Black Radio Network, Inc. v. Nynex Corp., No. 96 CIV. 4138(DC).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtChin
Citation44 F.Supp.2d 565
PartiesBLACK RADIO NETWORK, INC., a New York Corporation, and News Transmission Service, Inc., a New York Corporation, Statistical Phone Philly, 8484 Associates, Eric Singleton d/b/a "Phone Service," and Anthony Colangelo, Phone Programs, Inc., a New York Corporation, and Accurate Info Ltd., a Florida limited partnership, Plaintiffs, v. NYNEX CORPORATION, a Delaware Corporation, New York Telephone Company, a New York Corporation, and Does 1 through 25, Defendants.
Decision Date14 April 1999
Docket NumberNo. 96 CIV. 4141(DC).,No. 96 CIV. 4138(DC).,No. 96 CIV. 4139(DC).

Page 565

44 F.Supp.2d 565
BLACK RADIO NETWORK, INC., a New York Corporation, and News Transmission Service, Inc., a New York Corporation, Statistical Phone Philly, 8484 Associates, Eric Singleton d/b/a "Phone Service," and Anthony Colangelo, Phone Programs, Inc., a New York Corporation, and Accurate Info Ltd., a Florida limited partnership, Plaintiffs,
v.
NYNEX CORPORATION, a Delaware Corporation, New York Telephone Company, a New York Corporation, and Does 1 through 25, Defendants.
No. 96 CIV. 4138(DC).
No. 96 CIV. 4139(DC).
No. 96 CIV. 4141(DC).
United States District Court, S.D. New York.
April 14, 1999.
Order Denying Reconsideration April 30, 1999.

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COPYRIGHT MATERIAL OMITTED

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Roland, Fogel, Koblenz & Carr, LLP, Black Radio Network, Inc. and News Transmission Services, Inc. by Keith J. Roland, Albany, NY, for Plaintiffs.

Karen S. Burstein, Statistical Phone Philly, Eric Singleton d/b/a "Phone Service," and Anthony Colangelo by Karen S. Burstein, New York, NY, for Plaintiffs.

Bressler, Amery & Ross, Phone Programs, Inc. and Accurate Info Ltd. by Eric L. Chase, Genevieve K. LaRobardier, New York, NY, for Plaintiffs.

Davis Polk & Wardwell by Guy Miller Struve, Michele S. Warman, Cindy J. O'Hagan, Katharine L. Strobos, New York, NY, Richard H. Wagner, Robert Ernst, New York, NY, for Defendants Nynex Corporation and New York Telephone Company.

Page 569

OPINION

CHIN, District Judge.


The subject of these consolidated cases are the 976 telephone numbers that one may call to hear information on such topics as sports, financial news, horoscopes, and the weather. Plaintiffs are information providers ("IPs") that produce the recorded messages. Defendants NYNEX Corporation ("NYNEX") and New York Telephone Company ("NYTel") are carriers that deliver plaintiffs' recorded messages to thousands of simultaneous callers through NYTel's Downstate Dedicated Mass Announcement Service ("MAS"). Pursuant to contract and tariffs, defendants are responsible for maintaining equipment to tally the actual number of calls made to each IP's 976 numbers, collecting the charges for those calls, and distributing to the IPs their portion of the revenue collected based on the number of calls made to each 976 number.

Plaintiffs' claims involve three core factual allegations. First, plaintiffs allege that, unbeknownst to them, the equipment used by defendants prior to 1990 was not accurately recording the number of calls. Instead of paying plaintiffs for the number of calls actually recorded by the equipment, defendants instead estimated the number of calls. Defendants failed to disclose to plaintiffs, however, that the payments were based on mere estimates and they falsely represented to plaintiffs that the tallies were accurate and based on the actual number of calls recorded by the equipment. Second, plaintiffs allege that defendants unilaterally replaced the original MAS system with another system that defendants and proposed additional defendants, the new system's manufacturer, knew to be unreliable and incapable of accounting for the volume of calls placed to plaintiffs' 976 numbers. Third, plaintiffs allege that defendants engaged in misconduct before the New York State Public Service Commission (the "PSC"), the administrative body responsible for regulating MAS.

Plaintiffs assert several federal and state causes of action, including violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 to 1968, and the Federal Communications Act ("FCA"), 47 U.S.C. §§ 201 to 207.

Plaintiffs move for leave to file amended and supplemental complaints naming additional defendants pursuant to Rules 15 and 21 of the Federal Rules of Civil Procedure. Defendants cross-move for an order dismissing the complaints with prejudice pursuant to Rules 9(b), 12(b)(1), and 12(b)(6). For the reasons set forth below, defendants' cross-motion is granted in part and denied in part and plaintiffs' motion is granted.

