Litman v. Cellco Partnership

655 F.3d 225, 381 F. App'x 140

• Court: Court of Appeals for the Third Circuit
• Decided: May 21, 2010
• Docket: 08-4103
• Status: Unpublished

Opinion

OPINION OF THE COURT

JORDAN, Circuit Judge.

Appellants Keith Litman and Robert Wachtel appeal from an order of the United States District Court for the District of New Jersey compelling arbitration and dismissing their case. For the following reasons, we will vacate the District Court’s order and remand for further proceedings consistent with this opinion.

I. Background

Litman and Wachtel brought this putative class action against Célico Partnership d/b/a Verizon Wireless (“Verizon”) based on Verizon’s alleged unlawful imposition of administrative charges on class members’ cell phone accounts. 1 The complaint asserts breach of contract, unjust enrichment, and violations of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1, et seq. Verizon moved to compel arbitration pursuant to an arbitration clause in the relevant customer agreements, which mandates individual arbitration of disputes. In other words, the arbitration clause prohibits class arbitrations. 2

In response to the motion, Litman and Wachtel countered that the arbitration clause in their customer agreements was unenforceable because, pursuant to Muhammad v. County Bank of Rehoboth Beach, Delaware, arbitration provisions in contracts of adhesion that prohibit use of a class action mechanism for low-value claims are unconscionable under New Jersey law. 189 N.J. 1, 912 A.2d 88, 100 (2006) (“We hold ... that the presence of the class-arbitration waiver in [plaintiffs] consumer arbitration agreement renders that agreement unconscionable.”). Verizon agreed for purposes of the motion that Muhammad applies to the parties’ dispute, but argued that Muhammad is preempted by the Federal Arbitration Act (“FAA”).

The District Court, relying on our decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir.2007), agreed with Verizon and dismissed the case in favor of arbitration. The Court found the instant matter to be indistinguishable from Gay, which it understood as concluding that the FAA preempted Pennsylvania case law stating that class-arbitration waivers in contracts of adhesion are unconscionable. Litman and Wachtel timely appealed.

After the opening and answering briefs were submitted to us, another panel of our Court issued its decision in Homa v. American Express Co., 558 F.3d 225 (3d Cir.2009). As more fully described herein, the Homa opinion distinguished Gay and held that the FAA does not preempt Muhammad. Id. at 230. In the wake of Homa, Litman and Wachtel moved for summary reversal of the District Court’s order compelling arbitration and moved to forego oral argument. Verizon opposed both motions, urging us to disregard Homa because it irreconcilably conflicts with Gay. 3 Thereafter, we granted Verizon’s motion to stay the appeal pending our en banc decision in Puleo v. Chase Bank, 605 F.3d 172 (3d Cir.2010) (en banc).

II. Discussion 4

Preliminarily, we note, as we did in Homa, that Gay’s discussion of the application of the FAA to Pennsylvania law appears to be dicta. Homo, 558 F.3d at 229. Homa was admittedly ambivalent in its treatment of Gay’s discussion of Pennsylvania law, see id., 558 F.3d at 230 (“Whether dicta or not .... ”), however, in our recently filed Puleo opinion, we again referred to this aspect of Gay as dicta, Puleo, 605 F.3d at 177 n. 2 (“[I]t is worth noting our agreement that Gay’s discussion of Pennsylvania law was indeed dicta, since our holding in Gay was that Virginia law governed the parties’ arbitration agreement.”), which it plainly is, because Gay held that Virginia law, not Pennsylvania law, governed the parties’ dispute. Gay, 511 F.3d at 390-92. Thus, the discussion of Pennsylvania case law in Gay was “not essential to the decision” in that case, even if it might have been “briefed, and argued by counsel, and ... passed on by the court.” Blaok’s Law Dictionary (9th ed.2009). As such, that portion of Gay is not binding on subsequent panels of this Court. See Am. Civil Liberties Union of N.J. ex rel. Lander v. Schundler, 168 F.3d 92, 98 n. 6 (3d Cir.1999) (“[W]e have repeatedly held that dicta are not binding.”).

