At & T Corp. v. Jmc Telecom, LLC

• Citation: 470 F.3d 525
• Decision Date: 01 December 2006
• Docket Number: No. 05-1304.,05-1304.
• Parties: AT & T CORP. v. JMC TELECOM, LLC, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 525

470 F.3d 525

AT & T CORP. v. JMC TELECOM, LLC, Appellant.

No. 05-1304.

United States Court of Appeals, Third Circuit.

Argued on March 7, 2006.

Opinion Filed December 1, 2006.

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Joseph R. Guerra, Esquire (Argued), Sidley Austin, Washington, DC, Richard H. Brown, III, Esquire, Pitney Hardin, Morristown, NJ, for Appellee.

Joseph M. Alioto, Esquire (Argued), Alioto Law Firm, San Francisco, CA, Gil D. Messina, Esquire, Cassidy, Messina, & Laffey, Holmdel, NJ, Russell F. Brasso, Esquire, Foreman & Brasso, San Francisco, CA, for Appellant.

Before: GREENBERG and ROTH^*, Circuit Judges, BUCKWALTER^**, District Court Judge.

OPINION

ROTH, Circuit Judge:

JMC Telecom, L.L.C., was a wholesaler, marketer, and designer of prepaid telephone cards with experience in the maritime market.¹ This appeal arises from a suit for breach of contract brought by AT & T Corporation against JMC. JMC counterclaimed for antitrust, federal common law, and state law violations. The District Court dismissed the antitrust counterclaim and granted summary judgment to AT & T on its contract claims and against JMC on its remaining counterclaims. For the reasons stated below, we will affirm the decision of the District Court.

I. Background

In September 1998, AT & T and JMC entered into an agreement under which AT & T would provide prepaid calling services to JMC and JMC in turn would sell the services as prepaid telephone cards to end-users in the maritime market.² The maritime sector represented a new market for AT & T and, more importantly, a way to expand its business in the international market for prepaid phone cards, which give the end-user a preset amount of telecommunications services. According to JMC, the two companies had an implicit agreement that restricted JMC's sales territory for the cards to the maritime sector.

AT & T and JMC executed four documents to set up the agreement: the Contract Tariff Order Form, the Professional Services Agreement, Contract Tariff No. 10344, and an Addendum. The documents outlined the price JMC would pay for the telecommunications services behind the cards, as well as establishing a minimum annual revenue commitment (MARC) on the part of JMC. The Professional Services Agreement provided that JMC would design and print the cards while AT & T would provide funding in part for card production. The Addendum stated that, if a business downturn beyond JMC's control caused JMC to fail to meet the MARC, the parties would cooperate to develop a mutually agreeable solution.

In accordance with federal law, AT & T filed with the Federal Communications Commission (FCC) the executed Contract Tariff Order Form, Contract Tariff No. 10344, and AT & T FCC Tariff No. 1, which was a tariff previously filed with the FCC by AT & T and which was referred to in the other two documents. The Addendum was never filed with the FCC despite AT & T's alleged promise to do so. In addition, JMC asserts that, pursuant to Contract Tariff No. 10344 and AT & T Tariff No. 1, AT & T would be the exclusive provider of the services needed to complete calls using the cards. CT 10344 lists "Other Participating Carriers" as "NONE."

JMC soon developed concerns with both the quality of service provided by AT & T and the cards themselves. Specifically, JMC contends that the cards were often printed with duplicate identification numbers and incorrect instructions for foreign origination calls, i.e., calls between two foreign countries.³ JMC estimated that sales of the cards fell by 50% because of the problems with foreign origination calls. Moreover, cardholders complained about AT & T's customer service, or lack thereof. Finally, users were frequently unable to complete calls from the United States to the Philippines, which was one of the more important selling points of the cards. JMC estimated that it lost 25% of its business due to the initial problems in completing calls to the Philippines. This particular problem was corrected after AT & T switched card traffic away from the original local country carrier, Pacific Gateway Exchange (Pacific).

Per the agreement, AT & T sent JMC invoices for its services. AT & T received a one-time, partial payment on November 2, 1998, of $400,000. JMC made no further payments to AT & T.