BACKGROUND

A. The Facts

As alleged in the proposed amended and supplemental complaints, the facts are as follows:

1. The Audichron System

Prior to September 1990, defendants used equipment manufactured by the Audichron Company ("Audichron") to play the IPs' pre-recorded messages to the calling public. The Audichron equipment, known as the AUTRAX system, kept a "peg count" by mechanically counting each call to 976 numbers, including local and toll calls, as well as intrastate and interstate calls. Defendants represented that AUTRAX was capable of providing access to thousands of callers simultaneously. Defendants were obligated to pay the IPs for each call made to a 976 number. Accordingly, defendants issued monthly reports purporting to set forth the actual peg counts as recorded by AUTRAX.

Between approximately 1977 and 1990, defendants experienced increasing technical problems with AUTRAX. Plaintiffs were unaware of these problems. Specifically, AUTRAX could not accurately handle

Page 570

the call volume or properly account for the number of calls. As early as 1982, defendants acknowledged internally that AUTRAX was not designed as a billing facility and that other systems should be investigated for use in the future. Due to the inadequacies of AUTRAX, defendants began estimating the number of calls and manually altering the peg counts on a daily basis. As early as 1985, NYTel employees responsible for estimating the number of calls informed their supervisors that they lacked sufficient information to adjust the peg counts. Defendants paid plaintiffs according to the altered peg counts rather than the actual peg counts recorded by AUTRAX.

Plaintiffs were not notified of this change in procedure and continued to believe that the altered figures were the peg counts recorded by AUTRAX. When one NYTel employee expressed her view that the IPs should be informed of the truth, her supervisors insisted that this information be kept from the IPs lest they demand higher compensation to make up for lost calls. Audichron also knew the full extent of the unreliability of AUTRAX, concealed the defects, permitted the system deficiencies to continue unabated, and withdrew its support of the system. By the late 1980s/early 1990s, AUTRAX was so unreliable that the call counts were based almost entirely on manual alterations. Because the IPs were unaware of the problems with AUTRAX, they did not challenge the accuracy of call counts or contest the amount of their compensation.

2. The Ericsson Cutover

On August 8, 1990, defendants announced their unilateral decision to replace AUTRAX with equipment manufactured and sold by Telefonaktiebolaget LM Ericsson ("LM Ericsson"), Ericsson North America, Inc. ("Ericsson N.A."), and Ericsson Network System, Inc. ("Ericsson NSI"), (collectively, "Ericsson"),1 an event that became known as the "Ericsson cutover." The IPs were not consulted or given prior notice of the switch.

Defendants knew that, like AUTRAX, the Ericsson equipment was ill-suited for the high volume of calls made to 976 numbers. Because defendants were aware of problems experienced by other IPs on other Ericsson networks, they knew or should have known that the Ericsson equipment likely would be unable to serve the significantly higher call volume for 976 service. In addition, defendants knew that the Ericsson equipment gave a low priority to data collection, and that, despite representations to the contrary, defendants conducted little or no testing of the Ericsson equipment prior to the Ericsson cutover and failed to follow standard practices and procedures prior to introducing the Ericsson switch to the 976 network.

Despite defendants' knowledge of the problems with the Ericsson system, they represented to and assured plaintiffs that the replacement of AUTRAX with the Ericsson equipment would be "transparent," that is, that there would be no disruption or diminution in service to the 976 network and no reduction in the network's capacity to handle calls to 976 numbers, that plaintiffs and the other IPs would not have to make any changes in their operations, and that service would actually improve as a result of the Ericsson cutover. Ericsson was also aware of the deficiencies in AUTRAX as early as 1988 and participated in deceiving the IPs regarding the reasons for the conversion to the Ericsson system and concealing from plaintiffs the Ericsson equipment's inadequacies.

Some time in September of 1990, upon only a month's notice to the IPs, defendants commenced implementation of the Ericsson cutover. Almost immediately thereafter, however, the call volume to the

Page 571

976 numbers took a sudden, drastic downturn. IPs experienced consumer complaints, loss of revenues, loss of calls, and loss of customers to other service providers. Defendants and Ericsson knew of the failures and inadequacies of the Ericsson equipment, but misrepresented and covered-up the extent of the problems when questioned about them by plaintiffs and other IPs.

