T-Mobile Sued Over Early Termination Fees

    “You’re not allowed to make up a penalty fee that doesn’t bear any rational relation to the damages you supposedly incur when someone breaches a contract,” said Ben Schwartzman, an attorney with the Boise firm.

Someone give this guy a medal, not just of the chocolate kind. — BEN POPKEN

T-Mobile Gets Sued Over Termination Fees [AP] (Thanks to Tim!)

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  1. Yep says:

    Never, ever fuck with an Idaho lawyer.

    If figuring out the damage resulting from breach of contract is too difficult, where’s the magic $200 figure coming from?

  2. Vinny says:

    That guy’s a FUCKING IDIOT.

    Hey fucko… It works like this…

    You buy a phone… You pay much less than the phone is worth because the company knows you will be on for 6 months and they’ll make it back in monthly charges. If you don’t like that system, pay full unlocked phone prices which you would probably bitch were too high.

    Can’t have it both ways, fucko, so pay your stupid bill and shut your stupid mouth.

    Oh, that and the fact that you sign a contract at the beginning you snivelling shyster shithead.

    God I hate people who sue first and think later.

    And the article is blatantly wrong. Not all customers who claim poor service are hit by the cancellation fee. If you’re the type that runs your bill up and gets cut off, then turns it back on with a money order only to get it cut off again in a month, then yeah, you’ll probably get the cancellation fee. Oh well. Pay your bills.

    It would take a lawfirm to be such assbags. I wonder why they didn’t READ the contract they signed?

    Oh right… Cause they couldn’t bill for it.

  3. cebailey says:

    “You’re not allowed to make up a penalty fee that doesn’t bear any rational relation to the damages you supposedly incur when someone breaches a contract,” said Ben Schwartzman, an attorney with the Boise firm.

    Correct me if I’m wrong, but isn’t the ETF plainly stated in the contract you sign? Unless I’m missing some obscure law, they could make the ETF $10,000 as long as it’s stated on the contract when you sign it.

    Don’t get me wrong, I know cell phone companies do whatever they can to screw customers, but these fees are IN THE CONTRACT you sign, and in a roundabout way they’re tied to the fact that you can get a FREE PHONE, or a fat discount on a nicer one, with a 2-year contract. If you don’t want to worry about an ETF, treat your cell phone as you would a land line. Buy the equipment yourself at retail price, then get service month-to-month. Last I checked, all of the major cell carriers will let you do that, even if they don’t advertise it.

    This smacks of a lawyer just looking for free publicity from people that are too stupid to read legally binding contracts that they sign.

  4. Vinny says:

    Amen dude.

  5. cudthecrud says:

    I think the lawyer has a valid point though that the 200 flat rate isn’t exactly related at all to the actual “damages” incurrec by breaking contract. If they prorated the cancellation fee, as in it starts at 200 and goes down at a monthly rate that would actually resemble the damage you might cause a carrier, well, that would be nice.

  6. Chairman-Meow says:

    Wow Vinny go get em Tiger! Grrrrrowwwwl!

  7. cebailey says:

    cudthecrud, you’re right. It would be ‘nice,’ and that’s where it stops. Is there some Holy Writ of Consumer Law that says that all contract terms shall be considerate of the signing parties’ feelings? I don’t think so.

    If you were a pool cleaner and I had a pool, you would be completely within your rights to sell me a monthly pool cleaning service for $20/month for 1 year, with a $5,000 ‘penalty fee’ if I cancel before the end of the year. The fee’s not related at all to any damages, it’s just a number pulled out of thin air. My guess would be that you wouldn’t get a lot of business with a pricing scheme like that, though… and if the ETFs were TRULY a problem, more people would pay retail for phones and go month-to-month, like I described above.

    The problem is, too many Americans are too damn cheap to pay for a cell phone, so when they sign a ridiculous contract to get a free phone (that would cost $200 at an electronics store) and then drop it in the toilet, they want to have their cake and eat it too.

