Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-00432/USCOURTS-azd-2_11-cv-00432-1/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Cellco Partnership doing business as 

Verizon Wireless,

Plaintiff, 

vs. 

Jason Hope, et al.,

Defendants. 

No. CV11-0432-PHX-DGC

ORDER AND PRELIMINARY

INJUNCTION

 

 Plaintiff Cellco Partnership, doing business as Verizon Wireless (“Verizon”), has 

filed a motion for preliminary injunctive relief against Defendant Jason Hope and others. 

Defendants oppose the motion (Doc. 68) and have filed their own request for a 

preliminary injunction (Doc. 90). The Court held an evidentiary hearing on both motions 

on April 13 and 14, 2011, and has received additional briefing from the parties on 

Defendants’ motion. For reasons explained below, the Court will grant Plaintiff’s motion 

and deny Defendants’ motion. 

I. Legal Standard. 

 To obtain a preliminary injunction, a plaintiff must show that he is likely 

to succeed on the merits, that he is likely to suffer irreparable harm in the absence 

of preliminary relief, that the balance of equities tips in his favor, and that an injunction 

is in the public interest. Winter v. Natural Res. Def. Council, 555 U.S. 7, 129 S. Ct. 365, 

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374 (2008). The test includes a sliding scale. If the plaintiff shows that the balance of 

hardships will tip sharply in his favor, he need not make as strong a showing of 

likelihood of success on the merits – the existence of serious questions will suffice. 

Alliance for Wild Rockies v. Cottrell, 622 F.3d 1045, 1049-53 (9th Cir. 2010). 

II. Verizon’s Motion for Preliminary Injunction. 

A. Factual Findings. 

The following factual findings are based on evidence presented at the hearing on 

April 14, 2011, exhibits submitted at the hearing and by the parties in their preliminary 

injunction briefing, and the Court’s credibility determinations made during the hearing. 

Exhibits cited in this order are exhibits received during the hearing. 

Verizon operates a wireless telephone network. Defendants are engaged in the 

business of providing premium text message service (“PSMS”) on wireless networks. 

PSMS is content, delivered for a fee, to wireless customers’ handsets through five or six 

digit numbers known as “short codes.” PSMS content such as ring tones, horoscopes, 

recipes, celebrity gossip, and news alerts typically are advertised through websites on the 

internet and ordered by wireless customers on these websites. When a customer orders a 

PSMS service on Defendants’ website, the service is delivered to the customer’s phone 

over the Verizon network and Verizon includes the monthly charge for the PSMS service 

on the customer’s wireless bill. 

To market and sell PSMS over the Verizon wireless network, Verizon requires 

Defendants and other content providers to abide by the industry guidelines for marketing 

practices developed by the Mobile Marketing Association (“MMA Best Practices”). 

These guidelines protect wireless customers from misleading and deceptive PSMS 

marketing practices. 

Communication between network providers such as Verizon and content providers 

such as Defendants generally occurs through third-party entities known as “aggregators.” 

Content providers are required to submit an application to Verizon, through an 

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aggregator, for each PSMS marketing campaign the content providers propose to provide 

on Verizon’s network. Verizon reviews these proposed marketing campaigns for 

compliance with the MMA Best Practices before access to its network is granted. When 

a campaign is approved, Verizon authorizes the provider to use a specific short code on 

its network. 

After Verizon approves a campaign, it monitors the internet and other advertising 

to ensure that unauthorized and unapproved practices are not used to market PSMS 

content to its customers. Verizon employs a third-party auditor, Aegis Mobile, to conduct 

this monitoring. 

Defendants Jason Hope and Wayne Destefano previously did business as Cylon 

LLC. In March of 2009, Verizon suspended Cylon’s short codes on the Verizon network. 

The suspension occurred because Cylon was using an opt-in procedure for its sites that 

allowed customers to sign up for services directly on the internet, rather than using a 

double opt-in procedure required by the MMA Best Practices and mandated by Verizon 

for sale of PSMS to its customers. Verizon’s termination letter stated that Verizon would 

not consider reactivation of the suspended short codes or any new program from Cylon, 

and that all future programs would require disclosure of the content providers’ identities. 

Ex. 54. 

In response to Verizon’s suspension, Jason Hope sent an email to Verizon seeking 

to regain access to the Verizon network and attributing the incorrect opt-in procedures to 

a rogue employee at Cylon who did not have management approval to violate MMA Best 

Practices. Ex. 13. This explanation was false. As Mr. Destefano admitted at the hearing, 

the rogue employee explanation was a lie. In July of 2009, Verizon stated that Hope and 

Destefano could again do business on the Verizon network, but the requirement that they 

identify themselves when doing business remained in place. Doc. 132 at 3-4. 

Defendants Hope and Destefano created Defendant Eye Level Holdings, LLC in 

2009. Eye Level does business as “JAWA,” which represents the first two letters of 

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Hope and Destefano’s first names. In applying for permission to do business on the 

Verizon network thereafter, however, Defendants created separate limited liability 

companies (“LLCs”) to hold each of the short codes and to apply for access to the 

network. These LLCs were created in the names of JAWA employees other than Mr. 

Hope and Mr. Destefano, and the principal places of business listed for the LLCs were 

addresses that actually were UPS stores in various parts of the country, not Defendants’ 

principal place of business in Scottsdale, Arizona. The creation of the LLCs and their 

false principal places of business appear designed to prevent Verizon from associating the 

LLCs and their applications with Defendants Hope and Destefano. 

Defendants sell their PSMS services on the internet. When prospective customers 

seek information about Defendants’ services on the internet, they first see a web page 

referred to by the parties as the “landing page.” MMA Best Practices provide detailed 

specifications concerning the form of landing pages, including (1) required disclosures 

concerning the price of the service, the terms and conditions of the service, the short code 

affiliated with the service, and how to cancel the service; (2) font size, location, and 

colors for price disclosures; and (3) requirements about what disclosures must be “above 

the fold,” meaning on the first computer screen the customer sees. 

