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          IN THE SUPREME COURT OF THE STATE OF WASHINGTON

CERTIFICATION FROM THE UNITED                       )
STATES COURT OF APPEALS FOR THE                     )                 No. 85810-1
NINTH CIRCUIT                                       )
       IN                                           )                   En Banc
CHAD MINNICK, LINDA STEPHENSON,                     )
DONALD SCHULTZ, STEPHEN                             )
REIMERS, COREY JELINSKI, VICTORIA                   )
BARTLEY, CHRISTOPHER CUHEL,                         )
KAREN GREFSRUD, RITA MCVICKER,                      )
JOSH KELLER, GLENN REYNOLDS, and                    )
EVA GIROD, on behalf of themselves and              )
all those similarly situated,                       )
                                                    )
                      Plaintiffs-Appellants,        )
                                                    )
       v.                                           )
                                                    )
CLEARWIRE US LLC, and DOES 1                        )
through 10,                                         )
                                                    )             Filed  May 3, 2012
                      Defendants-Appellees.         )
                                                    )

       OWENS, J.  --  The United States Court of Appeals for the Ninth Circuit 

certified the following question:

              Does Washington law treat the [early termination fee] at issue in 
       this case as an alternative performance provision, or as a liquidated 
       damages clause? 

Minnick v. Clearwire US LLC
No. 85810-1

Minnick v. Clearwire US LLC, 636 F.3d 534, 538 (9th Cir. 2011) (hereinafter Order).  

This question is important because a liquidated damages provision is subject to a

penalty analysis that an alternative performance provision avoids.  The early 

termination fee (ETF) is a provision in a fixed-term telecommunications contract that 

charges customers a fee for terminating their contracts prematurely.  Because the ETF, 

at the time of contracting, provided customers with a "real option" and was of 

relatively equal value with the alternative option of fulfilling the contract, we hold that 

it is an alternative performance provision and not a liquidated damages clause.

                                facts and procedural history

       Clearwire provided wireless Internet and telephone services to the 12

subscribers (Appellants) who brought this case.  Clearwire allows its users to access 

the Internet at broadband speeds from anywhere in the Clearwire coverage area simply 

by plugging in a wireless modem.

       When signing up for this service, Clearwire's customers can choose between a 

month-to-month contract with no obligations beyond the monthly subscription charge 

and a fixed-term contract that has a discounted monthly subscription charge.  

Appellants all chose the fixed-term contract, for either one or two years.  Those 

contracts allowed Appellants to cancel their subscription early by paying an ETF.  The 

amount of the ETF varied depending on when the customer signed up and on whether 

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the customer selected a one- or two-year contract.  For customers who signed up 

before March 7, 2007, Clearwire charged a flat ETF of $180.  For customers who 

signed up on or after March 7, 2007, Clearwire charged a diminishing ETF.  The ETF 

started at $220 and was reduced by $5 for each month thereafter under a two-year 

contract or $10 for each month under a one-year contract.  As for customers under the 

"'Clear'" brand (as opposed to the "'Clearwire'" brand), the ETF was $120 less $4 for 

each month thereafter.  Id.

       Consequently, depending on how much time is left on the contract, canceling 

early may cost more or less than the sum of the remaining monthly payments.  Under 

the $120 ETF, the customer always saves more money by canceling early because the 

ETF is always less than the sum of the remaining monthly payments.  For the $220 

ETF that decreases by $5 a month, the ETF is greater than the remaining payments 

only in the last three months.  The $180 flat ETF is greater than the remaining 

payments only during the last four months.

       Appellants are all customers who either incurred this ETF for canceling early or 

were threatened with this ETF for attempting to cancel early.  For example, Chad 

Minnick incurred the ETF after informing Clearwire that he was canceling his 

subscription early.  Similarly, Donald Schultz initially tried to cancel his service but 

refrained upon learning he would be responsible for the ETF.  Eventually, Schultz 

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No. 85810-1

canceled anyway and paid the ETF when he moved outside of Clearwire's coverage 

area.  In any event, all Appellants were dissatisfied with Clearwire's service, alleging

that instead of the fast and reliable service promised, they received inconsistent and 

painstakingly slow speeds.

