Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-55028/USCOURTS-ca9-08-55028-0/pdf.json

Parties Involved:
AT&T Corp.
Appellee
New Cingular Wireless Services, Inc.
Appellee
Kennith Shroyer
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

KENNITH SHROYER, 

Plaintiff-Appellant, No. 08-55028

v. D.C. No.  CV-06-01792-R NEW CINGULAR WIRELESS SERVICES,

INC.; AT&T CORPORATION, OPINION

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

April 13, 2009—Pasadena, California

Filed May 26, 2010

Before: William C. Canby, Jr., Johnnie B. Rawlinson and

N. Randy Smith, Circuit Judges.

Opinion by Judge Canby

7605

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 1 of 13
COUNSEL

Robert K. Friedl, Kirtland & Packard LLP, El Segundo, California; William R. Weinstein, Sanford, Wittels & Heisler,

LLP, New York, New York; for the plaintiff-appellant.

Steven P. Rice, Crowell & Moring LLP, Irvine, California, for

the defendants-appellees.

OPINION

CANBY, Circuit Judge:

Appellant Kennith Shroyer filed a class action against New

7608 SHROYER v. NEW CINGULAR WIRELESS SERVICES

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 2 of 13
Cingular Wireless Services, Inc., a corporation resulting from

the merger of AT&T Wireless Services, Inc., and Cingular

Wireless Corporation. At the time of the merger in 2004,

Shroyer had a contract for wireless telephone services with

AT&T. He alleged that, immediately following the merger,

his cellular phone service was severely degraded. He claimed

that New Cingular disregarded its obligations under the existing AT&T contract by failing to provide adequate service

coverage and requiring Shroyer to sign a different contract

with New Cingular if he desired to get the service that AT&T

had contracted to provide under the first agreement. He also

claimed that New Cingular misrepresented and omitted key

facts about the consequence of the merger to the Federal

Communications Commission (“FCC”), and that the FCC

would not have approved the merger if it had known that New

Cingular planned to ignore the obligations of existing AT&T

contracts. On these allegations, he made claims for 1) breach

of contract; 2) fraud and deceit; 3) unfair competition under

Cal. Bus. & Prof. Code §§ 17200-210; and 4) a demand for

a declaratory judgment.1

The district court granted New Cingular’s 12(b)(6) motion

to dismiss each of the claims, and Shroyer appeals. We affirm

the denial of the declaratory judgment and the dismissal of the

fraud and unfair competition claims, but we reverse the dismissal of the breach of contract claim. 

I. Federal Preemption 

[1] New Cingular argues that Shroyer’s claims are preempted by 47 U.S.C. § 332(c)(3)(A) because the claims challenge the quality and rates of service, and those areas are

reserved exclusively to the FCC. We reject this contention

with regard to Shroyer’s breach of contract claim and his misrepresentation claim. In the main, Shroyer is challenging New

1Shroyer had made additional claims against New Cingular, but did not

include them in his first amended complaint and does not urge them here.

SHROYER v. NEW CINGULAR WIRELESS SERVICES 7609

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 3 of 13
Cingular’s rates and quality of service only insofar as they are

contrary to the ones to which he had contractual rights or

were misrepresented; he is not asking the court to rule on the

reasonableness of a particular rate, and the quality of service

is an issue only as it relates to, or was misrepresented as satisfying, the contract on which he sues. The claims are state law

claims that do not tread on the FCC’s exclusive power to regulate rates and market entry. To the degree, however, that

Shroyer’s unfair competition claim alleges unfairness resulting from the merger itself or its approval by the FCC, it is preempted.

Section 332 provides: “[N]o State or local government shall

have any authority to regulate the entry of or the rates charged

by any commercial mobile service or any private mobile service, except that this paragraph shall not prohibit a State from

regulating the other terms and conditions of commercial

mobile services.” 47 U.S.C. § 332(c)(3)(A). The FCC has

stated that § 332 does not prevent states from deciding

“whether under state law, there was a difference between

promise and performance” of “the terms and conditions of a

contract.” In re Wireless Consumers Alliance, Inc., 15

F.C.C.R. 17021, 17035 (2000). In that opinion, the FCC “reject[ed] arguments by [cellular phone service providers] that

non-disclosure and consumer fraud claims are in fact disguised attacks on the reasonableness of the rate charged for

the service.”

