United States District Court, S.D. New York
August 30, 2005.
In re ADELPHIA COMMUNICATIONS CORP. et al., Debtors. GERALD DIBBERN, individually and on behalf of all others similarly situated, Plaintiff-Appellant,
ADELPHIA COMMUNICATIONS CORP., JOHN DOES 1-20 and XYZ COMPANY Nos. 1-50, Defendants-Appellees.
The opinion of the court was delivered by: DENNY CHIN, District Judge
This is an appeal from a decision and order of the United
States Bankruptcy Court for the Southern District of New York (Gerber, B.J.), dated May 3, 2005 (the "Order"), granting
the motion of defendant-appellee Adelphia Communications
Corporation ("Adelphia") to dismiss the amended complaint
pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons that
follow, the Order is affirmed in part and reversed in part.
STATEMENT OF THE CASE
A. The Facts
As alleged in the amended complaint, the facts are as follows:
Plaintiff-appellant Gerald Dibbern is a resident of
Massachusetts. (Am. Compl. ¶ 9). In approximately 1996,*fn1
he contacted Harron Communications Corp. ("Harron") to obtain
cable television service for his home. (Id. ¶ 79). He signed up
for the "basic service tier" ("BST"), which consisted of basic
service only, without any premium channels. He began renting two
cable converter boxes, which were necessary to view even basic
programming. (Id. ¶¶ 9, 79). To the extent Dibbern received any
contract documents or installation materials or other documents
at the time, he no longer has them. (Id. ¶ 80). Dibbern has
been paying a rental fee for the converter boxes of between $1.60
and $3.25 per month per box. (Id. ¶ 16).
In April 1999, Adelphia announced that it was acquiring Harron.
The transaction closed in October 1999. (Id. ¶ 21). The Harron acquisition added subscribers in Pennsylvania,
Michigan, Massachusetts, and New Hampshire to Adelphia's customer
base. (Id. ¶ 24).
At some point after the acquisition, as it had been doing with
respect to its acquisitions of other cable systems, Adelphia
upgraded the system it acquired from Harron. (Id. ¶¶ 20, 25,
28, 30). Previously, Harron's BST customers, including Dibbern,
had to rent converter boxes to be able to view basic programming.
(Id. ¶ 26). After the upgrade, however, BST customers no longer
needed converter boxes to view basic programming, if they had a
cable-ready television or VCR (as most people do) and did not
want to subscribe to premium channels or use pay-per-view
services. (Id. ¶¶ 2, 28, 43).
Adelphia did not advise Dibbern or its other BST customers that
the converter boxes were no longer required to view basic
programming. Instead, Adelphia continued to charge monthly rental
fees for the boxes, even though they were no longer necessary for
BST customers who were not interested in viewing premium channels
or pay-per-view programs. (Id. ¶¶ 3, 32, 35).
In May 2001, Adelphia finally advised its customers that they
no longer needed to rent converter boxes for BST-only service.
(Id. ¶ 36). The notice appeared on the May bill as follows:
CUSTOMERS WHO DO NOT SUBSCRIBE TO ANALOG PREMIUM
CHANNELS (HBO, CINEMAX, SHOWTIME OR NESN), OR ENJOY ORDERING PAY-PER-VIEW, NO LONGER NEED
A CONVERTER BOX, PROVIDED THAT THEIR TELEVISION IS
CABLE-READY. CONVERTERS MAY BE RETURNED TO YOUR
LOCAL ADELPHIA OFFICE.
(Order at 3-4 n. 4). A majority of the BST subscribers returned
their cable boxes, and thus they were no longer subject to the
cable box rental fee. (Am Compl. ¶ 37). A follow-up notice was
included in the September 2001 bill, reminding BST customers that
the converter boxes were no longer necessary. (Id. ¶ 41; Order
at 3-4 n. 4).
Adelphia is and was at all relevant times a Delaware
corporation with its principal place of business in Pennsylvania.
(Am. Compl. ¶ 10). The amended complaint does not allege where
Harron was incorporated or where its principal place of business
B. Prior Proceedings
On April 14, 2002, Dibbern filed an action in state court in
Pennsylvania against Adelphia, raising the claims asserted
herein. On June 25, 2002, for unrelated reasons, Adelphia and
many of its subsidiaries filed for Chapter 11 protection. On July
8, 2002, Dibbern filed a "class" proof of claim in the Bankruptcy
Court on behalf of a nationwide class of similarly situated
subscribers, alleging that Adelphia had improperly billed him for
the rental of the two converter boxes. Thereafter, Dibbern filed
this adversary proceeding, as a nationwide class action.
The amended complaint asserts claims for: (1) violations of the Pennsylvania Unfair Trade Practices and
Consumer Protection Law, 73 P.S. § 201-1 et seq. (the
"UTPCPL"); (2) breach of contract; (3) fraud; (4) unjust
enrichment; (5) an accounting; and (6) a constructive trust. (Am.
Compl. ¶¶ 63-114).
Defendants moved to dismiss the amended complaint for failure
to state a claim upon which relief may be granted, in accordance
with Fed.R.Civ.P. 12(b)(6). The Bankruptcy Court (Gerber,
B.J.) issued a decision and order on May 3, 2005, granting the
motion to dismiss.
