In a consumer class action against a defendant wireless telephone carrier, The Superior Court of Alameda County of California found early termination fees (ETFs) charged by the carrier to customers terminating service prior to expiration of defined contract periods to be unlawful penalties and granted restitution/damages to the plaintiff class action. The carrier appealed.
Under California law, liquidated damage clauses in consumer contracts are presumed void, and the burden is on the advocator of the clause to rebut that presumption. Decisions interpreting this statute have created a two-part test for determining whether a liquidated damage provision is valid: 1) fixing the amount of actual damage must be impractical or extremely difficult, and 2) the amount selected must represent a reasonable endeavor to estimate fair compensation for the loss sustained. Absent either of these elements, a liquidated damage provision is void.