Telesaurus VPC, LLC v. Power et al

Filing 174

ORDER: Ms. Power's 150 Motion to Dismiss Defendant Patricia Power is GRANTED. Defendant Patricia Power is DISMISSED as a party. See order for complete details. Signed by Judge Neil V Wake on 10/21/11. (NKS)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Telesaurus VPC, LLC, a Delaware limited liability company, 10 Plaintiff, 11 ORDER vs. 12 No. CV 07-01311-PHX-NVW Randy Power, an individual; Patricia Power, an individual; Radiolink Corporation, an Arizona corporation; and commonly-controlled and affiliated entities, 13 14 Defendants. 15 16 Before the Court is the “Motion to Dismiss Defendant Patricia Power” (Doc. 150). 17 18 For the reasons stated below, the Court will grant the motion. 19 I. BACKGROUND 20 In 1998, Telesaurus (through its predecessor-in-interest, Warren Havens) and 21 RadioLink both participated in an FCC auction for certain radio frequencies in the 22 Phoenix area designated as VHF Public Coast, or “VPC,” frequencies. Telesaurus won 23 the auction, but RadioLink soon gained access to the frequencies anyway by allegedly 24 “submit[ting] to the FCC a false application . . . falsely characterizing [five of 25 Telesaurus’s VPC frequencies] as frequencies in a certain pool of frequencies (very close 26 in frequency range to the VPC Frequencies) that the FCC set aside for licensing at no 27 charge, on a first-come, first-serve basis.” 28 (Doc. 120 ¶ 15.) The FCC granted 1 RadioLink’s application, and RadioLink purportedly began using those frequencies “for a 2 common carrier Wireless Telecommunication Service and Commercial Mobile Radio 3 Service.” (Id. ¶ 16.) 4 Telesaurus claims that — 5 10 in the course of attempting to find companies involved in the wireless communications in the Phoenix area to partner with in order to build and operate wireless facilities using the VPC Frequencies . . . [Telesaurus was] informed that the VPC Frequencies, or some of them, were already in use by [RadioLink]. After being so informed a number of times, [Telesaurus] investigated the matter, found it was true, and reported it to the FCC for enforcement action. 11 (Id. ¶ 17.) On July 7, 2005, the FCC cancelled the disputed VPC frequencies from 12 RadioLink’s license. 6 7 8 9 13 Telesaurus hoped to hold RadioLink liable for violation of Federal 14 Communications Act (FCA) provisions governing use of the disputed radio frequencies. 15 The limitations period for private suits under the FCA is two years.1 The parties agree 16 that Telesaurus’s cause of action accrued on July 7, 2005, and the statute of limitations 17 expired on July 7, 2007. 18 19 20 21 22 23 24 25 26 27 28 1 The two-year statute of limitations comes from 47 U.S.C. § 415(b), which states: “All complaints against carriers for the recovery of damages not based on overcharges shall be filed with the Commission within two years from the time the cause of action accrues . . . .” Obviously, this language refers only to complaints filed with the FCC, but the Ninth Circuit has held that it applies to complaints filed in federal court as well. Pavlak v. Church, 727 F.2d 1425, 1428–29 (9th Cir. 1984). Telesaurus argues that Pavlak has been effectively overruled by later cases (in other contexts) emphasizing statutory construction principles such as avoiding a construction that makes certain language superfluous. Telesaurus’s argument is without merit. Cases about statutory construction generally cannot overrule the specific construction given in Pavlak. In addition, Pavlak makes sense in light of 47 U.S.C. § 207, which permits parties to bring FCA-based complaints to the FCC or to a district court, but not both. Given this mutual exclusivity, it would make little sense for a two-year limitation to apply to actions filed with the FCC but some other time period for actions filed in district court. Finally, Telesaurus has not offered an alternative limitations period. Accordingly, the two-year statute of limitations applies in this case. -2  1 One day ahead of the expiration date, Telesaurus filed this suit, naming RadioLink 2 and Randy Power as defendants. On October 10, 2008, Telesaurus filed an amended 3 complaint, adding Patricia Power, Randy Power’s ex-wife, as a defendant. Telesaurus 4 never served Ms. Power with that complaint. This Court eventually dismissed Telesaurus’s complaint. 