Law Offices of Curtis V. Trinko v. Bell Atlantic

• Decision Date: 06 December 2000
• Docket Number: No. 00 Civ.1910(SHS).,00 Civ.1910(SHS).
• Citation: 123 F.Supp.2d 738
• Parties: LAW OFFICES OF CURTIS V. TRINKO, LLP, Individually and on Behalf of Themselves and All Others Similarly Situated, Plaintiff, v. BELL ATLANTIC CORP., Defendant.
• Court: U.S. District Court — Southern District of New York

123 F.Supp.2d 738

LAW OFFICES OF CURTIS V. TRINKO, LLP, Individually and on Behalf of Themselves and All Others Similarly Situated, Plaintiff, v. BELL ATLANTIC CORP., Defendant.

No. 00 Civ.1910(SHS).

United States District Court, S.D. New York.

December 6, 2000.

Joseph P. Garland, Klein & Solomon, LLP, New York, NY, Kenneth A. Elan, Law Office of Kenneth A. Elan, New York, NY, Peter S. Linden, Kirby, McInerney & Squire, L.L.P., New York, NY, Joseph P. Garland, New York, NY, for plaintiff.

Dan K. Webb, Winston & Strawn, Chicago, IL, Mark C. Hansen, Kellogg, Huber, Hansen, Todd & Evans, Washington, DC, Henry B. Gutman, Joseph F. Tringali, Simpson Thacher & Bartlett, New York, NY, Richard G. Taranto, Farr & Taranto, Washington, DC, John Thorne, Verizon Communications, Arlington, VA, for defendant.

OPINION AND ORDER

STEIN, District Judge.

Defendant Bell Atlantic Corp. has moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that plaintiff lacks standing and that the complaint fails to state a claim. For the reasons set forth below, that motion is granted, with leave to replead in part.

I. BACKGROUND

Pursuant to the Telecommunications Act of 1996, local telephone companies may enter the market for long-distance telephone service provided they face competition in the local telephone service market. 47 U.S.C. § 271(c). To promote development of competition in local telephone service markets, the Act requires that incumbent local telephone companies provide certain services to new entrants, including permitting access to the incumbent local telephone company's network by the new entrant — called "interconnection" — and providing retail services to new entrants at wholesale rates. 47 U.S.C. § 251(c).

According to the complaint, Bell Atlantic, an incumbent local telephone company, applied for and received regulatory approval to offer long-distance telephone service in certain parts of the Northeast. Compl. ¶ 11. Bell Atlantic has allegedly not, however, assisted its local phone service competitors as required by the Telecommunications Act. Id ¶ 12. Instead, Bell Atlantic is alleged to have:

fulfilled orders of other Local Phone Service providers' customers [only] after fulfilling those for its own Local Phone Service, has failed to fill a substantial number of orders for other Local Phone Service providers' customers substantially identical in circumstances to its own Local Phone Service customers for whom it has filled orders, and has systematically failed to inform other Local Phone Service providers of the status of their orders with Bell Atlantic concerning [the Local Phone Service providers'] customers.

Id. ¶ 31.

On March 9, 2000, the Federal Communications Commission ("FCC") issued a consent decree in which Bell Atlantic agreed to pay a $3 million fine to end an investigation into its alleged failure to provide adequate access to local phone service competitors in New York. Id. ¶ 32; Bell Atlantic — New York Authorization Under Section 271 of the Communications Act to Provide In-Region, InterLATA Service in the State of New York, 15 FCC Rec. 5413, 2000 WL 571154 (2000). Bell Atlantic also agreed to pay $10 million to competing local telephone service providers for injuries resulting from its misconduct in handling their orders. Compl. ¶ 32.

The next day, the Law Offices of Curtis V. Trinko, LLP, a law firm organized as a limited liability partnership under New York law and a customer of one of Bell Atlantic's competitors in the local telephone service market, filed this action on behalf of itself and all others similarly situated. The Trinko partnership alleges that the members of the class have been damaged by Bell Atlantic's provision of "a level of service that is materially below the level that is accorded customers of Bell Atlantic's Local Phone Service in functionally identical circumstances." Id. ¶ 12. The complaint asserts a claim for unlawful monopolization in violation of section 2 of the Sherman Act, claims for violations of section 251 and 202 of the Communications Act, and a claim for tortious interference with contract. The complaint alleges that the relevant market is the provision of local, non-wireless telephone service in those areas in which Bell Atlantic is the "incumbent local exchange carrier" within the meaning of the 1996 Telecommunications Act, and that Bell Atlantic possesses monopoly power in that market. Id. ¶¶ 18-25.

