Sprint Nextel Corporation v. Middle Man, Inc., The et al
Filing
85
MEMORANDUM AND ORDER granting in part and denying in part 45 Sprint's Motion to Dismiss Defendant's Amended Counterclaim. Signed by District Judge J. Thomas Marten on 3/25/2013. (mss)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SPRINT NEXTEL CORPORATION,
Plaintiff,
v.
Case No. 12-2159-JTM
THE MIDDLE MAN, INC., AND
BRIAN K. VAZQUEZ,
Defendants.
MEMORANDUM AND ORDER
This matter comes before the court on Sprint’s Motion to Dismiss Defendant’s
Amended Counterclaim (Dkt. 45). Sprint argues that all of defendant The Middle Man,
Inc.’s counterclaims should be dismissed for failure to state a claim pursuant to FED. R.
CIV. P. 12(b)(6). After reviewing the parties’ arguments, the court grants Sprint’s motion
in part and denies it in part.
The factual background has been adequately stated by the court in its March 13,
2013 Order (Dkt. 83).
I. Legal Standard: Rule 12(b)(6)
Federal Rule of Civil Procedure 8(a)(2) provides that a complaint must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.” The
complaint must give the defendant adequate notice of what the plaintiff’s claim is and
the grounds of that claim. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). “In
reviewing a motion to dismiss, this court must look for plausibility in the complaint . . . .
Under this standard, a complaint must include ‘enough facts to state a claim to relief
that is plausible on its face.’ “ Corder v. Lewis Palmer Sch. Dist. No. 38, 566 F.3d 1219,
1223–24 (10th Cir. 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A
claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (clarifying and affirming Twombly’s
probability standard). “The issue in resolving a motion such as this is ‘not whether [the]
plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to
support the claims.’ “ Bean v. Norman, No. 008-2422, 2010 WL 420057, at *2, (D. Kan. Jan.
29, 2010) (quoting Swierkiewicz, 534 U.S. at 511).
II. Analysis
A. Counts I and II
Counts I and II of Middle Man’s Amended Counterclaim seek declaratory
judgment. In Count I, Middle Man asks the court to resolve the issue of whether
Sprint’s Terms and Conditions restrict Sprint phone purchasers from reselling their
Sprint phones. In Count II, Middle Man asks the court to resolve the issue of whether
they may resell pre-owned phones that contain, or are labeled with, the Sprint name
and trademark, or identify the network on which the pre-owned phone was originally
programmed to operate.
First, Sprint argues that counts I and II are “mirror images” of its claims against
the defendants that should be dismissed because they “merely restate issues already
before the court” as part of Sprint’s affirmative case. From the outset, the court notes
that the District of Kansas has stated that there is “no rule preventing the assertion of a
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counterclaim merely because the theory relied upon is the converse of that in the
complaint.” Blue Cross & Blue Shield of Kan., Inc. v. St. Paul Mercury Ins. Co., No. 89-4114R, 1990 WL 41403, at *1 (D. Kan. Mar. 23, 1990) (citing Iron Mt. Sec. Storage Corp. v. Am.
specialty Foods, Inc., 457 F. Supp. 1158, 1161–62 (E.D. Pa. 1978)). Even though the court
may dismiss the claims in its discretion, the court finds no need to do so here, because
counts I and II of Middle Man’s Amended Counterclaim are not “mirror images” of
Sprint’s claims.
Count 1 of Sprint’s Complaint alleges breach of contract. However, Sprint claims
that several different acts by the defendants make them liable for breach of contract: “(a)
failing to pay for the monthly service charges; (b) failing to pay the ETF fees; (c) failing
to activate the Phones on the Sprint wireless network; (d) reselling the Sprint Phones
and related products and services; and (e) using the Phones for a purpose that could
damage or adversely affect Sprint.” Dkt. 1, p. 13. Count I of Middle Man’s counterclaim
seeks declaratory judgment on only one of these activities. Were this issue resolved in
Middle Man’s favor, it would not necessarily release Middle Man from liability on
Sprint’s breach of contract claim because of the several other actions that Sprint claims
constitute breach by the defendants. Further, if Middle Man is held liable for breach of
contract based on their failure to pay for the monthly service charges, the issue of
whether the resale restrictions are valid may not even be addressed.
