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Case No. 3:09-CV-02685-CAB(JLB) SPRINT’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP James J. Mittermiller (Cal. Bar No. 85177) [email protected] Shannon Z. Petersen (Cal. Bar. No. 211426) [email protected] 501 West Broadway, 19th Floor San Diego, California 92101-3598 Telephone: (619)-338-6500 Facsimile: (619)-234-3815 BRIGGS AND MORGAN, P.A. Philip R. Schenkenberg (MN Bar No. 260551) [email protected] Claire V.J. Joseph (MN Bar No. 0391692) [email protected] 2200 IDS Center, 80 South Eighth Street Minneapolis, Minnesota 55402-2157 Telephone: (612) 977-8400 Facsimile: (612) 977-8650 Attorneys for Defendant and Counterclaim Plaintiff Sprint Communications Company L.P. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA North County Communications Corporation, a California corporation, Plaintiff and Counterclaim Defendant, v. Sprint Communications Company L.P., Defendant and Counterclaim Plaintiff. Case No. 3:09-CV-02685-CAB (JLB) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF SPRINT COMMUNICATIONS COMPANY L.P.’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR LACK OF SUBJECT MATTER JURISDICTION Date: April 24, 2015 Time: 2:00 p.m. Courtroom: 4C Judge: Cathy Ann Bencivengo Complaint Filed: Nov. 30, 2009 Case 3:09-cv-02685-CAB-JLB Document 269-1 Filed 03/27/15 Page 1 of 27
Transcript of SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
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SHEPPARD, MULLIN, RICHTER &HAMPTON LLPJames J. Mittermiller (Cal. Bar No. 85177)[email protected] Z. Petersen (Cal. Bar. No. 211426)[email protected] West Broadway, 19th FloorSan Diego, California 92101-3598Telephone: (619)-338-6500Facsimile: (619)-234-3815
BRIGGS AND MORGAN, P.A.Philip R. Schenkenberg (MN Bar No. 260551)[email protected] V.J. Joseph (MN Bar No. 0391692)[email protected] IDS Center, 80 South Eighth StreetMinneapolis, Minnesota 55402-2157Telephone: (612) 977-8400Facsimile: (612) 977-8650
Attorneys for Defendant and CounterclaimPlaintiff Sprint Communications Company L.P.
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF CALIFORNIA
North County CommunicationsCorporation, a California corporation,
Plaintiff andCounterclaim Defendant,
v.
Sprint Communications CompanyL.P.,
Defendant andCounterclaim Plaintiff.
Case No. 3:09-CV-02685-CAB (JLB)
MEMORANDUM OF POINTS ANDAUTHORITIES IN SUPPORT OFSPRINT COMMUNICATIONSCOMPANY L.P.’S MOTION TODISMISS PLAINTIFF’S COMPLAINTFOR LACK OF SUBJECT MATTERJURISDICTION
Date: April 24, 2015Time: 2:00 p.m.Courtroom: 4CJudge: Cathy Ann BencivengoComplaint Filed: Nov. 30, 2009
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TABLE OF CONTENTS
Page
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TABLE OF AUTHORITIES.....................................................................................iiI. INTRODUCTION........................................................................................... 1II. FACTS REGARDING JURISDICTION........................................................ 3
A. Lesser Testified that NCC Transferred its Contracts to NCC-CA ....... 3B. Lesser’s Declaration and Deposition Testimony Do Not
Establish That the Transfers in California and Oregon Left NCCWith Payment Rights to Enforce .......................................................... 4
C. NCC’s Assertion That it Did Not Transfer Operations to itsArizona Affiliate Is False...................................................................... 6
D. NCC’s Assertion That it Did Not Move Operations to its IllinoisAffiliate Is False.................................................................................... 9
E. NCC’s Balance Statements Do Not Reflect the Payables SprintAllegedly Owed to NCC.....................................................................11
F. NCC Made False Allegations and Withheld Information FromSprint ...................................................................................................11
III. ARGUMENT ................................................................................................14A. Standard of Review.............................................................................14B. NCC Failed to Meet its Burden to Establish That This Court Has
Subject Matter Jurisdiction Over This Dispute...................................17C. The Court Has the Discretion on This Record to Find That
Lesser’s Statements That NCC Did Not Transfer in Californiaand Illinois Are False ..........................................................................19
D. Alternatively, the Court Should Dismiss NCC’s Claims as toMinutes in California and Oregon Because NCC Admits That itDoes Not Have Standing to Bring Those Claims ...............................22
IV. CONCLUSION .............................................................................................23
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TABLE OF AUTHORITIES
Page(s)
Cases
AO Ventures, LLC. v. Gutierrez,No. 12-04625, 2012 WL 6608824 (N.D. Cal. Dec. 18, 2012)................15, 17, 18
Branon v. Debus,289 F. App’x 181 (9th Cir. 2008)..................................................................17, 21
