## Facts

- Sprint provided cellular service in California using standardized fixed-term consumer contracts.
- The contracts imposed a flat early termination fee (ETF) if a customer ended service before the contract term expired.
- Consumers alleged Sprint charged ETFs without regard to Sprint’s actual damages and that the ETF operated as an unlawful penalty.
- Multiple actions were coordinated in Alameda County Superior Court as a Judicial Council coordination proceeding, and a class was certified against Sprint.
- After a combined court and jury trial, the court found Sprint’s ETF provision unlawful under California Civil Code § 1671(d), enjoined enforcement and collection efforts, and ordered restitution of $73,775,975 in ETFs collected.
- A jury separately found class members breached by early termination and that Sprint’s actual damages exceeded ETFs collected, which would have eliminated any net class recovery if applied as a setoff.
- The trial court granted a partial new trial limited to Sprint’s damages, concluding the jury failed to follow instructions on calculating damages.
- Sprint appealed the liability determination, injunction, and partial new trial order; plaintiffs cross-appealed the allowance of Sprint’s setoff claims.

## Issues

1. Whether federal law regulating wireless services preempted state-law claims challenging Sprint’s ETFs under California contract and consumer-protection law.
2. Whether Sprint’s uniform flat-rate ETF in consumer contracts was a valid liquidated damages clause or an unlawful penalty under Civil Code § 1671(d).
3. Whether Sprint could assert damages as a setoff against restitution for paid ETFs, and whether the trial court properly granted a partial new trial on Sprint’s damages.

## Decision

- The Court of Appeal affirmed the trial court in all respects addressed in the published opinion.
- It held the claims were not federally preempted because the suit applied generally applicable state rules governing enforceability of stipulated damages, not rate-setting.
- It upheld the determination that Sprint’s ETF was an unlawful penalty under Civil Code § 1671(d).
- It affirmed the permanent injunction barring Sprint from enforcing or collecting ETFs assessed during the class period, including notice-related directives to third-party assignees.
- It affirmed the restitution award of $73,775,975, while leaving further proceedings on Sprint’s damages and any netting/setoff to the trial court after the partial new trial.
- It rejected plaintiffs’ challenge to allowing setoff claims in principle and upheld the partial new trial order on Sprint’s damages as within the trial court’s discretion.

## Legal Principles

- Federal preemption does not bar application of generally applicable state contract rules to wireless carriers when the claims regulate enforceability of stipulated damages rather than prescribing or controlling wireless rates.
- Under Civil Code § 1671(d) in consumer contracts, a liquidated damages provision is void unless the party seeking enforcement proves the clause was reasonable under circumstances existing at contract formation.
- The validity inquiry focuses on an ex ante estimate of anticipated harm at contracting, not a retrospective comparison to actual damages.
- A uniform flat fee imposed regardless of timing of termination or individualized loss supports a finding of a penalty when not shown to reasonably approximate anticipated damages.
- Trial courts may order restitution and injunctive relief for unlawful penalty provisions and may permit setoff defenses and order partial new trials when a jury fails to follow damages instructions.

## Conclusion

The court sustained application of California’s consumer-contract limits on stipulated damages to a wireless carrier, holding Sprint’s flat early termination fee unenforceable as a penalty under Civil Code § 1671(d), rejecting federal preemption, and affirming injunctive and restitutionary relief while allowing further proceedings on damages and potential setoff after a partial new trial.


Cellphone Termination Fee Cases, 193 Cal. App. 4th 298 (Cal. Ct. App. 2011)