Free Conferencing Corp. v. Sancom, Inc. et al

Filing 35

ORDER granting 18 Motion to Dismiss defendant MCI Communications Services, Inc., d/b/a Verizon Business Services. Signed by Chief Judge Karen E. Schreier on 4/19/2011. (KC)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
FREE CONFERENCING CORP.,
a Nevada corporation,
Plaintiff,
vs.
SANCOM, INC., a South Dakota
corporation, d/b/a Mitchell
Telecom;
SANTEL COMMUNICATIONS
COOPERATIVE, INC., a South
Dakota corporation; and
MCI COMMUNICATIONS
SERVICES, INC., d/b/a Verizon
Business Services, a Delaware
corporation,
Defendants.

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CIV. 10-4113-KES

ORDER GRANTING
DEFENDANT VERIZON’S
MOTION TO DISMISS

Plaintiff, Free Conferencing Corp. (Free Conferencing), asserts breach
of contract and unjust enrichment claims against defendants Sancom, Inc.
(Sancom) and Santel Communications Cooperative, Inc. (Santel). Free
Conferencing also asserts a tortIous interference with business relations
claim and violations of the Federal Communications Act (FCA), 47 U.S.C.
§§ 201(b)(1), 202(a), against defendant MCI Communications Services, Inc.
d/b/a Verizon (Verizon). Verizon moves to dismiss Free Conferencing’s
claims. Free Conferencing resists the motion. The motion is granted.

BACKGROUND
In the light most favorable to Free Conferencing, the nonmoving party,
the pertinent facts to this order are as follows: Free Conferencing provides
free conference call services. When consumers use Free Conferencing’s
services, they pay the charges normally assessed by their telephone carrier
for a long-distance call, and they are not charged an additional fee for the
conferencing services.
Free Conferencing provides its conference call services through
relationships with local exchange carriers (LECs). Sancom is an LEC and a
subsidiary of Santel. In March of 2005, Free Conferencing entered into a
Wholesale Local Services Agreement (Agreement) with Sancom. Free
Conferencing provided a teleconference bridge and a PC server to Sancom in
its Mitchell office. Under the Agreement, Free Conferencing agreed to
provide at least 2,000,000 minutes of customer service usage in existing
business to Sancom. Sancom agreed to pay Free Conferencing a marketing
fee of $0.02 per minute based on revenue collected on minutes used per
month.
Sancom also provides originating and terminating access services to
long-distance or interexchange carriers (IXCs). If an IXC does not own or
lease the telephone lines connected to the end-users’ telephones, the IXC
must pay an LEC to use the LEC’s lines. The LEC publishes an interstate

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tariff, also known as an access charge, that the IXC pays for each call that
uses the LEC’s lines. Under the FCA, the Federal Communications
Commission has the authority to regulate these interstate tariffs. Verizon is
an IXC and uses Sancom’s lines to terminate calls to end-users.
Verizon provides competing conference call services. Verizon billed its
long-distance customers for long-distance calls that went through Free
Conferencing’s conference call bridge located in Sancom’s Mitchell office,
but maintains that these calls are not subject to Sancom’s terminated
access charges. By refusing to pay Sancom’s tariff charges, Verizon affected
Sancom’s ability to pay Free Conferencing’s marketing fees as provided in
the Agreement. As a result, Sancom has refused to pay Free Conferencing’s
invoices. In November of 2009, Free Conferencing notified Sancom that it
breached the Agreement. Sancom still refused to pay Free Conferencing’s
invoices. Sancom and Santel are indebted to Free Conferencing for over
$10 million.
STANDARD OF REVIEW
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)
challenges the legal sufficiency of the complaint. Neitzke v. Williams, 490
U.S. 319, 326-27 (1989) (“[I]f as a matter of law ‘it is clear that no relief
could be granted under any set of facts that could be proved consistent with
the allegations’ . . . a claim must be dismissed” (quoting Hishon v. King &

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Spalding, 467 U.S. 69, 73 (1984))); see also Carton v. Gen. Motor Acceptance
Corp., 611 F.3d 451, 454 (8th Cir. 2010) (same). To survive a motion to
dismiss, the complaint must include “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). To meet the plausibility standard, the complaint must contain
“factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129
S. Ct. 1937, 1949 (2009).
Under Rule 12(b)(6), the facts alleged in the complaint must be
considered true and all inferences must be viewed in favor of the nonmoving
party. Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 317 (8th Cir.
2004) (citing Stone Motor Co. v. Gen. Motors Corp., 293 F.3d 456, 465 (8th
Cir. 2002)). Twombly and Iqbal have not changed the “fundamental tenet of
Rule 12(b)(6) practice” that “inferences are to be drawn in favor of the nonmoving party.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir.
2009) (citations omitted).
The court must liberally construe the complaint in the light most
favorable to the plaintiff. Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th
Cir. 2008). A court must also accept the facts alleged as true, even if they
are doubtful. Twombly, 550 U.S. at 555. Thus, a well-pleaded complaint