5 The Ninth Circuit 6 affirmed but granted Telesaurus an opportunity to amend its FCA cause of action. 7 Telesaurus filed its second amended complaint — the currently operative complaint — 8 on January 27, 2011. It served Ms. Power with that complaint on April 29, 2011. 9 II. ANALYSIS 10 Ms. Power argues that the two-year statute of limitations has run with respect to 11 Telesaurus’s Federal Communications Act claim against her. The parties do not dispute 12 that: (1) the statute of limitations expired on July 7, 2007, (2) Ms. Power was not named 13 as a defendant until October 10, 2008, and (3) Telesaurus did not serve Ms. Power with 14 any version of the complaint until April 29, 2011. 15 limitations has obviously run. 16 Ms. Power unless Telesaurus can “relate” the second amended complaint back to the date 17 of Telesaurus’s first complaint, July 6, 2007, filed one day before the statute of 18 limitations expired. 19 20 21 22 A. On these facts, the statute of Therefore, Telesaurus cannot state a claim against Rule 15(c)(1)(C) Generally The parties agree that the following portion of Federal Rule of Civil Procedure 15(c) governs “relation back” in this context: 24 (1) When an Amendment Relates Back. An amendment to a pleading relates back to the date of the original pleading when: 25 *** 26 (C) the amendment changes the party or the naming of the party against whom a claim is asserted, if Rule 15(c)(1)(B) is satisfied [“the amendment asserts a claim or 23 27 28 -3  1 defense that arose out of the conduct, transaction, or occurrence set out — or attempted to be set out — in the original pleading”] and if, within the period provided by Rule 4(m) for serving the summons and complaint [120 days from the filing of the original complaint], the party to be brought in by amendment: 2 3 4 5 (i) received such notice of the action that it will not be prejudiced in defending on the merits; and 6 7 (ii) knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party’s identity. 8 9 10 Distilled, this Rule establishes four elements: (1) the amendment changes the party 11 or the naming of the party against whom a claim is asserted; (2) Rule 15(c)(1)(B) is 12 satisfied, meaning that the amendment asserts a claim or defense that arose out of the 13 conduct, transaction, or occurrence set out — or attempted to be set out — in the original 14 pleading; (3) within 120 days from the filing of the original complaint, the party to be 15 brought in by amendment received such notice of the action that it will not be prejudiced 16 in defending on the merits; and (4) within 120 days from the filing of the original 17 complaint, the party to be brought in by amendment knew or should have known that the 18 action would have been brought against it, but for a mistake concerning the proper 19 party’s identity. 20 B. 21 The outcome of Ms. Power’s motion turns on the first element — whether 22 Telesaurus’s amended pleading “changes the party or the naming of the party against 23 whom a claim is asserted.” On its face, this language permits only substitution, not 24 addition, of parties. Telesaurus seeks to add Ms. Power, not substitute her for a pre- 25 existing defendant. Therefore, by the language of the Rule, Telesaurus’s claims against 26 Ms. Power do not relate back. Rule 15(c)(1)(C)’s “Change” Requirement 27 Nevertheless, courts are split over whether Rule 15(c)(1)(C)’s “chang[ing] the 28 party” language should be read so strictly. See 6A Charles Alan Wright et al., Federal -4  1 Practice & Procedure § 1498.2 nn.1–2 (2010) (collecting cases) (hereafter, “Wright & 2 Miller”). No Ninth Circuit authority squarely addresses the issue. Ms. Power points to 3 Lewis v. Lewis, 358 F.2d 495, 502 (9th Cir. 1966), where the Ninth Circuit stated that 4 “under [Rule 15(c)], an amended pleading does not relate back insofar as it states claims 5 against newly-joined defendants.” But Lewis was handed down three-and-a-half months 6 too early for Ms. Power’s purposes. Lewis is dated March 14, 1966, at which time Rule 7 15(c) read as follows: “Whenever the claim or defense asserted in the amended pleading 8 arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth 9 in the original pleading, the amendment relates back to the date of the original pleading.” 