Inteliquent, Inc. v. Free Conferencing Corporation et al
Filing
722
MEMORANDUM Opinion and Order Signed by the Honorable John Robert Blakey on 11/30/2020. Mailed notice(gel, )
Case: 1:16-cv-06976 Document #: 722 Filed: 11/30/20 Page 1 of 62 PageID #:31618
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
INTELIQUENT, INC.
Plaintiff and Counterclaim
Defendant,
Case No. 16-cv-06976
v.
Judge John Robert Blakey
FREE CONFERENCING
CORPORATION, individually and
d/b/a HD TANDEM; HDPSTN, LLC
d/b/a/ HD TANDEM; WIDE VOICE,
LCC; and CARRIERX, LLC,
Defendants and Counterclaimants.
MEMORANDUM OPINION AND ORDER
This case arises from the breakdown of the relationship between Inteliquent, Inc.
and various players in the telecommunications industry. Plaintiff Inteliquent, Inc. sued
Free Conferencing, HD Tandem, Wide Voice, CarrierX, and Yakfree.
See [315].
Defendants counter-sued, see [336], [338], naming Inteliquent and Matthew J. Carter
as counter-defendants. Defendants move for summary judgment on all of Inteliquent’s
remaining claims. See [566]. They also move for partial summary judgment on all
claims as to the calls HD Tandem transmitted to local exchange carriers (LECs) other
than certain Native American Telecommunications (NATs) entities that terminated in
the geographic regions of those non-NAT LECs. [566]; [582]. Inteliquent and Carter
(collectively Inteliquent or Counter Defendants) cross-move for summary judgment on
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Inteliquent’s remaining claims. [580]. Inteliquent and Carter also seek summary
judgment in their favor on HD Tandem, CarrierX, and Free Conferencing’s remaining
counterclaim and on Wide Voice’s counterclaims.
For the reasons explained herein, the Court grants in part and denies in part the
parties’ motions.
BACKGROUND
The following facts come from Defendants’ LR 56.1 statement of material facts,
[570], and Counter Defendants’ statement of material facts, [583].
I.
The Parties
Inteliquent, a Delaware corporation, operates its principal place of business in
Chicago, Illinois.
[583] ¶ 1.
Inteliquent’s business includes servicing other
telecommunication companies such as T-Mobile, primarily as a long-distance carrier,
known as an interexchange carrier (IXC). Id. ¶ 16.
Counter Defendant Matthew J. Carter formerly served as Inteliquent’s CEO
from June 2015 to March 2017. Id. ¶ 2. Mr. Carter served as CEO when Inteliquent
entered into a commercial agreement with T-Mobile, allowing Inteliquent to carry a
substantial portion of T-Mobile’s long-distance traffic. Id. ¶ 46.
Defendant Free Conferencing runs a free voice, video, and data conferencing
service. Id. ¶ 3; [570] ¶ 12.
Defendant Yakfree similarly offers conferencing and calling card services. [570]
¶ 18.
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Defendant HD Tandem provides “tandem and termination services” within the
telecommunications industry (i.e., the handoff of traffic from a long-distance carrier to
a local exchange carrier), [583] ¶ 19, offering its services through commercial
agreements, [570] ¶ 13.
Defendant Wide Voice offers end-office services and tandem connection services
pursuant to both federal and state tariffs as well as commercial agreements. Id. ¶ 15.
Defendant CarrierX participated in a restructuring involving Free Conferencing
and HD Tandem, among other companies. Id. ¶ 14. It now owns all of HD Tandem’s
outstanding shares and partially owns and operates FreeConferenceCall.com. Id. Wide
Voice is also a subsidiary of CarrierX.
Id. ¶ 17.
David Erickson founded Free
Conferencing, HD Tandem, and other companies that support Free Conferencing’s
services. Id. ¶ 16. He also serves as the CEO of CarrierX, Free Conferencing, and HD
Tandem. Id. Josh Lowenthal, a member of Free Conferencing’s senior management,
founded Yakfree. Id. ¶ 18.
Although not parties to the case, two other businesses play an important role in
the parties’ motions. Native American Telecom, LLC provides local phone services on
the Crow Creek reservation in South Dakota. Id. ¶ 26; [583] ¶¶ 9–10. Similarly, Native
American Telecom—Pine Ridge, LLC (collectively, the NATs) provides local phone
services in Pine Ridge, South Dakota. [583] ¶ 10. In the telecommunications industry,
industry members refer to local phone companies like the NATs as local exchange
carriers (LECs).
The NATs and Defendants maintain degrees of overlapping
ownership, employees, investors, management, and physical office locations. Id. ¶ 14;
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see [570] ¶¶ 37–38. On July 1, 2009, the NATs also signed revenue sharing agreements
with Free Conferencing. [570] ¶ 40. Under these agreements, the NATs “assigned Free
Conferencing telephone numbers, referred to [as] direct inward dials (‘DIDs’), and each
agreed to pay Free Conferencing a portion of the ‘tariffed access charges’ they received
from long distance providers for terminating calls to Free Conferencing’s equipment.”
Id.
II.
The Telecommunications Industry
The telecommunications industry involves many different players, each playing
a role in what seems from the outside to be a straightforward process. When a customer
places a long-distance call, that call may be completed in one of two ways. The first
option constitutes the regulated path. When companies complete a call under the
regulated path, the customer’s phone carrier transfers the call to a long-distance carrier
(like Inteliquent), which then connects that call to the LEC where the end user resides.
[570] ¶¶ 2–3; [583] ¶¶ 16–17. Figure 1, [583] ¶ 19, illustrates the regulated path:
The FCC regulates this pathway through established benchmark rates LECs may
charge the IXC for taking the call and terminating it to the dialed party. [570] ¶¶ 3–5.
The end user’s geographic location heavily informs these rates, meaning that LECs in
remote areas often may charge substantially higher tariffs. [583] ¶ 21.
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Commercial agreements govern the alternative pathway: rather than pay
tariffed rates directly to an LEC, an IXC (like Inteliquent) may sign a private
commercial contract with another intermediary company (here, HD Tandem) that will
deliver traffic via non-regulated arrangements. Id. ¶ 22. In this scenario, the tandem
“accepts traffic from the IXC and makes arrangements with LECs for switching and
transport to end users.” Id. That tandem company then delivers the call to the LEC.
Id. Figure 2, id. ¶ 22, illustrates this pathway:
Because commercial agreements govern these transactions, the tariff rates do not bind
the parties; rather, the parties negotiate the rates as reflected in various commercial
agreements. Id. ¶ 22. IXCs typically enter these agreements to circumvent the FCC
tariff system, as tandem switch providers often maintain established commercial rates
with various LECs. [570] ¶ 10.
Under either pathway, however, IXCs make money by charging their business
customers. [583] ¶ 18. In this case, Inteliquent charged T-Mobile. Id. T-Mobile, in
turn, makes money by charging its customers according to the terms and conditions of
their contracts. Id.
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III.
Access Stimulation
Access stimulation occurs when companies enter into revenue sharing
agreements with LECs with high tariff rates. [570] ¶ 39. The agreements further the
purpose of increasing traffic to high tariff LECs and then the parties split the increased
revenue. Id. In this case, Free Conferencing and Yakfree entered into revenue sharing
agreements with the NATs. [583] ¶ 27. The NATs provided Free Conferencing and
Yakfree with NAT-associated phone numbers. [570] ¶¶ 39–40. Free Conferencing and
Yakfree then had their customers use those numbers for their conference calls, driving
traffic to NAT numbers and splitting the increased revenue with the NATs. Id. ¶¶ 63–
64. This process greatly increased costs for Inteliquent because it delivered a high
volume of free conferencing traffic to the NATs. Id.; [583] ¶ 47. Aside from this free
conferencing traffic, the NATs served a very small number of local customers. [583] ¶
38.
Although the FCC has confirmed that access stimulation may be done lawfully
in certain situations (while continuing to crack down on the practice), see Connect Am.
Fund, 26 FCC Rcd. 17663 (2011), the FCC has also determined that free conferencing
numbers do not meet the definition of “end user” under the FCC’s tariff regime, Qwest
Commc’ns Corp., 24 FCC Rcd. 14801, 14805–13 (2009). Because free conferencing
callers do not qualify as end users, the FCC held, the LEC in question could not charge
IXCs the tariffed rates under the Communications Act of 1934. Id. Courts refer to this
FCC decision as the Farmers II case.
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IV.
The Phases
In its statement of material facts, Inteliquent lays out three phases of conduct.
Phase One. During this time period, Inteliquent engaged in “modest” business
with the Defendants under an assortment of contracts. [583] ¶ 45. One of these
agreements included the Reciprocal Master Services Agreement (MSA) between HD
Tandem and Inteliquent, signed in 2013. [570] ¶ 53. Under the MSA, HD Tandem
provided some tandem switching services, but Inteliquent did not use HD Tandem’s
services often until the parties amended the agreement two years later. Id. ¶ 54.
Instead, Inteliquent delivered T-Mobile’s calls to the NATs through the regulated path.
[583] ¶ 47; [570] ¶¶ 63–64. The NATs would then split free conferencing-associated
revenue with Free Conferencing and Yakfree, as stipulated by the parties’ revenue
sharing agreements. [583] ¶ 48; [570] ¶¶ 39–40, 63–64.
Phase Two. In 2015, Inteliquent entered into an agreement with T-Mobile to
carry a substantial portion of T-Mobile’s long-distance traffic. [583] ¶ 46. Following
the execution of that agreement, Inteliquent “saw a spike in traffic” to the NATs. Id. ¶
47.
As a result, Inteliquent began negotiations with the Defendants for tandem
switching services so that it could reduce tariff costs.
Id. ¶ 51.
During these
negotiations, Inteliquent asked Free Conferencing whether its calls associated with the
NATs physically terminated at the NATs footprint.
See, e.g., id. ¶¶ 49, 52–54.
According to Counter Defendants, Mr. Lowenthal, Free Conferencing’s COO, allegedly
represented to Inteliquent that LECs delivered calls placed to South Dakota numbers
to physical locations in South Dakota, including Free Conferencing calls. Id. ¶ 52.
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Inteliquent also asserts that during this time, Defendants assured Inteliquent that the
NATs and Free Conferencing constituted separate and distinct entities. Id. ¶ 54.
On October 22, 2015, as Inteliquent’s T-Mobile contract became less profitable,
id. ¶ 81, Inteliquent, HD Tandem, Free Conferencing, Wide Voice, and Yakfree entered
into the Master Addendum to Agreements (the MAA), [570] ¶ 68.
Following the
execution of the MAA, Inteliquent routed a substantial portion of its traffic through HD
Tandem. [583] ¶ 62. HD Tandem, in turn, charged Inteliquent the MAA-stipulated
rates rather than tariffs, including for Inteliquent’s long-distance traffic involving NATassociated numbers. Id. ¶¶ 51, 56.
Phase Three. In January 2016, Inteliquent traced certain calls to see if it could
determine where HD Tandem physically delivered those calls. [583] ¶ 63. The result
of these tests made Inteliquent suspicious that HD Tandem did not deliver Free
Conferencing’s calls to South Dakota. Id. ¶¶ 63–64. T-Mobile also became suspicious
that Free Conferencing and Yakfree’s calls did not terminate in South Dakota. Id. ¶
82. T-Mobile and Inteliquent soon began working together to reduce traffic from free
conferencing numbers to high cost locations. Id. ¶¶ 82–83; [570] ¶ 80. To that end,
Inteliquent and T-Mobile developed whisper functionality.
[583] ¶ 83. Inteliquent’s
whisper functionality “directed callers to press two random digits to be able to complete
certain calls.”
Id.
Inteliquent used the whisper functionality to determine if
“fraudulent machines” were generating some of those calls (whisper functionality
thwarted such machines, as a computer cannot press the numbers as directed). Id.
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Ultimately, Inteliquent used the whisper functionality on just sixteen numbers, only
one of which was associated with Free Conferencing. Id. ¶ 84.
Additionally, T-Mobile instituted a one cent policy, whereby it charged its
customers one cent per minute for certain high cost call destinations.
Id. ¶ 90.
Although they constitute separate and distinct companies, Inteliquent and T-Mobile
continued to work together to bring down their respective costs through these polices.
Id. ¶¶ 87–107.
As a result of Inteliquent’s suspicions regarding Free Conferencing’s traffic and
Inteliquent’s work with T-Mobile to reduce traffic from free conferencing numbers, the
relationship among the parties in this case broke down.
