Classic Communications v. Rural Telephone Serv.

• Decision Date: 30 January 1997
• Docket Number: Civil Action No. 96-2166-DES.
• Citation: 956 F.Supp. 910
• Parties: CLASSIC COMMUNICATIONS, INC.; Classic Telephone, Inc.; and Classic Cable, Inc., Plaintiffs, v. RURAL TELEPHONE SERVICE CO., INC.; Vision Plus, Inc.; Larry E. Sevier; Merlin Dennis; Barney Hickert; F.C. Brungardt; Douglas Ziegler; Charley Minium; Marion Otter; Glenn Lambert; Robert E. McCall; Shane Brady; Kenneth Clark; City of Hill City, Kansas; City of Bogue, Kansas; City of Quinter, Kansas; City of Morland, Kansas; City of Norcatur, Kansas; City of Gorham, Kansas; City of Damar, Kansas; City of Palco, Kansas; and City of Logan, Kansas, Defendants.
• Court: U.S. District Court — District of Kansas

Page 910

956 F.Supp. 910

CLASSIC COMMUNICATIONS, INC.; Classic Telephone, Inc.; and Classic Cable, Inc., Plaintiffs, v. RURAL TELEPHONE SERVICE CO., INC.; Vision Plus, Inc.; Larry E. Sevier; Merlin Dennis; Barney Hickert; F.C. Brungardt; Douglas Ziegler; Charley Minium; Marion Otter; Glenn Lambert; Robert E. McCall; Shane Brady; Kenneth Clark; City of Hill City, Kansas; City of Bogue, Kansas; City of Quinter, Kansas; City of Morland, Kansas; City of Norcatur, Kansas; City of Gorham, Kansas; City of Damar, Kansas; City of Palco, Kansas; and City of Logan, Kansas, Defendants.

Civil Action No. 96-2166-DES.

United States District Court, D. Kansas.

January 30, 1997.

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Victor A. Davis, Jr., David P. Troup, Weary, Davis, Henry, Struebing & Troup, Junction City, KS, Gordon D. Gee, Paul G. Schepers, Rachel H. Baker, Susan S. Goldammer, Seigfreid, Bingham, Levy, Selzer & Gee, Kansas City, MO, Cary Ferchill, Mark D. Goranson, Brian F. Antweil, Winstead, Sechrest & Minick, P.A., Austin, TX, for plaintiffs.

Donald D. Barry, Anthony S. Barry, Barry & Barry, Topeka, KS, J. Eugene Balloun, Timothy M. O'Brien, Robert D. Grossman, David A. Rameden, Shook, Hardy & Bacon L.L.P., Overland Park, KS, for defendants.

MEMORANDUM AND ORDER

SAFFELS, Senior District Judge.

This matter is before the court on defendants' Motion to Dismiss Classic Communications as a Party and to Dismiss the Remaining Claims Against Rural and/or to Require a More Definite Statement (Doc. 42).¹ For the reasons set forth below, defendants' Motion is denied in part and granted in part.

BACKGROUND

The following facts are uncontroverted or, where controverted, construed in a manner most favorable to the plaintiff as the non-moving party.

In 1992, Classic Communications, Inc. ("Classic Communications") initiated efforts to expand its telecommunications business into western Kansas. Classic Communications' telephone subsidiary, Classic Telephone, Inc. ("Classic Telephone"), attempted to purchase telephone exchange systems in the cities of Bogue, Hill City, and Quinter (collectively the "Telephone Cities") and Classic Communications' cable television subsidiary, Classic Cable, Inc. ("Classic Cable"), attempted to expand its cable television service into the cities of Palco, Damar, Morland, Norcatur, and Gorham (collectively the "Cable Cities"). In each of the Cable Cities and Telephone Cities, Rural Telephone Service Co., Inc. ("Rural Telephone"), or its wholly-owned subsidiary, Vision Plus, Inc. ("Vision"), was already operating a local telephone exchange or a cable television system, or both.

In order to operate a local telephone exchange in Kansas, a business must obtain a franchise from the city to be serviced for use of the streets and rights-of-way. Classic Telephone applied for a nonexclusive, competitive franchise in the cities of Bogue and Hill City, and both cities denied Classic Telephone's application without, according to plaintiffs, providing any valid reason. Classic Telephone was not required to obtain a franchise in the city of Quinter because it obtained an existing franchise from United Telephone Company of Kansas ("United"). However, Quinter notified Classic Telephone that United's franchise would not be renewed when it expired and that Quinter did not intend to issue a franchise to Classic Telephone.

Classic Telephone subsequently informed the Telephone Cities that, under the Tele-communications Act of 1996, they were not permitted to deny a telephone franchise for competitive reasons and Classic Telephone requested additional information in an effort to find a "legitimate explanation" for the denial. According to plaintiffs, none of the Telephone Cities responded with a legitimate explanation and all continue to refuse to grant franchises to Classic Telephone.