    Use eBay as an indicator of fair market value: for most mid-range phones, the ‘fair market’ price is somewhat close to the 2-year contract price plus the ETF. If the ETF’s were higher, more people would buy retail and go month-to-month; if the ETFs were much lower, everyone would buy phones, pay the ETFs, and make money selling the phones on eBay.

  8. bluegus32 says:

    The $200 fee in the contract is what is known as “liquidated damages.” In California, a contract which attempts to fix the amount of damages in anticipation of a breach of an obligation is void to that extent (Cal.Civ.Code § 1670), except ‘when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage’ (Cal.Civ.Code § 1671.)

    It is generally recognized that a valid agreement may be made for the payment of liquidated damages. The parties are allowed to contract for liquidated damages if it is necessary to do so in order that they may know with reasonable certainty the extent of liability for a breach of the agreement. Where it is impracticable and extremely difficult to fix the damages which may result from the defendant’s failure to render its service, the liquidated damages provision may be given great pursasive weight. (Better Food Markets v. American Dist. Tel. Co. 40 Cal.2d 179.)

    The actual question of the validity of a liquidated damages clause is a little more complex than this. However, the bare fact that one signs a contract with a liquidated damages clause, does not necessarily make that clause enforceable. Likewise, a liquidated damages clause (as the one here in cellular phone contracts) will be upheld if it is within the realm of reason.

    Vinny, above, in his oh-so-eloquent manner, illustrates a very good reason as to why $200 is not unreasonable for early termination of a cell phone contract. You save a large chunk of money up front in exchange for signing a 2 year agreement.

    $200 is in the ballpark. We may hate it but I don’t think it’s illegal. Of course, in the end, a court may disagree with me. I certainly do admire this Boise firm for attacking this but I think they’re wrong.

  9. cebailey says:

    According to bluegus32‘s description of liquidated damages, I would imagine that the army of lawyers for each of these cell phone companies set the ETFs around $175-200 because it’s the highest number that could withstand the “reasonableness” test in court. (We say that word at my job a lot.)

    Here’s a monkey wrench to throw into the whole thing: The price of a subsidized phone with a 1-year contract is usually $50 or so higher than with a 2-year. Could it then be argued that a 1-year contract should carry a lower ETF?

  10. bluegus32 says:

    cebailey — you’re absolutely right. The cell phone companies would have picked the largest number that they felt could withstand judicial scrutiny. I haven’t researched this myself, but I have a hard time believing that this is the first time a suit like this has been attempted. I’d be willing to bet that the cell phone companies have had to defend these types of claims before. I’d also be willing to be that they’ve won every time.

  11. Triteon says:

    Don’t sign anything you haven’t read.
    Don’t sign anything you don’t understand.
    Don’t sign anything you don’t agree with.
    Don’t sign a contract you have no intention of fulfilling.
    And if you violate any of the above– act like an adult and live up to your contract, learn from your mistake and educate others so they don’t take your path.

    I have never seen (or heard!) Vinny this angry. And he’s had reason…

  12. cebailey says:

    Right on, Triteon. This whole country needs to butch the hell up. When I bought my first car recently, I got smooth-talked into buying two extra things I didn’t really want. I was able to cancel one, but not the other–to the tune of about $400. I didn’t sue someone because of a mistake I made–I took it like a man and learned from my mistake. (And stopped my friend from making the same mistake when he bought his first new car a month later.)

  13. bluegus32 says:

    Correct me if I’m wrong but doesn’t T-Mobile have zero cancellation fees? And isn’t it common knowledge that everyone else does have cancellation fees?

    That’s the blessing of democracy; if you don’t like something then don’t buy it. Sadly, our version of democracy has transformed that into if you don’t like something then sue someone.

    For the record, I am an attorney. And I think that attorneys are assholes. There need to be far fewer of us. And there should be stiff, stiff penalties for those who bring these kinds of frivolous suits. Sadly, lawyers just don’t get punished for this kind of behavior.

