Time Warner Entertainment Co. v. Whiteman

741 N.E.2d 1265, 2001 Ind. App. LEXIS 15, 2001 WL 35835
CourtIndiana Court of Appeals
DecidedJanuary 16, 2001
Docket49A02-9910-CV-719
StatusPublished
Cited by19 cases

This text of 741 N.E.2d 1265 (Time Warner Entertainment Co. v. Whiteman) is published on Counsel Stack Legal Research, covering Indiana Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Time Warner Entertainment Co. v. Whiteman, 741 N.E.2d 1265, 2001 Ind. App. LEXIS 15, 2001 WL 35835 (Ind. Ct. App. 2001).

Opinion

OPINION

DARDEN, Judge.

STATEMENT OF THE CASE

Time Warner Entertainment Company, L.P., (“Time Warner”), appeals the trial court’s grant of a motion to correct error filed by Kelly Whiteman and Jean Wilson (collectively “the Plaintiffs”) in their consolidated action against Time Warner.

We affirm in part and reverse in part.

ISSUE

Whether the trial court erred in granting the Plaintiffs’ motion to correct error.

FACTS

The facts are undisputed. Time Warner provides cable services to subscribers in Indianapolis. Subscribers are billed monthly, in advance. Time Warner charges a $4.65 late fee if its subscribers do not timely pay their monthly cable bills.

The Plaintiffs are Time Warner subscribers. When they subscribed to Time Warner’s programming service, the Plain *1267 tiffs signed contracts that expressly permit Time Warner to charge a late fee if the Plaintiffs fail to pay their cable bills by the due date listed on their bills. The Time Warner contracts refer to the late fee as a “handling charge” and as an “administrative charge.” (R. 360, 363). Monthly cable bills also remind customers to pay their bills by a certain date to avoid paying the $4.65 late fee. The Plaintiffs have paid late fees in the past.

The Plaintiffs filed actions against Time Warner in January 1998 and February 1998, respectively, on behalf of themselves and a putative class of others similarly situated. The complaints allege 1 that Time Warner’s late fee is unlawful and unenforceable because it is excessive, unreasonable, and a penalty. The two actions were consolidated in April 1998. The claims raised in the Plaintiffs’ complaints fall into two categories: 1) claims for money damages which seek to recover the allegedly excessive late fees that Time Warner has collected in the past, and 2) claims for declaratory and injunctive relief which seek to prohibit Time Warner from charging an allegedly excessive late fee in the future.

In July 1998, Time Warner filed a motion to dismiss the Plaintiffs’ claims for money damages pursuant to Ind. Trial Rule 12(B)(6) on the grounds that (a) none of the Plaintiffs’ claims for money damages state a cognizable claim under Indiana law, and (b) such claims, even if actionable, are barred by the voluntary payment doctrine. Time Warner’s motion also requested summary judgment as to the Plaintiffs’ claims seeking to both declare the late fee invalid and enjoin Time Warner from collecting the fee in the future. In its summary judgment motion, Time Warner contended that its late fee is a valid liquidated damages assessment. In support of its contention, Time Warner designated, among other things, a 1997 Time Warner cost study and the affidavit of Rick Langhals, Vice President of Finance for Time Warner in Indianapolis.

According to Langhals, Time Warner charges a late fee to recover some of the costs that the company incurs when customers fail to timely pay their cable bills. Langhals explained that Time Warner conducted a study of the costs that it incurred from January through November 1997 due to the failure of its customers to timely pay their bills. On average, 24% of Time Warner’s 84,000 Indianapolis cable subscribers failed to timely pay their cable bills each month. That leads to a total of 202,558 customers who failed to timely pay their cable bills within the ten-month study period. Time Warner’s cost study identified the cost of the extra work that Time Warner employees had to do because the subscribers failed to pay their bills on time.

For example, Time Warner has a collection manager and 11 collection employees who spend 96% of their time communicating with the late payers. In addition, general customer service representatives spend 18% of them days dealing with late payers, and lobby personnel spend 39% of their days serving late payers. In addition, Time Warner employs field collectors who visit subscribers at their homes.

Time Warner used these percentages to determine what portion of its building, utilities and salaries to include as costs attributable to late payments. Time Warner also included in its study data processing, postage and other expenses incurred as a result of late payments. In addition, Time Warner included in the study its costs resulting from the loss of use of money because customers paid late. As a result of the ten-month study, Time Warner determined that the 202,558 delinquent customers caused the company to incur costs of $1,035,139 — a $5.11 monthly net cost per delinquency. Therefore, according to Time Warner, its $4.65 monthly late fee *1268 does not even cover the costs that it incurs as a result of late payments.

The Plaintiffs filed a response to Time Warner’s summary judgment motion and designated, among other things, an affidavit of Andrea Crane and a declaration of John Lehman. Crane is a regulatory rate-setting consultant who has testified in more than 80 administrative proceedings on issues relating to cable television and other utilities. Most of the proceedings involved issues regarding the appropriate costs to recover from ratepayers through regulated rates. At the time she prepared her affidavit, Crane had been the sole consultant to the state of New Jersey, Division of Rate Payer Advocate, on all cable television matters for the previous five years. In this capacity, Crane has reviewed and analyzed approximately 200 cable television rate filings, including Federal Communications Commission forms, which govern the rates charged by cable providers such as Time Warner.

In preparing her affidavit, Crane reviewed Langhals’ affidavit, Time Warner’s cost study, and FCC forms filed by Time Warner. According to Crane, Time Warner uses the FCC’s benchmark method to set its rates for cable services. The benchmark form of regulation is designed to cover all costs and provide a profit. According to Crane, Time Warner’s late fee cannot be justified as a fee necessary to recover costs associated with delinquent payers because those costs are already recovered in the benchmark rate. Further, Time Warner’s use of late fees to recover costs included in the FCC’s basic rate structure results in a double recovery of these'costs — once through Time Warner’s FCC-approved rates and again through the collection of a separate late payment fee.

Crane further explained that the methodology employed in Time Warner’s cost study is flawed because it includes “many costs in excess of those incremental costs directly related to the collection of late payments.” (R. 1262). Specifically, Crane explained as follows:

Many of the costs included in the study relate to costs for non-collection. These costs result from customers who do not pay their bills at all, and are not directly attributable to customers who simply pay late.
Time Warner Indianapolis has included costs for various salary and wage categories in its late fee study. However, Company has not demonstrated that these costs are incremental to the late payment function. In some cases, these costs relate to overhead positions such as the Director of Human Resources.

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Bluebook (online)
741 N.E.2d 1265, 2001 Ind. App. LEXIS 15, 2001 WL 35835, Counsel Stack Legal Research, https://law.counselstack.com/opinion/time-warner-entertainment-co-v-whiteman-indctapp-2001.