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Unigestion Holding, S.A. v. UPM Technology, Inc.

United States District Court, D. Oregon

March 30, 2018

UNIGESTION HOLDING, S.A., a foreign corporation, d/b/a DIGICEL HAITI, Plaintiff,
v.
UPM TECHNOLOGY, INC. d/b/a UPM TELECOM, INC, and UPM MARKETING, INC., an Oregon corporation; UPM TELECOM, INC., an Oregon a/b/n; UPM MARKETING, INC., an Oregon a/b/n; BENJAMIN SANCHEZ a/k/a BENJAMIN SANCHEZ MURILLO, an Oregon resident; BALTAZAR RUIZ, an Oregon resident, and TYLER ALLEN, an Oregon resident; and DUY “BRUCE” TRAN, an Oregon resident, Defendants.

          Richard K. Hansen, Schwabe, Williamson & Wyatt, Robert C.L. Vaughan, Cherine Smith Valbrun, and Leah B. Storie, Kim Vaughan Lerner LLP, One Financial Plaza, Of Attorneys for Plaintiff.

          Kathryn P. Salyer and Eleanor A. DuBay, Tomasi Salyer Baroway, Christopher W. Savage, Davis Wright Tremaine, LLP, Of Attorneys for Defendants.

          OPINION AND ORDER

          MICHAEL H. SIMON UNITED STATES DISTRICT JUDGE

         Plaintiff Unigestion Holding, S.A., dba “Digicel Haiti, ” provides mobile telecommunication services in Haiti for profit. Defendants (collectively, “UPM”) formerly provided mobile telecommunication services to Haiti for profit. Digicel Haiti alleges that UPM provided these services by using certain practices and technologies to fraudulently access Digicel Haiti's telecommunications network. Digicel Haiti asserts claims against UPM alleging common law fraud, violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) under 18 U.S.C. §§ 1962(b)-(d), common law conversion, and common law unjust enrichment. Digicel Haiti filed a complaint against UPM on February 2, 2015. Since that time, Digicel Haiti has amended its complaint several times, UPM has answered and asserted counterclaims, and each party has moved to dismiss the other's claims. On October 18, 2016, Digicel Haiti filed its second amended complaint (“the Complaint” or “SAC”). On September 11, 2017, UPM filed an amended answer to the SAC, asserting seven affirmative defenses and seven counterclaims. UPM's first and seventh counterclaims include allegations that Digicel Haiti is in violation of the Communications Act of 1934 and § 2 of the Sherman Act, respectively. Digicel Haiti now moves to strike UPM's first, second, fifth, sixth and seventh affirmative defenses and dismiss UPM's first and seventh counterclaims. For the following reasons, Digicel Haiti's motion to strike and motion to dismiss are each granted in part and denied in part.

         STANDARDS

         A. Motion to Strike

         An answer must “affirmatively state any avoidance or affirmative defense.” Fed.R.Civ.P. 8(c)(1). Such defenses must be stated “in short and plain terms.” Fed.R.Civ.P. 8(b)(1)(a). A court may strike an affirmative defense under Federal Rule of Procedure 12(f) if it presents an “insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f). The purpose of a Rule 12(f) motion is to avoid spending time and money litigating spurious issues. Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010); see also Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994). The disposition of a motion to strike is within the discretion of the district court. See Fed. Sav. & Loan Ins. Corp. v. Gemini Mgmt., 921 F.2d 241, 244 (9th Cir. 1990). “Motions to strike are disfavored and infrequently granted.” Legal Aid Servs. of Oregon v. Legal Servs. Corp., 561 F.Supp.2d 1187, 1189 (D. Or. 2008); see also Capella Photonics, Inc. v. Cisco Sys., Inc., 77 F.Supp.3d 850, 858 (N.D. Cal. 2014) (“Motions to strike are regarded with disfavor because of the limited importance of pleadings in federal practice and because they are often used solely to delay proceedings.” (quotation marks and alterations omitted)).

         An affirmative defense may be struck if it is insufficient. “‘The key to determining the sufficiency of pleading an affirmative defense is whether it gives plaintiff fair notice of the defense.'” Simmons v. Navajo Cty., 609 F.3d 1011, 1023 (9th Cir. 2010) (quoting Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979)). “[T]he ‘fair notice' required by the pleadings standards only requires describing the defense in ‘general terms.'” Kohler v. Flava Enters., Inc., 779 F.3d 1016, 1019 (9th Cir. 2015) (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1274 (3d ed. 1998)).

