Inteliquent, Inc. v. Free Conferencing Corporation et al
Filing
168
MEMORANDUM Opinion and Order: Enter Memorandum Opinion and Order. For the reasons set forth in the accompanying Memorandum Opinion and Order, the Motions to Dismiss for Failure to State a Claim filed by Wide Voice 65 , Inteliquent 102 , and C arter 104 are granted in part and denied in part. Counts IV, VII, and IX of Inteliquent's Second Amended Complaint 55 are dismissed as they relate to Wide Voice, as is Count V, to the extent it alleges fraudulent business practices. The remainder of Inteliquent's Second Amended Complaint stands. Counts II-V of Counterclaiming Plaintiffs' Second Amended Counterclaim 94 are dismissed. The remainder of Counterclaiming Plaintiffs' Second Amended Counterclaim stands. The status hearing previously set for 4/4/17 stands. At that time, the parties shall be prepared to discuss additional case management dates and issues. Signed by the Honorable John Robert Blakey on 3/30/2017. Mailed notice(vcf, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
INTELIQUENT, INC.,
Plaintiff and
Counterclaim Defendant,
v.
Case No. 16-cv-06976
FREE CONFERENCING CORP.,
individually and d/b/a HD TANDEM;
HDPSTN, LLC d/b/a HD TANDEM;
WIDE VOICE, LLC; and
JOHN DOES 1-10,
Judge John Robert Blakey
Defendants,
and
MATTHEW CARTER, JR.,
Counterclaim Defendant.
MEMORANDUM OPINION AND ORDER
This case began as a dispute between Inteliquent, Inc. (“Inteliquent”), a longdistance
telecommunications
carrier,
and
Free
Conferencing
Corp.
(“Free
Conferencing”), HD Tandem, LLC (“HD Tandem”), and Wide Voice, LLC (“Wide
Voice”), other entities in the telecommunications industry.
Inteliquent originally filed suit on July 5, 2016, see Compl. [1], and now
brings nine causes of action. Second Am. Compl. [55]. On December 23, 2016, Free
Conferencing and HD Tandem filed counterclaims against Inteliquent and Matthew
Carter, Jr. (“Carter”), Inteliquent’s President and Chief Executive Officer. Second
Am. Counterclaim [94].
On October 27, 2016, Wide Voice moved under Federal Rule of Civil
Procedure 12(b)(6) to dismiss Inteliquent’s Second Amended Complaint for failure
to state a claim. Wide Voice Mot. Dismiss [65]. On January 18, 2017, Inteliquent
and Carter filed 12(b)(6) motions to dismiss Free Conferencing and HD Tandem’s
counterclaims. Inteliquent Mot. Dismiss [102]; Carter Mot. Dismiss [104].
This Memorandum Opinion and Order addresses all three pending motions,
which, for the reasons explained below, are each granted in part and denied in part.
I.
Background
A.
Inteliquent’s Second Amended Complaint
1.
The Long Distance Telecommunications Framework
In the telecommunications industry, long distance telecommunications
carriers—commonly referred to as “inter-exchange carriers” (“IXCs”)—take calls
from calling parties and transport them (over long distances, as their name implies)
to geographic areas served by smaller, local exchange carriers (“LECs”). Second
Am. Compl. [55] ¶¶ 4, 53-54. These LECs in turn deliver the calls to called parties
(also known as the “end users”) located within their respective geographic zones.
Calling
Parties
Interexchange
Carrier
("IXC")
Local
Exchange
Carrier
("LEC")
Called Parties
("End Users")
Figure 1. Long Distance Telecommunications
2
Under this default framework—which is heavily regulated—the IXC pays
individual LECs tariffed “access charges” for taking traffic from the IXC and
delivering it to the ultimate end user. Id. ¶ 54. Under federal communications law,
the specific charges that an IXC must pay depend upon multiple factors. Id. ¶ 4.
For example, access charges can include fees for: (1) “tandem switching”—the
handoff of traffic between the IXC and the LEC at a geographical location known as
the “tandem switch”; (2) “tandem transport”—delivery from the tandem switch to
the LEC’s “end office switch” (the location within the local exchange where calls are
switched and routed to the called party); and (3) “end office” services—switching
and final delivery of traffic from the end office switch to the end user. Id. ¶ 55.
Calling
Parties
Long
Distance
Calls
Transported
by IXC
Tandem
Switch
Tandem
Transport
Handoff
between IXC
and LEC
End
Office
Switch
End
Office
Services
End
Users
Transported
by LEC
Figure 2. Access Charges
Although some access charges are flat fees, others are time-based (i.e., linked
to the call duration). Id. ¶ 55. Moreover, tandem transport fees typically possess a
mileage component (the mileage factor depends upon specified coordinates that
measure the distance between the tandem switch and end office switch). Id. ¶¶ 5,
55. By extension, longer calls and calls delivered to rural areas generate relatively
higher tariffed access charges. Id. ¶ 56.
3
In some circumstances, however, rather than deliver traffic and pay
regulated tariff rates directly to an LEC, an IXC may sign a commercial contract
with an intermediary. Id. ¶ 59. The intermediary accepts traffic from the IXC and
arranges with LECs, on its own behalf, for switching and transport to end users.
Id. In this scenario, the intermediary charges the IXC according to the terms of the
commercial contract, then pays LECs their tariffed rates. Id.
Calling
Parties
IXC
Intermediary
LEC
End Users
Figure 3. Long Distance Telecommunications (With Intermediary)
2.
The Relevant Actors
Inteliquent is an IXC with its principal place of business in Chicago, Illinois.
Second Am. Compl. [55] ¶ 55. Free Conferencing is a Nevada corporation with its
principal place of business in Long Beach, California. Id. ¶ 40. Persons that call
Free Conferencing telephone numbers receive free or low-cost services such as
conference calling, chat lines, and streaming radio (thus making it a potential end
user of long distance calls). Id. ¶ 6. Some or all of Free Conferencing’s telephone
numbers are associated with LECs in rural areas, including tribal reservations in
South Dakota. Id. ¶ 66. Native American Telecom, LLC, and Native American
Telecom—Pine Ridge, LLC (collectively, “the Native American Telecom LECs”) are
two such LECs. Id. ¶ 8.
4
In August 2013, Inteliquent signed a Master Services Agreement (“MSA”)
with HD Tandem. Id. Ex. N. Under the MSA, HD Tandem agreed to provide, in
exchange for negotiated fees, termination services for Inteliquent calls destined for
certain areas.1
In other words, instead of terminating its own IXC traffic with
particular LECs, Inteliquent transferred calls to HD Tandem as an intermediary.
Id. ¶ 99.
In mid-2015, Inteliquent agreed to carry the long distance traffic of T-Mobile,
a national wireless communications provider. Id. ¶ 96. Some of T-Mobile’s traffic
terminates to Free Conferencing numbers via the Native American Telecom LECs.
Id.
On October 22, 2015, Inteliquent entered into a “Master Addendum”
agreement with Free Conferencing, HD Tandem, and Wide Voice.2 Id. ¶ 99, Ex. A.
The Master Addendum amended the terms of the MSA and added Free
Conferencing and Wide Voice as parties. Id. ¶ 270. Under the Master Addendum,
Inteliquent agreed that, under certain conditions, it would utilize HD Tandem as an
intermediary to the Native American LECs. Id. Wide Voice owned some of the
equipment used to accept the handoff of traffic between Inteliquent, HD Tandem,
and the Native American Telecom LECs. Id. ¶ 7.
1 The Second Amended Complaint [55] does not specify which geographic areas were covered under
the MSA, or whether they included areas served by the Native American Telecom LECs.
Free Conferencing also entered into the Master Addendum on behalf of Yakfree, LLC (“Yakfree”).
Second Am. Compl. [55] Ex. A. Yakfree is not a party to the present litigation. Id.
2
5
Calling
Parties
T-Mobile
HD
Tandem
Inteliquent
Native
American
Telecom
LECs
Free
Conferencing
Figure 4. Framework Under Master Addendum
Under the Master Addendum, Inteliquent did not pay access charges to the
Native American Telecom LECs. Id. ¶ 99. Instead, it paid HD Tandem at a rate
slightly lower than the Native American Telecom LECs published tariffs. Id. ¶ 124.
Plaintiff claims that this discounted arrangement served as the hook that
incentivized Inteliquent to agree to the contractual approach.
Id.
Inteliquent
maintains, however, that the Master Addendum’s ultimate agreed-upon rate was
“tied to and dependent upon” the tariffed rates that the Native American Telecom
LECs would otherwise be entitled to charge if services had been provided directly to
Inteliquent. Id. ¶¶ 99, 103, 124.
In conjunction with these assertions, Inteliquent also claims that, both before
and after entering into the Master Addendum, representatives of Defendants and
the Native American Telecom LECs assured Inteliquent that charges under the
agreement would be for legitimate termination services. Id. ¶ 96. Specifically,
Inteliquent claims that in the summer of 2015 and April 2016, Joshua Lowenthal,
the Chief Operating Officer of Free Conferencing, assured John Schoder, an
Inteliquent employee, that Inteliquent would only be charged under the Master
6
Addendum “for legitimate services actually performed.” Id. ¶ 97. One of these
misrepresentations purportedly occurred at the “Incompass” telecommunications
trade show in Las Vegas, Nevada. Id. Inteliquent also claims that in October 2015,
Lowenthal and Andrew Nickerson, President of the Native American Telecom LECs
and Chief Executive Officer of Wide Voice, represented to Inteliquent that “it was
necessary and reasonable to charge the rates being charged because of the services
the Native American Telecom LECs actually were providing.” Id. ¶ 106.
Between November 2015 and July 2016, Inteliquent delivered millions of
minutes of telephone traffic each month to HD Tandem for Free Conferencing
numbers associated with the Native American Telecom LECs. Id. ¶¶ 107-111. HD
Tandem then billed Inteliquent for its termination services. Id. These invoices,
which were transmitted via interstate email, occurred on at least ten separate
occasions and itemized calls to numbers associated with Wide Voice and the Native
American Telecom LECs. Id. The invoices directed that payments be electronically
wired to HD Tandem’s account at JPMorgan Chase. Id.
