Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 1 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 I.

UNITED STATES DISTRICT COURT, DISTRICT OF COLORADO Civil Action No. 04-RB-435 (MJW) JON F. MCCLELLAND, on behalf of himself and all persons similarly situated, Plaintiff, v. DIRECTV, INC., et. al., Defendants. ) ) ) ) ) ) ) )

PLAINTIFF'S REPLY TO OPPOSITION TO MOTION FOR VACATING OR MODIFICATION OF THE ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION AND REQUEST TO SEAL EXHIBIT 15 TO THIS MOTION
Plaintiff JON F. MCCLELLAND, hereby submits these additional points and authorities and argument in reply to defendants' opposition to his motion for an order vacating or modifying this Court's previous order compelling arbitration and sealing Exhibit 15. POINTS AND AUTHORITIES ARGUMENT THE COURT SHOULD VACATE OR MODIFY THE PREVIOUS ORDER TO COMPEL ARBITRATION. In his moving papers, plaintiff demonstrated that he has attempted to arbitrate this matter pursuant to the previous orders of this Court but has been stymied by the American Arbitration

22 23 24 25 26 27 28 1 Association's (AAA) insistence that he commit to a financial responsibility beyond his means and well beyond anything that would be incurred in prosecution of this matter in court. We are not talking about attorney's fees and the ordinary costs of court litigation which are being advanced by plaintiff's counsel on a contingency fee basis. We are talking about

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 2 of 7

1 2 3 4

extraordinarily expensive costs, unique to arbitration, and which plaintiff cannot simply afford to pay or agree to pay. Yet, defendants insist that this case should be returned to the AAA "until and unless he [plaintiff] fully and in good faith explores the availability of fee waivers or reimbursement

5 6 7 8 9 10 11 Firstly, plaintiff has not "refused to provide crucial financial information" to AAA. As 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 have begun to recognize the potential that arbitration fees will make an arbitration agreement unconscionable." (198 F.3d at p. 717.) Even more significantly, the Court of Appeals did not disagree with the district court's conclusion that a potential arbitration fee of $23,000 was unconscionable. (Id.) However, the appellate court agreed with the district court that the plaintiff failed to provide financial information to the AAA that was sufficient to allow consideration of a fee waiver. (Id.) Accordingly, the appellate court remanded to allow the demonstrated in the motion and, particularly in sealed Exhibit 15, plaintiff presented substantial and quite intrusive personal information to AAA establishing very modest income and savings. The case of Dobbins v. Hawk's Enterprises (8th Cir. 1999) 198 F.3d 715 cited by defendants does not support their argument. If anything, that case is favorable to plaintiff's position. In Dobbins, supra, the Court of Appeals recognized that "courts across the country available to him in arbitration proceedings." Absent an order from this Court requiring AAA to waive the fees and costs above an amount certain and precluding plaintiff from being responsible for those fees, there is no reasonable prospect AAA will accept this case without a huge financial commitment. Defendants' additional arguments are equally meritless.

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 3 of 7

1 2 3 4

plaintiff to submit a reduced demand for damages (the Court indicated it thought the demand was excessive1) and to seek a "a diminution or a waiver of fees from the AAA." (Id.) The problem with defendants' reliance on the Dobbins case is that we do not exactly what financial information, if any, was provided by Dobbins to the AAA. The Court of Appeals

5 6 7 8 9 10 11 remanded for him to do so. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
1

is not specific and merely indicates that from its "reading of the evidentiary hearing transcript," it was clear that "Dobbins refused to provide his family's financial information to the AAA." (Id.) Does that mean Dobbins provide nothing or that he (like plaintiff) provided bank statements, a sworn financial statement, and an audited financial statement, but just did not provide a tax return? Plaintiff's reading of Dobbins is that he provided nothing and that is why it was

In the instant case, the district court can see what plaintiff provided to the AAA and can equally see that it was more than sufficient for the AAA to determine whether it wanted to grant a fee waiver or not. As indicated below, the AAA refused to provide a meaningful fee waiver. Secondly, plaintiff has not misrepresented the financial costs of arbitration. In this motion, plaintiff described his financial exposure as follows. 1. Initial administrative fee of $3,250 for the "class construction phase" to be determine if the arbitration agreement permitted the action to proceed as a class action (i.e., not a class certification hearing). 2. Filing fee of $23,000 based upon the damages claimed in this class action if the case proceeds past the class construction phase.

