Cellco Partnership v. Hope et al

Filing 292

ORDER granting in part and denying in part 284 Motion for Reconsideration. Signed by Judge David G Campbell on 3/6/2012.(NVO)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Cellco Partnership doing business as
Verizon Wireless,

No. CV11-0432 PHX DGC
ORDER

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Plaintiff,

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vs.

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Jason Hope, et al.,

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Defendants.

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Defendants (collectively “JAWA”) filed a motion for reconsideration of a limited

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portion of the Court’s January 30, 2012 order in which the Court dismissed eight of

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JAWA’s counterclaims.

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(Doc. 286), Plaintiff filed a response (Doc. 290). JAWA asks the Court to reinstate its

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Sherman Act claim, in which it alleges that Verizon organized and participated in a per se

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illegal group boycott of JAWA by wireless carriers (Doc. 284 at 3-8; see Doc. 220,

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¶¶ 156-161), and its tortious interference claim, in which it alleges that Verizon

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knowingly and intentionally and without legal justification or excuse interfered with its

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business contracts and expectancies with customers and aggregators. Doc. 284 at 8-14;

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see Doc. 220, ¶¶ 97-102. The Court will deny the motion with respect to the Sherman

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Act claim and grant it with respect to the tortuous interference claim.1

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Doc. 284; see Doc. 273.

Pursuant to the Court’s order

JAWA’s request for oral argument is denied because the parties have fully briefed the
issues and oral argument will not aid the Court’s decision. Fed. R, Civ. P. 78(b).

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I.

Legal Standard.

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Motions for reconsideration “are ‘disfavored’ and will be granted only upon a

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showing of ‘manifest error’ or ‘new facts or legal authority that could not have been

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raised earlier with reasonable diligence.’” In re Rosson, 545 F.3d 764, 769 (9th Cir.

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2008) (citation and brackets omitted); see S.E.C. v. Kuipers, No. 09-36016, 2010 WL

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3735788, at *3 (9th Cir. Sept. 21, 2010); LRCiv 7.2(g)(1). Mere disagreement with an

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order is an insufficient basis for reconsideration. See Ross v. Arpaio, No. CV 05-4177-

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PHX-MHM, 2008 WL 1776502, at *2 (D. Ariz. 2008). Nor should reconsideration be

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used to ask the Court to rethink its analysis. Id.; see N.W. Acceptance Corp. v. Lynnwood

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Equip., Inc., 841 F.2d 918, 925-26 (9th Cir. 1988).

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II.

Sherman Act Claim.

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JAWA alleged in its third amended counterclaims (“TAC”) that Verizon

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“implemented an illegal horizontal boycott against JAWA among competing Wireless

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Carriers.” Doc. 220, ¶ 156. JAWA argues that the Court erred when it dismissed this

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claim upon finding that “JAWA failed ‘to allege sufficient facts to show an agreement to

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boycott JAWA.’” Doc. 284 at 3 (quoting Doc. 273 at 31). JAWA argues that it alleged

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“plausible grounds to infer an agreement” among wireless carriers and that this satisfies

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the pleading requirements set forth in Bell Atlantic Corporation v. Twombly. Doc. 284 at

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4 (quoting Twombly, 550 U.S. 544, 556 (2007)).

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Twombly held that allegations of parallel conduct by major telecommunications

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providers that hurt competition were insufficient to state a claim under § 1 of the

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Sherman Act “absent some factual context suggesting agreement, as distinct from

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identical, independent action.” 550 U.S. at 549. The Court stated that “[e]ven conscious

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parallelism, a common reaction of firms in a concentrated market that recognize their

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shared economic interests . . . is not itself unlawful” without a showing of “contract,

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combination, or conspiracy.” Id. at 553-54 (internal citations omitted). The Court

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recognized that some behavior suggestive of a conspiracy could be “just as much in line

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with a wide swath of rational and competitive business strategy unilaterally prompted by
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common perceptions of the market.” Id. at 554. Accordingly, the Court held that “a

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conclusory allegation of agreement at some unidentified point does not supply facts to

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show illegality . . . [the allegations] must be placed in a context that raises a suggestion of

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a preceding agreement.” Id. at 557. The Supreme Court went on to explain that for an

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allegation of conspiracy to cross the line from possibility to plausibility, the complaint

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must do more than use the term “agreement” or “conspiracy”; it must include “further

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factual enhancement” such as a written agreement or “even a basis for inferring a tacit

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agreement.” Id.

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JAWA has alleged parallel actions of major wireless networks. JAWA has further

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alleged that these actions resulted in eliminating JAWA’s ability to compete in the PSMS

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industry. This alone does not satisfy the pleading requirements for a Sherman Act claim.

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The question, not previously addressed, is whether JAWA has provided “further factual

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enhancement” from which to infer the existence of an agreement. The Court finds that it

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has not.

