Arbitration and Prison Communications: The Difficulty of Challenging Excessive Fees

The Challenge of Prison Communications
As telecommunications services across the nation got cheaper and cheaper over the last 20 years, that trend did not reach state correctional facilities. Prisoners’ access to telecommunications services has been both limited and increasingly expensive over time with more and more added fees. Competitive policies that brought prices down elsewhere didn’t extend into prisons, as many states entered into monopoly provider contracts that allowed a single company to serve the prisons and required a significant share of the company’s revenues to be remitted back to the state as “commissions.” As a result, states had incentive to award prison contracts not to the lowest-cost provider, but instead to “reap the most profit by selecting the telephone company that provides the highest commission.” State contracts differed widely, as the same 15-minute call placed with leading provider Global Tel*Link could cost $2.36 in Massachusetts and more than $17 in Georgia.

In 2015, the Federal Communications Commission (FCC) adopted regulations capping the cost of prison phone calls, limiting the additional fees that could be added to the price of a call, and discouraging “site commissions” that allowed the prison to receive a percentage of the fees paid. The FCC determined that action was needed, as phone service offered an important tool for maintaining relationships and promoting rehabilitation. The FCC found that prisons are commonly located in rural areas hundreds of miles away from inmates’ homes, making it too costly to for in-person family visits. The commission pointed out that “voice calling is often the only communications option available.” The ability to communicate with loved ones is so important to inmates that disruptions in service have even caused internal prison strife. As one inmate noted after rates spiked and service became less reliable, “For weeks, everybody’s been on edge about [the phone rates] . . . The most important things we have in here are connections with our family.”

The endurance of the FCC’s regulation capping fees is now in serious doubt, however. Telecommunications companies sued the FCC in 2015, arguing that the commission lacked the authority to enforce rate caps. The case, Global TelLink et al. v. FCC, is currently pending in the U.S. Court of Appeals for the D.C. Circuit. After the change in administration in January 2017, the Trump administration adopted a change in policy, and the FCC told the court in oral argument on January 31, 2017, that it would no longer defend certain rules, including caps on in-state calls. In-state calls represent “more than 80 percent of inmate calls.” In the meantime, the FCC’s in-state price caps are under a court stay, meaning that companies do not have to abide by the caps until their legality is determined.

New Jersey Litigation
While regulatory action over prison phone rates was ongoing, plaintiffs in New Jersey filed a putative class action in 2013. The defendants, Global Tel*Link Corporation (“GTL,” which styles itself as “The Corrections Innovation Leader” and was also a plaintiff in the case against the FCC), along with related entities, had contracted to become the exclusive telephone-service provider to inmates at a number of facilities in the state. The plaintiffs were individuals—primarily friends and family of inmates—who had used the defendants’ telecommunications services.

The plaintiffs alleged that those service charges were unconscionably high in violation of the New Jersey Consumer Fraud Act and the New Jersey Public Utilities Statutes, and further alleged that the defendants had engaged in fraudulent or deceptive acts by failing to disclose certain fees and charges. The plaintiffs’ initial complaint also stated a claim under the Federal Communications Act, but that claim was voluntarily dismissed in lieu of proceeding first at the Federal Communications Commission.

Plaintiffs’ Alleged Costs
According to the plaintiffs’ complaint, GTL was the exclusive provider of telecommunications services within the correctional facilities and, at the time, had an agreement to remit 40 percent of all revenues back to the state of New Jersey. Inmates would use GTL phones to make collect calls to friends, relatives, and attorneys outside the facility. Before recipients could accept a call, they had to set up an account with GTL and deposit at least $25 to cover the charges. Once the account was set up, the individual would be provided with a passcode that could be used to accept calls from the incarcerated individual. The complaint stated that defendants charged a $4.75 account set-up fee, a $1.75 per-call connection fee, and an additional $5.00 fee to close out the account and refund any remaining balance, in addition to a 30-cent per-minute charge.

Thus, a single 15-minute phone call could cost more than 15 dollars: The recipient would have to pay a fee to set up the account, another fee to connect, a per-minute charge for the call, and then another fee to close the account and obtain a refund of the remaining deposit. The plaintiffs alleged that the defendants failed to inform customers of the fee to close the account and further failed to inform customers of its policy that any account balance would be forfeited if they do not use the service for a 90-day period.

The Arbitration Agreement
GTL moved to compel arbitration, asserting that telephone customers were bound by the company’s terms of use, which required that all claims relating to the service “shall be finally settled by binding arbitration, excluding any rules or procedures governing or permitting class actions.”

The plaintiffs argued that they had never agreed to the arbitration provision. All but one of the plaintiffs had signed up for the service over the telephone, but GTL’s terms of use document was available only on the internet. GTL provided an audio notice stating that “any transactions you complete . . . are governed by the terms of use and the privacy statement posted at www.offenderconnect.com.” Customers creating accounts over the phone were not required to take any action to accept those terms. One plaintiff had set up an account over the internet, where she was required to click an “accept” button accepting the terms of use before setting up her account online.

The plaintiffs also argued that the arbitration agreement should be void for duress. They stated that “GTL is the only way for family members and loved ones of persons incarcerated in New Jersey to communicate with them, other than an in person visit,” and pointed to an FCC finding that in-person visits are difficult to manage: “all the more difficult because mothers are incarcerated an average of 160 miles from their last home.”

The district court granted GTL’s arbitration motion as to the plaintiff who had set up an account online and had therefore clicked to accept the terms of use, finding that she had voluntarily agreed to the arbitration clause. The court quickly set aside the plaintiff’s duress argument, concluding that inmates had other methods of communicating to people on the outside, including visits, letters, and calls paid through the inmate’s own commissary account. As a result, the court found that the defendants’ policies did not deprive the plaintiffs of their “unfettered will.”