3. The Administrative Proceeding

After the Ericsson Cutover, because of the sudden drop in call counts, several IPs complained to the PSC that the new system was not accurately completing or counting calls. New York Tel. Co. v. Public Serv. Comm'n, 179 Misc.2d 301, 684 N.Y.S.2d 829 (N.Y. Sup.Ct.1998). To address the IPs' concerns regarding call counting, as well as many other complaints concerning service, the PSC commenced an omnibus proceeding on May 29, 1993 to address all issues relating to the 976 MAS system.2 (Id.). In Phase I of this proceeding, the PSC approved in part a Joint Proposal, filed by NYTel and several IPs, that resolved many of the issues. PSC Op. No. 94-14 (June 1, 1994), modified in part by PSC Op. No. 95-10 (Aug. 2, 1995). Pursuant to an October 1, 1993 ruling by Administrative Law Judge Frank S. Robinson (the "ALJ"), the remaining issues were to be decided in Phase II of this proceeding.

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    ...RICO enterprise must be distinct from a set of corporate affiliates and their employees. See Black Radio Network, Inc. v. NYNEX Corp., 44 F. Supp. 2d 565, 581 (S.D.N.Y. 1999).802. Inter-Bank Collaboration We now turn to allegations of inter-bank collaboration. 2.1. Trader-Based Manipulation......
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    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
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    ...activity may therefore be relied upon to establish the existence of an enterprise." Black Radio Network, Inc. v. NYNEX Corp., 44 F.Supp.2d 565, 580 (S.D.N.Y.1999) (citing Coonan, 938 F.2d at Page 423 2. Analysis Defendants argue that Plaintiffs have failed to plead a RICO enterprise because......
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    • United States State Supreme Court (New York)
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    ...2002); Weigl v. Quincy Specialties Co., 158 Misc.2d 753, 601 N.Y.S.2d 774 (N.Y. Sup. 1993); Black Radio Network, Inc. v. NYNEX Corp., 44 F.Supp.2d 565 (S.D.N. Y. 1999); MetLife Auto & Home v. Joe Basil Chevrolet, 1 N.Y.3d 478, 807 N.E.2d 865 (2004); Carella v. Reilly & Assoc., 22 A.D.3d 623......
  • Wood v. Incorporated Village of Patchogue of Ny, No. 01-CV-0229(ADS)(ARL).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • March 31, 2004
    ...enterprise which is "separate and distinct from the alleged pattern of racketeering activity." Black Radio Network, Inc. v. NYNEX Corp., 44 F.Supp.2d 565, 580 (S.D.N.Y.1999); see also United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Thus, "the enterprise must ......
  • Request a trial to view additional results
51 cases
  • In re Libor-Based Fin. Instruments Antitrust Litig., 11 MDL 2262 (NRB)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 4, 2015
    ...RICO enterprise must be distinct from a set of corporate affiliates and their employees. See Black Radio Network, Inc. v. NYNEX Corp., 44 F. Supp. 2d 565, 581 (S.D.N.Y. 1999).802. Inter-Bank Collaboration We now turn to allegations of inter-bank collaboration. 2.1. Trader-Based Manipulation......
  • Republic of Colombia v. Diageo North America Inc., No. 04-CV-4372 (NGG).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • June 19, 2007
    ...activity may therefore be relied upon to establish the existence of an enterprise." Black Radio Network, Inc. v. NYNEX Corp., 44 F.Supp.2d 565, 580 (S.D.N.Y.1999) (citing Coonan, 938 F.2d at Page 423 2. Analysis Defendants argue that Plaintiffs have failed to plead a RICO enterprise because......
  • Montagnino v. Inamed Corp., INDEX NO. 13532/07
    • United States
    • United States State Supreme Court (New York)
    • May 11, 2012
    ...2002); Weigl v. Quincy Specialties Co., 158 Misc.2d 753, 601 N.Y.S.2d 774 (N.Y. Sup. 1993); Black Radio Network, Inc. v. NYNEX Corp., 44 F.Supp.2d 565 (S.D.N. Y. 1999); MetLife Auto & Home v. Joe Basil Chevrolet, 1 N.Y.3d 478, 807 N.E.2d 865 (2004); Carella v. Reilly & Assoc., 22 A.D.3d 623......
  • Wood v. Incorporated Village of Patchogue of Ny, No. 01-CV-0229(ADS)(ARL).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • March 31, 2004
    ...enterprise which is "separate and distinct from the alleged pattern of racketeering activity." Black Radio Network, Inc. v. NYNEX Corp., 44 F.Supp.2d 565, 580 (S.D.N.Y.1999); see also United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Thus, "the enterprise must ......
  • Request a trial to view additional results

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