Venture Commc'ns Coop., Inc. v. James Valley Coop. Tel. Co.

• Decision Date: 02 October 2020
• Docket Number: 3:20-CV-3011-RAL
• Citation: 492 F.Supp.3d 946
• Parties: VENTURE COMMUNICATIONS COOPERATIVE, INC., Plaintiff, v. JAMES VALLEY COOPERATIVE TELEPHONE COMPANY, and Northern Valley Communications, LLC, Defendants.
• Court: U.S. District Court — District of South Dakota

492 F.Supp.3d 946

VENTURE COMMUNICATIONS COOPERATIVE, INC., Plaintiff,

v.JAMES VALLEY COOPERATIVE TELEPHONE COMPANY, and Northern Valley Communications, LLC, Defendants.

3:20-CV-3011-RAL

United States District Court, D. South Dakota, Central Division.

Signed October 2, 2020

Matthew A. Tysdal, Pete Heidepriem, Heidepriem, Purtell, Siegel & Hinrichs LLP, Sioux Falls, SD, Ari S. Casper, Pro Hac Vice, Joshua N. Auerbach, Pro Hac Vice, Ralph S. Tyler, Pro Hac Vice, The Casper Firm, LLC, Baltimore, MD, Darla Pollman Rogers, Riter, Rogers, Wattier & Northrup, LLC, Pierre, SD, for Plaintiff.

James M. Cremer, Bantz, Gosch & Cremer, LLC, Aberdeen, SD, G. David Carter, Pro Hac Vice, Womble Bond Dickinson (US) LLP, Washington, DC, for Defendants.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS

ROBERTO A. LANGE, CHIEF JUDGE

Plaintiff Venture Communications Cooperative, Inc. ("Venture") sued Defendants James Valley Cooperative Telephone Company ("James Valley") and Northern Valley Communications, LLC ("Northern Valley"). Doc. 1. Venture is an incumbent local exchange carrier¹ that provides voice and broadband services in rural South Dakota. Doc. 1 at ¶ 1. James Valley is also an incumbent local exchange carrier, while Northern Valley is a competitive local exchange carrier.² Doc. 1 at ¶¶ 9, 10. Both defendant telecommunications companies provide voice and broadband services in South Dakota. Doc. 1 at ¶¶ 9, 10. Venture alleges that Defendants have violated 47 U.S.C. § 220(e), entitling it to relief under 47 U.S.C. §§ 206 and 207. Doc. 1 at ¶¶ 49–56. Venture also alleges that Defendants engaged in tortious interference with business expectancy, fraud, and unfair competition actionable under South Dakota law. Doc. 1 at ¶¶ 57–68. The Defendants have moved to dismiss all of Venture's claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Doc. 14. For the reasons explained herein, this Court grants in part and denies in part Defendants’ Motion to Dismiss.

I. Facts Relevant to Motion to Dismiss³

Many rural communities across the United States lack access to quality and affordable voice and broadband services. See In re Connect Am. Fund, F.C.C. 18-29, 2018 WL 1452720, ¶ 1 (Mar. 23, 2018). In recognition of this problem, in 2011 the Federal Communications Commission ("FCC") adopted the Connect America Fund ("CAF"), a category of funding for eligible telecommunications companies providing voice and broadband services in underserved areas. Doc. 1 at ¶ 19. Such funding makes it economically feasible for telecommunication companies to provide their services in rural areas where the revenue would otherwise be insufficient to justify the cost of doing business there. Doc. 1 at ¶¶ 1, 2, 19, 20. To determine the amount of CAF support that carriers should receive, the FCC uses a method called the Alternative Connect America Cost Model ("A-CAM"). Doc. 1 at ¶ 20. This method excludes from its support calculations any locations, otherwise known as census blocks, in which an unsubsidized carrier provides voice and broadband services at an appropriate level of speed. Doc. 1 at ¶ 20. The FCC has explained that the purpose of this restriction is to target support to areas of greater need. Doc. 1 at ¶ 28.

In 2016, the FCC initiated its first A-CAM offering (A-CAM I). Doc. 1 at ¶ 20. For A-CAM I, the FCC excluded from its support calculations any census blocks in which an unsubsidized carrier was already providing broadband services at the minimum speed of 10 Mbps download, 1 Mbps upload (10/1 Mbps), along with traditional voice service. Doc. 1 at ¶ 21. At the end of 2018, the FCC initiated its second A-CAM offering (A-CAM II). Doc. 1 at ¶ 22. The FCC in A-CAM II excluded from its support calculations any census blocks in which an unsubsidized carrier was already providing broadband service at the minimum speed of 25 Mbps download, 3 Mbps upload (25/3 Mbps), along with traditional voice service. Doc. 1 at ¶ 22. The FCC's support fund decisions under A-CAM I and A-CAM II relied upon information provided in Form 477 submissions. Doc. 1 at ¶ 23. Form 477s are documents that facilities-based broadband providers must file with the FCC twice annually. Doc. 1 at ¶ 13. Form 477 submissions inform the FCC of the census blocks in which various providers offer voice and broadband services, as well as the broadband speeds offered in particular locations. Doc. 1 at ¶ 13.

