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Smith v. SBC Communications Inc.

January 21, 2004

MILDRED SMITH, PLAINTIFF-RESPONDENT,
v.
SBC COMMUNICATIONS INC., DEFENDANT, AND SOUTHERN NEW ENGLAND TELEPHONE CO., D/B/A SNET, DEFENDANT-RESPONDENT, AND BJ'S WHOLESALE CLUB, INC., DEFENDANT-APPELLANT.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

In this appeal, the Court determines whether the filed rate doctrine insulates a retailer of telecommunications services, which is not itself a telecommunications carrier, from an action alleging breach of contract and consumer fraud arising out of the sale of prepaid calling cards.

Plaintiff filed a complaint on behalf of a putative class asserting Consumer Fraud Act claims and breach of contract and seeking compensatory damages and injunctive relief. The complaint alleged that Southern New England Telephone Company (SNET) and BJ's Wholesale Club, Inc. (BJ's) falsely advertised that prepaid calling cards purchased at BJ's would yield substantially more calling time than plaintiff actually received. The breach-ofcontract claim asserted that the advertising constituted a legally-binding offer accepted by buyers at the time of purchase. Defendants moved to dismiss the complaint, pursuant to Rule 4:6-2(e).

SNET is a telecommunications corporation that provides, in part, calling cards and prepaid phone card services to the eastern and northeastern United States. The Federal Communications Commission (FCC) and the Federal Communications Act (FCA) govern SNET's rates. BJ's operates wholesale clubs throughout the United State and it does not appear to be a telecommunications carrier subject to FCC regulation. Vending machines located in the BJ's clubs dispensed the phone cards at issue here under the brand name"BJ's Wholesale Club Pre-Paid Phone Card." The associated marketing materials informed consumers that the cards provided a 9.9 cents-per-minute rate for calls. As advertised, consumer could purchase a $10 card purporting to yield 101 minutes of calling time or a $20 card ostensibly yielding 202 minutes of calling time. The cards provided significantly fewer minutes than advertised, however, because of certain surcharges that plaintiff contends were not mentioned in the point-of-sale information. Plaintiff purchased a $20 card and expected to receive 202 minutes of calling time. Instead, plaintiff received only fifty minutes or less, amounting to an effective rate of nearly 40 cents per minute.

Defendants moved to dismiss the complaint contending that plaintiff's claim was barred by the filed rate doctrine (also referred to as the filed tariff doctrine). That doctrine provides that no carrier can charge a rate that differs from those on file with the FCC. SNET's motion attached the applicable prepaid phone-card service rates that SNET had filed with the FCC. In the filing, although there were differences over time in the rates applicable to bulk purchases, SNET consistently indicated a usage charge of 40 cents per minute. The Law Division dismissed both the consumer-fraud claim and the breach-of-contract claim against SNET. The court explained that the filed tariff was the only enforceable contract between plaintiff and SNET, therefore the filed rate doctrine precluded plaintiff from demonstrating an ascertainable loss, which is a prerequisite for any private cause of action under the Consumer Fraud Act. The court dismissed plaintiff's claims against BJ's for essentially the same reason. In respect of the contract claim, the court found that the complaint did not allege a contract between plaintiff and BJ's.

The Appellate Division affirmed the Law Division on the claims for monetary damages against SNET, but remanded for a determination whether injunctive relief was warranted as to both SNET and BJ's. The panel also reversed the dismissal of the damages claim against BJ's as premature, noting that plaintiff's complaint, read liberally, alleged a separate contractual relationship between the consumer and BJ's. Meanwhile, this Court decided Weinberg v. Sprint Corp., 173 N.J. 233 (2002)(standing under the Consumer Fraud Act requires that the party raise a genuine issue of fact as to the existence of ascertainable loss). In Weinberg, this Court found that because the filed rate doctrine prevented plaintiff from demonstrating ascertainable loss in the form of damages against the defendant, a telecommunications carrier, equitable relief and attorneys' fees were also unavailable under the act. In light of the Weinberg opinion, this Court granted the petitions for certification in this matter and remanded to the Appellate Division for reconsideration.

