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STEIN v. PACIFIC BELL

February 14, 2001

ALBERT O. STEIN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
V.
PACIFIC BELL TELEPHONE COMPANY, SBC COMMUNICATIONS, INC., SBC TELECOMMUNICATIONS, INC., AND SBC TECHNOLOGY RESOURCES, INC., DEFENDANTS.



The opinion of the court was delivered by: Illston, District Judge.

  ORDER GRANTING DEFENDANTS' MOTION TO DISMISS WITH LEAVE TO AMEND

On January 5, 2001, the Court heard argument on defendants' motion to dismiss plaintiff's complaint for failure to state a claim upon which relief can be granted. Having carefully considered the arguments of the parties and the papers submitted, the Court GRANTS defendants' motion with leave to amend as set forth below.

BACKGROUND

Plaintiff Albert O. Stein ("Stein") brings this action on behalf of himself and all others similarly situated to challenge alleged anticompetitive conduct by defendants (collectively "Pacific Bell"), relating to Digital Subscriber Line ("DSL") service.

DSL is a service that provides consumers with dedicated, high-speed access to the Internet. Compl. ¶ 13. Utilizing new technology that permits simultaneous data exchange over voice service, DSL service is provided through already existing telephone lines and facilities, thus allowing users to have concurrent access to the Internet and traditional telephone service. See id.; Deft's Req. for Judicial Notice, Ex. A (Tariff F.C.C. No. 128), at rev. p. 13. According to Stein, Pacific Bell has a market share in excess of 85% of the DSL market, and controls the existing local telephone network and the supporting physical facilities through which DSL service is provided. Compl. ¶ 18. Competitors must rely directly on Pacific Bell's telephone lines and physical facilities for delivery of DSL service and to collocate the competitors' equipment with Pacific Bell's equipment. Id. at ¶ 26. Thus, Pacific Bell's existing local telephone network and facilities are "essential to competitors who wish to enter the DSL market," Id. at ¶ 19.

Pacific Bell is an incumbent local exchange carrier ("ILEC"), as defined by the Telecommunications Act of 1996 ("1996 Act"). As an ILEC, Pacific Bell was required to negotiate in good-faith and to enter into interconnection agreements with competitors to make available its local telephone network. Compl. ¶ 15. As a result, Pacific Bell entered into several interconnection agreements with DSL competitors. See Compl. Ex. A. Stein claims that, in violation of these interconnection agreements, Pacific Bell has "engaged in a pattern of anticompetitive conduct . . . generally designed to leverage Pacific's monopoly power obtained through its ubiquitous local telecommunications network. . . . with the intent and inevitable effect of injuring, thwarting or eliminating actual or potential [DSL service provider] competitors." Id. at ¶ 25.

According to Stein, Pacific Bell has "routinely and arbitrarily" denied physical collocation with its equipment and misrepresented the availability of space for collocation. Id. at ¶¶ 28-30. Pacific Bell has allegedly also stifled competition by requiring and charging unreasonable prices for collocation cages.*fn1 Id. at ¶¶ 31-32. Furthermore, Pacific Bell allegedly has discriminated against and imposed "hindrances and delays" on competitors trying to enter the DSL market by refusing to timely deliver collocation cages, dedicated unbundled transport lines and installed unbundled loops. Id. at ¶¶ 35-37.

Based on such alleged anticompetitive behavior, Stein charged Pacific Bell with violating section 2 of the Sherman Act, 15 U.S.C. § 2 et seq., and its state law equivalent the Cartwright Act, California Business and Professions Code §§ 16700 et seq.; the Telecommunications Act of 1996, 47 U.S.C. § 151 et seq.; and California Business and Professions Code § 17200. Pacific Bell now moves the Court to dismiss Stein's complaint under Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer evidence in support of the claim. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984).

In answering this question, the Court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). Even if the face of the pleadings suggests that the chance of recovery is remote, the Court must allow the plaintiff to develop the case at this stage of the proceedings. See United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).

If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has "repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted).

DISCUSSION

Pacific Bell makes several arguments in support of its motion to dismiss. Pacific Bell argues that the unlawful conduct it is alleged to have committed derives exclusively from duties imposed by the 1996 Act. According to Pacific Bell, these duties go beyond any duties imposed by the Sherman Act, and thus there is no antitrust violation by the mere violation of the 1996 Act. Furthermore, Pacific Bell argues that the filed rate doctrine bars both the Sherman Act claims and the 1996 Act claim. Pacific Bell also argues that the state law claims are counterparts to the federal claims and rely on the same factual allegations. Thus, Pacific Bell argues that the state law claims fail for the same reasons that the federal claims fail.

A. Sherman Act Causes of Action (Counts I through IV)

In Counts I through IV of the Complaint, Stein alleged that Pacific Bell has engaged in a variety of anticompetitive conduct that violates section 2 of the Sherman Act. Placing heavy reliance on Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir. 2000), Pacific Bell argues that although the conduct Stein alleged may contravene duties imposed by the 1996 Act, such conduct does not violate the Sherman Act. Alternatively, Pacific Bell argues that the filed rate doctrine applies to bar Stein's complaint, which seeks damages for Pacific Bell's alleged anticompetitive conduct.

1. Application of Goldwasser v. Ameritech Corp.

Goldwasser involved a class of consumers of local telephone service suing Ameritech, which like Pacific Bell, was an incumbent local exchange carrier ("ILEC"). The plaintiffs alleged that Ameritech controlled more than 90% of the markets for local telephone service and controlled "essential facilities" that competitors could not duplicate. Goldwasser, 222 F.3d at 394. The plaintiffs also alleged that by "erect[ing] substantial barriers" and "engaging in a host of exclusionary practices made possible by its monopoly power," Ameritech was preventing competitors from entering the market. Id. The plaintiffs listed 20 specific instances of allegedly anticompetitive conduct by Ameritech. See id. at 394-95. According to the plaintiffs, Ameritech had violated both section 2 of the Sherman Act and the 1996 Act. Id. at 395. As an ILEC, Ameritech was subject to extended duties to deal with competitors as detailed in section 251(c) of the 1996 Act. The court in Goldwasser noted that the plaintiffs' complaint "focuses tightly on the ILEC's ยง 251 duties" and all instances of illegal conduct alleged by plaintiffs were violations of duties arising under the 1996 Act. Id. at 394, 399-400. The Goldwasser court held that the 1996 Act "imposes duties on ILECs that are not found in the antitrust laws. Those duties do not conflict with the ...


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