See, e.g., [570] ¶ 96.
Eventually, Defendants demanded payment under the MSA. Id. ¶ 99. Inteliquent
disputed these charges, causing HD Tandem to terminate services under the MAA. Id.
¶¶ 100–12.
Ultimately, Inteliquent sued Free Conferencing, HD Tandem, Wide Voice,
Yakfree, and CarrierX, and these entities counter sued. Inteliquent now moves for
summary judgment on all of its remaining claims, which allege: (1) violation of the
Racketeer Influenced & Corrupt Organizations Act (RICO) under 18 U.S.C. § 1962(c);
(2) RICO conspiracy under 18 U.S.C. § 1962(d); (3) fraud; (4) breach of contract; (5)
unfair competition under sections 17200–17210 of the California Business &
Professions Code; (6) unfair competition under the Illinois Consumer Fraud and
Deceptive Business Practices Act (ICFA), 815 Ill. Comp. Stat. 505/1–12; (7) civil
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conspiracy; and (8) unjust enrichment. Defendants cross-moved for summary judgment
on these claims.
Additionally, Inteliquent and Carter seek summary judgment on HD Tandem,
Free Conferencing, and CarrierX’s remaining counterclaims, which allege: (1) breach of
contract; (2) intentional interference with prospective business advantage; and (3)
unfair competition (under 815 Ill. Comp. Stat. 505/1–12). Likewise, they seek summary
judgment on Wide Voice’s remaining counterclaims, which allege: (1) breach of contract;
(2) breach of implied contract 1; (3) intentional interference with prospective business
advantage; and (4) unfair competition (under 815 Ill. Comp. Stat. 505/1–12).
LEGAL STANDARD
Summary judgment is proper where there is “no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment bears the
burden of establishing that there is no genuine dispute as to any material fact. See
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
When, as here, the parties file cross-motions for summary judgment, “the Court
views the facts in the light most favorable to the respective non-moving party.” Linkepic
Inc. v. Vyasil, LLC, 370 F. Supp. 3d 906, 912 (N.D. Ill. 2019). The non-moving party
Counter Defendants, however, do not address Wide Voice’s breach of implied contract claim in their
memorandum in support of their motion for summary judgment.
1
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has the burden of identifying the evidence creating an issue of fact. Harney v. Speedway
SuperAmerica, LLC, 526 F.3d 1099, 1104 (7th Cir. 2008). To satisfy that burden, the
non-moving party “must do more than simply show that there is some metaphysical
doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986). Thus, a mere “scintilla of evidence” supporting the nonmovant’s position does not suffice; “there must be evidence on which the jury could
reasonably find” for the non-moving party. Anderson, 477 U.S. at 252.
ANALYSIS
I.
Inteliquent’s Claims
A.
RICO § 1962 (Counts I and II)
This Court turns first to Inteliquent’s RICO claims, Counts I and II. Inteliquent
seeks to hold Defendants liable under RICO, 18 U.S.C. §§ 1962–1968. 2 As part of
RICO’s remedial scheme, a private civil plaintiff may sue under § 1964(c) for a violation
of the statute that proximately causes an injury to his business or property. 18 U.S.C.
§ 1964(c) (“Any person injured in his business or property by reason of a violation of
section 1962 of this chapter may sue therefor in any appropriate United States
district court and shall recover threefold the damages he sustains and the cost of the
In 1970, Congress enacted the Organized Crime Control Act containing Title IX, otherwise known as
RICO. 18 U.S.C. §§ 1961–1968. Creating enhanced criminal and civil remedies, Congress drafted RICO
to address “‘enterprise criminality,’ that is, ‘patterns’ of unlawful conduct, including: (1) acts of violence
and terrorism; (2) the provision of illegal goods and services; (3) corruption in labor or management
relations; (4) corruption in government; and (5) criminal fraud by, through, or against various
types of licit or illicit enterprises.” Menzies v. Seyfarth Shaw LLP, 197 F. Supp. 3d 1076, 1091 (N.D. Ill.
2016).
2
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suit, including a reasonable attorney’s fee . . . .”); see also Holmes v. Sec. Inv’r Prot.
Corp., 503 U.S. 258, 265–68 (1992).
In Counts I and II, the complaint alleges both a substantive RICO violation
under § 1962(c) and a RICO conspiracy violation under § 1962(d). Under § 1962(c), it
is unlawful for any “person employed by or associated with any enterprise engaged
in, or the activities of which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such enterprise’s affairs through a
pattern of racketeering activity or collection of unlawful debt.” Moreover, because §
1962(d) prohibits any person from conspiring to violate subsections (a), (b) and (c) of
§ 1962, the overall objective of a RICO conspiracy claim often mirrors the underlying
RICO substantive claim. This case is no exception; thus, under § 1962(d), Inteliquent
must establish that each Defendant joined an agreement to participate in “an
endeavor which, if completed, would satisfy all of the elements” of a substantive
violation of RICO, here, the elements of the § 1962(c) offense.
Brouwer v.
Raffensperger, Hughes & Co., 199 F.3d 961, 964 (7th Cir. 2000).
Both sides seek summary judgment on the RICO claims. [581] at 23; [568] at
31. This Court will consider the parties’ arguments in turn. 3
Of course, if a triable issue of material fact exists as to an otherwise legally sufficient RICO claim, this
Court must deny the request for summary judgment.
3
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1.
Substantive RICO (Count I)
To prevail on this claim, Inteliquent must establish a violation of § 1962(c),
namely: (1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering
activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985); Goren v. New Vision
Int’l, Inc., 156 F.3d 721, 727 (7th Cir. 1998), holding modified by Brouwer, 199 F.3d 961
(7th Cir. 2000).
a.
RICO “Conduct”: Participation in
Operation/Management
In Reves v. Ernst & Young, 507 U.S. 170, 185 (1993), the Supreme Court held
that the phrase “conduct or participate” under § 1962(c) requires “some part in
directing those affairs” through “operation or management.” Id. at 177–86. This
requirement, however, includes not just upper management, but also those who
facilitate or operate the affairs of the enterprise. MCM Partners, Inc. v. AndrewsBartlett & Assocs., Inc., 62 F.3d 967, 979 (7th Cir. 1995) (observing that the
“operation” of an enterprise includes “foot soldiers” as well as “generals”). The law
on this point is well-settled:
In other words, a person conducts or participates in the conduct of the
affairs of an enterprise only if that person uses his position in, or
association with, the enterprise to perform acts which are involved in
some way in the operation or management of the enterprise, directly or
indirectly, or if the person causes another to do so. To be associated
with an enterprise, a person must be involved with the enterprise in
a way that is related to its affairs or common purpose, although the
person need not have a stake in the goals of the enterprise and may even
act in a way that subverts those goals. A person may be associated with
an enterprise without being so throughout its existence.
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Menzies, 197 F. Supp. 3d at 1102. The Reves “operation-management” test, as it has
become known, is deployed to include and exclude certain RICO defendants.
In this case, material fact issues exist as to the requisite participation in the
operation or management of the affairs of the RICO enterprise.
For example,
Inteliquent cites evidence that all Defendants played concerted roles in carrying out a
“traffic pumping” enterprise, see, e.g., [583] ¶¶ 3–14, 48, 50, and Defendants introduce
countervailing evidence they argue shows Defendants acted more independently, see,
e.g., DRSOMF 4 ¶¶ 3, 14 (even though they also acknowledge that Free Conferencing
and Yakfree’s business model operates via access stimulation achieved through working
with the NATs, id. ¶ 23). Thus, a reasonable jury could render a verdict for or against
Defendants on the current record.
b.
RICO “Enterprise”: Existence of An Association-inFact
Under 18 U.S.C. § 1961(4), an “‘enterprise’ includes any individual, partnership,
corporation, association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity.” These examples are illustrative, not
exhaustive.
See Helvering v. Morgan’s, Inc., 293 U.S. 121, 125 n.1 (1934)
(distinguishing the non-exhaustive statutory term “includes,” which is used in RICO,
from its counterpart “means”). 5
4
DRSOMF refers to Defendants’ response to Inteliquent’s statement of material facts. [632].
5
The entities comprising a RICO enterprise can also play different roles in the case, including the
roles of victim, prize, instrument, or perpetrator of the violation. Nat’l Org. for Women, Inc. v.
Scheidler, 510 U.S. 249, 259 n.5 (1994); see Prof. G. Robert Blakey, The RICO Civil Fraud Action
in Context: Reflections on Bennett v. Berg, 58 Notre Dame L. Rev. 237, 307–25 (1982).
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As relevant here, Inteliquent alleges the existence of a “traffic pumping”
enterprise constituting an “association-in-fact” enterprise under RICO. [315] at ¶¶ 40,
195–210, 213; [581] at 24.
The Supreme
Court defines an association-in-fact
enterprise as a “group of persons associated together for a common purpose of
engaging in a course of conduct.” United States v. Turkette, 452 U.S. 576, 583 (1981).
Such enterprises, licit or illicit, may be “proved by evidence of an ongoing
organization, formal or informal, and by evidence that the various associates
function as a continuing unit.” Id. Congress has broadly defined the “enterprise”
concept to mean any group of persons “whose association, however loose or informal,
furnishes a vehicle for the commission” of two or more predicate crimes (or the
collection of unlawful debt).
United States v. Elliott, 571 F.2d 880, 898 (5th Cir.
1978).
Although an “association-in-fact” enterprise must have some ascertainable
structure, it need not be “much” more than a bare-bones conspiracy to commit the
predicate acts themselves. Boyle v. United States, 556 U.S. 938, 948–49 (2009)
(explaining the “breadth” of RICO’s enterprise concept).
In Boyle, the Supreme
Court outlined the three essential features of an “association-in-fact” enterprise: (1) a
purpose; (2) relationships among those associated with the enterprise; and (3)
longevity sufficient to permit the associates to pursue the enterprise’s purpose. Id.
at 946–48. The Court then gave examples of how such an enterprise might satisfy
this broad structural requirement:
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Such a group need not have a hierarchical structure or a “chain of
command”; decisions may be made on an ad hoc basis and by any number
of methods—by majority vote, consensus, a show of strength, etc.
Members of the group need not have fixed roles; different members may
perform different roles at different times. The group need not have a
name, regular meetings, dues, established rules and regulations,
disciplinary procedures, or induction or initiation ceremonies. While the
group must function as a continuing unit and remain in existence long
enough to pursue a course of conduct, nothing in RICO exempts an
enterprise whose associates engage in spurts of activity punctuated by
periods of quiescence. Nor is the statute limited to groups whose crimes
are sophisticated, diverse, complex, or unique; for example, a group that
does nothing but engage in extortion through old-fashioned,
unsophisticated, and brutal means may fall squarely within the statute’s
reach.
Id. at 948; see also Jay E. Hayden Found. v. First Neighbor Bank, N.A., 610 F.3d
382, 388 (7th Cir. 2010). Given the flexibility of RICO’s statutory language, a single
“association-in-fact” enterprise can exist even when its members and associates
constitute opposing factions.
United States v. Orena, 32 F.3d 704, 710 (2d Cir.
1994) (finding that internal divisions did not undermine the existence of a single
association-in-fact enterprise under RICO). As with all RICO enterprises, however,
the existence of an association-in-fact “enterprise” is a “separate” element from the
“pattern” of racketeering activity itself. Turkette, 452 U.S. at 583 (finding that RICO
requires “separate” or distinct elements, even though the proof at trial
may
“coalesce”); see United States v. Torres, 191 F.3d 799, 805–06 (7th Cir. 1999) (general
discussion of sufficient RICO “association-in-fact” allegations).
Here, based upon the record, triable issues of material fact exist as to whether
Defendants engaged in an association-in-fact “traffic pumping” enterprise.
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example, as to the enterprise’s purposes, Inteliquent cites evidence that the enterprise
acts for the purpose of splitting enhanced revenue obtained through access stimulation,
for the purpose of inducing IXCs to sign contracts based upon misrepresentations about
the industry, or for both purposes. [583] ¶¶ 27–30, 49–54. As to the relationship among
the associated actors, Inteliquent relies upon evidence that the Defendants and the
NATs maintain extensive overlapping management and employees, which Inteliquent
claims further supports the existence of a RICO enterprise.
Id. ¶ 14.