         Rule 12(f) also provides that pleadings that are “immaterial” or “impertinent” may be struck by a court. An “immaterial” matter is “that which has no essential or important relationship to the claim for relief or the defenses being pleaded.” Fantasy, Inc., 984 F.2d at 1527 (quoting C. Wright, A. Miller, et al., 5C Fed. Prac. & Proc. Civ. § 1382 (3d ed. 2013)). “Impertinent” matters are those “that do not pertain, and are not necessary, to the issues in question.” Id. Such pleadings are legally insufficient because they clearly lack merit “under any set of facts the defendant might allege.” Polk v. Legal Recovery Law Offices, 291 F.R.D. 485, 489 (S.D. Cal. 2013) (citation and quotation marks omitted).

         B. Motion to Dismiss

         A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012); Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a presumption of truth, allegations in a complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff. Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). The court need not, however, credit the plaintiff's legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

         A complaint must contain sufficient factual allegations to “plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

         BACKGROUND

         For purposes of Digicel Haiti's motion to dismiss counterclaims, the Court accepts as true the following facts alleged in UPM's counterclaims. Certain allegations from Plaintiff's amended complaint also are included as background. In deciding Digicel Haiti's motion to dismiss, the Court gives no presumption of truth to Digicel Haiti's allegations in the amended complaint, except where UPM's argument or counterclaims endorse or rely on Digicel Haiti's allegations.

         A. Digicel Haiti's Operations

         Digicel Haiti is a wholly owned subsidiary of Digicel Holdings, Ltd., which also owns Digicel USA, Inc. (“Digicel USA”) and Digicel Jamaica, Ltd. (“Digicel Jamaica”). Digicel Haiti is the leading provider of telecommunications services in Haiti, where it solely operates and has an estimated 75% market share of local telephone services. Digicel USA operates a set of international telephone switching systems-equipment with the capacity to transmit a call from the United States to an overseas telecommunications network-located in Miami, Florida and New York City, New York.

         Digicel Haiti tracks and charges its local customers in Haiti through the use of pre-paid Subscriber Identity Module (“SIM”) cards. A SIM card acts as a small circuit board: when the card is placed inside a cellular telephone, the card identifies the device as associated with an individual customer's unique telephone number and account. SIM cards allow customers to access Digicel Haiti's cellular network and, in turn, allow Digicel to charge for communications made from cellular devices containing specific SIM cards. Digicel Haiti's customers can use SIM cards for voice, data, and messaging services on the Digicel Haiti network. Customers can add credits, in the form of minutes, to SIM cards by using, among other methods, vouchers and online “top-ups.”

         When a user of a Digicel Haiti SIM card makes a local call within Haiti, that user incurs charges of approximately $0.09 per minute of wireless service. If a Digicel Haiti customer travels to the United States and uses his or her Digicel Haiti SIM card to make calls back to Haiti, the user of that SIM card incurs charges of at least $1.99 for each minute of wireless service used. Digicel also offers a Roam-Like-You're-Home (“RLYH”) plan. For an access fee of approximately $20 to $25, the RLYH plan allows registered Digicel Haiti customers to call back to Haiti while traveling in the United States at rates similar to the local rate during the authorized and pre-paid period.

         When someone in the United States originates a call to one of Digicel Haiti's subscribers in Haiti, the “third-party carrier”-a United States telecommunications carrier, which does not have the internal capacity to transport a call to Haiti, also sometimes referred to as a “wholesaler”-picks up that phone call from the United States-based originating caller and transports it to one of the Digicel USA switching gateways. From that switching gateway, Digicel USA further transports the call to Haiti, where Digicel Haiti “terminates” the call on its network. The terminating end of a call is the party being called by the party originating the call. On Digicel Haiti's behalf, Digicel Jamaica bills the third-party carrier a rate of $0.23 per minute for all international calls that terminate on Digicel Haiti's network. That fee includes the cost of terminating the call on Digicel Haiti's network and the cost of switching services performed by Digicel USA. Digicel Haiti then pays Digicel USA a fee for its services through intercompany transfer. Digicel Haiti does not authorize international or domestic telephone traffic to enter its telecommunications network in Haiti by any other route or under any other form of agreement.

         B. UPM's Operations

         UPM is an Oregon corporation that facilitated international calls from the United States to people in Haiti on behalf of third-party carriers, at rates lower than what Digicel Haiti charged. UPM asserts that it essentially resold Digicel Haiti's local and RLYH services within the United States at a discount from approximately April 2014 to November 2014. Due to Digicel Haiti's effective efforts to prevent UPM from reselling Digicel Haiti's services, as described below, UPM no longer facilitates calls to Haiti. UPM business operations involved paying full retail price to acquire large quantities of Digicel Haiti SIM cards from authorized dealers, and then using those cards to facilitate calls to Haiti through two technically distinct platforms: the resale of the RLYH plan and the resale of Digicel Haiti's local wireless services.

