Opinion
Case No. 02-13533 (AJG), Jointly Administered.
September 24, 2004
Jerome L. Epstein, Esq., Marc A. Goldman, Esq., JENNER BLOCK LLP, Washington D.C., Special Counsel to Debtors.
Andrew N. Friedman, Esq., Marka Peterson, Esq., COHEN, MILSTEIN, HAUSFELD TOLL, P.L.L.C., Washington D.C., Attorneys for Claimant Stephanie Comeaux.
MEMORANDUM DECISION REGARDING MOTION BY THE DEBTORS TO DISMISS OR STAY CLAIMS OF STEPHANIE COMEAUX, NOS. 8457 AND 8458
Before the Court is the Debtors' Motion to Dismiss or Stay Claims Nos. 8457 and 8458 of Stephanie Comeaux filed on December 22, 2003, (the "Dismissal Motion"); the Opposition and Memorandum in Support thereof to the Debtors' Dismissal Motion, dated January 26, 2004 ("Comeaux Opposition"), and the Debtors' Reply Memorandum in support of the Dismissal Motion, dated February 5, 2004 ("Debtors' Reply"). In short, the Dismissal Motion seeks to either dismiss or stay Claims Nos. 8457 and 8458 filed by Stephanie Comeaux on various grounds. As the Court concludes that it should stay these claims, the Dismissal Motion is granted in part and denied in part.
I. Jurisdiction
The Court has subject matter jurisdiction under sections 1334(b) and 157(a) of title 28 of the United States Code and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court, dated July 10, 1984 (Ward, Acting C.J.). This is a core proceeding pursuant to section 157(b)(2) of title 28 of the United States Code.
II. Background
A. Case Background
On July 21, 2002 and November 8, 2002, the Debtors commenced voluntary cases under the Bankruptcy Code. By orders, dated July 22, 2002 and November 12, 2002, the Debtors' Chapter 11 cases were consolidated for procedural purposes and are being jointly administered. The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On July 29, 2002, the United States Trustee for the Southern District of New York (the "United States Trustee") appointed the statutory committee of unsecured creditors (the "Creditors' Committee"). No trustee has been appointed in these Chapter 11 cases.
On July 22, 2002, this Court entered its Order Granting the Motion of the United States Trustee for the Appointment of an Examiner. On August 6, 2002, this Court entered its Order Approving Employment of Dick Thornburgh as Examiner (the "Examiner").
On December 17, 2002, all members of the Board of Directors who served prior to the commencement date announced their resignation.
On May 28, 2003, this Court approved the Disclosure Statement for Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"). By order entered on October 31, 2003 (the "Confirmation Order"), this Court confirmed the Debtors' Modified Second Amended Joint Plan of Reorganization (the "Plan"). The Debtors' Plan went effective on April 20, 2004.
B. Facts, as Alleged by Claimant, Underlying Claims 8457 and 8458
In early 1999, Claimant Comeaux was solicited by an MCI telemarketer to switch her long distance telephone service from the current carrier to MCI service. Although Comeaux was promised that she would be billed at five cents-per-minute for long distance calls, she realized upon receipt of her first MCI bill that MCI was charging her in excess of the rate it had promised. Additionally, Comeaux discovered that MCI was billing her for calls she never made. Comeaux called MCI to complain about the excess charges. In response, MCI repeatedly promised to remove the excess charges from her bill. However, the charges kept reappearing on subsequent monthly billing statements. In response, Comeaux told MCI to cancel her account. She switched her long distance service to a competitor of MCI, Southwestern Bell.
WorldCom, Inc., and MCI Worldcom Communications, Inc., were affiliated companies pre-petition.
Comeaux continued to be billed by MCI for approximately six months despite her repeated instructions to MCI to cancel her account. Comeaux also advised MCI that she had switched to a different long distance provider. MCI ultimately threatened to report her non-payment to a credit bureau unless her outstanding charges were paid. Comeaux finally submitted payment for the disputed charges. Other customers were similarly frustrated in their attempts to cancel MCI long distance service.
