NEIL V. WAKE, District Judge.
Before the Court is RadioLink's and Randy Power's Motion for Rule 11 Sanctions (Doc. 226). For purposes of this order, RadioLink and Randy Power will be referred to collectively as "RadioLink," unless the context requires otherwise. For the reasons discussed below, RadioLink's motion will be granted.
In 1998, Telesaurus (a Delaware limited liability company, whose name has since been changed to Verde Systems) and RadioLink (an Arizona corporation) both participated in an FCC auction for certain radio frequencies in the Phoenix area designated as VHF Public Coast, or "VPC," frequencies. RadioLink withdrew from
Telesaurus apparently paid no attention to its VPC frequencies for several years, and had no idea that RadioLink was using them until 2003 or 2004. Administrative proceedings with the FCC ensued. In 2005, the FCC modified RadioLink's license to exclude Telesaurus's five frequencies and include five replacement frequencies.
Telesaurus initiated this lawsuit in 2007, alleging that RadioLink had used Telesaurus's frequencies without permission from 1999 through 2005, thus supposedly violating the common carrier provisions of the Federal Communications Act (FCA) and making RadioLink "liable to the person or persons injured thereby for the full amount of damages sustained in consequence of" the violations. 47 U.S.C. § 206. Telesaurus also asserted state-law claims for conversion, interference with prospective economic advantage, and unjust enrichment. According to Telesaurus's counsel at a later hearing, Telesaurus suffered no actual losses from RadioLink's actions, but rather sought damages measured by RadioLink's profits from using the VPC frequencies, similar to equitable disgorgement:
(Doc. 115 at 23-25.)
RadioLink eventually moved to dismiss the action, arguing that it was not a common carrier as a matter of law and therefore § 207 could not apply. RadioLink also argued that Telesaurus's state-law claims were preempted by federal law.
The Court granted RadioLink's motion, holding that the FCC's designation of RadioLink as a private mobile radio service (through the "PMRS" notation on RadioLink's license) was entitled to deference, and RadioLink was therefore not a common carrier as a matter of law. The Court also held that the FCA preempts the state-law claims. Given these outcomes, the Court concluded that "Telesaurus's stumble is not one from which it can recover and return to the race. It would be fruitless to let Telesaurus try again by allowing further amendment of its complaint. The complaint and the action will be dismissed with prejudice." (Doc. 91 at 9-10.)
On appeal, the Ninth Circuit upheld the state-law preemption conclusion, but not the common carrier conclusion, holding that the notation on RadioLink's license was entitled to no deference, and in any event, common carrier status turns on the services a licensee actually provides to its customers, not on what its license says. Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1005-06 (9th Cir.2010).
The Ninth Circuit's order therefore established the following elements for common carrier status:
Id. at 1004. The Ninth Circuit went on to state, "Telesaurus's complaint plausibly alleges that RadioLink is a for-profit endeavor, thus satisfying [the first element of] the definition of the common carrier." Id. at 1005. The complaint, however, did not allege the second and third elements. Given that the Ninth Circuit's decision for the first time distilled those elements as such, the Ninth Circuit remanded to give Telesaurus an opportunity to amend as to those elements.
The Ninth Circuit announced its decision on October 8, 2010, and the mandate issued on January 5, 2011. (Doc. 118.) The following day, this Court gave Telesaurus 21 days (until January 27, 2011), to file an amended complaint. (Doc. 119.)
During those 21 days, Telesaurus's principal, Warren Havens, conferred with Telesaurus's counsel about the form of the amended complaint. Havens received the following advice from counsel:
(Doc. 248 at 3.) There is no indication that Telesaurus performed any investigation regarding the second and third elements.
Telesaurus filed its second amended complaint on January 27, 2011, naming as defendants RadioLink, Randy Power (RadioLink's principal), and Patricia Power (Randy's ex-wife and former business partner). Telesaurus named Randy and Patricia Power because,
(Doc. 120 ¶ 4.) In other words, Telesaurus set up its complaint such that every action of every entity related to Randy and Patricia Power and their telecommunications business would be attributed to all of them.
Telesaurus then alleged the second element of the common carrier test — "interconnected (or pending interconnection) with the public switched network" — as follows:
(Id. ¶ 8.) This simply repeats the regulatory definition of "interconnected." See 47 C.F.R. § 20.3. Telesaurus offered no specific facts to back up this assertion.
Telesaurus alleged the third element — "available to the public or other specified users" — in a similarly conclusory fashion:
(Id. ¶ 9.) This recites the statutory definition of "available to the public." See 47 U.S.C. § 332(d)(1).
On February 8, 2011, RadioLink served a Rule 11 motion on Telesaurus (see Doc. 226-1), but pursuant to Rule 11(c)(2)'s 21-day "safe harbor," RadioLink did not at that time file the proposed motion with the Court.