Verizon requires Defendants and other content providers to comply with MMA 

Best Practices when selling product and providing services on the Verizon network, and 

to submit proposed landing pages to aggregators for compliance review. Landing pages 

submitted for such reviews were referred to in the hearing as “carrier facing URLs.” 

Defendants submitted carrier facing URLs to aggregators for possible use on the 

Verizon network. The carrier facing URLs complied with MMA Best Practices, but once 

those URLs were approved and a short code was assigned, Defendants used landing 

pages in connection with the short code that did not comply with MMA Best Practices. 

Some of these landing pages dropped the price disclosures from the locations required by 

the Best Practices, reduced the font size or color of the prices disclosures, failed to advise 

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viewers of how services could be discontinued, failed to identify the short code affiliated 

with the service, and failed to include the required terms and conditions above the fold. 

These landing pages were not submitted to or approved by Verizon or any aggregator. 

Defendants used numerous non-compliant landing pages to sell their services to Verizon 

customers after obtaining short codes and access to the Verizon network by submitting 

compliant carrier facing URLs. 

Aegis monitors compliance for Verizon by viewing a content provider’s landing 

pages on the internet and determining whether the pages comply with MMA Best 

Practices. Defendants knew that Verizon retained such auditors, that Verizon’s primary 

auditor was Aegis, that Aegis sought to audit Defendants’ compliance with MMA Best 

Practices, and generally how Aegis conducted its auditing activities. 

Defendants used a software program, referred to by Defendants as a “firewall” and 

by Verizon as “cloaking software,” to prevent Aegis and other auditors from viewing 

their non-compliant landing pages. Internet Protocol (“IP”) addresses for Aegis and other 

auditors were maintained by Defendants in a “blacklist.” Whenever an attempt was made 

to view Defendants’ landing pages from an IP address on the blacklist, Defendants’ 

software would direct the attempt away from the landing page to a generic website 

offering similar services. Defendants understood that this was the effect of the software. 

A flowchart of the software prepared by Defendants stated that it “filters out known 

auditors.” Ex. 5 at 8. It further states that if a visitor to Defendants’ landing pages is 

“considered a known auditor,” “they will be redirected to [another] website” such as a 

generic website for the same services or even to a search site such as Google. Id. The 

flowchart also states that auditors may be redirected to a “super compliant” landing page. 

Id. at 14. 

Defendants limited knowledge of the auditor-blocking software to a small number 

of employees within the company. Ex. 45. Defendants monitored the software’s 

effectiveness in directing auditors away from their landing pages. Ex. 43. Defendants 

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also monitored which auditors sought to look at which landing pages on which days. 

Ex. 38. After this lawsuit was filed, Defendants disabled the portion of their software 

that redirected auditors away from Defendants’ landing pages. 

Aegis was able to discover the use of this cloaking software and to avoid it by 

making inquiries through other IP addresses. Through this means, Aegis was able to 

view numerous landing pages that were not compliant with MMA Best Practices and that 

were being used by Defendants to sell their services to Verizon network customers. 

Verizon contends that Defendants’ actions have misled Verizon customers into 

signing up for Defendants’ services. David Burmester testified that Verizon has received 

customer complaints and threats to leave the Verizon network due to Defendants’ actions. 

Other customers have requested that their phones be blocked from all PSMS services due 

to Defendants’ conduct. California regulators have contacted Verizon about Defendants’ 

conduct. 

The Court finds that Verizon is likely to succeed at trial in establishing that 

Defendants used deceptive practices to gain access to the Verizon network, including 

(1) using carrier facing URLs that were compliant with MMA Best Practices to obtain 

approval and short codes, followed by the undisclosed use of non-compliant landing 

pages to sell services via the short codes; (2) using blocking software to prevent 

Verizon’s auditors from monitoring the non-compliant landing pages; and (3) using 

individual LLCs with fictitious places of business to acquire short codes and conceal the 

involvement of Mr. Hope and Mr. Destefano – content providers who previously had 

been barred from the Verizon network. The Court also finds that Verizon is likely to 

establish that Verizon customers have been misled by Defendants’ landing sites. 

 B. Verizon’s Legal Claims. 

 Verizon asserts several claims for relief in its complaint, but bases its request for a 

preliminary injunction on three: the Arizona Consumer Fraud Act (“ACFA”), tortious 

interference with contract, and unjust enrichment. The Court will address each claim. 

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 1. Arizona Consumer Fraud Act.

 Verizon argues that Defendants violated the ACFA by (1) gaining access to the 

Verizon network through false representations and omissions of material facts, and 

(2) selling services to Verizon customers through “unauthorized advertisements that 

violated the MMA Best Practices.” Doc. 6 at 10. Defendants respond in part that 

Verizon lacks standing to sue under ACFA. Doc. 68 at 13. The Court concludes, for 

purposes of this preliminary injunction motion, that Verizon is not likely to succeed in 

establishing a claim under the ACFA. 

 The ACFA prohibits “[t]he act, use, or employment by any person of any 

deception, deceptive act or practice, fraud, false pretense, false promise, 

misrepresentation, or concealment, suppression or omission of any material fact with the 

intent that others rely upon such concealment, suppression or omission, in connection 

with the sale or advertisement of any merchandise whether or not any person has in fact 

been misled, deceived, or damaged thereby[.]” A.R.S. § 44-1522(A). In Sellinger v. 

Freeway Mobile Home Sales, Inc., 521 P.2d 1119, 1122 (Ariz. 1974), the Arizona 

Supreme Court held that ACFA implies a private right of action. 

 In construing the scope of the statute in private suits, Enyart v. Transamerica Ins. 

Co. noted that “[t]he purpose of the Arizona Consumer Fraud Act is to eliminate 

unlawful practices in merchant-consumer transactions.” 985 P.2d 556, 563 (Ariz. App. 

