MEMORANDUM OPINION (Plaintiffs' Motion for Preliminary Injunction and Defendants' Motion to Dismiss)
HENRY E. HUDSON, District Judge.
This is a constitutional challenge to that portion of Virginia Code Section 24.2 imposing a district residency requirement for persons circulating petitions for independent candidates for the United States House of Representatives. Section 24.2-506 prescribes that any candidate for public office, other than a party nominee, is required to submit a petition signed by a designated number of qualified voters to the State Board of Elections in order to qualify to have their name printed on the official ballot. At issue is the additional requirement in Section 24.2-506 that "[e]ach signature on the petition shall have been witnessed by a person who is himself a qualified voter, or qualified to register to vote, for the office for which he is circulating the petition and whose affidavit to that effect appears on each page of the petition." Va. Code Ann. § 24.2-506 (2010). The primary plaintiff in this case, Herb Lux, alleges that this provision, as applied to his candidacy for the U.S. House of Representatives, violates his First and Fourteenth Amendment rights, as well as those rights of the other plaintiffs who served as petition circulators. The Plaintiffs seek both declaratory and injunctive relief.
In the text of the opinion, Herb Lux will be referred to individually as "Lux." The other plaintiffs, Steven Cruse, Andrew Mikel, and Eugene Foret, will be referred to by last name. All plaintiffs collectively will be referred to as "Plaintiffs."
The matter is presently before the Court on the Plaintiffs' Motion for Preliminary Injunction and the Defendants' Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6). Given the time constraints imposed by the filing deadline for the fall election, the parties have agreed to consolidate their motions for expedited hearing and disposition. Both parties have filed extensive memoranda supporting their respective positions. The Court heard oral argument on August 23, 2010. For the reasons stated below, the Plaintiffs' Motion for Preliminary Injunction will be denied and the Defendants' Motion to Dismiss will be granted.
Lux is a candidate for the U.S. House of Representatives in Virginia's Seventh Congressional District. Lux, however, resides in the First rather than Seventh District. In pursuing his independent candidacy, Lux filed a statement of qualification, a declaration of candidacy, and seventy-eight candidate petitions containing approximately 1,220 signatures, as required by Sections 24.2-501, 505, and 506 of the Code of Virginia, respectively. It is undisputed that these documents were timely filed with the Virginia State Board of Elections ("the Board"). Sixty-three of these candidate petitions, bearing approximately 1,063 signatures, were circulated and witnessed by Lux, who was neither a resident nor registered to vote in the Seventh Congressional District. Fifteen additional petitions, representing approximately 157 signatures, circulated on Lux's behalf were witnessed by the other Plaintiffs in this case. Cruse, Mikel and Foret are residents of the Seventh Congressional District and appear to be fully qualified to circulate and witness the petitions.
Lux's statutory qualifications to run for the Seventh Congressional District seat are not otherwise in question. See U.S. Const., art. I, § 2, cl. 2.
On June 21, 2010, thirteen days after Lux filed his petition and accompanying statement and declaration, the Board notified him that all petitions bearing his name and signature as witness would be excluded from the Board's verification process. In rejecting his petition, the Board specifically cited Section 24.2-506 of the Code of Virginia and concluded that because Lux was not a resident of the Seventh Congressional District, he was not qualified by statute to witness signatures on petitions, even for his own candidacy. The Board determined, however, that the signatures on petitions circulated by Cruse, Mikel, and Foret appeared to be acceptable. The Board declined to certify the validity of the signatures on petitions circulated by Lux given his inability to satisfy the district residency requirement.
Lux contends that the district residency requirement articulated in Section 24.2-506 is violative of his speech and associational rights guaranteed by the First and Fourteenth Amendments to the United States Constitution. In his view, the requirement that persons witnessing signatures on his petitions be qualified to vote in that congressional district constrains "his ability to disseminate his political views by restricting the number of message carriers who can gather signatures on his behalf, and in turn, the size of the audience that can be reached." (Pls.' Br. Supp. Mot. Prelim. Inj. 6). In support of this contention, Lux relies on Buckley v. Am. Constitutional Law Found., Inc., 525 U.S. 182, 194-95, 119 S.ct. 636, 643-44 (1999).
Lux also perceives the district residency requirement as restricting his right of issue advocacy. "[I]t prevents Mr. Lux from choosing what he believes to be the most effective means of conveying his message." (Pls.' Br. Supp. Mot. Prelim. Inj. 6-7). This argument is drawn from the teachings of Meyer v. Grant, 486 U.S. 414, 424, 108 S.ct. 1886, 1893 (1988).
Third, Lux argues that the district residency requirement obstructs his right to advocate for political change and to associate with other potentially like-minded voters. "[I]t restricts Mr. Lux's ability to associate in a meaningful way with individuals that sign his petition for the purpose of eliciting political change." (Pls.' Br. Supp. Mot. Prelim. Inj. 7). Again, Lux relies upon Meyer, 486 U.S. at 421-22, 108 S.ct. at 1891-92.
Lastly, Lux argues that the statutory provision at issue obstructs "his ability to gain access to the ballot, and therefore, his ability to make his candidacy the subject of district-, state-, and nation-wide discussion." (Pls.' Br. Supp. Mot. Prelim. Inj. 7).
Throughout their responsive memoranda, the Defendants emphasize that Virginia has among the least restrictive ballot access requirements in the nation. The United States Court of Appeals for the Fourth Circuit shares this impression. Libertarian Party of Va. v. Davis, 766 F.2d 865, 868 (4th Cir. 1985).
The Defendants, all members of the State Board of Elections, urge the Court to deny Plaintiffs' request for a preliminary injunction and to dismiss the underlying Complaint. The Defendants contend that the operative issue, the district residency requirement specified in Section 24.2-506, has been upheld by the U.S. Court of Appeals for the Fourth Circuit in Libertarian Party of Va. v. Davis, 591 F. Supp. 1561 (E.D. Va. 1984), aff'd 766 F.2d 865 (4th Cir. 1985). Therefore, the Defendants argue that the Plaintiffs are not likely to succeed on the merits, a prerequisite to preliminary injunctive relief. Winter v. Natural Res. Def. Council, Inc., 129 S.ct. 365, 374 (2008). Pointing to specific findings in Davis, upholding the constitutional soundness of the district residency requirement, albeit in a difference context, the Defendants maintain that the requirement is rationally based as applied in this case. Therefore, the Defendants argue that Plaintiffs' Complaint cannot survive Rule 12(b)(6) scrutiny and should be dismissed.
