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May 4th, 2005 Zach Dundas | News Stories
 

One Woman's Qwest

How Jennifer Palmquist brought down the Roaming Empire.

     
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One sunny spring day in 2001, Jennifer Palmquist stepped out of the downtown Borders and whipped out her cell phone.

Palmquist, a lawyer, dialed her secretary on the 11th floor of a granite-and-glass office tower less than a block away. The conversation lasted a minute or two.

A few weeks later, Palmquist checked her Qwest bill.

She knew she hadn't made calls from outside her home coverage area, Portland, and she hadn't exceeded the free minutes her plan allowed. Yet here was that call to her secretary-Palmquist recognized the number, date and time-with a charge for "roaming."

Less than a block away, and Qwest wanted 30 cents a minute?

Roaming, of course, is that nagging charge many cell-phone users pay when they stray outside their home coverage area. Palmquist was steamed. "My home area was Portland," she says. "I didn't go anywhere."

Palmquist decided to call Qwest and raise hell. She just had no idea how much.

This week, thanks to Palmquist, about 120,000 Oregonians-mostly Portlanders-will receive a four-page legal notice in the mail, addressed to "CUSTOMERS OF QWEST AND US WEST WIRELESS/CELLULAR SERVICE." They may also have noticed a quarter-page ad in last Sunday's Oregonian. The notice and ad announce that Qwest is settling a class-action suit, brought by Palmquist on behalf of the telecom goliath's Oregon cell customers.

According to court documents, the settlement could total between $15 million and $20 million. The final amount depends on how many people fill out the claim form with the postal notice.

Some will reclaim just a few dollars, while others will get thousands. No matter how high the total tab, it will be little more than a rounding error for Qwest, which until last Monday was bidding to buy rival MCI for $9.9 billion.

Even so, Palmquist's victory over Qwest (the company isn't admitting wrongdoing, but is surrendering after three years of expensive court battles) sheds a disturbing light on the lightly regulated cell industry. And with Republicans, from George W. Bush down to Oregon's own Kevin Mannix, pushing to eliminate business regulations and limit lawsuits, her saga provides a glimpse of how consumers-even the savviest-might fare in a market without watchdogs.

Palmquist and Christine Tracey, the 50-year-old aerospace-engineer-turned-lawyer who rode shotgun on the case, took career-sized risks to fight Qwest. They left steady jobs, raided their retirement accounts and even picked a fight with their former firm. All over roaming charges. Not exactly Erin Brockovich material, maybe-Palmquist didn't wrestle industrial polluters to the ground. She did, however, take aim at one little nick in what increasingly seems a death by a thousand cuts inflicted on consumers. In the age of the micro-ripoff, your long, confusing bill from Company X may or may not contain a "mistake," which may or may not be intentional.

"My guess is there are lots of overcharges to consumers in lots of areas, in various ways," Palmquist says. "And if it's five dollars or fifty cents or whatever, are you gonna get on the phone and call them? No. You're going to do absolutely nothing."

Palmquist, however, was the wrong woman to mess with.

Halloween 2001. Cheryl Ettlin, a rusty-haired, button-nosed mom who runs a daycare in her outer Southeast Portland home, calls Qwest.

Like Palmquist months before, Ettlin is upset about roaming charges she thinks are bogus. She also wants to ask Qwest about arbitration, the private dispute-resolution process required by the company's contract terms.

Ettlin's conversation with "Brandon"-reconstructed from a court deposition-turns out not to be a great moment in the history of customer service.

BRANDON: You'll need an attorney.

CHERYL: Well, who should my attorney contact?

BRANDON: Our attorney.

CHERYL: Do you have a number for your attorney?

BRANDON: That's your attorney's responsibility.

CHERYL: How much does arbitration cost?

BRANDON: Don't know. Never had to deal with it.

CHERYL: Can I speak to your supervisor?

BRANDON: There's no one above me.

CHERYL: It must be nice to be at the top.

Cheryl Ettlin had been dealing with this kind of thing for months. She and her husband, Kurt, a Freightliner forklift driver, started having problems with Qwest as soon as they got their cell phone in April 2001.