Finally,
Inteliquent cites evidence that this scheme lasted for years, covering multiple stages
of conduct. See, e.g., id. ¶¶ 27, 38, 41, 72.
In response, Defendants contradict these facts and conclusions with other
evidence in the record. For example, citing to the deposition testimony of multiple
witnesses, Defendants dispute the evidence concerning the intertwined nature of the
Defendants and the NATs. DRSOMF at ¶ 14. Defendants also submit facts disputing
allegations that they misled Inteliquent about where calls to the NATs terminated in
order to induce Inteliquent to sign the MAA. Id. ¶¶ 49–50. For these reasons, a jury
must weigh the evidence to determine the existence of an association-in-fact traffic
pumping enterprise. 6
The facts here differ markedly from those in Green v. Morningstar, Inc., upon
which Defendants rely. See [568] at 32. In that case, the court dismissed a RICO claim
This Court also rejects Defendants’ argument that this Court must grant them summary judgment
because they believe the evidence makes no distinction between the enterprise and the person. [568] at
34–35. An “‘association-in-fact’ enterprise generally constitutes an exception to the ‘enterprise-person’
rule arising under violations of § 1962(c).” Menzies, 197 F. Supp. 3d at 1093 n.2.
6
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because the plaintiff’s enterprise allegations contained little more than the fact that
defendants entered into some revenue sharing agreements. No. 17 C 5652, 2018 WL
1378176, at *5 (N.D. Ill. Mar. 16, 2018). But here, as noted above, Inteliquent submits
evidence supporting the alleged enterprise’s structure, goals, and operation (for
example, that organizations have overlapping ownership and management and work
in concert to send Free Conferencing and Yakfree traffic to the NATs, see, e.g., [583] ¶¶
14, 48, 50–54), such that they demonstrate “many more facts and detail than simply
the procurement of unlawful commissions,” Green, 2018 WL 1378176, at *6.
c.
RICO “Pattern” of “Racketeering Activity”
For substantive violations, a RICO “pattern” under § 1961(5) requires the
commission of at least two acts of “predicate” activity enumerated in § 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. 18
U.S.C. § 1961(1), (5).
In H.J. Inc. v. Northwestern Bell Telephone Co., the Supreme Court set forth the
process for determining what conduct meets this “pattern” requirement under RICO.
492 U.S. 229, 236–50 (1989). The Court began with the proposition that proof of two
acts of racketeering activity, without more, does not establish a pattern. Instead, the
Court found that the “pattern” element requires a showing of continuity, plus
relationship. Id. at 237–39. Although these two elements of a RICO offense are
discussed separately for analytic purposes, their proof often will overlap in practice.
Id. at 239.
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In its analysis in H.J., the Supreme Court developed a six-step process for
determining if a “pattern” is present within the meaning of RICO. To determine
whether the goals of relationship and continuity are met, this Court must ask up to six
questions, the first two being: (1) Are the acts—at least two—in a series related to one
another, for example, are they part of a single scheme?; and (2) If not, are they related
to an external organizing principle, for example, to the affairs of the enterprise? 7 See
H.J., 492 U.S. at 238; see also United States v. Sinito, 723 F.2d 1250, 1261 (6th Cir.
1983); Elliott, 571 F.2d at 899. When analyzing a RICO pattern, a broad range of
criminal conduct can exhibit relationship, including unlawful acts that have the same
or similar purposes, results, participants, victims or methods of commission, or acts
that are otherwise interrelated by distinguishing characteristics. 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. If the Court answers both of the above questions in the negative, no
relationship is present, and this Court need not proceed further.
If the Court answers either question in the affirmative, however, relationship
is present and the following additional questions must be asked: (3) Are the acts in the
series open-ended, that is, do the acts have no obvious termination point?; and (4) If
Of course, this RICO “pattern” must also be in the affairs of the enterprise. United States v.
Starrett, 55 F.3d 1525, 1542 (11th Cir. 1995) (noting that the pattern must regularly utilize the
facilities or services of the enterprise, or otherwise have an effect upon the common affairs of the
enterprise). If not, liability will not obtain. Palmetto State Med. Ctr., Inc. v. Operation Lifeline, 117
F.3d 142, 149 (4th Cir. 1997) (reversing RICO judgments where there was no evidence o f conduct in
the affairs of the enterprise).
7
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not, did the acts in the closed-ended series go on for a substantial period of time, that
is, more than a few weeks or months? See H.J., 492 U.S. at 241–43.
Generally, if
either question is answered in the affirmative, continuity is present. If both questions
are answered in the negative, however, up to two additional questions must be asked:
(5) May a threat of continuity be inferred from the character of the illegal
enterprise?; and (6) If not, may a threat of continuity be inferred because the acts
represent the regular way of doing business of a lawful enterprise? See id. at 242–43;
Torres, 191 F.3d at 808. If either question is answered in the affirmative, a threat of
continuity is present.
As to a “threat” of continuity (questions ( 5) and ( 6)), the Seventh Circuit in
Torres emphasized that, “in cases where the acts of the defendant or the enterprise
were inherently unlawful” or “were in pursuit of inherently unlawful goals,” then
courts generally have “concluded that
the requisite threat of continuity was
adequately established by the nature of the activity, even though the period spanned
by the racketeering activity was short.”
191 F.3d at 808 (internal quotations
omitted). As such, the continuity requirement may be satisfied by showing past
conduct that “by its nature projects into the future” with a “threat” of repetition.
Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1023 (7th Cir. 1992) (internal
quotations omitted); see also Shields Enters., Inc. v. First Chi. Corp., 975 F.2d
1290, 1296–97 (7th Cir. 1992) (finding that a threat of continuity may be shown by
establishing that the conduct is
a “regular way” of doing business) (internal
quotations omitted); United States v. Aulicino, 44 F.3d 1102, 1112 (2d Cir. 1995)
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(observing that continuity is assessed prospectively and not from hindsight, after the
pattern ends).
When assessing a RICO pattern, the Seventh Circuit includes among the
relevant factors “the number and variety of predicate acts and the length of time over
which they were committed, the number of victims, and the presence of separate
schemes and the occurrence of distinct injuries.” Morgan v. Bank of Waukegan,
804 F.2d 970, 975 (7th Cir. 1986).
In Morgan, however, the court also cautioned
that “the mere fact that the predicate acts relate to the same overall scheme or
involve the same victim does not mean that the acts automatically fail to satisfy the
pattern requirement” because the pattern requirement is “a standard, not a rule.”
Id. at 975–76. Thus, the determination “depends on the facts and circumstances
of the particular case, with no one factor being necessarily determinative.”
976.
Id. at
Elements of the RICO violation beyond the racketeering activity itself also may
be considered in assessing relatedness and continuity. In the end, this Court must
evaluate all the allegations with the goal of “achieving a natural and commonsense
result, consistent with Congress’ concern with long-term criminal conduct.” Roger
Whitmore’s Auto. Servs., Inc. v. Lake County, 424 F.3d 659, 673 (7th Cir. 2005)
(internal quotations omitted); see also 420 E. Ohio Ltd. P’ship v. Cocose, 980 F.2d
1122, 1124 (7th Cir. 1992) (finding that the Seventh Circuit still examines the Morgan
factors post-H.J. when assessing continuity “with an eye towards achieving a natural
and common-sense result”) (internal quotations omitted).
Based upon the record, issues of material fact also exist as to the requisite
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existence of a pattern of racketeering activity. 8 As to the pattern requirement, the
parties dispute the existence of open-ended continuity, [568] at 35–38; [581] at 25–26,
which “refers ‘to past conduct that by its nature projects into the future with a threat
of repetition,’” Vicom, 20 F.3d at 782 (quoting H.J., 492 U.S. at 241). As discussed
above, a plaintiff may show open-ended continuity 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.” Id. (internal citations
and quotations omitted). Importantly, the threat of repetition must be viewed “at the
time the racketeering activity occurred.” Heinrich v. Waiting Angels Adoption Servs.,
Inc., 668 F.3d 393, 410 (6th Cir. 2012). Subsequent events “are irrelevant.” Id.
Here, Defendants argue that Inteliquent cannot introduce any facts regarding a
threat of repetition. [568] at 36–38. They argue that most of Defendants’ wrongful
conduct simply involved inducing Inteliquent to sign the MAA, with that conduct being
completed by a clear endpoint in October 2015 (i.e., when Inteliquent signed the MAA).
Id. Yet Inteliquent also introduces evidence of possible further harm: in particular,
Inteliquent offers proof that Defendants made additional misrepresentations to keep
Even though the existence of a RICO pattern remans in dispute, no genuine issues exist as to the
relatedness question, because if nothing else, the undisputed portions of the record confirm that the
alleged predicates in this case, if any, would all relate to “an external organizing principle,” that is, to
the affairs of the same enterprise. H.J., 492 U.S. at 238; Vicom, Inc. v. Harbridge Merch. Servs., Inc.,
20 F.3d 771, 779 (7th Cir. 1994) (noting that the “vast majority of cases dealing with RICO pattern
requirement” fail to “turn on the relatedness of the alleged predicate acts” and that courts must then
decide whether the continuity prong may be satisfied through “open ended continuity” ).
8
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Inteliquent in the MAA and to induce Inteliquent to renew the MAA. See, e.g., [583]
¶¶ 64, 67–68. Defendants question the strength of this evidence and whether any
misleading statements actually influenced Inteliquent, see DRSOMF ¶¶ 64, 67, but
such evidence creates another fact issue for the jury; Defendants’ evidence does not
negate the fact that Inteliquent introduces evidence of ongoing misrepresentations
meant to further the continuing enterprise. 9
Moreover, Inteliquent and Defendants submit competing evidence as to whether
Inteliquent would have continued renewing the MAA. Compare [583] ¶ 60, with [570]
¶¶ 81–82, 105. Defendants argue that Inteliquent would not have renewed the MAA,
eliminating any risk of repetition. [568] at 37–38. But the threat of the continued
activity must be judged at the time the racketeering activity occurred. Heinrich, 668
F.3d at 410. And Defendants’ argument that Inteliquent would not have renewed the
MAA because it discovered that calls to the NATs did not physically terminate there
judges the threat at the wrong moment.
This Court also notes that the MAA invoices need not be fraudulent themselves (as Defendants assert)
in order to constitute wire fraud. [568] at 36 n.20 (claiming the invoices cannot amount to wire fraud
because the invoices adhered to the MAA). The MAA invoices may still amount to wire fraud even if the
invoices adhered to the MAA’s terms because “a given mailing or wire communication need not be
fraudulent on its face in order to constitute an act of mail or wire fraud; even innocuous communications
can qualify for this purpose so long as they are incident to an essential part of the scheme.” United
States v. Green, 786 F.2d 247, 249 (7th Cir. 1986). Inteliquent introduces evidence upon which a
reasonable jury could conclude that HD Tandem submitted these invoices as part of a scheme to use
access stimulation with the NATs to split revenue and drive Inteliquent into commercial agreements
under false pretenses and then keep Inteliquent in that agreement through false pretenses. See, e.g.,
[583] ¶¶ 64, 67.
9
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Finally, Inteliquent cites evidence (albeit contested) supporting its theory that
the acts occurred over a substantial period of time and represent the regular way of doing
business for Defendants. [581] at 25.
Because material issues of fact remain in dispute, this Court cannot grant
summary judgment based upon RICO continuity. Accordingly, this Court denies the
parties’ cross motions for summary judgment on Inteliquent’s RICO claim.
2.
RICO Conspiracy (Count II)
Inteliquent and Defendants also move for summary judgment on Inteliquent’s
RICO conspiracy claim. [581] at 23; [568] at 31, 39.
As in all conspiracies, the essence of a RICO conspiracy violation is the
agreement itself; the distinction between a traditional conspiracy and a RICO
conspiracy is simply the breadth of the overall objective.
Salinas v. United States,
522 U.S. 52, 63–66 (1997). Accordingly, the fact that the “many defendants and
predicate crimes were different, or even unrelated,” is irrelevant in a RICO case, so
long as it can “be reasonably inferred that each crime was intended to further the
enterprise.” United States v. Gonzalez, 921 F.2d 1530, 1539–40 (11th Cir. 1991); see
also United States v. Friedman, 854 F.2d 535, 562 (2d Cir. 1988) (finding that a
RICO conspiracy is “by definition broader than an ordinary conspiracy to commit a
discrete crime”); United States v. Valera, 845 F.2d 923, 930 (11th Cir. 1988) (finding
that “a series of agreements, which, pre-RICO, would constitute multiple conspiracies,
can form, under RICO, a single ‘enterprise’ conspiracy”).