On reconsideration, the Appellate Division found that plaintiff's claims for injunctive relief and attorneys' fees against SNET could not proceed. Similarly, the panel concluded that Weinberg effectively vitiated its prior holding that plaintiff could obtain injunctive relief against BJ's if it were only an agent of SNET. Subject to those modifications, however, the panel reaffirmed its reinstatement of plaintiff's complaint against BJ's.

HELD: The filed rate doctrine does not act as a per se bar to state-law causes of action against retailers that arise out of the marketing and sale of prepaid calling card services. On the present record, as a matter of law, this Court cannot conclude that the filed rate doctrine would bar a damage award against the retailer or prevent plaintiff from proving an ascertainable loss under the Consumer Fraud Act.

1. Interstate telecommunications carriers are subject to regulation by the FCC pursuant to the FCA. During the time period relevant to this complaint, the FCA and FCC required telecommunications carriers to file a tariff showing all charges for each telephone service they provided. Under the FCA, carriers are prohibited from providing communications services except pursuant to a filed tariff and may not charge or receive a rate other than the rate listed in the tariff. In addition, carriers are prohibited from unreasonably discriminating between customers. As explained by the United States Supreme Court, the filed rate doctrine forbids a regulated entity to charge rates for its services other than those properly filed, and the rights as defined by the tariff cannot be varied or enlarged by either contract or tort of the carrier. All customers are conclusively presumed to have constructive knowledge of the filed tariff. (Pp. 7 - 9).

2. A strict application of the filed rate doctrine advances two goals: 1) the prevention of price discrimination by carriers as among ratepayers; and 2) the preservation of the exclusive role of federal agencies in approving reasonable rates and the exclusion of courts from the ratemaking process. These two principles are referred to as the"non-discrimination strand" and the"nonjusticiability strand." In Weinberg, in which a customer brought a class action lawsuit against Sprint Corporation alleging that its advertising practices misrepresented and concealed its practice of rounding up to the next minute long-distance charges, these two principles led the Court to conclude that plaintiff had no claim for monetary damages, and therefore had no private cause of action under the Consumer Fraud Act because he was charged the per-minute rate disclosed in the tariff. Any other result would have deviated from the tariff and would have been discriminatory under the doctrine. (Pp 9 - 11).

3. Although the filed rate doctrine bars lawsuits against regulated carriers challenging the carriers' filed rates or suits that would have the effect of causing a carrier to charge a rate that varies from its filed tariff, a separate question exists when a consumer seeks to sue a party other than a carrier. In that circumstance, the applicability of the doctrine has not been settled. Ultimately, the question whether the filed rate doctrine bars claims against a particular entity turns on the applicability of the doctrine's two companion principles, i.e., non-justiciability and non discrimination. (Pp. 11 - 15).

4. In the context of claims against non-carriers such as retailers, the non-justiciability and non-discrimination principles require an examination of the nature of the relationship between the carriers and the non-carriers and the extent to which an adverse ruling against the non-carriers would impinge on the filed rates. If an agency relationship exists between the carrier and non-carrier, a suit involving the services sold by the agent continues to implicate the dual purposes of the doctrine. Unless the filed rate doctrine is rigidly enforced when a non-carrier is an agent for a carrier, a carrier could devise a scheme allowing it to circumvent the tariff rates through the use of an agent, including a scheme to provide favored customers with lower rates than those filed with the FCC. This would result in discrimination between ratepayers. That scenario is distinguishable from the situation in which a retailer, acting with complete independence from the carrier, buys from a reseller or issuer telecommunications services that were purchased previously from a carrier in accordance with the terms and conditions of a filed tariff. In that circumstance, a suit brought by the end-user against the retailer alleging fraud or breach of contract arising out of the resale of those services implicates neither of the filed rate doctrine's cardinal principles. (Pp. 15 - 19).