       Minnick sued Clearwire in King County Superior Court in April 2009, claiming 

that Clearwire was committing false advertising and was imposing ETFs unlawfully.  

He then filed the first amended complaint in May, which added the other 11 plaintiffs 

through class certification.  In July, Clearwire removed the case to the United States 

District Court for the Western District of Washington where it filed a motion to 

dismiss all of Appellants' claims.  The district court granted Clearwire's motion.

       Appellants then appealed to the United States Court of Appeals for the Ninth 

Circuit, arguing that the ETF was a liquidated damages provision and not an 

alternative performance provision as the trial court found.  The Ninth Circuit believed 

the case involved an unsettled area of state law and certified the following question to 

this court:  "Does Washington law treat the ETF at issue in this case as an alternative 

performance provision, or as a liquidated damages clause?"  Order at 538.1

       We accepted the certified question pursuant to the Federal Court Local Law 

Certificate Procedure Act, chapter 2.60 RCW, and RAP 16.16.

1 It is worth noting that while Appellants spend a portion of their brief alleging fraudulent 
business practices by Clearwire that issue is not before this court.

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No. 85810-1

                                       Issue Presented

       Is Clearwire's ETF an alternative performance provision or a liquidated 

damages provision subject to a penalty analysis?

                                           Analysis

          A.  Standard of Review

       "The decision whether to answer a certified question pursuant to chapter 2.60 

RCW is within the discretion of the court."  Broad v. Mannesmann Anlagenbau, A.G., 

141 Wn.2d 670, 676, 10 P.3d 371 (2000).  This court treats the certified question as a 

pure question of law and reviews it de novo.  See, e.g., Parents Involved in Cmty. Schs. 

v. Seattle Sch. Dist. No. 1, 149 Wn.2d 660, 670, 72 P.3d 151 (2003).

          B.  The ETF Is an Alternative Performance Provision

      To determine whether the ETF is an alternative performance provision or a 

liquidated damages provision, we first analyze the issue under Washington law.  

However, because Washington case law has not specifically addressed ETFs in this 

context, see Chandler v. Doran Co., 44 Wn.2d 396, 267 P.2d 907 (1954); Bellevue 

Sch. Dist. No. 405 v. Bentley, 38 Wn. App. 152, 684 P.2d 793 (1984), we compare our 

analysis with that of other jurisdictions that have.  Finally, we briefly address

Appellants' argument that an alternative performance provision allows the promisee to 

recover only the option that results in the smallest recovery.

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No. 85810-1

                i.    The ETF Is an Alternative Performance Provision under 
                Washington Law

       An alternative contract allows a promisor to render "'one of two or more 

alternative performances either one of which is mutually agreed upon as the bargained-

for . . . exchange for the [other party's] return performance.'"  Chandler, 44 Wn.2d at 

401 (quoting 5 Arthur Linton Corbin, Corbin on Contracts § 1079, at 379 (1951)).  By 

comparison, a liquidated damages provision is a sum of money agreed upon in advance 

that is a reasonable forecast of just compensation for the harm caused by breach.  

Walter Implement, Inc. v. Focht, 107 Wn.2d 553, 559, 730 P.2d 1340 (1987).  If the 

liquidated damages provision is either not a reasonable forecast or if the harm is easy 

to ascertain, then the provision is an unlawful penalty.  Id.  Whether a contract 

provides for alternative performance or for liquidated damages is a question of factual 

interpretation that does not rely upon the form of words used by the parties.  Bentley, 

38 Wn. App. at 155.  The distinguishing factor between the provisions is that the 

parties intended the options to give the promisor a real choice between reasonably 

equivalent choices.  Chandler, 44 Wn.2d at 401.

