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Hesse v. Sprint Corp.

March 10, 2010

CHRISTOPHER W. HESSE; NATHANIEL OLSON, PLAINTIFFS-APPELLANTS,
v.
SPRINT CORPORATION, A FOREIGN CORPORATION, DEFENDANT, AND SPRINT SPECTRUM LP, DOING BUSINESS AS SPRINT PCS, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Western District of Washington John C. Coughenour, District Judge, Presiding D.C. No. 2:-6-cv-00592-JCC.

The opinion of the court was delivered by: Clifton, Circuit Judge

FOR PUBLICATION

Argued and Submitted November 5, 2009 -- Seattle, Washington

Before: Arthur L. Alarcón, Andrew J. Kleinfeld and Richard R. Clifton, Circuit Judges.

OPINION

This case requires us to consider whether a broad release of claims in a nationwide settlement agreement between Sprint and its customers precludes the present class action involving a Washington state tax that Sprint invoiced to its Washington customers. That nationwide settlement arose out of a lawsuit that challenged Sprint's billing of customers for certain federal regulatory fees. Because we conclude that the Washington Plaintiffs' interests were not adequately represented in the prior action and that their claims are not "based on the identical factual predicate as that underlying the claims in the settled class action," Williams v. Boeing Co., 517 F.3d 1120, 1133 (9th Cir. 2008), we hold that the prior settlement did not release the claims at issue in this case, and we vacate the district court's grant of summary judgment in favor of Sprint.

I. Background

The State of Washington imposes a business and occupation tax ("B&O tax") on every person engaged in business activities in the state. Wash. Rev. Code § 82.04.220. Washington law specifies that the B&O tax must be collected from a business as part of its "operating overhead" rather than imposed as a separate "tax[ ] upon the purchasers or customers." Id. § 82.04.500 (the "B&O Tax Statute"). It is alleged that Sprint passed the tax directly to its customers as a separate line item labeled "Washington State B&O Tax Surcharge" starting in April 2001.

Christopher Hesse and Nathaniel Olson ("the Washington Plaintiffs") filed separate class actions in Washington state court alleging violations of the B&O Tax Statute and the Washington Consumer Protection Act ("CPA"), Wash. Rev. Code § 19.86.030, as well as common law breach of contract and unjust enrichment. Sprint removed both cases to the United States District Court for the Western District of Washington pursuant to 28 U.S.C. § 1441(a).

The district court dismissed all claims predicated on the B&O Tax Statute as preempted by the Federal Communications Act ("FCA"), 47 U.S.C. § 332(c)(3)(A), but denied Sprint's motion to dismiss insofar as it related to "Plaintiffs' other contract and CPA claims." The district court then certified a class of "all current and former Washington state wireless service customers of Sprint, who have been charged and paid to Sprint a 'Washington State B&O Tax Surcharge' " with the Washington Plaintiffs as class representatives.

After filing its answer to the Washington Plaintiffs' consolidated complaint, Sprint moved for summary judgment, arguing for the first time that the suit was barred by a class settlement between Sprint and its customers approved by a Kansas state court in 2006 (the "Benney Settlement").

The Benney Settlement resulted from several class actions filed in 2002 in various state courts and then dismissed and refiled in Kansas state court in 2005 for purposes of settlement. One of those class actions was initiated in Missouri by Greg Benney (the "Benney Class Plaintiff"), who alleged that Sprint's surcharges to recoup federal regulatory fees violated consumer protection laws, represented a breach of contract, and resulted in unjust enrichment. The relevant regulatory fees were defined in the settlement agreement to include only specified fees imposed to recover the cost of compliance with federally mandated programs.*fn1 The Benney class was defined to consist of "all current and former Sprint wireless customers in the United States who were customers for any time during the period December 1, 2000 to the Effective Date [of the settlement in late 2006] and who were charged Regulatory Fees (as defined in [the Benney Settlement])." It is not disputed that the named plaintiffs in the case before us were members of the Benney class and that they did not opt out.

Sprint settled with the nationwide plaintiff classes, including the Benney class, in February 2006. The settlement provided various benefits, including phone cards and invoice credits on future bills, to members of the various subclasses of the Benney class who submitted claim forms. Sprint agreed, in a paragraph titled "Injunctive Relief as to Billing and Advertising Practices Related to the Regulatory Fees," to disclose for at least two years that the regulatory fees and other surcharges to recoup the cost of compliance with government programs are "not taxes or government mandated charges." The term of the Benney Settlement relevant to Sprint's defense in the present case is Paragraph 22(a)(1), which purported to release Sprint from a set of potential claims much broader than the surcharges for federal regulatory fees that were the subject of the Benney action:

any and all claims... that have been, could have been, or in the future might be asserted in the [Benney] Action[ ] or in any other court or proceeding which relate in any way to allegations that... [Sprint] failed properly to disclose or otherwise improperly charged for surcharges, regulatory fees or excise taxes, including but not limited to the Regulatory Fees; and all other causes of action... whether based on federal, state, or local statute... that have been, could have been, may be, or could be alleged or ...


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