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Federal Trade Commission v. American Evoice, Ltd.

United States District Court, D. Montana, Missoula Division

March 14, 2017

FEDERAL TRADE COMMISSION, Plaintiff,
v.
AMERICAN EVOICE, LTD., EMERICA MEDIA CORPORATION, FONERIGHT, INC., GLOBAL VOICE MAIL, LTD, HEARYOU2, INC, NETWORK ASSURANCE, INC, SECURATDAT, INC, TECHMAX SOLUTIONS, INC, VOICE MAIL PROFESSIONALS, INC, STEVE V. SANN, TERRY D. LANE, a/k/a TERRY D. SANN, NATHAN M. SANN, ROBERT M. BRAACH, Defendants. and BIBLIOLOGIC, LTD, Relief Defendant.

          ORDER

          Dana L. Christensen, Chief Judge

         Defendant Steven V. Sann ("Sann") and Plaintiff Federal Trade Commission ("FTC") have filed cross-motions for summary judgment on the issue of the corporate Defendants' status as "common carriers."[1] (Docs. 232, 236.) For the reasons explained below, the Court grants the FTC's motion and denies Sarin's motion.

         FACTUAL BACKGROUND

         The factual and procedural background of this case, as addressed in multiple previous orders of this Court (See e.g., Docs. 196, 267), is long and complicated. For purposes of this Order, the Court will only address the facts necessary for resolving the underlying cross-motions of summary judgment. The primary issue at bar is whether corporate Defendants American eVoice, Ltd., Emerica Media Corporation, FoneRight, Inc., Global Voice Mail, Ltd., HearYou2, Inc., Network Assurance, Inc., SecuratDat, Inc., Techmax Solutions, Inc., and Voice Mail Professionals, Inc. (the "corporate Defendants"), operated as "common carriers" under federal telecommunications law. Sarin contends that Defendants are common carriers and, thus, are exempt from liability under section 5, 15 U.S.C. § 45(a), of the Federal Trade Commission Act ("FTC Act").

         As discussed in its Complaint, the FTC alleges that Sarin, through the corporate Defendants, engaged in an illegal and massive telecommunication scheme which defrauded thousand of consumers out of millions of dollars. This alleged scheme, known as "cramming, " caused millions of dollars in charges to appear on consumer telephone bills for telecommunication services that they neither wanted nor used. The FTC asserts that charges for these unwanted services, such as voicemail, electronic fax, and call forwarding, would be placed on consumer telephone bills by Defendants, where the charges would go unnoticed for months. The FTC state that Defendants are collectively responsible for over $70 million dollars in unauthorized charges. Defendants' actions, the FTC contends, violated section 5(a) of the FTC Act, which prohibits "unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(1). In contrast, the corporate Defendants, Sann argues, are exempt from prosecution under the FTC Act by virtue of their status as "common carriers." Consequently, Sann contends that as an officer of these corporations, he cannot be held personally liable for their actions. The Court will address these arguments below.

         LEGAL STANDARD

         A court shall grant summary judgment on a particular claim or defense if a "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "[W]hen parties submit cross-motions for summary judgment, each motion must be considered on its own merits." Fair Hous. Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (citations and internal punctuation marks omitted). Under this standard, "each party, as a movant for summary judgment, bears the burden of establishing that no genuine dispute of material fact exists and that the movant is entitled to a judgment as a matter of law." 10A Charles Alan Wright et al., Federal Practice and Procedure § 2720, 352-353 (4th ed. 2016). If a genuine dispute of material fact exists, a court must deny both motions. Id. at 353-354. However, if there is no dispute of material fact and only one party is entitled to judgment as a matter of law, a court may grant summary judgment as to that party only. Id. at 354-355; see also Johnson & Johnson v. Diaz, 339 F.Supp. 60, 65 (CD. Cal. 1971) (district court granted one party's motion for summary judgment and denied other party's motion).