       This means that at the time fixed for performance either alternative might prove 

more desirable and that the parties did not intend the "device to assure the 

performance of the [other] option."  Id. at 401, 403.  Additional factors to consider are 

"whether the money payment is equivalent to performance of the option, and the 

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Minnick v. Clearwire US LLC
No. 85810-1

relative values of the performances."  Bentley, 38 Wn. App. at 156.  The value of the 

options is determined at the time of contracting and not at the time the option is 

exercised.  Id.  In other words, whether a contract provides for an alternative 

performance or for a liquidated damages provision depends on whether (a) the 

contract gives the promisor a "real option," and (b) there is a reasonable equivalence 

between the two choices.

       Appellants reject this analytical framework, claiming that a true alternative 

performance contract would allow Appellants to choose between paying (1) the 

monthly payments and receiving Clearwire's services for the life of the fixed term or 

(2) the ETF and receiving Clearwire's services for the life of the fixed term.  This is 

incorrect and is not supported by case law.  So long as the ETF is a "'specified 

payment'" that either nullifies the contract or allows Appellants to "'regain the legal 

privilege of not'" performing, then an alternative contract can exist.  Chandler, 44 

Wn.2d at 402 (quoting 5 Corbin, supra, § 1213, at 883, 884); Bentley, 38 Wn. App. at 

155-56 (same).  Thus, despite Appellants' claims otherwise, the framework established 

in Chandler and Bentley applies here.

       Under the Washington framework, the ETF at issue is an alternative 

performance provision and not a liquidated damages provision because the ETF 

provides a real option to Appellants and there is a reasonable equivalence between the 

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Minnick v. Clearwire US LLC
No. 85810-1

two choices.

       Here, a "real option" exists because at the time of contracting, Appellants did 

not know whether they would want to honor the contract for the fixed term or cancel 

early.  A real option exists if either option might prove more desirable and the 

promisor is free to choose either one.  Chandler, 44 Wn.2d at 401; Bentley, 38 Wn. 

App. at 155.  At issue in Bentley was a collective bargaining agreement between a 

teacher and her school.  Id. at 154.  Under the agreement, Bentley received paid 

sabbatical leave but had to repay the sabbatical funds if she chose not to return to work 

afterward.  Id.  The parties disputed whether this requirement was a liquidated 

damages provision or an alternative performance provision.  Id. at 154-55.  The court 

held a real option existed because the teacher did not, at the time of contracting, know 

whether she would need or desire to return to her position.  Id. at 156.  More

importantly, the school could not compel Bentley to choose either option.  Id.  Thus, 

rather than coerce Bentley into returning to her job, the agreement gave her control 

over her future plans by not requiring her to return.  Id.  Similarly in Chandler, a real 

option existed because the defendant had the power to choose between the two 

choices.  44 Wn.2d at 403.  The defendant corporation had agreed to either sell

plaintiff property or to pay plaintiff additional salary.  Id. at 398.  The defendant 

argued that the option of an increased salary was merely a device to enforce the 

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No. 85810-1

property sale.  Id. at 403.  However, the court held that the agreement gave a real 

option because the defendant reserved for itself the ability to choose between paying 

the increased salary or selling the property depending on which one it preferred.  Id.

       Here, Appellants contracted with Clearwire to pay monthly fees for a fixed term 

in exchange for Clearwire's services at a discounted monthly price.  Appellants had 

the option of canceling their contracts early if they paid the ETF.  Similar to the 

teacher's position in Bentley, Appellants did not know whether they would want to 

continue the service in six months or in one year.  As such, Appellants occupied a 

position similar to the defendant in Chandler and the teacher in Bentley who could 

choose between options.  Appellants had a real option of exiting the contract early by 

paying the ETF if they so chose.  Perhaps most importantly, Clearwire, like the school 

in Bentley, could not compel Appellants to choose either option.

       Appellants counter that, unlike the school in Bentley, Clearwire can impose the 

ETF on the promisor in some situations.  Clearwire, in fact, can force a customer to 

pay the ETF if the customer breaches the contract.  However, Appellants' contention 

argues a scenario not before this court because Clearwire did not impose the ETF on 

any plaintiff for breach of contract.  Rather, the only ETFs charged were for canceling 

the contract early, a contingency provided for in the contract allowing a customer to 

regain their freedom from performance.  Thus, the question before us is not whether 

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Minnick v. Clearwire US LLC
No. 85810-1

the ETF is a liquidated damage if unilaterally imposed upon Appellants, but whether 

the ETF is a liquidated damage when charged for canceling the contract.

