Free Motion to Amend/Correct/Modify - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 02-M-1977 (BNB) (Consolidated with Civil Action No. 02-M-1978 (BNB) for pretrial purposes) ------------------------------------------------------------SPA UNIVERSAIRE and VACATION TAN & TRAVEL, Plaintiffs, v. QWEST COMMUNICATIONS INTERNATIONAL INC., AND QWEST CORPORATION, Defendants. ------------------------------------------------------------________________________________________________________________________ PLAINTIFFS' MOTION WITH AUTHORITIES FOR LEAVE TO FILE SECOND AMENDED COMPLAINT PURSUANT TO FED.R.CIV.P. 15(a) AND 15(b), OR, IN THE ALTERNATIVE, FOR CERTIFICATION PURSUANT TO 28 U.S.C. 1292(b) ________________________________________________________________________ By and through their attorneys, Jones & Keller, P.C. and Kirby McInerney LLP, plaintiffs seek leave to file a second amended complaint ("SAC"). The Court's July 28, 2005 amended scheduling order ("Scheduling Order") provided for any motion to amend the pleadings to be filed 90 days after a decision on class certification. The Court issued its order denying class certification on September 10, 2007 ("Order"). This motion is filed within that deadline. Granting the motion both serves the interests of justice and conforms the pleadings to the evidence under federal rules 15(a) & 15(b). The outstanding complaint is nearly five years old ("CAC"), having been filed in March 2003. It has the benefit neither of the record developed on class certification, nor of

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intervening Supreme Court authority. This is plaintiffs' first opportunity to conform their pleading to this Court's expressed concerns, primarily that: (a) the allegations may not satisfy Twombly (decided several years following the filing of the CAC), and (b) individual differences among exchanges predominate over common questions of law or fact. It is only fair that plaintiffs be accorded an opportunity to plead to the Court's views in respect of Twombly, especially as the Court had denied defendants' motion to dismiss before reversing itself in its Order denying the certification. Mindful of the Court's Order embodying these opinions, and using a developing record, plaintiffs have made drastic changes in the SAC. The SAC is confined to the claims of customers in the four States where regulators made findings of anti-competitive behavior, and supplies specific allegations and documents supporting the plausibility of their newly pleaded Section 1 claim. The SAC represents the only occasion upon which its four named plaintiffs have had opportunity to prepare and file their own complaint. None of the seven plaintiffs that were joined in the litigation in 2005 appears on the CAC, the extant pleading. Four of those seven would now be plaintiffs in the SAC. Why these four? During the Class Period, these four received service in States where regulators made findings against Qwest. Neither of the original plaintiffs in the CAC (Spa Universaire and Vacation Tan & Travel) is a plaintiff in the SAC. Consistently, and further to respond to the Court's predominance concerns, the SAC seeks no recovery or class treatment for any state where anti-competitive findings were not made. On December 10, 2007, counsel for plaintiffs conferred with Steven B. Perfrement, one of defendants' counsel, and were advised that defendants expect to object at least in part to the motion.

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The Amendments Respond to the Court's Order 1. In its Order, the Court wrote that Bell Atlantic Corp. v. Twombly, 127 S.Ct.

1955 (2007), changed the rule 12(b)(6) standard for pleading antitrust claims. In March 2005, the Court had issued a decision denying defendants' motion to dismiss premised upon Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004). Order, p. 11. Amendments in the SAC are designed to meet the requirement for

"plausibility" that the Court wrote is now plaintiffs' burden. 2. The SAC alleges that Qwest required two of its competitors ­ McLeod and

Eschelon ­ to maintain secrecy with respect to percentage discounts they received in two interconnection agreements. ¶¶ 2-3; 27-80.1 In the context of a regulatory scheme that sought to spur competition by requiring disclosure of price terms, a contra requirement to maintain secrecy restrained trade in the markets where interconnection was sold. ¶¶ 18-39; 91. The SAC alleges with greater specificity how Qwest's competitors were entitled to the discounts, with extensive reference to the findings of state regulators. The SAC further alleges that, had the discounts been disclosed, competitors would have been attracted to Qwest's region in greater numbers. E.g., ¶ 39. 3. The disclosure requirements of the Telecommunications Act of 1996 constitute

market rules whose violation (see e.g. ¶¶ 23, 30) may generally support antitrust claims. See United States v. Marine Bancorporation, Inc., 418 U.S. 602, 627 (1975) (application of antitrust doctrine to bank mergers "must take into account the unique federal and state regulatory restraints on [defendant's conduct]. Failure to do so would produce

misconceptions that go to the heart of the doctrine itself"); Town of Concord, Mass. v. Boston