1998) (citing Madsen v. W. Am. Mortg. Co., 694 P.2d 1228 (Ariz. App. 1985)). “The 

elements of a private cause of action under the act are a false promise or 

misrepresentation made in connection with the sale or advertisement of merchandise and 

the hearer’s consequent and proximate injury.” Dunlap v. Jimmy GMC of Tucson, Inc., 

666 P.2d 83, 87 (Ariz. App. 1983) (citing Parks v. Macro-Dynamics, 591 P.2d 1005 

(Ariz. App. 1979)). Although cases have held that “consumers” need not be natural 

persons, e.g., Waste Mfg. & Leasing Corp. v. Hambicki, 900 P.2d 1220, 1224-25 (Ariz. 

App. 1995), Arizona courts have also clearly suggested that the ACFA protects only 

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those who are actually consumers in the transaction, e.g., Waste Mfg., 900 P.2d at 1224 

(“The purpose of the Act is to provide injured consumers with a remedy”); Dunlap, 666 

P.2d at 87 (“The Consumer Fraud Act provides an injured consumer with an implied 

private right of action against a violator of the act.”); Correa v. Pecos Valley Dev. Corp., 

617 P.2d 767, 771 (Ariz. App. 1980) (“Injury occurs when the consumer relies on the 

misrepresentation, even though reliance need not be reasonable.” (citation omitted)); 

Parks, 591 P.2d at 1008 (elements of claim under the Act include “the hearer’s

consequent and proximate injury”) (emphasis added in all quotes). 

 The Ninth Circuit has specifically held that a plaintiff may not make a claim under 

the ACFA for fraudulent statements made in connection with the sale of merchandise to 

another person. See Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401 

(9th Cir. 1992). As the Ninth Circuit explained: 

 

ACFA makes it illegal to commit fraud or deception “in connection with 

the sale or advertisement of any merchandise.” . . . The clear intent of this 

provision is to protect unwary buyers from unscrupulous sellers. The basis 

for Vintage’s claim, however, is that Sutter Home deceived it by secretly 

selling to another distributor the exclusive rights to distribute its wine. 

Under this scenario, Vintage is not a buyer, nor is it the target of deceptive 

advertising. Consequently, it cannot maintain an action under [ACFA]. 

Id. at 407. 

 To the extent Defendants misled Verizon in obtaining access to the Verizon 

network, the fraud did not occur “in connection with” Verizon’s purchase of 

merchandise. One could argue that the fraud was committed for the purpose of selling 

merchandise (PSMS) to Verizon customers, and therefore was “in connection with” the 

sale of merchandise, but Arizona cases strongly suggest and Sutter holds that the plaintiff 

under the ACFA must be the buyer in the merchandise transaction. Because Verizon has 

not shown that it purchased merchandise from Defendants in connection with their 

alleged misrepresentations, Verizon has not shown that it is likely to establish a valid 

claim under the ACFA. 

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 2. Tortious Interference with Contractual Relations.

 Verizon asserts that Defendants’ actions constitute tortious interference with 

contractual relations. When asked during oral argument to identify the breach 

Defendants allegedly induced, Verizon argued that a breach is not required – that mere 

burdening of an existing contract satisfies the requirements of the tort. Verizon argued 

that Defendants’ actions have forced it to spend more money and time in mollifying 

unhappy customers than otherwise would have been required, thereby burdening 

Verizon’s contractual relations with its customers. Defendants reply that Arizona law 

requires a breach of the contract before liability arises for tortious interference with 

contract, and that Verizon has shown no breach. 

 “In analyzing state law in a diversity case, [federal courts] are bound by the 

decisions of the state’s highest court.” U.S. Fidelity and Guar. Co. v. Lee Investments 

LLC, ___ F.3d ____, 2011 WL 1458793, *5 (9th Cir. 2011). If a state’s highest court has 

not ruled on an issue, a federal court is “required to ascertain from all the available data 

what the state law is and apply it.” Id. (quoting Soltani v. Western & Southern Life Ins. 

Co., 258 F.3d 1038, 1045 (9th Cir. 2001)). In determining how the state’s highest court 

would rule, a federal court “look[s] to existing state law without predicting potential 

changes in that law.” Id. (citation omitted). 

 The question before this Court is whether, under Arizona law, a civil defendant 

can be held liable for tortious interference with contractual relations by making the 

plaintiff’s compliance with a contract more expensive. The answer is yes. 

 Verizon cites Carey v. Maricopa County, a case in which this district summarized 

the cause of action for tortious interference with contract as requiring: 

the existence of a valid contractual relationship or business expectancy; the 

interferer's knowledge of the relationship or expectancy; intentional 

interference inducing or causing a breach or termination of the relationship 

or expectancy; and resultant damage to the party whose relationship or 

expectancy has been disrupted. . . . In addition, the interference must be 

improper as to motive or means before liability will attach. 

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CV-05-2500-PHX-ROS, 2009 WL 750220, *7 (D. Ariz. Mar. 10, 2009) (quoting 

Neonatology Assocs. v. Phoenix Perinatal Assocs., 164 P.3d 691, 693 (Ariz. App. 2007)). 

The District Court also noted, however, that under the Restatement (Second) of Torts 

§ 766A (1979), liability can arise even when a defendant “caus[es] [plaintiff’s] 

performance to be more expensive or burdensome” – the interfering act need “not . . . 

actually have the effect of terminating the contract in and of itself.” Carey, 2009 WL 

750220, *8. In Carey, however, the plaintiff’s contract was actually terminated and any 

suggestion that the interference need not cause a breach was therefore dictum. Id. at *7. 

 Verizon also cites to Brands v. Lakeside Fire Dist., CV-08-8143-PHX-NVW, 

2010 WL 2079712 (D. Ariz. May 24, 2010), where the court cited to the Restatement 

(Second) of Torts § 767 cmt. a (1979). In Brands, however, the plaintiff’s employment 

contract was actually terminated by harassment. Id. at *3. 

