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No Cost Conf., Inc. v. Windstream Communs., Inc.

United States District Court, S.D. California

April 16, 2013

NO COST CONFERENCE, INC., Plaintiff,
v.
WINDSTREAM COMMUNICATIONS, INC., et al., Defendants

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For No Cost Conference, Inc., a California Corporation, Plaintiff: David Grant Bayles, LEAD ATTORNEY, Arent Fox LLP, Los Angeles, CA; G. David Carter, Ross A. Buntrock, LEAD ATTORNEYS, Arent Fox, LLP, Washington, DC.

For Windstream Communications, Inc., a Delaware Corporation, PAETEC Communications, Inc., a Delaware Corporation, Winstream Corporation, a Delaware Corporation, Defendants: Jennifer L. Andrews, LEAD ATTORNEY, Kutak Rock, LLP, Omaha, NE.

OPINION

HON. GONZALO P. CURIEL, United States District Judge.

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ORDER:

(1) DENYING WINDSTREAM COMMUNICATION, INC.'S, MOTION TO DISMISS COMPLAINT;

[Doc. No. 8]

(2) DENYING NO COST CONFERENCE, INC.'S, MOTION TO FILE DOCUMENTS UNDER SEAL

[Doc. No. 13]

(3) GRANTING IN PART AND DENYING IN PART WINDSTREAM COMMUNICATION, INC.'S, MOTION TO DISMISS FIRST AMENDED COMPLAINT;

[Doc. No. 21]

(4) GRANTING IN PART AND DENYING IN PART PAETEC COMMUNICATION, INC.'S, MOTION TO DISMISS FIRST AMENDED COMPLAINT; and

[Doc. No. 22]

(5) GRANTING IN PART AND DENYING IN PART WINDSTREAM CORPORATION'S MOTION TO DISMISS FIRST AMENDED COMPLAINT

[Doc. No. 27]

Pending before the Court are four motions to dismiss, to strike, or, in the alternative, stay this action. The sole original Defendant, Windstream Communications, Inc. (" Wind. Inc." ), moves to dismiss both the Complaint and First Amended Complaint (sometimes, " FAC" ), and two newly-joined defendants, PAETEC Communications, Inc. (" PAETEC" ), and Windstream Corporation (" Wind. Corp." ), move to dismiss the First Amended Complaint. All Defendants move to strike the First Amended Complaint or, in the alternative, to stay this action pending resolution of a separate action in the Western District of New York. Also pending before the Court is Plaintiff No Cost Conference, Inc.'s (" No Cost" or " Plaintiff" ), motion for leave to file under seal two exhibits to the First Amended Complaint. The Court decides the motions on the papers pursuant to Local Civil Rule 7.1(d)(1). As explained below, the Court (1) DENIES as moot Wind. Inc.'s motion to dismiss the Complaint, (2) GRANTS IN PART and DENIES IN PART Wind. Inc.'s motion with respect to the First Amended Complaint, (3) GRANTS IN PART and DENIES IN PART Wind. Corp.'s motion, (4) GRANTS IN PART and DENIES IN PART PAETEC's motion, and (5) DENIES No Cost's motion.

I. Background

A. Factual Background[1]

No Cost is a California corporation that provides conference calling services to the public through its conferencing equipment located in California. [FAC, Doc. No. 15 at ¶ ¶ 6, 14.] To use these services, individuals, nonprofit organizations, government agencies, and businesses throughout the country can register for a long-distance telephone number and access code that provides them access to No Cost's service. [ Id. ¶ 14.] Then, when multiple individuals dial the same phone number and enter the same access code, they are placed into their conference call. [ Id. ] In order to provide these services to the public at no

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additional cost, No Cost enters into relationships with local telecommunications providers, referred to in telecommunications parlance as " local exchange carriers" or " LECs." [ Id. ¶ 15.]

In March 2010, No Cost and PAETEC negotiated and entered into a Wholesale Master Services Agreement (the " Agreement" ) whereby PAETEC agreed to provide No Cost with certain telecommunications services. [ Id. ¶ ¶ 17, 18.] Specifically, PAETEC agreed to pay No Cost commissions based on the " [a]ccess compensation . . . collected . . . from the interconnecting carriers for the Access Traffic." [FAC ¶ 18.] Access Traffic was defined to include " [t]oll calls routed from various interexchange carriers to PAETEC's network and delivered to [No Cost's] telecommunications system for completion." [ Id. ] The Agreement obligated PAETEC to calculate the commission on a monthly basis. [ Id. ¶ 19.] PAETEC also committed itself to using its " best efforts to collect all funds" from the interexchange carriers, and, in the event any dispute arose, PAETEC was contractually obligated to " promptly notify [No Cost] in writing, indicating carrier in question [and] showing percentage of traffic." [ Id. ¶ 20.] During the course of contract negotiations, PAETEC, through its agent Jay Perreault, was informed that No Cost was concerned about ensuring that PAETEC had a high access charge collection rate. [ Id. ¶ 27.] PAETEC represented to No Cost that it maintained greater than 90% rate of collections on its traffic. [ Id. ¶ 28.] No Cost agreed to proceed with the Agreement with PAETEC based partly on this representation. [ Id. ¶ 29.]