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JAWA’s factual allegations are that Verizon is a competitor with JAWA in the

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premium short messaging service (“PSMS”) market, so it had a motive to put JAWA out

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of business (Id., ¶¶ 28-29; 59;137-38; 157; 163-64); Verizon issued a press release after

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filing this lawsuit in which it urged its competitors “to quickly follow and put a stop to

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this fraud and ensure all mobile customers are protected” (Id., ¶¶ 76; 112; 14; see

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Doc. 169-1 at 1); other major wireless carriers ceased doing business with JAWA within

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two days of the press release even though this went against their short-term interest in

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collecting fees (Doc. 220, ¶¶ 40, 79, 159); and Verizon representatives met with

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representatives of other carriers and induced or coerced them to agree to boycott JAWA

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(Doc. 220, ¶¶ 78, 159).

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JAWA’s allegation that Verizon also participated in the PSMS market is

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insufficient to support its argument that Verizon had a competitive reason to form a group

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boycott against JAWA, particularly when Verizon had contracted with its aggregators for

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JAWA’s services up to the time it encountered the fraudulent sales practices alleged in its
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complaint. Additionally, as Verizon notes in its response to JAWA’s motion, JAWA has

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alleged no facts showing the size and scope of the PSMS market or who the other

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competitors are from which to infer that a group boycott of JAWA, in particular, would

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lead to a competitive advantage for Verizon. See Doc. 290 at 6.

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Neither does the open-ended statement in Verizon’s press release, publicly urging

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other wireless networks to cut off JAWA to protect wireless customers from fraud,

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support the existence of a “contract, combination, or conspiracy.” The fact that other

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networks cut off JAWA’s services on their own networks within days of the press release

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is easily explained as a natural reaction to the notice, contained in that release, that both

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the Texas Attorney General and Verizon had filed suit against JAWA for a scheme to

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defraud wireless customers. See Doc. 169-1 at 87. As the Court stated in Twombly,

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“there is no reason to infer that the companies had agreed among themselves to do what

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was only natural anyway.” 550 U.S. at 566.

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JAWA’s argument that this behavior was “anomalous” because it went against the

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networks’ short-term interests (Doc. 284 at 6) is also unavailing. The only allegation

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JAWA offers in support of this argument is that the networks received a fee for JAWA’s

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services (Doc. 220, ¶ 40) and thus lost short-term revenues when they cut off business

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with JAWA (Doc. 284 at 6). JAWA fails to account for the concurrent, arguably-

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overriding interest all carriers would have in avoiding potential fraud on their networks.

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Cutting off business with JAWA at the risk of a short-term revenue loss in light of public

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allegations of an ongoing scheme by JAWA to defraud customers is a far cry from the

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“parallel behavior . . . anomalous in a competitive market” noted in In re Text Messaging

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Antitrust Litigation, 630 F.3d 622, 627-28 (7th Cir. 2010), an antitrust price-fixing case

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upon which JAWA relies. In In re Text Messaging, the Seventh Circuit found that

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plaintiffs had made sufficient allegations to infer an agreement among competitors where

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text messaging providers had simultaneously raised prices in the face of steeply falling

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costs when the natural response would have been to lower prices to undercut competitors.

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630 F.3d at 628. JAWA provides no factual allegations to show that the networks’
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parallel actions were “anything more than the natural, unilateral reaction of each

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[company]” intent on protecting its own customer base and business reputation from

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fraud. See Twombly, 550 U.S. at 566.

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JAWA’s remaining allegation – that Verizon met with other wireless carriers and

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coerced them to boycott JAWA – is entirely conclusory and lacking in any detail about

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when and where these alleged meetings took place or what Verizon allegedly said or did

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to coerce parallel action against JAWA. See Doc. 220, ¶¶ 78, 158.

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JAWA argues that discovery has since revealed that Verizon, acting as part of a

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trade association, participated in telephone calls with other carriers in March of 2011 in

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which it discussed JAWA. Doc. 284 at 7. JAWA’s attached deposition of Verizon

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representative Jonathan Lee Salkoff reveals that Verizon participated in a trade

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association call on March 9 in which it directed other carriers to its March 8 press release.

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See Doc. 284-2.

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discussed placing controls in the industry to screen short codes at the front-end of the

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registry process, and that these discussions were possibly prompted by discussions of

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JAWA. See id. These added facts do not lead to the inference that Verizon and the other

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carriers acted pursuant to an agreement to put JAWA out of business.

It also reveals that on March 21, Verizon and the other carriers

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JAWA’s citation to In re Text Messaging for the proposition that participation in a

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trade organization supports the plausibility of a Sherman Act claim is also unavailing. In

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In re Text Messaging, the complaint alleged that participants in the trade organization

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exchanged sensitive pricing information in an alleged price-fixing scheme. 630 F.3d at

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628. JAWA has pointed only to Verizon’s reference to information it had already

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publicly disclosed. Additionally, In re Text Messaging did not find the exchange of

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pricing information in itself illegal; nor was the existence of the trade association’s

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communications a large factor in its ultimate conclusion.