Inteliquent now asserts that these invoices, in whole or in part, charged
Inteliquent for services that were unlawful and part of a concerted fraudulent
scheme on the part of HD Tandem, Free Conferencing, and Wide Voice, as well as
non-party co-conspirators, including the Native American Telecom LECs. Id. ¶ 118.
7
3.
The Alleged Scheme
a)
Phase One: The “Traffic Pumping” Business Model
and the “Sham” Customer
Inteliquent describes Defendants’ fraudulent scheme in three phases. Second
Am. Compl. [55] ¶ 32. The first phase begins with Free Conferencing entering into
supposedly improper “marketing arrangements” with LECs.
Id. ¶¶ 25, 32.
According to Inteliquent’s portrayal of Free Conferencing’s business model, instead
of charging individual callers for its services, Free Conferencing purposefully
secures telephone numbers associated with rural area LECs (such as the Native
American Telecom LECs) to ensure that callers will make rural calls of long
duration. Id. ¶¶ 8, 65, 67. This in turn allows the LECs to charge higher access
charges to IXCs. Id. ¶ 67.
The LECs then share, pursuant to the “marketing
arrangements,” a substantial portion of the access charges they receive with Free
Conferencing. Id.
Inteliquent asserts multiple objections to what they describe as this “traffic
pumping” business model.
See id. ¶ 25.
First, according to Inteliquent, high
mileage-based tandem transport fees are only appropriate if traffic actually
terminates to an end user physically located in a rural area (here, South Dakota).
Id. ¶ 72. Inteliquent claims, however, that the equipment Free Conferencing uses
to provide its services (such as teleconference servers) is not found in South Dakota,
but in locations close to tandem switch locations (the place where, absent a
contractual arrangement, an IXC would otherwise transfer traffic to an LEC). Id.
¶¶ 69, 71. Under this theory, Inteliquent is not actually receiving the costly tandem
8
transport services that they are being charged for under the Master Addendum. Id.
¶ 120; see supra *3 (defining “tandem transport” as the delivery from the tandem
switch to the LEC’s “end office switch” (the location within the local exchange where
calls are switched and routed to the called party)).
Inteliquent further alleges that Free Conferencing does not qualify as a
legitimate telecommunications end user. Id. ¶¶ 129-140. According to Inteliquent,
the “marketing arrangements” Free Conferencing makes with the Native American
Telecom LECs do not resemble traditional arrangements for tariffed services,
because Free Conferencing does not pay any meaningful amount to the Native
American Telecom LECs. Id. ¶¶ 131, 135. Inteliquent further asserts that the
Native American Telecom LECs are substantially linked, through ownership and
management, to Free Conferencing.
Id. ¶ 49.
Inteliquent asserts that this
essentially creates a private network for Free Conferencing to which tariffed access
charges cannot apply. Id. ¶ 53.
b)
Phase Two: The Commercial Arrangement
In the second phase of the purported scheme, IXCs like Inteliquent are
approached by HD Tandem. Second Am. Compl. [55] ¶ 32. HD Tandem presents
itself as a seemingly independent and neutral party that will deliver traffic to LECs
(such as the Native American Telecom LECs) at a cheaper rate than can be
obtained under tariffs.
Id. ¶ 125.
According to Inteliquent, the use of this
intermediary casts a “false air of legitimacy and credibility” to the arrangement. Id.
Inteliquent alleges that, in reality, HD Tandem is not an independent intermediary,
9
but rather operated and managed by the same set of individuals as Free
Conferencing. Id. ¶¶ 26, 32.
Inteliquent claims that, in pursuit of a commercial arrangement, HD Tandem
and the other Defendants make false representations about the legitimacy of the
access charges that can be imposed for calls to Free Conferencing.
Id. ¶ 32.
Defendants then induce parties like Inteliquent to enter into contracts such as the
Master Addendum upon the false belief that the commercial arrangement offers
some element of rate relief. Id. Inteliquent alleges that Defendants utilize these
commercial arrangements as an “evasive tactic” to escape regulatory oversight of
their improper tariffed access charges. Id.
c)
Phase Three: Retaliation
In phase three, Defendants attempt to maintain their revenue stream, even
after an IXC disputes the lawfulness of the access charges that purportedly underlie
the terms of the commercial arrangement. Second Am. Compl. [55] ¶ 32. When a
dispute occurs, Defendants cease providing services under the commercial
arrangement, and the LECs impose unlawful access charges upon IXCs directly via
tariffs. Id. In addition, Defendants resist efforts by IXCs to find alternative and
less costly routes to deliver traffic. Id.
Here, Inteliquent disputed the legitimacy of the charges under the Master
Addendum in July 2016.
Id. Exs. D-F.
Inteliquent alleges that in response,
Defendants improperly suspended service to Inteliquent on July 27, 2016.
10
Id.
¶ 114. Inteliquent claims that, despite the suspension, it has continued to receive
fraudulent invoices from the Native American Telecom LECs. Id. ¶ 115.
B.
Free Conferencing and HD Tandem’s Second Amended
Counterclaim
As one might expect, Free Conferencing and HD Tandem (collectively,
“Counterclaiming Plaintiffs”) describe the circumstances a bit differently.
They
agree that Inteliquent and HD Tandem’s business relationship began with
execution of the MSA in 2013, and that Inteliquent agreed to be the sole provider of
long distance services for T-Mobile in June 2015. Second Am. Counterclaim [94] ¶¶
27, 44. According to Counterclaiming Plaintiffs, however, Inteliquent’s agreement
with T-Mobile burdened Inteliquent with the costs associated with a significant
increase in traffic on Inteliquent’s network. Id. ¶ 46. Moreover, Counterclaiming
Plaintiffs assert that the rates Inteliquent offered to T-Mobile under their
agreement were both aggressively low and guaranteed, thereby making the deal
risky for Inteliquent.
Id. ¶ 47.
Inteliquent stood to suffer substantial losses
(including termination of the T-Mobile agreement) if its costs were higher than
expected and it failed to adequately perform. Id. ¶¶ 48, 51. To further complicate
matters, Inteliquent began exploring merger opportunities with a major competitor
in early 2016. Id. ¶ 49.
Counterclaiming Plaintiffs allege that, by mid-2016, Inteliquent could not
profitably satisfy the T-Mobile agreement. Id. ¶ 59. They allege that, by the end of
the financial quarter, the company risked losing almost 20% of its stock value,
which would undermine the prospect of its hoped-for merger. Id. Counterclaiming
11
Plaintiffs claim that in response, Inteliquent and Carter began implementing an
unlawful plan to reduce its costs.
First, Inteliquent attempted to extort a rate reduction under the Master
Addendum by threatening meritless litigation and withholding termination service
fees. Id. ¶ 60. Specifically, in late June 2016, Carter accused Free Conferencing
and HD Tandem of committing fraud and threatened to file a civil RICO action
unless the Counterclaiming Plaintiffs agreed to a dramatic restructuring of their
termination service rates. Id. ¶ 61. When they refused to acquiesce, Inteliquent
commenced the present litigation on July 5, 2016. Id. ¶¶ 64-65.
The same day, Inteliquent began to default on its monetary obligations to HD
Tandem.
Id. ¶ 65.
invoices.
Id. ¶ 68.
Currently, Inteliquent owes nearly $7 million in unpaid
Counterclaiming Plaintiffs assert that Inteliquent withheld
payments in order to force HD Tandem to default on its own agreements with LECs,
leaving HD Tandem with little choice but to renegotiate Inteliquent’s rate. Id. ¶ 63.
Counterclaiming Plaintiffs allege that, as a result, HD Tandem defaulted on
obligations to its LEC partners, causing significant harm to HD Tandem’s business
reputation. Id. ¶ 79.
The drama does not end there. Counterclaiming Plaintiffs also allege that in
late July 2016—after HD Tandem terminated services to Inteliquent for its failure
to pay—Inteliquent began to fraudulently route calls destined for Free Conferencing
numbers over routes that removed or manipulated the call signaling information.
Id. ¶ 82.
Counterclaiming Plaintiffs allege that this severely compromised the
12
quality of calls to Free Conferencing or caused such calls to be dropped.
Id.
Counterclaiming Plaintiffs further claim that Inteliquent began to “pirate” Free
Conferencing numbers, such that callers received error messages or were diverted
to other services. Id. ¶¶ 82, 84.
Finally, Counterclaiming Plaintiffs assert that in October 2016, in concert
with T-Mobile, Inteliquent launched a campaign to stifle traffic to Free
Conferencing and HD Tandem. Id. ¶ 89. The campaign involved charging callers
extra to make calls to conferencing services associated with HD Tandem (including
Free Conferencing), but not conferencing services served by Inteliquent. Id. ¶ 90.
Counterclaiming Plaintiffs assert that this effort has resulted in a 20-30% reduction
in nationwide T-Mobile traffic to the Counterclaiming Plaintiffs. Id. ¶ 93.
II.
Legal Standard
A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the
complaint for failure to state a claim upon which relief may be granted.” Gen. Elec.
Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). A
motion to dismiss tests the sufficiency of a complaint, not the merits of a case.
Autry v. Northwest Premium Servs., Inc., 144 F.3d 1037, 1039 (7th Cir. 1998). To
survive a motion to dismiss, a complaint must first provide a “short and plain
statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P.
8(a)(2), such that the defendant is given “fair notice” of what the claim is “and the
grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
13
Second, the complaint must contain “sufficient factual matter” to “state a
claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Twombly, 550 U.S. at 570). That is, the allegations must raise the
possibility of relief above the “speculative level.”
E.E.O.C. v. Concentra Health
Servs. Inc., 496 F.3d 773, 776 (7th Cir. 2007). A claim has facial plausibility “when
the pleaded factual content allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556). The plausibility standard “is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013). The
“amount of factual allegations required to state a plausible claim for relief depends
on the complexity of the legal theory alleged,” but “threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Limestone Dev. Corp. v. Vill. Of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).
In evaluating a particular complaint, the Court accepts all well-pleaded allegations
as true and draws all reasonable inferences in favor of the respective plaintiff.
Iqbal, 556 U.S. at 678.
III.
Discussion
The Court will first address the bulk of the issues arising in Inteliquent’s
Second Amended Complaint [55] and Wide Voice’s Motion to Dismiss [65]. Next,
the Court will analyze the majority of the issues in HD Tandem and Free
Conferencing’s Second Amended Counterclaim [94] and Inteliquent and Carter’s
14
respective Motions to Dismiss [102, 104]. Finally, the Court will discuss specific
claims from both the Second Amended Complaint and Second Amended
Counterclaim that call for similar legal analysis.
