Business Edge Group, Inc. v. Champion Mortg. Co.

• Decision Date: 11 March 2008
• Docket Number: No. 07-1059.,07-1059.
• Citation: 519 F.3d 150
• Parties: The BUSINESS EDGE GROUP, INC., Appellant, v. CHAMPION MORTGAGE COMPANY, INC.
• Court: U.S. Court of Appeals — Third Circuit

519 F.3d 150

The BUSINESS EDGE GROUP, INC., Appellant, v. CHAMPION MORTGAGE COMPANY, INC.

No. 07-1059.

United States Court of Appeals, Third Circuit.

Argued January 3, 2008.

Filed March 11, 2008.

Steven F. Gooby, (Argued), DLA Piper East Brunswick, NJ, Attorneys for Appellant.

Thomas J. Burns, (Argued), Reed Smith Princeton, NJ, Attorneys for Appellees.

Before FUENTES, JORDAN, Circuit Judges, and DUBOIS,^* District Judge.

OPINION OF THE COURT

FUENTES, Circuit Judge.

This case involves a company, The Business Edge Group, Inc. ("Business Edge"), which targeted and subscribed to a vanity toll free telephone number in order to take advantage of the value it presented to Champion Mortgage Company, Inc. ("Champion").¹ The issue we address is whether Business Edge's actions violated an FCC regulation which prohibits entities from acquiring toll free telephone numbers in order to sell them and from hoarding toll free telephone numbers. For the reasons that follow, we conclude that Business Edge did not sell the telephone number at issue to Champion and that the case must be remanded for a determination of whether Business Edge engaged in hoarding.

I.

At some point prior to 1998, Business Edge acquired the toll free telephone number 1-800-242-6740 (1-800-ChampiO[n], or "the Number").² Sheldon Kass, the President of Business Edge, testified during a deposition that he acquired the Number because "it had certain spellings" associated with it, namely, "the word champion," and thus the Number had potential application in the mortgage business. (App.98.) After subscribing to the Number, Business Edge routed all calls to the Number to an unnamed mortgage company. It then contacted Champion to inform them that it had an 800 number that spelled "ChampiOn" and that when people misdialed Champion's toll free telephone number, using a "zero" rather than the letter "o," they were being routed to another mortgage company. When Cindy Stancavish, a marketing manager at Champion, called the Number to validate Business Edge's claim, she found that the mortgage company did not identify itself, leading callers to believe they were speaking with Champion.

Because of the perceived loss of business, Champion offered to purchase the number from Business Edge for $60,000, but Business Edge rejected the offer. The parties then entered into an agreement (the "1998 Agreement") pursuant to which Business Edge would route calls to the Number to Champion for $.10 per minute, plus $3.00 per each customer with an unique telephone number that called the Number.³ The purpose of the 1998 Agreement was to set up a trial period to show Champion the volume of traffic to the Number so it could determine whether to enter into a longer-term agreement with Business Edge. During the pendency of the 1998 Agreement, Business Edge consulted Gelt Financial, a local mortgage lender and servicing company, to get a valuation of the routing arrangement from Champion's perspective. Following Gelt's report, Business Edge and Champion agreed to an arrangement in which Champion would pay $25,000 per month for five years in exchange for Business Edge routing calls made to the Number to Champion (the "1999 Agreement").

The parties performed on the 1999 Agreement from August 1999 through December 2002. The following month, Champion sent Business Edge a letter stating that the contract violated an FCC regulation, 47 C.F.R. § 52.107, and demanded reimbursement for the payments that had been made on the contract. Despite the letter, Champion continued to pay on the 1999 Agreement through April 2003. Champion failed to pay the final $375,000 remaining on the 1999 Agreement and Business Edge terminated the contract and its routing services.

Business Edge filed a complaint in state court, claiming breach of contract for Champion's failure to pay the final $375,000 in monthly fees. Champion removed the case to federal court on diversity grounds. In the District Court, Champion argued that the case should be transferred to the FCC under the doctrine of primary jurisdiction because resolution of the case requires interpretation of FCC rules and policies, or, in the alternative, that the District Court should determine that the 1999 Agreement was void ab initio because Business Edge violated 47 C.F.R. § 52.107 by brokering the Number to Champion. In contrast, Business Edge contended that there was no technical sale of the Number, so there could be no violation of 47 C.F.R. § 52.107. The District Court determined on the eve of trial that no material issues of fact were in dispute and the case could be disposed of as a matter of law.