Thus, the panel addressing Homa was not bound by that portion of the Gay decision. Moreover — and here we may wander into dicta ourselves — we cannot conclude that Homa and Gay are irreconcilable. According to Verizon, Gay requires preemption of Muhammad because Muhammad is indistinguishable from Thibodeau v. Comcast Corp., 912 A.2d 874 (Pa.Super.Ct.2006), one of the Pennsylvania cases Gay found to be preempted. Gay, 511 F.3d at 395 (“We, however, reject Lytle [v. CitiFinancial Services, Inc., 810 A.2d 643 (Pa.Super.Ct.2002) ] and Thibo-deau for we do not agree with them as there is no escape from the fact that they deal with agreements to arbitrate, rather than with contracts in general....”). As Verizon sees it, Homa’s conclusion to the contrary is therefore in conflict with Gay. The dicta in Gay interpreted Pennsylvania ease law to “hold that an agreement to arbitrate may be unconscionable simply because it is an agreement to arbitrate,” and the preemption determination that followed was based on that construction. Gay, 511 F.3d at 395. By contrast, in Homa, we read Muhammad to apply general principles of contract interpretation in its invalidation of the class-arbitration waiver. Homa, 558 F.3d at 230. Muhammad did not say that arbitration itself is unconscionable, but instead held that “[a]s a matter of generally applicable state contract law, it was unconscionable for defendants to deprive [plaintiff] of the mechanism of a class-wide action, whether in arbitration or in court litigation.” Muhammad, 912 A.2d at 100-101. Since Muhammad did not evince hostility toward arbitration clauses, which was the concern in Gay, it did not conflict with the FAA. See Homa, 558 F.3d at 230; see also Puleo, 605 F.3d at 177 n. 2 (“[T]he New Jersey case law at issue in Homa did not evince hostility toward arbitration clauses, which was the concern about Pennsylvania law expressed in Gay.”).

We also explained in Homa that Gay could not be read as a “blanket prohibition on unconseionability challenges to class-arbitration provisions” since the FAA permits the use of generally applicable contract defenses to attack arbitration agreements. Homa, 558 F.3d at 230; see 9 U.S.C. § 2 (contractual arbitration provisions “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”). Verizon may be correct that Muhammad bears many similarities to Thibodeau, but any tension between the dicta in Gay and the holding in Homa is not beyond resolution, as we have discussed. See Int’l Bros, of Elec. Workers, Local 803, AFL-CIO v. N.L.R.B., 826 F.2d 1283, 1293 n. 17 (3d Cir.1987) (“[A]s a panel of this Court, it is our duty to harmonize our decisions where it is possible to do so. Consideration of alleged inconsistencies between published opinions and the determination whether to overrule an opinion of this Court is reserved for in banc review.”).

More importantly, Homa is prior precedent that is directly on point and binding on us. See Garcia v. Att’y Gen. of U.S., 553 F.3d 724, 727 (3d Cir.2009) (“We are bound by precedential opinions of our Court unless they have been reversed by an en banc proceeding or have been adversely affected by an opinion of the Supreme Court.”); see also Third Circuit Internal Operating Procedure 9.1 (“[T]he holding of a panel in a precedential opinion is binding on subsequent panels”). We are not in a position to reexamine Homa, and, since it controls here, we will vacate the District Court’s order compelling arbitration and remand for further proceedings. 5

III. Conclusion

Homa concluded that the FAA does not preempt Muhammad and, therefore, Homa governs the outcome of this case. Accordingly, the District Court’s order compelling arbitration is vacated and the matter is remanded for further proceedings consistent with this opinion.

1 . Specifically, Litman and Wachtel argue that, in September of 2005, Verizon imposed a bogus monthly administrative charge of forty cents on its customers and increased that charge to seventy cents in March of 2007.

2 . The arbitration clause also provides that the agreement to arbitrate is inapplicable in the event that the class-arbitration provision is found to be unenforceable.

3 . Amici, American Financial Services Association, Chamber of Commerce of the United States of America, and Consumer Bankers Association, filed a brief in support of Verizon likewise asserting that Homa disregarded Gay and therefore should itself be disregarded.

4 . The District Court’s jurisdiction was based on diversity of citizenship pursuant to the Class Action Fairness Act of 2005. See 28 U.S.C. § 1332(d). We have jurisdiction over this appeal pursuant to 9 U.S.C. § 16(a)(3). Our review of the District Court's decision to compel arbitration is plenary. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 531 (3d Cir.2005) (citing Bouriez, v. Carnegie Mellon Univ., 359 F.3d 292, 294 (3d Cir.2004)).

5 . We note that the Supreme Court’s recent ruling in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., -U.S. -, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010), does not alter our analysis and conclusion. The Stolt-Niel-sen Court addressed the specific question of "whether imposing class arbitration on parties whose arbitration clauses are 'silent' on that issue is consistent with the [FAA]." Id. at 1764. It did not consider the distinct issues of state law preemption and unconseionability. In fact, the en banc Court in Puleo expressly cited Stolt-Nielsen without then questioning whether it precluded an unconseionability determination. See Puleo, 605 F.3d at 182 n. 5.