5. The FCC has recognized that circumstances may exist in which retailers can sponsor or sell prepaid card services without being telecommunications carriers. In those circumstances, if the parties fraudulently misrepresent the benefits of the services they are selling, they should be held accountable. A damage award resulting from the relationship between the end-user and a retailer would have no impact on the filed rate because the issuance, sponsorship, and retail of prepaid card services occurs completely independent of the initial purchase of those services by the retailer from a carrier. As such, a court would not be required to determine the reasonableness of the terms of the tariff because those terms would have no bearing on the allegedly wrongful or fraudulent acts of the retailer and the chief evils that the doctrine was designed to proscribe would not be implicated. Therefore, the Court concludes that the filed rate doctrine does not act as a per se bar to state-law causes of action against retailers that arise out of the marketing and sale of prepaid calling card services. (Pp. 19 - 23).

6. Here, on the present record, the Court agrees with the Appellate Division that plaintiff's contractual claims against BJ's stand on a different footing than those she asserted against SNET. The complaint alleges that BJ's had a measure of control over the advertising and entered into a separate contractual relationship with plaintiff in accordance with the terms and conditions it offered in its promotional literature. Because of the sparseness of the record, the Court cannot conclude as a matter of law that the filed rate doctrine would bar a damage award in those circumstances or prevent plaintiff from proving an ascertainable loss under the Consumer Fraud Act. The Court rejects BJ's contention that imposing liability here would transform all phone-card retailers into guarantors of phone company promotional literature. This is not the simple case of a retailer setting up a display stand with prepaid phone cards and promotional literature provided by a card issuer. (Pp. 23 - 26).

7. The facts, as alleged, suggest that BJ's had a direct role in the development of the point-of-sale-marketing materials and that plaintiff and BJ's entered into a contractual relationship for those services completely separate from the terms offered under the filed tariff. In those circumstances, the filed rate doctrine does not present an absolute bar to recovery. If discovery demonstrates that BJ's acted as an agent of SNET or played no role in marketing the prepaid cards other than lending its name to the packaging materials, BJ's may make a motion for summary judgment on the basis of the filed rate doctrine. (Pp. 26 - 28).

The judgment of the Appellate Division is AFFIRMED and the case is remanded for further proceedings.

CHIEF JUSTICE PORITZ and JUSTICES LONG, VERNIERO, LaVECCHIA, ALBIN and WALLACE join in JUSTICE ZAZZALI's opinion.

The opinion of the court was delivered by: Justice Zazzali

Argued October 7, 2003

In Weinberg v. Sprint Corp., 173 N.J. 233 (2002), we concluded that the filed rate doctrine effectively barred plaintiffs from seeking monetary and injunctive relief against telecommunications carriers under the Consumer Fraud Act, N.J.S.A. 56:8-1 to 20, because the doctrine precluded plaintiffs from pleading a claim of ascertainable loss capable of surviving a motion for summary judgment. In this appeal, we are asked to consider whether that same doctrine insulates a retailer of telecommunications services, which is not itself a telecommunications carrier, from an action alleging breach of contract and consumer fraud arising out of the sale of prepaid calling cards. Because we conclude that the doctrine does not apply to retailers in every circumstance involving the sale of telecommunications services, we affirm the judgment of the Appellate Division and remand for further proceedings.

I.

Plaintiff Mildred Smith filed this Consumer Fraud Act and breach-of-contract suit on behalf of a putative class seeking compensatory damages and injunctive relief on the grounds that Southern New England Telephone Company (SNET) and BJ's Wholesale Club, Inc. (BJ's) falsely advertised that prepaid calling cards purchased at BJ's would yield substantially more calling time than plaintiff actually received.*fn1 Because this appeal comes to us on a Rule 4:6-2(e) motion to dismiss, we accept as true all factual assertions in the complaint. Craig v. Suburban Cablevision, Inc., 140 N.J. 623, 625 (1995). Our recitation of the facts, therefore, derives from the complaint. In addition, we consider the content of SNET's tariff filed with the Federal Communications Commission (FCC) that was submitted to the Law Division with SNET's motion to dismiss.

SNET is a telecommunications corporation that provides, among other services, calling cards and prepaid phone-card services to the eastern and northeastern United States. Its rates are governed by the FCC and the Federal Communications Act of 1934, 47 U.S.C.A. ยงยง 151-615b (FCA). At the time the complaint was filed, BJ's operated approximately ninety-siX wholesale clubs throughout the United States, offering discounted merchandise to its club members. It does not appear to be a telecommunications carrier subject to FCC regulation. During the ...


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