This appeal followed. The Court heard oral argument on August
I discuss the six claims of the amended complaint, in turn.
A. The UTPCPL
Count I of the amended complaint alleges violations of the
UTPCPL. It alleges that defendants knowingly and recklessly
engaged in fraudulent conduct and unfair and deceptive trade
practices by, among other things, failing to disclose that the
upgrade converter boxes were no longer necessary for BST
customers, resulting in subscribers paying monthly rental fees
for converter boxes they did not need.
The bankruptcy court dismissed this claim on two grounds.
First, it concluded that the statute was not intended to cover
consumers, like Dibbern, who were not residents of Pennsylvania and did not obtain their goods or services in
Pennsylvania. (Order at 14-15). Second, it concluded that even
assuming Dibbern were protected by the UTPCPL, he had failed to
state a claim under the statute on the merits.
I agree with the Bankruptcy Court that the UTPCPL does not
protect a consumer, like Dibbern, who neither resides in nor
obtains goods or services from Pennsylvania. I do not reach the
second ground of the Bankruptcy Court's ruling as to this claim.
Section 3 of the UTPCPL, § 201-3, declares "unlawful" unfair or
deceptive acts or practices "in the conduct of any trade or
commerce." Section 9.2 of the statute, § 201-9.2, gives any
person who is damaged by any such unlawful act or practice the
right to sue for damages, including treble damages and attorneys'
fees. Section 2(3), however, defines "trade" and "commerce" to
the advertising, offering for sale, sale or
distribution of any services and any property . . .
or thing of value wherever situate, and includes any
trade or commerce directly or indirectly affecting
the people of this Commonwealth.
UTPCPL § 201-2(3).
I agree with the Bankruptcy Court that the underscored words
are dispositive. Clearly, the statute is intended to protect
residents of, or individuals found within, the Commonwealth of
Pennsylvania. The Bankruptcy Court thoroughly considered this
issue and reviewed the relevant authorities, and I agree with its
analysis. The phrase "the people of this Commonwealth" simply
does not include a Massachusetts resident who obtained cable television service in Massachusetts.*fn2
The Order is affirmed to the extent that it dismissed the claim
for violations of the UTPCPL.
B. Breach of Contract
Count II of the amended complaint asserts a claim for breach of
contract. It alleges that defendants were contractually obligated
after the upgrade to advise Dibbern and other customers that
converter boxes were no longer necessary and that their
obligation to pay rental fees would terminate upon the return of
the equipment. It further alleges that defendants breached this
obligation by remaining silent until May 2001, when the first
notice was given. The Bankruptcy Court dismissed the claim,
concluding that the amended complaint failed to allege "the
existence of contractual obligations" sufficient to support the
claim. (Order at 30). The Bankruptcy Court concluded that
"Dibbern does not allege that whatever contract existed required
Adelphia to notify him with respect to upgrades and their impact
on his need to rent equipment." (Id.). Finally, the bankruptcy
court rejected Dibbern's reliance on the implied covenant of good
faith and fair dealing, holding that this was "too much
bootstrapping. The requirement of good faith performance is
circumscribed by the obligations in the contract." (Id. at 31). I disagree with the Bankruptcy Court's conclusions in this
respect. On a Rule 12(b)(6) motion to dismiss, the court must
accept the factual allegations of the complaint to be true and
draw all reasonable inferences in favor of the plaintiff.
Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). 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." Cooper v. Parsky, 140 F.3d 433, 440 (2d
Cir. 1998) (quoting Conley v. Gibson, 355 U.S. 41, 45-46
(1957)). Here, considering the issue de novo as I must, I
cannot say that it is "beyond doubt" that Dibbern can prove no
set of facts to show a breach of contract.
As a threshold matter, there clearly was a contract here
Harron agreed to provide cable services and equipment to Dibbern
and Dibbern agreed to pay for those services and equipment from
month to month. That contract continued for some six years. When
the parties first entered into the contract, Harron's
representatives surely must have said to Dibbern, in words or
substance, "you will need a converter box and we will charge you
a monthly fee to rent such a box." When Adelphia acquired Harron,
it surely assumed Harron's obligations under the "contract."
In addition, although Dibbern apparently no longer has any of
the paperwork, surely there was some paperwork that set out the
parties' rights and responsibilities, and it is possible, if not
likely, that Adelphia can obtain copies or facsimiles of those documents. It is also possible, if not likely, that this
documentation contained some representations as to the necessity
for equipment. Even if the paperwork did not contain any such
representations, I cannot say that it is "beyond doubt" that
Dibbern will be unable to prove, from the totality of
circumstances and any paperwork that may be found, that
defendants were contractually obligated to advise him that he
could return the equipment and be released from the obligation to
pay rent if the equipment ever became unnecessary. (See Am.
Compl. ¶ 85).