Venture alleges that defendants James Valley and Northern Valley have "corrupted" and "weaponized" this process. Doc. 1 at ¶ 3. Northern Valley is wholly owned by James Valley, and both companies share the same CEO, an individual named James Groft. Doc. 1 at ¶¶ 10, 35. Significantly, Northern Valley is an unsubsidized carrier. Doc. 1 at ¶ 36. Venture claims that Northern Valley falsely stated in its 2017 Form 477 that it provides 25/3 Mbps broadband service in census blocks that are also served by Venture. Doc. 1 at ¶ 36. This representation, if true, disqualifies Venture from any A-CAM II support in those particular census blocks, which support Venture would otherwise have been entitled to receive. Doc. 1 at ¶¶ 36, 42. Allegedly based on misinformation provided by Northern Valley in its 2017 Form 477, the FCC determined that certain census blocks were receiving adequate voice and broadband services from an unsubsidized carrier, and therefore, has reduced its A-CAM II offering to Venture by $20 million over a ten-year period. Doc. 1 at ¶¶ 37, 42.

Venture alleges that Defendants have previously provided false information in their Form 477s. Doc. 1 at ¶ 26. In or around 2015, Defendants purportedly misrepresented their voice and broadband capabilities on a Form 477 filing that was used as a basis for A-CAM I offerings. Doc. 1 at ¶ 26. On April 28, 2016, Interstate Telecommunications Cooperative, Inc. (ITC), one of Defendants’ competitors, filed an A-CAM Competitive Challenge with the FCC, claiming that Northern Valley had "erroneously reported [census] blocks as ones in which it offers broadband service." Doc. 1 at ¶ 29. Only then did Northern Valley allegedly acknowledge that it did not provide broadband services in ITC's incumbent telephone area. Doc. 1 at ¶ 30. Thereafter, Northern Valley corrected its data. Doc. 1 at ¶¶ 30, 31. Left uncorrected, Northern Valley's misrepresentation would have had "significant financial repercussions for ITC by reducing the A-CAM I offering it was due." Doc. 1 at ¶ 31. Venture emphasizes that this experience put Defendants on notice of the importance of accurately reporting data in their Form 477s and eliminated the possibility of "innocent mistake" as an explanation for the conduct alleged here. Doc. 1 at ¶¶ 32, 39, 40.

Venture's complaint also avers a longstanding dispute between the parties, allegedly prompting the Defendants to act with the intent of harming Venture. In March 2015, Defendants filed a lawsuit against South Dakota Network, LLC and its individual managers. Doc. 1 at ¶ 34. Both Venture and Defendants are a part of South Dakota Network, LLC, a larger provider network. Doc. 1 at ¶ 33. Randy Houdek, in addition to his role as CEO of Venture, is an individual manager of South Dakota Network, LLC. Doc. 1 at ¶ 34. Apparently, this litigation proved to be "highly contentious," to the point where Mr. Groft, Defendants’ CEO, allegedly "aggressively attacked" Mr. Houdek, Plaintiff's CEO. Doc. 1 at ¶ 35. Venture claims that this animosity between the parties is what motivated Defendants to misrepresent Northern Valley's data on the Form 477, thereby depriving Venture of $20 million worth of support for certain census blocks. Doc. 1 at ¶ 35. Because the FCC eliminated the challenge process from A-CAM I for A-CAM II, Venture was unable to challenge the data in Northern Valley's Form 477 as ITC had done in 2015. Doc. 1 at ¶¶ 24, 41. Having no other remedy, Venture brought this lawsuit. Doc. 1 at ¶¶ 24, 41.

Based on these allegations and others, Venture asserts claims for a violation of the Communications Act of 1934 (Count I); tortious interference with business expectancy (Count II); fraud (Count III); and unfair competition (Count IV). Doc. 1. Defendants offer multiple arguments in support of their Motion to Dismiss, each of which is discussed below. Docs. 15, 17.

II. Standard of Review

On a motion to dismiss under Rule 12(b)(6), courts must accept a plaintiff's factual allegations as true and construe all inferences in the plaintiff's favor, but need not accept a plaintiff's legal conclusions. Retro Television Network, Inc. v. Luken Commc'ns, LLC, 696 F.3d 766, 768–69 (8th Cir. 2012). To survive a motion to dismiss for failure to state a claim, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are unnecessary, the plaintiff must plead enough facts to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged," Iqbal, 556 U.S. at 678, 129 S.Ct. 1937, "even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very remote and unlikely,’ " Twombly, 550 U.S. at 556, 127 S.Ct. 1955 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) ). Still, "conclusory statements" and "naked assertion[s] devoid of further factual enhancement" do not satisfy the plausibility standard. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (alteration in the original) (citation and internal quotation marks omitted).

When determining whether to grant a Rule 12(b)(6) motion, a court generally must...