Chaganti v. I2 Phone Intern., Inc.,635 F. Supp. 2d 1065 (N.D. Cal. 2007).........................................................14, 17
Citi Mortgage, Inc. v. Hubbard,No. 13-144, 2014 WL 1303706 (D. Minn. Mar. 31, 2014)................................. 18
Crum v. Circus Circus Enters.,231 F.3d 1129 (9th Cir. 2000)............................................................................. 15
Durand v. Stephenson,No. CIV-S-09-2038, 2010 WL 3855236 (E.D. Cal. Sept. 29, 2010).................. 20
F & S Constr. Co. v. Jensen,337 F.2d 160 (10th Cir. 1964).......................................................................17, 20
Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka,599 F.3d 1102 (9th Cir. 2010).......................................................................15, 20
Lycurgan Inc. v. Jones,No. 14-CV-1679, 2014 WL 5393036 (S.D. Cal. Oct. 22, 2014) ........................ 16
McNutt v. Gen. Motors Acceptance Corp. of Indiana,298 U.S. 178 (1936) ............................................................................................ 16
Pachinger v. MGM Grand Hotel-Las Vegas, Inc.,802 F.2d 362 (9th Cir. 1986) ............................................................................... 16
Savage v. Glendale Union High School, Dist. No. 205, Maricopa Cnty,343 F.3d 1036 (9th Cir. 2003)............................................................................. 16
Searles Valley Minerals Operations Inc. v. Ralph M. Parson Serv. Co.,191 Cal. App. 4th 1394 (2011)............................................................................ 22
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Srour v. Barnes,670 F. Supp. 18 (D.D.C. 1987) ........................................................................... 20
St. Paul Mercury Indem. Co. v. Red Cab Co.,303 U.S. 283 (1938) ............................................................................................ 16
Statutes and Rules
28 U.S.C. § 1332(a) .................................................................................................. 15
Fed. R. Civ. P. 12(b)(1) .....................................................................................passim
Fed. R. Civ. P. 12(h)(3) ............................................................................................ 15
Other Authorities
14A Charles Alan Wright, Arthur R. Miller, and Edward H. Cooper,Federal Practice and Procedure, Jurisdiction, § 3702 (2d ed. 1985)................... 16
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Defendant Sprint Communications Company L.P. (“Sprint”) submits this
memorandum of points and authorities in support of its Motion to Dismiss the
Complaint of Plaintiff North County Communications Corporation (“NCC”)
pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure because the Court
lacks subject matter jurisdiction over this action.
I. INTRODUCTION
In its Complaint, filed November 30, 2009, plaintiff NCC asserted subject
matter jurisdiction over this action on the basis of diversity of citizenship. ECF No.
1, ¶ 2. As explained below, this case should be dismissed because NCC has failed
to demonstrate that there was any amount in controversy between NCC and Sprint
when NCC filed its Compliant, much less the mandatory minimum of $75,000.
Instead, over five years into this case, and contrary to NCC’s unreliable and
contradictory discovery responses, deposition testimony, and representations to the
Court, it is now clear that, in 2007, NCC decided to assign its California, Oregon,
Arizona, and Illinois operations to state-specific affiliates for reasons that NCC’s
counsel instructed Mr. Lesser not to disclose. Such transfers occurred in 2007-
2008, and impacted the Service Agreement that purportedly forms the basis for
NCC’s payment demands. NCC has not disclosed the details of the transfers, nor
has NCC produced any documents showing that it retained any rights under the
Service Agreement after the assignments. In sum, NCC has produced no credible
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evidence to establish that, following those transfers, NCC retained any rights to be
paid amounts that Sprint disputed starting in 2008.
Based on the testimony and declaration of Todd Lesser (NCC’s owner and
principal), NCC appears to argue that jurisdiction existed in November of 2009
because the transfers in Arizona and Illinois never took place, and those two state-
specific entities were never operational. If true, the jurisdictional minimum would
be met, as the amounts withhold and disputed by Sprint between February of 2008
and the filing of the Complaint exceeded $75,000. However, Lesser’s self-serving
testimony is unreliable, is unsupported by documentation, and cannot be squared
with other, verifiable facts. Because NCC has failed to meet its burden of
demonstrating that there was any amount in controversy in November of 2009
between NCC and Sprint, this case must be dismissed for lack of subject matter
jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure.
Alternatively, if the Court does find that Arizona and Illinois amounts were in
controversy at that time, then it should dismiss NCC’s claims under the Service
Agreement for calls delivered into California and Oregon, as NCC lacks standing to
enforce those claims.