Finally, even in the absence of an express agreement, I
conclude that Dibbern may be able to show that the implied
covenant of good faith and fair dealing imposed an obligation on
defendants to advise him when and if the converter boxes became
unnecessary.*fn3 Although the Bankruptcy Court was of the
view that "[t]he requirement of good faith performance is
circumscribed by the obligations in the contract" (Order at 31),
that conclusion is premature at this juncture of the litigation.
Dibbern may very well be able to prove that the obligation to
deal fairly and in good faith was not inconsistent with the terms
of the "contract," and that defendants failed to deal fairly and
in good faith when they waited months to tell Dibbern that he did
not have to keep paying rent for equipment that was no longer needed.
Accordingly, the Order is reversed to the extent it dismissed the
breach of contract claim.
Count III of the amended complaint alleges fraud. It contends
that defendants engaged in fraudulent and deceptive conduct by
suppressing material facts and knowingly and recklessly failing
to disclose to customers that they no longer needed to rent
converter boxes. The Bankruptcy Court dismissed this claim,
holding that Dibbern alleged only omissions, and that "an
omission, in the absence of other statements which, by reason of
the omission, become `half truths' or otherwise deceptive, does
not equate to a misrepresentation sufficient to satisfy
Massachusetts law." (Order at 32) (footnote omitted). The
Bankruptcy Court also held that the statements "in the May 2001
and September 2001 bills were not misrepresentative or
misleading" and thus could not support a finding of fraud under
Massachusetts law. (Id. at 32-33).
I hold that the Bankruptcy Court erred in dismissing the fraud
claim. Under Massachusetts law, a fraud claim involving
nondisclosure of a fact is actionable only when there is a duty
to disclose. The Massachusetts courts have recognized a duty to
(i) there is a fiduciary or other similar relation of
trust and confidence, (ii) there are matters known to
the speaker that he knows to be necessary to prevent
his partial or ambiguous statement of the facts from being misleading, or (iii) the nondisclosed fact is
basic to, or goes to the essence of, the transaction.
Stolzoff v. Waste Sys. Int'l, Inc., 792 N.E.2d 1031
(Mass.App. Ct. 2003) (citing Restatement (Second) of Torts § 551
(1977)). A finder of fact could surely conclude that the third
situation applies here. A finder of fact could surely conclude
that the nondisclosed fact the converter boxes were no longer
necessary went to the essence of the transaction the rental
of converter boxes to enable BST subscribers to view basic
In addition, even assuming the notices on the May 2001 and
September 2001 bills constituted adequate disclosures, they did
not come until some time after the upgrade had been made and the
boxes became unnecessary. Although the amended complaint is
imprecise as to the timing, it alleges that the upgrade was made
sometime between April and October 1999. In fact, it probably
happened after the closing of the acquisition, but the amended
complaint can be fairly read to allege that customers paid
unnecessary rental fees for some months.
This aspect of the Order is reversed.
D. Unjust Enrichment
Count IV asserts an unjust enrichment claim. The Bankruptcy
Court dismissed this claim largely because it concluded the claim
was a "reiteration" of the fraud claim. (Order at 33-34). For the
reasons that I have reversed the Bankruptcy Court's dismissal of
the fraud claim, the Bankruptcy Court's dismissal of the unjust enrichment claim is reversed as
well. In addition, I do not agree that the unjust enrichment
claim is just a "reiteration" of the fraud claim.
As the Bankruptcy Court noted, under Massachusetts law, an
unjust enrichment claim requires proof of three elements: (i)
plaintiff conferred a benefit on defendant; (ii) defendant knew
that it received the benefit; and (iii) the circumstances are
such that it would be inequitable for defendant to retain the
benefit or not pay for it. (Order at 33 (citing Dickens-Berry v.
Greenery Rehab. & Skilled Nursing Ctr., 1993 WL 818564, at *3 n.
6 (Mass. Super. Ct. Oct. 29, 1993)). Here, the amended complaint
clearly alleges that plaintiff conferred a benefit (he paid
monthly rental fees) on defendants and that defendants were aware
of the benefit (they billed for and kept the rental fees). A
reasonable factfinder could also conclude that it would be
inequitable for Adelphia to retain the benefit for months,
customers paid for converter boxes that they did not need and
Adelphia waited until May 2001 before so advising them and before
telling them that their obligation to pay rent would come to an
end if they returned the boxes.
The Bankruptcy Court's dismissal of Count IV is reversed as
E. Accounting and Constructive Trust
Counts V and VI seek, respectively, an accounting and the
imposition of a constructive trust. The Bankruptcy Court's
dismissal of these claims is affirmed. First, Dibbern did not allege facts from which a factfinder could conclude that a
fiduciary relationship existed between Dibbern and Harron (or
Adelphia). This was a relationship between a subscriber and a
utility (a provider of cable television services). This was not a
relationship involving trust or confidence in the fiduciary
sense. Second, in the context here, these are remedies and not
claims. If Dibbern ultimately prevails, he will be entitled to
damages and a damages calculation will have to be performed, but
these "claims" are not independent causes of action.
For the foregoing reasons, the Order is affirmed to the extent
it dismissed Counts I, V, and VI and it is reversed to the extent
it dismissed Counts II, III, and IV. The case is remanded for
further proceedings not inconsistent with this memorandum
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