 In sum, the cases cited by Verizon are not directly on point. The Court notes, 

however, that Arizona courts have cited § 766A of the Restatement as good law. See, 

e.g., Plattner v. State Farm Mut. Auto. Ins. Co., 812 P.2d 1129, 1134 (Ariz. App. 1991) 

(citing cases). The Court will therefore apply this section. 

 Section § 766A recognizes liability for a defendant’s interference which makes a 

plaintiff’s performance of its own contract more burdensome or expensive. Comment c 

explains that when performance is made more expensive, the plaintiff’s benefit from the 

contract diminishes, thereby entitling the plaintiff to recover the loss from the interfering 

defendant. The Court concludes that Verizon is likely to succeed in showing that 

Defendants’ promotion of services to Verizon’s customers has resulted in increased costs 

to Verizon: refunding subscription fees to Verizon customers after Defendants were shut 

out of the Verizon system, and increasing the costs of monitoring Defendants’ activities. 

Verizon estimates these costs at several million dollars. Doc. 6 at 12:6. 

For liability to attach under § 766A, the interference must be intentional. Conduct 

is intentional “if the actor desires to bring it about or if he knows that the interference is 

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certain or substantially certain to occur as a result of his action.” § 766A cmt. e. The 

Court finds that Verizon is likely to succeed in showing that Defendants knew their 

actions would cause substantial difficulties between Verizon and its customers, burdening 

Verizon’s contractual relationship with those customers and increasing Verizon’s 

expenses. Specifically, Verizon is likely to show Defendants knew they would be 

blocked from the Verizon network if they failed to comply with MMA Best Practices, as 

demonstrated by their “firewall” designed to redirect auditors away from their noncompliant landing pages. Moreover, Defendants knew that Verizon would refund 

subscription fees after they were blocked in order to retain its customers and avoid 

customer lawsuits. 

The intentional acts of interference must also be improper. In deciding 

impropriety, a court must consider the following factors: 

(a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests 

of the other with which the actor’s conduct interferes, (d) the interests 

sought to be advanced by the actor, (e) the social interests in protecting the 

freedom of action of the actor and the contractual interests of the other, 

(f) the proximity or remoteness of the actor’s conduct to the interference[,] 

and (g) the relations between the parties. 

Restatement § 767. 

 Wrongful conduct includes fraudulent misrepresentations and violation of 

established business customs or practices. Restatement § 767 cmt. c. Verizon is likely to 

succeed in showing that Defendants engaged in such misrepresentations and violations. 

Defendants concealed the fact that Hope and Destefano were in control of the entities 

doing business with Verizon. The entities through which Defendants engaged Verizon 

used the names of employees other than Hope and Destefano and listed UPS store 

locations for principal places of business despite the fact that JAWA’s main office is 

located in Scottsdale, Arizona. Defendants presented carrier facing URLs that complied 

with MMA Best Practices in order to obtain access to the Verizon network, and then did 

not use the carrier facing URLs to sell their services, instead using landing pages that 

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were not compliant with MMA Best Practices. That Defendants knew they were doing 

so is shown by their use of a “firewall” to redirect Verizon auditors away from the noncompliant landing pages and to generic sites or “super compliant” pages. 

In sum, the Court concludes that Verizon is likely to succeed on the merits of its 

tortious interference claim. 

 3. Unjust Enrichment. 

 A claim of unjust enrichment under Arizona law has five elements: “(1) an 

enrichment, (2) an impoverishment, (3) a connection between the enrichment and 

impoverishment, (4) the absence of justification for the enrichment and impoverishment, 

and (5) the absence of a remedy provided by law.” Freeman v. Sorchych, 245 P.3d 927, 

936 (Ariz. App. 2011) (citing City of Sierra Vista v. Cochise Enters., Inc., 697 P.2d 1125, 

131-32 (Ariz. App. 1984)). 

Verizon argues that Defendants are liable for unjust enrichment because they 

gained access to the Verizon network through fraud, circumvented Verizon’s monitoring 

of compliance with MMA Best Practices, and provided deceptive advertising to 

Verizon’s customers. Doc. 6 at 11-12. Verizon asserts that it will “incur millions of 

dollars in losses in connection with investigating defendants’ fraudulent activity, 

reimbursing customers, and attempting to preserve its reputation.” Id. at 12. 

The Court notes that Verizon gained from Defendants’ actions, a gain that 

Defendants estimate at 30% of $80 million, or $24 million. Verizon has not shown that 

its expenses would be greater than its gain, and therefore is not likely to establish the 

impoverishment element of the unjust enrichment claim. See City of Sierra Vista, 697 

P.2d at 1132 (finding no impoverishment where defendant’s acts enhanced the value of 

plaintiff’s assets). Nor has Verizon established unjust enrichment in the traditional sense: 

Verizon does not claim to have paid money to Defendants for their services. 

Given these issues, the Court cannot conclude that Verizon is likely to succeed on 

the merits of its unjust enrichment claim. 

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 C. Defendants’ Arguments. 

 Defendants argue that all of Verizon’s claims will fail for several reasons. The 

Court will address them separately. 

 1. Mootness of Injunctive Relief.

 Defendants argue that the injunction request is moot because Verizon has already 

shut them out of the Verizon network. “An injunction can issue only after the plaintiff 

has established that the conduct sought to be enjoined is illegal and that the defendant, if 

not enjoined, will engage in such conduct.” United Transportation Union v. Michigan 

Bar, 401 U.S. 576, 584 (1971). The Court finds above that Defendants Hope and 

Destefano previously engaged in conduct that caused Verizon to shut them out of its 

network, and proceeded to regain access to the network by false statements. The Court 

also finds that Defendants used subsidiary entities with false addresses to gain access to 

the Verizon network. Verizon has made a reasonable showing that Defendants, if not 

enjoined, might well employ similar tactics to again gain access to the Verizon network. 