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II. FACTS REGARDING JURISDICTION
A. Lesser Testified that NCC Transferred its Contracts to NCC-CA
In the parties’ proposed Pretrial Order, Sprint advised the Court that, in 2014,
Lesser testified in a different case (the “Vaya” case) that NCC transferred its
operations and assets, and assigned its contracts and agreements, to its affiliate,
North County Communications Corp. of California (“NCC-CA”), in 2008.1 In the
Vaya case, NCC-CA tried to recover compensation for calls delivered by Vaya
Telecom. The case was recently tried and the judge ruled from the bench against
NCC-CA, holding that NCC-CA was engaged in access stimulation and was not a
bona fide telephone company. See Schenkenberg Decl. Ex. B. Sprint expects a
similar ruling here if this matter proceeds to trial.
Lesser’s testimony that NCC transferred its contracts to NCC-CA was
important because, if that were true, then there could have been no amount in
controversy between NCC and Sprint at the time that NCC filed its complaint. In
light of this representation, the Court ordered NCC to file a declaration, establishing
that, at the time that NCC filed its Complaint, there was a sufficient amount in
controversy between NCC and Sprint to support the Court’s diversity jurisdiction.
1 That testimony is on pages 614-15 of Exhibit 28 from the March 6, 2015 deposition of ToddLesser. March 27 Declaration of Philip R. Schenkenberg (“Schenkenberg Decl.”), Ex. A.
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ECF No. 264. The Court also allowed Sprint to take NCC’s deposition regarding
the allegations in support of the Court’s subject matter jurisdiction. Id.
B. Lesser’s Declaration and Deposition Testimony Do NotEstablish That the Transfers in California and Oregon LeftNCC With Payment Rights to Enforce
NCC submitted a declaration of Todd Lesser, which left more questions open
than answered. ECF No. 266. First, Lesser admits that there were two transactions
by which NCC transferred its “operations” to state-specific affiliates. In 2007,
NCC’s Oregon “operations” were transferred to North County Communications
Corp. of Oregon (“NCC-OR”). ECF No. 266, ¶ 14. Mr. Lesser did not identify
what the term “operations” includes or explain which rights relating to the Service
Agreement were assigned. The same was true as to the California transfer of
“operations” in 2008. ECF No. 266, ¶ 12. Consistent with the testimony that
Lesser gave in the Vaya case, the evidence shows that NCC transferred all of its
“contracts” and “agreements”—including the Service Agreement and all payment
rights thereunder—to either NCC-OR in 2007 or NCC-CA in 2008. Based just on
Lesser’s testimony in the Vaya action and on his declaration, there is no basis to
conclude that NCC was harmed by Sprint’s failure to pay disputed amounts
between February of 2008 and the date the Complaint was filed (November of
2009). With no amount in controversy, the Court lacked jurisdiction over this
dispute when the Complaint was filed.
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Sprint deposed Mr. Lesser on his Declaration and established the following:
In the 2007-2008 timeframe, Lesser decided that he was going to moveall of NCC’s operations to state-specific entities. Schenkenberg Decl.Ex. C at 462-63. Lesser was instructed by counsel not to disclose whatprompted this decision. Id.2
When asked for details about NCC’s transfer of its Oregon“operations” to NCC-OR, Lesser responded, “[i]t was seven years ago.The attorneys handled it. And I don't recall all the steps that tookplace.” Schenkenberg Decl. Ex. C at 466. Nor did Lesser recallwhether there are any documents that memorialize the transfer. Id.Importantly, Lesser confirmed that there was an assignment of theService Agreement, but Lesser did not “recall all the steps that tookplace, other than it was assigned on that date.” Id. at 471.
When asked for the details about NCC’s transfer of its California“operations” to NCC-CA, Mr. Lesser confirmed that there was atransfer, but could provide no detail on the terms of the assignment orany documentation thereof. Schenkenberg Decl. Ex. C at 484-85.When asked whether amounts collected for calls delivered intoCalifornia following the 2008 transfer were received by NCC or NCC-CA, Lesser was instructed by counsel not to answer. Id. at 491-492. 3
Based on Mr. Lesser’s declaration and testimony, the Court can and should
conclude that the Service Agreement was transferred to one or more NCC state
affiliate, and NCC failed to meet its burden to prove that it retained any rights to
enforce the Service Agreement or to collect any amounts allegedly due thereunder.
At the very least, it is undisputed that NCC is owed nothing for calls delivered to
California and Oregon.
