United States District Court for the District of Columbia
February 18, 2004.
REGENCY COMMUNICATIONS, INC., et al., Plaintiffs, v., CLEARTEL COMMUNICATIONS, INC., et al., Defendants
The opinion of the court was delivered by: ROYCE LAMBERTH, District Judge
This matter comes before the Court after the completion of a bench
trial and the submission of proposed findings of fact and conclusions of
law by the parties. The purpose of the trial was to resolve the remaining
outstanding issues that barred final resolution of the case. The Court
resolved the bulk of the legal issues in two prior opinions. In July 2001
the Court issued an opinion resolving the parties' cross motions for
summary judgment. Regency Communications. Inc. v. Cleartel
Communications, Inc., 160 F. Supp.2d 36 (D.D.C. 2001) ("Regency I").
In My 2002 the Court denied defendants' motion for reconsideration.
Regency Communications, Inc., v. Cleartel Communications, Inc.,
212 F. Supp.2d 1 (D.D.C. 2002) ("Regency II"). Upon consideration of the
evidence presented at trial, the parties' proposed findings of fact and
conclusions of law, and the applicable law in this case: the Court finds
plaintiffs met their burden of proof on damages for breach of contract
against Cleartel and therefore shall award Regency damages in the amount
of $25,580.27 against Cleartel and shall award Actel damages in the
amount of $23,147.22 against Cleartel. Furthermore, the Court finds for
the plaintiffs on their claims under 18 U.S.C. § 1962(c) and 1962(d)
against defendants Auger and Groh and shall
award treble damages on those claims pursuant to
18 U.S.C. § 1964(c). Therefore the Court shall award Regency the amount of
$76,740.81 against defendants Auger and Groh and shall award Actel the
amount of $69,441.67 against defendants Auger and Groh. Plaintiffs are
farther permitted to submit a bill of costs and fees in accordance with
18 U.S.C. § 1964(c).
Plaintiffs Actel and Regency are companies that owned large numbers of
pay telephones in the state of New Jersey and are generally referred to
as Customer Owned Coin Operated Telephone companies or COCOTs. Typically,
a COCOT negotiates a contract with a location owner such as a convenience
store to place a payphone at the location owner's premises and will pay
the location owner a share of the revenues earned from the payphone. In
order to provide telephone services such as long distance and operator
assistance to their pay phones and to obtain billing and collection
services for themselves, a COCOT contracts with an Operator Service
Provider or OSP such as defendant Cleartel.
In the present case, plaintiffs Actel and Regency respectively entered
into contractual relationships with defendant Cleartel to provide
operator services. Actel signed three separate contracts with Cleartel,
dated 1990, 1991, and 1998. (Pls.' Ex. 1, 2, and 3). Regency entered into
a single contract with Cleartel in 1996, (Pls,' Ex. 4). As the conduct at
issue in this suit began in 1995, only Actel's 1990 contract is not at
The most salient provisions of each contract are those that define and
arrange the revenue sharing between the plaintiff and defendant They are
most easily understood from the perspective of a typical payphone call.
An end user makes a call from one of Actel's pay phones and opts to bill
the charges for that call to his home phone. The end user pays three
types of fees for the call all of which are billed and collected by
Cleartel and then distributed according to the
terms of the contract with plaintiffs. First, the end user pays a
location surcharge a flat fee for the use of the phone
that is paid 100% to the plaintiffs. Second, the end user pays an
operator handling charge a flat fee determined by the type of
assistance the operator renders for the end user, e.g. collect calls,
third party calls that is divided between Actel and Cleartel.
Third, the end user pays a per minute charge that is likewise
divided between Actel and Cleartel. The operator charges and the per
minute charges are split according to a contractually established
percentage. For example, the 1998 Regency contract (Pls.' Ex. 4) provides
a "Schedule A" that sets forth the varying commission percentages for
different types of calls, e.g. intrastate, interstate. After a call is
completed, Cleartel, through other companies, sends a bill to the end
user for the sum of the charges.