C. The Procedural History of Claims 8457 and 8458
On December 3, 2001, Comeaux filed a putative class action complaint against WorldCom, Inc., and MCI Worldcom Communications, Inc. in the District Court of Jefferson County, Texas. Three state law causes of action were asserted in the complaint: unfair, unlawful and deceptive business practices in violation of the Texas Uniform Deceptive Trade Practices Act and Fair Business Practices Act (Tex. Bus. Com. Code §§ 17.46 17.50, state common law breach of contract, and common law unjust enrichment. The complaint sought damages for violations during the period January 1, 1998 to July 31, 2001. The Debtors removed that action to the United States District Court for the Eastern District of Texas. Thereafter, Comeaux filed a motion to remand the action and Worldcom, Inc. filed a motion to dismiss the action. Both motions were pending when the Debtors commenced Bankruptcy proceedings in this Court. As a result, by operation of law, the action was stayed on August 13, 2002.
On October 29, 2002, the Court established a bar date of January 23, 2003, for filing proofs of claim in these consolidated cases. Claimant Comeaux filed a proof of claim on January 3, 2003 on behalf of herself and "a class of all persons and entities residing in the United States who purchased long-distance telephone service from MCI and who incurred MCI charges after that person attempted to cancel their MCI long-distance service." In valuating the claim, Comeaux contended that the claim amount was "not presently determinable, but believed to be in excess of $10 Million, plus interest, costs, and attorneys' fees as allowed." The Texas state court complaint of December 3, 2001 was attached as an exhibit to the proof of claim.
D. The February 10, 2004 Hearing
On February 10, 2004, the Court heard oral arguments regarding these proofs of claim and the Dismissal Motion. The February 10, 2004, hearing was attended by counsel for both the Debtors and Claimant Comeaux. At the conclusion of the hearing, the record of the Motion was complete. The matter was taken under submission.
This Memorandum constitutes the Court's findings of facts and conclusions of law. Fed.R.Bankr.P. 7052.
III. Discussion
A. Legal Standard
Dismissal pursuant to Federal Rule of Bankruptcy Procedure 7012 incorporates Rule 12(b)(6) of the Federal Rules of Civil Procedure. Under Rule 12(b)(6), dismissal is only appropriate if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Electronics Communication Corp. v. Toshiba America Consumer Prod., Inc., 129 F. 3d 240, 243 (2d Cir. 1997) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). When ruling on a motion to dismiss, "the court must accept as true all the factual allegations in the complaint and must draw all reasonable inferences in favor of the plaintiff." Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton College, 128 F. 3d 59, 63 (2d Cir. 1997) (citing Hospital Bldg. Co. v. Trustees of Rex Hospital, 425 U.S. 738, 740 (1976)).
In addition, a court's task "in ruling on a Rule 12(b)(6) motion `is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'" Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (quoting Ryder Energy Distribution Corp v. Merrill Lynch Commodities, Inc., 748 F. 2d 774, 779 (2d Cir. 1984)). As a result, the fundamental issue at the dismissal stage "is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed, it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test." Phelps v. Kapnolas, 308 F. 3d 180, 184-85 (2d Cir. 2002) (quoting Chance v. Armstrong, 143 F. 3d 698, 701 (2d Cir. 1998)).
Debtors seek dismissal of Comeaux's claims on two bases. First, the Debtors contend that Comeaux's state court lawsuit underlying these claims is preempted by the federal regulatory scheme that governs long distance telephone service. More specifically, Debtors contend that a series of published orders issued by the Federal Communications Commission ("FCC") required the Debtors to engage in the specific conduct alleged by claimant Comeaux. As a result, Debtors contend their conduct was lawful and mandatory to remain in compliance with federal law and the preceding FCC decisions.
See In re Halprin, Temple, Goodman Sugrue v. MCI Telecomms. Corp., 13 F.C.C.R. 22568 (1998) (" Halprin I Decision"); In re Halprin, Temple, Goodman Sugrue v. MCI Telecomms. Corp., 14 F.C.C.R. 21092 (1999) (" Halprin II Decision"); In the Matter of MCI Worldcom, Inc., 15 F.C.C.R. 4545 (2000) (" FCC Order").