       Another issue the Appellants raise is the apparent lack of negotiations between 

the parties.  In Chandler, 44 Wn.2d at 403, the parties had conducted extensive 

negotiations while, here, Appellants signed a form contract on line.  Regardless, 

Appellants had an initial option between a month-to-month contract and a fixed-term 

contract. Further, negotiations are not always significant to the analysis as illustrated 

by Bentley, which did not consider them.  38 Wn. App. at 154-56.  Thus, even though 

extensive negotiations did not occur, Appellants still chose the fixed-term contract 

with the ETF over an alternative month-to-month contract.  The lack of negotiations 

does not detract from the real option that existed between the two options.

       Moreover, it is conceivable that even if these contracts were negotiated one at a 

time, customers would still negotiate for an ETF.  A customer signing up for a year-

long (or two-year-long) commitment might be hesitant without having an escape from 

performance.  The ETF provides that escape.  It allows customers to enjoy a 

discounted monthly premium?due to signing up for a long-term plan?while retaining 

some of the flexibility that existed with the month-to-month plan.

       Next, this court must determine if there exists a reasonable equivalence between 

the two options: paying the ETF or continuing the contract.  The court must look to the 

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No. 85810-1

relative value of the options at the time of contracting to determine if a reasonable 

equivalence exists.  Id. at 155-56; Chandler, 44 Wn.2d at 403-04; Restatement 

(Second) of Contracts § 356 cmt. c (1981) ("In determining whether a contract is one 

for alternative performances, the relative value of the alternatives may be decisive.").  

If the values are "so disproportionate as to be unequal" then one option is a penalty 

and not an alternative performance.  Chandler, 44 Wn.2d at 404.  Both Bentley and 

Chandler analyze the relative value of options using a fairly deferential lens.  In 

Bentley, the court held that a reasonable equivalence existed between the teacher 

returning to work or returning the sabbatical pay instead.  38 Wn. App. at 156.  

Bentley claimed the values were unequal because no reasonable person would choose 

unemployment.  Id.  However, at the time of contracting, a teacher may want to retain 

control over her future plans and not return to work.  Id.  Similarly, in Chandler, the 

court was unwilling to declare the option between the property and additional salary 

unequal because there was no vast disproportionality between them.  44 Wn.2d at 404.  

In other words, because there was a lack of obvious inequality between the two 

options, the relative values of the two options supported finding an alternative 

performance provision.  See id. at 403-04.

       We must determine the relative value of the ETF's three different values 

compared to the value of fulfilling the contract.  Following the reasoning of Bentley, 

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Minnick v. Clearwire US LLC
No. 85810-1

where the court looked to the relative value between the options at the time of 

contracting, the options here are relatively equal.  As stated above, the value of the 

ETF compared to the sum of the remaining monthly payments generally depended 

upon the time left under the contract.  Under the two-year contract, most disfavorable 

to the customer, the ETF is greater than the remaining payments only during the last 

four months.

       The ETF benefited Appellants by allowing them to retain control over their 

future decision making while enjoying Clearwire's services at a discount, much like 

the teacher's option to not return to work gave her flexibility.  As for the few months 

where the ETF is greater than the remaining payments, the court's reasoning in 

Chandler?that so long as obvious inequality does not exist the relative values are 

equal?is instructive.  The ETF is significantly less than the remaining payments for 

the majority of the life of the contract.  Put differently, a customer at the time of 

contracting could see value in canceling early and paying the ETF rather than paying 

the remaining monthly payments.

       Even when the ETF is greater, it is not so vastly unequal to the remaining 

payments as to render it a liquidated damages provision.  Under the most 

disadvantageous circumstances, a customer would have to pay a $180 ETF even 

though a single monthly payment of either $36.99 or $29.99 remained.  Br. of 

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Minnick v. Clearwire US LLC
No. 85810-1

Def./Appellee Clearwire US, LLC, App. A.  This disparity between the ETF and the 

remaining payment may seem great, but taken in context of the entire two-year 

contract, the disparity lessens.  Specifically, for the first 20 months of that contract the 

$180 ETF is less than the remaining payments.  Id.  In sum, the relative equivalence 

between the two options is such that a customer, at the time of contracting, could 

foresee utilizing the ETF to escape his or her obligation of monthly payments.  