Fed up, she called the Oregon Public Utility Commission, which regulates power companies, landline telephones and other services. A PUC rep told Ettlin he couldn't do anything, because the commission doesn't regulate cell phones. He added, though, that a lawyer named Palmquist was looking into the same thing.

"I wasn't out there to sue anyone," Ettlin, 43, says. In her living room, toys are neatly shelved beneath a sign that commands, THOU SHALT NOT WHINE. "I mean, it's not even in my realm. But you don't treat people like that."

Palmquist had informed Qwest of her intent to sue on July 25, 2001. When she met Cheryl Ettlin, she knew the no-guff daycare mom and her husband would make great "class plaintiffs," representatives of the thousands affected by a potential class action. (The lawyer also recruited a Portland roofer, a dental hygenist and a retired state cop from Salem.)

With plaintiffs straight from blue-collar central casting and evidence in the form of Qwest's own bills, Palmquist figured she had a solid class-action case. She persuaded her firm, Garvey Schubert Barer, to take on the battle.

Under Oregon law, a company can avoid class action by remedying problems within 30 days of learning about an impending suit. Palmquist figured Qwest would do it. Qwest, however, does not go down easy.

Qwest Communications, despite its nonsensical name and blandly futuristic slogan ("Ride the Light"), traces its lineage to some of recent American capitalism's most colorful episodes.

Philip Anschutz, the company's founder, made his wad in the wildcat oil fields of Wyoming and Utah in the '60s and '70s. After selling off his biggest strike in 1982, Anschutz bought railroads, eventually merging Southern Pacific and Union Pacific. The railroads came with a 100-year-old bonus: generous right-of-way privileges the federal government handed their robber-baron founders in the 19th century.

Anschutz laid Qwest's fiber-optic foundations along the rail routes. In 2000, Qwest bought out US West, picking up more than 60 percent of Oregon's landline customers.

As befits roots that combine the Wild West with the Dallas era, Qwest has never lacked for chutzpah. Neither the company nor its officers are strangers to legal complications.

For instance, in late 2001, at the same time Palmquist was preparing her class-action case, Qwest withheld more than $8 million in fees it owed Oregon cities for laying cable along their streets. (According to Portland officials, it was the only utility to do so.) The company's dispute with Portland is still simmering in federal appeals court.

In 2002, Oregon's attorney general, Hardy Myers, wrapped up a 22-month investigation of Qwest billing practices by reaching a $575,000 settlement with the company. Myers' investigation had nothing to do with roaming charges, or cell phones for that matter. Instead, Oregon accused Qwest of "cramming" unwanted services onto landline accounts. The company paid up, again without admitting wrongdoing.

And last month, even as Qwest pushed its MCI bid, the federal Securities and Exchange Commission sued several Qwest execs for allegedly concealing the origins of $3 billion in revenue.

As extensive as Qwest's legal history is, the whole cell-phone industry is rife with consumer gripes and legal action. Cingular and T-Mobile face California suits over billing practices and service. This year, Oregon AG Myers forced Verizon, Cingular and Sprint to agree to "provide accurate coverage maps to customers," among other service pledges.

Industry critics say the strife is symptomatic of a business growing fast in a regulatory vacuum.

In each state, landline services are governed by a utility commission charged with safeguarding consumers. Cell calls, on the other hand, are considered interstate transactions and fall under the Federal Communications Commission.

Critics say the FCC's rules are much less stringent and consumer-oriented than state regulations. State legislatures can make rules on billing and marketing, and their attorneys general can go after wrongdoing. In practice, though, consumer advocates say cell-phone companies operate in pirate waters.

"The wireless guys say the free market will protect consumers," says Lawrence Markey, a lawyer with the Foundation for Taxpayer and Consumer Rights. "Sure, competition works to lower prices. But for all these little things that go on in the background, it doesn't work at all."

The first big courtroom test for Palmquist's case came over the issue of arbitration.

