Free Reply - District Court of California - California

Case 3:07-cv-02231-RJB

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1 JAMES J. MITTERMILLER, Cal. Bar No. 85177
[email protected] [email protected]

2 FRANK J. POLEK, Cal. Bar No. 167852 3 JOHN C. DINEEN, Cal. Bar No. 222095
[email protected]

4 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
A Limited Liability Partnership Including Professional Corporations 501 West Broadway, 19th Floor 6 San Diego, California 92101-3598 Telephone: 619-338-6500 7 Facsimile: 619-234-3815

5

8 Attorneys for Defendants SPRINT SOLUTIONS,
INC. and SPRINT SPECTRUM L.P.

9 10 11 12 13 14 UTILITY CONSUMERS' ACTION
Case No. 07 CV 2231 W (LSP) DEFENDANTS' REPLY BRIEF IN SUPPORT OF MOTION TO DISMISS AND, ALTERNATIVELY, MOTION TO STRIKE [F.R.C.P. 12(b)(6) and 12(f)] NETWORK and ERIC TAYLOR, on 15 behalf of themselves, their members and/or all others similarly situated, as applicable, UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

16 17 18
v.

Plaintiffs,

SPRINT SOLUTIONS, INC.; SPRINT CORPORATION, Judge: Courtroom: Date: Time: Hon. Thomas J. Whelan Seven March 10, 2008 10:30 a.m.

19 SPECTRUM L.P.; SPRINT-NEXTEL 20 21 22 23 24 25 26 27 28
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Defendants.

NO ORAL ARGUMENT PER LOCAL RULE 7.1(d)(1)

DEFENDANTS' REPLY BRIEF IN SUPPORT OF MO TO DISMISS AND, ALTERNATIVELY, MO TO STRIKE

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1

Defendants Sprint Solutions, Inc. and Sprint Spectrum L.P. (collectively

2 "Sprint") file their reply to the opposition by Plaintiffs Eric Taylor and Utility Consumers' 3 Action Network to Sprint's motions to dismiss and, alternatively, to strike. 4 5 6 7 8
I. PLAINTIFFS HAVE NOT STATED A CLAIM FOR Sprint has moved to dismiss/strike portions of Plaintiffs' first cause of action "UNLAWFUL" BUSINESS PRACTICES

10 of an "unlawful" business practice under Business & Professions Code § 17200. Simply 12 because they do not categorize any conduct as "unlawful." Section 1565 merely defines 13 the consent needed to form a contract. Section 1670.5 only directs how a court should 14 address an unconscionable clause in a contract. See Californians for Population 15 Stabilization v. Hewlett-Packard Company, 58 Cal.App.4th 273, 287 (1997) (§ 1670.5

9 because certain sections of California's Civil Code cited by Plaintiffs cannot form the basis

11 put, Civil Code §§ 1565 and 1670.5 cannot provide the predicate for an "unlawful" claim

16 cannot form the basis for a § 17200 claim), and In re Microsoft Corp. Antitrust Litigation, 17 274 F.Supp.2d 747, 749-50 (D.Md. 2003) (plaintiffs cannot bootstrap a contract claim into 18 a § 17200 claim). 19
In their opposition, Plaintiffs initially argue that Sprint "attempted to insert

20 an unconscionable provision" into its contracts. FAC at ¶ 58(f); Plaintiffs' Oppos. at

21 14:20-22. However, this allegation only appears in Plaintiffs' third cause of action for 22 alleged violations of the Consumer Legal Remedies Act. The issue here is not whether a 23 violation of the CLRA may serve as a basis for an "unlawful" business practice under 25 violation for an "unlawful" business practice under § 17200. 26 24 § 17200. Rather, the issue is whether §§ 1565 and/or 1670.5 may serve as an underlying
Plaintiffs argue that any business practice forbidden by law may form the

27 basis of an "unlawful" business practice under the UCL, and cite Stop Youth Addiction, 28 Inc. v. Lucky Stores, 17 Cal.4th 553, 565 (1998) and Barquis v. Merchants Collection -1W02-WEST:8FP1\400727097.2 USDC Case No. 07 CV 2231 W (LSP)