1

References to "¶ __" are to the SAC. 3

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Edison Co., 915 F.2d 17, 22 (1st Cir. 1990) (Breyer, C.J.) ("[A]ntitrust analysis must sensitively recognize and reflect the distinctive economic and legal setting of the regulated industry to which it applies"); IA Areeda & Hovenkamp, Antitrust Law ¶ 240c3 (2000) ("Just as the administrative agency must consider the competitive premises of the antitrust laws, the antitrust court must consider the peculiarities of an industry as recognized in a regulatory statute"); MCI Communications Corp. v. AT&T, 708 F.2d 1081, 1105 (7th Cir. 1983) ("an industry's regulated status is an important fact of market life" for purposes of pursuing antitrust remedies). 4. The general rule contained in the foregoing paragraph was modified, however,

by Trinko in the specific instance of claims alleged under Sherman Act § 2. The vast majority of the CAC concerned Sherman Act § 2, and the SAC accepts that Trinko foreclosed those claims. The SAC thus confines itself to section 1. Trinko did not purport to foreclose claims under Sherman Act § 1 which rely upon a regulatory violation to support allegations that defendant's conduct harmed competition. 5. The SAC adds allegations undergirding defendants' anti-competitive activities

that were substantially unavailable when the CAC was filed in March 2003. The MPUC had then freshly issued its order (February 2003) and other regulatory bodies were just getting started. Facts include: (i) that "Qwest provided terms, conditions, or rates to certain CLECs that were better than the terms, rates and conditions that it made available to the other CLECs and, in fact, it kept those better terms, conditions, and rates a secret from the other CLECs. In so doing, Qwest unquestionably treated those select CLECs better than the other CLECs;" (ii) that failure to file the McLeod and Eschelon agreements, among others, "impermissibly discriminated against other CLECs and harmed competition in Arizona;" (iii) that there had

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been "adverse impact on the emergence of local competition in Arizona from the existence of the unfiled agreements;" (iv) that Qwest's conduct had "stunted the growth of real competition in Arizona;" (v) that "Qwest's failure to file these agreements in a timely manner, while making the preferential terms available to some other competitors, had the effect of stalling, or even preventing, competitive entry by other CLECs, thus delaying the benefits of competition clearly anticipated in the Telecommunications Act of 1996;" (vi) that the hindrance to "other CLECs from entry into the New Mexico marketplace [was] immeasurable;" and (vii) that "With regard to CLECs who did not participate in secret interconnection agreements, to the extent that entry decisions were based on higher prices and lower quality service provisioning compared to the secret agreements, the non-participating CLECs were harmed, and so were their end users. The result is damage to competition, the competitive marketplace, and loss of consumer welfare." 6. Many facts such as these have been disclosed over the past 4 ½ years, and the

strengths and weaknesses of legal theories have been fleshed out in discovery and class certification motion practice. For example, defendants stipulated to numerous facts in the "Undisputed Facts" section of the Scheduling Order. Several boxes of documents were produced by defendants, and defendants answered plaintiffs' interrogatories. Facts were provided by the parties' experts, and legal theories criticized and advanced in their deposition testimony, and expert and rebuttal reports. In the proposed SAC, plaintiffs plead facts and legal theories derived from all of these sources, along with facts from regulator proceedings where Qwest was fined $57 million for the conduct that plaintiffs allege in this action. 7. The SAC explicitly alleges issue preclusion in response to the Court's

statement (at p. 10) that "the issues are not identical." Specifically, the Court reasoned that