The requirements for preliminary injunctive relief are well established in the Fourth Circuit. Such relief is appropriate where the petitioner establishes that he or she is 1) likely to succeed on the merits; 2) likely to suffer irreparable harm in the absence of preliminary relief; 3) that the balance of equities tip in his or her favor; and 4) that an injunction is in the public interest. Id.; Real Truth About Obama, Inc. v. Fed. Election Comm'n, 575 F.3d 342, 346-47 (2009). As the Fourth Circuit pointed out in Real Truth About Obama, Winter requires that a plaintiff make a clear showing that it will likely succeed on the merits at trial. Real Truth About Obama, Inc, 575 F.3d at 346. This standard is far stricter than the requirements for preliminary injunctive relief in the Fourth Circuit prior to Winter. Id. at 347. The debate in this case appears to focus almost exclusively on the likelihood of Plaintiffs succeeding on the merits.
Traditionally, "[a] motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint; . . . it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.ct. 1955 (2007), amplified that standard, noting that, to survive a motion to dismiss, a complaint must contain sufficient factual information "to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.ct. at 1974. While it does not require "detailed factual allegations," Twombly held that Fed.R.Civ.P. 8 does demand that a plaintiff provide more than mere labels and conclusions stating that the plaintiff is entitled to relief. Id. at 555, 127 S.ct. at 1964-65. Thus, a complaint containing facts that are merely consistent with a defendant's liability stops short of the line between possibility and plausibility of entitlement to relief. Id. at 557, 127 S.ct. at 1966. Rather, a complaint achieves facial plausibility when it contains sufficient allegations supporting the reasonable inference that the facts alleged support an actionable claim. Id. at 556, 127 S.ct. at 1965; see also Ashcroft v. Iqbal, 129 S.ct. 1937, 1949 (2009).
As Judge Niemeyer noted in Francis v. Giacomelli, this analysis is context specific and requires the "reviewing court to draw on its judicial experience and common sense." Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009). The Court also stressed in Giacomelli that "`naked assertions' of wrongdoing necessitate some `factual enhancement' within the complaint to cross `the line between possibility and plausibility of entitlement to relief.'" Id. (citing Twombly, 550 U.S. at 557, 127 S.ct. at 1955).
Both the Plaintiffs and the Defendants agree that in cases involving constitutional challenges to voting regulations, particularly those implicating the First Amendment, courts traditionally apply the balancing test announced by the United States Supreme Court in Anderson v. Celebrezze, 460 U.S. 780, 103 S.ct. 1564 (1983), and Doe v. Reed, 130 S.ct. 2811 (2010). Assuming that petition signing is expressive conduct, to withstand judicial scrutiny, "the strength of the governmental interest must reflect the seriousness of the actual burden on First Amendment rights." Reed, 130 S.ct. at 2818 (citing Davis v. Fed. Election Comm'n, 128 S.ct. 2774 (2008)).
In Anderson, the U.S. Supreme Court observed that
[c]onstitutional challenges to specific provisions of a State's election laws therefore cannot be resolved by any "litmus-paper test" that will separate valid from invalid restrictions. Instead, a court must resolve a challenge by an analytical process that parallels its work in ordinary litigation. It must first consider the character and magnitude of the asserted injury to the rights protected by the First and Fourteenth Amendments [at issue]. . . . It then must identify and evaluate the precise interests put forward by the State as justifications for the burden imposed by its rule. In passing judgment, the Court must not only determine the legitimacy and strength of each of those interests; it also must consider the extent to which those interests make it necessary to burden the plaintiffs rights. Only after weighing all these factors is the reviewing court in a position to decide whether the challenged provision is unconstitutional.
Anderson, 460 U.S. at 789; 103 S.ct. at 1570 (internal citations omitted).
The Court's initial task is to apply the balancing test prescribed by Anderson, then determine what level of scrutiny should govern its review of Plaintiffs' claims. Lux contends that the district residency requirement suppresses his freedom of political expression and inhibits his right of association. The Defendants maintain that the statutory requirement that a person qualified to vote in that congressional district witness the signatures on Lux's petition does neither. The Board counters that Lux is free to communicate his thoughts and ideas to voters, as long as a person qualified to vote in that district is present when the petitions are signed. In their opinion, the witness requirement in no way affects the content or manner of Lux's expression of political ideas.
Lux's constitutional challenge is informed in large measure by the U.S. Supreme Court's reasoning in Buckley and Meyer, supra. Both cases involved the constitutionality of statutory constraints on ballot-initiative petition circulators. In each case, the Court concluded that the restrictions at issue impose severe burdens on political speech and were not narrowly tailored to serve a compelling state interest. The task at hand in the immediate case — as in Buckley and Meyer — is to determine whether the district residency requirement here in controversy is a valid ballot access provision or an invalid interactive speech restriction. As Justice Ginsberg noted in Buckley, the Court's First Amendment analysis should be focused on "undue hindrances to political conversations and the exchange of ideas." Buckley, 525 U.S. at 192, 119 S.ct. at 642.
In Meyer, the U.S. Supreme Court held that the circulation of a petition in support of a ballot initiative to amend the Colorado Constitution involved protected political speech. Following that line of reasoning, the Court struck down a Colorado statutory prohibition against paying petition circulators as violative of the First Amendment. Central to this conclusion was the Court's finding that "circulation of a petition involves the type of interactive communication concerning political change that is appropriately described as `core political speech.'" Meyer, 486 U.S. at 421-22, 108 S.ct. at 1892. Troubling to the Court in Meyer was the prescribed sanction for paying petition circulators — punishment as a felony. Given the statute's limitation on political expression, the Court adopted an "exacting scrutiny" standard of review. Id. at 420, 108 S.Ct. at 1891.
Similarly, Buckley involved a constitutional challenge to a Colorado statute restricting petition circulators. The limitation under judicial review required petition circulators to be registered voters and wear identification badges bearing the circulator's name. In addition, the statute required that the name and address of all paid circulators, along with the amount paid to each, be publicly reported. The Court concluded that such restrictions inhibited participation in the petition circulation process, limited the number of people available to circulate and sign petitions, and consequently, restricted core political speech. Buckley, 525 U.S. at 194, 197-98, 119 S.ct. at 643-45.
Plaintiffs also rely on Krislov v. Rednour, 226 F.3d 851 (7th Cir. 2000), in which a statute requiring petition circulators for candidates for the U.S. House of Representatives and U.S. Senate be registered to vote in the same district or political subdivision for which the candidate is seeking office. The Court in Krislov noted in its analysis that "[w]hat is particularly important in this case . . . is the number of people the registration and residency requirements exclude from gathering signatures and thus disseminating the candidates' political message." Id. at 860. Because the circulation of nominating petitions necessarily entails political speech with First and Fourteenth Amendment implications, the Seventh Circuit employed an exacting scrutiny standard. The Court ultimately concluded that Illinois failed to demonstrate either a compelling interest or that the statute was narrowly tailored. Id. at 866.