Classic Cable also needed franchises in order to use the streets and rights-of-way of the cities to be serviced. Classic Cable applied for a competitive cable television franchise in each of the Cable Cities, and each city denied Classic Cable's application without, according to plaintiffs, providing any valid reason.

Classic Cable subsequently notified the Cable Cities that, under 47 U.S.C. § 541 of the 1992 Cable Act, they were not permitted to deny a cable franchise for competitive reasons and Classic Cable requested additional information in an effort to find a "legitimate explanation" for the denial. According to plaintiffs, none of the Cable Cities responded with a legitimate explanation and all continue to refuse to grant franchises to Classic Cable.

Classic alleges that Rural has engaged in illegal conduct and schemes designed to prevent Classic from competing with Rural. Specifically, Classic alleges that Rural has interfered with Classic's business relationships, made misrepresentations in order to injure Classic's business reputation, and conspired with members of the local city governments to prevent Classic from entering into and competing in the region's telecommunications market. Classic also alleges that Rural has used every available government process to obstruct Classic's entry into the telecommunications marketplace until Rural succeeded in altering the marketplace to its advantage.

RULE 12(B)(6) MOTION TO DISMISS STANDARD

The court may not dismiss a cause of action for failure to state a claim under Rule 12(b)(6) unless it appears beyond doubt that the claimant can prove no set of facts supporting its claim which would entitle it to relief. H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109 S.Ct. 2893, 2905-06, 106 L.Ed.2d 195 (1989). In considering a Rule 12(b)(6) motion, the court must assume as true all well-pleaded facts, and must draw all reasonable inferences in favor of the nonmovant. Housing Auth. of the Kaw Tribe v. City of Ponca City, 952 F.2d 1183, 1187 (10th Cir.1991); Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984). The issue in reviewing the sufficiency of a complaint is not whether the plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support its claim. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

A motion to dismiss is appropriate where allegations "clearly indicate the existence of an affirmative defense." 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed. 1990). In such cases, "the complaint is said to have a built-in defense and is essentially self-defeating." Id. Privilege and immunity are examples of built-in affirmative defenses that are properly considered on a motion to dismiss. Id.

Additionally, 12(b)(6) motions may be grounded on an objection to a plaintiff's status as a real party in interest. 6A Charles A. Wright, Arthur R. Miller & Mary Kay Kane, § 1554, at 406-07 (2d ed. 1990). "A real party in interest defense can be raised as a Rule 12(b)(6) motion, stating, in effect, that because the plaintiff is not the person who should be bringing the suit, the plaintiff has `failed to state a claim upon which relief can be granted.'" Whelan v. Abell, 953 F.2d 663, 672 (D.C.Cir.1992). See also Schrag v. Dinges, 825 F.Supp. 954 (D.Kan.1993) (granting summary judgment where plaintiff was not real party in interest).

DISCUSSION

I. Classic Communications Not A Proper Party

Rural first contends that Classic Communications is an improper party because it is not a real party in interest and because it lacks antitrust standing to sue. Fed.R.Civ.P. 17(a) contemplates dismissal of a plaintiff who is not a real party in interest: "every action shall be prosecuted in the name of the real party in interest". The real party in interest for a cause of action is the party that "has a substantive right that is enforceable under the applicable law." King Grain Co. v. Caldwell Mfg. Co., 820 F.Supp. 569, 571 (D.Kan.1993). Antitrust standing to sue is also in issue here. The Tenth Circuit has described standing in terms of a two-part test that considers whether there was an antitrust injury and whether the antitrust injury resulted directly from the antitrust violation. Sharp v. United Airlines, 967 F.2d 404, 406-07 (10th Cir.1992).

Rural points out that Classic Communications, as a parent corporation, is merely the owner and shareholder of its subsidiaries, Classic Telephone and Classic Cable. As a mere shareholder, Rural argues, Classic Communications is not the real party in interest and lacks standing to sue when one of its subsidiary corporations is injured. Therefore, Rural concludes, since Classic has not identified any substantive right that it owns in its individual capacity that has been adversely affected by Rural, Classic Communications is not a real party in interest and also lacks standing to sue.

Rural is correct in that injury arising solely out of harm done to a subsidiary corporation is generally insufficient to confer standing or status as real party in interest on a parent corporation. K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1154 (10th Cir.1985); RTC v. Fleischer, 848 F.Supp. 917, 923 (D.Kan.1994). Moreover, Classic's amended complaint is somewhat vague concerning the causal connection between Classic Communications' injury and the Rural defendants' challenged conduct. Nevertheless, in drawing all reasonable inferences in favor of plaintiffs, the court cannot say beyond doubt that Classic Communications has no substantive right enforceable under the applicable law. Nor can the court say beyond doubt that plaintiffs can prove no set of facts connecting Classic Communications' alleged harm to Rural's challenged conduct. There is insufficient factual development at this early stage of litigation to properly dismiss Classic Communications.

Rural contends, in the alternative, that if Classic Communications was an acting party, it was transacting business in Kansas illegally because it is not...