Consistent with these general principles, the essential elements of a
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conspiracy to violate § 1962(c) are well-settled. A plaintiff must prove that the
conspiracy existed and that each named defendant knowingly became a member of
the conspiracy with an intention to further that conspiracy.
Volpendesto, 746 F.3d 273, 284 (7th Cir. 2014).
United States v.
Obviously, a conspiracy may be
established even if its purposes were not accomplished, and, in order to be a member
of the conspiracy, the defendant need not join at the beginning or know all the other
members or means by which its purposes were to be accomplished. A defendant,
however, must be generally aware of the common purpose or purposes of the RICO
conspiracy, and be a willing participant. Goren, 156 F.3d at 732 (“In order to
plead a viable § 1962(d) claim, a plaintiff must allege that a defendant agreed to
the objective of a violation of RICO.” (internal quotations omitted)).
Additionally, RICO conspirators need not personally commit any predicate
act, or otherwise agree as to which two predicates would be committed. Instead,
RICO merely requires that each defendant, “by his words or actions, objectively
manifested an agreement to participate, directly or indirectly, in the affairs of an
enterprise,” through the proposed commission of “two or more predicate crimes” by
any member of the conspiracy. United States v. Campione, 942 F.2d 429, 436 (7th
Cir. 1991) (citing United States v. Neapolitan, 791 F.2d 489, 497 (7th Cir. 1986),
holding modified by Brouwer, 199 F.3d 961 (7th Cir. 2000)); see also Salinas, 522
U.S. at 63–66 (applying usual conspiracy rules apply to RICO); H.J., 492 U.S. at
237; Brouwer, 199 F.3d at 963–64 (stating that a RICO conspiracy does not
require an agreement to commit statutorily enumerated predicate acts, but rather
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an agreement to facilitate a pattern of two or more such acts); United States v.
Glecier, 923 F.2d 496, 499–501 (7th Cir. 1991) (noting that the agreed upon predicateact objectives of the conspiracy need not “come to fruition”); Elliott, 571 F.2d at 903.
Each RICO conspiracy defendant, however, must knowingly facilitate the activities
of one who constitutes a manager or operator of the enterprise.
United States v.
Cummings, 395 F.3d 392, 397–98 (7th Cir. 2005). 10
For many of the reasons discussed previously, both parties submit
countervailing evidence that all Defendants agreed to engage in the traffic pumping
enterprise and intended to further that enterprise. See e.g., [583] ¶¶ 3–14, 27, 48–69;
[570] ¶¶ 24–25, 29; DRSOMF ¶¶ 14, 27–28. Thus, given the genuine issues of material
fact, this Court denies the cross-motions for summary judgment on Count II.
B.
Breach of Contract (Count IV)
This Court turns next to Inteliquent’s first breach of contract claim. Inteliquent
claims that Defendants Free Conferencing, HD Tandem, and CarrierX breached the
MAA by overcharging Inteliquent, particularly as it relates to calls associated with the
NATs that did not physically terminate in South Dakota. [581] at 30–32. As relevant
In a conspiracy case like this one, the law adjusts the Reves concept. Specifically, a RICO conspiracy
does not require violators to meet the “operation or management” test themselves, but instead a
conspiracy defendant must “knowingly agree to perform services of a kind which facilitate” the activities
of those who are operating or managing the RICO enterprise. Brouwer, 199 F.3d at 967; see also
United States v. Quintanilla, 2 F.3d 1469, 1485 (7th Cir. 1993) (noting that Reves does not “address the
principles of conspiracy law undergirding § 1962(d)”), holding modified by United States v. Coleman, 22
F.3d 126 (7th Cir. 1994); Goren, 156 F.3d at 731 (stating that “a defendant can be charged under §
1962(d) even if he cannot himself be characterized as an operator or manager of a RICO enterprise under
Reves”).
10
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here, the MAA instructs that HD Tandem will charge Inteliquent based upon the
following terms:
HD Tandem will provide voice Termination services to
Inteliquent.
The Voice Termination Services will be
available to carry traffic terminating to the LECs (the ‘LEC
Footprint’) . . . at the rates set out in the following rate:
hdtandem IQNT rates 09242015.xlsx. These rates are
effective on September 25, 2015. Subject to further obligation
set forth in Section 3, HD Tandem represents that the rates
offered to Inteliquent will be the lowest rates made available
to any carrier other than [Company X], [Company Y],
[Company Z] or a third party as part of a legal settlement.
[315-1] at 3. The MAA also states:
Where Inteliquent has traffic terminating to the LEC
Footprint, Inteliquent will route such traffic via HD Tandem
(and not over Inteliquent’s own tandem) so long as the HD
rates provided to Inteliquent (i) are the lowest rates made
available to any carrier (excluding [Company X], [Company
Y], [Company Z] or a third party as part of a legal settlement)
and such rates are not greater than the combination of the
applicable LEC’s tariffed end office rates and the applicable
usage based port recovery credit set out in Section 1 above
and (ii) are lower than any rate offered to Inteliquent by a
third party (the “Third Party Offer”).
Id.
Inteliquent argues that the parties entered into the contract with the purpose of
charging Inteliquent rates linked to lawful tariff rates. [581] at 31. Thus, Inteliquent
claims Defendants overcharged it by charging rates for certain rural areas based solely
upon the rate sheet and not charging “a rate lower or equal to the ‘applicable LEC’s
tariffed end office rates’” as referenced in Section 3. Id. In other words, Inteliquent
claims HD Tandem must charge rates based upon the tariff rates associated with the
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physical termination point of the call 11 rather than the rate sheet, which is based upon
LEC-associated area codes. Id. at 30–32; [603] at 30. Defendants counter that the MAA
dictates only that rates must come from the negotiated rate sheet entitled “hdtandem
IQNT rates 09242015.” [568] at 9.
The parties stipulate that New York law governs this claim. [315-1] at 5–6 (“The
Parties agree that this Master Addendum shall be governed . . . by New York law.”).
Under New York law, “unambiguous contracts are interpreted as a matter of law.” 8211 Queens Blvd. Realty, Corp. v. Sunoco, Inc. (R & M), 951 F. Supp. 2d 376, 381
(E.D.N.Y. 2013) (citing cases).
Thus, courts may appropriately grant summary
judgment when the contractual language unambiguously conveys a clear meaning.
Sunoco, Inc. (R & M) v. 175-33 Horace Harding Realty Corp., 969 F. Supp. 2d 297, 303
(E.D.N.Y. 2013), aff’d, 697 F. App’x 38 (2d Cir. 2017). That is the case here.
Section 2 covers the rates HD Tandem must provide Inteliquent. [315-1] at 3.
That section makes no reference to applicable tariffs. Id. Indeed, Section 2’s only rate
mandate stipulates that HD Tandem charge Inteliquent the negotiated rates contained
in the identified rate sheet. Id. While Inteliquent could have included language that
bound the contractual rates to the physical location where the call terminated rather
than by area codes, it failed to do so.
Accordingly, Inteliquent cannot now seek
protection by retroactively amending an unambiguous contractual provision.
This argument presumes that the law does not permit LECs to charge Inteliquent LEC tariff rates for
calls that do not terminate to an end-user actually within the LEC territory. See Sprint Commc’ns Co.
v. Crow Creek Sioux Tribal Court, 200 F. Supp. 3d 857, 864–65 (D.S.D. 2016).
11
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Though Inteliquent concedes that Section 2 does not link the contractual rates to
tariffed rates, it nonetheless points to Section 3 and other contractual provisions to
show the parties’ intent to link the contractual rates to tariffed rates. [581] at 31. While
Section 3 references applicable tariffs, it does so only to specify when Inteliquent must
route such traffic to HD Tandem.
[315-1] at 3 (“Where Inteliquent has traffic
terminating to the LEC Footprint, Inteliquent will route such traffic via HD Tandem []
so long as the HD rates provided to Inteliquent . . . are not greater than the combination
of the applicable LEC’s tariffed end office rates and the applicable usage based port
recovery credit.”). Section 3 does not determine the contractual rates and even provides
that Inteliquent need not use HD Tandem services when the tariffed rate would be
cheaper. Id.
Counter Defendants claim that reading Section 3’s reference to the applicable
LECs as only determining when Inteliquent must send its traffic to HD Tandem leads
to absurd results. [603] at 30. For example, they contend that because the MAA
requires Inteliquent pay “after HD Tandem provides services,” and because Inteliquent
could not determine beforehand whether it remained more cost effective to use another
provider, this contractual construction becomes nonsensical. [581] at 31 (emphasis in
original). Not so. Under the plain language of the contract negotiated by the parties,
HD Tandem must charge Inteliquent the agreed-upon rate and Inteliquent must use
HD Tandem’s services unless HD Tandem’s rates exceed the applicable LEC’s tariffed
rates. Moreover, Inteliquent possessed the rate sheet and could determine the cost of
a given call prior to receiving the bill or even routing the call. Thus, Section 3’s plain
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language provides Inteliquent certain routing requirements, including that Inteliquent
must send its traffic to HD Tandem when the contractual rates remain lower than the
applicable LEC’s tariffed rates. While the contract does not provide instruction on how
to calculate those contractual rates, Inteliquent could have done so beforehand using
the predetermined rate sheet identified in Section 2. This reading, thus, does not render
the references to the applicable tariffed rates in Section 3 and other provisions
meaningless, in contrast to Inteliquent’s reading, which renders meaningless the area
code-based rate sheet described in Section 2.
Finally, even though Inteliquent asserts this contractual claim against HD
Tandem, Free Conferencing, and CarrierX, see [315] ¶¶ 253–265, it provides no theory
as to how Free Conferencing or CarrierX breached the MAA. Even if HD Tandem
overcharged Inteliquent, Free Conferencing and CarrierX cannot be held liable by
association, and they are not parties to the contract. Accordingly, nothing in the record
precludes granting Free Conferencing and CarrierX’s motion for summary judgment on
this claim.
For these reasons, this Court finds the contract unambiguous and grants
Defendants’ motion for summary judgment as to Count IV and denies Counter
Defendants’ motion.
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C.
Breach of Contract (Count IX) 12
The Court next considers Inteliquent’s other breach of contract claim, Count IX,
in which Inteliquent alleges that Free Conferencing, HD Tandem, and CarrierX
improperly suspended service in 2016, thereby breaching the MSA. [315] ¶¶ 302–41.
Defendants seek summary judgment on this claim. 13 [568] at 25–29. Defendants argue
this Court should grant summary judgment on two bases. First, assuming the MSA
prohibited HD Tandem from suspending service, HD Tandem’s actions did not
constitute an actionable breach because Inteliquent breached first by re-routing its
traffic away from HD Tandem. Id. at 27–28. Second, Defendants argue that HD
Tandem did not breach the MSA because the MSA entitled HD Tandem to suspend
service after Inteliquent failed to provide a requested security.
Id. at 28–29.
Defendants also argue that under any theory, this Court must grant summary
judgment in favor of Free Conferencing and CarrierX as they did not provide relevant
services under the MSA. Id. at 25 n.16.
1.
Inteliquent’s Conduct
This Court first considers Defendants’ argument that Inteliquent breached the
MSA first by re-routing its traffic away from HD Tandem. Id. at 25. Defendants argue
HD Tandem also brings an inverse breach of contract claim based upon the same conduct. [336] at
Count I.
12
Inteliquent asserts that it also seeks summary judgment on Count IX, but it provides no argument on
this claim. See [581] at 30–32. As a result, the argument is waived. White v. Campanelli, No. 1:14-CV7215, 2017 WL 528380, at *9 n.5 (N.D. Ill. Feb. 9, 2017) (citing Pond v. Michelin N. Am., Inc., 183 F.3d
592, 597 (7th Cir. 1999)) (deeming summary judgment argument waived where plaintiff had presented
an underdeveloped argument).
13
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that even assuming HD Tandem’s suspension qualified as a breach, Inteliquent’s prior
breach excused HD Tandem’s suspension. Medinol Ltd. v. Bos. Sci. Corp., 346 F. Supp.
2d 575, 618 (S.D.N.Y. 2004) (“As a general principle of contract law, a material breach
excuses the other party’s nonperformance.”).
