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Lawsuit Targets Sprint Termination Fees

A $1.2 billion federal class action suit has been filed against Sprint Nextel, claiming the wireless carrier's termination fees violate the Federal Communications Act as well as statutory law in all 50 states.

The legal action follows a similar California court case against Sprint filed by the same attorney, Scott Bursor, this past summer. In July, a jury in Superior Court of California, County of Alameda, found that Sprint's termination fees were justified, but the court judge then overruled the jury finding. The judge ordered Sprint to refund $73 million to about 1.9 million customers who were charged contract termination fees, ranging from $150 to $200, on or before March 17, 2007.

Sprint has filed a formal objection, which is not a formal appeal, to overturn the judge's decision.

"The jury found in our favor; however, the judge issued a preliminary ruling that was opposite of the jury decision. We are now awaiting the final ruling," a Sprint spokesperson told InternetNews.com.

The new federal legal action comes as Sprint braces against increasing market challenges and preps to present its third quarter earnings on Friday. CEO Dan Hesse has had an uphill fight this year to retain market share and customers and has revamped rate plans, instituted sweeping customer service program changes and is even starring in television ads to entice new customers.

On October 31, just two days after the federal lawsuit was filed, Sprint announced it was revising its early termination fee (ETF) policy and implementing a pro-rated sliding scale approach.

The fee to end a two-year contract early is $200 if done before six months time. The fee then decreases by $10 each month after that point. After nine months the ETF is $100 and could drop as low as $50 before a contract term expires, according to Sprint. The new policy applies to all new service agreements for both new and existing customers as of November 2, 2008.

Bursor told InternetNews.com he believes Sprint took the policy action as a direct result of the California court action, and he is confident the California ruling will stand and that the federal case will succeed.

"We proved that Sprint Nextel's termination fees violated California law," said Bursor in a statement.

"We proved that the fees were established as an arbitrary penalty to try to prevent dissatisfied customers from leaving. Now we will prove that the fees violate federal law as well." Bursor said the federal court case impact about 10 million customers nationwide.