Plaintiffs initiated this suit in 1998 after discovering that Cleartel
was not reporting all of the charges that it assessed end users for a
phone call. Furthermore, Cleartel was not paying plaintiffs any
percentage of those hidden charges. Plaintiffs' discovery occurred purely
by accident. After making test phone calls from one of the company's
payphones, Regency's owner discovered that the amount that appeared on
his monthly phone bill, which was administered by the local phone
company, was greater than the amount of the charge for that exact call
that Cleartel reported as billing the end user on the monthly statement
it sent to Regency. Only by comparing this discrepancy did Actel and
Regency ever discover that Cleartel was assessing additional charges and
not reporting those charges to plaintiffs.
In July 2001, the Court issued an opinion resolving cross motions for
summary judgment, Regency I.*fn1 In Regency I the
Court first observed that "Cleartel readily admits that (1) the
commission paid to Regency and Actel was based on amounts less than
actually charged to the
end user, and (2) it charged the end user more than it reported to
Regency and Actel." 160 F. Supp.2d at 40. The Court found such actions to
be violations of the contracts between defendant Cleartel and plaintiffs
Regency and Actel and granted summary judgment for plaintiffs Regency and
Actel on their breach of contract claim against Cleartel. Cleartel's
failure to pay commissions to plaintiffs based on the amounts actually
charged to end users violated section 2.1 of the contracts.*fn2
Id. Similarly, Cleartel's failure to report the actual amount
it was charging end users in its monthly statements to plaintiffs
violated section 2, 4 of the contract.*fn3 Id. The Court
granted summary judgment for the defendants on Mark Parrella's breach of
contract claim and on Regency and Actel's breach of contract claims
against the individual defendants.
The Regency I opinion also considered plaintiffs' claim that
defendants violated section 1962(c) and 1962(d) of the Racketeer
Influenced and Corrupt Organizations Act ("RICO"),
18 U.S.C. § 1962(c), 1962(d), in light of defendant's motion for summary
judgment on that claim and made the following findings: (1) "enough evidence
exists for a reasonable jury to find that the defendants utilized the mail
to deceive the plaintiffs," 160 F. Supp.2d at 44; (2) "Regency and Actel
were the intended targets of the alleged RICO violations," Id. at
45; (3) "Cleartel is alleged to be an `enterprise,'" Id.; (4)
plaintiffs' allegations that defendants "deceived them by withholding
information and monies multiple times over a several year period"
represents an "adequately alleged  `pattern of racketeering activity,'"
Id. at 46; (5) because the "predicate acts all stemmed from
identical long distance service contracts between the parties . . . the
predicate acts are clearly `related' and constitute a `closed period of
repeated conduct,'" Id.: (6) plaintiffs sufficiently pleaded
conspiracy and introduced evidence in their motion for summary
judgment to "enable a jury to reasonably infer that the
individually named defendants conspired." Id.
Regency I further granted summary judgment for defendants on
plaintiffs' fraud claims, but held that the dismissal of the fraud claims
did not affect the viability of plaintiffs' RICO claims. Id. at
41, 43. The Court also granted summary judgment for plaintiffs on
defendants' counterclaims Id. at 46.
After Regency I three of the plaintiffs' claims remained for
trial. First, because plaintiffs prevailed on liability on the breach of
contract claim brought by Regency and Actel against Cleartel, the sole
remaining issue on the breach of contract claim is the issue of damages.
Second, having survived summary judgment, plaintiffs must present factual
evidence to support then two RICO claims,
18 U.S.C. § 1962(c), and 1962(d). In August 2003, the Court held a bench
trial to allow the parties to present evidence on these issues.
BREACH OF CONTRACT CLAIM
A. The Breach of Contract
There are three contracts at issue in this case. Plaintiff Actel and
defendant Cleartel entered into a contract in 1991, (Pls.' Ex. 2),
covering the time period from 1991 to 1998, and a second contract in
February 1998, (Pls.' Ex. 3), which lasted until terminated in November
1998. Plaintiff Regency entered into one contract with Cleartel in April
1996. (Pls.' Ex. 4). These three contracts will be referred to
collectively as "the contracts" with differences noted as required.
In 1995 Cleartel and its key employees, including defendants Auger and
Groh, observed that their business was suffering decreased profitability.
The main driver appeared to be an increase in uncollected charges.