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1 Assoc., 7 Cal.3d 94, 113 (1972) (violation of venue statutes formed the basis for an 2 "unlawful" business practice). Plaintiffs fail to acknowledge the limits of § 17200's reach. 3 4 "forbidden by law" can form the basis for an "unlawful" business practice, their claim 5 fails. Neither of the code sections they cite forbids anything--section 1565 is definitional, 6 while § 1670.5 is procedural. They cannot serve as a predicate to a § 17200 "unlawful" 7 violation. Californians for Population Stabilization, 58 Cal.App.4th at 287 (§ 1670.5 8 cannot form the basis for a § 17200 claim); In re Microsoft Corp. Antitrust Litigation, 274 9 F.Supp.2d at 749-50. 10
Second, Plaintiffs' authorities do not advance their cause. In Stop Youth First, even under Plaintiffs' construction, that any business practice

11 Addiction, the statute at issue prohibited the sale of cigarettes to minors. The opinion 12 merely holds that the statute giving rise to the "unlawful" business practice need not 13 provide for a private right of action. It does not state that a definitional or procedural 14 statute, such as §§ 1565 or 1670.5, may form the basis for a claim for "unlawful" business 15 practices. 16
Similarly, in Barquis, the defendant collection agency had a practice of

17 intentionally filing lawsuits in the wrong venue and thereafter obtaining default judgments 18 against debtors. Again, as in Stop Youth Addiction, the defendant was accused of violating 19 a prohibition on the sale of cigarettes to minors--a specific statute capable of enforcement. 20 This is in stark contrast to the definitional and procedural statutes advocated by Plaintiffs 21 here. These two civil code sections are not prohibitory. They cannot form the basis for an 22 "unlawful" business practices claim. 23 24 motion should be granted. 25 26 27 28
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No § 17200 cause of action has been stated under these two statutes. Sprint's

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II. PLAINTIFFS CANNOT SEEK DAMAGES UNDER THE CLRA Sprint moved to strike Plaintiffs' claim for damages under the third cause of

5 action for alleged violations of the CLRA. Sprint's argument is simple: Plaintiffs' initial 6 complaint sought damages, but Plaintiffs' CLRA demand letter was not sent thirty days 7 prior to the filing of that complaint. Under Civil Code § 1782(a), failure to follow this

8 procedure is fatal to a claim for damages under the CLRA. Plaintiff's claims for damages 9 were incorporated by reference into the CLRA claim, the prayer for relief included a claim 10 for damages but did not exclude the third cause of action, and Plaintiffs' claim for 11 restitution was actually a disguised claim for damages. 12
Plaintiffs oppose the motion by arguing that: (1) thirty days after service of a

13 CLRA demand letter, a complaint can be amended to include a claim for damages (Oppos. 14 at 5-6); (2) claims for damages were not incorporated by reference, but if they were, Sprint 15 should have sought clarification with Plaintiff's counsel (id. at 7:19-20 and 7:24 to 8:1); 16 and (3) restitution and damages are distinct remedies (id. at 8:2-12). 17 18 moves to strike because Plaintiffs' thirty day demand letter was sent only one day before 19 the filing of a complaint containing a claim for damages under the CLRA. 20 21 reference and that Sprint should have inquired of Plaintiffs' counsel, is disingenuous. 22 Plaintiffs took advantage of Fed. R. Civ. Proc. 10(c), which permits allegations to be 23 incorporated by reference. A claim for damages under the second cause of action (¶ 54 of 24 the original complaint) was incorporated into the CLRA claim (via ¶ 55). Further, the 25 prayer for relief sought damages, but did not state that damages were not sought under the 26 third cause of action. Plaintiffs cannot escape these simple facts. Finally, Sprint is under 27 no obligation to seek clarification from Plaintiffs' counsel--especially where the 28
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Plaintiffs' first argument misses the point, and is not disputed here. Sprint

Plaintiffs' second argument, that damages were not incorporated by

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1 allegations speak for themselves. Plaintiffs' complaint rises or falls on the allegations 2 contained within it. 3
It is noteworthy that Plaintiffs take contradictory positions on incorporation

4 by reference. Here, Plaintiffs ignore or discount their incorporation by reference of a claim 5 for damages. However, in their fifth cause of action for alleged violations of § 201 of the 6 Federal Communications Act, they actively take advantage of incorporation by reference 7 (discussed below). Plaintiffs cannot credibly assert that certain allegations are legitimately 8 incorporated into their fifth cause of action, but their damages claim is not incorporated 9 into the third cause of action. 10 11 proposition that they may seek damages (money), mislabel it as "restitution," and thereby 13 is a complete overlap between the damages and the restitution they seek. 14
Plaintiffs sought damages in their initial complaint, filed only one day after Plaintiffs' third argument also fails. They cite no authority for their