When Qwest cell-phone customers signed up for service, the company mailed them a ready-to-use phone with a user's guide. Deep in the guide-after directions on setting up voicemail and sending text messages-lay several pages of fine print, which the company called a contract.

The contract included an arbitration clause, a requirement that all disputes be settled out of court, in a private hearing. According to the language, Qwest would choose the time, place and arbitrator; the customer would pick up the $250 tab.

Arbitration originated to give businesses a cheaper, more efficient way to settle beefs with other businesses. In recent years, however, arbitration clauses have become standard operating procedure in many industries that deal with the public.

"They are incredibly widespread," says F. Paul Bland, a Washington, D.C.-based lawyer who successfully sued AT&T over its arbitration clause in California in 2001. "The 10 biggest credit-card companies have them. The majority of cars sold now come with them. Most HMOs and banks have them."

Qwest's first move against Palmquist was a motion asking Multnomah County Circuit Court Judge Jerome LaBarre to throw out the case. After all, didn't the arbitration clause put lawsuits off-limits?

LaBarre stuffed the motion back down Qwest's throat. "I can't help but comment that Qwest is on very weak ground indeed," LaBarre said in a spring 2002 ruling. "I don't agree that any such offer was communicated, nor do I agree that there was acceptance." In short, the judge decided Qwest's automatic contract was invalid. The case would continue.

With her first big victory sealed, Palmquist says she went into the summer of 2002 "elated." She had just one problem: She and the firm she worked for were cruising for a bad divorce.

Palmquist doesn't go quite so far as to say that she went after Qwest because she was seeking some kind of karmic redemption. Still, it's not like she'd spent her career fighting for the little guy.

"I've spent most of my life defending corporations," she says. "Usually, I've gotten 'em off."

As a young lawyer in the '80s, Palmquist cut her teeth defending insurance companies and helping lenders get their money from bankrupt corporations. After joining Garvey Schubert Barer in 1996, she defended Taco Bell against claims it screwed Oregon chalupa-slingers out of overtime. She successfully defended Transamerica in a multimillion-dollar suit. At the time she made her fateful cell call to her secretary, she was representing Snap-On Tools against distributors of its auto-repair manuals.

While the Qwest case marked a departure for Palmquist, it was also unusual for her firm. Though Garvey has done public-interest work, it often defends corporations against class-action suits.

Shortly after LaBarre decided the Qwest case's first skirmish for the plaintiffs, things turned sour between Palmquist and Garvey Schubert. The two sides' accounts of what happened, to put it mildly, diverge.

In court documents, Garvey contends that Palmquist deviated from the agreed-upon battle plan, grew hostile and then maneuvered to take the case away.

Palmquist, for her part, insists that Garvey, facing the post-9/11 recession and the possibility that a class action would make no money at all, panicked and ordered her to drop the case. Palmquist says she faced three choices in the summer of 2002, each unappetizing in its own way. She could give the case to another firm-assuming she could find one to take it. She could let the case die. Or she could ditch her steady salary at Garvey and take it on herself.

"I had to make the decision quickly," she says. "Being a partner in a firm is very cushy-it's sort of like having tenure. I have two adopted boys and my daughter's student loans. All my friends are in big firms."

In August 2002, she took the plunge. She split, taking the Qwest case with her. Palmquist, who is now 56, had never practiced on her own. She says she barely knew how to operate a computer, let alone run a business.

Somehow, though, she couldn't let this one go.

"It was stupid," Palmquist says now. "But I went to these homes. I asked them to trust me. Met their families. Talked to the dog." Her altruism received a boost, of course, from the fact that if she won, the payday would probably be large.

She ordered a computer from Dell and rented a small office just five floors below Garvey's digs. She made sure her lease gave her the option to leave on 30 days' notice.

"I was like, 'Holy crap,'" she says now. "White with fear, basically. At that point, I have no money. I have no husband. I have kids, one of whom is 10 at the time, one of whom is in college. I have a house, which I guess I could have sold. I have a 401(k)."