2 Sprint does not believe this was a lawful instruction.3 Sprint does not believe this was a lawful instruction.
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C. NCC’s Assertion That it Did Not Transfer Operations to itsArizona Affiliate Is False
As noted above, NCC appears to argue that it satisfied the amount in
controversy requirement based on its assertion that NCC’s Arizona and Illinois
operations were kept within NCC. As to Arizona, Lesser declared that “NCC has
always provided the call termination services at issue in this case in the State of
Arizona” (ECF No. 266, ¶ 10), and testified in deposition that North County
Communications Corporation of Arizona (“NCC-AZ”) was incorporated but was
“not operational.” Schenkenberg Decl. Ex. C at 512. Numerous documents,
however, prove Lesser’s statements to be false.
For example, Exhibit 38 from the March 6, 2015 deposition of Mr. Lesser is
an affidavit that was submitted by NCC’s counsel in an interconnection arbitration
proceeding initiated by Qwest Corporation at the Arizona Corporation Commission
against “North County Communications Corporation of Arizona.” Schenkenberg
Decl. Ex. D. (Here, Sprint and NCC have stipulated that all Arizona calls sent by
Sprint were delivered by Sprint through Qwest Corporation. See Proposed Pretrial
Order, Stipulation of Fact 11.) Exhibit B to that affidavit is an interconnection
agreement amendment with the following signature block:
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Schenkenberg Decl. Ex. D at Exhibit B. Thus, on May 24, 2008, Mr. Lesser signed
an interconnection agreement amendment with Qwest on behalf of NCC-AZ. Id.
Shortly thereafter, Qwest provided notice terminating the agreement and
agreements in several other states. Schenkenberg Decl. Ex. E at Exhibit B ¶¶ 1-2 &
Attachments A-B. On August 7, 2008, in response to the notice of termination, Mr.
Lesser wrote to Qwest and confirmed that NCC’s interconnection agreements with
Qwest had been assigned to state-specific entities:
Schenkenberg Decl. Ex. E at Exhibit B, Attachment C.
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When the parties were unable to reach agreement, they proceeded to
arbitration in 2009 before the Arizona Commission. NCC-AZ was the named
entity, and the Arizona Commission ruled against NCC-AZ. NCC-AZ appealed to
the federal district court, naming NCC-AZ as the party in interest. Schenkenberg
Decl. Ex. G.4 In its federal district court complaint, North County Communications
Corporation of Arizona, defined as “NCC” in the complaint, represented to the
federal court the following with respect to periods up to and including 2009:
“[NCC-AZ] has been certified by the ACC as a competitive localexchange carrier (“CLEC”) in Arizona.” Schenkenberg Decl. Ex. G at¶ 8.
“CenturyLink and [NCC-AZ] were parties to the Existing ICA, whichthe ACC approved in ACC Decision No. 60885 on May 19, 1998.”Schenkenberg Decl. Ex. G at ¶ 21. 5
The Arizona Commission erred by ordering NCC-AZ to pay forrecords in “order to receive reciprocal compensation payments fromCenturyLink for the local calls that CenturyLink transmits to [NCC-AZ] for termination.” Schenkenberg Decl. Ex. G at ¶ 17.
“One hundred percent (100%) of the traffic exchanged between[Qwest] and [NCC-AZ] is traffic that [Qwest] transmits to[NCC-AZ].”Schenkenberg Decl. Ex. H at ¶ 2.
“In Arizona, [NCC-AZ] provides telephone service to businesses thatonly receive incoming calls. Accordingly, all traffic exchangedbetween [Qwest] and [NCC-AZ] flows from [Qwest] to [NCC-AZ] –i.e., [NCC-AZ] transmits no traffic to [Qwest].” Schenkenberg Decl.Ex. H, ¶ 4 (record cites omitted).
4 See also Schenkenberg Decl. Ex. F (corporate disclosure statement identifying NCC-AZ).5 Qwest’s d/b/a became CenturyLink after a merger.
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When confronted with these facts in his recent deposition, Mr. Lesser conceded that
these statements made to the federal court in Arizona were false. Schenkenberg
Decl. Ex. C at 534-35.
In addition, while Mr. Lesser denied that there had been a transfer of Arizona
assets (Schenkenberg Decl. Ex. C at 513-14), NCC and NCC-AZ told the Arizona
Commission in 2007 that, “[a]s of June 8, 2007, the telecommunications license
assets of North County were transferred to North County Arizona ….”
Schenkenberg Decl. Ex. I at p. 2. In deposition, Mr. Lesser was unable to explain
this transfer of license assets. Schenkenberg Decl. Ex. C at 515.
The Court should conclude that Mr. Lesser gave false testimony when he
claimed that NCC-AZ was never operational, and the Court should find that NCC’s
Arizona operations were transferred to NCC-AZ, leaving no Arizona rights for
NCC to enforce.
