Sprint Termination-Fee Settlement Rejected on Appeal

Sprint Nextel Corp.’s $17.5 million settlement over early termination fees was vacated by a U.S. appeals court that said the agreement didn’t adequately protect class members who didn’t sue.

Five Sprint customers sued in November 2007 alleging that flat-rate early termination fees, or ETFs, of as much as $200 charged by the mobile-phone company were illegal and violated state consumer-protection laws.

The parties reached a settlement in December 2008, and a trial judge approved the accord in January 2010 after overruling objections from several class members. The lower court erred in its decision, a three-member panel of the U.S. Court of Appeals in Philadelphia said in a ruling today.

“With full appreciation for the considerable efforts that have been invested in the settlement of this class action, we emphasize again the judicial duty to act as the guardian of absent class members,” the panel said in its opinion.

The wireless industry has come under increased regulatory scrutiny over fees and contract terms. A survey released by the Federal Communications Commission in 2010 found that one in six customers faced unexpected fees and is unaware of the costs to switch carriers. Sprint, the third-largest U.S. wireless carrier, last year raised its ETF for smartphones to $350 after similar increases by Verizon Communications Inc. and AT&T Inc.

Sprint Settlement

Under the settlement reached in 2008, Sprint agreed to pay $14 million in cash and $3.5 million in activation-fee waivers, bonus minutes and credit forgiveness. The company also agreed not to include flat-rate ETFs in new fixed-term subscriber agreements for two years, starting Jan. 1, 2009.

Objectors argued that the settlement terms were weak and the plaintiff representatives were inadequate, as none of them were current subscribers subject to the illegal ETFs at the time the agreement was executed, the appeals panel said.

“Although we remand to the district court to further address the notice issues, we also suggest that the court consider again whether the class representatives can adequately represent all class members,” the panel said.

“Sprint is reviewing the opinion at this time to consider appropriate next steps and we are not commenting beyond that,” Stephanie Vinge Walsh, a spokeswoman for Overland Park, Kansas-based Sprint, said in an e-mailed statement.

The case is Larson v. AT&T Mobility LLC, 10-1285, U.S. Court of Appeals for the Third Circuit (Philadelphia)

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