Yet Defendants fail to explain how
Inteliquent’s actions, even if true, materially breached the contract or triggered a legal
right to suspend. Thus, this Court declines to grant summary judgment on this theory.
2.
Suspension under the MSA
Defendants next contend that the MSA entitled HD Tandem to suspend the
contract because Inteliquent failed to provide the security HD Tandem requested in
order to increase the credit limit. [568] at 26; [570] ¶ 109; [640] at 14. Section D.1 of
the Attachment A to the MSA provides that the credit provider, here HD Tandem,
maintains the right to increase or decrease the credit limit if it gives three days’ notice
to the customer, i.e., Inteliquent. [572-1] at 963. If HD Tandem determined that the
sum of the “(i) total invoiced amounts which remain unpaid, plus (ii) the unbilled but
accrued usage of CUSTOMER has exceeded the then current Credit Limit,” it has the
right “to demand by written notice” that Inteliquent “make an immediate payment.”
Id. Upon a payment demand, Inteliquent “shall pay such amount within three (3)
business days,” and if Inteliquent “fails to remit such payment when due and no Deposit
is being held by Provider,” HD Tandem “shall have the right without notice to suspend
and/or terminate the Services.” Id.
Defendants argue that after Inteliquent refused to pay certain portions of HD
Tandem’s invoices, [568] at 25–29; [570] ¶¶ 96–97, HD Tandem requested credit under
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Section D.1, id. ¶¶ 99–112. Yet Inteliquent never provided the required payment. Id.
Counter Defendants fail to introduce any countervailing evidence, though they do claim
HD Tandem rejected both Inteliquent’s letter of credit and its offer to provide a cash
deposit. [603] at 37; IRSOF 14 ¶ 110.
On the record before it, this Court lacks sufficient information to determine
whether HD Tandem properly invoked Section D.1’s suspension provision. Defendants
point to no facts regarding Inteliquent’s credit limit, whether Inteliquent exceeded that
limit, or whether HD Tandem held a deposit from Inteliquent, all of which are relevant
under the terms of the MSA. For this reason, this Court denies Defendants’ motion for
judgment on Inteliquent’s second breach of contract claim.
3.
Breach of Contract Against Free Conferencing and CarrierX
Defendants also argue that this Court should grant summary judgment in favor
of Free Conferencing and CarrierX. [568] at 25 n.16. As before, Defendants argue that
even though Inteliquent asserts this claim against Free Conferencing and CarrierX,
there remains “no evidence” against them; they also argue that Counter Defendants fail
to show that Free Conferencing or CarrierX “provided Inteliquent a service under the
MAA that was improperly withheld.” Id. This Court agrees that Counter Defendants
fail to provide any evidence that Free Conferencing or CarrierX improperly withheld a
service from Inteliquent, and, accordingly, grants Defendants’ request for summary
14
IRSOF refers to Inteliquent’s Response of Undisputed Material Facts. [604].
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judgment in favor of Free Conferencing and CarrierX as to Inteliquent’s second breach
of contract claim.
D.
Fraud and Fraud in the Inducement (Count III)
Counter Defendants and Defendants further seek summary judgment on
Inteliquent’s fraud and fraudulent inducement claim against HD Tandem, Free
Conferencing, CarrierX, and Wide Voice (Count III). [568] at 12; [581] at 30. As to the
fraud theory, Counter Defendants first claim that Defendants HD Tandem, Free
Conferencing, CarrierX, and Wide Voice fraudulently induced Inteliquent “to enter into,
and stay in, the Master Addendum by multiple false representations.” [581] at 30
(citing [583] ¶¶ 49–69).
Counter Defendants also argue that HD Tandem, Free
Conferencing, CarrierX, and Wide Voice engaged in fraud, not just fraudulent
inducement, during the various phases. [603] at 14–15. This Court will consider these
arguments in turn.
1.
Choice-of-Law
The Seventh Circuit has explained that choice-of-law provisions cover not only
breach of contract claims, but also claims “arising” out of the contract, including
fraudulent inducement. Kochert v. Adagen Med. Int’l, Inc., 491 F.3d 674, 679 (7th Cir.
2007) (interpreting fraudulent inducement claims under the law stipulated in the
contract’s choice of law provision). As a result, given the parties’ stipulation that New
York law governs their contract claims, this Court will, for the most part, apply New
York law to Inteliquent’s fraud and fraudulent inducement claims as well. The Court
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will apply Illinois law to Inteliquent’s fraud claim directed at Defendants’ conduct prior
to the MAA’s execution, however, as that claim does not arise out of the MAA.
2.
Fraudulent Inducement
A successful fraudulent inducement claim under New York law requires the
plaintiff to show: “(i) the defendant made a material false representation, (ii) the
defendant intended to defraud the plaintiff thereby, (iii) the plaintiff reasonably relied
upon the representation, and (iv) the plaintiff suffered damage as a result of such
reliance.” Maxim Grp. LLC v. Life Partners Holdings, Inc., 690 F. Supp. 2d 293, 306
(S.D.N.Y. 2010) (quoting Lumbermens Mut. Cas. Ins. Co. v. Darel Grp. U.S.A. Inc., 253
F. Supp. 2d 578, 583 (S.D.N.Y. 2003)). Here, Inteliquent argues that HD Tandem
pitched itself as a way for Inteliquent to reduce costs. [583] ¶¶ 50–51. In trying to
determine whether to enter into an agreement with HD Tandem, Inteliquent sought
information about whether Free Conferencing’s traffic was actually routed to South
Dakota. Id. ¶¶ 49–52. During these pre-contract negotiations, Inteliquent argues, Free
Conferencing’s COO and CEO misled Inteliquent about the relationship between the
Defendants and where free conferencing calls terminated. Id. ¶¶ 52–54. Inteliquent
claims that it agreed to the MAA based upon these false assurances. Id. ¶ 55.
As to the first element of Inteliquent’s fraudulent inducement claim, triable
issues of fact exist about whether Defendants made materially false representations to
Inteliquent, thereby precluding both sides’ cross-motions on the current record. For
example, Inteliquent submits a series of statements by Free Conferencing’s COO
containing alleged misrepresentations about where calls to the NATs physically
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terminated and about the relationships between the NATs and Free Conferencing. See,
e.g., [583] ¶¶ 52–55 (“I asked if calls would be delivered to those destinations, for
example, our [sic] calls . . . actually going to the Indian reservation in South Dakota.
And the answer was yes.”).
Defendants challenge the COO’s credibility and the
strength of Inteliquent’s evidence in general, see, e.g., [570] ¶¶ 38, 67, but this Court
cannot weigh evidence or make credibility determinations at the summary judgment
stage. Accordingly, given this conflict (and other factual disputes in the record), this
Court declines to enter summary judgment on Inteliquent’s fraudulent inducement
claims.
3.
Fraud
This Court next examines Inteliquent’s claim of Phase One fraud. To prevail on
a fraud claim, Illinois law requires Inteliquent to show materially the same
requirements as New York law on fraudulent inducement. Those elements are: “(1) a
false statement of material fact; (2) defendant’s knowledge that the statement was false;
(3) defendant’s intent that the statement induce the plaintiff to act; (4) plaintiff’s
reliance upon the truth of the statement; and (5) plaintiff's damages resulting from
reliance on the statement.” GMAC, LLC v. Hillquist, 652 F. Supp. 2d 908, 920 (N.D.
Ill. 2009) (quoting Connick v. Suzuki Motor Co., 675 N.E.2d 584, 591 (Ill. 1996)).
Inteliquent claims that Defendants engaged in Phase One fraud but fails to
explain this theory or otherwise support it with citations to the record. [581] at 30;
[603] at 15. Ostensibly, Inteliquent accuses Free Conferencing of engaging in fraud by
entering into revenue sharing agreements with the NATs. But it offers no evidence
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regarding what Free Conferencing (or HD Tandem, CarrierX, and Wide Voice) sought
to induce Inteliquent to do by entering into revenue sharing agreements with the NATs,
given that Inteliquent already sent its traffic to the NATs under the regulated path. In
fact, the record shows that, during Phase One, Inteliquent sent all its traffic from
numbers associated with the NATs to the NATs under the regulated path, apparently
unaware that Free Conferencing had revenue agreements with the NATs, and that
those calls did not physically terminate in South Dakota. [583] ¶ 49. Thus, Inteliquent
fails to show how these Defendants induced Inteliquent to do anything under Phase
One. This Court accordingly denies Inteliquent’s motion for summary judgment on
Phase One fraud and grants Defendants’ motion for summary judgment on this claim.
This Court now turns to Inteliquent’s claim of Phase Three fraud (i.e., fraud
occurring after Inteliquent had already entered the MAA). As before, Inteliquent raises
this theory, but does not explain it, merely stating that Free Conferencing’s post-MAA
fraudulent comments “furthered the scheme and kept Inteliquent deceived.” [603] at
18–19 (emphasis in original); see also [581] at 30 (explaining that HD Tandem, Free
Conferencing, CarrierX, and Wide Voice engaged in fraud by materially mispresenting
facts to get Inteliquent to “stay in” the MAA). Because triable issues of fact remain as
to whether Free Conferencing made any material misrepresentations that could
conceivably have not only induced Inteliquent to sign the MAA but also to continue
operating under the MAA, this Court denies both sides’ motions as to Phase Three
fraud.
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E.
California Unfair Competition Statute (Count V)
Next this Court considers the parties’ cross-motions on Inteliquent’s claim
against Free Conferencing, HD Tandem, Wide Voice, and CarrierX for violating
California’s Unfair Competition law (UCL). Defendants argue that they are entitled to
summary judgment on this claim because a choice-of-law analysis requires this Court
to apply the Illinois Consumer Fraud Act rather than the UCL. [568] at 23 (arguing
that Inteliquent may only bring a claim under the Illinois consumer fraud statute or
the California consumer fraud statute). But Inteliquent also brought a claim under
Illinois’ unfair competition statute, Count VI, and Defendants fail to explain why this
Court’s considering of two separate claims requires a choice of law analysis. Id. at 23–
24.
To support their claim, Defendants rely upon Barbara Sales, Inc. v. Intel Corp.
[568] at 23–24.
But the procedural posture in that case required a choice-of-law
analysis, where this case does not. In that case, the plaintiffs sought to certify a
nationwide class under California law. 879 N.E.2d 910, 916–17 (Ill. 2007). Because the
plaintiffs’ class included a great number of non-California residents, the court engaged
in a choice of law analysis to determine whether California law could appropriately
govern the nationwide class claims. Id. at 917. This case is not a class action, so
Barbara Sales’ analysis does not govern. Inteliquent may assert separate causes of
action under separate state consumer fraud statutes. See, e.g., Byler v. Deluxe Corp.,
222 F. Supp. 3d 885, 891 (S.D. Cal. 2016) (permitting a suit to go forward with plaintiffs
alleging violations under three different states’ consumer protection laws).
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Moreover, Defendants have not suggested that Inteliquent does not have
standing to assert its California consumer fraud claims. And California law confirms
that although Inteliquent is not a California resident, [581] ¶ 1, it has standing to assert
this claim.
Courts have instructed that a nonresident plaintiff may pursue claims under the
UCL so long as “California has sufficiently significant contacts with the plaintiff's
claims” so that the case does not raise constitutional concerns. Forcellati v. Hyland’s,
Inc., 876 F. Supp. 2d 1155, 1160 (C.D. Cal. 2012) (citing Mazza v. Am. Honda Motor Co.,
Inc., 666 F.3d 581, 589–90 (9th Cir. 2012)).
Here, Inteliquent’s claim presents a
sufficient connection to California to pass constitutional muster. Free Conferencing,
HD Tandem, and CarrierX operate their principal places of business in California.
[570] ¶¶ 12–14. Forcellati, 876 F. Supp. 2d at 1160 (“Plaintiff alleges that Defendants
are headquartered in Los Angeles, California. Therefore, application of [the UCL] poses
no constitutional concerns.”). While Wide Voice does not operate its principal place of
business in California (and is headquartered in Nevada), it has a California business
address and owns and operates “telecommunications network equipment” in California.
[583] ¶ 5. Inteliquent also presents facts showing that Free Conferencing, HD Tandem,
Wide Voice, and CarrierX’s alleged misconduct arose in California. See [583] ¶¶ 5, 9,
11, 62, 75; see also Klaehn v. Cali Bamboo, LLC, No. 19CV1498-LAB (KSC), 2020 WL
3971518, at *3 (S.D. Cal. July 13, 2020) (explaining that whether the “misconduct
originated in California” constitutes a relevant factor in evaluating the constitutional
question). Thus, this Court affirms that Inteliquent presents facts showing it possesses
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standing to assert this claim, and accordingly, denies Defendants’ request for summary
judgment on this count.