In their Memorandum in Opposition, Defendants hastily point out that the U.S. Court of Appeals for the Eighth Circuit in Initiative Referendum Inst. v. Jaeger, 241 F.3d 614 (8th Cir. 2001), rejected the Seventh Circuit's reasoning in Krislov and held that residency requirements for circulation of petitions do not violate the First Amendment. The Court in Initiative Referendum Inst. began its analysis by observing that "[s]evere burdens on speech trigger an exacting standard in which regulations must be narrowly tailored to serve a compelling state interest, whereas lesser burdens receive a lower level of review." Id. at 616. The Court's ultimate holding focused on whether the state had a compelling interest in protecting the petition process from fraud and abuse by insuring that circulators are state residents subject to the Secretary of State's subpoena power. Id. However, en route to its decision, the Court observed that the regulation imposing residency requirements for circulators of petitions "does not unduly restrict speech." Id. Furthermore, the Court also emphasized that
many alternative means remain to non-residents who wish to communicate their views on initiative measures. Non-residents are still free to speak to voters regarding particular measures; they certainly may train residents on the issues involved and may instruct them on the best way to collect signatures; and they may even accompany circulators.
Id. at 617.
Defendants argue that the district residency requirement in Section 24.2-506 of the Code of Virginia has minimal First and Fourteenth Amendment implications as applied in this case. They contend that the provision is more akin to a ballot access requirement than a significant burden on speech or association, and consequently, does not warrant strict scrutiny analysis. The Defendants emphasize that "the existence of barriers to a candidate's access to the ballot `does not of itself compel close scrutiny.'" Clements v. Fashing, 457 U.S. 957, 963, 102 S.ct. 2836, 2843 (1982) (citing Bullock v. Carter, 405 U.S. 134, 143, 92 S.ct. 849, 855 (1972)). The district residency requirement at issue imposes no restrictions on Lux as a candidate or advocate, but only as a signature attester. The only limitation imposed by Section 24.2-506 is that the person witnessing the signatures be a resident of the congressional district in which the candidate is seeking office. The witness need not even be a registered voter in that district, as long as they reside there. Moreover, there is no requirement that petition circulators wear
identification badges or register in any fashion. Nonresident independent candidates, such as Lux, may use as many qualified surrogates as they wish to collect signatures and promote their candidacy.
Although the U.S. Supreme Court has never squarely confronted the issue of the constitutionality of residency requirements for circulators of candidates' petitions, the U.S. Court of Appeals for the Fourth Circuit appears to have spoken clearly. In Libertarian Party of Va. v. Davis, 766 F.2d 865 (4th Cir. 1985), the Court had occasion to examine a statutory provision similar to Section 24.2-506. While the context of the challenge in Libertarian Party of Va. may have been different from the immediate case, the associated burden on First and Fourteenth Amendment rights was identical. At issue was former Section 24.1-159 of the Code of Virginia. "This provision dictates that each signature on the petition be witnessed and attested by a qualified voter from the same congressional district as the petition signer." Id. at 869.
The Fourth Circuit concluded in Libertarian Party of Va. that
the requirement that the witness be from the same congressional district as the petition signer serves the important purpose of assuring "some indication of geographic as well as numerical support" by demonstrating "that within each congressional district there is at least one `activist' sufficiently motivated to shoulder the burden of witnessing signatures." It is difficult to imagine how the state could accomplish these objectives by less restrictive means.
Id. at 869-70 (internal citations omitted).
The U.S. Supreme Court has long recognized that reasonable nondiscriminatory ballot access restrictions that serve important regulatory interests should generally be upheld. See, e.g., Burdick v. Takushi, 504 U.S. 428, 434, 112 S.ct. 2059, 2063 (1992). The right of a candidate to appear on a ballot is not fundamental and thus does not compel strict scrutiny by itself. Clements, 457 U.S. at 963, 102 S.ct. at 2843. Moreover, while restrictions on ballot access necessarily implicate the freedom to associate for political purposes to some degree, this freedom is not absolute and is "necessarily subject to qualification if elections are to be run fairly and effectively." Munro v. Socialist Workers Party, 479 U.S. 189, 193, 107 S.ct. 533, 536 (1986); see also Wood v. Quinn, 104 F. Supp. 2d 611, 614 (E.D. Va. 2000).
While every statutory constraint on the circulation of a candidate's petitions implicates the First and Fourteenth Amendments to some degree, the restrictions imposed by Section 24.2-506 requiring that persons witnessing signatures on petitions live in the same district as the voter appear to serve a reasonable regulatory interest.
A ballot excess provision, however, may be sustainable as a practical matter, yet be unconstitutional as applied. "Under traditional equal protection principles, legislatures are presumed to have acted constitutionally, and this presumption is overcome `only when the challenged statute places burdens upon suspect classes of persons or on a constitutional right that is deemed to be fundamental.'" Amarasinghe v. Quinn, 148 F. Supp. 2d 630, 635 (E.D. Va. 2001). There is no evidence in this case that Section 24.2-506 places an undue burden upon suspect classes of persons. The fact that Lux has chosen to run for political office independent of a party affiliation does not place him in a suspect class triggering strict scrutiny. Therefore, since the right to appear on a ballot is not a fundamental right, rational basis scrutiny appears appropriate in this case. In employing a rational basis standard of review, courts will not overturn state actions "unless the varying treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the [government's] actions were irrational." Kimel v. Fla. Bd. of Regents, 528 U.S. 62, 84, 120 S.ct. 631, 646 (2000) (citing Vance v. Bradley, 440 U.S. 93, 97, 99 S.ct. 939, 943 (1979)).
States have a well-settled interest in protecting the political process and toward that end may enact regulations to safeguard against frivolous candidacies. To ensure an efficient election process, states may adopt measures to "avoid[] voter confusion caused by an overcrowded ballot." Wood, 104 F. Supp. 2d at 614-15 (citing Clements, 457 U.S. at 965, 102 S.ct. at 2844.) Courts have historically recognized that states have a legitimate interest of the highest order "in keeping its ballots within manageable, understandable limits." Lubin v. Panish, 415 U.S. 709, 715, 94 S.ct. 1315, 1319 (1974). The U.S. Supreme Court has also uniformly upheld ballot access provisions, such as the one presently before the Court, that may "condition access to the general election ballot by a minor-party or independent candidate upon a showing of a modicum of support among the potential voters for the office." Munro, 479 U.S. at 193, 107 S.ct. at 536.