RadioLink's motion argued that Telesaurus's allegations in the amended complaint regarding elements two and three of the common carrier test were demonstrably baseless. RadioLink therefore asserted that Telesaurus had violated Rule 11(b)(3), which states:
Included with the proposed motion was a declaration from Randy Power. (See Doc. 226-1 at 10-14.) In that declaration, Power specified in detail how RadioLink's repeater site does not have and has never had the necessary equipment to interconnect with the public switched network. He also asserted that RadioLink does not make and has never made its services available to the public, but instead provides contract service only to "internal dispatch" customers such as police departments, fire departments, school districts, and towing companies.
On February 9, 2011 (one day after RadioLink served its Rule 11 motion on Telesaurus), RadioLink filed a motion to dismiss Telesaurus's amended complaint. (Doc. 123.) The motion argued that Telesaurus's allegations in support of elements two and three of the common carrier test were no more than recitations of the applicable law, and therefore conclusory and incapable of sustaining the complaint. RadioLink alternatively moved for summary judgment based on (what the Court now knows is) the same Randy Power declaration attached to the proposed Rule 11 motion. (Doc. 124.)
On February 16, 2011, counsel for Telesaurus e-mailed a letter to counsel for RadioLink. The letter offered in pertinent part,
(Doc. 126 at 8-12 (emphasis in original).)
On February 18, 2011, counsel for RadioLink sent an e-mail to counsel for Telesaurus in response to Telesaurus's letter. In relevant part, RadioLink's counsel informed Telesaurus's counsel that RadioLink
(Doc. 248 at 26.)
Considering RadioLink's motion to dismiss/motion for summary judgment, the Court declined to move directly to summary judgment. Nonetheless, upon reviewing Randy Power's declaration in support of early summary judgment, the Court determined that Telesaurus's allegations were indeed conclusory but (a) the information needed to sustain them was conceivably entirely within RadioLink's control, and (b) Power's declaration showed that the viability of elements two and three could probably be easily tested.
At a hearing on the motion to dismiss/motion for summary judgment in April 2011, the Court stated that "those facts going to `available to the public or other specified users,' or `interconnected to the public switched network,' appear to be readily amenable to quick economical and definitive discovery and resolution." (Doc. 143 at 5.) The Court surmised that the parties "might need some depositions. But most of this would appear ... to be paper discovery." (Id. at 17.) Referring to RadioLink's transmitter site, counsel for Telesaurus added: "I could envision a site inspection by an expert. I believe there's going to be some disagreement as to what the equipment can or can't do ... during this five- or six-year period [in which RadioLink allegedly violated Telesaurus's rights]." (Id. at 18.)
Based on the discussion at the hearing, the Court denied RadioLink's motion to dismiss and instead ordered the parties to develop a discovery plan focused only on the second and third elements of the common carrier test, to be followed by cross-motions for summary judgment on those elements. (Doc. 138.) The parties apparently attempted to develop a scheduling order but reached some sort of impasse (see Docs. 139-42), and the discovery plan lay dormant for several months as the parties litigated collateral issues (see Docs. 174, 175). A scheduling order was finally put in place in November 2011, requiring RadioLink to file a motion for summary judgment regarding interconnectedness and availability to the public. That motion was to include
(Doc. 189 at 2.) The scheduling order went on to specify:
(Id.)
Telesaurus was required to obtain new counsel in the midst of summary judgment briefing, causing delays. In the end, Telesaurus deposed Randy Power, but "decided to forgo [an] inspection [of RadioLink's repeater site] since none of the equipment RadioLink used during the relevant time period remains at the site." (Doc. 223 at 2.) Telesaurus cited nothing in support of the assertion that none of the relevant equipment remains in place.
As noted above, Rule 11 imposes an obligation on parties to perform a reasonable inquiry before filing any paper, such as Telesaurus's second amended complaint:
Fed.R.Civ.P. 11(b)(3). If a Rule 11 violation is found, whether to impose sanctions is within the Court's discretion. Charles Alan Wright et al., 5A Federal Practice and Procedure § 1336.1 (3d ed.) ("The 1993 amendment to Rule 11 returned the imposition of sanctions to the discretion of the district judge ....") (hereinafter, "Wright & Miller").
Telesaurus argues that RadioLink's motion is not procedurally proper because RadioLink served it in February 2011 but did not file it until May 2012. Rule 11, however, contains no deadline for filing a motion. A motion must not be filed within 21 days of its service on the opposing party, but the rule says nothing about how long the movant may wait to file the motion after the 21 day safe harbor has expired.
Numerous courts have held that deciding an actually filed Rule 11 motion may be deferred until disposition of the case. See, e.g., Lichtenstein v. Consol. Servs. Group, Inc., 173 F.3d 17, 23 (1st Cir.1999);
Telesaurus treated the Ninth Circuit's reversal on the leave-to-amend issue as an invitation to amend regardless of the substance of the amendment. From the Ninth Circuit's decision, Telesaurus understood the elements it must allege in its amended complaint, and it simply alleged them with nothing more. Telesaurus made no attempt to investigate whether those elements could be satisfied.
