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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 Page 2 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 issue.

  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 Page 3 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 Page 4 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 Page 5 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.


 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 Page 6 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 contracts.

  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 ...

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