10 28 U.S.C. App., at 6097 (1964 ed.). This version speaks only of amendments adding new 11 claims, not amendments adding new parties. The current version of Rule 15(c) — with 12 specific language about amendments “chang[ing]” parties — became effective on July 1, 13 1966. 28 U.S.C. App. Supp. III, at 1598 (1968). Thus, Lewis’s interpretation of Rule 14 15(c) cannot be viewed as a reliable interpretation of Rule 15(c) as it currently stands. 15 But even absent Lewis, Ms. Power’s interpretation prevails over Telesaurus’s 16 because Ms. Power’s is the only reading supported by both the language and the 17 expressed purpose of the rule. Regarding the Rule’s language, Ms. Power’s reading 18 comports with the requirement that relation back may happen only when the new party 19 “knew or should have known that the action would have been brought against it, but for a 20 mistake concerning the proper party’s identity.” Fed. R. Civ. P. 15(c)(1)(C)(ii). “Proper 21 party” necessarily implies an “improper party,” not simply some other party. 22 Regarding the Rule’s purpose, the Rules Committee’s commentary to the 1966 23 amendment demonstrates that “chang[ing] the party or the naming of the party against 24 whom a claim is asserted” means precisely what it says: redirecting an existing claim 25 toward a different party, and dropping the original party. The main driver behind the 26 1966 amendment was lawsuits against the federal government where the plaintiff 27 mistakenly named to the wrong officer or agency. See Fed. R. Civ. P. 15, Advisory 28 Committee Notes to 1966 Amendments. A plaintiff who realized the mistake after the -5  1 statute of limitations had run often faced a tough-luck dismissal from the district court, 2 given that Rule 15(c) as then written addressed only amendments affecting claims, rather 3 than parties. 4 problem, allowing the plaintiff to substitute the proper party. The Committee specifically 5 characterized the amendment as the defendant-oriented analog to Fed. R. Civ. P. 17(a)’s 6 plaintiff-oriented real party in interest rules. See id. The Rules Committee intended the 1966 amendment to correct this 7 The 1966 amendment to Rule 15(c) — what is now Rule 15(c)(1)(C) — is 8 “intimately connected with the policy of the statute of limitations,” Fed. R. Civ. P. 15, 9 Advisory Committee Notes to 1966 Amendments, and strikes a balance between letting 10 stale claims die and enforcing such claims against a defendant whom the plaintiff failed 11 to timely sue because the plaintiff mistakenly believed that some other party caused the 12 alleged injury. Thus, Rule 15(c)(1)(C) imagines the proper defendant in the shoes of the 13 improper defendant. 14 defendant, Rule 4(m) required service of process within 120 days. Rule 15(c)(1)(C) asks, 15 did the proper defendant receive, within the same 120 days, an effective substitute for 16 service of process (i.e., “such notice of the action that it will not be prejudiced in 17 defending on the merits,” Fed. R. Civ. P. 15(c)(1)(C)(i))? If so, then did that proper 18 defendant know, or should it have known, that the plaintiff would have sued it had the 19 plaintiff not made a mistake about the identity of the person or entity responsible for its 20 injuries (see Fed. R. Civ. P. 15(c)(1)(C)(ii))? If so, then the policy of the statute of 21 limitations is satisfied, and the proper defendant should not benefit from the plaintiff’s 22 innocent mistake — all too easy to make in the modern world of convoluted business, 23 ownership, supervisory, and administrative arrangements. When the plaintiff filed its complaint against the improper 24 Rule 15(c)(1)(C)’s placement of the proper defendant into the improper 25 defendant’s shoes has no relation to a scenario where the plaintiff wants to bring in an 26 additional party. Thus, Telesaurus’s interpretation of the Rule has no basis in its text or 27 policies. 