Therefore, the ETF is an alternative performance provision and not a liquidated 

damages provision.

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Minnick v. Clearwire US LLC
No. 85810-1

                ii.   Holding That the ETF is an Alternative Performance Provision Is 
                Supported by Other Jurisdictions

       The ETF is an alternative performance provision because it provides a real 

option to Appellants and is of relatively equal value to the alternative option of 

fulfilling the contract.  This result is consistent with two other federal cases from 

California, which have specifically addressed whether ETFs are liquidated damage 

provisions or alternative performance provisions.  On the other hand, this result is 

contrary to a few cases, including a California Court of Appeals case, which was 

decided after the two federal cases.  We address the cases that favor ETFs as 

alternative performance provisions first.

       The two federal cases from California support our holding that the ETF is an 

alternative performance provision because the cases involve similar facts and 

reasoning.  The most closely related case is Hutchison v. AT&T Internet Services, Inc., 

No. CV07-3674 SVW (JCX), 2009 WL 1726344 (C.D. Cal. May 5, 2009)

(unpublished), aff'd sub nom. Hutchison v. Yahoo! Inc., 396 F. App'x 331, 2010 WL 

3706571 (9th Cir. Sept. 20, 2010) (unpublished), because it also involved an ETF that 

eventually became more expensive than fulfilling the contract.  The ETF there was less 

than the remaining payments for the first seven months at which point fulfilling the 

contract was cheaper than paying the ETF.  Hutchinson, 2009 WL 1726344, at *6.  

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Minnick v. Clearwire US LLC
No. 85810-1

Because the court examined whether the ETF was a rational choice at the time of 

contracting, the fact that the ETF was more expensive after seven months was 

irrelevant.  Id.  The other federal court case from California reached a similar result.  

Schneider v. Verizon Internet Servs., Inc., 400 F. App'x 136, 2010 WL 3825502 (9th 

Cir. Sept. 27, 2010) (unpublished) (holding the ETF was an alternative performance 

provision under similar reasoning).

       In contrast, other cases cited by Appellants reach a different result.  Appellants 

mainly rely upon a California State Court of Appeals case, In re Cellphone 

Termination Fee Cases, 193 Cal. App. 4th 298, 122 Cal. Rptr. 3d 726, cert. denied, 

132 S. Ct. 555 (2011), and a federal district court case from Illinois, Mau v. L.A. 

Fitness Int'l, LLC, 749 F. Supp. 2d 845 (N.D. Ill. 2010).  Appellants incorrectly claim 

both Hutchison and Schneider are no longer good law because they were decided 

before Cellphone Termination Fee Cases, which held an ETF was a liquidated 

damages provision and not an alternative performance provision.  193 Cal. App. 4th at 

329.  Appellants mischaracterize that court's holding and wish to expand it so that all 

ETFs are liquidated damages.  That court did not declare Hutchison bad law or that all 

ETFs are liquidated damages.  Id. ("While [Hutchison] is not binding on this court . . ., 

it is self-evident that in contrast we deal here with contrary factual findings made after 

trial on a full evidentiary record.").

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Minnick v. Clearwire US LLC
No. 85810-1

       Instead, the court held that the ETF at issue was a liquidated damages provision 

on facts distinguishable from this case.  Primarily, the defendant, Sprint, involuntarily 

imposed an ETF on some customers thereby depriving them of a rational choice 

between options.  Id. at 328.  The court found that of the customers charged an ETF, 

80 percent were terminated by Sprint before being charged.  Id.  In comparison, 

Clearwire never declared a contract in breach before imposing the ETF.  This is an 

important factual distinction because it demonstrates that Clearwire was not treating 

the ETF like a liquidated damages provision, which is only imposed upon breach.  See, 

e.g., Walter Implement, 107 Wn.2d at 559 ("[T]he [sum of money] must be a 

reasonable forecast of just compensation for the harm that is caused by the breach.").