12 circumvent the letter and spirit of Civil Code § 1782(a). They also never dispute that there

15 sending their CLRA demand letter. Their claim for damages under the third cause of 16 action must be stricken. Von Grabe v. Sprint PCS, 312 F.Supp.2d 1285, 1303-04 (S.D. 17 Cal. 2003) (Stiven, J.) (CLRA claim for damages dismissed with prejudice for failure to 18 follow pre-litigation demand requirements). 19 20 21 22 23 24 A. 25
Plaintiffs Have Failed To Allege A Section 201(b) Claim. As discussed in Sprint's moving papers, Plaintiffs' fifth cause of action for III. PLAINTIFFS HAVE FAILED TO STATE A CLAIM UNDER THE FEDERAL COMMUNICATIONS ACT

26 alleged violations of § 201(b) of the Federal Communications Act is pleaded so vaguely 27 that it fails to state a claim. Plaintiffs' "shotgun" pleading incorporates by reference so 28 many allegations that it is impossible for Sprint or the Court to discern exactly what -4W02-WEST:8FP1\400727097.2 USDC Case No. 07 CV 2231 W (LSP)

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1 Plaintiffs contend violates the Act. At a minimum, Sprint requests that Plaintiffs be 2 required to provide a more definite statement under Rule 12(e). 3 4 assert that Sprint is violating § 201(b) by improperly imposing taxes and charges that are
Plaintiffs never directly address this claim's vagueness. Instead, they merely

5 not appropriate for wireless broadband Internet access (i.e., "information services") and is 6 also violating the Truth-In-Billing requirements, which do not apply to wireless broadband 7 Internet access (addressed below). This irreconcilable contradiction is not addressed in 8 Plaintiffs' Opposition. 9
As to their first argument, that the taxes and charges should not be applied to

10 information services, Plaintiffs cite a confusing laundry list of taxes and charges they 11 contend should not be applied to a wireless broadband Internet bill. Pls.' Oppos. at 10-12. 12 The problem with Plaintiffs' argument is that the fifth cause of action, as it is pleaded, is 14 allegedly violate § 201(b). That is the whole point of Sprint's motion, that the cause of 13 not clear as to what taxes or charges are allegedly "unjust or unreasonable," and therefore 15 action is too vague. Plaintiffs never dispute this. Sprint is entitled to know, on the face of 16 the pleading, exactly what charges are at issue in this cause of action. Otherwise, Sprint 17 cannot adequately defend against the claim. 18
Plaintiffs cite Beattie v. CenturyTel, 234 F.R.D. 160 (E.D. Mich. 2006) for

19 the purported proposition that § 201 applies to billing practices and thus Sprint's charges

20 and taxes violate § 201 as a matter of law. However, the Beattie case addressed improper 22 Internet services. The decision addresses taxes and charges on a bill for information--as 23 opposed to telecommunication--services. 24

21 additional charges applied to telephone bills. Plaintiff's claim is about wireless broadband

Plaintiffs' fifth cause of action is so vague and confusing that it fails to state

25 a claim. At a minimum, Plaintiffs should be required to provide a more definite statement. 26 27 28
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1 B. 2

The Truth-In-Billing Rules Do Not Apply. Sprint also moves to dismiss the fifth cause of action because the Truth-In-

3 Billing requirements, relied upon by Plaintiffs in this claim, apply only to 4 telecommunications services (i.e., telephone bills), not information services (i.e., wireless 5 broadband Internet bills). Plaintiffs respond that the bills at issue are actually telephone 6 bills because certain charges assessed could only be imposed on telephone bills. 7 Therefore, under Plaintiffs' circular argument, the Truth-In-Billing rules apply. Pls.' 8 Oppos. at 9-13. 9
In support of their circular argument, Plaintiffs rely on two sentences in a "Should the utility provider choose to offer the transmission component of wireless broadband Internet Access as a telecommunications service, the regulatory regime appropriate to the nature of the telecommunications service will apply. For example, if a wireless broadband Internet access provider chooses to offer the telecommunications transmission component as a telecommunications service, then it is a common carrier service subject to Title II."