A.
Inteliquent’s Second Amended Complaint [55] and Wide Voice’s
Motion to Dismiss [65]
Inteliquent asserts nine causes of action in its Second Amended Complaint
[55]: (1) violation of the Racketeer Influenced and Corrupt Organizations (“RICO”)
Act, 18 U.S.C. § 1961, et seq. (Count I); (2) conspiracy to violate the RICO Act
(Count II); (3) common law fraud and fraud in the inducement (Count III); (4)
breach of contract (Count IV); (5) violation of the California Unfair Competition
Law (“UCL”), Cal. Bus. & Prof. Code § 17200, et seq. (Count V); (6) violation of the
Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), 815 ILCS
§ 505/1, et seq. (Count VI); (7) unjust enrichment (Count VII); (8) civil conspiracy
(Count VIII); and (9) breach of contract (Count IX). Following a brief discussion of
heightened pleading standards under Federal Rule of Civil Procedure 9(b), the
Court addresses each claim in turn.
1.
Rule 9(b)’s Heightened Pleading Standards
Rule 9(b) mandates that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated “with particularity.”
Fed. R. Civ. P. 9(b) (emphasis added). In adding “flesh to the bones” of the term, the
Seventh Circuit has “often incanted that a plaintiff ordinarily must describe the
‘who, what, when, where, and how’ of the fraud—‘the first paragraph of any
newspaper story.’”
Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v.
15
Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011) (quoting United States ex rel.
Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854 (7th Cir. 2009)).
In fraud cases
involving misrepresentation, the plaintiff must state “the identity of the person who
made the misrepresentation, the time, place and content of the misrepresentation,
and the method by which the misrepresentation was communicated to the plaintiff.”
Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994).
These heightened pleading requirements serve three main purposes: (1)
protecting a defendant’s reputation from harm; (2) minimizing “strike suits” and
“fishing expeditions”; and (3) providing notice of the claim to the adverse party. Id.
The importance of providing fair notice means that a plaintiff who pleads fraud
“must ‘reasonably notify the defendants of their purported role in the scheme.’” Id.
at 778 (quoting Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992));
see also Guarantee Co. of N. Am., USA v. Moecherville Water Dist., N .F.P., No. 06cv-6040, 2007 WL 2225834, at *2 (N.D. Ill. July 26, 2007) (“The purpose of the more
restrictive pleading standard is to ensure that the accused party is given adequate
notice of the specific activity that the plaintiff claims constituted the fraud, so that
the accused party may file an effective responsive pleading.”). In a case involving
multiple defendants, this means that the complaint “should inform each defendant
of the nature of his alleged participation in the fraud.”
Vicom, 20 F.3d at 777
(quoting DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir.
1987)).
16
Notably, Rule 9(b) applies to “averments of fraud, not claims of fraud.”
Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007) (internal
quotations omitted) (emphasis added); see also Menzies v. Seyfarth Shaw LLP, 197
F. Supp. 3d 1076, 1083 (N.D. Ill. 2016) (mail and wire fraud predicates remain
subject to the Rule 9(b) standards even when contained within a larger RICO
count).
Whether the rule applies, therefore, depends upon a plaintiff’s factual
allegations. Id. A claim that “sounds in fraud” (i.e., one that is premised upon a
course of fraudulent conduct) implicates Rule 9(b)’s heightened pleading standards.
Id.
With this background in mind, the Court turns to the substance of
Inteliquent’s individual allegations.
2.
Count I: Violation of the RICO Act
In Count I, Inteliquent alleges that all Defendants—including Wide Voice—
violated § 1962(c) of the RICO Act. Second Am. Compl. [55] ¶¶ 169-83. To state a
claim under § 1962(c), Inteliquent must allege: (1) conduct; (2) of an enterprise; (3)
through a pattern; (4) of racketeering activity. Richmond v. Nationwide Cassel L.P.,
52 F.3d 640, 644 (7th Cir. 1995) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S.
479, 496 (1985)).
Wide Voice contends that Inteliquent fails to plead sufficient facts to show
that any Defendant, let alone Wide Voice, engaged in a pattern of racketeering
activity.3
Wide Voice Mot. Dismiss [65] 11.
The RICO Act defines “pattern of
The Court’s opinion only addresses the specific objection raised by Wide Voice. At this preliminary
stage, the Court renders no judgment regarding other aspects of Inteliquent’s RICO claim.
3
17
racketeering activity” as the commission of at least two acts of “predicate” activity
enumerated in 18 U.S.C. § 1961(1) that occur within ten years of each other
(excluding any period of imprisonment), with at least one act occurring after the
enactment of RICO itself on October 15, 1970.
Here, Inteliquent alleges that
Defendants engaged in multiple acts of: (1) wire fraud, see 18 U.S.C. § 1843; (2) mail
fraud, see 18 U.S.C. § 1341; and (3) money laundering, see 18 U.S.C. § 1956, all of
which constitute predicate acts of racketeering activity under 18 U.S.C. § 1961(1).
Second Am. Compl. [55] ¶¶ 178-80.
The Court, however, cannot rest here.4 In H.J. Incorporated v. Northwestern
Bell Telephone Company, 492 U.S. 229, 236-50 (1989), the Supreme Court held that
mere proof of two acts of racketeering activity, without more, does not establish a
pattern.
Id. at 237-39.
Instead, the pattern element requires a showing of
continuity plus relationship.
Id. (a plaintiff “must show that the racketeering
predicates are related, and that they amount to or pose a threat of continued
criminal activity”) (emphasis in original). Although proof of these two constituents
of a RICO offense will often overlap in practice, they are discussed separately for
analytic purposes. Id. at 239.
a)
Relationship
Predicate acts are related when they “have the same or similar purposes,
results, participants, victims, or methods of commission, or otherwise are
interrelated by distinguishing characteristics and are not isolated events.” H.J.,
Much of the ensuing discussion is derived from this Court’s extensive discussion of RICO’s pattern
requirement in Menzies v. Seyfarth Shaw LLP, 197 F. Supp. 3d 1076, 1095 (N.D. Ill. 2016).
4
18
492 U.S. at 240 (quoting Dangerous Special Offender Sentencing Act, 18 U.S.C.
§ 3575 et seq.). In this way, RICO’s pattern element “can be shown with either a
‘horizontal’ relationship between the predicate acts themselves or a ‘vertical’
relationship of the predicate acts to the RICO enterprise itself.” Menzies v. Seyfarth
Shaw LLP, 197 F. Supp. 3d 1076, 1095 (N.D. Ill. 2016). Here, the specific predicate
acts alleged were committed close in time to one another (between October 2015 and
July 2016), involved the same victim (Inteliquent), and were part of a single scheme
to defraud Inteliquent with unwarranted access charges.
Thus, the Second
Amended Complaint satisfies the “relationship” portion of the “continuity plus
relationship” test.
b)
Continuity
“Continuity” is “both a closed- and open-ended concept, referring either to a
closed period of repeated conduct, or to past conduct that by its nature projects into
the future with a threat of repetition.” H.J., 492 U.S. 229 at 241. In either case, it
is “centrally a temporal concept.” Id. at 242. Allegations of conduct “that can be
characterized as either closed- or open-ended suffice to satisfy the continuity prong
of the pattern requirement.” Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d
771, 779 (7th Cir. 1994).
Therefore, the Court examines whether the conduct
alleged in Inteliquent’s Second Amended Complaint meets either standard.
(1)
Inteliquent’s Pattern Allegations Lack ClosedEnded Continuity
Closed-ended continuity “involves a course of criminal conduct which has
come to a close.” Midwest Grinding Co., 976 F.2d 1016, 1022 (7th Cir. 1992). In
19
order to demonstrate a pattern over a closed period, Inteliquent must allege “a
series of related predicates extending over a substantial period of time.” H.J., 492
U.S. at 242; Vicom, 20 F.3d at 779. Once again, in passing the RICO Act, Congress
was concerned with “long-term criminal conduct.” H.J., 492 U.S. at 242. Predicate
acts “extending over a few weeks or months and threatening no future criminal
conduct do not satisfy this requirement.” Id.
In Morgan v. Bank of Waukegan, the Seventh Circuit set out a number of
factors for use in a close-ended continuity analysis, including: (1) the number and
variety of predicate acts; (2) the length of time over which they were committed; (3)
the number of victims; (4) the presence of separate schemes; and (5) the occurrence
of distinct injuries. 804 F.2d 970, 975 (7th Cir. 1986). This is a fact-specific inquiry,
“with no one factor being necessarily determinative.” Id. at 976. Nevertheless, “the
second factor—duration—is considered to be the most important and the closest
thing the Court has to a bright-line continuity test.” Guaranteed Rate, Inc. v. Barr,
912 F. Supp. 2d 671, 689-90 (N.D. Ill. 2012) (internal quotations omitted); Jennings
v. Auto Meter Prod., Inc., 495 F.3d 466, 473-74 (7th Cir. 2007) (“The duration of the
alleged racketeering activity is perhaps the most important element of RICO
continuity.”) (internal quotations omitted); Vicom, 20 F.3d at 780 (“[T]his court has
placed great importance on the length of time the alleged predicate acts have
spanned.”). In the end, the Court applies the Morgan factors “with an eye toward
achieving a ‘natural and commonsense’ result.” Vicom, 20 F.3d at 780 (quoting U.S.
20
Textiles, Inc. v. Anheuser-Busch Companies, Inc., 911 F.2d 1261, 1267 (7th Cir.
1990)).
Here, the alleged scheme to defraud Inteliquent took place over the course of
only nine months, from late October 2015 to late July 2016. Although the Seventh
Circuit “does not employ any bright-line rule for how long a closed period must be to
satisfy continuity,” Menzies, 197 F. Supp. 3d at 1100, cases in this circuit
demonstrate that “a time frame of less than nine months likely does not satisfy the
duration requirement.” Vicom, 20 F.3d at 780; see also Midwest Grinding, 976 F.2d
at 1024 (nine-month period insufficient to satisfy duration factor of continuity test);
Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 922 (7th Cir. 1992) (concluding
that “one scheme that lasted at most seven to eight months” was “precisely the type
of short-term, closed-ended fraud” that “this circuit consistently has held does not
constitute a pattern”); Olive Can Co. v. Martin, 906 F.2d 1147, 1151 (7th Cir. 1990)
(calling six months a “short period of time”); Sutherland v. O'Malley, 882 F.2d 1196,
1204 (7th Cir. 1989) (no pattern where single scheme spanned a five-month period).