No Cost subsequently installed its conference bridge equipment in PAETEC's facilities in Oakland, California. [ Id. ¶ 30.] For many months, PAETEC paid No Cost the commissions due on the access traffic in conformity with the terms of the Agreement. [ Id. ¶ 31.] Based on the terms of the Agreement, No Cost alleges it understood those payments to accurately reflect commissions for the access charges PAETEC " collected" on its No Cost-bound traffic. [ Id. ] At no time during this period did PAETEC inform No Cost that its collection rates were reduced or that carriers had filed any disputes with PAETEC. [ Id. ¶ 32.]

1. The Merger Between PAETEC and Wind. Corp.

In August 2011, Wind. Corp. announced that it would acquire PAETEC through a " merger." [ Id. ¶ 33.] This announcement described the merger as resulting in a " combined company," and that the " combination [created] a new Fortune 500 company with the financial strength and scale to compete and win against any other provider in the industry." [ Id. ¶ 34.] In December 2011, Wind. Corp. announced that it had completed the merger, claiming that the merger would " enhance Windstream's capabilities" because " Windstream" [2] was " officially combine[d] with PAETEC." [ Id. ]

Following the merger announcement, No Cost alleges Defendants set about on a course of action aimed at causing PAETEC's customers, including No Cost, to believe that PAETEC had become part of Wind. Inc. [ Id. ¶ 35.] For example, the PAETEC employees with whom No Cost had previously communicated began using

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Windstream email addresses, and invoices began displaying the Windstream logo. [ Id. ] Moreover, on November 22, 2011, Wind. Corp. sent a letter to No Cost advising that it had acquired PAETEC and was " moving their accounts payable functions to the corporate headquarters of its subsidiary, Windstream Communications, Inc." [ Id. ¶ 36.] This letter also included " a list of all the entities that should be changed to Windstream Communications Inc.," which specifically included " PAETEC Communications, Inc." [Ex. B to FAC.]

On December 1, 2011, Windstream sent a second letter to No Cost stating that " PAETEC is now part of Windstream Communications." [Ex. C to FAC.] In addition, invoices received by No Cost began to include the following statement:

PAETEC is Now Part of Windstream! As you may have heard, PAETEC is now part of Windstream Communications. You'll notice that the Windstream logo now appears on your invoice. While the logo is changing, our commitment to providing you the best products and services is exactly the same.

[Ex. D. to FAC (bold typeface in original).] Moreover, No Cost alleges that Defendants have, since the date of the merger, operated as a single entity. [ Id. ¶ ¶ 39-42.] As a result of the merger and the publicity surrounding it, No Cost alleges it believed that the Windstream Defendants had assumed all rights and responsibilities with regard to PAETEC, including PAETEC's obligations under the Agreement. [ Id. ¶ 39.]

Shortly after the merger, Defendants stopped making payments to No Cost for the commissions due under the Agreement. [ Id. ¶ 44.] In reliance on the new contact information given to it, No Cost contacted the Windstream Defendants to resolve the payment issues. [ Id. ¶ 45.] Between February and June of 2012 No Cost communicated with the Windstream Defendants on a consistent basis regarding the payment dispute. [ Id. ¶ ¶ 45-52.]

2. Disclosure of the Less Than 90% Collection Rate

On April 24, 2012, Dan Cobb, Vice President-Wholesale Sales for the generic " Windstream," provided No Cost with a spreadsheet that was described as " a reconciliation of [No Cost's] commission payments with PAETEC's collection history for 2011 traffic." [ Id. ¶ 49.] Windstream claimed that the document reflected " a significant difference in the revenue that PAETEC used to calculate commissions and the actual revenue collected," and that, as a result, PAETEC had overpaid No Cost in the past by $808,769.00. [ Id. ]

Through this spreadsheet, Windstream disclosed for the first time that it or PAETEC had a purported collection rate of as little as 55% of the access charges billed on the traffic terminating to No Cost, rather than the 90% that PAETEC had assured No Cost it was collecting. [ Id. ¶ 50.] These lower collection rates, which went back to at least the time of the merger, were not previously disclosed to No Cost. [ Id. ] Then, on May 16, 2012, Dorinda Foos, Manager, Contracts & Sales Administration, Wholesale Markets for the generic Windstream, forwarded a letter to No Cost providing further information about the billing disputes. [ Id. ¶ 51.] Ms. Foos included a spreadsheet authored by Windstream purporting to be a settlement offer. [ Id. ]

On June 29, 2012, Windstream provided No Cost with what it described as " a different version of the reconciliation" that it had previously provided to No Cost on April 24, 2012. [ Id. ΒΆ 52.] According to this new reconciliation, Windstream appeared to represent ...


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