  14. spanky says:

    According to the article, the suit is addressing whether the contract agreement is enforceable in states that have consumer protection laws prohibiting excessive contract termination fees, AND when the level of service is inadequate.

    The big questions would be a) whether those contracts include any obligation to the carrier to provide some minimum level of service; and b) whether the damages of early termination can be accurately assessed so that someone who cancels their contract one month early doesn’t incur the same fines as someone who cancels one month in.

    The correct answers are “Of course,” and “Duh,” respectively.

  15. Sam Glover says:

    I don’t see how you can call this frivolous, bluegus32, although I think your analysis above is probably right.

    Still, it could be that T-Mobile, like many companies, charges corporate companies differently. Maybe they didn’t get a discount on the phones, for example. There are a few variables we just don’t know.

    In any case, it’s a shame you feel as you do about lawyers. I agree there are too many lawyers generally, but we sure could use a lot more who are willing to go to bat for consumers instead of chasing ambulances.

  16. Vinny says:

    Correct me if I’m wrong but doesn’t T-Mobile have zero cancellation fees?

    You’re wrong, but not totally.

    On Prepay accounts or month to month there aren’t. On regular contracts, there absolutely is.

    People, if you want to get your panties in a bunch over a fee, how about the “activation fee?”

    $36 at T-Mobile for the privilege of paying them for 2 years. Honestly, that’s what you should be outraged about.

  17. acambras says:

    Yeah, Vinny — I’ve been charged similar activation fees by Verizon and Cingular, if I remember correctly. Last September, I had been out-of-contract with Cingular but was signing a new 2-year contract (which I intend to uphold my end of). The guy was trying to charge me an activation fee (same phone number, mind you) of $35-40. I had to explain to him why, as an existing customer, I shouldn’t have to pay an activation fee. I did get out of it, but the whole episode raised my blood pressure a little.

  18. bluegus32 says:

    Mr. Sam Glover — come now! You can’t believe that these lawyers in Idaho are “going to bat for consumers.” They’re trying to establish a class. Which means that they are looking at millions of dollars in fees should they prevail. As with the vast number of class action lawsuits, this one is not about protecting consumers so much as it is about lining attorneys’ pocket books.

    Of course, I agree that consumer advocates are preferable to ambulance chasers. But I know a few ambulance chasers who troll around these parts that feel that they are performing a public service.

    But to your question – why do I call this frivolous? I’ll admit that it meets no legal definition of frivolous of which I am aware. But then again, I feel that the legal definition of frivolous is far too narrow.

    This one is frivolous for the same reson many contract interpretation disputes are frivolous. Contract disputes of this nature consist of one party who tries to get out of a contract term he/she deems undesirable only after obtaining the benefits of the contract. I second some of the comments here. Everyone, and I mean everyone, knows when they sign a cellular contract, that there will be a penalty involved for early termination. The cell phone companies tell you that up front. They are also very honest about the extent of their coverage. There is no surprise, no monolopy, or other extenuating circumstance that requires judicial or legislative intervention to protect the consumer.

    This is a perfect example of caveat emptor. It is also a perfect example of consumers who screw themselves and then blame others for it. The bottom line is this — if you don’t like it, then go find someone else. This is a perfect example where the market will keep appropriate checks and balances on the system.

  19. Yep says:

    Me, I hope the Idahoan lawyers win. I don’t excuse them for blowing off the contract verbiage. I know – everyone should read the contract, and if they don’t like it, don’t sign on. But I still hope they win. Mainly because I think the cancellation fee is naughty and deserves to be spanked. Especially if the coverage is not adequate (though I suspect that was just a convenient argument.)

    It’s not like t-mobile can’t sell the service to someone else while I’m using it – there is no opportunity cost to them from signing me on. I haven’t damaged the service by using it – there is no wear and tear. I’ve paid for the amount I’ve used.

    If I got the phone for free, then bill me the retail value of the phone if I cancel before the end of the term. Might be more than $200, but I’d still think it was fair, assuming I can then use the phone with any other carrier.