Cleartel would process the call data from plaintiffs' payphones and pay
plaintiffs on a thirty day cycle as required by section 2.4 of
the contracts. (Pls.' Ex. 2 at
1; Pls.' Ex. 3 at 1; Pls.' Ex. 4 at 1). Defendants submitted the
call charge data to third parties who would in turn bill the end users
and collect payments. As the payments from end users were collected the
third parties would remit payment to Cleartel. In 1995 defendants
observed that the amounts collected were decreasing; in other words,
their uncollected charges, or uncollectibles were increasing. Until that
time the only means of protection against the risk and incidence of
uncollected charges was the percentage of COCOT commissions that were
held back to offset uncollectibles pursuant to section 2.3 of the
Defendants' solution was to implement a direct charge against end users
and keep 100% of the revenue from this charge for themselves. This charge
was in addition to the standard operator handling charges, per
minute charges, and location surcharges that were already assessed
against an end user who made a phone call. Defendants labeled this charge
the Uncollectible Cost Recovery Surcharge ("UCRS"). Defendants neither
paid a commission nor reported the existence of the UCRS to plaintiffs.
In Regency I the Court found that defendant Cleartel breached
its contracts with plaintiff Regency and Actel in failing to report or
pay commissions on the UCRS. Regency I, 160 F. Supp.2d at 40.
B. Plaintiffs' Damages
The most appropriate measure of plaintiffs' damages for breach of
contract is expectancy damages. See Restatement of the Law
(Second) Contracts § 347 (1981). According to the contracts,
plaintiffs expected to receive compensation from all of the charges that
were assessed a pay phone end user. According to section 2.2 of the
contracts, plaintiffs were to receive 100% of the location surcharge.
(Pls.' Ex. 2 at 1; Pls.' Ex. 3 at 1; Pls.' Ex. 4 at 1). Section 2.1 of
the contracts provided that plaintiffs would receive a fixed percent
commission of all other charges that Cleartel assessed. (Id.).
Each contract set a different commission percentage. Section 2.1
stated that the "commission plan is based upon Cleartel's standard
COCOT rates." Cleartel's rates are in turn set forth in its tariff.
(Defs.' Ex. 9). The tariff shows two types of charges, an operator
handling charge and a per minute rate. The contracts did not
specify what the actual operator handling charges and per minute
charges would be and those amounts could and did change whenever Cleartel
modified its tariff.
Defendants claim that they were entitled under the contract to levy the
UCRS charge and to keep 100% of the money collected from it. (Tr. at
319-21). This statement is contradicted by the fact that defendants
implemented the UCRS by increasing the amount of their operator handling
charges on their tariff. (Defs.' Ex. 9, 10; Tr. at 370-71). Defendants do
not dispute and in fact admit plaintiffs had a right to receive
commission on any amount charged as part of Cleartel's base rate, which
included operator handling charges. (Tr. at 310, 320-21), Thus defendants
acknowledged that plaintiffs' total expected compensation from the
contract should have included commission on the amount charged end users
under the name UCRS. (Tr. at 366-69). The Court concludes that
plaintiffs' expectation damages includes their contractual commission
percentage of all charges assessed by defendants, specifically including
all charges labeled by defendants as a UCRS.
The Court rejects plaintiffs' argument that their expectancy damages
are the entire amount of the UCRS rather than their contractually set
commission percentage. Plaintiffs' argument hinges on defining the UCRS
as a location surcharge, which under the contract is paid 100% to
plaintiffs. (Tr. at 51-53). Plaintiffs assert that because the UCRS was a
flat fee levied against each end user that it is similar to a location
surcharge in form and therefore should be distributed like a location
surcharge. What plaintiffs ignore is the fact that the location surcharge
is also set forth as a specific dollar amount in the contract and
plaintiffs admit that they received
the correct contractually set location surcharge on each call made.
(Tr. at 51-53).
C. Defendants' Setoff
Defendants attempt to negate their concession of plaintiffs' right to
commissions on the UCRS with a setoff for the actual uncollectibles
experienced by defendants. In support of this theory, defendants
presented a damages model that charges back actual uncollectibles to the
plaintiffs and sets off that amount against any unpaid commission owed
plaintiffs, (See Defs.' Ex. 7, 8; Tr. at 366-70). Defendants'
argument is that they have a contractual right to perform a "true
up." Defendants argue that any additional compensation owed plaintiffs
should be offset by the actual uncollectibles experienced by Cleartel
over the relevant period.
