Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-01773/USCOURTS-casd-3_06-cv-01773-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

UTILITY CONSUMERS’ ACTION

NETWORK and RICHARD and

MARYLIN MAYCUMBER, on behalf

of themselves and others similarly

situated,

Plaintiff,

CASE NO. 06CV1773-H (RBB)

ORDER DENYING

DEFENDANTS’ MOTION TO

DISMISS OR STAY THIS

ACTION AND GRANTING

DEFENDANTS’ MOTION TO

STRIKE NATIONWIDE

CLASS ALLEGATIONS

WITHOUT PREJUDICE

vs.

POWERNET GLOBAL

COMMUNICATIONS, PNG

TELECOMMUNICATIONS, INC.,

and DOES 1 THROUGH 25, inclusive,

Defendant.

On August 31, 2006, Defendants Powernet Global Communications and PNG

Telecommunications, Inc. (collectively “Defendants”) removed this action from state

court. (Doc. No. 1.) Plaintiffs Utility Consumers’ Action Network and Richard and

Marilyn Macumber (collectively “Plaintiffs”) originally filed an action in California

State Court presenting claims for violations of California’s Business and Professions

Code, breach of contract, violation of the California Consumer Remedies Act, negligent

misrepresentation, violation of California Civil Code § 1709, unjust enrichment, and

declaratory relief. (Compl. §§ 1-77.) On September 8, 2006, Defendants filed motions

Case 3:06-cv-01773-H-RBB Document 14 Filed 10/20/06 Page 1 of 11
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to dismiss the complaint or stay this action and to strike the nationwide class

allegations. (Doc. No.’s 3 & 4.) Plaintiffs filed responses to the motions on October

2, 2006. (Doc. No.’s 6 & 7.) On October 10, 2006, Defendants filed replies. (Doc.

No.’s 8 & 9.) The Court held a hearing on October 16, 2006. Alan Mansfield appeared

for Plaintiffs and Scott Ferrell and John O’Malley appeared for Defendants. For the

following reasons, the Court DENIES Defendants’ motion to dismiss or stay this action

and GRANTS Defendants’ motion to strike the nationwide class allegations without

prejudice.

Background

Plaintiff Utility Consumers’ Action Network (“UCAN”) is a not-for-profit public

interest advocacy organization with offices in San Diego and with over 30,000 members

in California. (Compl., ¶¶ 1 & 11.) Plaintiffs Richard and Marilyn Maycumber

(hereinafter “the Maycumbers”) are California citizens and customers of Defendants,

subscribing to Defendants’ land line service, which provides long distance

telecommunications services. (Id.) Defendants are corporations with offices in Ohio,

operating or conducting business across the United States. (Compl., ¶ 11.) At some

time on or before April 2003, Defendants began including a percentage charge on their

customers’ monthly billing statements, titled “Network Access Charge,” under the

“Taxes” heading. (Compl., ¶¶ 2 & 29.)

Plaintiffs contend that Defendants’ description of the Network Access Charge

was misleading. (Compl., ¶ 3.) Plaintiffs assert that Defendants represent that the

Network Access Charge combines “Universal Service Fund and Carrier Fees,” but does

not define “Carrier Fees.” (Compl., ¶¶ 3 & 29-30.) Plaintiffs claim that the Carrier

Fees are not government charges at all, rather they comprise three separate fees, only

one being government mandated. (Compl., ¶ 29.) 

The Federal Communications Commission (“FCC”) regulates the Universal

Service Fund (“USF”). (Compl., ¶ 4.) The FCC sets the level of the fee on a quarterly

basis, usually ranging from 8% to 11% of a customers’ long distance charges. (Id.)

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Each telephone company pays an equal USF fee. (Compl., ¶ 32) The purpose of the

USF is to make telephone services available to all households. (Id.) Since April 1,

2003, telephone companies have been allowed to pass the USF fee along to consumers.