Bell Atlantic now moves for dismissal of the complaint in its entirety on the grounds that the Trinko partnership lacks standing to bring the Sherman Act claim and the Communications Act claims, that plaintiff's Communications Act claims are not cognizable, that plaintiff has failed to state a claim for tortious interference with contract, that plaintiff has not sufficiently pled damages, and that all of plaintiff's claims for damages are barred by the filed tariff doctrine.

II. DISCUSSION

When deciding a motion to dismiss a claim pursuant to Fed.R.Civ.P. 12(b)(6), the Court must accept all of the well-pleaded facts as true and draw all reasonable inferences from those allegations in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The complaint will survive a motion to dismiss unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

A. The Sherman Act Claim

Bell Atlantic contends that because its alleged anticompetitive conduct is violating its duties to competing carriers under the Telecommunications Act, any injury suffered by the alleged class, as customers of those carriers, "is, by definition, indirect and derivative of the competing carriers' alleged direct market injury." Def.'s Mem. at 12. Thus, according to defendant, the Trinko partnership lacks standing to pursue its Sherman Act claim. Bell Atlantic also argues that to hold otherwise would subject it to the risk of duplicative recovery, i.e., Bell Atlantic might have to compensate both the new entrants into the local telephone service market and their customers for the same harm, assuming liability exists in the first place.

Courts have consistently held that both competitors and consumers may assert antitrust claims arising from harms that flow from anticompetitive conduct. E.g., SAS of Puerto Rico, Inc. v. Puerto Rico Tel. Co., 48 F.3d 39, 45 (1st Cir.1995) ("[T]he presumptively `proper' [antitrust] plaintiff is a customer who obtains services in the threatened market or a competitor who seeks to serve that market."); Continental Orthopedic Appliances, Inc. v Health Insurance Plan of Greater New York, 956 F.Supp. 367, 372 (E.D.N.Y.1997) ("To have standing, a plaintiff must be a competitor, participant, supplier or consumer in the relevant market."). Indeed, in Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), upon which Bell Atlantic itself relies, the United States Supreme Court found that the plaintiff lacked standing because it "was neither a consumer nor a competitor in the market in which trade was restrained." 459 U.S. at 539, 103 S.Ct. 897. Plaintiff, as a consumer in the alleged relevant market, has standing to assert an antitrust claim.

Bell Atlantic cites the United States Supreme Court decision in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), for the proposition that permitting the Trinko partnership to maintain this action would impermissibly subject Bell Atlantic to the risk of duplicative recovery. However, the issue in Illinois Brick was whether "indirect purchasers," i.e., customers of the monopolists' customers, could maintain an action on the theory that all of the harm — supracompetitive prices — had been passed on to them. Illinois Brick, 431 U.S. at 726-28, 97 S.Ct. 2061. The Supreme Court held that suits by such "indirect purchasers" were barred by the rule announced in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), prohibiting antitrust defendants from introducing evidence that the antitrust plaintiff had passed on an illegal overcharge to others. Illinois Brick, 431 U.S. at 745-47, 97 S.Ct. 2061. The Court explained that permitting suits by indirect purchasers "inject[ed] extremely complex issues into the case" as follows:

Added to the uncertainty of how much of an overcharge could be established at trial would be the uncertainty of how that overcharge would be apportioned among the various plaintiffs. This additional uncertainty would further reduce the incentive to sue. The combination of increasing the costs and diffusing the benefits of bringing a treble-damages action could seriously impair this important weapon of antitrust enforcement.

Id. at 745, 97 S.Ct. 2061.

These problems of apportionment are not present here. Any harm to Bell Atlantic's competitors would be harms from artificial barriers to entry into the market place, e.g., lost profits from customers either lost or never obtained because of Bell Atlantic's alleged misconduct. The plaintiff and other class members, though, were, by definition, not lost customers, but customers from whom the competitors presumably profited in spite of Bell Atlantic's misdeeds. The harm that these customers are alleging — damages resulting from poorer service than they would otherwise have received had Bell Atlantic acted lawfully — is wholly distinct from the harm suffered by the competitors. The rule of Illinois Brick does not apply to this case.

Even though plaintiff has standing, however, its antitrust claim must nevertheless be dismissed because the Trinko partnership has not pled facts that would entitle it to relief. See Conley, 355 U.S. at 45-46, 78 S.Ct. 99. The elements of a...