         DISCUSSION

         As discussed, Sann contends that the corporate Defendants in this case were common carriers pursuant to federal communications law and thus were exempt from liability under section 5(a) of the FTC Act. This provision empowers and directs the FTC "to prevent persons, partnerships, or corporations ... from using ... unfair or deceptive acts or practices in or affecting commerce. 15 U.S.C. § 45(a)(2). Importantly, certain entities, such as common carriers, are exempt from prosecution under this act. Id. This exemption was discussed in Federal Trade Commission v. AT&T Mobility LLC, 835 F.3d 993 (9th Cir. 2016), which Sann cites to in support of his motion.

         In AT&T Mobility LLC, the Court of Appeals for the Ninth Circuit was tasked with determining if AT&T's status as a common carrier precluded the FTC from prosecuting the telecommunications company for non-common carrier activities. AT&T Mobility LLC, 835 F.3d at 1003. The Court found that "[t]he common carrier exemption in section 5 of the FTC Act carves out a group of entities based on their status as common carriers." Id. This carve-out even applies, the Court found, to "non-common carrier activities" as long as the entity held the status of common carrier. Id. However, unlike the case at bar, AT&T's status as a common carrier was not in dispute. Rather, the question before the Ninth Circuit was whether AT&T's non-common carrier activities were exempt from prosecution by virtue of AT&T's status as a common carrier. Id. at 997-998. Here, in contrast, the FTC vehemently contests Sarin's argument that the corporate Defendants were common carriers. Thus, the issue is how to define a common carrier under federal law.

         As noted in AT&T Mobility LLC, the FTC Act does not define "common carriers." Id. at 997 (citing 15 U.S.C. § 45(a)(2)). However, both parties urge the Court to look to the Communications Act of 1934, 48 Stat. 1064 (1934), as amended by the Telecommunications Act of 1996, 110 Stat. 56 (1996), for guidance. Under the Communications Act, a common carrier is an entity that is "engaged as a common carrier for hire, in interstate or foreign communication by wire or radio or interstate or foreign radio transmission of energy ...." 47 U.S.C. § 153(11). However, "[d]ue to the circularity of the definition, resort must be had to court and agency pronouncements to ascertain the term's meaning." Howard v. Am. Online Inc., 208 F.3d 741, 752 (9th Cir. 2000) (quoting FCC v. Midwest Video Corp., 440 U.S. 689, 701 n. 10 (1979).

         Sann argues that the Court should look to United States Telecom Association v. Federal Communications Commission, 295 F.3d 1326 (D.C. Cir. 2002), to determine if the corporate Defendants were common carriers. There, the United States Court of Appeals for the District of Columbia examined a two factor analysis previously applied by the Federal Communications Commission ("FCC") which found that "common carrier status turns on: (1) whether the carrier holds himself out to serve indifferently all potential users; and (2) whether the carrier allows customers to transmit intelligence of their own design and choosing." U.S. Telecom Ass 'n, 295 F.3d at 1329 (citation and internal quotation marks omitted).

         Applying this test, Sann asserts that the corporate Defendants satisfy this definition because the services they provided were indiscriminately available to all consumers and businesses, "regardless of race, nationality, creed, socio-economic status, age, gender or political affiliations throughout the United States, in interstate commerce." (Doc. 232 at 9.) Further, Sann maintains that the services provided by the corporate Defendants, such as voice messaging, allowed its customers to transmit information of their own design and choosing. Accordingly, Sann asserts that because the corporate Defendants' services satisfy this two pronged test, they were common carriers and exempt from liability under the FTC Act.

         In addition to this two-factor analysis, Sann contends that the corporate Defendants meet the statutory definition of a common carrier as defined in the Telecommunications Act of 1996. Under this Act, a '"telecommunications carrier' means any provider of telecommunications services... [and] shall be treated as a common carrier under this chapter only to the extent that it is engaged in providing telecommunications services ...." 47 U.S.C. § 153(51). Likewise, '"telecommunications service' means the offering of telecommunications for a fee directly to the public ...." Id. at § 153(53). Finally, "telecommunications' means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." Id. at ยง 153(50). ...


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