(Id.) The charge is required to be listed as a separate line item charge. (Id.) However,

Plaintiffs contend that Defendants listed the USF fee as part of the Network Access

Charge. (Compl., ¶¶ 30-32.) Plaintiffs assert that Defendants used the Network Access

Charge to recoup overhead. (Compl., ¶¶ 29-32.) Plaintiffs claim that the Network

Access Charge violated Defendants’ obligation to avoid disseminating misleading

billing statements. (Id.) Plaintiffs contend that Defendants uniformly and consistently

misrepresented to their customers the purpose and nature of the Network Access Charge

and have misled customers to believe that the charges were government mandated.

(Compl., ¶ 7.) Alternatively, Plaintiffs contend that if the fee was used to recoup USF

costs, Defendants illegally imposed the fee on thousands of customers. (Id.) 

Plaintiffs filed this action on behalf of a class of similarly situated customers of

Defendants from around the United States who were charged the Network Access

Charge during the relevant time period. (Compl., ¶ 16.) Plaintiffs assert claims for: (1)

violation of California Business and Professions Code (“Cal. B & P”) § 17200, et seq.,

based on Defendants alleged acts of unfair competition; (2) breach of express and

implied contracts; (3) violation of the California Consumers Legal Remedies Act

(“CLRA”) based on Defendants’ alleged deceptive practices relating to the conduct of

a business providing goods; (4) negligent misrepresentation; (5) violation of California

Civil Code § 1709 based on Defendants’ alleged active misrepresentations and/or

concealment of material facts; and (6) declaratory relief and unjust enrichment.

(Compl., ¶¶ 41-77.) 

Defendants move to dismiss Plaintiffs’ claims or stay this action and to strike the

nationwide class language from the complaint. 

/ / / /

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Discussion

A. Defendants’ Motion to Dismiss or Stay 

1. Motion to Dismiss 

a. Standard

A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P.

12(b)(6) tests the legal sufficiency of the claims in the complaint. Conley v. Gibson,

355 U.S. 41, 45-46 (1957). A claim will only be dismissed if “it appears beyond doubt

that the plaintiff can prove no set of facts in support of his claim which would entitle

him to relief.” Id. All allegations of material fact in the plaintiff’s complaint shall be

“taken as true and construed in the light most favorable to the nonmoving party.”

Tanner v. Heise, 879 F.2d 572, 576 (9th Cir. 1989); Sanders v. Kennedy, 794 F.2d 478,

481 (9th Cir. 1986). A court may not, however, “supply essential elements of the claim

that were not initially pled.” Ivey v. Bd. of Regents of the Univ. of Alaska, 673 F.2d

266, 268 (9th Cir. 1982). Conclusory allegations of law are insufficient to defeat a

motion to dismiss. Epstein v. Washington Energy Co., 83 F.3d 1136, 1140 (9th Cir.

1996). Courts grant 12(b)(6) relief only where a plaintiff’s complaint lacks a

“cognizable legal theory” or sufficient facts to support a cognizable legal theory.

Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). 

b. Analysis

The California Public Utilities Commission (“PUC”) was created by Article XII

of the California Constitution. Wise v. Pacific Gas & Electric Co., 77 Cal.App.4th 287,

293 (1999). It is the administrative agency charged with regulating public utilities in

California. Southern California Edison v. Public Utilities Commission, 85 Cal.App.4th

1086, 1091 (2000). “Pursuant to the California Constitution, the PUC has broad

authority to regulate utilities. Ford v. Pacific Gas & Electric Co., 60 Cal.App.4th 696,

700 (1997) (citing Cal. Const., art. XII, §§ 1-6; San Diego Gas & Electric Co. v.

Superior Court, 13 Cal.4th 893, 914-15 (1996) (hereinafter “Covalt,” the real party in

interest)). Under the Public Utilities Act, Cal. Pub. Util. Act § 201 et seq., the

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1

 Section 2106 is not the only provision of the California Public Utilities Code

authorizing civil actions against public utilities, other provisions include §§ 2101 and 2102. See Orloff, 31 Cal.4th 1138. 