The District Court first decided that it was unnecessary to transfer the case to the FCC under the doctrine of primary jurisdiction. The District Court found that it was just as well suited as the FCC to determine the principal issue in the case, whether the contract violated 47 C.F.R. § 52.107, which provides that "[t]oll free subscribers shall not hoard toll free numbers" and that "[n]o person or entity shall acquire a toll free number for the purpose of selling the toll free number to another entity or to a person for a fee."⁴ (App.12-16.)

The court then focused on whether Business Edge acquired the number in order to sell it to Champion and found that because the value of the 1999 Agreement was in line with the value that Champion would receive for the calls, rather than being in line with the cost of routing services, the 1999 Agreement should be re-characterized as a sale of the Number. Thus, the District Court held that the 1999 Agreement violated 47 C.F.R. § 52.107. Finding that both parties had unclean hands in creating the 1999 Agreement, the court excused Champion from further payments under the contract and denied restitution of the payments previously made. Business Edge appeals the District Court's order.⁵

II.

A. The Regulation

Section 52.107(a) provides that "(1) [t]oll free subscribers shall not hoard toll free numbers" and that "(2) [n]o person or entity shall acquire a toll free number for the purpose of selling the toll free number to another entity or to a person for a fee." Hoarding is defined as "the acquisition of more toll free numbers than one intends to use for the provision of toll free service, as well as the sale of a toll free number by a private entity for a fee." 47 C.F.R. § 52.107(b). Number brokering, which is included in the definition of hoarding, is defined as "the selling of a toll free number by a private entity for a fee." 47 C.F.R. § 52.107(a).

B. Primary Jurisdiction

We will first review the District Court's decision not to transfer this case to the FCC under the doctrine of primary jurisdiction. The parties did not raise this issue on appeal. However, we can review, sua sponte, whether it is appropriate to transfer the case to the FCC under the doctrine of primary jurisdiction. See MCI Telecomms. Corp. v. Teleconcepts, Inc., 71 F.3d 1086, 1103 (3d Cir.1995).

Primary jurisdiction "requires a court to transfer an issue within a case that involves expert administrative discretion to the federal administrative agency charged with exercising that discretion for initial decision." Richman Bros. Records, Inc. v. U.S. Sprint Commc'ns Co., 953 F.2d 1431, 1435 n. 3 (3d Cir.1991) (citations omitted). According to Richman, "[t]he doctrine has been applied . . . when an action otherwise within the jurisdiction of the court raises a question . . . involv[ing] technical questions of fact uniquely within the expertise and experience of an agency — such as matters turning on an assessment of industry conditions." Id.

While this case presents "technical questions of fact" that are "within the expertise" of the FCC, we believe it more appropriate to remand to the District Court for further proceedings than to transfer it to the agency because we find that the meaning of the regulation can be determined from its text. See Advance United Expressways, Inc. v. Eastman Kodak Co., 965 F.2d 1347, 1353 (5th Cir.1992) (holding that a court need not refer a case under the doctrine of primary jurisdiction if "it can resolve the issues before it, using the plain language of the [regulations] and the ordinary rules of construction"); cf. Distrigas of Massachusetts Corp. v. Boston Gas Co., 693 F.2d 1113, 1118 (1st Cir.1982) (referring case under doctrine of primary jurisdiction because "the meaning of the disputed language . . . cannot be determined solely from the text itself, nor even by reference to the intent of the parties").

C. Defining Sale

The District Court concluded that the 1999 Agreement was a contract for the sale of the Number and thus violated 47 C.F.R. § 52.107. We disagree. First, we note that subscribers do not "own" toll free telephone numbers. In the Matter of Toll Free Service Access Codes, 20 F.C.C.R. 15089, 15090 ¶ 4, 2005 WL 2138620, at *2 (F.C.C. Sept. 2, 2005) ("Telephone numbers are a public resource and neither carriers nor subscribers `own' their telephone numbers."). Because subscribers do not own their telephone numbers, they can never "sell" them outright. Instead, they "sell" the interest that they have in the number; that is, the right to use it to provide toll free service. In order to determine whether the 1999 Agreement constituted a sale for the purposes of 47 C.F.R. § 52.107, we review dictionary definitions of "sale" and "sell" to assess whether the agreement falls within the definitions. Black's Law Dictionary (8th ed. 2004) ("Black's") defines "sale" as "[t]he transfer of property or title for a price," id. at 1364, and defines "sell" as "[t]o transfer (property) by sale," id. at 1391. Black's defines "transfer" as "[a]ny mode of disposing of or parting with an asset or an interest in an asset." Id. at 1535. Meanwhile, Merriam-Webster's Online Dictionary defines "sale" as "the act of selling; specifically: the transfer of ownership of and title to property from one person to...