10 May 2007 FCC report: 11 12 13 14

15 Pls. Oppos. at 10, quoting FCC Declaratory Ruling in Matter of Appropriate Regulatory 16 Treatment for Broadband Access to the Internet Over Wireless Networks, 22 F.C.C.Rcd. 17 5901, at ¶ 33 (May 2007). Plaintiffs conclude that "Sprint has not segregated its 18 information service from its telecommunications service for billing purposes," and 19 therefore the Truth-In-Billing rules apply. 20
The problem with Plaintiffs' analysis is twofold. First, the May 2007 FCC

21 decision does not state that utilizing a similar billing format means that Sprint has offered 22 a "transmission component of wireless broadband Internet Access as a telecommunications 23 service." It only says that offering wireless broadband Internet access as a 24 telecommunications service will trigger the applicability of the telecommunications 25 regulatory regime. Second, the FAC does not allege that Sprint offers wireless broadband 26 Internet access as a telecommunications service. In fact, it alleges the opposite, that 27 wireless broadband Internet access is an information service. Plaintiffs invite this Court to 28 make an inference that is contradicted by the allegations of the FAC. -6W02-WEST:8FP1\400727097.2 USDC Case No. 07 CV 2231 W (LSP)

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1

Contrary to Plaintiffs' assertion, Sprint has not cited the wrong FCC

2 decision. The May 2007 FCC decision cited by Plaintiffs does not state that Truth-In3 Billing applies to information services. Rather, the decision merely holds that wireless 4 broadband Internet access services are information services, rather than 5 telecommunications services. The 2005 FCC Report and Order and Notice of Proposed 6 Rulemaking cited by Sprint, however, specifically requests comments regarding whether 7 wireless broadband Internet bills are subject to Truth-In-Billing. The FCC has not yet 8 enacted any such rules. Currently, Truth-In-Billing does not apply to information services. 9 10 highlight Sprint's concurrent motion to transfer the § 201 claim to the FCC under the 11 primary jurisdiction doctrine. The applicability of charges and taxes on wireless 12 broadband Internet bills, and whether Truth-In-Billing applies to those bills, should be 13 decided by the FCC, not this Court. 14 15 16 17 18
Sprint has moved to dismiss Plaintiffs' seventh cause of action for IV. PLAINTIFFS HAVE NOT STATED A CLAIM FOR CONVERSION Sprint's motion to dismiss should be granted. Furthermore, these issues

19 conversion, on the ground that money may not serve as the basis for a conversion claim 20 unless the defendant held a specific, identifiable sum of money as a fiduciary or otherwise 21 in trust for the benefit of the plaintiff. Sprint also cited authority that a mere claim for a 22 refund of an overpayment cannot form the basis of a conversion claim. 23
In their opposition, Plaintiffs assert that money can be converted, citing

24 Chazen v. Centennial Bank, 61 Cal.App.4th 532, 543 (1998). But Chazen proves Sprint's 25 point, as the money at issue there was held in trust accounts, and the bank caused 26 disbursements from those accounts to satisfy personal obligations of the trustees. Here, 27 Plaintiffs never allege (and could not honestly assert) that the alleged overpayments for 28 taxes and fees were held in trust for Plaintiffs' benefit. -7W02-WEST:8FP1\400727097.2 USDC Case No. 07 CV 2231 W (LSP)

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Plaintiffs also cite Haigler v. Donnelley, 18 Cal.2d 674, 681 (1941), a case

2 also cited by Sprint. Plaintiffs take a quote out of context and suggest that money may be 3 the subject of a conversion claim even without a fiduciary or trust relationship. But in 4 Haigler, a fiduciary relationship existed between the plaintiffs and defendant, a real estate 5 broker, who listed the plaintiffs' apartment for rent. The broker refused to turn over all 6 funds paid by a tenant to the broker for the benefit of the plaintiffs. Plaintiffs here also 7 ignore an important passage in Haigler, that "[w]hen an agent is required to turn over to 8 his principal a definite sum received by him on his principal's account, the remedy of 9 conversion is proper." Haigler supports Sprint's position, that a fiduciary/trust 10 relationship must exist for money to be the subject of a conversion claim. 11
Plaintiffs also cite Heckmann v. Ahmanson, 168 Cal.App.3d 119, 135 (1985).