Count 6 of Sprint’s Complaint alleges inducement of breach of contract by
defendants. But again, the actions constituting the breaches of contract allegedly
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induced by defendants are numerous. For the same reasons noted above, Count I of
Middle Man’s Amended Counterclaim is not a mirror image of Sprint’s claims.
Sprint claims that Count II of Middle Man’s Amended Counterclaim is
duplicitous of Sprint’s trademark infringement claim (Count 12 in the Complaint). Like
its breach of contract claims, Sprint’s trademark infringement claim includes several
allegations that make it broader than Middle Man’s claim. Sprint alleges that
defendants are selling counterfeit Sprint Phones by using the trademark in a way that
causes a likelihood of confusion and that constitutes a false representation of a
connection between Sprint and defendants. Middle Man asks only for a declaratory
judgment that selling a phone that has the Sprint trademark on it and identifying the
phone as one that was initially programmed to work on the Sprint network are not
illegal. Declaring these acts legal would not insulate the defendants from liability for the
remaining illegal trademark usages alleged by Sprint.
Sprint also argues that the court should refuse to entertain the declaratory
judgment actions on issues that have already been asserted as affirmative defenses.
Indeed, other courts have taken this route. See, e.g., MGM Studios, Inc. v. Grokster, Ltd.,
269 F. Supp. 2d, 1213, 1226 (C.D. Cal. 2003) (holding that where an affirmative defense
has been asserted, “[s]eparately litigating that defense in a declaratory posture would
not serve the purposes of declaratory relief . . . .”). Middle Man’s Answer simply denies
Sprint’s claims regarding breach of contract and asserts no affirmative defenses that
would cover the relief sought by their counterclaim. However, the Answer asserts as an
affirmative defense that the “alleged use of Plaintiff’s trademark is lawful under the
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doctrines of fair use and exhaustion.” Dkt. 37, p. 14. This defense is as broad as the
declaratory judgment sought by Middle Man on the issue of trademark infringement.
This affirmative defense will necessarily be resolved during the course of litigation,
effectively rendering the counterclaim moot. Therefore, the court finds Count II of
defendants’ counterclaim redundant of its affirmative defense and dismisses the claim.
Finally, Sprint argues that Middle Man cannot bring Count I of its Amended
Counterclaim because nowhere in its pleading does Middle Man allege that it
purchased new phones from Sprint. The Declaratory Act requires an actual controversy.
Surefoot LC v. Sure foot Corp., 531 F.3d 1236, 1240 (10th Cir. 2008). Sprint argues that
unless Middle Man alleges that it bought a new phone from Sprint, no “actual
controversy” exists regarding the Terms and Conditions that bind Sprint customers.
However, Sprint’s Complaint accuses Middle Man of “inducing Purchasers to breach
their contracts with Sprint.” Dkt. 1, p. 17. Therefore, regardless of whether Middle Man
purchased a phone from Sprint, an actual controversy does exist regarding Sprint’s
contractual relationship with customers. The court declines to dismiss Count I of the
Amended Counterclaim.
B. Count III
Count III of the Amended Counterclaim alleges tortious interference with
Middle Man’s business expectancy by Sprint. To assert a claim for tortious interference
with business expectancy, a plaintiff must allege: (1) the existence of a business
relationship or expectancy with the probability of future economic benefit to the
plaintiff; (2) knowledge of the relationship or expectancy by the defendant; (3) that,
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except for the conduct of the defendant, plaintiff was reasonably certain to have
continued the relationship or realized the expectancy; (4) intentional misconduct by
defendant; and (5) damages suffered by plaintiff as a direct or proximate cause of
defendant’s misconduct. Burcham v. Unison Bancorp, Inc., 276 Kan. 393, 77 P.3d 130, 151
(2003).
