Tps Utilicom Services, Inc. v. At & T Corp., CV 01-9237 SVW (SHx).

Citation223 F.Supp.2d 1089
Decision Date21 August 2002
Docket NumberNo. CV 01-9237 SVW (SHx).,CV 01-9237 SVW (SHx).
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
PartiesTPS UTILICOM SERVICES, INC., Plaintiff, v. AT & T CORP. et al., Defendants.

Brian Sean Currey, O'Melveny & Myers, Los Angeles, CA, Brian P. Brooks, O'Melveny & Myers, Newport Beach, CA, for Plaintiff.

Christopher B. Hockett, David H. Fallek, Bingham McCutchen, San Francisco, CA, Kenneth D. Klein, Amy M Gallegos, Hogan & Hartson, Los Angeles, CA, Jonathan S. Franklin, Michele C. Farguhar, Hogan & Hartson, Washington, DC, for Defendants.


WILSON, District Judge.

The Plaintiff, TPS Utilicom Services, Inc. ("TPS"), filed suit in state court for: 1) unfair business practices under California Business & Professions Code § 17200 et seq.; and 2) interference with prospective economic advantage, against the defendant telecommunications companies AT & T Corp., AT & T Wireless PCS Interests, L.L.C., AT & T Wireless PCS, L.L.C., AT & T Communications of California, Inc., AT & T Wireless Services, Inc., AT & T Wireless Services of California, L.L.C. (collectively, "AT & T"), and Alaska Native Wireless, L.L.C. ("ANW")("Defendants"). Two of the DefendantsAT & T Communications of California, Inc. and AT & T Wireless Services of California, L.L.C. ("resident defendants") — are California citizens for purposes of diversity.

The Defendants removed the action on the basis of diversity and federal question jurisdiction through complete preemption. The Plaintiff now seeks to remand the action; the AT & T defendants move to dismiss on grounds of preemption, referral under the doctrine of primary jurisdiction, and failure to state a claim under state law; and the ANW defendant moves to dismiss on those grounds and in the alternative for lack of personal jurisdiction. The AT & T Defendants join ANW's Opposition to TPS's motion to remand. ANW joins the AT & T Defendant's motion to dismiss.

The motions present an intricate question of subject matter jurisdiction. The Court must ascertain its jurisdiction before it can reach any of the AT & T defendants' arguments for dismissal.1

Having considered the papers and arguments presented in this matter, the Court finds that subject matter jurisdiction is not conferred by complete preemption under the Federal Communications Act. However, TPS has fraudulently joined the resident Defendants in an effort to defeat diversity. Accordingly, the Court has subject matter jurisdiction based on diversity, and the Court DENIES the Plaintiff's application for remand.

On the merits the complaint is deficient. The allegation of interference with prospective economic advantage fails on state law grounds. In any event both claims are subject to express and conflict preemption under the FCA. Accordingly, the Court GRANTS the Defendants' motions to dismiss and dismisses the complaint.

I. Introduction.

This lawsuit concerns a Federal Communications Commission ("FCC") auction for four hundred twenty two (422) wireless telecommunication spectrum licenses. The auction for a subset of the licenses was limited to "designated entities;" for the remaining licenses subject to open bidding, designated participants benefitted from "auction credits" that improved their bidding positions. The Plaintiff participated in the auction as a designated entity and lost various bids to one of the Defendants, a designated entity named Alaska Native Wireless, L.L.C. ("ANW"). The Plaintiff contends that ANW was a Trojan horse by which AT & T — a majority shareholder of ANW — entered auctions under the guise of a designated entity.

The Plaintiff filed suit in state court against ANW and several AT & T affiliates, as set forth above, alleging unfair business practices and interference with prospective economic advantage. The Plaintiff seeks in excess of $1 billion in damages and restitution. The Defendants removed on the basis of diversity, claiming fraudulent joinder of the resident defendants, and claiming complete preemption under the Federal Communications Act of 1934.

Several motions are now pending before the Court. The AT & T defendants move to dismiss under theories of preemption, failure to state a claim, or in the alternative in conjunction with a FCC referral under the primary jurisdiction doctrine. ANW moves to dismiss for lack of personal jurisdiction. The Plaintiff moves to remand, arguing that the resident Defendants are properly joined and defeat removal on grounds of diversity.