Defendants' attempt to offset plaintiffs' damages is flawed for reasons
of law and fact. First, defendants are either trying to now plead a
compulsory counterclaim or trying to assert a setoff as an affirmative
defense. Setoff is an affirmative defense under Federal Rule of Civil
Procedure 8(c). See 5 C. Wright & A. Miller, Federal
Practice and Procedure § 1271 (1990); Davis v. Odeco, Inc.,
18 F.3d 1237, 1245 (5* Cir. 1994). Defendants' "failure to plead an
affirmative defense results in a waiver of that defense and its exclusion
from the case." Consolidated Mortgage and Finance Corp. v.
Landrieu, 493 F. Supp. 1284, 1293 (D.D.C. 1980); see 5 C.
Wright & A. Miller, Federal Practice and Procedure § 1278 (1990).
In the alternative, as defendants' claim "arises out of the transaction
or occurrence that is the subject of the opposing party's claim" it is a
compulsory counterclaim under Federal Rule of Civil Procedure 13.
Defendants filed their answer and counterclaim in response to plaintiffs'
second amended complaint on April 12, 1999. Therein, defendants set forth
both affirmative defenses and counterclaims none of which regarded any
claim for monies owed to defendants by plaintiffs for any uncollected
charges. Defendants failed to timely plead an affirmative defense or
file a counterclaim and their claim is therefore waived.
Even if the Court found no legal impediment to defendants' attempted
setoff the Court finds the claim fails for lack of evidence. Defendants
repeatedly admitted that they lacked the technological ability to
attribute any particular uncollected charges to either a particular phone
or to a particular COCOT, (Tr. at 274, 327, 366). This meant that the
amount of actual uncollectibles used in defendants' damage model is not
"actual" in the sense that it represents uncollected charges from phones
owned by plaintiffs. Rather defendants extrapolated those numbers using
state wide uncollectible charge data thus creating an estimate of
uncollectibles. (Tr. at 316, 367). In addition, the Court finds that the
evidence defendants presented was highly speculative and did not
constitute sufficient proof of defendants' uncollected charges and is
therefore incapable of supporting a determination of the amount
defendants might be entitled to setoff against plaintiffs' damages.
Finally, even if the Court were to find that defendants presented
sufficient evidence to support their setoff claim, defendants' own model
shows that such a setoff increases plaintiffs' damages rather than
decreases them because defendants overcharged plaintiffs for
Defendants' damages model, (Defs.' Ex. 7, 8), is flawed because it
gives to defendants as profit their portion of the UCRS and charges
"actual" uncollectibles against plaintiffs' portion of the UCRS. Given
defendants' oft stated rationale for charging the UCRS as a means to
recoup actual uncollectibles directly from the end user and not from
plaintiffs, defendants should devote their share of this surcharge to
offsetting actual uncollectibles, not plaintiffs. (Tr. at 319-21).
Defendant Groh admitted as much when he stated that if he had to pay
Actel their 35% commission on the UCRS "[Cleartel] would have only
received 65 cents, and for whatever number I felt like I needed to cover
my uncollectibles, I would have had to raise the rate by a
third above what I actually needed" (Tr. at 320), Yet even when
plaintiffs' share of the UCRS is removed and defendant's share of the
UCRS is added to the percentage holdback in the contract, the total of
these numbers exceeds in every case the actual amount of uncollectibles.
Thus, defendants will have collected excess funds beyond their actual
uncollectibles even if they pay plaintiffs their percentage commission on
D. The Damage Calculation
Defendant Cleartel began to assess the UCRS in approximately August of
1995. (Tr. at 382). Defendants' damages model notes September 1995 as the
first month where defendants failed to pay compensation to plaintiffs for
the UCRS. (Defs.' Ex. 7, 8).
