Yesterday, the United States Court of Appeals for the Ninth Circuit asked the Washington Supreme Court to clarify whether Washington state law treats early termination fees assessed by Clearwire US LLC as an alternative performance provision or as liquidated damages for its wireless Internet and telephone services. In other words are we comparing apples to apples.
Get it. Washington state. Apples….okay. Bad joke.
But I needed some type of stimulant to get me through the quick refresher on liquidated damages that I had to put myself through.
Bottom line, the plaintiffs are arguing that Clearwire’s early termination fees are invalid liquidated damages clauses because they act to penalize subscribers for terminating their wireless service contracts early versus merely bringing into balance the expectations both parties had in terms of service and fees received.
The appellate court admitted that the outcome of the current case was “unclear” under Washington case law.
Washington state law lays out a three-pronged test for determining whether a termination clause is invalid as a penalty. First, damages must be a reasonable forecast of just compensation for the breach that may occur. Second, damages caused by the breach must be incapable or very difficult to determine with an accurate estimation. Finally, there is a substantial deposit and the actual loss is minimal or nonexistent.
With this recitation of the law by the appellate court, it sounded more like a remand versus just a clarification question. I can’t predict what the outcome is going to be, but it sounds like Clearwire may be rewriting its clauses in order to avoid the expense of taking another bite at this litigation apple.
Yeah, yeah. I know. That was bad, too.
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