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California Legislature authorized the PUC to regulate and supervise all public utilities

located in the state, and gave the PUC the power to “‘do all things . . . which are

necessary and convenient in the exercise of such power and jurisdiction.’” Id. (citing

Cal. Pub. Util. Act § 701). “The PUC is ‘not an ordinary administrative agency, but a

constitutional body with broad legislative and judicial powers.’” Southern California

Edison, 85 Cal.App.4th at 1097 (quoting Wise v. Pacific Gas & Electric Co., 77

Cal.App.4th 287, 300 (1999)). The PUC is also charged with creating accounts and

fixing rates for public utilities which are subject to the PUC’s jurisdiction. Id.

Judicial review of PUC decisions is generally narrow in scope and manner. Id.

Section 1759 California’s Public Utilities Code states:

No court of this state, except the Supreme Court and the court of appeal, to the extent specified in this article, shall have jurisdiction to review, reverse, correct, or annul any order or decision of the commission or to

suspend or delay the execution or operation thereof, or to enjoin, restrain, or interfere with the commission in the performance of its official duties,

as provided by law and the rules of court.

Cal. Pub. Util. Code § 1759(a). However, § 1759 does not grant the PUC exclusive

jurisdiction over every action by or against California public utilities. Orloff, 31

Cal.4th 1138. “[T]he mere possibility of, or potential for, conflict with the PUC is, in

general, insufficient in itself to establish that a civil action against a public utility is

precluded by section 1759.” Id. Section 1759 does not insulate or protect California

public utilities from all civil actions. Id. at 207-08. 

Section 2106 of the Public Utilities Code provides a private remedy for aggrieved

parties.1

 Waters v. Pacific Telephone Co., 12 Cal.3d 1, 4 (1974). That section

provides:

Any public utility which does, causes to be done, or permits any act, matter, or thing prohibited or declared unlawful, or which omits to do any act, matter, or thing required to be done, either by the Constitution, any law of this State or any order or decision of the commission, shall be liable

to the persons or corporations affected thereby for all loss, damages or injury caused thereby resulting therefrom. If the court finds that the act or

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omission was wilful, it may, in addition to the actual damages, award exemplary damages. An action to recover for such loss, damage, or injury may be brought in any court of competent jurisdiction by an corporation

or person.

Cal. Pub. Util. Code § 2106. Recovery by an aggrieved party under § 2106 does not

affect the State’s right to recover penalties nor the PUC’s ability to punish the public

utility for contempt. See Orloff, 31 Cal.4th 1144. This section has been limited by the

California Supreme Court, which ruled that § 2106 was limited to “those situations in

which an award of damages would not hinder or frustrate the commission’s declared

supervisory and regulatory policies.” Ford, 60 Cal.App.4th at 701 (quotation omitted);

see also Waters, 12 Cal.3d at 4. 

California courts have established guidelines for determining whether to exercise

jurisdiction, including: (1) whether the PUC has the authority to regulate the issue; (2)

whether the PUC exercised its authority; and (3) whether exercise of jurisdiction would

hinder or interfere with the PUC’s policies on that issue. Anchor Lighting v. Southern

California Edison Co., 142 Cal.App.4th 541, 546 (2006) (citing Covalt, 13 Cal.4th at

923-26).

Defendants argue that the entire action should be dismissed because it would

interfere with or undermine the authority of the PUC in violation of Cal. Pub. Util. Code

§ 1759. However, viewing the complaint in a light most favorable to Plaintiffs, the

Court cannot conclude that this action is barred by Cal. Pub. Util. Code § 1759. Section

2106 provides a private right of action by private individuals against public utilities

operating in California. Furthermore, the PUC only has authority to regulate intrastate

commerce within California. (Packer Decl., Ex. A at 80.) Plaintiffs present claims on

behalf of a proposed nationwide class. As such, the PUC would not have jurisdiction

over the claims involving interstate communications. Additionally, the courts have

exclusive jurisdiction over certain of Plaintiffs’ claims, including their claims for

violation of Cal. B & P § 17200, et seq., and the CLRA. See Cal. B & P § 17204 and