         The first and most common way that UPM facilitated calls to Haiti was to enroll its Digicel Haiti SIM cards in the RLYH plan for the full retail price. UPM would then assemble the RLYH-enrolled SIM cards into a SIM server. The SIM server was connected to the internet and capable of accessing the wireless networks of AT&T and T-Mobile, the third-party carriers that have roaming arrangements with Digicel Haiti in the United States. Ordinarily, when a third-party carrier's customers called Haiti, the third-party carrier, and ultimately the customer, would have to pay the standard amount-a minimum of $0.23 per minute-for Digicel Haiti to connect the international call to its local network. UPM offered a cheaper way to connect the calls to third-party carriers on the open wholesale “spot” market in the United States. A third-party carrier that elected to use UPM's services would switch a call bound for a Digicel Haiti customer to UPM instead of through Digicel USA's gateway. The third-party carrier's switch would convert the call into an Internet-based protocol packet that carries the call (including the destination number in Haiti) over the internet to one of UPM's SIM servers located in Oregon. UPM's SIM server would then initiate the call to Haiti on the third-party carrier's wireless network. Simultaneously, UPM's SIM server would convert the call into the appropriate format for wireless transmission and essentially program the call to appear to come from a telephone number associated with one of the RLYH-enrolled Digicel Haiti SIM cards. After the call was made to look like a call on the RLYH plan, it would follow the typical route for calls switched directly to Digicel Haiti: the third-party carrier would route the newly-reformatted call to one of Digicel USA's switches in New York or Miami, Digicel USA would carry the call to Haiti, and Digicel Haiti would terminate the call on its network, charging the associated SIM card at the discounted RLYH rate.

         A second, although less common, way in which UPM facilitated international calls to Haiti was by transporting the calls to Digicel Haiti's local Haitian network through Voice-over-Internet-Protocol (“VoIP”). Again, the customer of a third-party carrier would call Haiti, and the third-party carrier's switch would select UPM to handle the call. The call would be sent to a UPM SIM server in Oregon in the same manner described above. Instead of initiating a wireless call to Haiti and converting the call for wireless transmission, however, UPM would leave the call as an Internet-based protocol packet (VoIP format). UPM would use the internet to transmit the call to a receiver in Haiti, known as a Global System for Mobile communications (“GSM”) Gateway. The GSM Gateway would format the call for wireless transmission and initiate a wireless call on Digicel Haiti's network in Haiti using the account information associated with a SIM card located in Oregon. Digicel Haiti would then terminate (or complete) the call on its network as a local call, charging the associated SIM card at the local rate.

         Digicel Haiti undertook an investigation into the international “resale” of its services. During the investigation, Digicel Haiti discovered that the calling and usage patterns of particular SIM cards were inconsistent with use by individual customers. Digicel Haiti “de-authorized” these SIM cards so that calls associated with these cards could no longer be completed. Because Digicel Haiti de-authorized many of the SIM cards that UPM used to conduct its business, UPM is no longer able to facilitate international calls to Haiti through either RLYH plans or VoIP.

         DISCUSSION

         A. Motion to Strike

         1. Failure to State a Claim and Standing

         Digicel Haiti moves to strike UPM's first affirmative defense, failure to state a claim, and second affirmative defense, lack of standing, on the basis that such defenses merely resurrect disputes that this Court has already decided. After full briefing by the parties, this Court previously ruled that Digicel Haiti has standing to bring the claims alleged in the Second Amended Complaint, and that Digicel Haiti has sufficiently stated those claims. Those rulings, however, were in response to UPM's motion to dismiss, which required this Court to accept all allegations in Digicel Haiti's pleading as true. As the case proceeds, however, it may become clear that those factual allegations were imprecise or incorrect. Thus, the fact that the same arguments did not prevail on an earlier motion under a different standard is not a sufficient basis to justify striking them.

         A defense that does no more than point out a defect in a plaintiff's prima facie case, however, is a “negative defense” that can be set up by a denial, not an affirmative defense. Zivkovic v. Southern Calif. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). “Failure to state a claim” is a negative defense that merely argues that plaintiff has not met its burden in establishing one or more elements of a claim, whatever that burden may be at a given stage of litigation. Similarly, because plaintiffs must establish standing “in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at successive stages of the litigation, ” Lujan v. Dep't of Wildlife, 504 U.S. 555 at 561 (1992), UPM's argument that Digicel Haiti lacks standing is also a negative defense. Because UPM's first and second affirmative defenses are in fact negative defenses, rather than affirmative defenses, it is proper to strike them.

         2. Unclean Hands, Restraint on ...


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