    If I got a discounted rate for long term commitment, then bill back the monthly discount times the number of months I was on before canceling. I’m getting $5/month off on a year contract, and I cancel after 5 months, bill me the $25 bucks I would’ve paid for a pay as you go plan. Thats fair.

  20. segfault, registered cat offender says:

    Thinking back to my contracts class, they may not have a monopoly, but the universal termination fees smell like a form-pad contract… A consumer who wants a cell phone has no meaningful choice as to the terms of the contract, which are similar from one carrier to another and are non-negotiable.

  21. Vinny says:

    It’s not like t-mobile can’t sell the service to someone else while I’m using it – there is no opportunity cost to them from signing me on. I haven’t damaged the service by using it – there is no wear and tear. I’ve paid for the amount I’ve used.

    If I got the phone for free, then bill me the retail value of the phone if I cancel before the end of the term. Might be more than $200, but I’d still think it was fair, assuming I can then use the phone with any other carrier.

    You’re kidding right? Let’s use a current example. Motorola’s Razr for T-Mobile is a $149 retail phone. It’s a rebranded V3i, which costs , at its cheapest, $300 (from a legitimate seller without a contract).

    Another example is the Dolce and Gabana Razr. $299 at T-mobile, it wholesales for over $550.

    Don’t even get into the smartphones. Most of the ones you pay $300 or $400 for are $600 – $1000.

    Please. If you don’t understand the way the business works, just say so, but don’t say you’d pay full retail for a phone because you just wouldn’t. Those are the costs companies are recouping with your monthly subscription revenue. Sure they could sell your phone service to someone else at the same time, but they sold them a phone also.

    Also, bear in mind that T-mobile and just about every other carrier pays dealers / agents a commission to cover their cost of acquisition (advertising, rent, employees, etc.) which is roughly another $250-$300 depending on the term of the contract. That’s more money they won’t be getting if you leave.

    So let’s recap. You cancel your $29.99 plan with a V3t in month 3. T-Mobile stands to lose:

    $270 in contract revenue.
    $150 in phone revenue.
    Various other intangibles we won’t calculate (including time to explain the plans / etc. to you, advertising to get you in the store, and so on).

    $420.

    If you want to pay that instead of $200, go right ahead. I for one think that’s just silly.

    Oh, and one more fallacy. Don’t compare pay as you go (prepay) plans. Most prepay plans would cost you hundreds of dollars to buy equivalent amounts of minutes. T-Mobile will not sell you a non-contract plan and you have no way of getting one unless you’re a customer who has an account and doesn’t cancel it or renew it. On day 366, you now have a month-to-month plan minus any promos you got.

    That’s the way it works.

    Again, if you want to pay full retail, go right ahead. Personally, I think you’re just one of many people who thinks it’s too expensive without fully understanding the actual costs involved.

  22. You know, it’s been so long since I’ve read a thread here without people calling each other idiots or questioning the intelligence of the human race in general I was starting to get worried.

  23. MeOhMy says:

    Activation fees are a bargain when you realize that a skilled lineman must climb to the top of EACH AND EVERY TOWER IN THE WORLD and plug a wire in to activate your phone.

  24. Sam Glover says:

    bluegus32: I should have been more specific. I agree with you on the class action bit to an extent. Consumers rarely benefit directly from a class action–it’s the lawyers who do. Still, consumers do usually benefit in the long run. For example, in this case, the class members will probably end up getting refunded about $.50 or so. But if they do get T-Mobile to drop early termination fees? We all benefit for the future.

    Class actions serve their purpose: to effectuate change by industries that can shrug off one, two, or twenty individual lawsuits.

    As for “caveat emptor,” that doctrine was overruled by law and statute nearly a century ago (though you’d never know it if you bring consumer lawsuits with any regularity).

  25. “but we sure could use a lot more who are willing to go to bat for consumers instead of chasing ambulances.”

    Hey, if we weren’t all carrying $100,000 in debt, we probably could!

  26. bluegus32 says:

    Mr. Glover: “But if they do get T-Mobile to drop early termination fees? We all benefit for the future.”

