Wegoland Ltd. v. NYNEX Corp.

• Decision Date: 20 May 1994
• Docket Number: D,Nos. 603,604,s. 603
• Citation: 27 F.3d 17
• Parties: , RICO Bus.Disp.Guide 8562 WEGOLAND LTD., Michael Roth, executor of the estate of Howard Weiner, Donna Rutili Roazen, Plaintiffs-Appellants, v. NYNEX CORP., Peter L. Haynes, New England Telephone & Telegraph Co., New York Telephone Company, NYNEX Business Information Systems, NYNEX Credit Co., NYNEX Information Solutions Group, Inc., William G. Burns, William C. Ferguson, NYNEX International Co., NYNEX Material Enterprises Co., NYNEX Mobile Communications Co., NYNEX Properties Co., NYNEX Systems Marketing, Paul C. O'Brien, Delbert C. Staley, Paul D. Covill, Frederick Salerno, NYNEX Service Co., Defendants-Appellees. ockets 93-7565, 93-7589.
• Court: U.S. Court of Appeals — Second Circuit

Page 17

27 F.3d 17

62 USLW 2749, RICO Bus.Disp.Guide 8562

WEGOLAND LTD., Michael Roth, executor of the estate of Howard Weiner, Donna Rutili Roazen, Plaintiffs-Appellants, v. NYNEX CORP., Peter L. Haynes, New England Telephone &amp Telegraph Co., New York Telephone Company, NYNEX Business Information Systems, NYNEX Credit Co., NYNEX Information Solutions Group, Inc., William G. Burns, William C Ferguson, NYNEX International Co., NYNEX Material Enterprises Co., NYNEX Mobile Communications Co., NYNEX Properties Co., NYNEX Systems Marketing, Paul C. O'Brien Delbert C. Staley, Paul D. Covill, Frederick Salerno, NYNEX Service Co., Defendants-Appellees.

Nos. 603, 604, Dockets 93-7565, 93-7589.

United States Court of Appeals Second Circuit.

Argued Jan. 26, 1994.

Decided May 20, 1994.

Kenneth A. Jacobsen, Haverford, PA (Michael D. Donovan, Chimicles, Burt, Jacobsen & McNew, Haverford, PA, Arnold Levin, Levin, Fishbein, Sedran & Berman, Philadelphia, PA, of counsel), for plaintiffs-appellants.

Guy Miller Struve, New York City (James D. Liss, Nancy B. Ludmerer, Vincent T. Chang, Davis Polk & Wardwell, New York City, Raymond F. Burke, Gerald E. Murray, Richard H. Wagner, White Plains, NY, of counsel), for defendants-appellees.

Before: WALKER and JACOBS, Circuit Judges, and DALY, District Judge. ^*

WALKER, Circuit Judge:

Plaintiff ratepayers appeal from a judgment of the United States District Court for the Southern District of New York (Kimba

M. Wood, Judge) dismissing their two putative class action suits brought pursuant to the civil provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961 et seq., and associated state statutes and causes of action. Judge Wood ruled that the plaintiffs' actions were barred by the filed rate doctrine. For substantially the reasons articulated in Judge Wood's thorough and commendable opinion reported at 806 F.Supp. 1112 (S.D.N.Y.1992), we affirm.

BACKGROUND

Plaintiffs filed two nearly identical complaints in this matter, which name as defendants NYNEX, New England Telephone and Telegraph Co. ("NETel"), New York Telephone Co. ("NYTel"), numerous subsidiaries, and individual directors and executives of these corporate entities (collectively "NYNEX"). Plaintiffs are three purported NYNEX ratepayers. The facts necessary to dispose of this appeal are succinctly stated in the district court's opinion:

The complaints allege that NYTel and NETel gave regulatory agencies and consumers misleading financial information to support the inflated rates they requested. More particularly, plaintiffs allege a scheme in which certain unregulated subsidiaries of NYNEX sold products and services to NYTel and NETel at inflated prices. NYTel and NETel then used those prices to justify inflated rates, resulting in high profits to the NYNEX corporate family, which profited by extracting higher rates from ratepayers, but did not suffer from the higher "cost" of products and services because these extra costs inured to the benefit of members of the corporate family. The net effect, the complaints allege, was that the ratepayers and the regulatory agencies were misled into believing that certain higher rates were justifiable, and the NYNEX corporate family was able to enjoy inflated profits as a result of its misrepresentations.

Wegoland, Ltd. v. NYNEX Corp., 806 F.Supp. 1112, 1113 (S.D.N.Y.1992). The district court referred this matter to Chief Magistrate Judge Nina Gershon, who issued a Report and Recommendation recommending that four of the plaintiffs' seven claims be dismissed. These dismissals were not contested and are thus not before us. As for the remaining three claims, two RICO claims and one state claim, the Chief Magistrate Judge rejected the defendants' argument that the claims were barred by the filed rate doctrine. The Chief Magistrate Judge's recommendation relied primarily on the Eleventh Circuit's ruling in Taffet v. Southern Co., 930 F.2d 847 (11th Cir.1991) ("Taffet I"), which was the only appellate decision directly addressing this issue and which held that the filed rate doctrine did not bar RICO claims by ratepayers against utilities.