Relying on comments by the Court in Munro, Plaintiffs contend that the signature requirement mandated by Section 24.2-506 is sufficient to evidence such a "modicum of support." Id. In theory, Plaintiffs may well be correct. The Commonwealth of Virginia, however, in its discretion, has determined that the willingness of resident political activists to witness petition signatures is a better indicia of the depth of a candidate's base support. Courts have not been "inclined to second guess the impartial judgments of lawmakers concerning the utility of legislation." CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 92, 107 S.ct. 1637, 1651 (1987) (internal citations omitted). At bottom, this Court must limit its consideration of "whether the legislature had a rational basis for believing there was a legitimate purpose that would be advanced by the statute . . . [and] likewise apply a deferential standard in identifying a statute's putative benefits." Yamaha Motor Corp., 401 F.3d at 569 (citing CTS Corp., 481 U.S. at 92-93, 107 S.ct. at 1651). The U.S. Court of Appeals for the Fourth Circuit appears to concur with the Virginia General Assembly. See Libertarian Party of Va., 766 F.2d at 869-70. The same logic governs the immediate case.
Section 24.2-506 requires an independent candidate for Congress to garner 1,000 signatures to qualify for ballot eligibility.
Accordingly, the Court finds that Plaintiffs have failed to demonstrate that they are likely to succeed on the merits, particularly given the weight of contrary jurisprudence in the Fourth Circuit. In their arguments, both sides have stressed this element of proof as pivotal to the near exclusion of all other requirements for preliminary injunctive relief articulated in Winter, 129 S.ct. at 374.
Both parties also acknowledged during oral argument that the Court's ruling on the core issue governing Plaintiffs' Motion for Preliminary Injunction would also be dispositive of the Defendants' Motion to Dismiss. Consequently, based on the foregoing analysis, this Court finds that the Complaint fails to state a claim for relief that is plausible on it face. See Twombly, 550 U.S. at 570, 127 S.ct. at 1974.
The Court will therefore deny Plaintiffs' Motion for Preliminary Injunction and grant Defendants' Motion to Dismiss. An appropriate Order will accompany this Memorandum Opinion.
y,
550 U.S. at 556). "Determining whether a complaint states a plausible claim for relief will, . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense."
Iqbal,
129 S. Ct. at 1950.
In summary, the pleading standard articulated by Rule 8 "does not require detailed factual allegations, but it [does demand] more than an unadorned, thedefendant-unlawfully-harmed-me accusation." Id. at 1949 (internal quotation marks and citations omitted). In making this determination, the Court must read the allegations of the proposed amended complaint as a whole, as opposed to parsing the allegations "piece by piece to determine whether each allegation, in isolation, is plausible." Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (citations omitted).
B. Motion to Amend
Federal Rule of Civil Procedure 15(a) provides that leave to amend "shall be freely given when justice so requires." The determination as to whether to grant leave to amend is entrusted to the sound discretion of the trial court.See, e.g., Niagara of Wisconsin Paper Corp. v. Paper Indus. Union Mgmt. Pension Fund, 800 F.2d 742, 749 (8th Cir. 1986) (citation omitted). The Eighth Circuit has held that "[a]lthough amendment of a complaint should be allowed liberally to ensure that a case is decided on its merits, . . . there is no absolute right to amend." Ferguson v. Cape Girardeau County, 88 F.3d 647, 650-1 (8th Cir. 1996) (citing Thompson-El v. Jones, 876 F.2d 66, 67 (8th Cir. 1989); Chesnut v. St. Louis County, 656 F.2d 343, 349 (8th Cir. 1981)). Denial of leave to amend may be justified by "undue delay, bad faith on the part of the moving party, futility of the amendment or unfair prejudice to the opposing party." Sanders v. Clemco Indus., 823 F.2d 214, 216 (8th Cir. 1987) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
In this case, where PGSI has alleged that M G's proposed amendments are futile, this Court will confine its analysis to determining whether the proposed claims state a claim for relief at this stage of the case. See Zutz v. Nelson, 601 F.3d 842, 850-51 (8th Cir. 2010) ("Denial of a motion for leave to amend on the basis of futility means the district court has reached the legal conclusion that the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Accordingly, in reviewing a denial of leave to amend we ask whether the proposed amended complaint states a cause of action under the Twombly pleading standard. . . .") (citation and marks omitted); In re Senior Cottages of Am., LLC, 482 F.3d 997, 1001 (8th Cir. 2007) (To deny a motion to amend on the ground of futility "means that the court reached a legal conclusion that the amended complaint could not withstand a Rule 12 motion.");United States ex rel. Gaudineer Comito, L.L.P. v. Iowa, 269 F.3d 932, 936 (8th Cir. 2001) ("The denial of leave to amend based on futility means that the court found that the amended complaint failed to state a claim. . . ."), cert. denied, 536 U.S. 925 (2002).
C. Motion for Summary Judgment
Summary judgment is proper if, drawing all reasonable inferences favorable to the non-moving party, there is "no genuine issue as to any material fact" and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c);Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986); see also Unigroup, Inc. v. O'Rourke Storage Transfer Co., 980 F.2d 1217, 1219 (8th Cir. 1999). "`Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.'" DePugh v. Smith, 880 F. Supp. 651, 656 (N. D. Iowa 1995) (quoting Anderson, 477 U.S. at 248).
III. ANALYSIS
A. PGSI's Motion to Dismiss and M G's Motion to Amend
M G's Motion for Leave to File its First Amended Complaint [Docket No. 41] would normally be addressed in an order, rather than in a report and recommendation. However, as the facts and issues bearing on the motions to dismiss and to amend the complaint are sufficiently intertwined, the Court has chosen to address them together as a part of this Report and Recommendation.
1. Is PGSI a Proper Defendant?
PGSI maintained that M G's Complaint should be dismissed because it was Xpedite and not PGSI, the parent corporation of Xpedite, which transmits faxes for customers. See PGSI Mem. at p. 5. In support, PGSI relied on its 2009 Annual Report, which identified Xpedite as its subsidiary and also provided that PGSI conducts substantially all of the fax blasting business through its subsidiaries. See Defendant Premiere Global Services, Inc.'s Reply Memorandum of Law in Support of Motion to Dismiss ("PGSI Reply Mem.") at pp. 9-10. PGSI also relied on the service agreement between Xpedite and Advanstar that was attached to PGSI's Third-Party Complaint, which identified Xpedite, and not PGSI, as the service provider. Id. at p. 9.
In its response to the M G's motion to amend the complaint, PGSI did not rest its opposition on the argument that any claim against it was futile because it was Xpedite, and not PGSI, that was responsible for sending faxes to customers. Instead, the crux of its opposition to the motion to amend was that M G had failed to allege facts to support its theory that either PGSI or Xpedite had engaged in a "high degree of involvement" in the transmission of faxes to M G on behalf of Xpedite's customers or were on actual notice of the unlawfulness of the transmissions.