Indeed, several Seventh Circuit cases have held that even longer time frames do not
constitute a substantial period for the purposes of this analysis. See, e.g., J.D.
Marshall Int’l v. Redstart, Inc., 935 F.2d 815, 821 (7th Cir. 1991) (thirteen months);
U.S. Textiles, 911 F.2d at 1266 (sixteen-months); Hartz v. Friedman, 919 F.2d 469,
473 (7th Cir. 1990) (eighteen-months).
In light of this case law, Inteliquent’s
allegations do not meet the durational aspect of close-ended continuity.
21
Moving to the remaining Morgan factors, Inteliquent alleges only one
criminal scheme. See Second Am. Compl. [55] ¶ 1 (alleging that Defendants “have
engaged and are continuing to engage in a scheme to cheat Inteliquent”) (emphasis
added). While a plaintiff “need not prove multiple schemes to show a RICO pattern,
the presence or absence of multiple schemes is highly relevant to the court’s
determination of whether a RICO pattern has been established.” Guaranteed Rate,
912 F. Supp. 2d at 691 (internal citations omitted). This factor, therefore, also cuts
against a finding of close-ending continuity.
Similarly, Inteliquent only identifies itself as a victim of Defendants’
enterprise. Courts “have repeatedly found that the existence of only one victim cuts
against closed-ended continuity.” Id.; see also Jennings, 495 F.3d at 475 (finding no
pattern in part because plaintiff was the only identifiable victim); Triad Assoc., Inc.
v. Chicago Housing Authority, 892 F.2d 583, 595 (7th Cir. 1989) (same). Although
Inteliquent alleges that “there are undoubtedly other victims besides Inteliquent,” it
does not identify any of them. Second Am. Compl. [55] ¶ 36. This lack of specificity
falls well short of Rule 9(b)’s pleading requirements. See Menzies, 197 F. Supp. 3d
at 1100 (finding allegations of only one victim where plaintiff alleged, without more,
that defendants implemented fraudulent scheme against plaintiff “among others”);
Guaranteed Rate, 912 F. Supp. 2d at 691 (“Although the Amended Complaint
references five other Unsold Units purchased by the Buyers through different
lenders, Guaranteed Rate does not provide any details regarding those transactions
. . . . Guaranteed Rate does not allege the terms or circumstances of those sales, nor
22
does it offer the identity of the lenders or claim that those units were sold at
inflated prices. Accordingly, the Court determines that Guaranteed Rate is the only
victim alleged in the scheme.”).
Inteliquent also alleges only one kind of injury: economic loss resulting from
the imposition of unlawful access charges.
Although these injuries purportedly
result from multiple transactions, “courts have consistently viewed repeated
economic injuries based on a single scheme to defraud as non-distinct.” Id.; see also
Triad, 892 F.2d at 595; U.S. Textiles, 911 F.2d at 1269. This factor, therefore, also
weighs against a finding of close-ended continuity.
Finally, in terms of the predicate acts alleged, Inteliquent relies almost
exclusively upon acts of mail and wire fraud. The “mere ‘multiplicity’ of mailings or
wire communications,” however, “does not automatically translate into a pattern of
racketeering activity.” Menzies, 197 F. Supp. 3d at 1100.
In sum, considering the totality of facts alleged, the Court finds that
Inteliquent has not pled facts sufficient to establish a pattern of racketeering
activity under the closed-ended continuity test.
(2)
Inteliquent’s Pattern Allegations Establish
Open-Ended Continuity
Because the predicate acts alleged cannot support a finding of closed-ended
continuity, the Court now examines whether Inteliquent can fulfill the continuity
prong by establishing open-ended continuity. See Vicom, 20 F.3d at 782. Openended continuity “refers ‘to past conduct that by its nature projects into the future
with a threat of repetition.’” Id. (quoting H.J., 492 U.S. at 241). When “a RICO
23
action is brought before closed-ended continuity can be established, liability
depends on whether the threat of continuity is demonstrated.” Id. (quoting H.J.,
492 U.S. at 242) (emphasis in original) (quotations and modifications omitted).
Thus, “although a RICO plaintiff must show duration to allege closed-ended
continuity, open-ended continuity may satisfy the continuity prong of the pattern
requirement regardless of its brevity.”
Id.
Once again, determining whether
predicate acts establish open-ended continuity requires the Court to examine the
specific facts of each case. Heinrich v. Waiting Angels Adoption Servs., Inc., 668
F.3d 393, 410 (6th Cir. 2012). Open-ended continuity is present when: (1) a specific
threat of repetition exists; (2) the predicates are a regular way of conducting an
ongoing legitimate business; or (3) the predicates can be attributed to a defendant
operating as part of a long-term association that exists for criminal purposes.
Vicom, 20 F.3d at 782 (internal citations and quotations omitted).
It is important to note that, in the context of an open-ended period of
racketeering activity, the threat of continuity must be viewed “at the time the
racketeering activity occurred.”
Heinrich, 668 F.3d at 410; CVLR Performance
Horses, Inc. v. Wynne, 524 F. App’x 924, 929 (4th Cir. 2013). Subsequent events
“are irrelevant.” Heinrich, 668 F.3d at 410. Thus, a lack of a threat of continuity
“cannot be asserted merely by showing a fortuitous interruption of that activity
such as by an arrest, indictment or guilty verdict.” Id.
Here, no facts raised in the Second Amended Complaint support a finding
that, had Inteliquent not disputed access charges in July 2016, Defendants would
24
not still be submitting allegedly fraudulent invoices for termination services
provided under the Master Addendum.
Although the “initial term” of the
agreement was set to expire in October 2016 (twelve months after its effective date),
the contract automatically renewed for successive three-month periods unless
terminated by either party.
Second Am. Compl. [55] Ex. A ¶ 9.
circumstances, such renewals were likely.
Under the
The business relationship between
Inteliquent and HD Tandem extended back to August 2013 (when the parties
signed the initial MSA), id. Ex. N, and Inteliquent had recently agreed to carry TMobile’s long distance traffic, some of which was destined for Free Conferencing
numbers via the Native American Telecom LECs. Id. ¶ 99. In short, the Second
Amended Complaint does not allege a “natural ending point” or “clear and
terminable goal” of the alleged scheme that dispels any “threat” of repetition.
Vicom, 20 F.3d at 782; see also Shields Enterprises, Inc. v. First Chicago Corp., 975
F.2d 1290, 1296 (7th Cir. 1992) (finding threat of continuity partly due to parties’
intent to continue doing business together). Therefore, the Court finds that, at this
preliminary stage, Inteliquent has sufficiently pled a pattern of racketeering
activity under the open-ended continuity test.
c)
Sufficiency Under Rule 9(b)
Of course, the predicate activity allegations of RICO mail and wire fraud are
subject to Rule 9(b), Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1327 (7th Cir.
1994), as are claims of money laundering where, as here, those same claims are
dependent upon mail and wire fraud allegations. Shapo v. O'Shaughnessy, 246 F.
25
Supp. 2d 935, 958 n.4 (N.D. Ill. 2002).
Wide Voice claims that in this regard,
Inteliquent offers insufficient particularity. Specifically, Wide Voice argues that the
Second Amended Complaint “is devoid of any particularized allegation that any
defendant made a specific misrepresentation about anything.”
Wide Voice Mot.
Dismiss [65] 12.
Wide Voice’s assertion, however, misreads the complaint.
Although
Inteliquent does levy numerous blanket allegations that are insufficient under Rule
9(b), see, e.g., Second Am. Compl. [55] ¶¶ 15-16 (“HD Tandem and Free
Conferencing’s leadership made multiple and specific representations to Inteliquent
. . . . [T]hose representations were false.”), 28 (“[Defendants] make repeated explicit
and false representations to Inteliquent that their network and billing practices are
appropriate.”), 115 (Defendants “[f]alsely represent[ed] to Inteliquent that traffic
destined for Free Conferencing is legitimately terminated in South Dakota” and
that the Native American Telecom LECs “perform transport services in South
Dakota as provided in their respective tariffs”), Inteliquent also alleges the
following:
In the summer of 2015 and April 2016, Joshua Lowenthal,
the Chief Operating Officer of Free Conferencing, assured
John Schoder, an Inteliquent employee, that Inteliquent
would only be charged under the Master Addendum “for
legitimate services actually performed.” Id. ¶ 97. One of
these misrepresentations purportedly occurred at the
“Incompass” telecommunications trade show in Las
Vegas, Nevada. Id.
In October 2015, Lowenthal and Andrew Nickerson,
President of the Native American Telecom LECs and
Chief Executive Officer of Wide Voice, represented to
26
Inteliquent that “it was necessary and reasonable to
charge the rates being charged because of the services the
Native American Telecom LECs actually were providing.”
Id. ¶ 106.
For purposes of predicate acts of mail and wire fraud involving
misrepresentations, it is not required that the false representations themselves be
sent through the U.S. mails or made through the use of interstate wires. P & P
Mktg., Inc. v. Ditton, 746 F. Supp. 1354, 1362 (N.D. Ill. 1990) (citing U.S. v. Lea, 618
F.2d 426, 430 (7th Cir. 1980)). Rather, it is only necessary to have a scheme to
defraud “coupled with a mailing or use of interstate wires in furtherance of the
scheme.” Id. (emphasis added). The use of the mails or interstate wires “need not
be an essential part of the scheme”; it is sufficient “if such use is incident to an
essential component of the scheme.” Id. Moreover, the particular defendant at
issue “need not have personally used the mails or interstate wires, it is sufficient
that their use by others was reasonably foreseeable.” Id. (citing U.S. v. Massa, 740
F.2d 629, 642 n.7 (8th Cir. 1984)).
A scheme to defraud can include billing for services either not rendered or
unnecessary.