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regulators "found that Qwest's agreements were contrary to the purposes of the 1996 Act to open or foster competition where there had previously been a monopoly. They did not make findings of injury to the competition protected by the antitrust laws." Id. 8. An "issue" for purposes of issue preclusion is not, however, tethered to the

particulars of a controversy. Rather, "[c]ollateral estoppel, or, in modern usage, issue preclusion, means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated...." Thompson v. Kansas Dept. Of Corrections, 241 Fed.Appx. 512 (10th Cir. 2007). The "determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation." Montana v. United States, 440 U.S. 147, 153-54 (1979) (emphasis added). 9. Accordingly, the SAC pleads that specific issues were presented to and

determined by state regulators which also present themselves now as issues in this action. ¶ 77. An example issue is whether CLECs entered Qwest' region in fewer numbers due to Qwest's concealment of interconnection discounts than would have were the discounts were made universally available. Regulators answered yes, a finding useful to this action despite the fact that it was rendered in the context of 1996 Act compliance rather than consideration of an antitrust violation. "An agency or court that lacks authority to decide whether [the defendant] has violated the antitrust laws nonetheless may resolve a disputed issue - such as whether [the defendant] has market power ­ that has significance beyond the particular adjudication in which the issue is addressed. U.S. Gypsum Co. v. Indiana Gas Co. Inc., 350 F.3d 623, 629 (7th Cir. 2003). 10. The elements of a Sherman Act § 1 claim are: (1) a violation of antitrust law;

(2) injury and causation; and (3) damages. E.g., Cordes & Co. Financial Services, Inc. v.

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A.G. Edwards & Sons, Inc., et al., 502 F.3d 91, 104-105 (2d Cir. 2007). The first element ­ whether the secrecy requirement in the McLeod and Eschelon contracts constitutes a violation of antitrust law ­ is common to all putative Class members. In its Order, the Court strongly suggests that it believes the secrecy requirement did not violate antitrust law because: (1) there was no duty to disclose absent the 1996 Act; and (2) Bell Atlantic v. Law Office of Curtis V. Trinko said that the 1996 Act did not create antitrust claims beyond existing antitrust standards. Order at 11, and ¶ 22 below. That question, however answered, is by its very nature one that does not vary among members of the putative Class. It is common. 11. At minimum, the SAC exceeds plausibility requirements with respect to the

element of conspiracy. It attaches the actual written agreements which expressly bind McLeod and Eschelon to secrecy. As a matter of fair play and Rule 15, the question of plausibility should be addressed on a pleading having the benefit of both knowledge that it must meet Twombly and a record upon which it may do so. And it is generally settled that proof of conspiracy without more will satisfy the predominance requirement of Rule 23. In re NASDAQ Market-Makers Antitrust Litigation, 169 F.R.D. 493, 518 (S.D.N.Y. 1996). 12. The second element ­ antitrust injury ­ has two parts: (1) the "familiar factual

question whether the plaintiff has indeed suffered harm, or `injury-in-fact;'" and (2) the legal question whether the injury in question is "injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Cordes, 502 F.3d at 106, citing Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977). In Brunswick, respondents complain[ed] that by acquiring the failing centers petitioner preserved competition, thereby depriving respondents

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of the benefits of increased concentration. The damages respondents obtained are designed to provide them with the profits they would have realized had competition been reduced. The antitrust laws, however, were enacted for "the protection of competition not competitors," Brown Shoe Co. v. United States, 370 U.S., at 320, 82 S.Ct., at 1521. 429 U.S. at 488. It cannot be disputed that state regulators found that Qwest harmed "competition," not just competitors. And no one asserts that disclosure of the discounts would have reduced competition or that concealing them preserved competition such as the case in Brunswick. Moreover, and again, irrespective of how answered, it is a common question. To determine whether the regulators in Arizona, Minnesota, New Mexico and Washington found harm to competition of the type addressed by antitrust laws, or harm to competition of some other type sought by the 1996 Act, does not require individual inquiry. Thus, by re-framing the complaint, and confining claims to customers of four states, plaintiffs show that the legal branch of antitrust injury, if not already established, is at least among the common questions. 13. Accordingly, the SAC omits the claims of customers in states where there is

no possibility of any employment of regulatory findings of anti-competitive misconduct. The SAC alleges only the claims of customers in Arizona, Minnesota, New Mexico and Washington. Regulators in each of those states issued detailed factual findings against Qwest. Those findings did not distinguish among different types of customers or services offered or taken by them, or other among differences between local telephone service exchanges. Among the newly alleged "common questions of law or fact" in the SAC predominating over individual questions is whether regulator findings in the four states establish any of the elements of a Sherman Act § 1, Communications Act § 202, or the state consumer protection statutes. We respect that the Court's said "the issues [were] not