The fact that RadioLink denied the early discovery requested in Telesaurus's letter responding to the Rule 11 motion is of no consequence. "Rule 11 creates and imposes on a party or counsel an affirmative duty to investigate the law and facts before filing." Moser v. Bret Harte Union High Sch. Dist., 366 F.Supp.2d 944, 950 (E.D.Cal.2005) (emphasis added).
In the Ninth Circuit, a complaint which turns out to be well-founded is not sanctionable even if it can be shown that the attorney failed to conduct a reasonable pre-filing investigation. In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431, 434 (9th Cir.1996) ("An attorney may not be sanctioned for a complaint that is not well-founded, so long as she conducted a reasonable inquiry. May she be sanctioned for a complaint which is well-founded, solely because she failed to conduct a reasonable inquiry? [¶] We conclude that the answer is no." (emphasis in original)).
Moreover, Telesaurus failed to support the claims made in its letter responding to RadioLink's Rule 11 motion. Those claims were, at best, only indirectly relevant to the disputed elements of common carrier status. But in any event, as discussed below, each of them turned out to be baseless — further evincing bad faith.
This assertion is readily demonstrable, if true. At summary judgment, however, Telesaurus produced nothing to substantiate this assertion. It was not alleged in good faith.
At summary judgment, it became clear that Telesaurus based this allegation on certain FCC forms that Randy and Patricia Power allegedly filled out in 2001. As explained more thoroughly in this Court's order granting summary judgment (Doc. 224 at 11-12), Randy and Patricia Power separately filled out certain forms requiring them to characterize RadioLink's service by selecting from among fifteen possible categories. "Private mobile radio service" and "commercial mobile radio service" were not among the fifteen choices. The categories that the Powers ultimately selected do not necessarily imply anything about RadioLink's common carrier status or lack thereof. (See id.) Accordingly, this allegation did not provide a good faith basis on which to base the second amended complaint.
This quote comes from In re Marzee, 15 F.C.C. Rec. 4475 (2000). For some time, the FCC did not require base station operators (such as Power) to obtain FCC permission to carry mobile users because such users needed to obtain their own licenses. However, in 1992 the FCC reversed its policy, putting the burden on the base station operator to obtain a license if they intended to carry mobile traffic. Power had been carrying mobile traffic before the FCC rule change, and never sought to update his license after the change. His failure to do so led to conflict with another licensee on the same frequency, Franya Marzec. Marzee brought an enforcement proceeding in front of the FCC and prevailed in establishing that Power had carried unauthorized mobile traffic in violation of his license, although Marzec failed to establish that Power intended to cause harm through his actions. See id.
The only possible use Telesaurus could make of the Marzee proceedings is to draw an inference that one who has exceeded the scope of his FCC license previously did it again in this case. But in the context of this case, such an inference is not reasonable.
Telesaurus seeks to infer that Randy Power caused RadioLink to exceed its private mobile license by offering its services to the public at large, including telephone interconnection — thus making RadioLink a de facto commercial service, and therefore a common carrier. However, one equipped to operate as a commercial service has no incentive to hide that fact. Rather, he has every incentive to hold himself out as such to the public — which itself should produce publicly available evidence. Telesaurus has produced no such evidence. Thus, any inference from the Marzee case does not rationally transfer to the circumstances of this case.
Telesaurus produced nothing at summary judgment to support the assertion that Randy Power has active common carrier licenses operating from the White Tank Mountain site. Accordingly, there is no reason to believe this allegation was made in good faith.
Again, Telesaurus offered nothing to substantiate this. The allegation was not made in good faith.
The actual course of summary judgment proceedings further supports the conclusion that, from the start, Telesaurus had no reasonable basis to file the second amended complaint. Specifically, even after receiving an extension of time to do so, Telesaurus chose not to inspect RadioLink's repeater site, claiming that "none of the equipment RadioLink used during the relevant time period remains at the site." (Doc. 223 at 2.) Yet Telesaurus repeatedly claimed that the site continues to be used for common carrier operations, if only through Randy Power's other licenses, or through tenants. Such inconsistent positions evince a lack of good faith.
In addition, through its own efforts to uncover BLM records regarding RadioLink's transmitter site, Telesaurus learned the names of many of RadioLink's current and former customers. (See Doc. 224 at 16.) Telesaurus's response letter to RadioLink's proposed Rule 11 motion shows that it was aware of the BLM records as of that time. (See above, Part II.C.1.c.) Telesaurus could have simply asked the customers revealed on these records how RadioLink solicited those customers' business (which is relevant to the third element of the common carrier test) and whether the customers ever had the ability to place a phone call through RadioLink's system (addressing the second element). Telesaurus's failure to pursue such obvious sources of relevant information further supports a finding of bad faith.