D. NCC’s Assertion That it Did Not Move Operations to its IllinoisAffiliate Is False
For Illinois, Mr. Lesser declared that “NCC has always provided the call
termination services at issue in this case in the State of Illinois” (ECF No. 266, ¶ 9),
and he testified in deposition that North County Communications Corporation of
Illinois (“NCC-IL”) never provided services in the state. Schenkenberg Decl. Ex. C
at 495. Again, Lesser’s statements are false.
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In 2007, NCC and NCC-IL filed, and then withdrew, a request to transfer
NCC’s operations to NCC-IL. Schenkenberg Decl. Ex. J. Then, NCC-IL filed its
own application for authority to provide telecommunications service stating that
NCC-IL would take over NCC’s Illinois customer base:
Schenkenberg Decl. Ex. K at p. 5, ¶ 27.
That application was granted on May 21, 2008. Schenkenberg Decl. Ex. L.
While Mr. Lesser testified that the transfer was not consummated, that does not
square with NCC’s regulatory filings in Illinois. In NCC’s regulatory filings with
the Illinois Commission, NCC reported having Illinois assets, Illinois income, and
Illinois expenses in 2007 and 2008, but those numbers dropped to $0 for years 2009
and 2010. Schenkenberg Decl. Ex. M at Bates 001614-1617 (2007), 001618-1621
(2008), 001622-1625 (2009), & 001626-1629 (2010). At his December 5, 2012
deposition, Mr. Lesser claimed not to remember why those numbers were reported
as $0, but did not dispute the numbers. Schenkenberg Decl. Ex. N at 422-24.
Regardless, it must be the case that NCC transferred its assets to NCC-IL in 2008.
Without assets or operating revenue in Illinois, NCC cannot show that there was
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any amount in controversy between NCC and Sprint as of the date that NCC filed
its Complaint and invoked diversity jurisdiction.
E. NCC’s Balance Statements Do Not Reflect the Payables SprintAllegedly Owed to NCC
The final piece of evidence that Sprint wishes to bring to the Court’s
attention on this point is NCC’s 2009 balance sheet, which NCC submitted to the
California Public Utilities Commission. Schenkenberg Decl. Ex. O at 001610. The
only account receivable listed in that balance sheet is an amount related to an
affiliate transaction. Id. This balance sheet is further proof that the amounts that
NCC claims to have been owed by Sprint when the Complaint was filed (see ECF
No. 266, ¶ 18) were not on NCC’s books at that time. Accordingly, NCC’s
assertions that it was owed any amounts at that time are unsupported and contrary
to the record evidence.
F. NCC Made False Allegations and Withheld Information FromSprint
It is now undisputed that, since 2008, NCC has had no operations, customers,
switches or other network facilities in California and Oregon, and that NCC had
assigned (at the very least) the California and Oregon portions of the Service
Agreement. Lesser’s current testimony regarding the California and Oregon
“operations” shows that NCC intentionally made false statements to Sprint and the
Court and that NCC hid facts about its affiliates.
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NCC’s Complaint alleged that “NCC is a competitive local exchange carrier
(‘CLEC’) that provides local exchange, interexchange, exchange access, and other
communications throughout the United States, including but not limited to,
California, Arizona, Washington, Oregon, Illinois and West Virginia.” ECF No. 1,
¶ 7. However, in the recent deposition, Lesser admitted that this statement was
false when made as to California and Oregon. Schenkenberg Decl. Ex. C at 546-
47. The best explanation that Lesser could give for the incorrect pleading was, “[i]t
was a mistake. The lawyers drew it up. And I didn’t catch it.” Id.
Of course, this was not an isolated, overlooked mistake, it was the first of
many pleadings and declarations that falsely identified NCC as the entity that
provided service, had a network, and served customers. For example, NCC has
claimed that:
“Plaintiff is in the business of providing telecommunications in,among other states, California, Oregon, Arizona, and Illinois ….”ECF No. 38-2, ¶ 3 (Declaration of Todd Lesser).
“Sprint transmits calls from its network to NCC’s network for NCC toterminate to NCC’s end users.” ECF No. 61, ¶ 6 (Declaration of ToddLesser).
“NCC incurs costs to own and operate its network. For example, NCCincurs costs to terminate each call that Sprint transmits to the NCCnetwork.” ECF No. 68, ¶ 12 (Declaration of Todd Lesser).
Mr. Lesser kept these facts hidden by giving false testimony in a deposition taken
more than two years ago:
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Q. I have seen a tariff file, a California state tariff file thatidentifies NCC of California.
A. Yes.Q. Is that an operating entity?A. I don't understand the question.Q. Is that a separate entity from NCC that operates in the state of
California?MR. DICKS:
Compound question. You can answer if you know.A. I don't know.BY MR. SCHENKENBERG:Q. You don't know if North County Communications Corporation
of California operates in California?MR. DICKS:
That's not compound. If you can answer that, you can answer ifyou know the answer.
