HJ, INC. v. Northwestern Bell Telephone Co.

• Decision Date: 04 April 1990
• Docket Number: Civ. No. 4-86-546.
• Citation: 734 F. Supp. 879
• Parties: H.J., INC., a Minnesota corporation, Kirk Dahl, Larry Krugen and Mary Krugen, individually and d/b/a Photo Images, Susan Davis, Robert Neal, Isaac H. Ward, Richard L. Anderson, Thomas J. Mott, and all others similarly situated, Plaintiffs, v. NORTHWESTERN BELL TELEPHONE COMPANY, a subsidiary of U.S. West, A.B.C. individually and D.E.F. as corporations, and other unnamed Co-conspirators, Defendants.
• Court: U.S. District Court — District of Minnesota

734 F. Supp. 879

H.J., INC., a Minnesota corporation, Kirk Dahl, Larry Krugen and Mary Krugen, individually and d/b/a Photo Images, Susan Davis, Robert Neal, Isaac H. Ward, Richard L. Anderson, Thomas J. Mott, and all others similarly situated, Plaintiffs, v. NORTHWESTERN BELL TELEPHONE COMPANY, a subsidiary of U.S. West, A.B.C. individually and D.E.F. as corporations, and other unnamed Co-conspirators, Defendants.

Civ. No. 4-86-546.

United States District Court, D. Minnesota, Fourth Division.

April 4, 1990.

John Cochrane, Cochrane & Bresnahan, St. Paul, and Mark Reinhardt, Susan Bedor, Reinhardt & Anderson, St. Paul, Minn., for plaintiffs.

John D. French, John F. Beukema, James L. Volling, Joseph H. Otterstetter, Faegre & Benson, Minneapolis, Minn., for defendants.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on defendants' motion to dismiss plaintiffs' RICO claims, defendants' motion for reconsideration and reinstatement of judgment, and plaintiffs' motion for separate trial or severance.

FACTS

Plaintiffs' complaint alleges that beginning on July 1, 1980, defendant Northwestern Bell provided officials of the Minnesota Public Utilities Commission (MPUC) with various "benefits, rewards and considerations" for the purpose of influencing these officials in setting telephone rates of the state of Minnesota. In Count I, plaintiffs allege that such acts constituted bribery within the meaning of Minn.Stat. § 609.42, subd. 1(1), 1(2), and Minnesota common law. Upon these predicate acts of bribery, plaintiffs seek relief pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq.

Plaintiffs' RICO allegations comprise the remaining four counts of the complaint, Counts II-V. Count II alleges that Northwestern Bell received income through its alleged acts of bribery and invested such income in its own operation in violation of 18 U.S.C. § 1962(a). Count III alleges that Northwestern Bell acquired or maintained interest or control of the MPUC through its acts of bribery in violation of 18 U.S.C. § 1962(b). Count IV alleges that Northwestern Bell was associated with the MPUC and conducted and participated in the conduct and affairs of the MPUC through its acts of bribery in violation of 18 U.S.C. § 1962(c). Finally, Count V claims that Northwestern Bell and its employees conspired with MPUC officials to violate RICO, in violation of 18 U.S.C. § 1962(d).

Plaintiffs claim that they were damaged by reason of the above violations in that Northwestern Bell was permitted by the MPUC to charge rates in excess of what would have been determined to be fair and reasonable by the MPUC in the absence of the improper influences. They seek treble damages in accordance with 18 U.S.C. § 1964(c), punitive and exemplary damages, interest, costs and disbursements including attorneys' fees pursuant to 18 U.S.C. § 1964(c), and an injunction barring defendants from engaging in further illegal activity.

A. Procedural History

This action was filed July 8, 1986, and in September 1986 defendant Northwestern Bell moved to dismiss both the bribery count and the RICO claims. By order dated November 24, 1986 the Court dismissed the complaint on three grounds: (1) that the RICO claims failed to allege a sufficient pattern of racketeering activity; (2) that the action was barred by the "filed-rate" doctrine which provides that an administrative agency's rate determination bars collateral attack in a judicial proceeding; and (3) that Count II failed to state a claim because it alleged that Northwestern Bell was both the "person" and the "enterprise" under section 1962(a). H.J., Inc. v. Northwestern Bell Telephone Co., 648 F.Supp. 419 (D.Minn.1986). With the federal claims dismissed, the Court found no "unusual circumstances" warranting the exercise of jurisdiction over plaintiffs' pendent state law claims and those claims were dismissed without prejudice.

By order dated February 18, 1987, the Court denied plaintiffs' motion for reconsideration, further elaborating on its ruling regarding the "pattern" requirement. H.J., Inc. v. Northwestern Bell Telephone Co., 653 F.Supp. 908 (D.Minn.1987). The United States Court of Appeals for the Eighth Circuit affirmed dismissal based on the pattern requirement, but did not address the remaining grounds for dismissal. H.J., Inc. v. Northwestern Bell Telephone Co., 829 F.2d 648 (8th Cir.1987).