Middle Man’s counterclaim fails to sufficiently plead the elements of the tortious
interference claim. First, the claim does not plead any facts showing the existence of a
business relationship between Middle Man and Sprint’s customers. While it might be
true that Middle Man can expect some Sprint customers ultimately to resell their
phones to Middle Man and form a business relationship, it has pled no facts that
Sprint’s actions have interfered with a current, specific, existing business relationship or
reasonably probable expectancy. The counterclaim does not list any particular clients or
potential clients of Middle Man that ended the relationship because of Sprint’s actions.
Second, Middle Man’s claim does not sufficiently plead facts showing that Sprint
engaged in intentional misconduct with knowledge of Middle Man’s relationship or
expectancy of relationship with customers. Middle Man alleges several actions by
Sprint interfere with Middle Man’s business relationships: (1) disguising the true cost of
the wireless phones Sprint sells, (2) forcing disguised pricing into the wireless phone
market through a scheme to unlawfully restrain trade, (3) prohibiting its customers
from reselling their Sprint phones to third parties such as Middle Man, (4) attacking and
harassing resellers such as Middle Man, and (5) affecting pricing of wireless phones by
restricting competition in both the Kansas market and interstate. See Dkt. 37, ¶¶ 13, 15,
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17, 19, 20 (incorporated into Count III by ¶ 38). Interestingly, as discussed below, these
practices appear to affect Sprint’s own business more than they do Middle Man’s.
Middle Man’s claim that Sprint is “attacking and harassing resellers such as
Middle Man” rests solely on the fact that Sprint has brought this legal action. Sprint has
a First Amendment right to petition the government, often referred to as NoerrPennington immunity. This right to petition has been extended to afford a party the
right to access the courts. See California Motor Transp. Co. v. Trucking Unlimited, 404 U.S.
508 (1972). “While the Noerr-Pennington doctrine originally arose in the antitrust
context, it is based on and implements the First Amendment right to petition and
therefore . . . applies equally in all contexts.” White v. Lee, 227 F.3d 1214, 1231 (9th Cir.
2000); California Motor Transp., 404 U.S. at 510; Brownsville Golden Age Nursing Home, Inc.
v. Wells, 839 F.2d 155, 160 (3d Cir. 1988) (“The rule that liability cannot be imposed for
damage caused by inducing legislative, administrative, or judicial action is applicable
here.”). The court finds that Middle Man has not pled any proper facts to show that
Sprint attacks and harasses resellers.
Middle Man’s allegations that Sprint disguises the true cost of the phones it sells
and forces disguised pricing into the wireless market are not allegations of misconduct
that damages Middle Man. Rather, Sprint’s pricing scheme—selling the phones at a
discount to entice buyers into service contracts—is what creates the opportunity for
Middle Man’s profitability. Middle Man resells phones at price levels between the full
price of the phone and the subsidized price offered by Sprint with a service contract.
Whether this pricing gap is created by misconduct is irrelevant because it does not
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damage Middle Man. On the contrary, Middle Man’s business plan seems to be based
on the results of this alleged misconduct by Sprint.
The additional allegations by Middle Man rely on Sprint’s contractual
relationship with its own customers. Sprint’s actions do not restrict customers from
purchasing phones from Middle Man, nor do they restrict customers from reselling
their phones to Middle Man after the Sprint contract date expires. Although Sprint’s
Terms and Conditions purport to restrict its own customers from reselling their Sprint
phones while the contract is enforceable, Middle Man pleads no facts establishing that
Sprint’s contracts with its own customers are directed in any way at Middle Man.
Without these facts, Sprint’s own contractual relationships with its customers are not a
plausible basis for intentional misconduct.
Third, Sprint cannot plausibly have had knowledge of any relationship between
Middle Man and its business relationships prior to the misconduct alleged. This is
because any person who would want to enter a business relationship with Middle Man
to resell their phone would necessarily have been a Sprint customer first. Otherwise,
they would not have a Sprint phone to resell.