See, e.g., P & P Mktg., 746 F. Supp. at 1357-65 (charging for
unnecessary parts and services); State Farm Mut. Auto. Ins. Co. v. Abrams, 96-cv6365, 2000 WL 574466, at *12-15 (N.D. Ill. May 11, 2000) (charging for unnecessary
medical services). In this regard, Inteliquent specifically alleges the following:
On at least ten separate occasions (December 7, 2015;
December 18, 2015; January 7, 2016; January 8, 2016;
January 21, 2016; February 6, 2016; February 22, 2016;
February 23, 2016; March 4, 2016; and April 6, 2016), HD
Tandem transmitted invoices to Inteliquent via interstate
27
email. Second Am. Compl. [55] ¶¶ 107-11. These invoices
show calls to numbers associated with Wide Voice and the
Native American Telecom LECs. Id. Ex. G. Furthermore,
the invoices direct that payments be wired to HD
Tandem’s account at JPMorgan Chase. Id.
Since July 27, 2016, Wide Voice sent two invoices—one on
August 10, 2016, the other on September 10, 2016—via
interstate email to Inteliquent. Second Am. Compl. [55]
¶ 117, Exs. L-M.
Inteliquent alleges that these invoices, in whole or in part, “charged Inteliquent for
services that were improper and unlawful.” Id. ¶ 118.
In sum, at this preliminary stage, Inteliquent has adequately pled a pattern
of racketeering activity, and these allegations contain sufficient particularity for the
purposes of Rule 9(b). Therefore, Wide Voice’s Motion to Dismiss [65], as it relates
to Count I, is denied.
3.
Count II: Conspiracy to Violate the RICO Act
In Count II, Inteliquent alleges that Defendants conspired to violate the
RICO Act. Second Am. Compl. [55] ¶¶ 184-97. Wide Voice rests its motion to
dismiss Count II solely upon the principle that “failure to make out a substantive
RICO claim requires dismissal of a conspiracy claim based on the same nucleus of
operative fact.” Meier v. Musburger, 588 F. Supp. 2d 883, 911 (N.D. Ill. 2008).
Although Wide Voice correctly states the law, as discussed above, its motion fails to
undermine Inteliquent’s substantive RICO claim in Count I.
Therefore, Wide
Voice’s Motion to Dismiss [65], as it relates to Count II, is also denied.
28
4.
Count III: Fraud and Fraud in the Inducement5
In Count III, Inteliquent alleges fraud and fraud in the inducement. Second
Am. Compl. [55] ¶¶ 198-206. Wide Voice claims that Inteliquent’s fraud claims
must be dismissed as to Wide Voice because Inteliquent’s allegations are directed
against other Defendants. Once again, Wide Voice misreads the complaint.
The language of Count III itself contains two allegations of fraud specific
enough to satisfy Rule 9(b). In the first, Inteliquent alleges that “Defendants Free
Conferencing Corporation and HD Tandem have concealed the network architecture
involved in delivering calls to Free Conferencing and have misrepresented the
services that the ‘applicable LECs’ actually provide to Inteliquent.”
Id. ¶ 199
(emphasis added). This language, of course, makes no mention of Wide Voice.
In the second allegation, however, Inteliquent claims that Defendants
“compounded and expanded upon” these misrepresentations in the Master
Addendum, which (according to Inteliquent) stated that it would only be charged
the “applicable LEC’s tariffed end office rates.” Id. ¶ 201. Wide Voice is a party to
the Master Addendum. Id. Ex. A.
Moreover, Count III incorporates by references the preceding portions of the
Second Amended Complaint, which, as described above, state that Wide Voice’s
5 The Court notes that, despite being alleged within the same count, common law fraud and fraud in
the inducement constitute independent torts. See White Pearl Inversiones v. Cemusa, Inc., No. 07-cv6365, 2010 WL 2836747, at *6 (N.D. Ill. July 16, 2010), aff’d sub nom. White Pearl Inversiones S.A.
(Uruguay) v. Cemusa, Inc., 647 F.3d 684 (7th Cir. 2011) (analyzing fraud and fraud in the
inducement pled as two separate claims); Guarantee Co. of N. Am., USA v. Moecherville Water Dist.,
N .F.P., No. 06-cv-6040, 2007 WL 2225834, at *1 (N.D. Ill. July 26, 2007) (same). Wide Voice’s
specific objection, however, applies to both theories. The Court, therefore, analyzes both theories in
conjunction.
29
CEO misrepresented to Inteliquent in October 2015 that the access charges were
“necessary” and “reasonable” because of the services that the Native American
Telecom LECs were purportedly providing to HD Tandem.
Id. ¶ 106.
Consequently, Wide Voice’s Motion to Dismiss [65], as it relates to Count III against
Wide Voice, is denied.
5.
Count IV: Breach of Contract
In Count IV, Inteliquent alleges that it was charged at a rate higher than the
Master Addendum permits.
Second Am. Compl. [55] ¶ 211.
According to
Inteliquent, under the Master Addendum, it can only be charged at a rate that is
“not greater than the combination of the applicable LEC’s tariffed end office rates
and the applicable usage based port recovery credit.” Id. Ex. A. ¶ 3 (emphasis
added). Inteliquent theorizes that, because Free Conferencing is not a legitimate
end user, no LEC could charge Inteliquent any tariffed end office rate. Second Am.
Compl. [55] ¶ 215.
The merits of Inteliquent’s argument aside, Wide Voice argues that there is
no allegation that Wide Voice charged Inteliquent anything under the Master
Addendum. The Court agrees. The Second Amended Complaint [55] refers only to
charges levied by HD Tandem.
Plaintiff alleges, for example, that “Inteliquent
delivers the traffic to HD Tandem, and then HD Tandem sends Inteliquent invoices
that reflect the rates as described in . . . the Master Addendum.
Inteliquent
provides the service, then HD Tandem invoices the rates.” Second Am. Compl. [55]
¶ 101 (emphasis added).
Indeed, even within the language of Count IV itself,
30
Plaintiff claims that “Free Conferencing and HD Tandem have charged, and
continue to charge, Inteliquent rates for traffic destined for Native American
Telecom that exceed the permissible amounts under the Master Addendum.” Id.
¶ 216.
Nowhere does Plaintiff allege, however, that it has been charged by Wide
Voice under the agreement. Although Plaintiff claims that Wide Voice submitted
two invoices after July 27, 2016, id. ¶ 117, Exs. L-M., these charges cover services
provided after the Master Addendum was suspended, and thus cannot support
Plaintiff’s breach of contract claim. Therefore, Wide Voice’s Motion to Dismiss [65],
as it relates to Count IV against Wide Voice, is granted.6
6.
Count V: Unfair Competition Under California Law
In Count V, Plaintiff alleges that Defendants violated California’s Unfair
Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200, et seq., “by concealing the
network architecture actually involved in delivering traffic to Free Conferencing
and misrepresenting the services [that] are actually provided to Inteliquent under
the Master Addendum.” Second Am. Compl. [55] ¶ 226.
California’s UCL prohibits, inter alia, “any unlawful, unfair or fraudulent
business act or practice.” Id. Because the statute “is written in the disjunctive, it is
violated where a defendant’s act or practice violates any of the foregoing prongs.”
Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1168 (9th Cir. 2012). In other
words, each of the three adjectives—unlawful, unfair, and fraudulent—“captures ‘a
The Court makes no ruling regarding the sufficiency of Count IV against the remaining
Defendants.
6
31
separate and distinct theory of liability.’” Rubio v. Capital One Bank, 613 F.3d
1195, 1203 (9th Cir. 2010) (quoting Kearns v. Ford Motor Co., 567 F.3d 1120, 1127
(9th Cir. 2009)). Here, Inteliquent relies upon the “unfair” and “fraudulent” prongs.
See Second Am. Compl. [55] ¶ 230; Inteliquent Resp. Wide Voice Mot. Dismiss [72]
18 (stating that Count V asserts a violation of the UCL “based on the defendants’
unfair and fraudulent practices”) (emphasis added).
The term “unfair,” as it is used in the UCL context, “has been defined in
numerous ways, none of which has yet been adopted as controlling” by the
California Supreme Court. Lee v. Pep Boys-Manny Moe & Jack of California, 186 F.
Supp. 3d 1014, 1034-35 (N.D. Cal. 2016) (quoting Pirozzi v. Apple, Inc., 966 F. Supp.
2d 909, 921 (N.D. Cal. 2013)). Under the first test, a business practice is unfair
“where the practice implicates a public policy that is tethered to specific
constitutional, statutory, or regulatory provisions.” Bias v. Wells Fargo & Co., 942
F. Supp. 2d 915, 933 (N.D. Cal. 2013) (internal quotations omitted). The second test
determines “whether the alleged business practice is immoral, unethical,
oppressive, unscrupulous, or substantially injurious to consumers and requires the
court to weigh the utility of the defendant’s conduct against the gravity of the harm
to the alleged victim.”
Id. (internal quotations omitted).
Under the third test,
“unfair” conduct requires that the consumer injury: (1) be substantial; (2) not be
outweighed by any countervailing benefits to consumers or competition; and (3) be
an injury that consumers themselves could not have reasonably avoided. Id.
32
At this preliminary stage, the Court need only determine whether
Inteliquent’s allegations, taken as true, state a plausible claim for relief. Given the
nature of the alleged scheme, Defendants’ conduct plausibly satisfies at least the
first and second “unfair” practice tests. As to the third test, at this time, the Court
cannot find as a matter of law that any supposed benefits to Defendants’ enterprise
outweigh Inteliquent’s injuries.
Therefore, Wide Voice’s Motion to Dismiss [65]
Inteliquent’s UCL claim based upon the “unfair” prong is denied.
Inteliquent’s “fraudulent” theory, however, is another story.
A business
practice is considered fraudulent under the UCL only if “members of the public are
likely to be deceived.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1169 (9th
Cir. 2012) (emphasis added); Imperial Irrigation Dist. v. California Indep. Sys.
Operator Corp., No. 15-CV-1576-AJB-RBB, 2016 WL 4087302, at *13 (S.D. Cal.
Aug. 1, 2016) (interpreting “fraudulent” as used in section 17200 as requiring a
showing that “members of the public are likely to be deceived”).
Here, Inteliquent’s “fraudulent” UCL claim fails to allege that Wide Voice’s
conduct “has or is likely to deceive the public or that the public was even aware” of
Wide Voice’s conduct.