Injunctive relief is not moot. 

 2. Dormant Commerce Clause.

 Defendants argue that “[f]acially neutral [state] regulations that excessively 

burden commerce are invalid,” and that Verizon’s attempt to impose marketing 

requirements on Defendants through the ACFA violates the dormant Commerce Clause 

of the United States Constitution. Doc. 68 at 8-9. The Commerce Clause “denies States 

the power unjustifiably to discriminate against or burden the interstate flow of articles of 

commerce.” Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 98 (1994). A 

state statute may violate the dormant Commerce Clause in two ways: (1) by facially or in 

effect discriminating against interstate commerce; or (2) by incidentally imposing 

burdens on interstate trade that are “clearly excessive in relation to the putative local 

benefits.” Maine v. Taylor, 477 U.S. 131, 138 (1986). “The party challenging the statute 

bears the burden of showing discrimination.” Black Star Farms, LLC v. Oliver, 600 F.3d 

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1225, 1230 (9th Cir. 2010). In the context of the dormant Commerce Clause, 

discrimination simply means “differential treatment of in-state and out-of-state economic 

interests” that benefits the former and burdens the latter.” Id. (emphasis in original). 

Defendants make no showing from which the Court can conclude that the ACFA 

discriminates against out-of-state economic interests either facially or in effect, or that 

burdens imposed by the ACFA are clearly excessive in light of local benefits. Nor can 

the Court equate this lawsuit between private parties to unlawful state interference with 

interstate commerce, 

 3. Primary Jurisdiction Doctrine.

 Defendants rely upon the doctrine of primary jurisdiction to argue that this Court 

should refrain from deciding what content or presentation standards should apply to the 

parties’ industry in light of the fact that the Federal Communications Commission and the 

Federal Trade Commission have primary administrative authority over this domain. 

Doc. 68 at 9-11. The Court need not and does not hold in this order that MMA Best 

Practices are de facto industry standards or superior to other standards. The Court merely 

finds that the MMA Best Practices were the standard Defendants were obligated to 

follow as a result of their contracts with aggregators and, by extension, Verizon. The 

primary jurisdiction doctrine does not apply. 

 4. Unclean Hands.

 In Arizona, “the doctrine of unclean hands is an equitable defense to a claim 

seeking equitable relief.” Neeme Sys. Solutions, Inc. v. Spectrum Aeronautical, LLC, 

___ P.3d ___, 2011 WL 1086766, *6 (Ariz. Ct. App. 2011). “To prevail on a claim of 

unclean hands, a party must prove that ‘[t]he dirt upon [the opposing party’s] hands [is] 

his bad conduct in the transaction complained of. If he is not guilty of inequitable 

conduct toward the [party asserting unclean hands] in that transaction, his hands are as 

clean as the court can require.’” Id. (alterations in original) (quoting Smith v. Neely, 380 

P.2d 148, 149 (Ariz. 1963)). 

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 Defendants argue that Verizon has unclean because it misrepresented Defendants’ 

web pages to the Court. Doc. 68 at 17. The errors Defendants identify in Verizon’s 

assertions, however, do not rise to the level of fraud. Although Defendants identified 

some portions of particular web pages that were compliant with MMA Best Practices 

when Verizon claimed they were not, Defendants did not make this showing with respect 

to most of the pages and items of non-compliance Verizon has established. The Court 

cannot conclude that Verizon has engaged in a fraud upon the Court. 

 Defendants argue that Verizon issued press releases falsely accusing them of 

defrauding customers and committing crimes, misrepresenting a non-existent partnership 

with the Texas Attorney General, and alleging that Defendants’ corporate structure 

evinces a criminal conspiracy despite a more complex structure on the part of Verizon. 

Doc. 68 at 17-18. The Court does not find the press release false or fraudulent, nor that 

Verizon’s corporate structure is akin to Defendants’ use of individual LLCs with false 

principal places of business to hide the involvement of Defendants Hope and Destefano. 

Nor does the Court find Verizon’s statement regarding a partnership with the Texas 

Attorney General to be materially false or misleading. Defendants themselves note that 

the Texas authorities commenced an action against them based on the same basic 

allegations of this case at about the same time this lawsuit was filed. 

D. Preliminary Injunction Conclusions. 

Verizon has shown a likelihood of success on the merits of its tortious interference 

claim. 

Verizon is likely to suffer irreparable harm if Defendants are not enjoined from 

again deceptively accessing Verizon’s network and engaging in the kinds of actions 

established in this case. Damage to Verizon’s reputation and customer goodwill 

constitutes irreparable harm. See MySpace, Inc. v. Wallace, 498 F. Supp. 2d 1293, 1305 

(C.D. Cal. 2007) (“Harm to business goodwill and reputation is unquantifiable and 

considered irreparable.”). 

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The balance of equities tips in Verizon’s favor. Verizon has a legitimate interest 

in protecting its established customer relationships. Defendants have no legitimate 

interest in again accessing the Verizon network through deceptive means – the conduct 

that will be enjoined. 

Finally, a preliminary injunction is in the public interest. The law protects 

contractual relationships. The public interest does not favor those who would exploit 

those relationships through improper means. 

 The Court will grant Verizon’s request for a preliminary injunction as described 

below. This injunction will take effect upon Verizon’s posting a $25,000 bond. This 

bond is in addition to the $10,000 bond posted by Verizon for its TRO. Doc. 26. 

III. Defendants’ Motion for Preliminary Injunction.

 When Verizon filed this lawsuit, it issued letters directing the four primary 

aggregators to stop doing business with Defendants on the Verizon network, and a press 

release calling for other major network providers to stop doing business with Defendants. 