After evaluating all the evidence presented on damages the Court finds
as follows: 1) Defendants began assessing the UCRS at some point in the
month of August 1995 making September 1995 the first month for which
damages can be calculated (Tr. at 382; Defs.' Ex. 7, 8); 2) The amount of
the UCRS was $0.78 per call for both Regency and Actel; 3) Regency and
Actel were entitled to receive their contractual commission percentage on
the UCRS; 4) Cleartel's actual uncollectibles were too speculative to
support any amount of offset to those commissions even assuming no legal
hurdles; 5) Even if Cleartel's proof were accurate, Cleartel should have
used the portion of the UCRS that it kept after paying commissions to
cover its uncollectibles, entitling plaintiffs to receive their full
commission on all charges.
Based on the foregoing, Regency's damages are as follows:
Total Calls made April 1996 to Feb. 1997 67,899
UCRS per call $ 0.78
Total UCRS $ 52,961.22
Regency's Commission % 52.50%
Amount of Commissions owed Regency $ 27,804.64
8% uncollectible holdback $ 2, 224.37
Net Amount owed Regency $ 25,580.27*fn5
Actel's damages under its 1991 contract are as follows:
Total Calls made Sep. 1995 to Jan. 1998 61,591
UCRS per call $ 0.78
Total UCRS $ 48,040.98
Actel's Commission % 35%
Amount of Commissions owed Actel $ 16,814.34
10% uncollectible holdback $ 1,681.43
Net Amount owed Actel $ 15,132.91
Actel's damages under its 1998 contract are as follows:
Total Calls made Feb. 1998 to Nov. 1998 26,591
UCRS per call $ 0,78
Total UCRS $ 20,740.98
Actel's Commission % 42%
Amount of Commissions owed Actel $ 8,711.21
8% uncollectible holdback $ 696.90
Net Amount owed Actel $ 8,014.31*fn6
Actel's total contract damages are $23,147.22 ($15,132.91 $8,014.31).
RICO, 18 U.S.C. § 1961-1968 (2003), provides a civil remedy for any
person who is injured in his business or property by reason of conduct
which amounts to racketeering activity. 18 U.S.C. § 1964(c).
Plaintiffs claim defendants' conduct violated § 1962(c) and §
A civil RICO plaintiff claiming a violation of
§ 1962(c) must allege and prove (1) an injury
to his business or property by reason of the
violation; (2) the existence of an enterprise; (3)
that the defendant was employed by or associated
with the enterprise; (4) that the defendant
participated in the conduct of the enterprise's
affairs; and (5) that the participation was
through a pattern of racketeering activity.
Danielsen v. Burnside Ott Aviation Training Center,
Inc., 941 F.2d 1220, 1231 (D.C. Cir. 1991) (citing cases).
In Regency I, the Court found as a matter of law that
plaintiffs sufficiently alleged the elements of a civil RICO claim under
1962(c), Regency I, 160 F. Supp.2d at 44-46, and that "Regency
and Actel were the intended targets of the alleged RICO violations."
Id. at 46.
The Court finds that the damages to both Regency and Actel documented
above constituted an injury to each of their respective businesses and
that such injury occurred as a proximate result of defendants' violations
of RICO in satisfaction of the first element above. By deceiving
plaintiffs about the amount of money owed them, defendants were able to
retain significant additional revenues that would otherwise have been
paid to plaintiffs.
According to 18 U.S.C. § 1961(4), a RICO enterprise includes "any
individual, partnership, corporation, association or other legal entity,
and any union or group of individuals associated in fact although not a
legal entity." Cleartel was a corporation operating out of the District
of Columbia that conducted business with parties in multiple other
states, including New Jersey, and was otherwise engaged in interstate
Participation in the conduct of the enterprises' affairs requires
"participation in the operation or management of the enterprise itself.
Danielsen, 941 F.2d at 1231 (citing Yellow Bus Lines, Inc.
v. Drivers. Chauffeurs & Helpers Local Union 639, 913 F.2d 948,
952-6 (D.C. Cir. 1990) (en banc)). Defendants Auger and Groh were both
employed by and associated with Cleartel. Defendant Auger participated in
founding the company (Tr. at 225) and served as its
President at all times relevant to this action (Pls.' Ex. 17 at
2-6). Defendant Groh served as Director of Finance and later Chief
Financial Officer. (Tr. at 265-66). Defendants Auger and Groh both
participated in the operation and management of Cleartel. Defendant Auger
testified that the "Implementation of the UCRS" was his decision. (Tr. at
249). Defendant Groh played a role in the implementation of the scheme.