2

Id. New Cingular would have this court rely on

Bastien v. AT&T Wireless Servs., Inc., 205 F.3d 983 (7th Cir.

2000), to hold that the substance of Shroyer’s claims is really

an attack on the post-merger service, and that deciding the

case would necessarily involve regulating the modes and conditions under which New Cingular may begin offering ser2Because the FCC is authorized to issue binding legal rules, an order

issued under that authority is entitled to Chevron deference. Metrophones

Telecomms., Inc. v. Global Crossing Telecomms., Inc., 423 F.3d 1056,

1065-66 (9th Cir. 2005). 

7610 SHROYER v. NEW CINGULAR WIRELESS SERVICES

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 4 of 13
vice. But the FCC rejected this per se argument in In re

Wireless Consumers Alliance, and so do we.3

Bastien dealt with a pre-merger AT&T wireless consumer

who was dissatisfied with the signal he was receiving on his

cellular phone. He alleged that AT&T breached its contract

and violated a state consumer protection statute by failing to

build sufficient cell towers and misrepresenting the quality of

its services. Bastien, 205 F.3d at 985. The Seventh Circuit

held that although some of the claims sounded in traditional

state law, they were all “founded on the fact that AT&T Wireless had not built more towers and more fully developed its

network at the time Bastien tried to use the system.” Id. at

989. The FCC has interpreted Bastien to hold that it is the

substance of the claim, not its form, that determines preemption. In re Wireless Consumers Alliance, Inc., 15 F.C.C.R. at

17036-37. New Cingular correctly asserts that in both that

case and here, the plaintiffs challenged the level of service

they received as wireless customers. But the important difference lies in the theories on which they based their challenges.

The plaintiff in Bastien was asking the court to decide the requisite number of cellular towers needed to support service.

Here, on the other hand, Shroyer is asking the court to decide

whether New Cingular has performed its promise in a contract

and whether it misrepresented the level of service it would

provide. The latter inquiries are ones that § 332, as interpreted

in Wireless, leaves open to state adjudication.4

3New Cingular attempts to distinguish In re Wireless Consumers Alliance by observing that there the FCC was deciding whether an award of

damages based on state law breach of contract and fraud claims was preempted by § 332. Here, New Cingular argues, we are confronted with

whether the contract and fraud claims themselves are preempted. This difference does not affect our conclusion; if damages are not preempted, neither are the claims under which they are awarded. 

4New Cingular relies on Aubrey v. Ameritech Mobile Commc’ns., Inc.,

No. 00-75080, 2002 WL 32521813 (E.D. Mich. 2002), which held a claim

of breach of contract similar to Shroyer’s preempted because “a decision

SHROYER v. NEW CINGULAR WIRELESS SERVICES 7611

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 5 of 13
Similarly, a court does not have to determine the reasonableness of rates to decide Shroyer’s fraud claim, for “[a] carrier may charge whatever price it wishes and provide the level

of service it wishes, as long as it does not misrepresent either

the price or the quality of service.” In re Wireless Consumers

Alliance, Inc., 15 F.C.C.R. at 17035. Consequently, the fraud

claim, like Shroyer’s other claims, is not preempted by § 332.

Furthermore, Bastien dealt with market entry, which the

states are expressly excluded from regulating by § 332.

Shroyer’s breach of contract claim does not. Shroyer claims

that New Cingular broke the terms of the contract when the

service, support, and cellular phone reception significantly

decreased. This breach of contract claim does not depend on

whether New Cingular’s service is above or below the proper

standard for cell phone service; its claim is that the level of

service is other than that promised in Shroyer’s cell phone

contract. Shroyer may or may not be able to prove his breach

of contract claim, but the claim as stated is not preempted by

§ 332.5 Although the Bastien panel uses broad language to

describe the type of claims that would be preempted, it is not

persuasive here because Bastien relied on authority that has

been expressly rejected by the FCC.

The Bastien panel stated that “[t]here can be no doubt that

Congress intended complete preemption” as to suits regarding

rates and entry. Bastien, 205 F.3d at 986-87. “[A] complaint

that service quality is poor is really an attack on the rates

charged for the service . . . . The act makes the FCC responsiin the Plaintiff’s favor would require a determination as to the type and

adequacy of the technology that a wireless service provider . . . must use

in order to enter or serve a particular market.” Id. at *3. We do not accept

Aubrey’s general conclusion. Shroyer can succeed on his breach of contract claim if he can show that New Cingular did not perform their promises, regardless of the relative adequacy of various technologies. 

