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CELLULAR v. VANGUARD CELLULAR SYS.

October 28, 1992

SUNSHINE CELLULAR Plaintiff, against VANGUARD CELLULAR SYSTEMS, INC., Defendants.

Carter


The opinion of the court was delivered by: ROBERT L. CARTER

Robert L. Carter, District Judge

 I.

 Plaintiff Sunshine Cellular ("Sunshine") is a Maryland general partnership which provides nonwireline cellular telephone service in a Pennsylvania service area known as "Pennsylvania 8." Defendant Vanguard Cellular Systems, Inc. ("Vanguard") is a North Carolina corporation which provides nonwireline cellular telephone service for a cluster of service areas known as the "Pennsylvania Supersystem."

 Vanguard's Pennsylvania Supersystem territory includes FCC-designated service areas in much of Eastern Pennsylvania as well as portions of New York and Maryland. Sunshine describes the geographic location of its service area as the "hole" in Vanguard's "doughnut-shaped" Pennsylvania Supersystem, for Vanguard's cluster of service areas is adjacent to Sunshine's service area at many points.

 Pursuant to federal regulation, the FCC divided the country into 734 local cellular service areas, and only two firms are permitted to offer facilities-based cellular service in each area. Originally, all licenses were granted by the FCC by lottery. Sunshine won the FCC lottery to be the nonwireline cellular provider for Pennsylvania 8 in November, 1989. By regulation in effect when most of the cellular licenses were awarded, one of the two competitors in each service area was required to be a "wireline" company, a firm offering conventional local telephone service, and the other had to be a "nonwireline" company, one not affiliated with a regional or local telephone company. *fn1" Licensees may sell their licenses, or purchase licenses from other licensees.

 Vanguard's business strategy as recited in its own documents is to expand its cellular telephone system by creating a network of "seamless coverage" in adjacent FCC-defined service areas. Complaint P 22. Toward this end, Vanguard acquired two licenses in 1991 from cellular phone providers in service areas adjacent to those in which Vanguard already possessed licenses enabling it to link together some of its service areas. As Sunshine sees it, Vanguard is out to acquire Sunshine's license to "fill in the hole" in Vanguard's doughnut-shaped Pennsylvania Supersystem.

 Vanguard has refused to enter into a "two-way roaming agreement" with Sunshine although it is customary in the industry for cellular companies in adjacent service areas to enter into such agreements. A subscriber who takes his mobile phone outside the service area where he lives is said to be "roaming" into another service area. According to Sunshine, a roaming subscriber has no access, except on an inconvenient and inefficient basis, to the cellular telephone system in the service area into which he has roamed unless an arrangement is in place between the subscriber's home company and a cellular phone company in that service area.

 Companies typically agree to use the "Model Roamer Agreement" prepared under the direction of the Cellular Telecommunications Industry Association. A "two-way roaming agreement" is a reciprocal agreement in which cellular companies promise to bill their subscribers for all roaming calls made by their respective subscribers in the other company's service area. Under such an arrangement although the subscriber's home company is responsible for billing, all revenue from the call is remitted to the company in the service area in which the call was placed.

 Sunshine claims most roaming revenue is derived from customers in adjacent markets, so roaming revenues from Vanguard customers are vital to its ability to compete. Vanguard has entered into a two-way roaming agreement with the wireline cellular company in Sunshine's service area, as well as with other wireline and nonwireline companies around the country. Allegedly Vanguard refuses to enter into a similar arrangement with Sunshine on commercially reasonable terms even though Sunshine's cellular system is "better and more complete" than the cellular system of the wireline company in Sunshine's service area.

 Every cellular telephone is designed to be compatible with cellular systems in all service areas within the United States. Thus, a telephone may be used wherever the subscriber travels unless it is programmed to limit access to particular cellular systems. Sunshine contends Vanguard is planning or has already begun to block access to Sunshine's cellular system on new cellular telephones provided to Vanguard customers, and Vanguard is advising its customers that Sunshine is demanding excessive rates for use of its system. Sunshine also claims that Vanguard, through a wholly-owned subsidiary, initiated a "baseless and sham" lawsuit against Sunshine in order to interfere with Sunshine's efforts to secure financing and begin construction.

 Sunshine filed a First Amended Complaint asserting against Vanguard antitrust claims for monopoly and attempted monopoly in violation of both Section 2 of the Sherman Act, 15 U.S.C. § 2, and Pennsylvania antitrust common law as well as a claim for tortious interference with business relations. Vanguard has filed a motion to dismiss all of these claims pursuant to Rule 12(b)(6), F.R.Civ.P., for failure to state a claim.

 Vanguard contends that Sunshine did not satisfy any of the requirements for asserting a monopoly or attempted monopoly claim under Section 2 of the Sherman Act. Specifically, Vanguard claims that Sunshine lacks standing to bring either claim; that Sunshine did not demonstrate that Vanguard has either "monopoly power" or a "dangerous probability" of attaining a monopoly in any relevant market; that Sunshine did not allege any "anticompetitive" conduct by Vanguard; and that Sunshine did not show that Vanguard has a specific intent to monopolize, a requirement for attempted monopoly. Based on the same reasons, Vanguard contends Sunshine's Pennsylvania antitrust common law claim should be dismissed. Also pursuant to Rule 12(b)(6), F.R.Civ.P., Vanguard moves to dismiss Sunshine's claim for tortious interference with business relations for failure to adequately plead several elements required to assert such a claim.