Inteliquent too asserts that it is entitled to summary judgment on its California
unfair competition claim, arguing that Defendants’ business model constitutes an
unfair practice. [581] at 30 (citing Cal. Bus. & Prof. Code § 17200). But Inteliquent
fails to explain how the conduct in the three identified phases relates to this claim or
otherwise cite facts to support this claim. Id. Instead, Inteliquent states that previous
sections in its brief lay out the relevant prior conduct, inappropriately leaving the task
of piecing together Inteliquent’s claim to this Court. United States v. Dunkel, 927 F.2d
955, 956 (7th Cir. 1991) (explaining that parties bear the burden of developing their
arguments because judges “are not like pigs, hunting for truffles buried in briefs”).
Because Inteliquent failed to develop its argument, the argument is waived, and the
Court denies summary judgment on this basis. White, 2017 WL 528380, at *9 n.5 (citing
Pond, 183 F.3d 592 at 597) (deeming summary judgment argument waived where
plaintiff had presented an underdeveloped argument).
F.
ICFA Claim (Count VI)
Next, this Court considers Inteliquent’s claim that Defendants HD Tandem, Free
Conferencing, CarrierX, and Wide Voice violated the Illinois unfair competition statute.
Both sides move for summary judgment. Inteliquent claims that HD Tandem, Free
Conferencing, CarrierX, and Wide Voice engaged in unfair or deceptive business
practices by: (1) participating in access stimulation with the NATs; and (2) working
together to sign tandem switching agreements with IXCs while misleading the IXCs
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about the businesses’ interrelationships and where free conferencing numbers
terminate. [581] at 29–30.
1.
Standing
Beginning with Defendants’ motion, Defendants argue that Inteliquent lacks
standing to assert this claim because it does not meet the statutory criterion to bring a
claim. [568] at 24–25. The ICFA constitutes “a regulatory and remedial statute”
intended to protect consumers, borrowers, and business-persons against “fraud, unfair
methods of competition, and other unfair business practices.” Cohen v. Am. Sec. Ins.
Co., 735 F.3d 601, 608 (7th Cir. 2013) (citing Robinson v. Toyota Motor Credit Corp.,
775 N.E.2d 951, 960 (Ill. 2002)). The Act concerns itself “with consumers.” Stepan Co.
v. Winter Panel Corp., 948 F. Supp. 802, 805 (N.D. Ill. 1996) (citation omitted). To bring
a suit under the Act, corporations must either show they meet the statutory definition
of a consumer or meet the consumer nexus test. Thrasher-Leon v. Ill. Farmers Ins. Co.,
861 F. Supp. 2d 898, 912 (N.D. Ill. 2012); see also Frazier v. U.S. Bank Nat’l Ass’n, No.
11 C 8775, 2013 WL 1385612, at **3–4 (N.D. Ill. Apr. 4, 2013).
Defendants’ standing theory fails because Inteliquent is a consumer under the
statute and, therefore, has the right to bring this claim.
First, courts have long
concluded that the statutory definition of a “person” includes corporations and other
business entities or associations, Stepan, 948 F. Supp. at 805, so long as that
corporation consumes another “business’s product,” Am. Roller Co., LLC v. FosterAdams Leasing, LLP, 472 F. Supp. 2d 1019, 1022 (N.D. Ill. 2007) (citing Lefebvre
Intergraphics, Inc. v. Sanden Mach. Ltd., 946 F. Supp. 1358, 1368 (N.D. Ill. 1996)). As
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the MAA provides, “HD Tandem provides long distance services to Inteliquent.” [3151] at 2 (emphasis added).
Additionally, Defendants’ Statement of Material Facts
further shows that it provides a service as it sells “switched access services” to long
distance carriers, and those carriers use HD Tandem’s switched access services
themselves.
[570] ¶¶ 10, 13, 67–71.
Thus, Defendants themselves concede they
maintained a “consumer-seller relationship” under the MAA; and this relationship
confers standing under the ICFA. Lefebvre Intergraphics, 946 F. Supp. at 1369.
Because Inteliquent is a consumer, this Court denies Defendants’ motion for
summary judgment on Inteliquent’s ICFA claim and now turns to the merits of
Inteliquent’s motion.
2.
The Claim’s Elements
Under the ICFA, a plaintiff can recover when the defendant engaged in unfair or
deceptive conduct. Siegel v. Shell Oil Co., 612 F.3d 932, 935 (7th Cir. 2010) (citing
Robinson, 775 N.E.2d at 960). This Court will first examine whether Counter
Defendants presents evidence of unfair conduct.
A court determining whether a
practice is “unfair” under the ICFA “must consider (1) whether the practice offends
public policy; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and]
(3) whether it causes substantial injury.” Messina v. Green Tree Servicing, LLC, 210 F.
Supp. 3d 992, 1003 (N.D. Ill. 2016) (citing Osborn v. J.R.S.-I., Inc., 949 F. Supp. 2d 807,
813 (N.D. Ill. 2013)). A practice need not meet all three criteria, but rather “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. (citing Robinson, 775 N.E.2d at 961).
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As it relates to Phase One, Counter Defendants agree that the NATs, not
Defendants, overcharged Inteliquent for traffic that did not physically terminate in the
NATs’ territory. See, e.g., [583] ¶¶ 39, 45–48. Thus, for Inteliquent to hold Free
Conferencing, HD Tandem, Wide Voice, and CarrierX liable, it needs to show the
unfairness of access stimulation such that even though the NATs overcharged
Inteliquent, these Defendants also engaged in wrongdoing by participating in the access
stimulation. One way to do so could be to show that Free Conferencing controls the
NATs. But to bring in the other Defendants, Inteliquent must show that the NATs,
Free Conferencing, Wide Voice, and CarrierX all work together. The parties, however,
dispute these facts, compare, e.g., [583] ¶¶ 14, 48, 54, with, e.g., [570] ¶¶ 24–25.
Inteliquent runs into these same factual issues in trying to show that Free
Conferencing, HD Tandem, CarrierX, and Wide Voice acted deceptively. See [570] ¶¶
32, 37 (alleging Inteliquent knew that these Defendants engaged in access stimulation
and that the parties had interrelationships).
Thus, the Court declines to enter
judgment in Inteliquent’s favor on its Phase One ICFA claim.
Turning to Phase Two, Inteliquent argues that Free Conferencing, acting on
behalf of itself (as well as HD Tandem, Wide Voice, and CarrierX), made materially
false statements to Inteliquent to induce it to enter into the MAA. But this theory
presents many triable fact issues. First, as stated previously, the parties dispute
whether Free Conferencing made materially false representations to Inteliquent and
whether those statements influenced Inteliquent to enter the MAA because, as
Defendants claim, Inteliquent already knew of the information it now claims deceived
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it. See, e.g., [570] ¶ 32–38. And again, Defendants dispute that they are essentially one
entity or that they are substantially interrelated. DRSOMF ¶ 14. These fact issues
apply to both an unfairness and a deceptive conduct claim. For these reasons, this
Court denies Counter Defendants’ motion for summary judgment on Inteliquent’s ICFA
Phase Two claim.
Finally, to the degree that Inteliquent claims that Free Conferencing, HD
Tandem, Wide Voice, and CarrierX engaged in unfair or deceptive conduct based upon
suspending the MSA in Phase Three, that claim too remains unsuitable for summary
judgment. Inteliquent may not bring a consumer fraud or unfair practices claim based
upon a breach of contract. Greenberger v. GEICO Gen. Ins. Co., 631 F.3d 392, 399 (7th
Cir. 2011) (“The Consumer Fraud Act is ‘not intended to apply to every contract dispute
or to supplement every breach of contract claim with a redundant remedy.’”) (quoting
Zankle v. Queen Anne Landscaping, 724 N.E.2d 988, 992–93 (Ill. App. Ct. 2000)). And
again, triable fact issues exist as to whether the relevant misrepresentations deceived
Inteliquent or whether Inteliquent was aware at all times of Defendants’ business
model and interrelationships.
For these reasons, this Court denies Inteliquent’s motion for summary judgment
on its ICFA claim.
G.
Unjust Enrichment (Count X)
In Count X, Inteliquent claims unjust enrichment against Free Conferencing,
Yakfree, and CarrierX. Both sides seek summary judgment in their favor. [581] at 28–
29; [568] at 29–30. Inteliquent argues that Defendants “unjustly retained a benefit to
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Inteliquent’s detriment by imposing charges—paid by Inteliquent—–that were not
permitted under the law.” [581] at 28 (referring to the charges Inteliquent paid the
NATs under the regulated path during Phase One).
Under Illinois law, an unjust enrichment claim’s success turns upon whether the
defendant “unjustly retained a benefit to the plaintiff's detriment” when “the
defendant’s retention of the benefit violates the fundamental principles of justice,
equity, and good conscience.” Blythe Holdings, Inc. v. DeAngelis, 750 F.3d 653, 658 (7th
Cir. 2014) (quoting Hess v. Kanoski & Assocs., 668 F.3d 446, 455 (7th Cir. 2012)).
Inteliquent claims Free Conferencing and Yakfree retained an improper benefit
through their revenue sharing agreements with the NATs when the NATs improperly
charged Inteliquent the tariffed rate. [581] at 28–29; [583] ¶¶ 23–32. Defendants
concede they engaged in this conduct. [570] ¶¶ 39–42, 95. 15
Defendants argue, however, that this Court should follow the remanded district
court decision laid out in Qwest Communications Corp. v. Free Conferencing Corp. [568]
at 29–30. In that litigation, Qwest brought unjust enrichment claims against Free
Conferencing for engaging in similar arrangements with Sancom, another South
Dakota LEC. No. 4:07-CV-04147-KES, 2017 WL 5198190, at *1 (D.S.D. Nov. 9, 2017),
aff’d, 920 F.3d 1203 (8th Cir. 2019). At a previous stage in the litigation, the Eighth
Circuit concluded that Free Conferencing’s behavior amounted to unlawful conduct as
Yakfree never submitted its own statement of material facts. It did, however, join the other
Defendants’ motion for summary judgment and accompanying filings. [582]. As such, it remains bound
by the material fact filings submitted by those Defendants.
15
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articulated in the Farmers II opinion. Qwest Commc’ns Corp. v. Free Conferencing
Corp., 837 F.3d 889, 899 (8th Cir. 2016) (citing Qwest Commc’ns Corp., 24 FCC Rcd.
14801, 14813 (2009)).
Defendants emphasize that, on remand, the district court
determined, despite Free Conferencing’s unlawful conduct, that Free Conferencing did
not unjustly enrich itself because it provided Qwest certain benefits, making it
equitable for Free Conferencing to retain the benefit of enhanced revenues. [568] at 30;
[614] at 16; see also Qwest, 2017 WL 5198190, at *3. On a second appeal, the Eight
Circuit affirmed the district court, finding it did not abuse its discretion. Qwest, 920
F.3d at 1207.
Defendants argue that they likewise bestowed benefits on Inteliquent, such that
it remains equitable for them to keep the increased revenue. [568] at 30. But this Court
finds that argument unpersuasive. The benefits Defendants set forth merely reflect
improvements to Free Conferencing’s own product.
[570] ¶ 94 (noting Free
Conferencing now offers enhanced services such as call recording). Defendants fail to
explain how these improvements benefited Inteliquent, if at all. Accordingly, because
Defendants fail to demonstrate that Free Conferencing and Yakfree provided
countervailing benefits to Inteliquent in this case, this Court denies summary judgment
to Defendants on this claim.
Turning to the merits of Inteliquent’s motion, this Court finds the Eighth
Circuit’s initial reasoning persuasive. In Qwest, the Eighth Circuit first confirmed that
Farmers II settled that LECs may not charge IXCs tariff rates for calls that do not
physically terminate at the LECs’ local infrastructure but instead at a conference call
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bridge. 837 F.3d at 894 (“Today, it is well-settled that an LEC cannot bill an IXC under
its tariff for calls ‘terminated’ at a conference call bridge when the conference calling
company does not pay a fee for the LEC’s services.”). The Eight Circuit further clarified
that the Farmers II ruling also reached Free Conferencing’s conduct prior to the
Farmers II opinion. Id. (“This decision was not merely prospective (that LECs could
no longer bill IXCs for this traffic) but retrospective as well (that LECs never could have
billed IXCs for this traffic).”). The court then opined that even though the LEC rather
than Free Conferencing illegally charged Qwest, Free Conferencing’s “conduct might be
characterized as inequitable because it retained a benefit based on Sancom’s tariff
violation, which it partly caused.” Id.
