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Much of a proposed class action suit against AT&T Wireless — claims alleging that the cellular telephone service breached its contract with subscribers by failing to provide reliable service — has been thrown out of a New York state court by a Manhattan judge as preempted by federal law. But the plaintiffs’ claims asserting the company has engaged in deceptive business practices and false advertising will go forward, the judge has ruled. Ruling last week in Naevus International Inc. v. AT&T Corp., 99-602191, filed in Supreme Court, New York County, Justice Barry A. Cozier rejected AT&T’s argument that all claims, including those for consumer fraud and common law fraud, should be preempted by the Federal Communications Act because the plaintiffs’ request for damages would result in rate regulation, as it would require the court to determine the value of the services received by the plaintiffs. The suit was filed in May 1999 by Naevus International, a New Jersey-based company. Naevus claimed that AT&T’s heavily advertised “Digital One Rate,” which gave subscribers blocks of calling time for a flat rate while eliminating long-distance charges and roaming fees for leaving the caller’s home area, was so unreliable that its employees could not use their cell phones to do business. Naevus and a proposed class of subscribers alleged breach of contract, common law fraud and violations of New York’s General Business Law �349 (deceptive business practices) and �350 (false advertising). Justice Cozier agreed that the breach of contract claims were preempted in state court. “Inasmuch as the function of preemption is to establish uniformity of rates and equality of services among communications companies, a claim for breach of contract with regard to the rates charged or the level of service received must be preempted,” the judge wrote. “If, as plaintiffs suggest, state courts are permitted to award compensatory damages to dissatisfied customers, then entities other than the Federal Communications Commission and the federal courts could determine the monetary value of services already received by customers and thereby regulate what can be charged for the levels of services complained of. Standardization of rates and services would no longer exist,” he added. The plaintiffs’ consumer and common law fraud claims were not preempted by the federal law, the judge continued. But the action for common law fraud was too closely linked to the breach of contract claim, and was therefore dismissed for failure to state a cause of action, he said. Unlike a Superior Court judge in New Jersey who last month ruled in AT&T’s favor in an unpublished opinion that all state law claims should be preempted, Justice Cozier said there was “substantial federal and state authority denying preemption” for the consumer fraud claims. He found the Naevus International complaint had sufficiently alleged details to sustain a claim under GBL �349. “[D]espite their knowledge of the problems besetting the [Digital One Rate] service, defendants continued to promote, market and advertise the DOR service, encouraging ever more consumers to subscribe,” the judge quoted from the complaint. Similarly, he allowed the false advertising claim under GBL �350 to go forward based on AT&T’s alleged characterization of its service as “revolutionary,” “unparalleled,” reliable, powerful and with “technology to stimulate top-line growth.”

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