    How exactly do we benefit? As the many well-informed posts here note, this will actually do more harm than good. The ETF is charged in exchange for massive amount of capital outlay to the consumer at the front end. Eliminate the EFT and the cell phone companies will find another way to pass costs on to us. I highly doubt that they will simply eradicate the EFT and leave all the other percs in place. No. Eliminate the EFT and the cell phone companies will respond by not giving you a free phone, charging more for monthly service, etc.

    This lawsuit harms the consumer. It does not help us.

    As for caveat emptor – I am not going to argue your assertion that it was done away with a century ago. I simultaneously agree and disagree with you. And that’s far too loaded a statement to bother arguing at the moment. However, I am tickled that you started this discussion by telling me that you were chagrined to see me disillusioned by our profession but then let slip your own disillusionment. That’s awesome. Hats off to you, Sir.

    In any event, thank you for a stimulating intellectual exchange. It’s nice to argue with a competent and ethical attorney. A rare treat for me.

  27. mrwilson says:

    Although I take no position on this particular case, as a consumer class action lawyer myself, I feel obliged to briefly chime in generally regarding class actions.

    I don’t really want to make a full-throated defense of consumer class actions here, but there is one very pro-consumer aspect of those cases that rarely gets mentioned: deterrence. That is, even in cases in which the recovery for class members is small (or even nil – in some cases where class members can’t be identified, the whole award goes to some charitable purpose), a successful class case still serves the purpose of extracting a cost from a defendant who is found to have cheated consumers in some way (or who settled because it was scared that it might be found to have done so). (Needless to say, class counsel still has an obligation to try to get the best result he or she can for class members.)

    That’s important, because it means that companies out there know that if they cheat people – say, ten million people out of $1 apiece – there is a type of procedural device (the class action) available that they could get hit with to make them pay it back (plus having to pay the plaintiffs’ attorneys). Without the class action, a company could get away with that – who would bother suing over $1 (or $10, or $100)? Having defended class cases for several years before switching to the plaintiffs’ side, I know for a fact that the possibility of a class action acts as a real restraint on companies’ behavior (as it should, in my view).

  28. Yep says:

    The commission is a good point – that’s a real hard cost that gets shelled out and frankly I didn’t think of it, nor would I have expected they’d pay that much – shit, maybe I should open a cell store. But I’ll wager that cell companies don’t pay close to retail for their branded phones, so the retail cost of the phone does not = acquisition cost. And they don’t earn the monthly fee revenue until the months have come and gone, so it has no place in the sum loss.

    Regardless, I don’t doubt that the math makes complete sense to the telcos – if it didn’t make’em money, they wouldn’t be doing it. My beef is about transparency and fairness.

    So, the cell companies are actually doing me a huge favor by letting me pay $200 to cancel my contract, whether I’m canceling it because their customer service sucks, or their coverage is lacking, or I’m moving? All because they’ve spent money to acquire me as a customer by marketing their service and giving me a break on the phone I use to access their services, then they fucked it up so badly that I want out? By that logic, I might forgive my cable company for charging me a termination fee because they ran a TV and direct mail campaign to attract me and then sent a guy to my house to run a wire and hook up a box.

    But beyond all of that, is it still fair for my cell provider to charge me that very same termination fee even if I signed up direct from the provider? Even if I got my free phone 3 years ago but changed my service plan 11 months ago? Even if I brought my own phone to the plan (yes, plenty of people buy them – tons of new, unlocked v3i’s sell each week on ebay alone for about $200)? Even if I only have a month left in my contract? Here’s a novel idea for the cell companies who buy customers with free phones – if it’s costing you so much that you need to charge a termination fee, why not put that money into better service, better prices, better coverage, than your competitors to attract and keep me as a customer, rather than just grabbing as many new accounts as possible to churn through. As for the phone prices? Like every other piece of personal tech, they will take care of themselves – just like DVD players, mp3 players, digital cameras, computers, etc. did. People can buy the phone they want or need. And honestly, if someone wants to buy a golden Dolce & Gabana RAZR, they deserve to get screwed for every penny it costs. Plus an activation fee.