28 -6  1 C. 2 Telesaurus, however, has one venerable authority on its side: Wright & Miller. 3 Acknowledging that “change” vs. “add” is an “important question,” Wright & Miller cites 4 cases going both ways, see 6A Wright & Miller § 1498.2 nn.1–2, and declares that “[t]he 5 better practice . . . is to determine the propriety of the amendment in light of the Rule 6 15(c) notice requirements,” id. § 1498.2.2 As an example, Wright & Miller refers to a 7 case in which the original defendant impleaded a third party and the plaintiff sought to 8 amend so that it could make the third party a first party defendant because “there was 9 uncertainty as to which of the two [defendants] was liable for the injury.” Id. The 10 Other Interpretations of “Change” treatise then goes on to suggest: 11 If both the basic transaction test [i.e., the requirement that “the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out — or attempted to be set out — in the original pleading,” Fed. R. Civ. P. 15(c)(1)(B)] and the notice requirement of Rule 15(c) [i.e., that, within 120 days of the original complaint, the prospective defendant “received . . . notice of the action” and “knew or should have known” that it was “the proper party,” id. 15(c)(1)(B)(i)–(ii)] are satisfied, there is no justification for a restrictive interpretation of the word “changing” that would require a plaintiff to choose among defendants. Too narrow a reading of the rule might result in the release of a party who ultimately might have proven to be liable and who would not have been prejudiced in the defense on the merits by its addition as another defendant. 12 13 14 15 16 17 18 19 20 21 22 Id. 23 24 25 26 27 2 Moore’s Federal Practice also appears to support Telesaurus’s position. Without acknowledging the dispute over “change” vs. “add,” Moore’s declares: “Rule 15 expressly allows amended pleadings that change or add parties to relate back.” 3 James Wm. Moore et al., Moore’s Federal Practice § 15.19[3][a] (3d ed. 2010) (citing Fed. R. Civ. P. 15(c)(1)(C)). But Rule 15 “expressly” refers only to change, not addition. And as discussed below, “add” is not a subset of “change” in the context of Rule 15(c)(1)(C). 28 -7  1 This is an example of a borderline case between changing or adding a party, which 2 may favor allowing the amendment, perhaps conditioned on subsequent facts establishing 3 which party is the proper party. But it is a poor argument for altogether throwing down 4 the boundary between “change” and “add,” as Telesaurus must do in this case. 5 Moreover, Wright & Miller’s approach unjustifiably dilutes Rule 15(c)(1)(C). A 6 recommendation that “[t]he better practice . . . is to determine the propriety of the 7 amendment in light of the Rule 15(c) notice requirements,” is effectively a 8 recommendation to treat the Rules’ requirements as factors to be weighed, not 9 requirements. Nothing in the text of the rule or the Rules Committee’s commentary 10 supports this approach. By contrast, the Supreme Court has made clear that Rule 15(c) 11 establishes elements, the satisfaction of which necessarily merits leave to amend; the 12 district courts do not have discretion as they do under Rule 15(a). Krupski v. Costa 13 Crociere S. p. A., __ U.S. __, __, 130 S. Ct. 2485, 2496 (2010). Treating those elements 14 as no more than factors to weigh would undercut the Rule’s non-discretionary nature. 