In response, M G explained that it had sued PGSI and not Xpedite because PGSI and not Xpedite was identified in the settlement agreement between Advanstar and M G as the entity that sent the faxes to M G; PGSI had stated in its annual report that it had disclosed liabilities under the TCPA due to PGSI's broadcast faxing, including the settlement by PGSI of a TCPA class action law suit; PGSI has had 88 prior complaints sent to the FCC concerning PGSI's compliance with the TCPA and was cited in 2006 by the FCC for its fax blasting activities; and PGSI's website represented that a customer could outsource their faxing and document delivery to PGSI. See M G Response at pp. 5-7.
M G also argued that PGSI's motion to dismiss under Rule 12(b)(6) is untimely because it was filed after PGSI filed its Answer to the Complaint. See M G Response at p. 3. It is true that a motion to dismiss under Rule 12(b)(6) cannot be brought after an answer has been filed. See Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). However, Rule 12(h)(2) of the Federal Rules of Civil Procedure provides that "`[a] defense of failure to state a claim upon which relief can be granted' may be advanced in a motion for judgment on the pleadings under Rule 12(c)." Id. Consequently, the Court will treat PGSI's motion as if it had been styled a 12(c) motion, and apply the same standard of review it would apply for a 12(b)(6) motion. Id. (citations omitted); see also Ashley County v. Pfizer, Inc., 901 F.2d 1486, 665 (8th Cir. 2009) (same); Minnesota Pharmacists Ass'n v. Pawlenty, 690 F. Supp.2d 809, 814 (D. Minn. 2010) (citation omitted) ("In resolving a motion for judgment on the pleadings under Rule 12(c), a court applies the same standard used to address a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6)."). That is, in resolving a motion for judgment on the pleadings under Rule 12(c), "a court must to `accept as true all factual allegations set out in the complaint' and to `construe the complaint in the light most favorable to the plaintiff[s], drawing all inferences in [their] favor."" Ashley County, 552 F.3d at 665 (quotingWishnatsky v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006)). PGSI conceded that the Court should evaluate its motion under Rule 12(c). See PGSI Reply Mem. at p. 3.
As a preliminary matter, the Court observes that the parties have referenced a number of documents outside of the Complaint in support of their respective positions relative to whether PGSI is a proper defendant. As a general rule, the Court may not consider materials "outside the pleadings" on a motion to dismiss or motion for judgment on the pleadings. As the Eighth Circuit noted in Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999):
When considering a motion for judgment on the pleadings (or a motion to dismiss under Fed.R.Civ.P. 12(b)(6)), the
court generally must ignore materials outside the pleadings, but it may consider `some materials that are part of the public record or do not contradict the complaint,'
Missouri ex rel. Nixon v. Coeur D'Alene Tribe,
164 F.3d 1102, 1107 (8th Cir.),
cert. denied,
___ U.S. ___, No. 98-1848,
1999 WL 319349 (U.S. June 24, 1999), as well as materials that are `necessarily embraced by the pleadings.'
Piper Jaffray Cos. v. National Union Fire
Ins. Co.,
967 F. Supp. 1146, 1152 (D. Minn. 1997).
See also Groska v. Northern States Power Co. Pension Plan, NO. CIV. 05-114 (JNE/FLN),
2005 WL 3447619 at * 2 n. 1 (D. Minn. Dec. 15, 2005) ("court must convert a motion for judgment on the pleadings to a motion for summary judgment when matters outside the pleadings are presented to and not excluded by the court,
see Fed.R.Civ.P. 12(c), unless the materials submitted are matters of public record, materials that do not contradict the complaint, or materials that are necessarily embraced by the pleadings.") (citations omitted).
Whether or not the Court considers the documents relied upon by the parties as public records or documents necessarily embraced by the pleadings, or converts PGSI's Rule 12(b) motion into a Rule 12(c) motion or a motion for summary judgment under Rule 56(c), the Court concludes that PGSI has been properly sued as a party.
Based on the four corners of the Complaint, the facts alleged support a claim that PGSI violated TCPA as a fax broadcaster by sending out unsolicited faxes to M G, with whom it had not previous business relationship. See Complaint, ¶¶ 2-7. Similarly, an examination of the facts outside the record (annual reports, service agreement between Xpedite and Advanstar, Advanstar's representations to M G, PGSI's website), leads this Court to conclude that there is a disputed fact as to whether PGSI was a fax broadcaster, or whether it was Xpedite or PGSI that sent the faxes the M G. For example, in support of its claim that it was Xpedite, and not PGSI, that does fax broadcasting, PGSI pointed to its 2009 Annual Report that provides that "[f]ax broadcasters, such as our subsidiary Xpedite Systems, LLC, generally are not liable for their customers' violations of the TCPA. . . ."; its 2008 and 2009 Annual Reports that represented "[w]e conduct substantially all of our businesses through our subsidiaries;" and the fax subscriber service agreement attached to the Third-Party Complaint was between Xpedite and Advanstar. See Affidavit of JoLynn M. Markison in Support of Motion to Dismiss [Docket No. 57] ("Markison Aff."), Ex. A at pp. 5, 13; Ex. B; Docket 8-1.
On the other hand, PGSI's website as of September 23, 2009 provided that PGSI could send and receive faxes; email documents to any fax machine; provide 30-day online fax storage; provide unique and toll-free fax numbers; could increase customer message delivery success; and avoid black lists. See Docket No. 67 (April 12, 2010 Letter to the Court Attaching a Portion of the PGSI's Website). Likewise, PGSI's website as of March 9, 2010 provided that PGSI offered document delivery allowing customers to benefit from "scalable, tailored application design and development"; its "powerful platform" which enabled "automated, high speed document transmission and delivery" for mass distribution via "email and secure fax;" and "regulatory compliance." See Declaration of John A Clifford in Support of Plaintiff Merchant Gould's Response to Defendant Premiere Global's Motion to Dismiss [Docket No. 46] ("Clifford Decl."). Ex. A.
Further, PGSI's 2008 Annual Report stated in relevant part:
Federal, state, local and international laws regulating the provision of traditional telecommunications service may
adversely impact our business. We believe we operate as a non-common-carrier provider of unregulated, enhanced information services.
* * *
We are subject to certain regulations imposed by the FCC . . ., and we may be affected by regulatory decisions, trends or policies issued or implemented
by federal, state, local or international telecommunications regulatory authorities.
* * *
Fax broadcaster providers, such as us, generally are not liable for their customer' violations of the TCPA, although fax broadcast providers who have a "high degree of involvement" in their customer's violation of the TCPA may be held liable under certain circumstances under the TCPA. Although
we have conducted our operations to meet the fax broadcaster provider exemption, third parties may seek to challenge this exception.