A couple months later, she gained an ally. Christine Tracey had worked at Garvey Schubert for just one year after finishing at the top of her law-school class at Lewis & Clark College. An MIT-trained engineer who built helicopters before her midlife switch to law, Tracey held a position at the firm more often occupied by twentysomethings.

"They didn't really seem to know what to do with me," Tracey says. "After Jennifer left, I realized it wasn't a fit anymore."

"I had a lot of anxiety for the first few months," Tracey continues. "Then I realized that there's only a 10 percent penalty for withdrawing money from your IRA. Fortunately, I had an IRA, because I'd worked for 22 years."

Today, Palmquist and Tracey operate out of two little offices tucked into a warren of corridors and cubicles. Palmquist's desk is a jumble: papers, famous-quotation books, knickknacks, a Starbucks cup, an empty juice can. Tracey wears button-up cardigans and slip-on sport clogs around the office.

This down-home operation faced a legal juggernaut in the form of Perkins Coie, one of Portland's more prestigious law firms. Perkins dispatched battalions of partners, associates, specialists and paralegals on Qwest's behalf. In their hunt for evidence, Palmquist and Tracy often trooped to Perkins Coie's offices-sleek quarters atop the Pearl District's Brewery Blocks-to wade through vast mounds of subpoenaed documents.

Early in 2004, Palmquist and Tracey discovered that Qwest was systematically erasing customer bills, the case's most crucial evidence, from its searchable computer databases.

Qwest claimed that the bills still existed-though only in the form of raw data. A computer forensics expert would have to reconstruct the purged databases, one bill at a time.

Last June, LaBarre again took Qwest to the woodshed. He ordered the company to pay for the bills' reconstruction.

"I'm ordering that Qwest cease purging electronic data," LaBarre says in transcripts. "[P]laintiffs have been blindfolded...and it's time that blindfold comes off."

LaBarre also ruled that punitive damages would be possible during the case's impending trial. Qwest faced the prospect that a jury would hear-for example-that it had continued to hit Portlanders with questionable roaming charges for two years after it stopped that practice in Phoenix, under pressure from the Arizona AG. It would have to pay Palmquist's computer expert a six-figure fee to rebuild its own bills. With its MCI bid in the offing (and other class-action suits, including some brought by its own shareholders, pending) the company had pressing business elsewhere.

Last fall, Qwest caved, offering to settle-and for real money, rather than giving discounts or coupons, as often happens in class-action settlements.

"I looked at other suits against cell-phone companies, and for the most part, people took these dinky little settlements," Palmquist says. "We'd been very firm in saying, 'You took our money-give it back.' There were millions in wrongful charges. It was enormously grave.

"Of course, we were totally thrilled."

While Palmquist's huge group of clients will split between $15 million and $20 million, Qwest seperately agreed to pay Palmquist and Tracey fees amounting to just over $2 million. In an additional complication to the case, Garvey Schubert Barer wants a piece of the action; Palmquist's old firm says it's owed for 1,500 hours of work and other expenses totaling more than $430,000. If the firm and Palmquist can't settle the dispute, LaBarre will rule on the demand.

(Garvey declined to comment on its parting with Palmquist, beyond noting that it has disputed her version of events in its court filings.)

Palmquist's clients should get their money starting this summer. The Ettlins, because they served as representative plaintiffs, will get a premium payoff, as much as $8,000. Cheryl Ettlin says the couple may join a group of friends on a cruise to celebrate their 25th wedding anniversary if the cash comes through on time.

Interestingly, Palmquist is convinced the case could be one of the last of its kind. A new federal law ("The Class Action Fairness Act"), signed in February by President George W. Bush, makes it much harder to bring class-action suits in state courts. Instead, the law gives federal courts automatic jurisdiction over cases in which plaintiffs sue an out-of-state corporation for more than $5 million.

"This case could not be brought today," Palmquist says. "Federal court is extremely expensive-it is really the exclusive realm of big, corporate firms. We could not have done this case with just a couple of lawyers in federal court."

RIPOFF WATCH!

Measures cell-phone customers can take to avoid getting taken.