Second, Debtors contend that Comeaux's claims are also barred by the filed-tariff doctrine. Under this theory, Debtors contend that the long distance telephone service relationship between the parties is governed exclusively by the comprehensive regulatory scheme established in the Communications Act, rather than being governed by principles of contract or tort law. As a common carrier, Debtors' predecessors were required to file "tariffs" with the FCC that were "schedules showing all charges . . . and showing the classifications, practices, and regulations affecting such charges." As a result, Debtors contend Comeaux can only challenge a carrier's practices involving published tariffs pursuant to section 208 of the Communications Act.
Under this code section, a customer may complain to the FCC about "anything done or omitted to be done by any common carrier subject to" the tariffing requirements of the Communications Act. 47 U.S.C. § 208(a).
The Court has considered the parties' arguments regarding both of these theories in support of dismissal of claims 8457 and 8458. Although it appears to the Court that the Debtors could potentially prevail one of these theories resulting in the dismissal of the claims, they have failed to meet their burden of proof for the purpose of this dispositive Dismissal Motion.
With regard to the Debtors' first argument that the conduct complained of was required by the FCC Order as systematically explained in Halprin I and Halprin II, the Court is not persuaded that the decisions in those matters are as far-reaching as the Debtors argue. Put simply, the FCC Order does not explicitly require the conduct that is in question. This further supports the Court's decision to stay these claims pending referral to the appropriate regulatory body. In other words, by staying these claims, the Court intends that the FCC clarify the effect and applicability of the FCC Order.
With regard to the second argument that these claims are barred by the filed-tariff doctrine, the Court agrees with the Debtors that the FCC's "range of power over the regulated companies' extends to `. . . charges, practices' . . . and `is not limited to rates and services.'" Carter v. American Tel. Tel. Co., 365 F.2d 486, 496 (5th Cir. 1966). However, the Debtors have failed to provide credible evidence that this regulated "practice" is either explicitly stated or otherwise "covered" in the tariff. The Debtors' only admissible evidence is Exhibit #2 to its Dismissal Motion. This exhibit purports to be the relevant provisions of the MCI WorldCom, Inc., FCC Tariff during the appropriate time period. However, under close examination, this exhibit fails to demonstrate that the Debtors' alleged conduct (disconnection requested by customer when no disconnect message has been received from the local carrier) is somehow impacted or covered by the tariff. Rather, this exhibit lists general limitations on liability of the Debtors under the tariff provisions. Absent evidence with a sufficient showing, the Debtors' burden in this Dismissal Motion is not satisfied. This deficiency, coupled with the Court's inclination to stay these claims pending referral to the FCC and Texas Public Utilities Commission ("Texas PUC"), discussed infra, ultimately resolve all pending issues in this matter.
B. Primary Jurisdiction Doctrine
The primary jurisdiction doctrine "applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views." U.S. v. Western Pac. R. Co., 352 U.S. 59, 64 (1956); Johnson v. Nyack Hosp., 964 F. 2d 116, 122 (2d Cir. 1992). The doctrine rests on both the concern for uniform outcomes and on the advantages of allowing an agency to apply its expertise. Carter, 365 F.2d 486.
Typically, "[t]here are four factors uniformly present in cases where the doctrine properly is invoked: (1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory scheme that (4) requires expertise or uniformity in administration. U.S. v. General Dynamics Corp., 828 F.2d 1356, 1362-63 (9th Cir. 1987).
Here, an examination of these factors demonstrates that staying these claims is appropriate. Clearly, as Claimant Comeaux alleges in her complaint, there exists a nationwide class in need of a class representative to prosecute this action. As a result, unquestionably, this issue is in need of resolution and the first factor of the primary jurisdiction doctrine is satisfied.