Cal. Civ. Code §§ 1770 and 1780. Finally, at this time the Court cannot conclude that

this action would interfere with the PUC’s policies or jurisdiction. See Anchor

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Lighting, 142 Cal.App.4th at 546. Questions of unfair business practices, deception and

fraud are properly before this Court. The PUC’s one-time approval of the tariff setting

Defendants’ rates does not preclude this Court’s jurisdiction. See e.g. Covalt, 13

Cal.4th at 893. Therefore, viewing the complaint in a light most favorable to Plaintiffs,

the Court DENIES Defendants’ motion to dismiss the complaint.

2. Motion to Stay Action

As an alternative to dismissal, Defendants argue that the Court should stay the

action under the primary jurisdiction or equitable abstention doctrines. 

The primary jurisdiction doctrine permits a court to stay or dismiss an action

pending resolution of issues pertinent to the action by an administrative agency. See

Wise, 132 Cal.App.4th at 725. The doctrine should not be confused with the exhaustion

of administrative remedies requirement. Syntek v. Semiconductor Co., Ltd. v.

Microchip Tech., Inc., 307 F.3d 775, 781 (citing Brown v. MCI WorldCom Network

Serv.’s, Inc., 277 F.3d 1166, 1173 (9th Cir. 2002)). Primary jurisdiction “applies where

a claim is originally cognizable in the courts, and comes in to play whenever

enforcement of the claim requires the resolution of issues which, under a regulatory

scheme, have been placed within the special competence of an administrative body; in

such a case the judicial process is suspended pending referral of such issues to the

administrative body for its views.” Farmers Ins. Exchange v. Superior Court of Los

Angeles County, 2 Cal.4th 377, 390 (1992) (quotations and internal emphasis omitted).

There is no strict formula for courts to apply the doctrine. Id. at 391 (citing U.S. v.

Western Pac. R. Co., 352 U.S. 59, 64 (1956)). In its analysis, the court should

determine to what extent the policies of the agency are implicated in the case before it.

Id. Courts generally consider several factors, including: “(1) the need to resolve an

issue that (2) has been placed by Congress within the jurisdiction of an administrative

body having regulatory authority (3) pursuant to a statute that subjects an industry or

activity to a comprehensive regulatory authority that (4) requires expertise or 

/ / / /

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uniformity in administration.” Syntek, 307 F.3d at 781 (citing U.S. v. General

Dynamics Corp., 828 F.2d 1356, 1362 (9th Cir. 1987)). 

Equitable abstention is a court-developed doctrine in California. Desert

Healthcare Dist. v. Pacificare FHP, Inc., 94 Cal.App.4th 781, 795 (2001). Under the

doctrine, California courts should defer issues of complex economic policy to the

legislature. Id. (citing Freeman v. San Diego Assn. of Realtors, 77 Cal.App.4th 171,

203 n. 35 (1999)). 

Defendants argue that under either primary jurisdiction or equitable abstention,

this Court should stay the litigation of this matter pending resolution or comment by the

PUC. Plaintiffs contend that because the issue is not currently before the PUC, and

because of the proposed nationwide class, application of the doctrines and a stay of this

litigation is inappropriate. Under these circumstances, the Court concludes that a stay

of the litigation is not warranted and DENIES Defendants’ motion. 

B. Defendants’ Motion to Strike

Upon motion by a party, the court may strike “any insufficient defense or any

redundant, immaterial, impertinent, or scandalous matter” from any pleading. Fed. R.

Civ. P. 12(f). “‘[T]he function of a 12(f) motion to strike is to avoid the expenditure of

time and money that must arise from litigating spurious issues by dispensing with those

issues prior to trial.’” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993)

(quoting Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983), rev’d

on other grounds, 510 U.S. 517 (1994)). Matter is “immaterial” where there is no

important or essential relationship to the claims or defenses being pleaded. Id. at 1527

(quoting 5 Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure 2d §

1382, at 706-11 (1990)). “Impertinent” matter is that which is not necessary or does not

pertain to the issues at hand. Id. 

