violation of defendant's statutory and common law duties. In general, the complaint alleges false representations in defendants' advertisements that subscribers to the Plan would receive the same quality of cellular phone service as they had with conventional, land-line phone service:

Defendants advertised the Plan, as being so reliable, economical and accessible that it is a viable alternative to traditional telephone service provided over telephone wires. In fact, the AT&T Defendants are currently airing radio advertisements which represent to the consuming public that the Plan is so reliable and economical that it is a suitable, viable and legitimate alternative to wired based telephone service. Specifically, the AT&T Defendants advertise that with the Plan, "you can make your wireless phone your only phone."

More particularly, the complaint alleges that certain, described representations made by defendants were false and misleading:

[T]he Ads represent that the Plan utilizes not only the "largest digital network in North America" but also other wireless carriers' digital and analog networks and, therefore, [is] capable of providing service to subscribers almost anywhere in America. The combination of AT&T's vast digital network and the multi-networked capabilities of the phones make AT&T Wireless the only company that can offer such simple and flexible wireless service nationwide.

* * * The Plan is not "capable of providing service to subscribers almost anywhere in North America." This is because the AT&T Defendants accepted, solicited and continued to solicit and accept too many subscribers for the limited number of channels in the AT&T Defendants' digital network. At the same time and without warning, the AT&T Defendants ceased providing subscribers with alternative and "backup" use of analog service when digital service was unavailable. The discontinuation of analog service to subscribers of the Plan is significant. According to a July 19, 1999 article in the New York Times, "[a]lthough the Cellular Telecommunications Industry Association estimates 70 percent to 75 percent of the land area of the United States has wireless coverage, there is greater coverage for analog systems than for digital. [Thus,] [m]any wireless operators use the analog network as a fall-back for digital customers." Because the Plan had and has an insufficient digital network to adequately service its ever-expanding subscriber base and because the AT&T Defendants discontinued analog service to subscribers of the Plan, the Plan is completely unreliable.

[] As a result, subscribers regularly experience numerous problems that render the Plan's service virtually unusable. In particular, subscribers are frequently disconnected involuntarily, unable to connect with the service, and therefore unable to place calls, and do not automatically receive credit for involuntary disconnections when unable to reconnect within five minutes of such involuntary disconnections. Also, subscribers often do not receive calls placed to them. Compounding this problem, callers to subscribers are often not placed in the subscriber's voice mail system. Instead, those callers hear a pre-recorded message. This is a significant problem because the AT&T Defendants represented and represent to subscribers that all calls which are not received will be automatically . . . placed into the subscriber's voice mail system. The complaint goes on to charge knowing misrepresentation on defendants' parts:

Defendants knew or should have known and failed to disclose and currently know and are failing to disclose that the service did not and does not have sufficient capacity to reliably service subscribers. Thus, the AT&T Defendants cannot deliver upon the promises and representations relating to the capacity of the service as set forth in the Ads and otherwise. In fact, according to a July 19, 1999 article in the Wall Street Journal, "AT&T has publicly conceded that demand initially outpaced its cellular capacity in the crucial New York area." Indeed, on May 9, 1999----Mother's Day----subscribers to the Plan in Northern New Jersey and New York were without service for more than twenty-two hours when the service malfunctioned due to heavy Mother's Day volume.

[] Nevertheless[,] and despite their knowledge and acknowledgments that the service does not have the capacity to keep up consumer demand for the Plan, the AT&T Defendants continue to this day their massive advertising campaign to solicit additional subscribers to the Plan. In fact, knowing that they cannot provide adequate service to the existing subscribers of the Plan, the AT&T Defendants continue to solicit consumers with a massive multimedia advertising campaign. Upon information and belief, although the AT&T Defendants are aware and have been aware that there is and has been insufficient capacity to service the current subscribers to the Plan, the AT&T Defendants accept over 100,000 new subscribers to the Plan each month.

The contentions continue with specific examples of advertising alleged to be false. The complaint then asserts:

There is no mention or disclaimer in the plethora of information about the Plan on AT&T's website or in Defendants' advertisements of the Plan concerning, among other things, an inability to access . . . the service, delays in the availability of the system as indicated by a system busy signal, involuntar[y] disconnections in areas that are described as within the AT&T wireless network and consequent charges for reconnection, and/or the failure to send all unreceived calls to voice mail.

[] The AT&T Defendants' statements described above were deceptive because, inter alia, they concealed or downplayed the unavailability of access to the service and the likelihood that increase[d] volume of cellular phone usage would surpass the capacity of the AT&T wireless network to provide on-demand service to many of the Plan subscribers.

The complaint goes on to describe specific types of usage problems, alleging that plaintiffs and other consumers could not depend upon the Plan to provide the services advertised, i.e., that particular representations made by defendants were untrue. To the extent defendants' representations could not be fulfilled because of the system's incapacity to handle the volume of traffic, the complaint asserts that the Plan's capacity is insufficient to adequately provide for the current subscriber base much less additional subscribers intending to utilize the service as their only means for telephone communications. And, the AT&T Defendants are adding thousands and thousands of new subscribers every month notwithstanding that the more subscribers that are added, the less effective the service becomes. Plaintiffs had not yet sought certification of the class action pursuant to R. 4:32-2 before defendants moved to dismiss the complaint on the alternative grounds that all pleaded causes of action were pre-empted by federal law and that the complaint failed to state a claim upon which relief could be granted. The motion judge initially granted the motion on the pre-emption ground. Plaintiffs then moved for reconsideration on the basis of new legal developments. The motion judge granted that motion, reconsidered the matter in the light of the new developments, and reaffirmed his previous determination. The reasons for both trial court dispositions were stated in oral opinions.

For the limited purposes of the underlying motion to dismiss on federal pre-emption grounds, i.e., for lack of jurisdiction over the subject matter, R. 4:6-2(a), or for failure to state a claim upon which relief can be granted, R. 4:6-2(e), we must accept as true the allegations of the complaint. Printing Mart- Morristown v. Sharp Elecs. Corp, 116 N.J. 739, 746 (1989).

With regard to the pre-emption issue, plaintiffs contend that the trial court erred in dismissing those portions of the complaint that sought statutory or common law damages based upon the false advertising alleged. They argue that, under recent cases decided by federal and state courts as well as two pronouncements of the Federal Communications Commission (FCC), while the states may not regulate the rates charged by providers of cellular service, state law continues to govern other terms and conditions of defendants' relationships with their subscribers, including advertising and the causes of action that arise therefrom. Defendants respond that the authority to award damages for false advertising necessarily affects rates to be charged by providers of cellular service, and also implicates other terms and conditions of providers' businesses such as the capacities of their systems to deliver cellular telephone service.

An historical perspective is essential to an appreciation of the significance of the issues raised by the parties. We begin with the federal legislation deregulating cellular service, also known as Commercial Mobile Radio Service (CMRS).

As part of the Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, 107 Stat. 312 (1993), Congress amended the Communications Act of 1934, ch. 652, 48 Stat. 1064 (codified as amended throughout 47 U.S.C.A.), to "dramatically revise the regulation of the wireless telecommunications industry, of which cellular telephone service is a part." Connecticut Dept. of Pub. Util. Control v. Fed. Communications Comm'n., 78 F.3d 842, 845 (2d Cir. 1996). The pertinent statutory language provides that no State or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service, ...

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