By contrast, the damages sought in this RICO action are not excessive. DIRECTV does not deny it collected at least $35 million from the Demand Letters which plaintiff contends are extortionate and the RICO law allows for treble damages.
3

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 4 of 7

1 2 3 4

3. Arbitrator's fees, ranging from $300 to $450 per hour. The maximum fee waiver/deferment the AAA was willing to provide was as follows: 1. Plaintiff need only pay $1,000 of the class construction phase and DIRECTV agreed to pay the remaining $2,250 but with the possibility of seeking reimbursement from plaintiff should it

5 6 7 8 9 10 11 Although defendants accuse plaintiff of mischaracterizing his financial exposure, nothing 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 if AAA does not agree to waive plaintiff's obligation to pay it. (Opposition, p. 7.) It appears DIRECTV is also offering pay the arbitrator's fees as well or not. While defendants' offer seems opportunistic, to say the least, plaintiff would be willing to proceed to arbitration if DIRECTV will bear all of the arbitration costs. This would of course not be "reimbursement" since plaintiff cannot pay them in the first place. Nor would there be any right for DIRECTV to seek reimbursement from plaintiff should it prevail. If defendants in defendants' Opposition exposes any error or inaccuracy in plaintiff's assertions. Instead, now and for the first time, defendants claim that if AAA rejects plaintiff's waiver request on the merits, they are willing to "consider a written request from plaintiff that DIRECTV reimburse some or all of the required fees." (Opposition, p. 6.) Even more specifically, DIRECTV claims in addition to advancing the $2,250 of the $3,250 initial fee, it will advance the filing fee as well prevail.2 2. Plaintiff is still required to pay the filing fee ($20,000 or $23,000, it is not clear which), but AAA will "consider" a deferment of some or all of this fee after the class construction phase. 3. Plaintiff will still be required to pay half of the Arbitrator's hourly fees and could be required to reimburse defendants for the other half if he loses the case.

DIRECTV submits as Exhibit 2 to its Opposition an email thread that makes it clear defendants reserved the right to seek reimbursement of any costs they paid initially should they prevail.
4

2

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 5 of 7

1 2 3 4

have the right to seek reimbursement of $23,000 or more merely by prevailing (without any finding the lawsuit was frivolous or brought in bad faith) then this would have a chilling effect on plaintiff's ability to proceed. And that is the problem with defendants' offer presented in the Opposition papers. It

5 6 7 8 9 10 11 loses he then owes the $23,000. The result is the same. No one except a rich man or company 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 which in the case of an early dismissal would normally be well south of $500) and "arbitration costs," which in this case would almost certainly exceed $27,000 before the first ruling on the merits of the case would be made.3 The fact is plaintiff's prospects of success are uncertain. The application of RICO to defendants' conduct is certainly justified but at the same time is not "black-letter law." Many meritorious lawsuits challenging the conduct of sophisticated corporations rely upon logical can afford to bring an apparently meritorious claim if there is any chance of failure and, thus, the billion-dollar corporation escapes liability. Of course, in any lawsuit (including a RICO case), there is a risk the plaintiff may have to reimburse a defendant's normal court costs. But there is a world of difference between normal court costs, especially in federal court where there is no responsive pleading or motion fee and comes with a big catch--if defendant prevails, then DIRECTV reserves the right to seek reimbursement of everything it paid from plaintiff. There is very little practical difference between telling the "common man" that he must pay $23,000 in extraordinary costs not found in a normal court action in order to pursue claims against a billion-dollar corporation and telling him that he need pay nothing in advance but if he

Plaintiff is including some compensation to the Arbitrator in this figure and also assuming the first challenge on the merits would be a demurrer or motion to dismiss. The clause construction phase would not lead to a ruling on the merits.
5

3

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 6 of 7

1 2 3 4

expansions or reasonable interpretations of case or statutory law that may or may not be accepted by the trier of fact or law. Citizens should not be deterred from advancing such claims for fear of being held financial responsible for ruinous arbitration costs they would not face in a court proceeding. When a statutory framework minimizes the risk to the plaintiff in bringing lawsuits

5 6 7 8 9 10 11 requiring the arbitrator to determine the question whether the arbitration provision is 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CONCLUSION For the above stated reasons, plaintiff respectfully urges the court to modify or vacate its previous order compelling arbitration before the AAA. 6 arbitration agreement is silent on the availability of classwide arbitration, the arbitrator makes the initial determination whether the matter can be referred to arbitration. But the persuasive value of Discover Bank is in explaining that the Bazzle case did not address who makes the initial determination of unconscionability if the arbitration agreement is not silent on the availability of class arbitration. This Arbitration Agreement, according to defendant, requires that class claims be arbitrated on an individual basis (i.e., a class action waiver). unconscionable. This court now has the guidance offered by the California Supreme Court in Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 161-163 (court not arbitrator must make initial determination whether class action waivers are unconscionable). Defendant argues the California ruling is not persuasive and instead this court must follow Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, 450-451, in which the Supreme Court held that where the to protect the public by precluding the recovery of attorney's fees by the prevailing defendant and by limiting the types of expenses that could be recovered as "court costs," the defendant should not be permitted to evade those statutory protections by inserting an arbitration provision that shifts all of those risks back onto the plaintiff's shoulders. Finally, plaintiff continues to believe this court should reconsider its initial approach in

Case 1:04-cv-00435-REB-MJW

Document 35

Filed 11/19/2005

Page 7 of 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

DATED: November 19, 2005 Respectfully submitted, By ____s/Jeffrey Wilens___________ Jeffrey Wilens, Esq. LAKESHORE LAW CENTER 17476 Yorba Linda Blvd. #221 Yorba Linda, CA 92886 714-854-7205 714-854-7206 (fax) email: [email protected] Attorney for Plaintiff

7