A. I don't know the answer.
Schenkenberg Decl. Ex. P at 206-207.
…
Q. Were [NCC-CA, NCC-OR, NCC-AZ and NCC-IL] entitled toreceive payment based on the provision of services?
A. I don't believe so.Q. Why not?A. I believe at the -- a lot of times those corporations were formed,
but the carrier of record was North County Communications.Q. What do you mean when you say "carrier of record"?A. Well, the carrier that was providing the service.
Schenkenberg Decl. Ex. Q at 41-42.
…
Q. NCC has switches located in Los Angeles, Sacramento, SanDiego and San Francisco; is that correct?
A. Yes.Q. Are those switches owned by NCC?A. Yes.
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Schenkenberg Decl. Ex. P at 208.
…
Q. Okay. What services does HFT receive from NCC inCalifornia?
A. Local phone service.
Schenkenberg Decl. Ex. P at 232.
…
Q. Oregon: Now, do you know what corporate entity providesservice in Oregon?
A. NCC.Q. Wasn't there an order in 2007 that transferred the authority to
NCC of Oregon?A. I don't recall.Q. Do you have any recollection of that?A. I don't know if that actually was completed or not, but I seem to
recall we did have approval to do that.Q. It's NCC that's the plaintiff in this case. Right?A. I believe so.Q. And NCC is the entity that's billed Sprint?A. Yes.
Schenkenberg Decl. Ex. P at 225.
III. ARGUMENT
A. Standard of Review
“Federal courts have limited subject matter jurisdiction and, unless
jurisdiction is authorized by the Constitution or a statute, a federal court is
presumed to lack jurisdiction.” Chaganti v. I2 Phone Intern., Inc., 635 F. Supp. 2d
1065, 1070 (N.D. Cal. 2007). NCC’s Complaint in this case, filed November 30,
2009, asserted subject matter jurisdiction only on the basis of diversity of
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citizenship. ECF No. 1, ¶ 2. Under federal law, a federal district court like this one
has diversity jurisdiction over a civil action between citizens of different states if
the amount in controversy exceeds $75,000, exclusive of interest and costs. 28
U.S.C. § 1332(a). At issue in this motion is whether the amount in controversy—
between NCC and Sprint—exceeded $75,000. If a federal court lacks subject
matter jurisdiction, it must dismiss the action. Fed. R. Civ. P. 12(h)(3).
“Where the plaintiff originally files in federal court, ‘the amount in
controversy is determined from the face of the pleadings.’” Geographic
Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102, 1106 (9th Cir.
2010) (quoting Crum v. Circus Circus Enters., 231 F.3d 1129, 1131 (9th Cir.
2000)). “The amount in controversy alleged by the proponent of federal
jurisdiction—typically the plaintiff in the substantive dispute—controls so long as
the claim is made in good faith.” Id. If jurisdiction is challenged, then, “[t]o
determine whether the amount-in-controversy requirement is met, courts apply the
‘legal certainty’ test.” AO Ventures, LLC. v. Gutierrez, No. 12-04625, 2012 WL
6608824, at *2 (N.D. Cal. Dec. 18, 2012). The Supreme Court has summarized
this test: “if, from the face of the pleadings, it is apparent, to a legal certainty, that
the plaintiff cannot recover the amount claimed or if, from the proofs, the court is
satisfied to a like certainty that the plaintiff was never entitled to recover that
amount, and that his claim was therefore colorable for the purpose of conferring
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jurisdiction, the suit will be dismissed.” St. Paul Mercury Indem. Co. v. Red Cab
Co., 303 U.S. 283, 289 (1938).
The Ninth Circuit has held that “three situations clearly meet the legal
certainty standard” and warrant dismissal: “1) when the terms of a contract limit the
plaintiff’s possible recovery; 2) when a specific rule of law or measure of damages
limits the amount of damages recoverable; and 3) when independent facts show that
the amount of damages was claimed merely to obtain federal court jurisdiction.”
Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 365 (9th Cir. 1986)
(quoting 14A Charles Alan Wright, Arthur R. Miller, and Edward H. Cooper,
Federal Practice and Procedure, Jurisdiction, § 3702 at 48-50 (2d ed. 1985)).
In addition, when a defendant challenges the adequacy of an allegation of
amount in controversy, then the plaintiff bears the burden of demonstrating, “by
competent proof,” that the requirement is met. See McNutt v. Gen. Motors
Acceptance Corp. of Indiana, 298 U.S. 178, 189-90 (1936). If a jurisdictional
challenge is based on evidence beyond the face of the pleadings (i.e., a factual
challenge), “the Court may look beyond the Complaint to affidavits and other
evidence submitted by the parties in order to evaluate the Rule 12(b)(1) motion.”