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identical" in the regulator proceedings (Order at 10) but it is undeniable that for customers within a state the evidence is common. This was not alleged by plaintiffs in the CAC. 14. In the SAC, plaintiffs are Douglas Cheesman (an Arizona purchaser of local

telephone service from Qwest), Roxanne Lewis (a Minnesota purchaser of local telephone service from Qwest), Lori Valdez (a New Mexico purchaser of local telephone service from Qwest), and Douglas Mackey (a Washington purchaser of local telephone service from Qwest). Regulators in these states issued findings against Qwest and fined Qwest $57 million for the conduct alleged by plaintiffs in this action. The claims of CAC plaintiffs Spa Universaire and Vacation Tan & Travel (Colorado), Dennis Lindeman (Iowa), Carl Lesher (Oregon), and Kent Fitzgerald (Utah) are no longer pled. 15. In its Order, the Court cited a survey published by the Iowa Utilities Board that

the Court said showed "important differences among exchanges operating in rural and urban areas as to the services offered and the differences in services requested by subscribers in those areas and as between residential and commercial customers." As stated above, plaintiffs are not pursuing the claims of Iowa customers in the SAC. 16. With respect to the four states at issue, the SAC alleges that differences in

service and customers, even at the exchange level, may be accommodated by multiple regression to generate a formula for using common data for proving impact and damages. The SAC newly alleges that exchange-by-exchange analysis may be accomplished by grouping by population density (urban versus rural), customer type (residential versus business), and frequency of competitors (no competitors versus, 2 or 3 or more competitors) in the various exchanges and thereby address the concerns of the IUB. ¶ 87. Indeed, when the FCC analyzes market definition for telecom mergers, it does so by grouping those

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exchanges that are similar in their competitive conditions. "The district court can modify or amend its class-certification determination at any time before final judgment in response to changing circumstances in the case." Carpenter v. the Boeing Company, 456 F.3d 1183, 1187 (10th Cir. 2006). 17. The Court wrote that plaintiffs had failed to show whether McLeod and

Eschelon had "passed on" all or part of the interconnection discounts to their customers, that plaintiffs failed to distinguish between customers who subscribed to these CLECs or the disadvantaged ones, and that consumers who received service through disadvantaged CLECs cannot not allege damages under the Sherman Act premised upon lower interconnection fees paid by McLeod and Eschelon. Order, p. 12, 14. This view is understandable in the context of a pleading (the CAC) that had never been updated to allege a damages theory reflecting facts disclosed in discovery. In the SAC, plaintiffs do not allege as damages that the local telephone customers of CLECs other than McLeod and Eschelon paid more than the customers of McLeod and Eschelon. In the SAC, plaintiffs allege under their Sherman Act § 1 claim that all customers ­ whether they bought directly from Qwest, McLeod, Eschelon, or other CLECs ­ would have received price and choice benefits from greater entry of competitors into Qwest's region had the discounts been made universally available. ¶ 92. 18. In the SAC, plaintiffs conform their theory of damages under the anti-

discrimination claims of § 202 of the Federal Communications Act of 1934 ("Communications Act") to their damages theory under the Sherman Act. The SAC does not allege that Qwest's violation of the Communications Act injured customers of disadvantaged CLECs by forcing them to pay more than the customers of McLeod and Eschelon, as did the CAC. The SAC alleges that the discrimination caused fewer competitors to be attracted to