Defendants presented evidence that the aggregators have followed Verizon’s directions 

and have cut Defendants off from the Verizon network. Defendants presented additional 

evidence that Verizon and the aggregators are holding some $19 million owed to 

Defendants, and that these actions by Verizon will put Defendants out of business unless 

enjoined. Defendants have filed a counterclaim against Verizon and ask the Court to 

require Verizon to distribute Defendants’ money, reactivate all of Defendants’ short 

codes, not cause or require others to cause Defendants’ PSMS customers to “opt out” of 

Defendants’ services, not contact wireless customers and invite them to seek refunds for 

Defendants’ services, and similar injunctive relief. Doc. 90 at 16-17. In short, 

Defendants ask the Court to order Verizon to return Defendants to the position they were 

in before this lawsuit was filed and Verizon acted on the basis of its fraud allegations. 

A. Legal Standards.

 The legal standards for Defendants’ preliminary injunction request are the same as 

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those for Verizon’s request. Defendants bear the burden of proving their entitlement to 

injunctive relief. 

B. Defendants’ Legal Claims.

Defendants seek a preliminary injunction on the basis of two general categories of 

counterclaims: tortious interference with contracts and business expectancies, including 

conspiracy to tortiously interfere, and violation of federal and New Jersey antitrust laws. 

1. Tortious Interference.

 As noted above, tortious interference with contract requires proof of improper 

conduct. Carey, 2009 WL 750220 at *7; Neonatology Assocs., 164 P.3d at 693. 

Defendants contend that Verizon’s conduct was improper because its allegations of 

wrongdoing against Defendants are false. Doc. 90 at 4. As explained above, however, 

the Court finds that Verizon is likely to succeed in establishing that Defendants engaged 

in deceptive conduct to gain access to the Verizon network and sell their services to 

Verizon’s customers. Defendants also claim that Verizon failed to afford Defendants a 

ten-day cure period for violations of MMA Best Practices and otherwise sprung this 

lawsuit on Defendants in an effort to drive them out of business as a direct competitor. 

Given the extensive evidence of deceptive conduct by Defendants, however, the Court 

cannot conclude that Defendants are likely to succeed in showing that Verizon acted 

wrongfully by electing to terminate its business relationship with them, particularly in 

light of its having done so once before with respect to Defendants Hope and Destefano. 

Nor can the Court conclude from the evidence Defendants have presented that 

Defendants are likely to succeed in showing that Verizon is a direct competitor of 

Defendants. 

 In short, the Court concludes that Defendants have not presented sufficient 

evidence to show that they are likely to succeed on the merits of the “improper conduct” 

element of their tortious interference with contract claim. Nor have they presented 

sufficient evidence to establish the existence of serious questions. Serious questions exist 

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when a plaintiff shows a “‘fair chance of success on the merits.’” Republic of the 

Philippines v. Marcos, 862 F.2d 1355, 1362 (9th Cir. 1988) (en banc) (quoting Nat’l 

Wildlife Fed’n v. Coston, 773 F.2d 1513, 1517 (9th Cir. 1985)). Defendants have not 

shown that they have a fair chance of success on the improper conduct requirement. 

 Defendants do not specify the business expectancies with which Verizon has 

interfered. The Court assumes they are the same business relationships addressed in 

Defendants’ tortious interference with contract claim – relationships with aggregators, 

customers, and other network providers. Nor do Defendants contend that a claim for 

tortious interference with business expectancies lacks the “improper conduct” 

requirement for tortious interference with contract. Arizona courts speak of the two torts 

as though they include the same requirements. See Neonatology Assocs., 164 P.3d at 693 

(quoting Wallace v. Casa Grande Union High Sch. Dist. No. 82 Bd. of Governors, 909 

P.2d 486, 494 (Ariz. Ct. App. 1995)) (setting forth same elements of tortious for 

interference with “contractual relationship or business expectancy”). As noted above, 

Defendants have failed to show a likelihood of success or serious questions on the 

“improper conduct” elements of this tort claim. 

 Defendants also claim that Verizon conspired to tortiously interfere. Their 

inability to show improper conduct on the part of Verizon defeats this claim as well. 

2. Antitrust Claims.

 Rule 15 of the Federal Rules of Civil Procedure provides that a party “may amend 

its pleading once as a matter of course[.]” Fed. R. Civ. P. 15(a)(1). “In all other cases, a 

party may amend its pleading only with the opposing party’s written consent or the 

court’s leave.” Fed. R. Civ. P. 15(a)(2). 

 Defendants have filed four different versions of their counterclaim in this case: a 

counterclaim that accompanied their first request for a preliminary injunction (Doc. 31), a 

first amended counterclaim (Doc. 52), a second amended counterclaim (Doc. 78), and a 

restated second amended counterclaim (Doc. 89). Defendants did not obtain the written 

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consent of Verizon or leave of court before filing any of these pleadings. The first 

amended counterclaim was properly filed as a matter of course under Rule 15(a)(1) and 

had the effect of superseding the original counterclaim, but the second amended 

counterclaim and restated second amended counterclaim were filed in violation of 

Rule 15 and are not properly before the Court. 

 Defendants make no antitrust claims in their first amended counterclaim. Doc. 52. 

As a result, Defendants’ antitrust counterclaims are not properly before the Court and 

cannot form the basis for injunctive relief. The Court notes, however, that it would deny 

Defendants’ request for injunctive relief even if the antitrust claims were properly 

pleaded. 

 The restated second amended counterclaim alleges that Verizon violated the 

Sherman Act. If a plaintiff in an antitrust case argues only a per se violation of the 

Sherman Act, a court need not perform a rule of reason analysis. Nova Designs, Inc. v. 

Scuba Retailers Ass’n, 202 F.3d 1088, 1090-91 (9th Cir. 2000). Defendants argue only 

that Verizon’s conduct was per se unlawful. See Doc. 90 at 12 (“Group boycotts . . . have 

long been held to be per se illegal.”); Doc. 128 at 3 (“Verizon’s assault on JAWA is a per 

se violation[.]”). Because Defendants do not make a rule-of-reason argument, the Court 

will determine only whether Defendants are likely to establish that Verizon’s conduct 

was a per se violation of § 1 the Sherman Act. 