In addition, in its summary judgment briefs, Telesaurus repeatedly advanced an argument that the Ninth Circuit had rejected. The Ninth Circuit unmistakably held that common carrier status turns on the service the licensee actually provides:
Telesaurus, 623 F.3d at 1005. Nonetheless, Telesaurus adopted a more elaborate — although no less tautological — version of this argument as its primary basis for opposing summary judgment. (See Doc. 209 at 5-11; Doc. 223 at 3-7.) Telesaurus's attempt to resurrect the notion that RadioLink must be a common carrier because the disputed frequencies were allocated for common carrier use shows that, from the outset, Telesaurus justified this lawsuit purely based on its view of the law and not on any reasonable factual investigation. After the Ninth Circuit rejected the argument, Telesaurus's continuing reliance on it could not provide a good faith basis for pursuing this action further. Yet Telesaurus continued to litigate based on nothing more than labels and conclusions. Such behavior violates Rule 11. Telesaurus failed to perform "an inquiry reasonable under the circumstances" and to possess "evidentiary support" for its factual contentions or to identify those contentions that would "likely have evidentiary support after a reasonable opportunity for further investigation or discovery." Fed.R.Civ.P. 11(b), (b)(3).
Telesaurus's damages theory sheds light on its bad faith in continuing this litigation after remand. From its own admissions at the outset of this case, Telesaurus did not
It has long been established that damages against common carriers under FCA §§ 206-07 are limited to actual damages incurred. For example, the FCC in 1965 faced a complaint from a telephone salesman who argued that the telephone company had routinely discriminated against him (in violation of its common carrier duties) by charging him for long-distance calls in a manner that did not accord with its posted rates and policies. Barnes v. Ill. Bell Tel. Co., 1 F.C.C.2d 1247, 1247-51, 1259-60 (1965). The salesman tried to produce a measure of his damages but failed to do so with adequate certainty and therefore argued that his only burden was to prove that the telephone company discriminated against him. Id. at 1260-64. The FCC rejected this argument: "The fact that a complainant has shown that a common carrier has, by certain acts or omissions, subjected itself to ... corrective proceedings by the [FCC] is not a basis for recovery of pecuniary damages without a showing of specific pecuniary injury." Id. at 1265.
In some cases, consequential damages can comprise sufficient injury. See In re Edwards, 74 F.C.C.2d 322, 327-28 (1979) (common carrier wrongfully refused to permit a certain telephone device to be installed on plaintiff's customer's premises; plaintiff incurred engineering expenses to convince the customer that the telephone device was permissible, and incurred interest on a loan taken out to cover for the customer's refusal to make payments on the device in light of the common carrier's actions; such damages held recoverable). Loss of business one would have gained but for the common carrier's violations is also potentially compensable. See RCA Global Commc'ns, Inc. v. W. Union Tel. Co., 521 F.Supp. 998, 1004 (S.D.N.Y.1981) (common carrier carried certain traffic that it was required to allocate to other carriers instead; lost profits to other carriers held compensable).
Telesaurus, however, conceded early on that it lost no business, suffered no interference, and otherwise incurred no compensable expenses. Telesaurus simply wanted payment from RadioLink for "utiliz[ing] something that was ours." (See above, Part I.B.) Nothing in § 207 would support damages liability for RadioLink without damages in fact to Telesaurus.
A Rule 11 violation has been found. This Court therefore has discretion whether to impose sanctions. RadioLink's requested sanctions — attorney's fees and costs incurred fighting the second amended complaint — are "warranted for effective deterrence." Fed.R.Civ.P. 11(c)(4). Groundless, speculative litigation such as that exhibited by Telesaurus brings the legal system into disrepute and must be discouraged.
Nothing in this order should be construed as ascribing blame to Telesaurus's current counsel. Telesaurus's lead counsel first appeared in the middle of summary judgment proceedings. They were not involved in the decision to file the second amended complaint. Further, it appears that Telesaurus's local counsel (who have been involved from the beginning) performed no duties beyond the pro forma duties that often fall to local counsel. Accordingly, no fault is ascribed to local counsel.
RadioLink has argued for personal Rule 11 liability against Telesaurus's principal,
IT IS THEREFORE ORDERED that RadioLink's Motion for Rule 11 Sanctions (Doc. 226) is GRANTED.
IT IS FURTHER ORDERED that the Clerk enter judgment in favor of Defendants RadioLink Corporation and Randy Power and against Plaintiff Telesaurus VPC, LLC, also known as Verde Systems, LLC, for attorney's fees of $107,797.50 and non-taxable costs and expenses of $5,346.02, with post-judgment interest at.019% from today's date until paid in full.