Clifford Decl. Ex. C (emphasis added).
Finally, pursuant to the settlement agreement between Advanstar and M G, Advanstar has represented that PGSI was its sender, and PGSI was issued a citation in 2006 by the FCC for alleged violations of the TCPA, dealing with PGSI's sending of unsolicited advertisements to fax machines. Id., Exs. B, D.
In summary, while there is evidence supporting PGSI's contention that it was not the sender of the faxes to M G at issue in this case, there is also contrary evidence before this Court suggesting that PGSI could have been and was the sender. Based on the record before the Court, judgment on the pleadings (or summary judgment) is not appropriate as it relates to whether PGSI is the proper defendant. In reaching this determination, the Court renders no opinion as to whether PGSI was indeed the actual sender of the faxes to M G; only that the allegations in the Complaint and the proposed amended complaint sufficiently set forth plausible facts to support M G's inclusion of PGSI as a defendant in this case. The Court is confident that PGSI's ultimate role in the faxes will be flushed out through discovery.
2. Do M G's Allegations State a Plausible Claim for Relief Under the TCPA?
In support of its motion to dismiss, PGSI maintained that its subsidiary, Xpedite is a "facsimile broadcaster," and is exempt from liability under the regulations and FCC orders implementing 47 U.S.C. § 227, in the absence of any allegations of a high degree of involvement with the entity on whose behalf a facsimile was sent or actual notice of an illegal use. See PGSI Mem. at pp. 7-12. According to PGSI, all that M G alleged was that PGSI (or Xpedite) transmitted, for a fee, fax advertisements of third parties to it or its employees. Id. at p. 6; see also PGSI Reply Mem. at pp. 4-6. Lacking factual allegations that Xpedite or PGSI had supplied fax numbers to transmit the unsolicited advertisements, determined the content of the faxed messages, had any other close involvement with transmission to M G, or was on actual notice of unlawfulness, PGSI argued that M G's Complaint was insufficient to impose liability as a matter of law. Id. at p. 11-12.
In its response to PGSI's motion to dismiss, M G contended that it had alleged all the necessary elements of the TCPA, including the locations of the parties, the dates of the faxes and the number of faxes, and that the exemption created by the FCC for fax broadcasters is not part of the TCPA. See M G Response at pp. 9-10. Besides, M G asserted that the motion to dismiss was moot, given its pending motion to amend. Id. at p. 11.
PGSI disagreed with the suggestion that the proposed amended complaint cured the deficiencies of the Complaint, claiming that the allegations set forth in paragraph 11 of the proposed amended complaint, which were based on "information and belief," were conclusory and speculative, and amounted to nothing more than a recitation of the possible factors that would defeat a recognized fax broadcaster defense. See Defendant Premiere Global Service, Inc.'s Memorandum of Law in Opposition to Motion to Amend [Docket No. 61] ("PGSI Opp. Mem.") at pp. 3-6. In particular, PGSI contended that the lack of factual support for M G's conclusory and speculative allegations was evidenced by M G's failures to identify customers that it or Xpedite allegedly "counseled" to evade measures to block unwanted advertising; to reference one facsimile that was allegedly "spoofed" in terms of the transmission location; to identify a single communication where PGSI or Xpedite advised a customer about where to obtain fax numbers; to identify a single customer about whom defendants "should have known" that the advertisements by that customer were "false, dubious or unreliable"; to identify a single fax that was allegedly transmitted to it that contained "inadequate or ineffective opt-out provisions;" and to allege any conduct that caused M G harm, as it failed to identify any customers that sent violative faxes to it. Id., at p. 6.
As to paragraph 12 of the proposed amended complaint describing PGSI's advertising, annual reports, 10-K reports and web pages, and the administrative record before the FCC describing the business activities of the PGSI, PGSI asserted these allegations did not identify the facts in the advertising, annual reports, 10-K reports, web page descriptions and the administrative record that would demonstrate a high degree of involvement by PGSI or Xpedite, and were contradicted by other parts of the website and Xpedite's standard service agreement. Id. at pp. 8-9.
PGSI did not provide a copy of Xpedite's standard service agreement. It did attach a copy of its service agreement between Xpedite and Advanstar to its Third Party Complaint. See Third Party Complaint, Ex. 1.
M G countered that it had sufficiently plead a violation of the TCPA statute in its original Complaint and in its proposed amended complaint, and discovery will help clarify any factual disputes. See Plaintiff's Reply Memorandum of Law in Support of Its Motion for Leave to File its First Amended Complaint [Docket No. 64] at p. 3.
The TCPA makes it "unlawful for any person within the United States . . . to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement, unless —
(i) the unsolicited advertisement is from a sender with an established business relationship with the recipient;
(ii) the sender obtained the number of the telephone facsimile machine through —
(I) the voluntary communication of such number, within the context of such established business relationship, from the recipient of the unsolicited advertisement, or
(II) a directory, advertisement, or site on the Internet to which the recipient voluntarily agreed to make available its facsimile number for public distribution,
47 U.S.C. § 227(b)(1)(C). An "unsolicited advertisement" is defined by the TCPA as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission."
47 U.S.C. § 227(a)(4). The TCPA authorizes the FCC to issue regulations to implement subsection (b) of the statute.
See 47 U.S.C. § 227(b)(2).
Subsequent to the passage of the TCPA, the FCC adopted regulations implementing 47 U.S.C. § 227(b)(1)(C). The pertinent portions of the regulation at issue, 47 C.F.R. § 64.1200, provides as follows: No person or entity may . . . [u]se a telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine. . . ." 47 C.F.R. § 64.1200(a)(3). Like § 227(b)(1)(C), the FCC's regulation exempts from liability unsolicited advertisements from a sender with an established business relationship with the recipient; or where the sender obtained the fax number voluntarily from the recipient; or where the fax advertisement included a notice that provides adequate information to the recipient on how to avoid future unsolicited advertisements. See 47 C.F.R. § 64.1200(a)(3)(i)-(vi).
The FCC's regulation also affirmatively states that "[a] facsimile broadcaster will be liable for violations of paragraph (a)(3) of this section, including the inclusion of optout notices on unsolicited advertisements, if it demonstrates a high degree of involvement in, or actual notice of, the unlawful activity and fails to take steps to prevent such facsimile transmissions." 47 C.F.R. § 64.1200(a)(3)(vii). A "facsimile broadcaster" is defined as "a person or entity that transmits messages to telephone facsimile machines on behalf of another person or entity for a fee." 47 C.F.R. § 64.1200(f)(6). Consistent with these regulations, in 2004, in an Order of Forfeiture against a fax broadcaster (Fax.com), the FCC concluded that a "fax broadcaster that serves as `more than a mere conduit for third party faxes' is liable under the TCPA.'" In the Matter of Fax.com, Inc., 19 F.C.C.R. 748, 755 n. 36 (2004) (citation omitted).