The court denied the motion as to the other plaintiffs who had set up their accounts online, concluding that the defendants “did not inform them that use of the service alone constituted an acceptance of these terms.”

Opinion from the Third Circuit
Because the Federal Arbitration Act allows interlocutory appeal of decisions denying arbitration, defendants were able to immediately appeal the denial of the arbitration motion to the Third Circuit. By contrast, an interlocutory order compelling arbitration is not generally appealable. Thus, the one plaintiff ordered to arbitration could not cross-appeal.

The Third Circuit affirmed the denial of arbitration. It agreed that the plaintiffs who opened their accounts over the telephone had not formed an agreement to arbitrate. The court distinguished Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991) (where arbitration terms were printed on the back of a cruise-line ticket) and Schnabel v. Trilegiant Corp., 697 F.3d 110, 121 & n.10 (2d Cir. 2012) (a “shrinkwrap” case where terms of computer software were provided only after consumers had already opened the plastic seal on the product) because the plaintiffs in both cases had received “physical copies” of the terms and conditions and had an opportunity to reject them by declining the cruise or returning the product. Here, however, the plaintiffs “neither received GTL's terms of use, nor were they informed that merely using GTL’s telephone service would constitute assent to those terms.” Because the court affirmed the denial of arbitration, it did not need to reach the plaintiff’s duress claim.

Exculpatory Arbitration Waivers and the Demise of Class Actions
Although the plaintiffs prevailed in the Third Circuit, the court’s ruling suggests that arbitration agreements with class-action waivers will be upheld in the future—as long as customers are explicitly told that using the telephone service would constitute assent to the terms of use. The one plaintiff who contracted over the internet—and thus clicked “accept” to the terms of use—was required to arbitrate, and it would take little effort for the defendants to add a recorded message explicitly informing users that using the service would constitute an agreement to be bound by the terms. (Actually recording the entire terms and document, however, would be much more difficult—law professor Eric Goldman has estimated that it would take 30 minutes to hear the entire terms and conditions.)

If courts would find a revised arbitration agreement to be enforceable, it is likely that they would also enforce the class-action waiver as part of that agreement. The Supreme Court’s 2013 decision in American Express Co. v. Italian Colors Restaurant enforced an arbitration clause including a class-action waiver, stating that “antitrust law does not guarantee an affordable procedural path to the vindication of every claim.”

At least at the federal level, class actions are likely to be increasingly harder to sustain. Congress is currently considering a bill to restrict class actions even further. It has passed the House of Representatives and is currently pending in the Senate. If passed, H.R. 985, the “Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017,” would likely sound the death knell for negative-claim consumer class actions by delaying class certification until counsel and demonstrate “a reliable and administratively feasible mechanism . . . for distributing to a substantial majority of class members any monetary relief secured for the class.” But because of the small amounts involved in typical consumer class actions—often, as here, perhaps $25–$100 per person in damages—it is impossible to publicize the class and identify the victims “until there is money to be claimed.”

Without the ability to proceed in a class action, few consumer claims against prison telecommunications will be economically viable, and litigation becomes a much weaker tool to enforce legal rights. Damages, after all, are likely to be in the tens to hundreds of dollars—in many cases less even than the cost of a single hour of attorney time at average billing rates. As a result, the combination of mandatory arbitration and waiver of class-action remedies could act as an effective exculpatory clause.

Conclusion
Access to affordable telecommunications services in prison continues to be an ongoing challenge. Although the Third Circuit recently allowed plaintiffs challenging rates charged by service providers in New Jersey to avoid arbitration (and associated class-action waiver), the court’s ruling was very narrow, relying on the fact that the recorded telephone disclosure did not explicitly inform consumers that continued use of the service would constitute acceptance of the defendant’s terms of use. The court’s logic suggests that minor modifications in the defendants’ disclosure practices could render the provision enforceable.

If future changes to the defendants’ disclosure practices do in fact render the agreement enforceable, it will become very difficult to challenge the defendants’ rate practices through litigation. An arbitration clause that waives class actions functions as an exculpatory clause in small-claim consumer litigation because any one claim is not large enough to be economically able to sue individually.

The problem is acute in prison communications litigation because there are few other options for prisoners to keep in touch with loved ones. Letters lack the same immediacy. In-person visits may be financially impartible when people are imprisoned far away from loved ones. Access to phone calls becomes vitally important to inmates, and the loss of such contact is felt especially keenly.

One possibility for future litigation, suggested by a recent student note in the Boston University Law Review, may be to bring a claim against the state itself, arguing that exorbitant prison telephone charges arising from state commissions preclude prisoners from exercising their First Amendment rights.

Another possibility is the continuation of regulatory activity. Even though the FCC has stepped back from its initial regulation, states may be in a better position to act on in-state rates. Regulation can be helpful in lowering costs and improving access, and regulatory authorities are not bound by arbitration clauses or class-action waivers. On the other hand, however, regulatory authorities are overburdened, and local authorities have to weigh the cost of giving up payments from monopoly providers.

In spite of these regulatory challenges, the state of New Jersey provides an excellent example of what states can do if they are willing to take action to protect prisoners’ communication. The state has abandoned attempts to obtain revenue from monopoly providers of prison telecom services. “The state ended prison phone kickbacks in 2015, two years after the class-action lawsuit against GTL was filed, resulting in the lower rates.” New Jersey now has among the lowest rates in the nation, and the 15-minute phone call that once cost as much as $15.00 after fees now costs less than a dollar.

_{Cassandra Burke Robertson is a professor of law and director of the Center for Professional Ethics at Case Western Reserve University School of Law.}

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