On June 26, 1989, ___ U.S. ___, 109 S.Ct. 2893, 106 L.Ed.2d 195, the United States Supreme Court reversed, holding that the court of appeals erred in affirming the district court's dismissal for failure to plead a sufficient pattern of racketeering activity. On remand, the Eighth Circuit noted that rulings other than that reversed by the Supreme Court remained on appeal, but declined to consider them, finding:

Those issues, notably dismissal of certain pendent state claims, and relatedly questions concerning collateral attack on rate orders by state regulatory bodies, were decided by the district court in light of that court's decision on the civil RICO claims. We observe that on remand the district court will be considering, and indeed possibly reconsidering, its rulings in context of the Supreme Court's opinion. Thus, it is entirely likely that some of the issues originally before both the district court and this court will not survive further proceedings. To say the least, their pursuance will be in different context.

Order or Remand dated October 30, 1989. Accordingly, the Eighth Circuit vacated this Court's order dismissing the complaint for failure to state a claim, and remanded for further proceedings. The court stated that on remand, the district court would be "at liberty to consider or reconsider such of its related and interdependent rulings as are, or may appear to be, appropriate." Id.

B. The Pending Motions

Defendants now move the Court to reinstate its former judgment of dismissal based on (1) the filed rate doctrine, and (2) the "person"/"enterprise" pleading defect in Count II. Defendants also raise the following other grounds in support of dismissal: (1) MPUC is not an appropriate "enterprise" under sections 1962(b) and (c); (2) plaintiffs do not allege the requisite "interest in or control of" the MPUC on the part of Northwestern Bell within the meaning of section 1962(b); and (3) Northwestern Bell is not "employed by or associated with" the MPUC within the meaning of section 1962(c); (4) that the complaint fails to allege Northwestern Bell's participation as a "principal" as required by section 1962(a); (5) that plaintiffs failed to allege a "racketeering injury" by reason of defendants' alleged violations of section 1962(a), (b), and (d); and (6) that plaintiffs failed to allege a proper RICO conspiracy pursuant to section 1962(d). Defendants also argue that RICO's pattern requirement is unconstitutionally vague. Finally, defendants argue that Count I of plaintiffs' complaint alleging state law bribery claims should be dismissed with prejudice in light of the rejection of such claims by the Minnesota Court of Appeals in plaintiffs' parallel action, H.J., Inc. v. Northwestern Bell Telephone Co., 420 N.W.2d 673 (Minn.Ct.App. 1988).

For the reasons stated below, defendants' motion to dismiss will be granted.

DISCUSSION

I. The Filed-Rate Doctrine

A. The Court's Reasoning in 1986

The Court's 1986 dismissal was based on, among other things, the filed-rate doctrine articulated by the United States Supreme Court in Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246, 71 S.Ct. 692, 95 L.Ed. 912 (1951). In Montana-Dakota, a public utility electric company sought to recover alleged overcharges from a second electric company with whom plaintiff had exchanged electric energy. The electricity exchanges were performed pursuant to inter-company contracts establishing rates and charges which had been filed with and accepted by the Federal Power Commission pursuant to the Federal Power Act. Plaintiff alleged that the rates which were filed and approved were fraudulent and unlawful, being the product of an interlocking directorate. The Court held that the district court was without power to determine what the reasonable rates should have been, and that this was a matter assigned by statute to the Federal Power Commission. Id. at 251, 71 S.Ct. at 695. The Court held:

Petitioner cannot separate what Congress has joined together. It cannot litigate in a judicial forum its general right to a reasonable rate, ignoring the qualification that it shall be made specific only by exercise of the Commission's judgment, in which there is some considerable element of discretion. It can claim no rate as a legal right that is other than the filed rate, whether fixed or merely accepted by the Commission, and not even a court can authorize commerce in the commodity on other terms.

We hold that the right to a reasonable rate is the right to a rate which the Commission files or fixes, and that, except for review of the Commission's orders, the courts 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.

This Court, in its 1986 opinion, also relied upon Arkansas-Louisiana Gas Co. v. Hall, 453 U.S. 571, 101 S.Ct. 2925, 69 L.Ed.2d 856 (1981). In Arkansas Gas, the Court held that a natural gas producer was not entitled to damages from a natural gas purchaser measured by the difference between the rate filed with the Federal Power Commission and a rate which plaintiff alleged was due under a contract with defendant.

Citing Montana-Dakota, the Supreme Court reiterated the principle that the authority to decide whether rates were reasonable was vested solely in the Federal Power Commission, and that "no court may substitute its own judgment on reasonableness for the judgment of the Commission." Id. at 577, 101 S.Ct. at 2930....