Defendants do not explain how the tariffed charges the NATs imposed for Free
Conferencing’s calls pass muster under the Farmers II test. In fact, separate litigation
involving Free Conferencing’s revenue sharing agreements with Native American
Telecom, LLC, also confirms that Free Conferencing fails the Farmers II test and LECs
that charged IXCs tariffs for free conferencing calls acted illegally. Sprint, 200 F. Supp.
3d at 874. In taking advantage of the NATs’ unlawful practices, Free Conferencing and
Yakfree unjustly received a benefit at Inteliquent’s expense. Williams v. Nat’l Hous.
Exch, Inc., 949 F. Supp. 650, 652 (N.D. Ill. 1996). Thus, this Court holds that Free
Conferencing and Yakfree unjustly enriched themselves during Phase One.
Turning to the question of damages, Defendants only challenge Inteliquent’s
damages calculation by pointing out that the Farmers II test is fact specific. DRSOMF
¶ 120. But they again fail to show what facts in this case distinguish Defendants’
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conduct from the defendants in Farmers II. See id. Because this Court finds the NATs
violated Farmers II, and because Defendants only challenge Inteliquent’s damages
calculation on the basis that Farmers II does not control, there remains no other factual
dispute regarding Inteliquent’s unjust enrichment damages.
Thus, this Court grants Inteliquent’s motion for summary judgment on Count X
and will adopt Inteliquent’s $2,313,697 Phase One damages calculation when later
entering final judgment on this claim (which absent other evidence does not involve any
genuine issues of material fact on the record presented). [583] ¶ 120.
H.
Civil Conspiracy (Count VIII)
Both parties also seek summary judgment on Inteliquent’s civil conspiracy claim
against all Defendants. [568] at 25; [581] at 26–28. In Illinois, plaintiffs may prove a
civil conspiracy claim by showing: “(1) a combination of two or more persons, (2) for the
purpose of accomplishing by some concerted action either an unlawful purpose or a
lawful purpose by unlawful means, (3) in the furtherance of which one of the
conspirators committed an overt tortious or unlawful act.” Fritz v. Johnston, 807
N.E.2d 461, 470 (Ill. 2004) (citing Adcock v. Brakegate, Ltd., 645 N.E.2d 888 (Ill. 1994)).
Inteliquent claims that during Phase One, Defendants engaged in a conspiracy with the
NATs to unlawfully charge Inteliquent for calls that did not physically terminate to an
end-user within the NATs’ footprint. [581] at 26–28.
Beginning with Defendants’ motion, Defendants argue that civil conspiracy does
not constitute an independent tort and, accordingly, that this Court may only grant
summary judgment if it also grants summary judgment on an underlying tort claim,
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such as fraud. [568] at 25. Yet, the Illinois Supreme Court has made clear that civil
conspiracy may rest upon an “overt tortious or unlawful act.” Fritz, 807 N.E.2d at 470
(emphasis added). At a minimum Free Conferencing and Yakfree engaged in unlawful
action through its Phase One revenue sharing agreements with the NATs. Qwest, 837
F.3d at 899; Sprint, 200 F. Supp. 3d at 874. Defendants retort that the NATs’ charges
were not unlawful because “at the time of the alleged conspiracy, NAT-CC was hotly
contesting this issue in court and it was not resolved until well after ‘Phase One’
concluded.” [640] at 14. But the conduct did not become unlawful when a court
determined it so; instead, this conduct was unlawful from the outset. Qwest, 837 F.3d
at 899 (“The phrase ‘loophole’ implies that the Sancom-FC contract was legal prior to
the FCC’s decision in Farmers II. But that is not the case.”). Accordingly, this Court
denies Defendants’ motion on this count.
Defendants also argue that Inteliquent is not entitled to judgment on this claim
because Inteliquent fails to show “an agreement to harm” Inteliquent. [614] at 21. To
prove an agreement, Inteliquent must show that Defendants understood the general
objectives of the Phase One scheme, accepted them, and agreed, either explicitly or
implicitly, to further them. Linkepic Inc. v. Vyasil, LLC, 370 F. Supp. 3d 906, 926 (N.D.
Ill. 2019) (citing McCann v. Mangialardi, 337 F.3d 782, 789–90 (7th Cir. 2003)).
While Defendants correctly assert that the parties contest the degree of
interrelationship between Defendants and the NATs, see DRSOMF ¶ 14, the record
establishes that Free Conferencing and Yakfree entered into revenue sharing
agreements with the NATs based upon unlawful charges associated with Free
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Conferencing and Yakfree numbers. [570] ¶¶ 39–42; [583] ¶¶ 27–29; DRSOMF ¶¶ 23,
27–29. These revenue sharing agreements establish a conspiracy between the NATs,
Free Conferencing, and Yakfree by showing that Yakfree and Free Conferencing
understood the general objective (generating unlawful revenue) and accepted that
objective (by entering the revenue sharing agreements). Thus, the undisputed evidence
on the record shows that during Phase One, Yakfree and Free Conferencing conspired
with the NATs, in violation of the Communications Act of 1934, to split revenue, and
the NATs took steps towards this goal by charging Inteliquent tariffed rates for Yakfree
and Free Conferencing traffic.
Inteliquent’s claim that the other Defendants participated in the conspiracy
relies upon their assertion that Defendants are intertwined entities. Yet that fact
remains contested, DRSOMF ¶ 14; DSAF 16 ¶ 4, and, thus, must be determined by the
jury. Accordingly, this Court grants Inteliquent’s motion for summary judgment on
Inteliquent’s civil conspiracy claim as to Yakfree and Free Conferencing’s Phase One
liability and denies it as to the other Defendants. As to damages, Inteliquent offers the
same $2,313,697 figure, for which Defendants do not submit countervailing evidence.
[583] ¶ 120; DRSOMF ¶ 120. Yet because Inteliquent’s claim here involves Defendants
beyond just Yakfree and Free Conferencing, whose liability has not yet been
determined, this Court declines to grant summary judgment for damages based upon
the record currently before it.
16
DSAF refers to Defendants’ Statement of Additional Facts in Opposition to Inteliquent’s motion. [632].
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II.
Defendants’ Counterclaims
A.
Intentional
Interference
Advantage (Counts III)
with
Prospective
Economic
Inteliquent seeks summary judgment on Free Conferencing and Wide Voice’s
claims for intentional interference with prospective economic advantage. [336] at Count
III; [338] at Count III; [581] at 32–35. The crux of Free Conferencing and Wide Voice’s
claims is that Inteliquent improperly interfered with their expectation in future
customers’ business by implementing the whisper policy and working with T-Mobile to
develop T-Mobile’s one cent policy. [336] ¶¶ 148–57. Inteliquent claims that Free
Conferencing and Wide Voice lack Article III standing to assert this claim and also fail
to present evidence for each of the claim’s elements. [581] at 32–35. This Court begins,
as it must, by considering the standing question.
In order to properly hear a case, courts must possess Article III standing. Lujan
v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Plaintiffs demonstrate Article III
standing when they: (1) suffer an injury in fact; (2) show a causal connection between
the injury and the defendant’s conduct; and (3) show that the injury can likely be
redressed by a favorable decision. Id. at 560–61 (citing cases).
1.
Injury in Fact
To show an injury in fact, Free Conferencing and Wide Voice must show an
invasion of a legally protected interest. Id. Although demonstrating a legally protected
interest “in no way depends on the merits of the plaintiff’s contention that particular
conduct is illegal,” it does require the court to evaluate the “nature and source of the
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claim asserted.” Warth v. Seldin, 422 U.S. 490, 500 (1975). To confer standing, the
claim must exist “by virtue” of statutes, common law, or constitutions “creating legal
rights, the invasion of which creates standing.” Id. (internal quotation marks omitted)
(citing Linda R.S. v. Richard D., 410 U.S. 614, 617 n.3 (1973); Sierra Club v. Morton,
405 U.S. 727, 732 (1972)).
Here, Defendants assert that Free Conferencing possessed an interest in
continuing to have current customers use its services (they are under no contractual
obligation or commitment to continue using Free Conferencing’s services, DSAF ¶ 1)
and adding new customers. DSAF ¶ 54. Defendants claim Wide Voice possessed an
interest in gaining new business with voice application providers. 17 Id. ¶ 56 (stating
that Wide Voice sought to enter into revenue sharing agreements with new voice
applications, e.g., free conferencing companies, but “the 1-Cent Policy ruined the calls”).
While Illinois law recognizes an interest in prospective economic relationships,
the right to engage in a business relationship is not absolute and “must be exercised
with regard to the rights of others. The rights of others most commonly take the form
of lawful competition, which constitutes a privileged interference with another’s
business.” Belden Corp. v. InterNorth, Inc., 413 N.E.2d 98, 102 (Ill. App. Ct. 1980)
Defendants do not develop their arguments explaining the precise prospective business relationships
Wide Voice believes Inteliquent impacted. Indeed, they devote a mere sentence explaining Wide Voice’s
injury. [614] at 24. Yet to the extent Defendants complain that Inteliquent’s conduct made Wide Voice’s
existing revenue sharing agreements with various voice application providers less profitable, that
argument mistakenly treats Wide Voice as bringing a claim for interference with contractual relations,
which Wide Voice does not assert. See [338]. As an aside, for Wide Voice to show a protected interest
from revenue sharing agreements with voice application providers, these contracts would need to be
valid, and, accordingly, not run afoul of FCC’s rules about access stimulation or the Famers II opinion.
17
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(citing Candalaus Chi., Inc. v. Evans Mill Supply Co., 366 N.E.2d 319, 326–27 (Ill. App.
Ct. 1977)).
In other words, when defendants possess “only the hope of continued
benefits,” defendants cannot prevent others from engaging in lawful actions that might
impede that hopeful future business. Id. at 102. Illinois law, however, does not extend
this privilege to unfair competition such as “fraud, intimidation, or disparagement.” Id.
at 103.
And when analyzing interference with prospective business rather than
interference with contractual relations, “the degree of enforceability of a business
relationship decreases,” while “the extent of permissible interference by an outsider
increases.” Id.
Turning to the arguments presented, Free Conferencing and Wide Voice
complain that through the whisper policy and T-Mobile’s one cent policy, Inteliquent
impermissibly interfered with its business interest with current and future
customers. 18 [614] at 5–8; DSAF ¶¶ 16–60. But Inteliquent’s actions fall into the lawful
competition camp, meaning Free Conferencing and Wide Voice do not have standing to
pursue this claim because they have no legal right to prohibit Inteliquent from lawfully
In their Opposition brief, Defendants also argue that Inteliquent engaged in “illegitimate or illegal
routing methods to complete” calls to Free Conferencing’s telephone numbers. [614] at 32. Yet
Defendants do not develop this argument or explain what made the routing “illegitimate or illegal.” Id.
Defendants’ own facts also indicate that Inteliquent did not fraudulently route these calls, just that it
may have benefited from such third-party actions. DRSOMF ¶¶ 111–12. Additionally, much of the
complained of routing appears to have occurred after the filing of this lawsuit. Id. ¶ 111. Nor do
Defendants contend that the calls failed to connect, just that another party routed these calls onto
another carrier’s network. Id. ¶¶ 108–12 (noting that while PBX hacking and SIM box fraud effectively
“ ‘dump’ calls onto another carrier’s network, avoiding the costs of delivering the call,” they do not cause
the calls to fail to be delivered, which is what would matter to Free Conferencing’s customers). Thus,
Free Conferencing’s customers likely remained unaware and unaffected by such practices and fraudulent
routing would not have influenced customers to stop using Free Conferencing’s services. These vague
suggestions remain insufficient to carry this claim.