M G does not dispute that at some point in this litigation, it will have to take on PGSI's position that neither PGSI nor Xpedite can be held liable under the TCPA because neither had the requisite degree of involvement in, or actual notice of, the unlawful faxes. Rather the thrust of M G's argument is that it has adequately plead a cause of action under the express language of the TCPA and it does not need to factually address the "facsimile broadcaster" defense in its complaint; but even if it does, it has now plead sufficient facts to show that PGSI and Xpedite were highly involved in the fax transmissions at issue.
At this juncture, this Court need not decide whether the "facsimile broadcaster exemption" set forth 47 C.F.R. § 64.1200(a)(3)(vii) is a defense to liability (and thus, need not be plead in a complaint), or an element of any action under the TCPA which must be affirmatively addressed in the complaint. This is because this Court concludes that the proposed amended adequately pleads a violation of the TCPA and sufficient facts to support a claim that PGSI and Xpedite were highly involved and not a mere conduit in the unwanted fax transmissions to M G and others. See Texas v. American Blastfax, Inc., 121 F. Supp.2d 1085, 1089-90 n. 6 (W.D. Tex. 2000) (in denying a motion to dismiss, court rejected Blastfax's claim that it was a "`mere broadcaster' of third party advertisements" and instead found it was "far more than a mere conduit for third party faxes" based on allegations in the complaint that Blastfax "maintains and uses a database of recipient fax numbers, actively solicits third party advertisers and presumably reviews the content of the fax advertisements it sends.").
In this case, the proposed amended complaint alleged the following facts: Both PGSI and Xpedite (collectively "defendants") fax commercial advertisements and other communications for their customers to owners of fax machines, through a process known as "fax blasting or "junk faxing." Proposed Am. Compl, ¶¶ 2, 3. Between
January of 2008 and the present, defendants faxed advertisements to M G offering goods or services of various third parties to M G or its employees.Id., ¶ 4. At least 150 of these faxes originated from two phone numbers that one or more of these defendants controlled. Id., ¶¶ 4, 8. These fax transmissions to M G were unwanted commercial advertising and there was no pre-existing or established relationship between the defendants and M G and any of the third parties who may have used the defendants to send junk faxes to M G.Id., ¶ 5. Several of the fax transmissions sent by defendants to M G included "spoofed" or inaccurate sending identification data, or opt-out information that was illegible or too small to survive fax transmission or were otherwise ineffective. Id., ¶¶ 10, 11.
With regards to defendants' level of involvement in the unwanted faxes sent to M G, M G stated defendants counseled customers how to bypass "spam filters," "do not call lists," "do not fax lists"; advised the customers how to use their electronic fax service to reduce their advertising costs and shift the cost to recipients, including M G; assisted the third-party customers at issue in generating a fax list of working fax numbers; allowed their customers to use their services when defendants knew or should have known that the representations by their customers that there was a preexisting or established business relationship between the customers and recipients of the faxes or that the recipients had opted in to receiving the faxes were false; allowed faxes to be sent to M G by its customers even though it knew that the faxes contained opt-out information that was illegible or too small to survive fax transmission; and advised customers how to used defendants' technology and skill to over-ride and circumvent the wishes of recipients who did not want to receive unwanted commercial offers and solicitations. Id., ¶¶ 10; 11(1), (2), (3), (5)(6), (7)(9). While the proposed amended complaint does not contain the level of detail sought by PGSI, these facts, assumed as true and taken together, state a plausible claim for relief that defendants had a high degree of involvement in the 150 facsimiles from its customers to M G or notice of the unlawful activity of its customers, making it "more than a mere conduit for third party faxes."In the Matter of Fax.com, Inc., 19 F.C.C.R. at 755 n. 36. Stated otherwise, the factual assertions of the proposed amended complaint provide defendants with sufficient notice of M G's claim against them. See Braden, 588 F.3d at 595 (finding that the district court erred by assuming "that Braden was required to describe directly the ways in which appellees breached their fiduciary duties. Thus, for example, the district court faulted the complaint for making `no allegations regarding the fiduciaries' conduct.' Rule 8 does not, however, require a plaintiff to plead `specific facts' explaining precisely how the defendant's conduct was unlawful. Rather, it is sufficient for a plaintiff to plead facts indirectly showing unlawful behavior, so long as the facts pled `give the defendant fair notice of what the claim is and the grounds upon which it rests,' and `allow [] the court to draw the reasonable inference' that the plaintiff is
M G also alleged that defendants "spoofed" the sender identification information on the faxes it sent by including a number at the top of the fax that was not the number from which the transmission originated (see proposed Amended Complaint ¶¶ 9, 11(4)). However, while such conduct is proscribed by 47 U.S.C. § 227(d)(1) and could conceivably lend support to M G's claim that defendants were highly involved in the transmission of the faxes to M G, the TCPA does not provide for a private cause of action for such conduct. See Kopff v. Battaglia, 425 F. Supp.2d 76, 91 (D.D.C. 2006) (concluding that "Congress plainly opted not to permit a private civil action for violations of the fax-sender identification requirements . . . [and that t]he fax identification regulations . . . were issued pursuant to subsection (d) of section 227, and thus there is no private right of action under the TCPA for violation"); Cf., Missouri ex rel. Nixon v. American Blast Fax, Inc., 323 F.3d 649 (8th Cir. 2003) (noting that the district dismissed allegations of statutory violations for omitting information required by TCPA, 47 U.S.C. § 227(d)).
entitled to relief."). Further, while it is understandable that defendants would have preferred that M G set forth detailed facts as to how defendants counseled customers to bypass filters, the identity of each customer at issue, the details of their advice on how to use their fax services to save money in their advertising, and how they assisted in generating fax number lists for customers, as a practical matter, it would be impossible for M G to plead this type of information when much of it is in the control of defendants. Id. at 602 ("It would be perverse to require plaintiffs bringing prohibited transaction claims to plead facts that remain in the sole control of the parties who stand accused of wrongdoing.") (citation omitted); see also Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (internal citations omitted) (finding that where "certain facts are peculiarly within the possession and control of the defendant," plaintiffs are not prevented from "pleading facts alleged upon information and belief."). Rule 8(a) "does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence. . . ." Twombly, 550 U.S. at 556;see also C.N. v. Willmar Pub. Sch., Indep. Sch. Dist. No. 347, 591 F.3d 624, 629 (8th Cir. 2010) (finding that under this standard "a complaint need not include detailed factual allegations").