After the Chief Magistrate Judge issued her recommendation, the Eleventh Circuit, sitting en banc, unanimously reversed itself, ruling that the filed rate doctrine does bar RICO claims by ratepayers against utilities. Taffet v. Southern Co., 967 F.2d 1483 (11th Cir.) (en banc) ("Taffet II"), cert. denied, --- U.S. ----, 113 S.Ct. 657, 121 L.Ed.2d 583 (1992). Also in the intervening period between the Chief Magistrate Judge's recommendation and Judge Wood's ruling, the Eighth Circuit applied the filed rate doctrine to bar a suit in similar circumstances. H.J. Inc. v. Northwestern Bell Tel. Co., 954 F.2d 485 (8th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 2306, 119 L.Ed.2d 228 (1992).

In her thoughtful opinion, Judge Wood analyzed the history and purposes of the filed rate doctrine. Agreeing with the analyses in Taffet II and H.J. Inc., she concluded that the filed rate doctrine barred the plaintiffs' actions, and accordingly she dismissed the complaints in their entirety. This appeal followed.

DISCUSSION

The filed rate doctrine bars suits against regulated utilities grounded on the allegation that the rates charged by the utility are unreasonable. Simply stated, the doctrine holds that any "filed rate"--that is, one approved by the governing regulatory agency--is per se reasonable and unassailable in judicial proceedings brought by ratepayers. In her opinion, Judge Wood carefully explained the history and rationale of the filed One of the earliest applications of what has become known as the filed rate doctrine came in Keogh v. Chicago & Northwestern Railway Co., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922). In Keogh, the plaintiff alleged a conspiracy to fix freight transportation rates at an unnaturally high level and asked for damages to the extent he had to pay inflated rates as a result of the conspiracy. Assuming the plaintiff's conspiracy allegations were true, Justice Brandeis writing for the Court held that the complaint still had to be dismissed because the rates had been filed with the Interstate Commerce Commission and deemed reasonable by that body. Justice Brandeis articulated several reasons for dismissing the complaint. Among them, he noted that the legal rights between a regulated industry and its customers with respect to rates are controlled by and limited to the rates filed with and approved by the appropriate regulatory agency, and that any attempt to reassess the reasonableness of rates would require the judiciary to "reconstitut[e] the whole rate structure" of the industry. He also explained that any retroactive relief would lead to discrimination in rates in that a victorious plaintiff would end up paying less than similarly situated non-suing customers. Id. at 163-64, 43 S.Ct. at 49-50.

                rate doctrine.  See Wegoland, 806 F.Supp. at 1113-16.   We summarize briefly
                

Since Keogh, these two corresponding interests, one concerned with potential "discrimination" in rates as between ratepayers and the other concerned with the "justiciability" of determining reasonable rates, have turned up in Supreme Court decisions discussing the filed rate doctrine. For example, in Maislin Industries, U.S. v. Primary Steel, Inc., 497 U.S. 116, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990), the Court emphasized the nondiscrimination strand of this rationale when discussing the policies behind strict adherence to the filed rate doctrine. Id. at 126-28, 110 S.Ct. at 2765-67. Likewise, in Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 101 S.Ct. 2925, 69 L.Ed.2d 856 (1981) ("Arkla"), the Court explained that allowing individual ratepayers to attack the filed rate "would undermine the congressional scheme of uniform rate regulation." Id. at 579, 101 S.Ct. at 2931.

In other instances, the Court is concerned that an attack on the filed rate would unnecessarily enmesh the courts in the rate-making process. For example, in Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246, 71 S.Ct. 692, 95 L.Ed. 912 (1951), the Court stressed the difficulty for courts "to determine what the reasonable rates during the past should have been" and explained that the "abstract" notion of reasonableness is best left a "function of the Commission." Id. at 251, 71 S.Ct. at 695. Although not referring to the filed rate doctrine or the Keogh decision by name, Justice Jackson maintained that a plaintiff "can claim no rate as a legal right that is other than the filed rate," and that a court "can assume no right to a different one on the ground that, in its opinion, it is the only or the more reasonable one." Id. at 251-52, 71 S.Ct. at 695. More recently, in Square D Co. v. Niagara Frontier Tariff Bureau, 476 U.S. 409, 106 S.Ct. 1922, 90 L.Ed.2d 413 (1986), the Court endorsed the district court's dismissal of the plaintiff's antitrust complaint seeking treble damages under the Sherman Antitrust Act measured by the difference between the artificially high rate actually filed and the "reasonable" rate absent the fraudulent conspiracy. The Court reaffirmed Keogh and its application to the case before it, one in which the district court had spoken of the "attendant complications" in calculating damages because the court would have to determine a "hypothetical" reasonable rate in order to determine the difference from the rate actually paid, and stated that "rate determinations are a matter for the ICC and not for the court." See 596 F.Supp. 153, 156 (W.D.N.Y.1984).

Drawing from the Keogh decision and these subsequent cases, Judge Wood pointed out that "two companion principles lie at the core of the filed rate doctrine: first, that legislative bodies design agencies for the specific purpose of setting uniform rates, and second, that courts are not institutionally well suited to engage in retroactive rate...