/ / / /

/ / / /

/ / / /

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Rule 12(f) motions to strike are generally disfavored. See e.g., Stanbury Law

Firm v. I.R.S., 221 F.3d 1059, 1063 (8th Cir. 2000). However, the court may grant the

motion to streamline the ultimate resolution of the action and focus the jury’s attention

on the real issues. Fantasy, Inc., 984 F.2d at 1528. 

Defendants move to strike the nationwide class allegations contained in

paragraphs 16 and 27 of Plaintiffs’ complaint, among others (“and such other states as

the Court finds appropriate”). While a court sitting in diversity may “assume

jurisdiction over the claims of plaintiffs whose principal contacts are with other states,

it may not use this assumption of jurisdiction as an added weight in the scale when

considering the permissible constitutional limits on choice of substantive law.” Phillips

Petroleum Co. v. Shutts, 472 U.S. 797, 821 (1986). Under Shutts, the forum state must

have a “‘significant contact or significant aggregation of contacts’ to the claims asserted

by each member of the plaintiff class, ‘contacts creating state interests,’ in order to

ensure that the choice of [the forum state’s] law is not arbitrary or unfair.” Id., 472 U.S.

at 821-22. Applying the forum state’s laws to parties located beyond the state’s

borders, who have no relationship with the forum state, would abrogate the parties’

rights under the Due Process and Full Faith and Credit clauses of the United States

Constitution. Id. at 822 (citation omitted). 

“A federal court sitting in diversity must look to the forum state’s choice of laws

rules to determine the controlling substantive law.” Zinser v. Accufix Research

Institute, Inc., 253 F.3d 1180, 1887 (2001) (citation omitted). California applies a

three-step approach. Id. First, the proponent of the foreign law must demonstrate that

the law of the other states conflict materially with California law. Id. (citing Wash.

Mut. Bank v. Superior Court, 24 Cal.4th 906 (2001) (citations omitted); In re Pizza

Time Theatre Sec. Litig., 112 F.R.D. 15, 19 (N.D.Cal. 1986)). If the laws materially

conflict, the district court must analyze the state’s interests in having their laws applied.

Id. If each state has an interest in having its own laws applied and they materially 

/ / / /

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conflict, then the court must determine which state’s interests would be more impaired

if the court did not apply its laws. Id. 

Plaintiffs seek to apply California law to a proposed nationwide class, many of

whom apparently have had no contact with the forum, as Defendants are based in Ohio

and providing telecommunications services across the country. Under these

circumstances, application of California law to the entirety of the claims of the proposed

nationwide class would violate the class members’ due process rights. Shutts, 472 U.S.

at 821-822. Defendants argue and have come forward with sufficient information to

demonstrate that the laws of California potentially materially conflict with the laws of

every other state, at least as to some of Plaintiffs’ claims. Plaintiffs have not shown

how the application of California law would satisfy constitutional due process. See

Zinser, 253 F.3d at 1187. Accordingly, the Court GRANTS Defendants’ motion to

strike the nationwide class allegations without prejudice. Plaintiffs may, within thirty

days from the date this order is stamped “Filed,” file an amended complaint addressing

the deficiencies in the proposed class language addressed in this order.

Conclusion

For the reasons stated above, the Court DENIES Defendants’ motion to dismiss

or stay this action and GRANTS Defendants’ motion to strike without prejudice.

Plaintiffs may, within thirty days from the date this order is stamped “Filed,” file an

amended complaint addressing the deficiencies in the proposed class language

addressed in this order.

IT IS SO ORDERED

DATED: October 20, 2006

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

COPIES TO:

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John W. Hanson

Rosner Law and Mansfield

10085 Carroll Canyon Road

San Diego, CA 92131

Ward J. Lott

Call Jensen and Ferrell

610 Newport Center Drive, Suite 700

San Diego, CA 92660

Case 3:06-cv-01773-H-RBB Document 14 Filed 10/20/06 Page 11 of 11