5His misrepresentation claim also is not preempted, but as we will

explain, there are other deficiencies that support its dismissal. 

7612 SHROYER v. NEW CINGULAR WIRELESS SERVICES

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 6 of 13
ble for determining the number, placement and operation of

the cellular towers and other infrastructure.” Id. at 988. Bastien cites the Supreme Court case of AT&T Co. v. Central

Office Telephone, 524 U.S. 214, 223 (1998) as authority for

the proposition that “most consumer complaints will involve

the rates charged by telephone companies or their quality of

service.” Bastien, 205 F.3d at 988. However, Central Office

Telephone found preemption based on the federal filed rate

requirements of the Communications Act; the FCC has stated

that the filed rate doctrine does not apply to § 332(c)(3) preemption questions. 15 F.C.C.R. at 17029.

Rather, the FCC ruled that the award of monetary damages

based on state contract or tort causes of action is not necessarily equivalent to rate regulation and thus is not generally preempted by § 332. See id. at 17036. We agree that the breach

of contract and misrepresentation claims of Shroyer are not

preempted.

Elements of Shroyer’s unfair competitition claim, however,

depend on the assessment of the public benefit of the merger.

That determination has already been made by the FCC, and

reexamination of that issue under state law is preempted

either by § 332 or by the ordinary principles of conflict preemption.

II. Failure to State a Claim

We review de novo an order granting a motion to dismiss

under Federal Rule of Civil Procedure 12(b)(6).6 Gibson v.

6

It appears, by statements made in the dismissal order, that the district

court considered materials outside of the pleadings, such as the

Shroyer/AT&T contract, a press release regarding the AT&T/Cingular

merger, and the FCC’s merger order. When this is the case, the 12(b)(6)

motion should be converted into one for summary judgment, and the parties should be given an opportunity to present related materials. Lee v. City

of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). The district court did

not decide the motion under the summary judgment standard, and the parties do not challenge this choice. Therefore, we analyze the claims under

a 12(b)(6) standard. 

SHROYER v. NEW CINGULAR WIRELESS SERVICES 7613

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 7 of 13
Office of Attorney Gen., 561 F.3d 920, 925 (9th Cir. 2009).

We have held that dismissal for failure to state a claim is

“proper only where there is no cognizable legal theory or an

absence of sufficient facts alleged to support a cognizable

legal theory.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir.

2001). In addition, to survive a motion to dismiss, a complaint

must contain sufficient factual matter to state a facially plausible claim to relief. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949

(2009).

A. Breach of Contract

[2] Shroyer sufficiently states a claim that New Cingular

breached its contract with him. He alleges that his service

degraded after the merger, in violation of AT&T’s promise in

the contract. He also alleges that, by requiring Shroyer to sign

up for a different contract with the merged company and pay

additional expenses in order to maintain the former quality of

service, New Cingular required additional consideration from

Shroyer before it would perform its preexisting contractual

duty. Finally, he alleges that this conduct was in violation of

the implied covenant of good faith and fair dealing.

[3] The first amended complaint does not point to the specific provisions in the AT&T contract that Shroyer alleges

were violated, but he directed the district court to them in his

opposition to the motion to dismiss and he asked for the

opportunity to add the provisions to the complaint if necessary.7

Those provisions are: “Service rates and other charges and

conditions for each Number or Device are described in your

Sales Information”; and “Service is normally available to your

Device when it is within the operating range of our system.”

7Shroyer’s complaint could easily be amended to refer specifically to

the contract provisions, but the lack of such an amendment thus far does

not affect our analysis. The contract is in the record and the district court

considered it when ruling. Moreover, Shroyer’s complaint clearly sets out

the facts and legal theory under which he seeks relief. 

7614 SHROYER v. NEW CINGULAR WIRELESS SERVICES

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 8 of 13
The contract also provided that “[s]ervice may be . . . temporarily limited or interrupted due to system . . . modifications,”

and New Cingular argues that this provision defeats Shroyer’s

breach of contract claim. New Cingular is wrong, at least

from a Rule 12(b)(6) standpoint. Shroyer alleges that service

was not “normally available” within the system’s range, and

that this failure was neither temporary nor caused by the

excepted conditions. Whether the service interruption provision in the contract covered the types of problems that

Shroyer alleges is to be decided on summary judgment or

beyond.8 Shroyer successfully stated a claim for breach of

contract, and thus it was error to dismiss it.