As a result of the defects in its pleading, Middle Man has failed to state a
plausible claim for tortious interference by Sprint. Accordingly, Claim III of the
Amended Counterclaim is dismissed.
C. Counts IV and V
Counts IV and V of the Amended Counterclaim are state and federal antitrust
claims against Sprint, respectively. Count IV alleges that Sprint unlawfully restrains
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trade under Kan. Stat. Ann. 50-112 by engaging in an agreement with its authorized
dealers that restrains trade or fixes prices by restricting customers’ rights to activate
phones on other networks and resell the phones to third parties. Count V alleges that
this same conduct violates § 1 of the Sherman Act. The court finds Middle Man has
failed to plead sufficient facts for either of these claims.
Under Kansas law, “any person injured or damaged by such an arrangement”
has standing to sue for violations of Kan. Stat. Ann. § 50-112. See Kan. Stat. Ann. § 50115 (2000). Thus, a private right of action is allowed against those who violate § 50-112,
if the private plaintiff can show they were injured or damaged by the defendant’s
forbidden behavior. See O’Brien v. Leegin Creative Leather Prods., Inc., 294 Kan. 318, 277
P.3d 1061, 1076 (Kan. 2012). Middle Man’s claim makes conclusory statements that it
“has been injured as a direct and proximate result” of Sprint’s scheme, “due to Sprint
retaining control over the pricing of phones for use on its network.” Middle Man claims
that such policies “may make it more difficult and expensive to procure pre-owned
wireless phones programmed to be operated on the Sprint network.” The court need
not accept these conclusory and speculative statements as true, as they are not
supported by well-pleaded factual contentions. See Hall v. Bellmon, 935 F.2d 1106, 1110
(10th Cir. 1991). With no well-plead facts alleging an injury or damage to it, Middle
Man has no standing to pursue the claim. The court dismisses Claim IV of the Amended
Counterclaim.
Count V suffers a similar fate. Count V claims that Sprint’s tying Sprint phones
and the Sprint network together violate antitrust laws. The court notes that Section 1 of
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the Sherman Act does not create a private right of action for money damages. A private
right of action for tying claims is conferred by Section 4 of the Clayton Act. See 15 U.S.C.
§ 15(a) (stating that “any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may sue.”).
Middle Man claims this tying violation should be analyzed as a per se violation.
The Tenth Circuit has established the elements of a per se tying violation: “(1) two
separate products, (2) a tie-or conditioning of the sale of one product on the purchase of
another, (3) sufficient economic power in the tying product market, and (4) a substantial
volume of commerce affected in the tied product market.” Multistate Leg. Stud., Inc. v.
Harcourt Brace Jovanovich Leg. and Prof. Publications, Inc., 63 F.3d 1540, 1546 (10th Cir.
1995).
Rather than designating one product as the tied product and the other as the
tying product, Middle Man appears to claim that both of the products are at the same
time tied and tying products. See Dkt. 35, p. 12. But the court finds that the products are
not tied at all. Customers may purchase a brand new phone from Sprint for the full
price without signing up to use the phone on the Sprint network. Additionally,
customers can buy a phone from another phone distributor and then enter into a
contract with Sprint to connect the phone to the Sprint network. Customers are not
forced to buy either product; they do so for the phone discount subsidized by Sprint.
Without a tying scenario that forces consumers to purchase both products, Middle Man
has no basis to bring its antitrust claim. Therefore, the court also dismisses Count V for
failing to state a claim.
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III. Conclusion
The court dismisses Count II as redundant to defendants’ affirmative defense
against its alleged trademark violation. The court dismisses counts III, IV, and V for
Middle Man’s failure to state a claim.
IT IS THEREFORE ORDERED this 25th day of March, 2013, that Sprint’s Motion
to Dismiss Defendant’s Amended Counterclaim (Dkt. 45) is granted in part and denied
in part, to the extent set forth herein.
s/J. Thomas Marten
J. THOMAS MARTEN, JUDGE
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