See Imperial Irrigation Dist., 2016 WL 4087302, at *13;
Capella Photonics, Inc. v. Cisco Sys., Inc., 77 F. Supp. 3d 850, 865 (N.D. Cal. 2014)
(dismissing fraudulent UCL claim because “Cisco d[id] not allege that members of
the public have been deceived by Capella’s alleged fraudulent misrepresentations
. . . . Indeed, Cisco does not even allege that members of the public are aware of
Capella’s misrepresentations.”). Although Inteliquent alleges that it was deceived
33
by Defendants’ fraudulent enterprise, a corporate-competitor “is not entitled to the
protection of [the fraudulent] prong of [§ 17200] because it is not a member of the
public or a consumer entitled to such protection.” Watson Labs., Inc. v. RhonePoulenc Rorer, Inc., 178 F. Supp. 2d 1099, 1121 (C.D. Cal. 2001); Imperial Irrigation
Dist., 2016 WL 4087302, at *13. Though “many courts have described the scope of
business activities prohibited by § 17200 in sweeping terms, there is no case
authority that ‘fraudulent’ business acts are separately actionable by business
competitors absent a showing that the public, rather than merely the plaintiff, is
likely to be deceived.” Watson, 178 F. Supp. 2d at 1121.
In response, Inteliquent claims that the UCL authorizes suits by private
corporations. Inteliquent Resp. Wide Voice Mot. Dismiss [72] 19; see Cal. Bus. &
Prof. Code § 17204 (“Actions for relief pursuant to this chapter shall be prosecuted
. . . upon the complaint of a board, officer, person, corporation, or association . . .
who has suffered injury in fact and has lost money or property as a result of the
unfair competition.”).
A private right of action, however, does not exempt a
corporate plaintiff from the UCL’s proof requirements. See Travelers Prop. Cas. Co.
of Am. v. Centex Homes, No. 11-3638-SC, 2013 WL 4528956, at *5 (N.D. Cal. Aug.
26, 2013) (“As Travelers points out, the UCL expressly allows for actions by private
corporations. However, both private individuals and corporations must show that
the alleged wrongdoing has some impact on the general public.”). Therefore, Wide
Voice’s Motion to Dismiss [65] the fraudulent prong of Inteliquent’s UCL claim is
granted.
34
7.
Count VIII: Civil Conspiracy
Illinois law defines civil conspiracy as “a combination of two or more persons
for the purpose of accomplishing by concerted action either an unlawful purpose or a
lawful purpose by unlawful means.” McClure v. Owens Corning Fiberglas Corp.,
720 N.E.2d 242, 258 (Ill. 1999) (quoting Buckner v. Atlantic Plant Maintenance,
Inc., 694 N.E.2d 565, 571 (Ill. 1998)). To state a claim for conspiracy, a plaintiff
must allege: (1) an agreement between two or more persons for the purpose of
accomplishing either an unlawful purpose or a lawful purpose by unlawful means;
and (2) at least one tortious act by one of the co-conspirators in furtherance of the
agreement that caused an injury to the plaintiff. Borsellino v. Goldman Sachs Grp.,
Inc., 477 F.3d 502, 509 (7th Cir. 2007) (citing McClure, 720 N.E.2d at 258). A civil
conspiracy cause of action exists “only if one of the parties to the agreement
commits some act in furtherance of the agreement, which is itself a tort.” Simon v.
Nw. Univ., 175 F. Supp. 3d 973, 986 (N.D. Ill. 2016) (quoting Adcock v. Brakegate,
Ltd., 645 N.E.2d 888, 894 (Ill. 1994)); see also Indep. Trust Corp. v. Stewart Info.
Servs. Corp., 665 F.3d 930, 939 (7th Cir. 2012).
Wide Voice argues that Inteliquent cannot establish that the alleged
fraudulent scheme was tortious or unlawful.
As discussed supra, however, the
Court has found that Inteliquent adequately pled, as it relates to Wide Voice, causes
of action for RICO, fraud, fraud in the inducement, and the California UCL.
Therefore, Wide Voice’s Motion to Dismiss [65], as it relates to Count VIII, is
denied.
35
8.
Count IX: Breach of Contract
In Count IX, Inteliquent accuses Defendants of breaching the Master
Addendum by suspending services to Inteliquent in July 2016, after Inteliquent
disputed certain charges and filed its initial complaint in the present litigation.
Second Am. Compl. [55] ¶¶ 265-304. As with Count IV, Wide Voice seeks dismissal
of Count IX as to Wide Voice because there is no allegation that Wide Voice either
suspended service under the Master Addendum or was obligated to handle
Inteliquent’s traffic. Once again, the Court agrees.
Inteliquent specifically alleges that, on July 5, 2016 (the day Inteliquent filed
its initial complaint), “defendants demanded that Inteliquent make a deposit of
disputed amounts within two days of the notice,” and that “defendants offered no
justification for that demand other than claiming the right to do so under the terms
of the Master Services Agreement.”
Second Am. Compl. [55] ¶ 276 (emphasis
added). In this way, Inteliquent attempts to impute the deposit demand upon all
defendants generally. Inteliquent, however, attached a copy of the July 5, 2016
notice to its complaint. Id. Ex. O; see Fed. R. Civ. P. 10(c) (“A copy of a written
instrument that is an exhibit to a pleading is a part of the pleading for all
purposes.”). A review of the notice reveals that it was sent on behalf of HD Tandem
specifically, not all Defendants. Id. This makes sense, since Inteliquent and HD
Tandem constitute the only parties to the Master Services Agreement. Id. Ex. N.
Inteliquent further alleges that on July 6, 2016, “defendants issued a notice
to Inteliquent that Inteliquent had allegedly defaulted on paying the May 2016
36
invoice,” and that “defendants threatened that if Inteliquent did not pay the full
amount of the invoice . . . within seven days of the notice . . . the defendants would
stop delivering Inteliquent’s traffic.” Id. ¶ 278. Once again, Inteliquent’s general
allegation against all Defendants must be read in context. Like the July 5, 2016
notice, the notice sent on July 6, 2016 was sent only on behalf of HD Tandem. Id.
Ex. P.
Inteliquent also alleges that, on July 11, 2016, all Defendants imposed a $1.5
million credit limit upon Inteliquent under Master Services Agreement. Id. ¶ 282.
Inteliquent asserts that this demand was “baseless pretext to threaten retaliation
against Inteliquent for raising a good-faith dispute about the defendants’
overcharges.”
Id.
Here again, however, the complete record shows that the
relevant act was implemented by HD Tandem, not all Defendants. Id. Ex. Q.
Finally, Plaintiff alleges that “defendants suspended services to Inteliquent”
on July 27, 2016. Id. ¶ 300. Pursuant to both the Master Services Agreement and
Master Addendum, such services were provided by HD Tandem, not Wide Voice. Id.
Exs. A, N. In short, to the extent Inteliquent asserts a contract dispute regarding
the suspension of services, it exists between Inteliquent and HD Tandem, not Wide
Voice. Therefore, Wide Voice’s Motion to Dismiss [65], as it relates to Count IX
against Wide Voice, is granted.7
The Court makes no ruling regarding the sufficiency of Count IX against the remaining
Defendants.
7
37
B.
Counterclaiming Plaintiffs’ Second Amended Counterclaim
[94] and Inteliquent and Carter’s Motions to Dismiss [102, 104]
HD Tandem and Free Conferencing assert seven causes of action in their
Second Amended Counterclaim [94]: (1) breach of contract (Count I); (2) unjust
enrichment (Count II); (3) tortious interference with HD Tandem’s contracts (Count
III); (4) intentional interference with HD Tandem’s prospective economic advantage
(Count IV); (5) tortious interference with Free Conferencing’s contracts (Count V);
(6) intentional interference with Free Conferencing’s prospective economic
advantage (Count VI); and (7) violation of the ICFA (Count VII).
1.
Counts III through VI: Tortious Interference
a)
Carter’s Managerial Privilege
Carter claims that Counterclaiming Plaintiffs’ tortious interference claims
against him fail because, under Illinois and California law, he is protected by
“managerial privilege.”
Carter Mem. Supp. Mot. Dismiss [105] 10-16.
Carter
asserts that, under the privilege, a corporate officer may, under certain
circumstances, counsel the breach of a contract which he reasonably believes to be
harmful to his client’s interests. Id.
Carter’s argument fails.
Every case cited in Carter’s motion—from both
Illinois and California—involves a fiduciary interfering with a beneficiary’s own
contract.
Here, Counterclaiming Plaintiffs allege tortious interference with
Counterclaiming Plaintiffs’ contracts and business expectances with independent
third parties. To the extent any “managerial privilege” exists, it does not apply to
such allegations. See Serv. By Air, Inc. v. Phoenix Cartage & Air Freight, LLC, 78
38
F. Supp. 3d 852, 865 (N.D. Ill. 2015) (stating that purpose of managerial privilege is
to protect corporate defendants from litigation every time they exercise “their
business discretion to cause their corporations not to perform a contract”) (emphasis
added) (internal quotations and modifications omitted); O’Grady v. CONMED Corp.,
No. C 13-5242 CW, 2014 WL 794028, at *4 (N.D. Cal. Feb. 26, 2014) (“[T]he
manager’s privilege protects a company’s manager from liability to a third party for
advising or inducing his company to breach its contract with the third party. . . .
The managerial privilege does not apply where the manager interferes with
contracts to which the employer is not a party.”) (emphasis added) (internal
citations omitted).
b)
Sufficiency of Allegations
Counts III through VI allege that Inteliquent and Carter tortuously
interfered with contracts and prospective business opportunities of both HD
Tandem and Free Conferencing. The Court begins, therefore, with a discussion of
the elements required under Illinois law to assert both types of claims.
To state a claim for tortious interference with contracts, a plaintiff must
allege: (1) the existence of a valid and enforceable contract between the plaintiff and
another; (2) the defendant’s awareness of this contractual relation; (3) the
defendant’s intentional and unjustified inducement of a breach of the contract; (4) a
subsequent breach by the other, caused by the defendant’s wrongful conduct; and
(5) damages. Healy v. Metro. Pier & Exposition Auth., 804 F.3d 836, 842 (7th Cir.