Due to JMC's concerns with service and other related problems, JMC sought more competitive rates from AT & T. The negotiations pursuant to the Addendum were unsuccessful, and AT & T filed a complaint against JMC on June 4, 1999, for the balance owed from cards already sold and the amount JMC owed under the MARC. JMC filed a counterclaim, alleging violations by AT & T of state law, the Sherman Act, and federal common law.⁴ The District Court dismissed JMC's antitrust counterclaim under FED.R.CIV.P. 12(b)(6) and granted summary judgment pursuant to FED. R. CIV. P. 56(c) on AT & T's complaint and against JMC on all of its remaining counterclaims.⁵ This appeal followed.

II. Jurisdiction and Standard of Review

The District Court had original jurisdiction pursuant to 28 U.S.C. §§ 1331, 1332 and 1337, and 15 U.S.C. §§ 15 and 26. Also, the District Court had supplemental jurisdiction over JMC's state law claims under 28 U.S.C. § 1367. We have jurisdiction over the District Court's grant of summary judgment and motion to dismiss pursuant to 28 U.S.C. § 1291.

The standard of review for a motion to dismiss is plenary. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). When considering an appeal from a dismissal of a complaint pursuant to Rule 12(b)(6), we accept as true all of the allegations in the complaint and all reasonable inferences that can be drawn from them and view them in the light most favorable to the nonmoving party. Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir.1997).

The standard of review from a grant of summary judgment is plenary. Gottshall v. Consol. Rail Corp., 56 F.3d 530, 533 (3d Cir.1995). Summary judgment is only appropriate if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. FED. R.CIV.P. 56(c). In reviewing the District Court's grant of summary judgment, we view the facts in a light most favorable to the nonmoving party. Gottshall, 56 F.3d at 533.

III. Discussion

A. Antitrust Claim: Violation of 15 U.S.C. § 1

Section 1 of the Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal." 15 U.S.C. § 1. Before the District Court, JMC asserted two violations of the Sherman Act by AT & T which caused JMC to suffer an antitrust injury.⁶ First, AT & T violated the Sherman Act by refusing to lower the rates assessed to JMC pursuant to the Addendum. Second, AT & T violated the Sherman Act by forcing JMC to participate in a scheme to divide the market between maritime and non-maritime customers. This second argument is the one stressed by JMC on appeal. Specifically, JMC contests the District Court's finding that the restraint at issue was vertical, i.e., between a supplier and distributor, rather than horizontal, i.e., between two companies on the same level of production. Unless the restraint is horizontal, however, JMC's claims fail.

We find both of JMC's arguments to be unpersuasive. In regard to the first, the Supreme Court has ruled that:

Section 1 of the Sherman Act requires that there be a "contract, combination . . . or conspiracy" between the manufacturer and other distributors in order to establish a violation. 15 U.S.C. § 1. Independent action is not proscribed. A manufacturer of course generally has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently.

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984) (emphasis added). This Court has interpreted Monsanto to impose a requirement on the distributor to come forward with evidence that tends to exclude the possibility that the supplier acted independently. See Arnold Pontiac-GMC, Inc. v. Budd Baer Inc., 826 F.2d 1335, 1338 (3d Cir.1987). Here, JMC has not alleged action by other distributors in concert with AT & T. As such, JMC's argument fails because it has alleged only unilateral action by AT & T. Such action cannot serve as a violation of the Sherman Act. Monsanto, 465 U.S. at 761, 104 S.Ct. 1464.

JMC's second argument is that AT & T violated the Sherman Act by prohibiting JMC from selling the cards to non-maritime customers. Vertical, non-price restraints imposed by the supplier are analyzed under the rule of reason standard.⁷ Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988). At oral argument, JMC stipulated that it would not bring a claim under the rule of reason; rather, JMC argued that the arrangement between AT & T and JMC was a per se violation of the Sherman Act. According to JMC's argument, the agreement between the two companies represented a horizontal, rather than vertical, restraint. Since horizontal restraints are a per se violation of the Sherman Act, JMC would not need to allege a violation of the rule of reason.

The problem with JMC's argument, however, is that the relationship was primarily vertical. Although we agree that the relationship had horizontal elements, it is undisputed that AT & T supplied telecommunications service to JMC for resale. The fact that AT & T also sold phone cards at the resale level does not change the analysis. Vertical restraints are generally not per se violations of the Sherman Act, even where a distributor and manufacturer also compete at the distribution level, i.e., have some form of horizontal relationship (a/k/a/ dual distributor arrangement), as is the case here. Elecs. Commc'ns Corp. v. Toshiba Am. Consumer Prods., 129 F.3d...