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Qwest's region than would have been the case if the discounts were offered universally. ¶ 100. 19. The SAC also alleges that Qwest violated state consumer protection statutes

prohibiting deceptive acts or practices when it filed interconnection rates that were higher than the rates being given to McLeod and Eschelon. Qwest intended, it is alleged, that competitors, regulators and consumers would perceive the higher, un-discounted interconnection rates on file as the best terms available for interconnection with Qwest. That was an intentional misrepresentation and concealment under the state laws. (¶¶ 102-108). Standard on the Motion 20. Fed.R.Civ.P. 15 provides "a party may amend the parties pleading only by

leave of court ...; and leave shall be freely given when justice so requires." A court should grant a motion for leave to amend the complaint in the absence of undue delay, prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility. Castleglen, Inc. v. Resolution Trust Corp., 984 F.2d 1571, 1585 (10th Cir. 1993). "If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman v. Davis, 371 U.S. 178, 182 (1962). 21. This motion is not unduly delayed, prejudicial to defendants, or made in bad

faith. The defendants stipulated to the timetable for amendments in the Scheduling Order. It expressly provides for a motion to amend the pleadings to be filed within 90 days after a court decision on class certification. In the Order, the Court gave plaintiffs specific

additional reasons to seek an amendment. Plaintiffs have not previously amended the complaint in efforts to cure deficiencies or to reflect changed law and discovery.

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Trinko 22. In its Order the Court suggests that the Court believes plaintiffs' claims barred

by Trinko whether the standard is summary judgment or motion to dismiss. Notably, the [Supreme] Court said that Verizon's denial of interconnection services to rivals for the purpose of limiting their entry into the market would state a monopoly claim under § 2 of the Sherman Act, if it states an antitrust claim at all. It may be inferred that the Court was excluding § 1 claims. That argument was made in the defendants' motion to dismiss the amended class action complaint. * * * Absent the 1996 Act and the FCC regulation, Qwest, McLeod and Eschelon had no duty to disclose their interconnection agreements to others. Their pricing arrangements did not violate any existing antitrust principles. Discriminatory pricing that contravenes the requirements of the 1996 Act could give rise to liability to CLECs proceeding under the private right of action provisions under § 206 and § 207. The theory of damage to the putative plaintiffs' class of consumers of disadvantaged CLECs is not something within the protection of the Sherman Act. As discussed above, the Court effectively reversed its prior denial of defendants' motion to dismiss under Trinko on grounds of a new standard provided by Twombly. The SAC harvests and presents facts and allegations designed to show that, assuming the Court assessment of Twombly correct, plaintiffs satisfy that standard and show how common questions of law and fact predominate. 23. There is no question that this motion meets the test for absence of delay,

prejudice and bad faith. If the Court should see fit to deny this motion on grounds of futility and Trinko, plaintiffs request that it also certify the question under 28 U.S.C. § 1292 (b) (a controlling question of law, substantial ground for difference of opinion, and an immediate appeal materially advancing ultimate termination of the litigation).

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CONCLUSION For the foregoing reasons, plaintiffs respectfully request that the Court grant their motion for leave to file a Second Amended Complaint pursuant to Fed.R.Civ.P. 15(a) and 15(b), or, in the alternative, that the Court certify under 28 U.S.C. 1292(b) the question of futility premised upon the U.S. Supreme Court decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004). Dated: Denver, Colorado December 10, 2007 JONES & KELLER, P.C.

By: s/ Thomas P. McMahon 1625 Broadway, 16 th Floor Denver, Colorado 80202 (303) 573-1600 Peter S. Linden Randall Berger KIRBY McINERNEY LLP 830 Third Avenue, 10th Floor New York, New York 10022 (212) 317-2300 Attorneys for Plaintiffs

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C ERTIFICATE OF E LECTRONIC S ERVICE
I hereby certify that on December 10th, 2007 I electronically filed the following documents: Plaintiff's Motion With Authorities For Leave To file Second Amended Complaint; and Second Amended Class Action Complaint

These documents were filed with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected]

s/ Michele O'Neill Michele O'Neill Jones Keller, PC 1625 Broadway, 16 th Floor Denver, CO 80202 (303) 785-1629 [email protected]

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