He participated in the sales meeting creating the UCRS (Tr. at 318),
calculated the amount of the UCRS (Tr. at 319), and then as part of the
implementation "coordinated with [Cleartel's] IT Department to create the
programming in our billing system to add this additional charge to the
bills." (Tr. at 321-322). Furthermore, even though Mr. Groh retained a
sales representative relationship with Actel (Tr. at 201) he never
informed Actel of the existence of the UCRS. (Tr. at 389). Both were
aware that the UCRS was not and would not be communicated to the COCOTs
on their monthly statements. (Tr. at 249, 325). Both were also aware that
increasing the percentage holdback would cause a loss of COCOT customers.
(Tr. at 244, 318-321),
The final element plaintiffs must prove is that defendants'
participation was through a pattern of racketeering activity. Plaintiffs
alleged that defendants utilized the mail to deceive them and that
defendants deceived them by withholding information and monies multiple
times over a multi year period from 1995 to 1998. The Court has
already held that such conduct, if proven, represents a pattern of
racketeering activity. Regency I, 160 F. Supp.2d at 46.
Furthermore, as noted supra, because the "predicate acts all
stemmed from identical long distance service contracts between the
parties . . . the predicate acts are clearly `related' and constitute a
`closed period of repeated conduct,'" Id.
A plaintiff alleging a violation of either mail or wire fraud statutes,
18 U.S.C. § 1341, 1343, must show that the defendant used the United
States mail, a private or commercial
interstate carrier, e.g. Fed Ex. or wires in furtherance of a scheme
to deceive and defraud. Between August 1995 and November 1998, defendants
both mailed monthly commission statements to plaintiffs using both the
United States mail and commercial carriers (Tr. at 13, 95) and sent them
over the Internet (Tr. at 68). These monthly commission statements were
part of a scheme to defraud plaintiffs.
In 1995, defendants faced highly competitive market conditions (Tr. at
240, 347) and few alternatives for increasing profitability. Rising
uncollectibles began to exceed the 8% holdback on all commissions that
was retained as an offset for those uncollectibles. (Tr. at 243). Each
monthly statement plainly displayed the 8% holdback rate and the reduced
commissions were indicated as a column described as "net after
uncollectible." (Pls.' Ex. 7). Cleartel considered raising the holdback
percentage on a going forward basis to compensate for the increased
uncollectibles (Tr. at 244) but rejected this idea because 8% was the
amount other competitor OSP's charged and defendants concluded that
raising the holdback percent would result in lost COCOT customers. (Tr.
at 244), Moreover, to increase the holdback percentage would require
renegotiation of their contract and would likewise appear on the
commission statements. Since contracts and commission statements were the
main tools the salespersons of competitor OSPs used to prepare offers to
potential COCOT customers (Tr. at 331) any means of recouping
uncollectibles that did not alert the COCOTs would avoid the constraints
of the competitive marketplace. As defendant Auger so revealingly stated:
"the market put constraints on us and we had to try to find ways to
accomplish our objectives." (Tr. at 272-73).
Instead, defendants opted to implement a charge they termed the UCRS.
