Md. Court: AT&T, Cricket Deceived Consumers on CDMA Shutdown

Cricket Wireless violated Maryland’s Consumer Protection Act (CPA) before and after its 2014 acquisition by AT&T by not disclosing the CDMA wireless network’s imminent shutdown, the Appellate Court of Maryland ruled Tuesday (case 416, September 2022 term). The court disagreed with a lower court reversing the Maryland attorney general's consumer protection division (CPD) finding of a pre-merger violation, while rejecting AT&T’s appeal of a post-merger violation.

“We are disappointed by the ruling and are considering our options,” an AT&T spokesperson said Wednesday.

The Maryland CPD took administration action against Cricket and AT&T in 2020, alleging the companies engaged in unfair and deceptive trade practices between July 2013 and April 2015. The division claimed the companies violated the CPA by selling cellphones to consumers without disclosing they wouldn't work after the companies completed a plan to terminate the CDMA network after their combination. The CPD's final order said Cricket violated the CPA prior to merger by not informing customers about the planned decommissioning, and afterward by failing to make clear disclosures. The CPD issued a cease-and-desist order and required the companies to pay restitution to certain consumers and a $3.25 million civil penalty.

On the companies’ appeal, the Circuit Court for Baltimore City reversed the CPD's finding that the companies violated the CPA pre-merger but affirmed a post-merger violation. And the circuit court said CPD failed to give the companies an opportunity to present evidence on penalties and remedies, remanding to the division to hold a hearing on that issue. The CPD appealed and the companies cross-appealed to the state appellate court.

“Cricket’s pre-merger actions did give rise to a viable CPA claim that was not preempted by federal antitrust law,” wrote Judge James Kenney, specially assigned for the appellate court. He was joined in the opinion by Judge Andrea Leahy and now-retired Judge Christopher Kehoe.

The companies' "plan to decommission the CDMA network was not immaterial as a matter of law,” said Kenney. “And it was reasonable to find that in deciding whether to purchase a CDMA-only phone, a significant number of unsophisticated consumers would have attached importance to the Companies’ plan to decommission the CDMA network because it would render the purchased phones inoperable.”

The court disagreed with the companies’ argument that, since the plan was contingent on FCC approval, “Cricket had no control over whether the plan came to fruition and that a statement regarding future events over which the declarant has no control cannot be considered material and disclosures cannot be required." Cricket controlled entering into the pact “that contemplated shutting down the CDMA network if approved by the FCC,” Kenney wrote. “Disclosure presented a risk of lost sales, but it also provided meaningful information to a potential purchaser.”

The court disagreed that companies would have violated U.S. antitrust laws by disclosing the plan before the merger. "There is no evidence or allegation of concerted action or that the merger agreement or any other agreement between them required or encouraged the denial of information to Cricket’s pre-merger customers about the planned decommissioning of the CDMA network,” wrote Kenney. “That appears to have been a wholly unilateral action to reduce inventory.”

The companies "presented no persuasive evidence or argument as to how disclosure would have resulted in a true 'restraint of trade,’” he said. The companies say that disclosure would have caused some consumers to buy AT&T rather than Cricket plans, decreasing Cricket's market share, but that "argument is somewhat undermined" by the companies saying in their FCC filing they aren't close competitors, the judge said. "Moreover, the disclosure, if it were a restraint on trade, would appear to be a restraint that was in the consumer’s best interest and they would still be buying phones in a competitive marketplace. A reduced market share, alone, is … insufficient to trigger an antitrust violation." Requiring Cricket to inform consumers about the CDMA plan couldn’t “reasonably be considered 'gun-jumping' because it would not be a 'collaborative action' in furtherance of the merger process,” he added.

“Substantial evidence” supports the CPD’s determination of a post-merger violation, said the appellate court. The companies disclosed the end of CDMA support through tiny print on small stickers, it noted. It also had disclosures online and in phone salespeople scripts, but few people bought phones in those ways, and online disclosures were difficult to find, said Kenney. "A reasonable mind could have concluded that the disclosures had the capacity, tendency, or effect of deceiving, misleading, or damaging consumers."

Maryland's one-year statute of limitations doesn't apply because the division's CPA action was an administrative action rather than a civil action or prosecution, the court said. "Despite a clear understanding of how and its willingness to do so when it finds it appropriate, the General Assembly has not imposed a limitations period for the CPD’s administrative actions."

The circuit court didn't err in refusing to vacate CPD's cease-and-desist order as moot or overbroad, wrote Kenney. "That there has been no acknowledgment of wrongdoing in this case 'tends to support a conclusion' that the cessation of the determined misconduct was mere happenstance rather than a genuine change of heart.” AT&T seems to ignore its burden to show its "past behavior could not reasonably be expected to recur in order to prove mootness,” said the judge: The carrier can't end the CDMA network again, but it could decommission another wireless network.

The circuit court erred in reversing CPD's remedies and ordering a remand, the appellate court said. The CPD's procedure gave companies a chance to "to provide information regarding what the consumer paid for the CDMA-only phones, the amount of any refund, any credits toward a replacement phone, any amount received for the replacement phone "or any replacement phone received for free,” said Kenney. The CPD considered "in some detail" the CPA's five factors for setting the penalty, he said.

The division "found the violations to be severe because both before and after the merger the Companies were aware that with the CDMA network shutdown, the phones were 'practically worthless,'” the judge said. “The omission of that shutdown harmed consumers financially and benefited the Companies in the sell-off of the CDMA-only inventory." He noted trade-in credits didn't "negate the severity of the violations because they were mandated by the FCC and were not offered until notice of the shutdown.”