For all of the reasons stated above, this Court concludes that M G has stated a plausible claim for a violation of the TCPA against defendants. Therefore, M G's motion to amend is granted and PGSI's motion to dismiss should be denied as moot.
B. Advanstar's Motion for Summary Judgment
Advanstar has moved for summary judgment against PGSI on grounds that its settlement with M G prior to the commencement of M G's suit against PGSI is fatal to PGSI's third party complaint against Advanstar for contractual indemnity, common law indemnity and contribution and breach of contract, where neither the Complaint nor proposed amended complaint seek relief against defendants for any of the faxes sent on behalf of Advanstar. Specifically, Advanstar argued that PGSI is not entitled to contractual indemnity from Advanstar for any damages paid to M G, as the service agreements only obligated Advanstar to indemnify PGSI or Xpedite for claims arising out of Advanstar's use of Xpedite's services or for any violation of, or alleged violation of, law with respect to Xpedite's services performed on behalf of Advanstar. See Third-Party Defendant Advanstar Communications Inc.'s Memorandum of Law in Support of its Motion for Summary Judgment [Docket No. 36] at p. 7. According to Advanstar, on July 27, 2009, prior to the September 22, 2009 Complaint (served on October 21, 2009), M G settled all claims arising from facsimiles sent to M G by, or on behalf of, Advanstar and therefore, the Complaint and proposed amended complaint do not contain claims against Advanstar arising out of Advanstar's use of Xpedite's services or for any violation, or alleged violation, of law with respect to Xpedite's services performed on behalf of Advanstar.Id.; see also Third-Party Defendant Advanstar Communications, Inc.'s Reply Memorandum in Support of its Motion for Summary Judgment [Docket No. 52] at p. 5; Affidavit of Charles E. Spevacek ("Spevacek Aff."), Ex. C. (July 27, 20098 Confidential Settlement Agreement). Similarly, Advanstar contended that PGSI's common law contribution or indemnity claim must fail because the Complaint and the proposed amended complaint do not and cannot seek to hold Advanstar liable for the faxes sent on behalf of Advanstar by virtue of the July 27, 2009 settlement.Id. at pp. 5, 8-9. Lastly, Advanstar submitted that summary judgment on PGSI's breach of contract
claim must be granted because the alleged liability to M G stems from customers other than Advanstar. Id. at pp. 9-10.
PGSI acknowledged that Advanstar and M G had entered into a settlement agreement before the initial Complaint was filed and that M G had a brought a motion to amend which expressly excluded the facsimiles sent by or on behalf of Advanstar based on this settlement. See Defendant Premiere Global Services, Inc's Memorandum of Law in Opposition to Motion for Summary Judgment at pp. 6, 9 n. 5. Nonetheless, because M G failed to inform PGSI of the settlement with Advanstar until after PGSI filed its Third-Party Complaint, PGSI submitted it was entitled to maintain its claim for contractual indemnity against Advanstar to recover attorneys' fees and costs. Id. at pp. 7-8. Alternatively, PGSI argued that if this Court determined that there are no claims against Advanstar in M G's suit, then as a sanction for misrepresenting that the Complaint included alleged violations of the TCPA by Advanstar and concealing the settlement agreement until January 2010, the Court should order M G to pay PGSI the attorneys' fees and costs it incurred in connection with the filing its Third Party Complaint and responding to Advanstar's motion. Id. at pp. 8-9.
On July 27, 2009, M G and Advanstar entered into a confidential settlement agreement regarding five facsimile transmissions sent by Advanstar to M G. See Spevacek Aff., Ex. C. The settlement agreement released Advanstar from any claims M G had against Advanstar for any faxes sent to M G on behalf of Advanstar. Id., Ex. 1, ¶ 4. Under the service agreement between Advanstar and Xpedite, Advanstar only had the duty to indemnify defendants from "any and all claims, losses, damages, penalties or costs (including, without limitation, reasonable attorney's fees) arising out of Customer's . . . use of the Services . . . violation of or alleged violation of any applicable laws or regulations with respect to the Services, including . . . claims relating to the transmission of unsolicited documents. See Third Party Complaint, Ex. 1 (Docket No. 8-1 p. 8 of 12), ¶ 5.4.
In light of the July 27, 2009 settlement agreement, the undisputed evidence establishes as a matter of law that Advanstar owes no contractual indemnity to PGSI for claims that never existed.
For the same reason, the common law contribution or indemnity claim cannot survive because the liability charged against defendants does not arise out of Advanstar's conduct.See City of Willmar v. Short-Elliott-Hendrickson, Inc., 512 N.W.2d 872, 874 (Minn. 1994) (contribution); Tolbert v. Gerber Indus., Inc., 255 N.W.2d 362, 366 (Minn. 1977) (indemnity). Similarly, PGSI's breach of contract claim cannot succeed because there are no damages flowing from any breach of the service agreement between Xpedite and Advanstar.See Wild v. Rarig, 302 Minn. 419, 440 234 N.W.2d 775, 789 (1975) ("We are of the opinion that when a plaintiff seeks to recover damages for an alleged breach of contract he is limited to damages flowing only from such breach except in exceptional cases where the defendant's breach of contract constitutes or is accompanied by an independent tort.") (citations omitted). On this record, summary judgment on all three claims asserted by PGSI against Advanstar should be granted.
This Court also finds that because defendants did not address their common law contribution, common law indemnity and breach of contract claims in their opposition to the motion for summary judgment, they have abandoned these claims. See Thomsen v. Ross, 368 F. Supp.2d 961, 974 n. 9 (D. Minn. 2005).
As to PGSI's request that M G should be sanctioned for somehow leading PGSI to believe that the Advanstar faxes were a part of the case and for concealing the settlement agreement, this request is denied. Not only does this request have no bearing on Advanstar's motion for summary judgment, but it is not properly before this Court. PGSI has not a brought a motion for sanctions before the Court against M G.
For all of the reasons stated above, Third-Party Defendant Advanstar Communications Inc.'s Motion for Summary Judgment should be granted and the Third-Party Complaint be dismissed with prejudice.
RECOMMENDATION
For the reasons set forth above, it is recommended that:
1. Defendant Premiere Global Services, Inc.'s Motion to Dismiss [Docket No. 29] be DENIED as moot.
2. Third-Party Defendant Advanstar Communications Inc.'s Motion for Summary Judgment [Docket No. 34] be GRANTED and the Third-Party Complaint be dismissed with prejudice.
3. Plaintiff's Motion for Leave to File Its First Amended Complaint [Docket No. 41] be GRANTED as set forth in the Report and Recommendation.
4. Plaintiff shall file its First Amended Complaint on or before August 10, 2010. Defendants shall respond to the First Amended Complaint in a manner that is consistent with the Federal Rules of Civil Procedure
August 16, 2010.