Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

LADY DI’S, INC. v. ENHANCED SERVICES BILLING, INC. (August 16, 2011)

Enhanced Services Billing and ILD Telecommunications are what are known as "billing aggregators." They are, in essence, the middleman between telephone companies and service providers. Service providers are vendors that provide services, sometimes related to telecommunications and sometimes not, to individuals and businesses. They use billing aggregators to process and transmit the costs of the services to their customers on the customer’s telephone bill. Lady Di's is a small Indiana business run by Dianne Markin-Venn. AT&T is its telephone company. In 2008, both ESBI and ILD placed charges on Lady Di’s AT&T bill. Lady Di’s filed suit, alleging unjust enrichment and a violation of Indiana's Deceptive Commercial Solicitation Act. It alleged that the charges were all unauthorized. Judge Barker (S.D. Ind.) granted summary judgment to the defendants. Lady Di’s appeals.

In their opinion, Seventh Circuit Judges Rovner and Hamilton and District Judge Lefkow affirmed. Lady Di’s case arises out of Indiana's attempts to control cramming, which is the practice of charging telephone customers for unauthorized services. The Indiana General Assembly passed a statute the provided that a customer could not be billed for unauthorized services. The Indiana Utility Regulatory Commission promulgated a rule that required certain telecommunications providers to maintain several kinds of documentation before charging a customer for a service. The regulation only applies to primary inter-exchange carriers, local exchange carriers, and their billing agents and does not provide a private cause of action. Although the plaintiff originally alleged that the charges were actually unauthorized, defendants brought forth evidence that the services were authorized. Notwithstanding the facts that Lady Di’s authorized the services and that the regulation provided no private cause of action, Lady Di’s asserts its claims for unjust enrichment and Deceptive Commercial Solicitation Act. The Court rejected the arguments. First, the Court concluded that ESBI and ILD were not subject to the regulation because they were not billing agents for a primary inter-exchange carrier or a local exchange carrier. The undisputed facts show that they were neither authorized nor retained to act on these carriers’ behalf. In fact, the local carrier charged these defendants a fee for using its monthly billing system to collect on behalf of itself and its service providers. Second, even if ESBI and ILD were subject to the regulation, they would still be entitled to summary judgment on the unjust enrichment claim. Unjust enrichment requires that the defendant’s retention of a benefit be unjust. Here, Lady Di’s ordered the services for which it was charged. The Court concluded that an Indiana court would not extend the theory of unjust enrichment to such a case. Third, even if ESBI and ILD were subject to the regulations, they would be entitled to summary judgment on the Deceptive Commercial Solicitation Act claim. The statute, on its face, applies to the act of billing for services not yet ordered. Lady Di’s ordered the services in question -- the statute simply does not apply.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PREMIUM PLUS PARTNERS v. GOLDMAN, SACHS & CO. (August 5, 2011)

On October 31, 2001, a Goldman Sachs employee provided its traders with certain information about 30-year government bonds that had not yet been made public. The traders bought futures contracts for the 30-year bonds and made a lot of money when the bonds’ price rose significantly. Unfortunately, their abnormal trading practices led to an SEC investigation. The SEC filed a civil complaint in September 2003. In March of 2004, Premium Plus Partners brought a class action on behalf of traders who had short positions in the bonds on October 31, no matter when they sold. Judge Der-Yeghiayan (N.D. Ill.) denied class certification. George Tomlinson, an individual investor who held a short position on October 31, then filed suit along with four other individual investors. Judge Bucklo (N.D. Ill.) dismissed the complaint on the pleadings, concluding that the two year statute of limitations had run before the class action had been filed (during which it would have been suspended). Meanwhile, in the Premium case, Goldman Sachs made an offer of judgment for the full amount of Premium's damages plus interest. Premium accepted the offer but also wanted to continue with the suit in order to certify a class and spread its costs among other class members. The court entered judgment on the Rule 68 offer and rejected Premium's proposed plan. Tomlinson then sought to intervene as class representative. The court denied that motion. Premium appeals the order denying class certification, Tomlinson appeals the order denying his motion to intervene, and Tomlinson also appeals the order dismissing his individual suit.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Sykes and Tinder affirmed with a modification. The Court first addressed the individual Tomlinson appeal. On the statute of limitations question, the Court assumed that the Merck federal securities fraud rule applies to a commodities fraud case because it was more favorable to Tomlinson than the understanding of the statute under the Commodity Exchange Act. Under Merck, the statute does not begin to run until the plaintiff discovers (or could have discovered) the essential facts of the violation, including scienter. Tomlinson admits that he was aware of his injury on October 31 and learned soon thereafter that Goldman Sachs had traded on nonpublic information. The central question, then, is whether Tomlinson could have discovered that Goldman Sachs acted with scienter. The Court concluded that all the facts regarding the transactions were in the public domain well before April of 2002. The fact that Goldman Sachs denied it and that the SEC did not file until late 2003 is of no moment. The district court did not err in dismissing the individual Tomlinson suit. The Court's decision on that appeal made their analysis of Tomlinson's intervention appeal rather simple. Since he has filed and lost his individual suit, he is not even a member of a potential class, much less an effective representative of the class. The Court turned to Premium's appeal. It noted that Premium had two options: a) it could have rejected the Rule 68 offer and continued with the case, or b) it could have accepted the Rule 68 offer and keep the case alive long enough for a viable class representative to intervene and pursue the class allegations. It cannotdo what it wants to do -- continue to push ahead with the case as class representative in the hopes of spreading some of its costs and increasing its net recovery. Finally, the Court did find an error in the district court's computation of interest. The court should have calculated a compound, rather than simple, interest. The Court remanded for a recalculation. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ILLINOIS BELL TELEPHONE CO. v. BOX  (November 26, 2008)

Illinois Bell Telephone Co. (“Illinois Bell”) is a provider of local telephone service. The Illinois Commerce Commission (“ICC”) ordered Illinois Bell to provide certain elements of service, including access to switching centers and splitting, to competing carriers at its cost. Illinois Bell brought suit against the Commission to be relieved of that obligation. The district court granted summary judgment to Illinois Bell. The ICC and intervenor Globalcom, Inc. appeal.

In their opinion, Judges Posner, Ripple, and Evans affirmed. The Court first noted the federal interest and approach to the telecommunication industry. Congress and the FCC have established certain requirements to promote competition in the industry. Section 251 of the Telecommunications Act of 1996 (“Act”) requires carriers like Illinois Bell to provide certain services to other carriers on an unbundled basis and at cost. The FCC determines which services are included, after considering whether access is necessary and whether denial of access would impair the requesting carrier’s ability to provide its service. If the FCC decides a service meets the section 251 criteria, a carrier can request the service from carriers like Illinois Bell at its cost. Section 271 of the Act also entitles carriers to gain access to other unbundled services from “Bell Operating Companies” such as Illinois Bell. Unlike section 251, however, section 271 does not require that access be provided at cost. The FCC allows a carrier to charge a market rate for section 271 services.

The Court found that the ICC’s order that Illinois Bell provide services at cost was inconsistent with Sections 251 and 271. The Court noted that the ICC was, in effect, overruling the FCC. The Court pointed out that the savings clause of section 251 allowed state orders that were consistent with and did not prevent implementation of the section. The Court concluded that the ICC’s orders were inconsistent with and did substantially prevent the implementation of the federal policy. The Act does not specifically forbid the requirement imposed by the ICC but to allow it would defeat the goals of the FCC. The Court concluded that only network services identified by the FCC under section 251 are required to be provided at cost. Other services, even if required to be provided, can be charged at a market price. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link