 Section 1 of the Sherman Act, codified at 15 U.S.C. § 1, “makes illegal every 

contract, combination or conspiracy in restraint of trade or commerce[.]” Fashion 

Originators’ Guild v. FTC, 312 U.S. 457, 465 (1941). In Standard Oil Co. v. United 

States, the Supreme Court defined the “rule of reason” as being the standard against 

which alleged antitrust violations are measured. 221 U.S. 1 (1911). Under the rule of 

reason, only conduct that “unduly restrict[s] competition or unduly obstruct[s] the course 

of trade” violates the Sherman Act. E.g., Appalachian Coals v. United States, 288 U.S. 

344, 360 (1933) (citation omitted), overruled in part on other grounds by Copperweld 

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Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). Relevant to the inquiry are 

industry conditions and practices, the alleged violator’s purpose, the probable 

consequences of the conduct on the market, whether the conduct reasonably protects 

commerce from destructive or injurious practices, and other factors affecting interstate 

commerce in the service at issue. E.g., Id. at 361; Sugar Institute v. United States, 297 

U.S. 553, 598 (1936). 

 The Supreme Court subsequently identified conduct that may be deemed per se 

unlawful without an inquiry into whether the practices satisfy the rule of reason. In 

Fashion Originators’ Guild, for example, the Court held that a boycott of competitors by 

an association whose aim “was the intentional destruction of one type of manufacture and 

sale which competed with [the defendants]” can be per se unlawful. 312 U.S. at 467. 

The Court noted that “[t]he purpose and object of this combination, its potential power, 

its tendency to monopoly, the coercion it could and did practice upon a rival method of 

competition, all brought it within the policy of the prohibition declared by the Sherman 

and Clayton Acts.” Id. at 467-68. 

 In Silver v. New York Stock Exchange, the Court further recognized that a group 

boycott depriving a specific petitioner of a “valuable business service which [it] needed 

in order to compete effectively” in the marketplace can “constitute a per se violation of 

§ 1 of the Sherman Act . . . absent any justification derived from the policy of another 

statute or otherwise.” 373 U.S. 341, 347-49 (1963). The boycott in Silver occurred when 

the NYSE called on its member firms to discontinue providing wire-based information 

and transaction services to a specific non-member firm that was a NASD-registered 

broker-dealer. Id. at 344-45. NYSE’s constitution and rules made the NYSE directive 

obligatory for member firms, and the firms complied. Id. at 344, 348. The Court noted 

that “[a] valuable service germane to petitioners’ business and important to their effective 

competition with others was withheld from them by collective action,” and that this “was 

enough to create a violation of the Sherman Act.” Id. at 349 n.5. It appears that the 

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following factors were critical to the Court’s holding: NYSE’s status as an association 

and stock exchange; its “immense economic power,” as exemplified by processing 86% 

of the total dollar volume of transactions passing through the 14 registered exchanges at 

the time; and the fact that “[n]otwithstanding their prompt and repeated requests, 

petitioners were not informed of the charges underlying the decision to invoke the 

Exchange rules and were not afforded an appropriate opportunity to explain or refute the 

charges against them,” circumstances that the Court deemed “totally unjustifiable.” See 

id. at 350-51, 359, 361, 367 nn. 17, 18. 

 Twenty two years later, the Court decided Nw. Wholesale Stationers, Inc. v. 

Pacific Stationery & Printing Co., 472 U.S. 284 (1985). The Court noted that the rule of 

reason controls the anticompetitive inquiry unless “the challenged action falls into the 

category of ‘agreements or practices which because of their pernicious effect on 

competition and lack of any redeeming virtue are conclusively presumed to be 

unreasonable and therefore illegal without elaborate inquiry as to the precise harm they 

have caused or the business excuse for their use.’” Id. at 289 (quoting N. Pac. R. Co. v. 

United States, 356 U.S. 1, 5 (1958)). “The decision to apply the per se rule turns on 

whether the practice facially appears to be one that would always or almost always tend 

to restrict competition and decrease output . . . or instead one designed to increase 

economic efficiency and render markets more, rather than less, competitive.” Id. at 289-

90 (citation and internal quotation marks omitted). The Court further explained that 

“[c]ases to which this Court has applied the per se approach have generally involved joint 

efforts by a firm or firms to disadvantage competitors by either directly denying or 

persuading or coercing suppliers or customers to deny relationships the competitors need 

in the competitive struggle.” Id. at 294. The Court also observed that considerable 

inquiry into market conditions is necessary before a per se presumption of 

anticompetitive effect would be triggered. Id. at 296 (“Unless the [defendant] possesses 

market power or exclusive access to an element essential to effective competition, the 

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conclusion that expulsion is virtually always likely to have an anticompetitive effect is 

not warranted.”). 

 In construing Pacific Stationery, the Ninth Circuit has held that “[w]hen a 

defendant advances plausible arguments that a practice enhances overall efficiency and 

makes markets more competitive, per se treatment is inappropriate, and the rule of reason 

applies.” Paladin Associates, Inc. v. Mont. Power Co., 328 F.3d 1145, 1155 (9th Cir. 

2003). Whether an agreement was a horizontal agreement between competitors is not the 

critical question in choosing whether to apply the per se rule. Id. at 1155 (“[N]ot all 

horizontal agreements between competitors are per se invalid.”). The critical inquiry, 

instead, is whether the type of agreement is one that will “always or almost always tend 

to restrict competition.” Id. (quoting Pacific Stationery, 472 U.S. at 289). 

 Applying these principles, Defendants have not shown a per se rule is likely to 

apply here. The Court will assume for purposes of this analysis that the agreements 

between Verizon and the aggregators – agreements Verizon invoked to shut out 

Defendants from its network – meet the concerted action requirement of the Sherman 

Act. Even with this assumption, the Court concludes that Defendants have not shown 

they are likely to succeed in their claim that these agreements are illegal per se. 