15 Many of the cases cited in Wright & Miller do not support its position, or do so 16 only in dictum. A fair number of these cases involve pure substitution without mention 17 of addition. See Joseph v. Elan Motorsports Techs. Racing Corp., 638 F.3d 555, 557 (7th 18 Cir. 2011) (“Elan Motorsports Technologies Racing Corp.” substituted for “Elan 19 Motorsports Technologies, Inc.”); Marks v. Prattco, Inc., 607 F.2d 1153, 1156 (5th Cir. 20 1979) (owner of property substituted for the property itself); Bush v. Sumitomo Bank & 21 Trust Co., Ltd., 513 F. Supp. 1051, 1054 (E.D. Tex. 1981) (actual owner of ship 22 substituted for party mistakenly thought to own the ship). Certain other cases casually 23 mention the possibility of adding, but nonetheless substitute. Williams v. Doyle, 494 24 F. Supp. 2d 1019, 1029–31 (W.D. Wis. 2007) (substituting state department for state 25 itself); Ocasio Ortiz v. Betancourt Lebron, 146 F.R.D. 34, 38 (D.P.R. 1992) (substituting 26 real persons for John Doe defendants); Ratcliffe v. Ins. Co. of N. Am., 482 F. Supp. 759, 27 761 (E.D. Pa. 1980) (substituting an insurance company and its subsidiaries for a 28 nonexistent entity). -8  1 A few decisions permit actual addition, but most of these simply add parties 2 without addressing the “change” vs. “add” distinction. Abdell v. City of New York, 759 3 F. Supp. 2d 450, 454 (S.D.N.Y. 2010); Colombo v. Suffolk County Dept. of Soc. Servs., 4 221 F.R.D. 374, 376 (E.D.N.Y. 2004); Gabriel v. Kent Gen. Hosp. Inc., 95 F.R.D. 391, 5 393 (D. Del. 1982). In one other case, the court acknowledged the difference but swept it 6 away with a footnoted citation to Wright & Miller. Advanced Power Sys., Inc. v. Hi-Tech 7 Sys., Inc., 801 F. Supp. 1450, 1456 n.5 (E.D. Pa. 1992) (“The word ‘changing’ has been 8 liberally construed to cover amended pleadings that, as this one, add entirely new parties 9 without any substitution.” (citing 1990 edition)). Accordingly, these cases have little to 10 say for or against the substitution/addition dispute. 11 One of the few cases to confront the question directly is Goodman v. Praxair, Inc., 12 494 F.3d 458 (4th Cir. 2007), although answering it was not essential to that case. There, 13 Goodman first sued Praxair Inc. Then, after the statute of limitations had run, Goodman 14 moved to substitute the indisputably proper party — Praxair Services, Inc. — for Praxair. 15 But Goodman also wanted to keep Praxair in the case on an newly pleaded alter ego 16 theory. For unclear reasons, the district court characterized the swap of Praxair Services 17 for Praxair as “adding” rather than “changing,” and would not allow it based on Rule 18 15(c)(1)(C)’s plain language. Id. at 463. 19 Reversing, the Fourth Circuit noted that the situation amounted to substitution, 20 given that the claims asserted against Praxair had been redirected toward Praxair 21 Services, and Praxair remained in the case on a different theory only. Id. at 468–69. The 22 Court could have stopped there, but instead pressed on to the “change” vs. “add” 23 question, agreeing with Wright & Miller that Rule 15(c)(1)(C)’s only real requirement is 24 proper notice to the new defendant. Id. at 469. “Because no [statute of] limitations 25 policy is at stake in the interpretation of ‘changes,’ the liberal amendment policy of the 26 federal rules becomes paramount.” Id.; see also Meredith v. United Air Lines, 41 F.R.D. 27 34, 39 (S.D. Cal. 1966) (“The word ‘changing’ must be given a sensible and practical 28 construction. It would be unfair indeed to deny Plaintiff the benefits of Rule 15(c) as -9  1 amended, merely because her counsel, in the necessary protection of her interests, have 2 not substituted Lockheed in place of the Government.”). 3 Goodman is an odd case because the proper party was substituted for the improper 4 party, and then the improper party was brought back in on a separate charge. Assuming 5 Rule 15(c)(1)(C)’s elements had been satisfied as to Praxair Services, and Rule 15(a) 6 discretion was appropriate as to the Praxair/alter ego amendment, there should have been 7 no controversy over “change” vs. “add.” In any event, the facts of Goodman do not 8 relate to the facts of this case. Ms. Power is not a substituted party in any sense. 9 Nonetheless, on its merits, Goodman’s analysis is suspect for the same reasons 10 that Wright & Miller’s analysis is suspect. Rule 15(c)(1)(C) is not a set of factors to 11 balance, with the most weight placed on the notice requirement. The Rule establishes 12 elements which are either satisfied or not. Those elements exist to ensure that statutes of 13 limitations are respected but not enforced through excusable mistake. 