II. Facts.

The underlying facts of this action are extensively discussed in the moving papers. Other than as identified in the analysis there are no material facts in dispute.

III. Analysis.

The Court must ascertain its subject matter jurisdiction before testing either ANW's challenge to personal jurisdiction, or AT & T's challenges to the choice of law, the forum or the adequacy of the complaint.

A federal court may exercise removal jurisdiction over a case only if jurisdiction existed over the suit as originally brought by the plaintiff. See 28 U.S.C. § 1441(a). A strong presumption exists against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The removing party bears the burden of establishing that federal subject matter jurisdiction exists. See Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 37, 66 L.Ed. 144 (1921); Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir.1988).

In this matter the Defendants argue that there is a federal question under the doctrine of complete preemption, and diversity under the fraudulent joinder analysis.2

A. Subject Matter Jurisdiction.

The Court may have subject matter jurisdiction of this action through federal question jurisdiction or diversity. Although the complaint pleads only two state causes of action, AT & T argues that it nonetheless presents a federal question as a function of complete preemption by the Communications Act of 1934, as amended, 47 U.S.C. §§ 151 et. seq ("FCA"). AT & T also argues that this Court has diversity jurisdiction, on grounds that the Plaintiff fraudulently joined the two resident Defendants. TPS, in turn, argues that the Court has no jurisdiction over this action.3

The Court finds several of Plaintiff's admissions in the moving papers significant. The Plaintiff admits that "the core issue in this action is whether defendants unfairly and deceptively employed a series of sham corporations and other shell entities — including, among others, AT & T of California and AT & T Wireless of California — to mask the true nature of the entity through which they hoped to acquire wireless telecommunications licenses reserved for small- and minority-owned businesses." Plaintiffs Mem. in Opp. to Motion to Dismiss ("Pl.Opp.") at 5. The Plaintiff admits that the gravamen of the complaint is the allegation that ANW, with its partial AT & T ownership, did not qualify to participate as a designated entity in the relevant auctions. "[The Plaintiff] alleges that defendants raised the prices bid by legitimate entrepreneurs in the small-business auction through unfair manipulation of a series of shell corporations and other entities." Pl. Opp. at 15, citing Compl. ¶¶ 3, 22-28. "TPS Utilicom and other small companies (and, as a result, consumers) nonetheless have been injured by defendants' conduct because Alaska Native's very participation in Auction No. 35 — regardless of any licenses it may receive — raised overall prices in the auction." Pl. Opp. at 16. The Plaintiff admits that it rests its unfair business practices claim on the Defendants' entry into Auction No. 35 — that such entry was a "business act" for the unfair competition claim, and that the entry was a violation of the law. Pl. Opp. at 19.

1. There is no complete preemption of state claims by the Communications Act of 1934, as amended.

AT & T argues that the Communications Act of 1934, as amended, 47 U.S.C. §§ 151 et. seq ("FCA") bars these state claims under 1) express; 2) field; and 3) conflict preemption. As regards its subject matter jurisdiction the Court limits its attention to the question of whether there is complete preemption under the FCA without considering whether the Defendants raise a valid federal preemption defense.4 A federal preemption defense does not convert state claims into a federal question except in the special case of complete preemption.5 Preemption alone does not confer removal or federal question jurisdiction.

A. Complete preemption.

Complete preemption is a judicially crafted "independent corollary" to the well-pleaded complaint rule. When the Court concludes "that the pre-emptive force of a statute is so `extraordinary' that it `converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.' [Met. Life Ins. Co. v. Taylor, 481 U.S. 58, 65, 107 S.Ct. 1542, 1547, 95 L.Ed.2d 55 (1987)]." Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987). "Once an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state law is considered from its inception, a federal claim, and therefore arises under federal law." Id.,citing Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 24, 103 S.Ct. 2841, 2854, 77 L.Ed.2d 420 (1983). See generally 14B Charles Alan Wright, Arthur R. Miller and Edward H. Cooper, Federal Practice and Procedure § 3722.1 (West 1998).

Complete pre-emption is a narrow doctrine. See, e.g., Marcus v. AT&T Corp., 138 F.3d 46, 54 (2d Cir.1998)(discussing "narrow scope" of complete preemption after Met. Life); generally 14B Wright & Miller § 3722.1, at 517 ("Because of the obvious federalism implications of the...

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