39
2015) (quoting HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d
672, 676 (Ill. 1989)).
To state a claim for intentional interference with prospective economic
advantage, a plaintiff must allege: (1) a reasonable expectancy of entering into a
valid business relationship; (2) the defendant’s knowledge of the expectancy; (3) an
intentional and unjustified interference by the defendant that induced or caused a
breach or termination of the expectancy; and (4) damage to the plaintiff resulting
from the defendant’s interference. Foster v. Principal Life Ins. Co., 806 F.3d 967,
971 (7th Cir. 2015) (quoting Voyles v. Sandia Mortgage Co., 751 N.E.2d 1126, 1133
(Ill. 2001)). The Federal Rules do not require a plaintiff to allege, at the pleading
stage, “the specific third party or class of third parties” with whom the plaintiff
claims to have had a valid business expectancy. Cook v. Winfrey, 141 F.3d 322, 328
(7th Cir. 1998) (emphasis added); Tamburo v. Dworkin, No. 04-cv-3317, 2010 WL
5476780, at *7 (N.D. Ill. Dec. 29, 2010).
Nevertheless, “there is a long line of cases—both from the Illinois appellate
courts and from federal courts within this district—explaining that the element of
interference [in both torts] requires more than mere allegations of conduct between
the plaintiff and defendant.” Premier Transp., Ltd. v. Nextel Commc’ns, Inc., No.
02-cv-4536, 2002 WL 31507167, at *1-2 (N.D. Ill. Nov. 12, 2002) (collecting cases).
Rather, a plaintiff must assert action by the interfering party directed toward the
party with whom the plaintiff is conducting, or expects to conduct, business. See
Fredrick v. Simmons Airlines, Inc., 144 F.3d 500, 503 (7th Cir. 1998) (discussing
40
requirement “that the defendants’ actions be ‘directed toward’ the third party or
parties with whom the plaintiff had the business expectancy”); Peco Pallet, Inc. v.
Nw. Pallet Supply Co., No. 1:15-cv-06811, 2016 WL 5405107, at *13 (N.D. Ill. Sept.
28, 2016) (“[T]o state a claim for tortious interference with contract, the alleged
interference must have been directed toward the third party, not the plaintiff.”);
Hackman v. Dickerson Realtors, Inc., 746 F. Supp. 2d 962, 972 (N.D. Ill. 2010)
(“Actions directed towards plaintiffs, even if they allegedly interfered with plaintiffs
ability to continue dealing with their own customers[,] cannot support a claim for
tortious interference.”); Int’l Star Registry of Illinois v. ABC Radio Network, Inc.,
451 F. Supp. 2d 982, 992 (N.D. Ill. 2006) (although under Cook, a plaintiff “is not
required to allege the specific third party or class of third parties with whom it
claims to have had a valid business expectancy,” it is “well established that the
assertedly tortious interference allegedly committed by the defendant must be
directed toward the third party or parties with whom the plaintiff had the business
expectancy—not simply toward the plaintiff”) (quotations omitted); Unique
Envelope Corp. v. GSAmerica, Inc., No. 00-cv-7811, 2002 WL 598511, at *4 (N.D. Ill.
Apr. 18, 2002) (“A plaintiff states a cause of action only if he alleges . . . action by
the interfering party directed toward the party with whom the plaintiff expects to
do business.”); Boffa Surgical Grp. LLC v. Managed Healthcare Assocs. Ltd., 47
N.E.3d 569, 577 (Ill. App. Ct. 2015) (“A plaintiff states a cause of action for tortious
interference with prospective economic advantage only if he alleges a business
expectancy with a specific third party as well as action by the defendant directed
41
toward that third party; it is not enough for the defendant’s action to impact a third
party, rather, the defendant’s action must be directed towards the third party.”)
(internal citation and quotation omitted).
HD Tandem’s tortious interference claims (Counts III and IV) fail this test.
Both causes of action focus on HD Tandem’s existing and prospective business
relationships with LECs. See Second Am. Compl. [94] ¶¶ 116 (“HD Tandem has
valid and enforceable contracts with its LEC partners”), 120 (“Inteliquent and
Carter intentionally and without justification interfered with the LEC Contracts”),
130 (“HD Tandem is a growing company that relies upon new connections with
LECs in different geographic areas to grow its business and be successful”), 133
(“Inteliquent and Carter intentionally and without justification interfered with HD
Tandem’s prospective economic advantage and relationships with other LECs”).
Count III (tortious interference with contract), however, alleges that
Inteliquent and Carter disrupted HD’s Tandem’s contracts with LECs by
“purposefully withholding payments” from HD Tandem in order to “extort and
coerce HD Tandem to provide Inteliquent with a rock bottom rate.” Second Am.
Counterclaim [94] ¶ 119.
Similarly, Count IV (tortious interference with
prospective economic advantage) alleges that Inteliquent and Carter interfered with
HD Tandem’s prospective relationships with other LECs by “purposefully and
without cause withholding payments to HD Tandem and otherwise extorting HD
Tandem to lower the rate it was charging Inteliquent for T-Mobile traffic” and
“supplying T-Mobile with information to target calls to HD Tandem’s network with
42
additional charges.” Id. ¶¶ 133, 136. This purported misconduct is not directed
toward the LECs with whom HD Tandem conducts, or expects to conduct, business.
Under Illinois law, this is not enough to adequately allege a tortious interference
claim. Therefore, Inteliquent and Carter’s Motions to Dismiss [102, 104], as they
relate to Counts III and IV, are granted.
These
deficiencies extend,
in
part, to Free Conferencing’s tortious
interference claims (Counts V and VI). Count V alleges that Inteliquent and Carter
intentionally interfered with Free Conferencing’s existing user agreements with its
registered users (what it deems as its “customer contracts.”). See, e.g., Second Am.
Compl. [94] ¶ 143 (“Free Conferencing currently has millions of registered users
who have signed up for its service and agreed to its contract entitled ‘Terms and
Conditions,’ pursuant to which they use the service”). Free Conferencing alleges,
however, that Inteliquent and Carter’s misconduct caused Free Conferencing to
breach its customer contracts.
Id. ¶ 145 (“Inteliquent and Carter knew of the
Customer Contracts and intentionally and without justification disrupted the
performance of the Customer Contracts causing Free Conferencing to breach its
Customer Contracts.”) (emphasis added). To state a claim for tortious interference
with contracts, Free Conferencing must allege, inter alia, the existence of a valid
and enforceable contract between the plaintiff and another, and a subsequent
breach by the other, caused by the defendant’s wrongful conduct. Healy, 804 F.3d
836, 842 (7th Cir. 2015). Free Conferencing fails to plead this particular scenario.
43
Therefore, Inteliquent and Carter’s Motions to Dismiss [102, 104], as they relate to
Count V, are granted.
Free Conferencing’s pleading deficits, however, end there. Count VI details
Free Conferencing’s prospective business relationships with registered users with
whom it hopes to establish new customer contracts. See, e.g., Second Am. Compl.
[94] ¶ 157 (“Inteliquent and Carter knew of the prospective economic advantage
Free Conferencing enjoys with the participants in its conferences that are the
source of its success and growth”). As in Count V, Free Conferencing alleges action
by Inteliquent and Carter directed towards those specific third parties. See, e.g., id.
¶¶ 145 (stating that Inteliquent and Carter “prevent[ed] large numbers of its
customers from using Free Conferencing’s services”), 57, 89, 159 (accusing
Inteliquent and Carter of intercepting calls intended for Free Conferencing and
playing a message “requiring callers to press a button to complete the call” and
“advising them of an additional charge to complete calls to Free Conferencing”).
These allegations are sufficient to plead a claim for tortious interference with
prospective economic advantage. See Foster v, 806 F.3d at 971 (7th Cir. 2015).
Therefore, Inteliquent and Carter’s Motions to Dismiss [102, 104], as they relate to
Count VI, are denied.8, 9
8 Inteliquent briefly argues that Free Conferencing fails “to identify any principle that makes
Inteliquent’s alleged conduct unjustified.” Inteliquent Mot. Dismiss [102] 17; Inteliquent Reply [137]
8. Indeed, to prove tortious interference, a plaintiff must show that the defendant’s actions were
unjustified. See Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 398-99 (7th Cir. 2003).
At this preliminary stage, however, the Court only evaluates the sufficiency of the pleadings, and
Free Conferencing alleges that Inteliquent’s acted with “malice” and “without justification.” Second
Am. Counterclaim [94] ¶¶ 145-46, 153, 158, 161, 164. These allegations, combined with the
remainder of the Second Amended Counterclaim, satisfy federal pleading requirements.
44
C.
Remaining Causes of Action
1.
Unjust Enrichment
Count VII of Inteliquent’s Second Amended Complaint [55] and Count II of
HD Tandem’s Second Amended Counterclaim [94] both allege unjust enrichment.
Unjust enrichment “is a ‘quasi-contract’ theory that permits courts to imply the
existence of a contract where none exists in order to prevent unjust results.”
Prudential Ins. Co. of Am. v. Clark Consulting, Inc., 548 F. Supp. 2d 619, 622 (N.D.
Ill. 2008). When a relationship is governed by contract, however, the parties “may
not bring a claim of unjust enrichment unless the claim falls outside the contract.”
Util. Audit, Inc. v. Horace Mann Serv. Corp., 383 F.3d 683, 688-89 (7th Cir. 2004)
(citing Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 397 (7th Cir.
2003)). The reason for this prohibition “is to prohibit a party whose expectations
were not realized under the contract from nevertheless recovering outside the
contract.” Id. In determining whether a claim falls outside a contract, “the subject
matter of the contract governs, not whether the contract contains terms or
provisions related to the claim.” Id.
9 Inteliquent also argues that Counts V through VII of Counterclaiming Plaintiffs’ Second Amended
Counterclaim should be referred to the FCC under the doctrine of primary jurisdiction. Inteliquent
Mem. Supp. Mot. Dismiss [103] 9-13. The doctrine of primary jurisdiction allows a federal court to
refer a matter “extending beyond the conventional experiences of judges or falling within the realm
of administrative discretion to an administrative agency with more specialized experience, expertise,
and insight.” In re StarNet, Inc., 355 F.3d 634, 639 (7th Cir. 2004) (internal quotations omitted).