 II. Motion to Dismiss

 In determining the adequacy of a claim under Rule 12(b)(6), F.R.Civ.P., consideration is limited to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken. Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991). A court must construe in plaintiff's favor any well-pleaded factual allegations in the complaint. Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). Dismissal is not warranted unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). In antitrust cases in particular, the Supreme Court has stated that "dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly." Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 747, 48 L. Ed. 2d 338, 96 S. Ct. 1848 (1976).

 A. Section 2 Sherman Act Claims

 Section 2 of the Sherman Act makes it illegal for any person to "monopolize, or attempt to monopolize, . . . any part of the trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 2 (1982). Sunshine's monopoly claim alleges that Vanguard violated § 2 of the Sherman Act by "wrongfully refusing to deal and cooperate with Sunshine on commercially reasonable and non-discriminatory terms, thereby unlawfully leveraging monopoly power into an adjacent market." Complaint § 53. Sunshine's attempted monopoly claim alleges that Vanguard violated § 2 by denying Sunshine access to an essential facility, the two-way roaming agreement, in order to attempt to monopolize the market for cellular telephone service in Pennsylvania 8. Complaint P 55.

 1. Standing

 A private plaintiff like Sunshine seeking to enforce § 2 of the Sherman Act must satisfy the standing requirements of sections 4 and 16 of the Clayton Act *fn2" which are: 1) proof of an "antitrust injury" and 2) proof that the plaintiff is a "proper party" to bring a suit against the defendant. See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 110-111, 93 L. Ed. 2d 427, 107 S. Ct. 484 (1986); Associated General Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 540-545, 74 L. Ed. 2d 723, 103 S. Ct. 897 (1983). Vanguard claims Sunshine has not satisfied either requirement.

 In attacking the sufficiency of Sunshine's antitrust injury, Vanguard focuses on the effect of its refusal to enter into a two-way roaming agreement with Sunshine, and argues that Sunshine has not alleged that its injury stems from a "competition-reducing" effect of Vanguard's behavior. See Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S. Ct. 1884, 1894, 109 L. Ed. 2d 333 (1990). According to Vanguard, the federal regulation permitting only two providers of cellular service for each FCC-defined local cellular service area means that competition will not be reduced even if Vanguard's refusal to enter a two-way roaming agreement results in Vanguard displacing Sunshine. As Vanguard explains, the "competitive structure" of the Pennsylvania 8 Rural Service Area would remain unchanged because "two and only two providers of cellular services . . . would remain in Pennsylvania 8," and "the substitution of one dealer for another -- unaccompanied by any harm to competition in the relevant market -- is not an antitrust injury." Defendant's Memorandum at 27.

 Vanguard's "competitive structure" argument was discounted in Otter Tail Power Co. v. United States, 410 U.S. 366, 35 L. Ed. 2d 359, 93 S. Ct. 1022 (1973). *fn3" The focus on "competitive structure" misses the point, rather the focus in determining antitrust injury is on "competitive process." *fn4" Even if the Pennsylvania 8 service area is legally structured so that only two cellular phone providers may compete within it, the Sherman Act protects the competitive process for acquiring a position as one of the two providers.

 In any event, Sunshine has alleged that its losses stem from "competition-reducing" effects of Vanguard's anticompetitive conduct, and therefore has provided proof of "antitrust injury". Sunshine claims that as a result of Vanguard's refusal to enter into a two-way roaming agreement it "will be forced by economic circumstances to sell to Vanguard, because no one else would want to buy a business that has been the subject of successful predation;" and that Vanguard's strategy "jeopardize[s] the development of cellular territories by discouraging independent suppliers such as Sunshine from developing their territories in efficient ways." Complaint P 47-51.

 Sunshine's proof of an antitrust injury is necessary but not sufficient to establish standing. Courts must also consider whether the plaintiff is a "proper party" to bring a suit against the defendant based upon the following factors: (1) the directness or indirectness of the asserted injury; (2) the existence of an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement; (3) the speculativeness of the alleged injury; and (4) the difficulty of identifying damages and apportioning them among direct and indirect victims so as to avoid duplicative recovery. See Associated General, 459 U.S. at 540-45; Nat. Assoc. of Pharmaceutical Mfrs., Inc. v. Ayerst Laboratories Div. of/and American Home Products Corp., 850 F.2d 904, 912 (2d Cir. 1988).

 Apparently attacking Sunshine's satisfaction of the first and third factors, Vanguard claims Sunshine's injury is "remote and speculative." Sunshine's injury is not remote because Sunshine is the target of Vanguard's alleged refusal to deal or denial of an essential facility. See Disenos Artisticos E Industriales, S.A. v. Work, 676 F. Supp. 1254, 1279 (E.D.N.Y. 1987). Sunshine's injury is not speculative because it is currently losing substantial revenues as a result of Vanguard's conduct. Vanguard also attacks Sunshine's satisfaction of factor two claiming that since the only "concrete" harm alleged by Sunshine is to Vanguard customers, those customers are the proper party to bring suit. However, ...


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