 First, Defendants have not established Verizon’s market share or whether it is the 

overwhelmingly-predominant carrier in the marketplace akin to NYSE’s 86% in Silver. 

In fact, Defendants assert that Verizon, AT&T, T-Mobile, and Sprint together comprise 

approximately 90% of the U.S. wireless market. Doc. 128 at 8. Nor have Defendants 

established that the other carriers have shut them out summarily after Verizon’s press 

release – in fact, Defendants’ motion appears to imply that AT&T and Sprint did not do 

so (Doc. 90 at 5).1

 

1

 Defendants argue that the four aggregators who control virtually all of the market have, at Verizon’s direction, ceased doing business with Defendants not only on the Verizon network, but on all of the major wireless networks. Defendants’ evidence in support of this argument is ambiguous. Verizon’s letters to aggregators concern Defendants’ business on the Verizon network. Doc. 32-1 at 2-4. At least one of the 

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 Second, Defendants have not established that the type of agreement between 

Verizon and the aggregators will “always or almost always tend to restrict competition.” 

Paladin Associates, 328 F.3d at 1155. Verizon has argued persuasively that enforcing 

compliance with MMA Best Practices and reducing fraud on wireless networks promotes 

the interest of consumers and furthers competitive commerce. 

 Third, Defendants argue that they were not accorded procedural safeguards such 

as notice, an opportunity to be heard, and an opportunity to cure. The Court cannot 

conclude, however, that this fact will be sufficient to establish per se illegality in the 

absence of other factors that were present in Silver. Not every denial of corporate due 

process constitutes an antitrust violation. Indeed, Pacific Stationery specifically held that 

the per se rule does not apply to all group boycotts refusing to deal, even if the refusal is 

without notice or other procedural safeguards. 472 U.S. at 290-91. 

 In sum, Defendants have not shown that they are likely to succeed on the merits of 

their claim that Verizon has committed a per se violation of the Sherman Act. 

Defendants have not argued that Verizon’s conduct is illegal under a rule of reason 

analysis. The Court would therefore deny injunctive relief on this ground even if it was 

asserted in Defendants first amended counterclaim.2

 letters of suspension from the aggregators to Defendants concerns only the Verizon network (Doc. 32-2 at 2), another also refers to Verizon’s allegations but is unclear on the extent of its suspension (Doc. 32-2 at 6-9), and a third appears to suspend all of Defendants’ business with aggregators (Doc. 32-2 at 3-4), but it is not clear from the third 

letter that the aggregator’s actions are being taken at the direction of Verizon. Defendants briefing suggests that other major wireless carriers have not suspended Defendants’ business on their networks. Doc. 90 at 5-6. Emmett Mitchell testified at the 

hearing that some of the major carriers had “jumped on the bandwagon” and “started” cancelling Defendants’ business, but did not specify the extent of their actions. He also 

testified that the four aggregators were boycotting Defendants, but did not specify whether this was with respect to all carriers or only the Verizon network. In short, Defendants have not presented evidence from which the Court can conclude they are likely to succeed in showing that the aggregators, at Verizon’s direction, have shut 

Defendants out of all of the major wireless networks. 

2

 Because Defendants argue that the New Jersey Antitrust Act is functionally identical to § 1 of the Sherman Act (Doc. 90 at 13), the Court’s Sherman Act analysis is sufficient to address both statutes. 

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IV. Other Matters.

 The Court will deny the following motions as moot because they have been 

effectively resolved by the preliminary injunction proceedings and this order: Verizon’s 

motion to expedite discovery (Doc. 11), Defendants’ motion to strike paragraph 76 of 

Verizon’s complaint (Doc. 53), Verizon’s motion to strike the amended counterclaim 

(Doc. 62), Verizon’s motion to compel (Doc. 74), Verizon’s motion for protective order 

(Doc. 85), Verizon’s motion to strike a supplemental brief (Doc. 94), and Verizon’s 

motion to strike the second amended counterclaim (Doc. 129). 

IT IS ORDERED:

1. Verizon’s motion for a preliminary injunction (Doc. 6) is granted. 

2. Defendants’ motion for a preliminary injunction (Doc. 90) is denied. 

 3. Verizon’s motion to expedite discovery (Doc. 11), Defendants’ motion to 

strike paragraph 76 of Verizon’s complaint (Doc. 53), Verizon’s motion to strike the 

amended counterclaim (Doc. 62), Verizon’s motion to compel (Doc. 74), Verizon’s 

motion for a protective order (Doc. 85), Verizon’s motion to strike a supplemental brief 

(Doc. 94), and Verizon’s motion to strike the second amended counterclaim (Doc. 129) 

are denied. 

 4. The Court will set a Rule 16 scheduling conference by separate order. 

 5. Preliminary Injunction. 

 a. Defendants and their officers and agents are hereby enjoined from 

(i) failing to disclose the relationships of any entities or individuals to Defendants Hope 

or Destefano or their companies, and providing false addresses or other information as 

part of any effort to access the Verizon Wireless network for the purpose of delivering 

PSMS to customers; (ii) using marketing practices that fail to comply with MMA Best 

Practices (as defined in the complaint) when selling or attempting to sell PSMS through 

the Verizon Wireless network to customers; (iii) selling, or attempting to sell, PSMS to 

Verizon Wireless customers over the Verizon Wireless network; and (iv) blocking, or 

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attempting to block, Verizon Wireless’ efforts to monitor and access the internet 

webpages (URLs) used to market PSMS to Verizon Wireless customers. 

 b. This injunction will take effect upon Verizon’s posting a $25,000 

bond and will remain in effect until the conclusion of trial or until further order of this 

Court. This bond is in addition to the $10,000 bond posted by Verizon for its TRO. 

 Dated this 11th day of May, 2011. 

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