Lycurgan Inc. v. Jones, No. 14-CV-1679, 2014 WL 5393036, at *1 (S.D. Cal. Oct.
22, 2014); Savage v. Glendale Union High School, Dist. No. 205, Maricopa Cnty,
343 F.3d 1036, 1039 at n. 2 (9th Cir. 2003) (“Once the moving party has converted
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the motion to dismiss into a factual motion by presenting affidavits or other
evidence properly brought before the court, the party opposing the motion must
furnish affidavits or other evidence necessary to satisfy its burden of establishing
subject matter jurisdiction”).
B. NCC Failed to Meet its Burden to Establish That This CourtHas Subject Matter Jurisdiction Over This Dispute
“It is now settled that when there is an issue as to the sufficiency of the
jurisdictional amount, the burden of proving jurisdiction is on the party asserting
it.” F & S Constr. Co. v. Jensen, 337 F.2d 160, 161 (10th Cir. 1964). California
courts embrace this burden shift: “[b]ecause Defendant…presented evidence going
to the amount in controversy, Plaintiff was required to come forth with evidence
demonstrating that the legal certainty test is not met.” AO Ventures, 2012 WL
6608824, at *3; see also Chaganti, 635 F. Supp. 2d at 1070 (“The burden of
establishing otherwise rests on the party asserting jurisdiction”); see also Branon v.
Debus, 289 F. App’x 181, 183 (9th Cir. 2008) (“the party asserting jurisdiction
bears the burden of proof if the opposing party files a motion to dismiss based on
lack of subject matter jurisdiction”).
In AO Ventures, the Northern District of California was presented with a
motion to dismiss for lack of subject matter jurisdiction in a case in which the
amount in controversy was the value of a domain name. 2012 WL 6608824. In
support of that motion, the defendant provided the court with a declaration showing
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that the plaintiff agreed to pay $14,500 for the domain name and that plaintiff’s
negotiating agent stated in e-mails that the domain name was worth less than
$15,000. Id. at *2. In response, the plaintiff presented evidence in support of
jurisdiction, including that a similar domain name had sold for $100,000, that
plaintiff has paid $40,000 in “design, programming and business development
efforts” and that plaintiff has spent $40,000 on a market expert. Id. at *3.
Although the plaintiff provided the court with some information, the court held that
plaintiff’s statement regarding the sale of the other domain name was “vague” and
“not credible.” Id. In addition, the court noted that the plaintiff offered “no
explanation for its dramatic change in position” from the time of its purchase and
negotiation. Id. “Rather, it is apparent to the Court that this new-found opinion is
simply an attempt to manufacture subject matter jurisdiction and is not made in
good faith.” Id. The AO Ventures court dismissed the action for lack of subject
matter jurisdiction. Id. at *4.
The District of Minnesota issued a similar ruling in Citi Mortgage, Inc. v.
Hubbard, No. 13-144, 2014 WL 1303706 (D. Minn. Mar. 31, 2014). There, the
court dismissed the case based on the plaintiff’s failure to establish the court’s
subject matter jurisdiction over the dispute. Id. at *16. The court noted that,
despite the defendant’s challenge, the plaintiff “did not provide this Court with any
evidence to suggest that it could meet the $75,000 threshold.” Id. “The fact is that
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defendants challenged [plaintiff’s] statement of diversity jurisdiction and it was up
to [plaintiff] to show by a preponderance of evidence that such jurisdiction exists.
It failed to do so.” Id.
The same result is warranted here. Sprint advised the Court of the credible
evidence challenging the amount in controversy in this case. Schenkenberg Decl.,
Ex. A, pp. 614-15. The Court agreed and required NCC to provide a declaration
proving that the amount-in-controversy minimum was met. ECF No. 264. NCC
submitted a declaration (ECF No. 266) that failed to coherently describe why it
holds any rights to enforce the Service Agreement. See id. Instead, as
demonstrated above, supra, pp. 3-11, the record evidence proves that NCC has not
met its burden to show that the amount in controversy requirement is satisfied in
this action. Accordingly, the Court lacks subject matter jurisdiction. The Court
should dismiss this action.
C. The Court Has the Discretion on This Record to Find ThatLesser’s Statements That NCC Did Not Transfer in Californiaand Illinois Are False
Even if the Court concludes that Mr. Lesser’s declaration provides enough
information to establish that NCC can enforce its purported Arizona and Illinois
rights, Mr. Lesser’s unreliability and misstatements should persuade the Court to
determine that his statements are false and not made in good faith. It is true that,
under the legal certainty standard, good faith allegations of a plaintiff as to the
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amount in controversy normally will “suffice to establish the jurisdictional amount
unless it appears legally certain that the amount in dispute is $75,000 or less.”