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may proceed even if it appears that recovery is remote or unlikely. Id.; Young
v. City of St. Charles, Mo., 244 F.3d 623, 627 (8th Cir. 2001).
DISCUSSION
Verizon asserts two arguments in support of its motion to dismiss.
First, Verizon argues that Free Conferencing’s claims are duplicative of the
claims raised in Northern Valley Communications, LLC v. MCI
Communications Services, Inc., No. CIV. 07-1016 (D.S.D.), an on-going action
in this court. Second, Verizon contends that Free Conferencing cannot show
causation on its claims.
Regarding the duplicative action argument, “[t]he Supreme Court has
noted a ‘virtually unflagging obligation’ on the part of federal courts to
exercise their jurisdiction.” Mo. ex rel. Nixon v. Prudential Health Care Plan,
Inc., 259 F.3d 949, 953 (8th Cir. 2001) (quoting Colo. River Water
Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)). But there
exists “a prudential limitation on the exercise of federal jurisdiction.” Id. at
954. Namely, “[p]laintiffs may not pursue multiple federal suits against the
same party involving the same controversy at the same time.” Id. (citing
Colo. River, 424 U.S. at 817).
Under Rule 12(b)(6), a federal district court can dismiss an action if it
is duplicative of another pending federal action. See, e.g., id. at 950-51 (“The
federal courts strongly oppose such duplication for it promotes wasteful use

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of scarce judicial resources.”); Hartsel Springs Ranch of Colo., Inc. v.
Bluegreen Corp., 296 F.3d 982, 985 (10th Cir. 2002) (reasoning that a
“district court may dismiss suit ‘for reasons of wise judicial administration
. . . whenever it is duplicative of a parallel action already pending in another
federal court.’ ” (quoting Serlin v. Arthur Andersen & Co., 3 F.3d 221, 223
(7th Cir. 1993))); Walton v. Eaton Corp., 563 F.2d 66, 70 (3d Cir. 1977) (en
banc) (reasoning that a plaintiff has “no right to maintain two separate
actions involving the same subject matter at the same time in the same
court and against the same defendant.” (citations omitted)). District courts
have wide latitude in determining if one action is duplicative of another
action. Serlin, 3 F.3d at 223.
While “no precise rule has evolved” for determining if two pending
federal cases are the same action, “the general principle is to avoid
duplicative litigation.” Colo. River, 424 U.S. at 817 (citing Kerotest Mfg. Co. v.
C-O-Two Fire Equip. Co., 342 U.S. 180, 182-83 (1952)). The Eighth Circuit
has utilized a substantial similarity test in determining whether two actions
are duplicative in a diversity case: “[A] substantial similarity must exist
between the . . . proceedings, which similarity occurs when there is a
substantial likelihood that the [first] proceeding will fully dispose of the
claims presented in the” second proceeding. Fru-Con Const. Corp. v.
Controlled Air, Inc., 574 F.3d 527, 535 (8th Cir. 2009) (citing TruServ Corp. v.

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Flegles, Inc., 419 F.3d 584, 592 (7th Cir. 2005)). The court finds this test
useful in determining if two federal question actions are duplicative.
In Northern Valley, Northern Valley Communications, LLC (Northern
Valley), a company specializing in a conference call system like the one Free
Conferencing uses, brought suit against Verizon for its failure to pay
Northern Valley’s invoices for conference calls. In Sancom, Inc. v. MCI
Communications Services, Inc. d/b/a Verizon Business Services., CIV 074106 (D.S.D.), another case pending in this court, Sancom brought a similar
suit against Verizon for Verizon’s refusal to pay Sancom’s rates for free
conference call services. The court consolidated the Northern Valley and
Sancom actions. Northern Valley, No. 07-1016, Docket 14. In the Sancom
portion of the case, Verizon joined Free Conferencing and Citrix Online as
co-defendants, and asserted a number of counterclaims against Free
Conferencing and Citrix. Northern Valley, No. 07-1016, Dockets 24 and 27.
In October of 2009, Free Conferencing moved, with Verizon’s consent,
to amend its answer and allege counterclaims against Verizon. Northern
Valley, No. 07-1016, Docket 164. The court granted the motion. Northern
Valley, No. 07-1016, Docket 173. Free Conferencing asserted three
counterclaims against Verizon: (1) tortious interference with business
relations; (2) violation of § 201(b) of the FCA; and (3) violation of § 202(a) of
the FCA. Northern Valley, No. 07-1016, Docket 164-2 at 29-33. These claims