18
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competing in a manner that harms their expectancy of future business. Belden, 413
N.E.2d at 102–03. For example, Defendants note that in order to reduce high-cost Free
Conferencing traffic, Inteliquent created a whisper policy functionality and T-Mobile
initiated a one cent policy. See, e.g., DSAF ¶¶ 35, 46–48; [614] at 24. Free Conferencing
and Wide Voice claim that as a result of these actions, they lost existing and potential
future customers, leading to decreased revenue. DSAF ¶ 54; [614] at 24. While that
might be true, these actions did not amount to fraud, intimidation, or disparagement,
but instead amounted to lawful, vigorous competition: Free Conferencing and Wide
Voice sought to increase Inteliquent’s costs and Inteliquent (through T-Mobile)
attempted to resist those charges despite knowing that such resistance might cause
these Defendants to do less business.
Failing to show Free Conferencing or Wide Voice possessed a legally protected
right to be free from lawful interference with its prospective customers, Defendants also
point to their “legally protected right to be free from unfair and deceptive business
practices” under the ICFA. [614] at 24. While Free Conferencing and Wide Voice could
bring such a claim, and in fact do bring such a claim in different counts, see [336] at
Count IV; [338] at Count IV, the legally protected right they must show to support their
counts for intentional interference with prospective economic advantage is,
unsurprisingly, the legal right to be free from intentional interference with prospective
business advantage as defined by Illinois law. Therefore, Free Conferencing and Wide
Voice possess no legal right that could prohibit Inteliquent from engaging in lawful
competition, even if Inteliquent’s lawful actions harmed their profitability. Thus, Free
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Conferencing and Wide Voice cannot point to a legally cognizable injury in fact in order
to demonstrate standing.
2.
Traceability
As to T-Mobile’s one cent policy, Defendants also struggle to show the requisite
causation necessary to establish standing. Courts have defined traceability as “whether
a party can demonstrate that the injury of which he complains is ‘fairly traceable’ to the
challenged conduct of the defendants,” Sanner v. Bd. of Trade of City of Chi., 62 F.3d
918, 923 (7th Cir. 1995) (explaining that traceability requires the plaintiff to show the
causal links between its injury and the defendant’s conduct), and “not the result of the
independent action of some third party not before the court,” Lujan, 504 U.S. at 560–
61 (internal punctuation omitted) (quoting Simon v. Eastern Ky. Welfare Rights Org.,
426 U.S. 26, 41–42 (1976)).
As relevant here, no issue of material fact exists that T-Mobile (not Inteliquent)
instituted and carried out the policy. See DRSOMF ¶¶ 90–91 (failing to dispute that TMobile carried out the policy, charged the fee, and did not give any portion of that fee
to Inteliquent). While Defendants introduce evidence that Inteliquent wanted T-Mobile
to institute these polices and worked closely with T-Mobile to implement them, id. ¶¶
90–92, they fail to introduce any evidence showing that T-Mobile was anything other
than an independent actor, id. ¶ 87. And critically, independent third parties typically
break the causal chain. Beckman v. Chi. Bear Football Club, Inc., No. 17 C 4551, 2018
WL 1561719, at *5 (N.D. Ill. March 30, 2018) (finding that plaintiff lacked standing to
sue NFL for injury caused by Chicago Bears’ policy where “the Bears’ discretion appears
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to be unfettered” and, thus, “breaks the chain of causation from Beckman’s injury to the
NFL”), reconsideration denied, No. 17 C 4551, 2018 WL 11200549 (N.D. Ill. Dec. 11,
2018). Even assuming Inteliquent might have designed the policies, absent evidence
that Inteliquent exerted some control over T-Mobile, it cannot be considered the cause
of Free Conferencing or Wide Voice’s harm on this factual record. See DH2, Inc., v. U.S.
Sec. & Exch. Comm’n, 422 F.3d 591, 597 (7th Cir. 2005) (holding that a mutual fund
investor seeking to challenge SEC rules lacked standing because even if the SEC rule
changes caused the mutual funds the plaintiff invested in to be less profitable, “the
injury DH2 complains of hinges on the decisions of independent actors whose
discretion—though subject to securities laws and regulation by the SEC—is
nonetheless quite broad”).
While some concerted action may certainly confer liability on a party that did not
implement the action—for example when a defendant’s agent carried out the harmful
conduct—here, Defendants seek to stretch causation too far.
In essence, Free
Conferencing and Wide Voice seek to hold Counter Defendants liable for actions taken
by an independent third-party which may have resulted in potential customers
declining to use Free Conferencing’s services or signing future revenue sharing
agreements with Wide Voice. This theory remains too attenuated to support Article III
standing.
3.
Redressability
Finally, as to the whisper policy, Free Conferencing and Wide Voice also have a
redressability issue. To show their claims are redressable, they must show that it is
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“‘likely,’ as opposed to merely ‘speculative,’ that the injury will be “redressed by a
favorable decision.” Lujan, 504 U.S. at 561.
The short-lived whisper policy only impacted 16 numbers, only one of which was
a Free Conferencing number, [583] ¶ 84; DRSOMF ¶ 84, and ran for only a few weeks
from April 27, 2016, through May 12, 2016, [583] ¶ 83; DRSOMF ¶ 83. Moreover,
Inteliquent did not stop callers from completing their calls using the whisper policy, it
just required them to enter a two-digit number first.
[583] ¶ 83.
Thus, Free
Conferencing and Wide Voice must show that they lost future business based upon a
policy that affected one Free Conferencing number, for a period of a few weeks, and still
permitted that caller to complete the call.
This Court finds that these Defendants’ alleged injury cannot be redressed by a
favorable decision. For one, the whisper policy stopped, so this Court could not issue
an injunction. And damages based upon one caller who still had the ability to place the
call free of charge are so speculative that they must be denied. Cf. Eiben v. A. Epstein
& Sons Int’l, Inc., 57 F. Supp. 2d 607, 612–13 (N.D. Ill. 1999) (explaining that the law
does not permit damages that are too speculative and that courts cannot permit
defendants to introduce such speculative damages at trial).
Accordingly, Free
Conferencing and Wide Voice cannot show that they possess redressable claims based
upon the whisper policy.
Because Free Conferencing and Wide Voice lack standing to assert this claim,
this Court need not reach the merits. Accordingly, this Court grants Inteliquent’s
motion for summary judgment on Free Conferencing and Wide Voice’s counterclaims
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for intentional interference with prospective economic advantage based upon a lack of
standing.
B.
ICFA (Counts IV)
Inteliquent also seeks summary judgment on Free Conferencing and HD
Tandem’s consumer fraud counterclaim and Wide Voice’s consumer fraud claim. [581]
at 37–40. Inteliquent argues that these claims suffer from many of the same standing
deficiencies as Free Conferencing and Wide Voice’s interference with prospective
economic advantage claim. Id. This Court agrees.
As for the standing issue, while Free Conferencing, HD Tandem, and Wide Voice
possess a legally protected right to be free from unfair competition (assuming they meet
the ICFA’s standing requirements), their claims based upon T-Mobile’s one cent policy
nevertheless suffers from the same traceability issue given that T-Mobile’s actions
break the causal chain. Similarly, their claims based upon the whisper policy are not
redressable. 19 Therefore, this Court also grants Inteliquent’s motion for summary
judgment on Free Conferencing and HD Tandem’s and Wide Voice’s counterclaims for
violation of the ICFA. 20
19
Defendants assert that HD Tandem lost profits because fewer calls traversed its network. [614] at 24.
This Court also notes that Defendants present no argument as to one of ICFA’s essential elements: the
defendant’s intent that the plaintiff rely on the deceptive or unfair practice. Siegel, 612 F.3d at 934; [614]
at 37–39. Without making an argument that a triable factual issue exists as whether Inteliquent
intended for Wide Voice, HD Tandem, or Free Conferencing to rely on its actions, this Court would have
to grant Inteliquent’s motion.
20
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III.
Miscellaneous
A.
Calls Terminated to LECs Other than the NAT LECs
Defendants alternatively seek summary judgment on all counts for calls
terminated to LECs other than the NATs. [568] at 39–40 (seeking partial summary
judgment “on all counts as to the calls that were transmitted to LECs other than the
NAT LECs that terminated in the geographic region of those non-NAT LECs”). As it
relates to calls that contribute to contract overcharges, this Court already granted
summary judgment for Defendants on the breach of contract claim, so this claim is
moot.
Defendants also suggest that this Court should grant summary judgment on calls
terminated to LECs other than the NATs relating to Inteliquent’s fraud claim. [568] at
39. This Court declines Defendants’ invitation, as it previously ruled factual issues
exist regarding Inteliquent’s fraud claim. Moreover, while the claim centers upon calls
associated with the NATs, it remains premature to determine whether representations
made about the NATs had any impact upon Inteliquent’s understanding of how
Defendants completed calls to other LECs and whether that information impacted its
decision-making. Therefore, given the current record, this Court declines to grant
partial summary judgment on all calls terminated to LECs other than the NAT LECs.
B.
All Claims against Counter Defendant Matthew Carter
Finally, Inteliquent seeks summary judgment on all claims against Counter
Defendant Matthew Carter. [581] at 40. Defendants ask this Court to deny this motion,
first arguing that Inteliquent waived this argument because its brief only “contains a
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single sentence concerning Defendants’ counterclaims against Matthew Carter.” [614]
at 40.
This argument fails to persuade, as Mr. Carter joined in the entirety of
Inteliquent’s motion.
Moreover, the fact that the briefing rendered Mr. Carter
relatively unimportant cuts in Mr. Carter’s favor, not Defendants, by demonstrating
how inconsequential he personally remains to the claims at issue.
Turning to the merits, typically, high-ranking corporate officers cannot be held
personally liable for the corporation’s actions. Live Face on Web, LLC v. Kam Dev.,
L.L.C., No. 16 C 8604, 2016 WL 7374279, at *5 (N.D. Ill. Dec. 20, 2016) (“Merely being
an officer in the corporation will not confer liability on the individual.” (quoting Asher
Worldwide Enters. LLC v. Housewaresonly.com Inc., No. 12 C 568, 2013 WL 4516415,
at *3 (N.D. Ill. Aug. 26, 2013))). Although Defendants manage to string together a few
citations they say demonstrate Mr. Carter’s “tortious conduct,” [614] at 40, these
citations only show Mr. Carter’s concern about revenue shortfalls and communications
with T-Mobile regarding reducing expensive traffic. Inteliquent did not commit a tort
against Defendants through these actions, so these facts remain insufficient to show
that Mr. Carter personally, through his participation as Inteliquent’s CEO, engaged in
a tortious act against Defendants. Prince v. Zazove, 959 F.2d 1395, 1401 (7th Cir. 1992)
(explaining that in order to hold an officer vicariously liable for a corporation’s actions,
the officer must be personally involved in tortious conduct giving rise to liability). Thus,
this Court grants Inteliquent’s motion for summary judgment on Defendants’ claims
against Mr. Carter.
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CONCLUSION
For the foregoing reasons, this Court grants in part and denies in part
Defendants’ and Counter Defendants’ respective motions for summary judgment. [566];
[580]. As to Inteliquent’s claims, this Court denies both parties’ cross-motions on
Counts I, II, V, VI; grants Defendants’ motion for summary judgment on Count IV, and
denies Inteliquent’s motion as to Count IV. This Court denies Counter Defendants’
motion for summary judgment on Count IX (HD Tandem’s counterclaim Count I) and
Defendants’ motion for summary judgment on Count IX as to HD Tandem, but grants
Defendants’ motion as to Free Conferencing and CarrierX. This Court denies both
parties’ cross-motions for summary judgment on Count III as to fraudulent inducement
and for fraud as to Defendants’ Phase Three conduct. This Court grants Defendants’
motion for summary judgment and denies Inteliquent’s motion on this count as to Phase
One fraud.
This Court denies Defendants’ motion and grants Inteliquent’s motion for
summary judgment on Count X. This Court denies Defendants’ motion and grants
Inteliquent’s motion for summary judgment on Count VIII as to liability for Yakfree
and Free Conferencing but denies it as to the other Defendants and as to damages.
On Inteliquent’s motion for summary judgment on Defendants’ counterclaims,
this Court grants the motion as to Free Conferencing’s Count III and Wide Voice’s
Count III, and as to Free Conferencing and HD Tandem’s Count IV and Wide Voice’s
Count IV.
Finally, this Court denies Defendants’ motion for partial summary judgment on
all calls transmitted to LECs other than the NATs. This Court grants Inteliquent’s
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motion for summary judgment on all claims against Counter Defendant Matthew J.
Carter.
Dated: November 30, 2020.
____________________________________
John Robert Blakey
United States District Judge
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