The doctrine, however, “should seldom be invoked unless a factual question requires both expert
consideration and uniformity of resolution.” United States v. McDonnell Douglas Corp., 751 F.2d
220, 224 (8th Cir. 1984) (internal quotations omitted). At this preliminary stage, the Court is simply
evaluating whether, as a matter of law, Counterclaiming Plaintiffs’ allegations state plausible claims
for relief. Clearly, the doctrine “does not extend to a legal question that is within the conventional
competence of the courts.” Nat’l Commc’ns Ass’n, Inc. v. Am. Tel. & Tel. Co., 46 F.3d 220, 223 (2d
Cir. 1995) (internal quotations omitted). Therefore, at this juncture, the Court declines Inteliquent’s
invitation.
45
Here, both Inteliquent and HD Tandem acknowledge the existence an
express contract governing payment for termination services.
See Second Am.
Compl. [55] ¶ 208 (“The Master Addendum is a valid and enforceable contract.”);
Second Am. Counterclaim [94] ¶ 95 (“The MSA and Master Addendum are valid and
enforceable contracts executed by Inteliquent and HD Tandem”). As a result, both
unjust enrichment claims are barred. See Grayson v. Shanahan, No. 16-cv-1297,
2016 WL 6962827, at *3 (N.D. Ill. Nov. 29, 2016).
In response, HD Tandem argues that it has pled its unjust enrichment claim
in the alternative. Under Illinois law, a party may make an unjust enrichment
claim in the alternative to a breach of contract claim “if the party demonstrates that
the claim is brought in the alternative and does not refer to an express contract
governing the parties’ relationship.” Id. This exception does not apply, however,
“when a plaintiff’s unjust enrichment claim incorporates allegations of the existence
of an express contract between the parties.” Id. Here, both Inteliquent and HD
Tandem have done exactly that by pleading that all “foregoing” paragraphs of their
respective complaints—which discuss the Master Services Agreement and Master
Addendum at length—“are incorporated by reference as if fully set forth in this
paragraph.” Second Am. Compl. [55] ¶ 249; Second Am. Counterclaim [94] ¶ 108.
Such language has proven to be “the downfall of complaints” in similar cases.
Prudential Ins. Co. of Am. v. Clark Consulting, Inc., 548 F. Supp. 2d 619, 623 (N.D.
Ill. 2008); see also Cole-Haddon, Ltd. v. Drew Philips Corp., 454 F. Supp. 2d 772,
777 (N.D. Ill. 2006) (dismissing unjust enrichment claim where “paragraph 29 of the
46
complaint reasserts all allegations previously stated, including those claiming the
existence of a contract”); Homestead Ins. Co. v. Chicago Transit Auth., No. 96-cv4570, 1997 WL 43232, at *4 (N.D. Ill. Jan. 23, 1997) (dismissing unjust enrichment
claim where claim “adopts by reference all the allegations in the contract claim . . .
including paragraphs alleging an express contract between the parties.”).
Therefore, Wide Voice’s Motion to Dismiss [65], as it relates to Count VII of
Inteliquent’s Second Amended Complaint, is granted, as is Inteliquent’s Motion to
Dismiss [102], as it relates to Count II of the Counterclaiming Plaintiffs’ Second
Amended Counterclaim.
2.
Violations of the ICFA
Count VI of Inteliquent’s Second Amended Complaint [55] and Count VII of
HD Tandem’s Second Amended Counterclaim [94] both allege violations of the
Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), which
prohibits, inter alia, “unfair or deceptive acts or practices.” 815 ILCS § 505/2.
The ICFA is a “regulatory and remedial statute intended to protect
consumers, borrowers, and business persons against fraud, unfair methods of
competition, and other unfair and deceptive business practices.” Boyd v. U.S. Bank,
N.A., ex rel. Sasco Aames Mortg. Loan Trust, Series 2003-1, 787 F. Supp. 2d 747,
751 (N.D. Ill. 2011) (quoting Robinson v. Toyota Motor Credit Corp., 775 N.E.2d 951,
960 (Ill. 2002)). It is to be “liberally construed to effectuate that purpose.” Price v.
Philip Morris, Inc., 848 N.E.2d 1, 32 (Ill. 2005). The statute provides redress “not
only for deceptive business practices, but also for business practices that, while not
47
deceptive, are unfair.” Boyd, 787 F. Supp. 2d at 751. The elements of an ICFA
claim are: (1) a deceptive or unfair act or practice by the defendant; (2) the
defendant’s intent that the plaintiff rely upon the deceptive or unfair practice; and
(3) the unfair or deceptive practice occurred during a course of conduct involving
trade or commerce. Hickman v. Wells Fargo Bank N.A., 683 F. Supp. 2d 779, 793-94
(N.D. Ill. 2010).
a)
Counterclaiming
Unfair Acts
Plaintiffs
Sufficiently
Allege
Inteliquent argues that the particular allegations brought by HD Tandem
and Free Conferencing do not constitute unfair acts. Unfairness under the ICFA
“depends on a case-by-case analysis.” Siegel v. Shell Oil Co., 612 F.3d 932, 935 (7th
Cir. 2010). To determine whether a business practice is unfair, the court considers
whether the practice: (1) offends public policy; (2) is immoral, unethical, oppressive,
or unscrupulous; and (3) causes substantial injury to consumers.
Boyd, 787 F.
Supp. 2d at 751 (quoting Robinson, 775 N.E.2d at 961). All three criteria “do not
need to be satisfied to support a finding of unfairness.” Id. A practice may be
unfair “because of the degree to which it meets one of the criteria or because to a
lesser extent it meets all three.” Id.
Here, HD Tandem and Free Conferencing allege that Inteliquent and Carter:
(1) extorted HD Tandem in an attempt to lower its terminal service rates; (2) raised
frivolous disputes in order to wrongfully withhold $7 million in payments; (3) in
concert with T-Mobile, disrupted calls en route to Free Conferencing with messages
requiring callers to press a button to complete the call and advising them of
48
additional charges; and (4) fraudulently transmitted calls through HD Tandem’s
network without its consent. Second Am. Counterclaim [94] ¶ 167. Accepting these
allegations as true, the Court finds such allegations sufficient to state a claim of
unfair business practices under the ICFA.
Therefore, Inteliquent and Carter’s
Motions to Dismiss [102, 104], as they relate to Count VII of the Counterclaiming
Plaintiffs’ Second Amended Counterclaim, are denied.
b)
Inteliquent Qualifies as a Consumer
Finally, Wide Voice asserts that Inteliquent lacks standing to bring its ICFA
claim because the ICFA is limited to: (1) consumers; and (2) non-consumers who can
demonstrate a nexus between their injuries and injuries to the ultimate consumer.
Indeed, the ICFA is “primarily concerned with protecting consumers.” AGFA Corp.
v. Wagner Printing Co., No. 02-cv-2400, 2002 WL 1559663, at *2 (N.D. Ill. July 10,
2002); Web Communications Group, Inc. v. Gateway 2000, Inc., 889 F. Supp. 316,
323 (N.D. Ill. 1995).
When a dispute “involves two businesses that are not
consumers,” the alleged conduct must satisfy the “consumer nexus test”; the
plaintiff “must allege facts showing the conduct involves trade practices directed to
the market generally or otherwise relates to consumer protection issues.” Glob.
Total Office Ltd. P’ship v. Glob. Allies, LLC, No. 10-cv-1896, 2011 WL 3205487, at
*2 (N.D. Ill. July 28, 2011); Athey Products Corp. v. Harris Bank Roselle, 89 F.3d
430, 437 (7th Cir. 1996). On the other hand, “as long as the plaintiff, whether a
business entity or a person, is a consumer, it need only show a personal injury
caused by the fraudulent or deceptive acts.” AGFA Corp., 2002 WL 1559663, at *2
49
(quoting Skyline International Development v. Citibank, F.S.B., 706 N.E.2d 942, 946
(Ill. App. Ct. 1998)); Cocroft v. HSBC Bank USA, N.A., No. 10-cv-3408, 2012 WL
1378645, at *6 (N.D. Ill. Apr. 20, 2012); Sutter Ins. Co. v. Applied Sys., Inc., No. 02cv-5849, 2004 WL 161508, at *6 (N.D. Ill. Jan. 26, 2004).
Here, Inteliquent qualifies as a consumer under the statute.
The ICFA
defines “consumer” as “any person who purchases or contracts for the purchase of
merchandise not for resale in the ordinary course of his trade or business but for his
use or that of a member of his household.” 815 ILCS § 505/1(e). A “person” includes
a corporation or other business entity. Id. § 505/1(c). Moreover, “merchandise”
includes “services.” Id. § 505/1(b); Underwriters Labs., Inc. v. Solarcom LLC, No.
02-cv-3933, 2002 WL 31103476, at *4 (N.D. Ill. Sept. 18, 2002) (“The [ICFA]
expressly includes ‘services.’”).
Inteliquent contracted, through the Master
Addendum, for the provision of “Voice Termination Services.” Second Am. Compl.
[55] Ex. A ¶ 3 (emphasis added).
As described supra, these services include
“tandem switching,” “tandem transport,” and “end office” services. Inteliquent does
not resell these items to customers. See AGFA Corp., 2002 WL 1559663, at *2.
Therefore, based upon the facts alleged, Inteliquent maintains standing to pursue
an ICFA claim. Wide Voice’s Motion to Dismiss [65], as it relates to Count VI, is
denied.
IV.
Conclusion
The Motions to Dismiss for Failure to State a Claim filed by Wide Voice [65],
Inteliquent [102], and Carter [104] are granted in part and denied in part, as
50
discussed above.
Counts IV, VII, and IX of Inteliquent’s Second Amended
Complaint [55] are dismissed as they relate to Wide Voice, as is Count V, to the
extent it alleges fraudulent business practices.
Second Amended Complaint stands.
Second
Amended
Counterclaim
The remainder of Inteliquent’s
Counts II-V of Counterclaiming Plaintiffs’
[94]
are
dismissed.
The
remainder
Counterclaiming Plaintiffs’ Second Amended Counterclaim stands.
of
The status
hearing previously set for April 4, 2017 stands. At that time, the parties shall be
prepared to discuss additional case management dates and issues.
Date: March 30, 2017
Entered:
____________________________________
John Robert Blakey
United States District Judge
51
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?