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REGENCY COMMUNICATIONS v. CLEARTEL COMMUNICATIONS

July 30, 2001

REGENCY COMMUNICATIONS INC., MARK PARRELLA, AND ACTEL INC., PLAINTIFFS,
V.
CLEARTEL COMMUNICATIONS INC., ULYSSES G. AUGER II, BARTON R. GROH, AND, STEPHEN ROBERTS, DEFENDANTS.



The opinion of the court was delivered by: Lamberth, district Judge.

MEMORANDUM OPINION

Now before the Court are numerous dispositive motions. The underlying dispute concerns the defendants' provision of long distance phone service to the plaintiffs' pay phones. The plaintiffs allege that the defendants' behavior in the provision of long distance services gives rise to claims for fraud, breach of contract, and civil RICO. The defendants counter that the plaintiffs conspired to violate and did in fact violate non-disclosure clauses in the phone service contracts.

After a full review of the parties' pleadings and memoranda, the applicable law, and for the following reasons, the holds the following:

With respect to the breach of contract issue, the Court GRANTS the plaintiffs' motion for summary judgement with respect to Cleartel and DENIES the defendants' motion for summary judgment with respect to Cleartel. Further, the Court DENIES the plaintiffs' motion for summary judgment with respect to Mark Parrella, and correspondingly GRANTS the defendants' motion with respect to the individually-named defendants.

With respect to the fraud issue, the Court DENIES the plaintiffs' motion for summary judgment and GRANTS the defendants' motion for summary judgment.

With respect to the RICO issue, the Court DENIES the defendants' motion for summary judgment.

With respect to the defendants' counter-claims, the Court GRANTS the plaintiffs' motion for summary judgment.

I. BACKGROUND

A. Regency, Actel, Cleartel, and the Contracts for Long Distance Service

At issue in the instant case are the compensation terms of the parties' contracts. Regency's compensation was a specified portion of "all call charges . . . captured, billed, and collected by Cleartel" for each long distance call. Contract, § 2.1. Long distance charges generally are of two types, the "tariff charges" and "location surcharges." The tariff charge is the amount charged to actually transmit the phonecall, and the location surcharge is any regulatory fee applicable to the pay phone being used. Under the Regency/Cleartel contracts, Regency was to be paid approximately 50% of each call's tariff charge, and 100% of any location surcharge. For example, a long distance call with tariff charges of $3.00 and a surcharge of $1.00 would result in a total payment to Cleartel of $4.00. Cleartel would then pay Regency approximately $2.50 (50% of the tariff charges and 100% of the surcharge).

Because Regency's revenue under the agreement was tied to the charges for each phonecall, the contracts required Cleartel to "provide [Regency with] a summary of gross long distance calls, minutes, and charges by originating phone number." Contract § 2.4.

B. Mr. Parrella's Phonecall and the Ensuing Investigation

In August 1996, Regency president Mark Parrella made a long distance phone call from a Regency-owned pay phone. Cleartel billed Mr. Parrella $6.72 for the personal phonecall. When, pursuant to section 2.4 of the applicable contract, Cleartel provided Regency with a "summary of gross long distance calls, minutes, and charges by originating phone number," Regency discovered that Cleartel recorded the charge for Mr. Parrella's phonecall as $6.22. As such, Regency's compensation from Cleartel would be based on an amount $.50 less than the amount actually charged.

Based on this event, a broader investigation into Cleartel's billing and payment practices was undertaken. On July 16, 1998, Arthur Cooper, president of co-plaintiff Actel, Inc., had 21 phonecalls placed from 21 separate pay phones owned by Actel and served by Cleartel. When Actel compared the end-user charge to Cleartel's reported charge, Actel discovered that Cleartel was consistently charging the end-user $.60-$1.00 more than was reported to Actel. This meant that Cleartel's payments to Actel would based on an amount lower than actually charged.

C. Regency's Allegations, Cleartel's Counterclaims, and the Instant Motions

Based on the foregoing events, Regency makes four separate allegations: (1) Cleartel breached the long distance phone service contracts, (2) Cleartel defrauded Regency, (3) Cleartel violated section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (c), and (4) Cleartel violated section 1962(d) of RICO, 18 U.S.C. § 1962 (d).

Also based on the foregoing events, Cleartel makes two counterclaims: (1) Regency breached the long distance service contracts by violating the nondisclosure clauses therein, and (2) Regency and its co-defendants conspired to violate the nondisclosure clause of the contracts.

Each side has made dispositive motions. Regency moves for summary judgement on two of its own allegations: the breach of contract claim and the fraud claim. Regency also moves for summary judgment on both of Cleartel's counterclaims: the breach of contract claim and the civil conspiracy claim. Cleartel moves for judgment on the pleadings, or in the alternative, for summary judgment on Regency's breach of contract, fraud, and RICO claims.

Thus, the Court faces four separate issues: the cross dispositive motions on (1) Regency's breach of contract claim, (2) Regency's fraud claim, and (3) Regency's RICO claims; as well as Regency's dispositive motions on (4) Cleartel's counterclaims. The Court now considers these issues.

II. ANALYSIS

A. Jurisdiction and Choice of Law

The Court has jurisdiction over the plaintiffs' claims and the defendants' counterclaims pursuant to 28 U.S.C. § 1332. Each plaintiff is a citizen of a state other than states in which the defendants are citizens. As well, the amount in controversy exceeds $75,000. The Court also has jurisdiction over the plaintiffs' RICO claims pursuant to 28 U.S.C. § 1331. All contracts in question in this case contain a choice of law provision designating the law of the District of Columbia as the law applicable to all disputes over the contract. To the extent the dispute presents a federal question, the Court will apply federal law.

B. Standard of Review

All of the motions now before the Court are, in effect, summary judgment motions.*fn3 Federal Rule of Civil Procedure 56(c) provides that a district court shall grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is (1) no genuine issue as to any material fact and that (2) the moving party is entitled to judgment as a matter of law." See Fed. R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C.Cir. 1995). To survive a motion for summary judgment, the nonmovant must make a "sufficient showing to establish the existence of an element essential to that party's case." ...


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