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plausibility of the complaint, the court cited to a footnote in Twombly recognizing that

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“‘complex and historically unprecedented changes in pricing structure made at the very

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same time by multiple competitors, and made for no other discernible reason’ would
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Rather, in upholding the

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support a plausible inference of conspiracy.” Id. (citing Twombly, 550 U.S. at 557 n. 4)

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(internal citations omitted). In re Text Messaging concluded that “[t]hat is the kind of

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‘parallel plus’ behavior alleged in this case.” Id. JAWA, by contrast, has alleged no

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actions by Verizon that were made for “no other discernible reason” than to put JAWA

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out of business. The Court has recognized many times that Verizon’s allegations of fraud

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against JAWA are reasonable. Neither has JAWA alleged complex and unprecedented or

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anomalous actions on the part of the other carriers. In short, JAWA has alleged no

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“parallel plus” factors to provide a plausible basis for inferring that by cutting off their

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business with JAWA the carriers acted pursuant to a preceding agreement as opposed to

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taking conscious parallel actions to protect their own interests. The Court will deny

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JAWA’s motion for reconsideration on its Sherman Act claims.

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III.

Tortious Interference.

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The Court dismissed JAWA’s tortious interference claim on the basis that

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Verizon’s alleged demands to its aggregators did not show improper conduct and

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JAWA’s allegations of economic pressure, restraint of trade, and antitrust were

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conclusory. Doc. 273 at 25. The Court found that Verizon’s letters to its aggregators

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were protected under the Noerr-Pennington doctrine as pre-suit demand letters because

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the claims in those letters were not “objectively baseless,” and that, alternatively, they

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were protected by state law privilege because all of the demands they made were related

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to protecting Verizon’s own legally-protected interests. Doc. 273 at 24-25. JAWA

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claims that the Court erred because JAWA alleged improper conduct other than the

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demand letters, Verizon’s demands went beyond the scope of protecting its own interests,

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and whether the Noerr-Pennington or state privilege doctrines apply is a factual issue that

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cannot be decided on a motion to dismiss. Doc. 284 at 8-14.

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The Court has reviewed JAWA’s allegations and finds that it erred by failing to

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address Verizon’s press release in relation to the tortuous interference claim.

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Doc. 220, ¶ 76. In ruling on JAWA’s business disparagement claim, the Court found that

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whether Verizon’s statements in the press release “were made with the legitimate purpose
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See

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of informing its customers of their right to refunds and not for an improper purpose are

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factual matters that do not defeat JAWA’s claims at the pleading stage.” Doc. 273 at 27.

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The Court should have given the press release the same treatment when ruling on the

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tortuous interference claim. Just as the Court cannot eliminate the press release as a basis

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for a business disparagement claim at this stage of the litigation, it cannot eliminate the

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press release as a basis for improper conduct under the tortuous interference claim at this

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stage. The Court accordingly will reinstate JAWA’s tortious interference claim based on

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the press release.2

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With respect to the demands Verizon made of its aggregators, the Court previously

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determined that JAWA “failed to allege any demands [in the letters] that were not . . .

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within the scope of protecting Verizon’s own interests” and all of JAWA’s other

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allegations of demands or coercion were conclusory. Doc. 25 at 35. The Court will

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revisit this analysis only with respect to JAWA’s argument that Verizon’s demand that its

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aggregators cut off all JAWA short codes went beyond protecting Verizon’s interests

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because it meant, in effect, cutting JAWA’s business with these aggregators with respect

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to all carriers, not just Verizon. Doc. 284 at 9. The context of the demand letters clearly

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concerns JAWA’s dealings with Verizon customers. See, e.g., Doc. 169-1 at 82-85. The

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Court is not persuaded that this demand, although forceful, was not well within the scope

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of protecting Verizon’s own interests of ensuring that JAWA be fully foreclosed from

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access to its own network.

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The Court also does not find clear error in applying the Noerr-Pennington and

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state privilege doctrines at the motion to dismiss stage. See, e.g., Sosa v. DirectTV, Inc.,

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437 F.3d 923, 942 (affirming dismissal of RICO claims based on prelitigation demand

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Tortious interference requires a showing of (1) a valid contractual relationship or
business expectancy, (2) knowledge of that relationship or expectancy by the interferer, (3)
intentional interference inducing or causing a breach or termination of the contract or
expectancy, and (4) resulting damage. See Miler v. Hehlen, 104 P.3d 193, 202 (Ariz. Ct. App.
2005).

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letters protected by Noerr-Pennington); Ulan v. Lucas, 500 P.2d 914, 915 (Ariz. Ct. App.

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1972) (holding that “[w]here, on the face of the complaint, it affirmatively appears that

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the defendant was privileged to interfere with contractual relations, dismissal is

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appropriate.”). The Court will deny JAWA’s motion for reconsideration on its tortious

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interference claim with respect to all allegations except for those related to the March 8,

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2011 press release.

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IT IS ORDERED:

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Defendant JAWA’s motion for reconsideration of the Court’s dismissal of

its Sherman Act counterclaim (Doc. 284) is denied.
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Defendant JAWA’s motion for reconsideration of the Court’s dismissal of

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its tortious interference counterclaim (Doc. 284) is granted with respect to Verizon’s

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March 8, 2011 press release and denied with respect to all other allegations of improper

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conduct.

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Dated this 6th day of March, 2012.

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