  29. tasha453 says:

    I work for T-Mobile. I’m a sales representitive in telesales B2C, T-Mobile to the consumer. Those people filing the lawsuit will not win. Its plain and simple. People don’t realize how much t-mo actually makes off the consumer. Lets say someone got started on the Get More plan, 600 whenever minutes, no roaming charges, no long distance charges, and unlimited nites and weekends. Now u have that plan, and we’re throwing in a FREE Moto PEBL retailed at 300 but u called in so now its free and u only have a 1 yr contract. K next, we’re gonna charge u an activation fee of 35 dollars, but in reality t-mo pays 75 for u to get ur phone, we pay 75 for u to even have it turned on. Now lets say that, excluding taxes and surcharges based on the taxing in ur area, u pay ur 39.99 every month for 12 months and never go over you would pay us a total of 515 all together, including activation.

    K now its time to subtract everything that t-mo gave u for free or discounted. And that 515 comes out to: 175. So t-mo has made 175 off of you. And yes I kno that people are bound to go over on something, but thats not on us. Thats not our fault that the consumer can’t keep track of their minutes and THEY went over. And you also have to keep in mind that when ur roaming we’re paying whoever you are roaming off of to keep u in service, we’re paying them for every single second u are on the phone. Another loss to t-mo.

    I guess it just really pisses me off to hear about these people whining about the evil of the early termination fee. Another point. If you stay wit us for one year and one year only, and never go over, we are bound to make only 175 off you. So these people that do terminate early don’t realize that t-mo was only making 25 in the end. If you had continued we would have made 175+ off of you, and by terminating your contract you’ve paid us 200, but subtract that 175 we would’ve made and we come out to 25.

    I guess my whole point was for people to realize that it isn’t some big bad conspiracy to charge the consumer, and that I totally disagree wit the suit.

  30. saturnin says:

    we got a family plan with t-mobile last May, and we are moving to France in two weeks so we have to pay $400 to get rid of our phones. We did read the contract but you never know what is going to happen in your life. A customer representative told us we could pass it over to somebody else and that person wouldn’t have to pay $70 to start the plan and we would give $200 cash, anybody interested?

  31. erlesen says:

    i cannot believe the stuff written here…people actually supporting tmobile????????

    i just moved to a new apt and i dont get any coverage here… tmobile expects me to pay 200$ to get out of my contract for no fault of mine…
    I UNFORTUNATELY PICKED AN APT WITH “THICK WALLS”

    alll the other networks work in my apt…thru the walls n everythg….im sorry…tmobile cannot expect me to pay 200 bucks for “existing” in their coverage gap…

    hurrah to the lawyers who suing them…
    people…u need to understand that there are times when exceptions need to be made….

  32. Juana La Loca says:

    if you paid etf with t mobile and want to be a part of the class action claim go to http://www.etf-settlement.com.

    submit your claim and you can receive bet $25 and $125 depending on whether you have proof of payment of the etf.

    excerpt from the site:

    IF YOU ARE OR WERE A T-MOBILE CUSTOMER WHOSE CONTRACT INCLUDES OR INCLUDED A PROVISION FOR A FLAT-RATE EARLY TERMINATION FEE (“ETF”), A CLASS ACTION SETTLEMENT COULD AFFECT YOUR RIGHTS

    SUBMIT A CLAIM FORM BY AUGUST 23, 2009 (THIS DATE MAY BE EXTENDED)

    Stay in this lawsuit. Submit a Claim Form. Await the outcome. If the Settlement is approved by the Court, you may be eligible for money or non-cash compensation under the Settlement. Be bound by the result.

    By submitting a Claim Form you keep the possibility of getting money or benefits that may come from the Settlement. But you give up any right to ever be part of any other lawsuit against T-Mobile about any issues relating to the flat-rate ETF.

    good luck!!