12 Heckmann addresses a breach of a fiduciary duty and the imposition of a constructive trust. 13 Conversion was never discussed in the court's opinion. The case has no applicability here. 14
Finally, Plaintiffs ignore applicable California authority that a mere

15 overpayment cannot give rise to a cause of action for conversion. McKell v. Washington 16 Mutual, Inc., 142 Cal.App.4th 1457, 1491 (2006). Because Plaintiffs here only seek a 17 refund of an alleged overpayment of taxes and fees, no conversion claim may lie. 18 19 20 21 22 23 violations of Cal. Public Utility Code § 2890 because that section applies only to the 24 placement of improper charges on telephone bills. 25
Plaintiffs counter that Sprint's wireless broadband Internet bills are actually Sprint moved to dismiss Plaintiffs' eighth cause of action for alleged V. PUC § 2890 APPLIES ONLY TO TELEPHONE BILLS

26 telephone bills, that the same terms and conditions apply to both cell phone contracts and 27 wireless broadband Internet contracts, and that the legislative history of § 2890 shows that 28 it was intended to apply to wireless broadband Internet bills. Plaintiffs are wrong. -8W02-WEST:8FP1\400727097.2 USDC Case No. 07 CV 2231 W (LSP)

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2 actually telephone bills, is contradicted by Plaintiffs' own allegations. The First Amended 3 Complaint never states that the wireless broadband Internet bills are actually telephone 4 bills. In fact, the FAC attaches several examples of wireless broadband Internet bills, and 5 identifies them as bills for Sprint's "data card plans," "data services plans" or "data 6 transmission services." FAC at ¶¶ 1, 26-28. Further, the proposed class is defined as "data 7 transmission services" customers of Sprint. Id. at ¶ 14. Plaintiffs cannot now re-cast their 8 allegations to avoid this motion to dismiss. 9
Plaintiffs also argue that the same terms and conditions apply to both cell

Plaintiffs' first argument, that Sprint's wireless broadband Internet bills are

10 phones and wireless broadband Internet access. Not only is this a non sequitur, it is not 11 alleged in the FAC. The assertion here, even if it had been alleged, does not advance 12 Plaintiffs' argument that § 2890 applies to wireless broadband Internet bills. 13
Finally, Plaintiffs mischaracterize the legislative history of § 2890. It does

14 not state, as Plaintiffs assert, "that the purpose of the `cramming' laws was to cover billing 15 for Internet access options." Oppos. at 13:2-3. Rather, the legislative history cited by 16 Plaintiffs only points out that a charge for Internet access is one type of charge that may 17 constitute improper `cramming' on a telephone bill. It states, "`Cramming' charges are 18 usually comprised of services such as unauthorized voice mail options, internet access 19 options, calling cards, paging services, and 800 numbers." Plaintiffs' Exhibit 4, at 3. 20
Plaintiffs' arguments are misleading. Internet access is only one type of

21 charge that may constitute cramming on a telephone bill. The legislative history does not 22 suggest that § 2890 was intended to cover a wireless broadband Internet bill. Indeed, 23 given that the statute was enacted in 1998, it is unlikely that the California legislature even 24 contemplated bills for wireless access to the Internet via a cell phone company's wireless 25 telecommunications network. 26
Plaintiffs cite no authority for the proposition that wireless broadband

27 Internet bills are covered by § 2890. Sprint's motion to dismiss this claim should be 28 granted.
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VI. PLAINTIFFS' PRAYER FOR PUNITIVE DAMAGES SHOULD BE STRICKEN

Plaintiffs have failed to state a cause of action for conversion. Further, their

6 claim for damages under the CLRA is barred. No other cause of action in the FAC gives 7 rise to a claim for punitive damages. As such, Plaintiffs' prayer for punitive damages 8 should be stricken. 9 10 11 12 13
For all of the foregoing reasons, Sprint's motions to dismiss and, VII. CONCLUSION

14 alternatively, to strike, should be granted. 15 16 DATED: March 3, 2008 17 18 19 20 21 22 23 24 25 26 27 28
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SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

s/James J. Mittermiller Attorneys for Defendants SPRINT SOLUTIONS, INC. and SPRINT SPECTRUM L.P. E-mail: [email protected]

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