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are the identical three claims, often using the same exact language, that
Free Conferencing now asserts against Verizon. Free Conferencing, No. 104113, Docket 1 at 10-14.
Free Conferencing concedes that “its causes of action against
Defendant Verizon in this case are similar to its causes of action against
Defendant Verizon in Northern Valley.” Free Conferencing, No. 10-4113,
Docket 33 at 8 (emphasis added). But Free Conferencing argues that three
differences exist between Northern Valley and this action and, therefore, this
action is not duplicative of the Northern Valley litigation.
First, Free Conferencing argues that this case involves different
parties because Santel is not a party in Northern Valley. Santel is the parent
company of Sancom and, as a parent company, may be liable for its
subsidiary’s breach of contract. But Free Conferencing does not argue that
Verizon is liable for different damages because Santel is now named as a
party or that the underlying facts between the two cases are different. A
second lawsuit against Verizon is unnecessary to address any liability of
Verizon now that Santel is a defendant. If Free Conferencing believes that
Santel is a necessary party for Free Conferencing to recover from Verizon, it
can join Santel as a party in the Northern Valley litigation.
Second, Free Conferencing contends that the parties are now in
different legal positions than in Northern Valley because in Northern Valley,

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Sancom was a co-defendant with Free Conferencing in Verizon’s
counterclaims, and in this case Sancom is an adverse party to Free
Conferencing. But Sancom’s position is irrelevant to the claims alleged
against Verizon. In Northern Valley, Free Conferencing asserted the three
counterclaims at issue in this case against Verizon, making Verizon the
counterclaim defendant and Free Conferencing the counterclaim plaintiff.
Free Conferencing is now the plaintiff and Verizon is the defendant. Thus,
Verizon and Free Conferencing are in similar positions in Northern Valley
and in this case.
Moreover, the Eighth Circuit’s test for duplicative actions does not
center on whether the parties were in the identical position between the two
actions. Instead, the Eighth Circuit requires a substantial similarity,
meaning that the first action will likely fully dispose of the claims asserted
in the second action. Fru-Con Const., 574 F.3d at 535. Free Conferencing
has asserted the same claims against Verizon in Northern Valley as in this
case and can obtain full relief in Northern Valley.
Finally, Free Conferencing argues that the facts that encompass this
case are different from those in Northern Valley because in this case Free
Conferencing’s causes of actions include improper actions that Verizon took
before, during, and after Northern Valley was commenced. In Northern
Valley, however, Free Conferencing seeks relief for past and future

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damages. On the tortious interference claim, Free Conferencing asserts that
it “suffered and continues to suffer damages as a result of Verizon’s
intentional actions to disrupt its relationship with Sancom.” Northern Valley,
No. 10-4113, Docket 164-2 at 30. On the violation of § 201(b) of the FCA,
Free Conferencing seeks relief for “any additional damages that accrue
through the pendency of this action.” Northern Valley, No. 10-4113, Docket
164-2 at 31. Similarly, on the violation of § 202(a) of the FCA, Free
Conferencing asserts that it is entitled to “any additional damages that
accrue through the pendency of this action.” Northern Valley, No. 10-4113,
Docket 164-2 at 33. In its counterclaims in Northen Valley, Free
Conferencing seeks past and future damages for Verizon’s conduct. Thus,
the facts here are similar and Northern Valley will fully dispose of the claims
alleged by Free Conferencing in this action.
Free Conferencing’s arguments are unpersuasive. The claims now
asserted by Free Conferencing against Verizon are duplicative of those
asserted by Free Conferencing against Verizon as counterclaims in the
Northern Valley litigation. Verizon also argues that Free Conferencing cannot
show causation on its three claims. Because the court finds Free
Conferencing’s claims to be duplicative of those asserted in the Northern
Valley litigation, the court need not address the causation issue.

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CONCLUSION
Free Conferencing asserts a claim of tortious interference with
business relations and violations of §§ 201(b) and 202(a) of the FCA against
Verizon. These claims, however, are duplicative of the counterclaims
asserted by Free Conferencing against Verizon in Northern Valley
Communications, LLC v. MCI Communications Services, Inc., No. CIV. 07-1016
(D.S.D.). Accordingly, it is
ORDERED that defendant Verizon’s motion to dismiss (Docket 18) is
granted.
Dated April 19, 2011.
BY THE COURT:

/s/ Karen E. Schreier
KAREN E. SCHREIER
CHIEF JUDGE

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