At the time of the implementation in August 1995 defendant Cleartel had
over 600 COCOT' customers. (Tr. at 140). Defendants claim that at the
time of implementation they sent out a letter to all COCOT
customers describing the UCRS and informing their customers of its
impending start. (Tr. at 140). Yet defendants have never produced a copy
of the letter, not an internal copy and no copy from any of their former
customers. Moreover, defendants did not produce any former COCOT
customers to testify that they had either received the letter or were
otherwise aware of the UCRS. Mr. Koontz, a former COCOT customer
testified as to the UCRS but he was more than a mere customer, he was
also an employee of Cleartel. (Tr. at 159). He too could not find the
letter. (Tr. at 161-62). The Court finds that such testimony, including
that of defendants Auger and Groh, is not credible on this point in light
of the failure to produce a copy of the letter or introduce any witnesses
not affiliated with Cleartel. The Court finds insufficient evidence to
indicate that a letter was ever mailed to any COCOT customer and
particularly finds that no letter describing the UCRS was ever sent to
Defendants also failed to inform plaintiffs of the UCRS via their
monthly commission statements and used these statements to further their
scheme. When defendants implemented the UCRS the commission statements
did not change in format to reflect this new charge or calculation of
commissions without the UCRS. (Tr. at 324), According to section 2.4 of
the contracts, the monthly statement was supposed to include a "summary
of gross long distance calls, minutes, and charges by originating phone
number." (Pls.' Ex. 2 at 2; Pls.' Ex. 3 at 2; Pls.' Ex. 4 at 2). The
Court already found that defendants breached this section of the
contract. Regency I, 160 F. Supp.2d at 40. But defendants'
conduct represents more than a mere breach of contract. Instead,
defendants engaged in a series of actions designed to prevent plaintiffs
from discovering the existence of the UCRS. The UCRS charge was entered
on the software program mat produced the monthly reports by defendant
Groh, yet defendants never made adjustments to the printed report to
reflect this new charge. (Tr. at 324). Defendants claimed they never made
this adjustment because the report was printed on paper with a
preprinted format and that to add an additional column would have
required substantial adjustments (Tr. at 325) but this fails to explain
why defendants did not include the UCRS in the total charges column of
the monthly report.
The UCRS was indisputably a charge assessed against end users and was
already a column in the program that calculated values for the monthly
commission statement. Defendant Groh even admitted that the total charges
column in the monthly report could have been adjusted to include the
UCRS. Yet defendants did not modify this column and so concealed from
plaintiffs the UCRS. (Tr. at 377-80).
Defendants' concealment is further shown by the manner in which
defendants passed the charge on to end users. Defendants added the UCRS
to the charge assessed against end users by modifying their tariff (Tr.
at 371-72). In that modification they added amounts ranging from $0.25 to
$0.50 to each of their operator handling charges. (Defs.' Ex. 10). Yet
the amount of UCRS per call being assessed against plaintiffs was $0.78
per call. This discrepancy is not explained. One plausible inference is
that it was defendants' software program that set aside $0.78 per call as
UCRS and that it reduced the total charge reported to plaintiffs by that
amount. If that operator handling charge had only been increased by $0.25
then the additional $0.53 cents would have been charges a share of which
plaintiffs had previously received. Insufficient evidence exists to
establish this point, but the inferences from such facts are clear.
A further inconsistency giving rise to an inference of conspiracy and
deception is defendants' assertion that they implemented the UCRS in part
to discourage COCOTs from charging large location surcharges. (Tr. at
245-46), Defendants, including both Groh and Auger, felt that sizeable
location surcharges damaged the long term viability of the pay
(Tr. at 245-46). Defendants claimed they implemented the UCRS on a
sliding scale so that larger locations surcharges would automatically
merit a larger UCRS and vice versa. (Tr. at 245-46). Thus COCOTs that
reduced their location surcharge would see a reduction in the UCRS that
in turn would result in smaller overall bills to end users that would in
turn lead to increased call volume and a lower incidence of uncollected
charges. But despite this claim and its well thought out rationale,
defendants did not include a scale comparing the UCRS to the location
surcharge on any of plaintiffs contracts, or in the attached "Schedule A"
to either contract that set forth the amount of the location surcharge.
(Tr. at 285). In fact, even after assessing the UCRS for several years,
defendants' contracts, including its 1998 contract with Actel, still used
prospective language to describe the UCRS rather than present tense
language. Section 2.2 of the 1998 Actel contract (Pls.' Ex. 3) and the
1996 Regency contract (Pls.' Ex. 4) state "Cleartel reserves the right to
implement an uncollectible cost recovery surcharge (UCRS) to recover
actual uncollectible amounts . . ." (Pls.' Ex. 3 at 2, Pls.' Ex. 4 at 2).
Moreover, defendants did not include a UCRS scale on the monthly
commission statements sent to plaintiffs, though the 8% holdback was
clearly displayed. (Pls.' Ex. 7). Finally, the Court observes that
plaintiffs reported UCRS charges of between $0.50 and $1.00, but all of
Actel's phones had a single location surcharge as did all of Regency's.