14 Goodman’s nod to the “liberal amendment policy of the federal rules” — derived from 15 Rule 15(a) — has no power to trump Rule 15(c)(1)(C). As the Supreme Court more 16 recently explained, “the [narrow] inquiry for relation back under Rule 15(c) is 17 particularly striking in contrast to the inquiry under Rule 15(a).” Krupski, __ U.S. at __, 18 130 S. Ct. at 2496. Further, 19 Nonetheless, some have asserted that “[a]dding a party is essentially no different 20 from changing a party,” Lundy v. Adamar of New Jersey, Inc., 34 F.3d 1173, 1192 21 (3d Cir. 1994) (Becker, J., concurring in judgment in part and dissenting in part), or that 22 “‘an addition to something is generally regarded as a change to that thing,’” Goodman, 23 494 F.3d at 468 (quoting argument of counsel (emphasis in original)). In a vacuum, 24 “add” can be a subset of “change,” but Rule 15’s use of “change” is not in a vacuum. 25 The “change” required is a change that takes an already “asserted” claim and reassigns it 26 to a party that “knew or should have known” it was “the proper party.” Fed. R. Civ. P. 27 15(c)(1)(C), (C)(ii). 28 substitution, not an addition. Accordingly, the “change” described in Rule 15(c) refers to a - 10   1 Limiting Rule 15(c)(1)(C) to substitution — the only purpose for which the Rules 2 Committee intended it — does not threaten injustice to plaintiffs. If a plaintiff truly seeks 3 to add a new defendant after the limitations period appears to have expired, Rule 15(a) 4 accommodates such a motion, which would likely turn on tolling doctrine. If the plaintiff 5 waits until the limitations period has expired before seeking to bring in the prospective 6 defendant, knowing all along that the prospective defendant contributed to its injury, the 7 plaintiff has no excuse. 8 defendant’s role, then the court must resolve whether the plaintiff should have discovered 9 it earlier, just as it would if the plaintiff had never before asserted that claim against 10 If the plaintiff did not timely discover the prospective anyone. 11 Rule 15(c)(1)(C) was not intended to circumvent these principles. It establishes a 12 narrow circumstance in which the statute of limitations is deemed satisfied: the plaintiff 13 mistakenly sues an improper party but, within 120 days of filing, the proper party learns 14 of the lawsuit and recognizes itself as the proper party. This does not excuse a plaintiff 15 from due diligence in investigating its claims. 16 D. 17 Given that Telesaurus seeks to add Ms. Power, rather than substitute her for an 18 existing defendant, the question arises whether the statute of limitations should be tolled. 19 See Pavlak, 727 F.2d at 1428–29 (tolling may apply to 47 U.S.C. § 415(b)’s statute of 20 limitations); see also note 1, supra. Telesaurus’s argument for tolling is summary and 21 unsupported. It does not address the fact that a public document (FCC Form 175) 22 regarding RadioLink’s participation in the auction won by Telesaurus prominently 23 features both Randy and Patricia Power as “authorized bidders” for RadioLink and lists 24 Ms. Power as 50% owner of RadioLink. (Doc. 75-2.) Telesaurus relied on this Form 175 25 in its first amended complaint, when it added Ms. Power as a defendant. (See Doc. 48-1 26 ¶ 4.) 27 involvement. (See Doc. 160 at 8–10.) If Telesaurus had not seen these documents before Tolling Various other FCC records from 2004 or earlier also disclose Ms. Power’s 28 - 11   1 amending, it should have as it “investigated the matter” (Doc. 120 ¶ 17) sometime in late 2 2003 or early 2004 (see Docs. 61-2, 80-10, 81-1). That was well before the statute of 3 limitations expired on July 7, 2007. Accordingly, no basis for tolling has been presented. 4 IT IS THEREFORE ORDERED that Ms. Power’s “Motion to Dismiss Defendant 5 Patricia Power” (Doc. 150) is GRANTED. Defendant Patricia Power is DISMISSED as 6 a party. 7 Dated this 21st day of October, 2011. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 12  

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