In the underregulated cell-phone biz, it's every consumer for him/herself.

"Of course I tell people to read their contracts, but it almost doesn't matter," says Lawrence Markey, a lawyer with the Foundation for Taxpayer and Consumer Rights. "They're incomprehensible even to most lawyers."

Markey and other consumer advocates do offer a few tips on dealing with the wireless titans. Some of it is common sense, such as asking others if a particular service works well in areas where you spend most of your time. In other cases, there are specific tactics to use-and gotchas to watch out for.

WHEN YOU SIGN YOUR CONTRACT, KNOW YOUR RIGHTS

Oregon, along with many other states, has been trying to force cell companies to abide by some basic rules of user-friendliness. In February, Oregon got Verizon, Cingular and Sprint to guarantee the accuracy of their coverage maps and let dissatisfied customers out of their contracts within 14 days of activation. Though cell phones are basically outside the Oregon Public Utility Commission's jurisdiction, the PUC tracking complaints for the attorney general.

Be warned: Even limited protections may not last long. The FCC is trying to pre-empt all state cell regs.

WATCH YOUR FIRST-MONTH MINUTES

Sure, you signed up for 300 minutes a month. But most cell companies pro-rate first-month minutes based on their own billing cycle. Say, for example, you get a new phone, and the provider's billing cycle ends just two days later. That means you only get 20 minutes on your 300-minute monthly plan for that "first month"-and could be headed for a walloping "overage" charge.

ERR ON THE SIDE OF PAYING MORE UP FRONT

Cell companies usually charge more for shorter contracts. Consumer advocates say it's worth it to pay more for a shorter commitment. If service goes south in a year-and remember that cell contracts provide the company maximum flexibility to change terms, coverage areas and services-you can escape without a punitive deactivation fee. And given a choice, opt to pay a little more for higher monthly minute limits. Most cell companies round up when you finish a call-if you talked for 61 seconds, you'll be billed for two minutes. All those unused seconds quickly add up.

DON'T SET UP AUTOPAY

It seems convenient. But remember that if you are hit with improper charges, you stand the proverbial snowball's chance in Hades of recovering cash that your cell company already pocketed. Don't let them automatically ding your credit or debit card.

WATCH 'EM LIKE A HAWK

Did your provider extend your contract without telling you? Are they billing you for the plan you signed up for, or did they unilaterally switch you? Did they redefine "peak" and "off-peak" hours, affecting how your minutes are tabulated? Are they giving you the free minutes on holidays they promised? -ZD


In addition to his interest in Qwest, Philip Anschutz owns: * five of the 12 teams in Major League Soccer. * the nation's finest collection of Western art. * the Examiner newspapers in San Francisco and Washington, D.C., and rights to the Examiner name in 60 other cities. * the Anschutz Film Group, which is producing the highly anticipated film adaptation of C.S. Lewis' The Lion, the Witch and the Wardrobe.

Information on Qwest's history and Anschutz is adapted from a profile of Anschutz by Ross Douthat published in the May 2005 issue of The Atlantic Monthly, as well as other media reports.

In 2002, Forbes magazine called Anschutz the "greediest executive" in America. He has not given an interview since 1974.

In 2002, New York Attorney General Eliot Spitzer sued Anschutz, accusing him of improper stock trades. Anschutz settled-without admitting wrongdoing-for $4.4 million.

In F. Paul Bland's case Ting v. AT&T, a federal judge ruled that AT&T's arbitration clause was invalid. Because Multnomah County's LaBarre ruled that Qwest's entire contract was invalid, he did not rule on the arbitration clause itself.

Jennifer Palmquist drives a 1991 Volvo.

In court transcripts, Palmquist cites sealed evidence that Qwest doubled its Oregon roaming rate from 30 cents a minute to 60 cents a minute after internal memos questioned why the company was charging roaming for calls in home coverage areas.

Last month, Blockbuster moved a Portland class-action suit regarding its "No More Late Fees" policy from state court to federal court, taking advantage of the new federal law.

 
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