       The second case, Mau, is also unpersuasive because it adopts a test that 

excludes a whole category of alternative performance provisions: those that provide 

for payment to "'regain the legal privilege of not rendering the promised 

performance.'" Chandler, 44 Wn.2d at 402 (quoting 5 Corbin, supra, § 1213, at 883, 

884).  Mau ignores this type of provision and applies the penalty analysis to any 

provision that terminates the contract. 749 F. Supp. 2d at 847-48.  In Mau, a plaintiff 

wished to cancel his gym membership but would have had to pay 50 percent of the 

remaining balance on his contract if he voluntarily terminated the contract.  Id. at 847. 

The court applied a penalty analysis because the provision terminated the contractual 

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No. 85810-1

relationship.  Id. at 848 ("[T]here was and is no expectation of a continuing 

relationship between [the parties] . . . . [The plaintiff] simply wanted to end his 

contract.").  However, Mau's reasoning is not persuasive because it did not apply an 

alternative performance analysis ("real option" and "reasonably related options") to 

reach its holding, and its proposed rule would exclude an entire class of potential 

alternative performance provisions.

       Because Cellphone Termination Fee Cases relies on distinguishable facts and 

Mau applies a different legal standard, neither is persuasive.  Accordingly, neither case 

impacts our conclusion that the ETF provision is an alternative performance provision 

and not a liquidated damages provision. This is not to say that if faced with similar 

facts as those in Cellphone Termination Fee Cases we might not hold otherwise.

                iii.  Clearwire May Still Charge Customers the ETF even if It Is More 
                Expensive than the Remaining Monthly Payments

       Finally, Appellants argue that even if the ETF is a form of alternative 

performance, Clearwire is unable to enforce it.  The crux of their argument is that the 

promisee of an alternative performance contract may recover only "damages flowing 

from the alternative 'resulting in the smallest recovery.'  Restatement (First) of 

Contracts § 344." Opening Br. of Appellant at 34. This is incorrect.

       As the United States Court of Appeals for the Second Circuit stated, "Even if 

this is currently the rule?and its absence from the Second Restatement of Contracts 

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Minnick v. Clearwire US LLC
No. 85810-1

suggests that it is not?it does not appear to apply in a case such as this one."  Schwan-

Stabilo Cosmetics GmbH & Co. v. Pacificlink Int'l Corp., 401 F.3d 28, 34 (2d Cir. 

2005).  In an alternative contract where one of the alternatives is a sum of money, the 

promisee is entitled to the sum of money even though the other alternative may be less 

onerous to the promisor.  Id. (quoting 25 Richard A. Lord, Williston on Contracts § 

66:106, at 120-21 (4th ed. 2002)).  Therefore, Clearwire can charge the ETF even 
though it might be more expensive than the amount remaining under the contract.2

                                          Conclusion

       Under Washington law, an alternative performance provision is distinguishable 

from a liquidated damages provision because it provides a "real option" to the 

promisor and the alternatives are reasonably equal to each other.  Here, the ETF 

provided a "real option" at the time of contracting because Appellants wanted to retain 

the control and flexibility that the early cancellation allowed them.  Further, the ETF 

was less expensive than the remaining payments for the majority of the contract's life, 

thereby indicating the options were reasonably related.  The ETF also allowed 

Appellants to benefit from reduced monthly premiums under the fixed-term contract 

but also enjoy some of the flexibility of the month-to-month subscription.  Therefore, 

the ETF is an alternative performance provision that is not subject to a penalty 

2 Appellants request that we apply a penalty analysis even if the ETF is an alternative 
performance provision.  We decline.

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analysis.

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AUTHOR:

        Justice Susan Owens

WE CONCUR:

        Chief Justice Barbara A. Madsen                  Justice James M. Johnson

                                                         Gerry L. Alexander, Justice Pro Tem.

        Justice Mary E. Fairhurst

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