B. Fraud and Deceit

[4] Shroyer claims that New Cingular misrepresented: 1)

to AT&T customers that they would be fully supported by the

newly merged company, providing “all the advantages only

the nation’s largest wireless company can provide”; 2) to the

FCC that the merger would improve service quality and coverage; and 3) to AT&T customers the reasons why their service was degraded. All three of these claims were properly

dismissed, albeit for different reasons.

1. Particularity

[5] New Cingular first argues that all three counts fail the

particularity requirement of Federal Rule of Civil Procedure

9(b). In order to plead fraud with particularity, the complaint

must allege the time, place, and content of the fraudulent representation; conclusory allegations do not suffice. Moore v.

8New Cingular also cites to a 2004 press release and In re Applications

of AT&T Wireless Servs., 19 F.C.C.R. 21522 (2004), in responding to

Shroyer’s breach of contract claim. In both of these documents there is

discussion that the AT&T/Cingular merger could cause service interruptions. Neither of these documents were part of the contract, however, and

both came after the contract’s formation, so any disclosures or warnings

that New Cingular made in them are irrelevant to the contract claim. 

SHROYER v. NEW CINGULAR WIRELESS SERVICES 7615

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 9 of 13
Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.

1989). Claims made on information and belief are not usually

sufficiently particular, unless they accompany a statement of

facts on which the belief is founded. Id. Here, Shroyer’s allegations of fraud concern a relatively definite time frame,

beginning with the merger application to the FCC and ending

with New Cingular’s refusal to disclose to its customers why

they were experiencing service degradations. Moreover, while

the claims are made on information and belief, Shroyer

explains exactly what it is that he believes constituted the

fraudulent statements: New Cingular telling the FCC that it

would honor its pre-existing contracts. Thus, the fraud claims

have been pleaded with particularity sufficient to allow New

Cingular to prepare an answer. 

2. Reliance

New Cingular next argues that the fraud claims cannot

stand because Shroyer cannot prove both actual and justifiable

reliance. See OCM Principal Opportunities Fund v. CIBC

World Mkts. Corp., 157 Cal. App. 4th 835, 864 (Cal. Ct. App.

2007) (holding that in fraud and nondisclosure claims, a plaintiff must show actual and justifiable reliance). Shroyer counters that reliance can be presumed because New Cingular

misrepresented its plans to the FCC, and omitted information

from Shroyer.

[6] The first count was properly dismissed because it is

mere commercial “ ‘puffery’ upon which a reasonable consumer could not rely.” Glen Holly Entm’t, Inc. v. Tektronix,

Inc., 343 F.3d 1000, 1015 (9th Cir. 2003) (affirming dismissal

of fraud claims that were based on assurances that a system’s

development was “high priority”). “[A]ll the advantages that

only the nation’s largest wireless company can provide” is a

vague statement and provides nothing concrete upon which

Shroyer could reasonably rely.

[7] Shroyer depends on the fraud-on-the-regulator theory

to prove actual reliance in his second and third fraud claims.

7616 SHROYER v. NEW CINGULAR WIRELESS SERVICES

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 10 of 13
See Mirkin v. Wasserman, 5 Cal. 4th 1082, 1095-96 (Cal.

1993) (where defendant has reason to know that a third party

will communicate the defendant’s misrepresentation to plaintiff, and the third party in fact does so communicate, defendant is liable to plaintiff). As to the second fraud claim, for

Shroyer successfully to argue that New Cingular misrepresented facts to the FCC, there must have been some communication between the FCC and Shroyer to the effect that New

Cingular was planning on maintaining compliance with its

preexisting contracts. Mirkin, 5 Cal. 4th at 1089-1108 (indirect communication principle inapplicable to plaintiff class of

company stock purchasers because they could not “allege that

they actually read or heard the alleged misrepresentations”

about the company’s prospects and financial status).

Shroyer’s complaint does not allege any such communication.

Therefore, the dismissal of the second claim was proper.