Defendants do not explain why, if the UCRS operated on a scale tied to
the location surcharge, a single location surcharge coincided with
different UCRS. Again, the Court cannot reconcile defendants well
scripted explanations with the routine pattern and practice of deceiving
the plaintiffs as to the existence and amount of the UCRS.
In conclusion, all of the aforementioned acts, taken together,
constitute a complex and multifaceted pattern of deception in the
creation, use, and repeated sending of monthly
statements through the United States mail. The Court finds that
defendants Auger and Groh violated 18 U.S.C. § 1962(c) in that they acted
with a specific intent to defraud and while employed by Cleartel, an
enterprise under RICO, did participate in the management, operations, and
conduct of Cleartel through a pattern of racketeering activity involving
numerous separate acts designed to deceive plaintiffs and that these
deceptive actions occurred in part in the design and use of the monthly
commission statement, which was sent to plaintiffs through the United
States postal service or private carriers. Furthermore, the Court finds
that plaintiffs were directly injured in their business or property by
reason of these violations and that the injury sustained by each is equal
to the amount of actual damages each suffered by reason of the breach of
contract by defendant Cleartel. Finally., the Court finds sufficient
evidence to support a finding that defendants Auger and Groh conspired in
their violation of 18 U.S.C. § 1962(c) and are therefore in violation of
18 U.S.C. § 1962(d).
B. Damages for violation of RICO
According to 18 U.S.C. § 1964(c), having found liability against
defendants Auger and Groh, the Court must award treble damages to
plaintiffs. See Resolution Trust Corp. v. S & K Chevrolet,
868 F. Supp. 1047 (C.D. Ill. 1994). The Court considers the treble damage
award to be penal in nature and therefore not duplicative of the actual
damages awarded the plaintiffs against Cleartel. The Court previously
found that plaintiff Regency's actual damages were $25,580.27. The Court
therefore shall award Regency treble damages in the amount of $76,740.81
against defendants Auger and Groh. The Court found Actel's actual damages
were $23,147.22. The Court therefore shall award treble damages to Actel
in the amount of $69,441.67 against defendants Auger and Groh. Plaintiffs
are further permitted to file a motion for reimbursement of the costs of
the suit, including a "reasonable attorney's fee."
18 U.S.C. § 1964(c).
The plaintiffs met their burden of proof as to damages on their breach
of contract claim. The Court shall award plaintiff Regency Communications
Inc. actual contract damages in the amount of $25,580.27 against
defendant Cleartel Communications Inc. The Court shall award plaintiff
Actel Inc. actual contract damages in the amount of $23,147.22 against
defendant Cleartel Communications Inc.
The plaintiffs met their burden of proof on their claims under RICO,
18 U.S.C. § 1962(c) and 1962(d). The Court awards treble damages under
18 U.S.C. § 1964(c). The Court shall award damages to Regency
Communications Inc. in the amount of $76,740.81 against defendants
Ulysses G. Auger and Barton R. Groh. The Court shall award damages to
Actel, Inc., in the amount of $69,441.67 against defendants Ulysses G.
Auger and Barton R. Groh. The Court also permits plaintiffs to submit a
bill of fees and costs in accordance with 18 U.S.C. § 1964(c). A
separate judgment shall issue this date.
Pursuant to FED. R. Civ. P. 58 and in accordance with the Memorandum
Opinion issued this date, it is this I8th day of February, 2004, hereby
ORDERED that JUDGMENT is entered against defendant Cleartel
Communications Inc. and in favor of plaintiff Regency Communications Inc.
in the amount of $25.580.27; it is
FURTHER ORDERED that JUDGMENT is entered against defendant Cleartel
Communications Inc. and in favor of plaintiff Actel Inc. in the amount of
$23,147.22; it is
FURTHER ORDERED that JUDGMENT is entered against defendants Ulysses G.
Auger and Barton R. Groh and in favor of plaintiff Regency Communications
Inc. in the amount of $76,740.81; it is
FURTHER ORDERED that JUDGMENT is entered against defendants Ulysses G.
Auger and Barton R. Groh and in favor of plaintiff Actel, Inc. in the
amount of $69,441.67; and it is
FURTHER ORDERED that plaintiffs may submit a bill of fees and costs in
accordance with 18 U.S.C. § 1964(c).