Geographic Expeditions, Inc., 599 F.3d at 1107. However, the flip side of that
same rule is also true: “[t]he sum claimed by the plaintiff will fail if it appears to
have been made in bad faith.” Srour v. Barnes, 670 F. Supp. 18, 20 (D.D.C. 1987).
Because of this, it is appropriate for courts to evaluate whether jurisdictional
statements are made in good faith. See Durand v. Stephenson, No. CIV-S-09-2038,
2010 WL 3855236, at *1 (E.D. Cal. Sept. 29, 2010) (evaluating whether plaintiffs’
allegations of amount in controversy were made in good faith). When the plaintiff
does not make an allegation of the amount of controversy in good faith, then the
court can dismiss the action. See F & S Constr. Co., 337 F.2d at 162 (instructing
the district court to dismiss the action for lack of jurisdiction because “substantial
evidence” showed that “the allegation of the amount in controversy was not made
in good faith” and noting that “[w]e find no decision which has sustained federal
jurisdiction in a diversity case where it was found that the allegation as to the
amount in controversy was not made in good faith”).6
6 And, even when a court decides not to dismiss for lack of diversity jurisdiction, it may still issuesanctions for a plaintiff’s bad faith jurisdictional allegations. Durand, 2010 WL 3855236, at *3-4(denying Rule 12(b)(1) motion to dismiss pro se plaintiffs’ complaint, but still awarding sanctionsto defendants because “plaintiffs’ bad faith actions resulted in defendants’ needlessly incurringattorneys’ fees and costs in connection with preparing and filing the motion in the first place.”).
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The record evidence demonstrates that Mr. Lesser’s latest declaration
includes statements that (1) are contrary to earlier statements made under oath in
this proceeding,7 (2) cannot be squared with documents from the Arizona litigation
between Qwest and NCC, and (3) contradict filings made at the Illinois and
California public utilities commissions.8 See also Schenkenberg Decl. Ex. C at
534-35 (testifying that the contradictory statements made to a different court were
false). Mr. Lesser’s testimony is, at best, unreliable, and his prior inconsistencies
and false statements should be taken into account when evaluating whether he has
established jurisdiction.
Besides Mr. Lesser’s self-serving declaration, there is no evidence that
establishes jurisdiction. If there are documents that accomplished a partial
assignment (or assignments) of the Service Agreement, those should have been
disclosed in discovery or attached to the Declaration ordered by the Court. In
situations like this, it is appropriate for the Court to dismiss. See Branon, 289 F.
App’x at 183 (affirming district court’s dismissal for lack of subject matter
jurisdiction after defendant failed to “submit any evidence” and instead only
provided the court with “self-serving declarations”). The Court should find that
NCC transferred its assets, including any rights under the Service Agreement,
7 See discussion above, supra, pp. 12-14, and Schenkenberg Decl. Exs. P & Q (depositiontestimony at 206-207, 41-42, 208, 232, 225).8 See discussion above, supra, pp. 8-9, and Schenkenberg Decl. Ex. G (depo ex. 36).
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before it commenced this action. Based on the evidence in the record, NCC’s
claims must be dismissed.
D. Alternatively, the Court Should Dismiss NCC’s Claims as toMinutes in California and Oregon Because NCC Admits That itDoes Not Have Standing to Bring Those Claims
If the Court concludes that it does have subject matter jurisdiction over this
action, then it should nonetheless dismiss NCC’s claims under the Service
Agreement as they relate to California and Oregon. As addressed, above, supra, pp.
3-6, NCC conceded that it transferred its corporate assets related to California and
Oregon prior to commencing this lawsuit. ECF No. 266, ¶¶ 12, 14. The transfer of
those assets would have included any right to enforce the Service Agreement.
California law is clear that, once a party has assigned a claim to an assignee, the
assignor no longer has standing to bring the claim. See Searles Valley Minerals
Operations Inc. v. Ralph M. Parson Serv. Co., 191 Cal. App. 4th 1394, 1402 (2011)
(“once the transfer has been made, the assignor lacks standing to sue on the
claim.”).
Because NCC admits that it transferred its corporate assets to state-specific,
non-party entities before commencing this action, NCC does not have standing to
bring its claims under the Service Agreement as they relate to California and
Oregon and, thus, those claims must be dismissed.
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6975355v9
IV. CONCLUSION
After more than five years, NCC has failed to prove that this Court has
jurisdiction over this dispute. NCC’s claims should be dismissed with prejudice.
In the alternative, the Court should dismiss NCC’s claims arising out of California
and Oregon due to NCC’s lack of standing to enforce those claims.
Dated: March 27, 2015 BRIGGS AND MORGAN, P.A.
By: s/Philip R. SchenkenbergATTORNEYS FOR SPRINTCOMMUNICATIONS COMPANYL.P.
Email: [email protected]
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