[8] As to the third claim, Shroyer erroneously argues that

actual reliance need not be proven when the fraud is based on

omissions of communication by New Cingular to its customers. The non-precedential cases on which Shroyer relies have

not been adopted by California. Id. at 1093. Moreover,

Shroyer does not allege that, if New Cingular had included

the omitted information on why service was degraded, he

would have acted differently. Id. (“One need only prove that,

had the omitted information been disclosed, one would have

been aware of it and behaved differently.”). He merely states

that the nondisclosure was fraudulent. This allegation is insufficient under California law, and the third claim for fraud

based on omissions to Shroyer was also properly dismissed.

C. Unfair Competition

[9] Shroyer alleges that New Cingular’s business practices

have been “unlawful, unfair and deceptive” to the general

public, in violation of California Business and Professions

Code §§ 17200-210. Section 17200 defines unfair competition

as “any unlawful, unfair or fraudulent business act or practice

SHROYER v. NEW CINGULAR WIRELESS SERVICES 7617

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 11 of 13
. . . .” It is written in the disjunctive, establishing “three varieties of unfair competition.” People ex rel. Lockyer v. Fremont

Life Ins. Co., 104 Cal. App. 4th 508, 515 (Cal. Ct. App.

2002). 

[10] In his complaint, Shroyer alleged that New Cingular

violated the common law of unfair competition and breached

his contract. These practices alone do not amount to a violation of the “unlawful” prong of § 17200; Shroyer must also

allege that New Cingular engaged in a business practice “forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.” Saunders v.

Superior Court, 27 Cal. App. 4th 832, 838-39 (Cal. Ct. App.

1994). In other words, a common law violation such as breach

of contract is insufficient. See Allied Grape Growers v.

Bronco Wine Co., 203 Cal. App. 3d 432, 450-54 (Cal. Ct.

App. 1988) (finding a § 17200 violation only after finding

three violations of the California Food and Agriculture Code);

see also Nat’l Rural Telecomms. Coop. v. DIRECTV, Inc.,

319 F. Supp. 2d 1059, 1074-75 (C.D. Cal. 2003) (holding that

a violation of common law can support a § 17200 claim, provided that the conduct is also unlawful, unfair, or fraudulent).

Because Shroyer does not go beyond alleging a violation of

common law, he fails to state a claim under the unlawful

prong of § 17200.

[11] Shroyer’s amended complaint also fails to allege facts

that support the unfair and fraudulent prongs of § 17200.

“ ‘Unfair’ simply means any practice whose harm to the victim outweighs its benefits.” Saunders, 27 Cal. App. 4th at

839. And “fraudulent” conduct “requires a showing [that]

members of the public ‘are likely to be deceived.’ ” Id. (quoting Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1267

(Cal. 1992)). New Cingular is alleged to have misrepresented

its intentions in the merger to the FCC and customers, and

then misled customers concerning the quality of the new service. To the extent that these allegations concern merger

negotiations between New Cingular and the FCC, they are

7618 SHROYER v. NEW CINGULAR WIRELESS SERVICES

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 12 of 13
preempted by 47 U.S.C. § 332(c)(3)(A). What remains are

conclusory allegations about fraud and the unfair treatment of

New Cingular’s customers, and the court cannot determine

from Shroyer’s barebone allegations that he has stated a plausible claim. See Iqbal, 129 S. Ct. at 1949 (“To survive a

motion to dismiss, a complaint must contain sufficient factual

matter, accepted as true, to state a claim to relief that is plausible on its face.”) (internal quotation marks omitted). 

III. Declaratory Relief

[12] Under California law, declaratory relief is improper

where claims are based only on prior wrongs and no continuing relationship exists between the parties. Baldwin v. Marina

City Props., Inc., 79 Cal. App. 3d 393, 407-08 (Cal. Ct. App.

1978). Shroyer is no longer a customer of New Cingular and

is suing for prior wrongs only. Therefore, the district court

was correct to deny him a declaratory judgment.

IV. Conclusion

For the reasons stated above, we affirm the dismissal of

Shroyer’s common law fraud and unfair competition claims

and the denial of declaratory relief, and reverse the dismissal

of Shroyer’s breach of contract claim. The parties will bear

their own costs on appeal.

AFFIRMED in part; REVERSED in part; and

REMANDED. 

SHROYER v. NEW CINGULAR WIRELESS SERVICES 7619

Case: 08-55028 05/26/2010 ID: 7350187 DktEntry: 23-1 Page: 13 of 13