Second, "[i]t is beyond question that Congress, by enacting the Communications Act of 1934, gave the FCC a comprehensive mandate to regulate interstate communications. See United States v. Southwestern Cable Co., 392 U.S. 157, 173, (1968)." Multi-State Communications, Inc. v. U.S., 648 F.Supp. 1203, 1207 (S.D.N.Y. 1986). The FCC has broad authority to hear all allegations raised by Comeaux's complaint. See 47 U.S.C. § 208. Moreover, the primary jurisdiction doctrine has been held applicable to Comeaux's claims relating to intrastate long distance services. As a result, this Court may refer those issues to the Texas Public Utilities Commission where appropriate. See Johnson v. Nyack Hosp., 964 F. 2d at 122-23 (application of primary jurisdiction to state agencies); Penny v. Southwestern Bell Tel Co., 906 F. 2d 183, 187 (5th Cir. 1990) (directing the district court to defer rate issues to the Texas PUC regarding a suit brought against a phone company under the Texas Deceptive Trade Practices Act.) As a result, the second factor of the primary jurisdiction doctrine is satisfied.
Third, it is uncontested and common knowledge that both the FCC and Texas PUC operate to subject the telecommunications industry "to a comprehensive regulatory scheme." U.S. v. General Dynamics Corp., 828 F.2d at 1362-63.
Finally, this Court considers it unquestionable that the telecommunications industry requires both "expertise" and "uniformity in administration," satisfying either prong of the final factor of the primary jurisdiction doctrine. Id. The expertise requirement is evident in reading both of the Halprin decisions as well as the FCC Order. Therein, the depth and complexity of the issues both argued by the parties and decided by the FCC is immediately obvious. In addition, these three decisions demonstrate that the FCC is intimately familiar with the Debtors' historical operational practices, policies, and procedures. It defies common sense for this Court to attempt to duplicate and expand the work already completed by the FCC in monitoring the Debtors' business activities.
With regard to the "uniformity of administration," this Court, at oral argument on this matter, made its position sufficiently clear. It stated:
[i]t appears to me to be a regulatory issue. You [Comeaux] are asking this Court to rule on what actions the carrier needs to take in this case when directed to terminate service. What would happen if another court determined that the carrier had continued to provide service? What would the impact on the regulatory industry be with one court saying you immediately terminate? You should no longer bill this customer and you should no longer bill the carrier service on [sic] for that customer, and you have another court that would rule arguably in a different way . . . How could this industry survive if I were to rule that the carrier was obligated to terminate immediately and discontinue service and another court were to rule that they are obligated to continue the service until they get a communication from their local carrier that it is terminated? How does a regulated industry like this function, if you had courts ruling in different ways?
Transcript of Oral Argument, February 10, 2004, pages 142-145. Not surprisingly, Comeaux's only response to this inquiry was that "some issues affecting carriers . . . require uniformity, but this is not one of those issues." Id. at 145. The Court finds no further support for this contention in Comeaux's brief. As a result, this Court is convinced that this issue is in need of "uniformity of administration" for the reasons described during the hearing. This is especially appropriate given Comeaux's contention that a nationwide class of persons exists that holds claim similar enough to warrant class certification of the issue. As evident from the prior orders of the FCC that concern this debtor, that regulatory agency possesses both the requisite expertise and ability to achieve consistency in result to require these claims to be stayed pending an appropriate referral.
The Court has found that staying claims numbered 8457 and 8458 by Claimant Comeaux pending referral to the appropriate administrative bodies sufficiently meets the primary jurisdiction standard. Resolution of these issues by this Court is not appropriate in light of the availability and experienced ability of the FCC and Texas PUC to adjudicate these claims. The effect of this decision on Comeaux's ability to represent her proposed class is irrelevant and subservient to the ultimate resolution of these issues.
IV. Conclusion
For the foregoing reasons, the Dismissal Motion is granted in part and denied in part. Claims 8457 and 8458 of Stephanie Comeaux are hereby stayed, pending referral to both the FCC and Texas PUC, where appropriate.
The Debtors are to settle an order consistent with this memorandum decision.