Baytree Capital Assoc., LLC v AT&T Corp.

[*1] Baytree Capital Assoc., LLC v AT&T Corp. 2005 NY Slip Op 51927(U) [10 Misc 3d 1053(A)] Decided on May 31, 2005 Supreme Court, New York County Cahn, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 31, 2005
Supreme Court, New York County

Baytree Capital Associates, LLC, and All Others Similarly Situated, Plaintiff,

against

AT&T Corp., Defendant.



602817/04

Herman Cahn, J.

Defendant AT&T Corp. moves for an order dismissing this putative class action for consumer and common law fraud and tortious interference with contract, CPLR 3211 (a) (7), 3016 (a), 901 (a).

Plaintiff Baytree Capital Associates LLC commenced this action on its own behalf and on behalf of a proposed class of consumers defined as all persons whose businesses were affected because of AT&T's improper and illegal "slamming" of telephone service. "Slamming" is defined by the Federal Communications Commission as the practice of changing a consumer's traditional (wired) telephone service provider, including local, state-to-state, in-state, and international long distance service, without the consumer's permission (www.fcc.gov/slamming, last updated Jan. 6, 2004; FCC public notice DA 00-2427 [Oct. 27, 2000]). Slamming is illegal (id.; 47 USC 258).

In this action, Baytree, an investment banking company, alleges that AT&T, or its telemarketing agents, willfully and intentionally transferred Baytree's Centrex telephone service from nonparty Verizon to itself without authorization, effective August 24, 2004. Baytree also alleges that AT&T follows a practice or pattern of obtaining new business by slamming. Baytree further alleges that AT&T carries out its scheme through various agencies which direct individuals to impersonate consumers on audio tapes and verbally authorize service provider changes.

Baytree alleges that it first learned of the impending transfer on August 23, 2004, when its employee, nonparty Lynda Gardner, read a letter to Baytree from the AT&T Small Business Marketing Division dated August 10, 2004, in which AT&T thanked "Linda" Gardner at Baytree for switching to its all-in-one local service plan. Baytree alleges that Gardner repeatedly telephoned AT&T to advise that Baytree had not authorized such a change and to cancel it. However, she was able to reach only [*2]automated answering machines.

Baytree alleges that Gardner then contacted the Public Service Commission, and, with the PSC's intervention, Gardner spoke to an individual at AT&T and explained that Baytree had not authorized the change. Baytree alleges that AT&T advised that the change had been authorized by a Baytree employee named Linda Gardner, born February 4, 1969, and played an audio tape recording of an individual claiming to be Gardner, authorizing the change. Gardner denies giving such authorization and contends that she was not born on that date and that the voice on the tape recording is not hers.

Baytree alleges that, as a result of the transfer on August 24, 2004, its telephone lines went down, including the line for its fax machine, and its employees were required to spend time trying to restore service, rendering Baytree unable to conduct business. Baytree alleges that, as a result of AT&T's improper conduct, it sustained business losses. Baytree also alleges that the change interfered with its existing contract with Verizon for Centrex service for a 61-month period beginning April 2003 and that it was required to pay fees to Verizon to restore that service.

On these allegations, in the original complaint, Baytree asserts individual and class causes of action for common law fraud, consumer fraud under section 349, GBL, and intentional tortious interference with the Verizon contract. In the proposed amended complaint submitted in opposition to the motion, Baytree adds a claim for unjust enrichment by misappropriation of customers from other telephone companies.

AT&T now seeks dismissal of the action prior to service of an answer. AT&T contends that the common law fraud and consumer fraud claims are fatally defective on their face because Baytree has not alleged facts demonstrating the existence of a misrepresentation or misleading conduct by AT&T or reliance by Baytree. AT&T contends that the consumer fraud claim is also defective because Baytree is not a consumer as defined by the consumer fraud statute.

In opposition, Baytree contends that the claims are properly pleaded and has requested leave to serve the proposed amended complaint, which includes additional factual allegations and the unjust enrichment claim.

In its reply papers, AT&T has fully briefed the arguments and law relevant to Baytree's request to amend and the proposed amendments themselves. Therefore, in the interests of judicial economy and efficiency, the court will consider whether the amended complaint states any cause of action for which relief may be granted in determining the instant motion to dismiss.

On a motion addressed to the sufficiency of the pleadings, the court must accept every factual allegation as true and liberally construe the allegations in the light most favorable to the pleader (Guggenheimer v Ginzburg, 43 NY2d 268 [1977]; see CPLR 3211 [a] [7]). "We . . . determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87-88 [1994]). However, " 'allegations consisting of bare legal conclusions, as well as factual claims either inherently [*3]incredible or flatly contradicted by documentary evidence,' are not presumed to be true and [are not] accorded every favorable inference" (Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81 [1st Dept 1999], affd 94 NY2d 659 [2000], quoting Kliebert v McKoan, 228 AD2d 232, 232 [1st Dept], lv denied 89 NY2d 802 [1996]).

The fraud claim is legally viable. To state a prima facie claim for common law fraud, the plaintiff must allege in sufficient detail facts demonstrating the existence of a representation of a material existing fact, falsity, scienter, deception, and injury (Small v Lorillard Tobacco Co., 94 NY2d 43 [1999]; New York Univ. v Continental Ins. Co., 87 NY2d 308 [1995]; CPLR 3016 [b]). A viable fraud claim requires allegations demonstrating a causal connection between an injury to the plaintiff and some representation made by the defendant (id.).

Here, Baytree alleges that, without its knowledge or authorization, an individual, at the direction of either AT&T or its agent, impersonated one of its employees and purportedly authorized the transfer of Baytree's telephone service to AT&T. Baytree further alleges that AT&T intentionally falsely represented to Baytree that it had actually authorized the transfer. Baytree also alleges that, although it made numerous attempts to cancel the transfer prior to its effective date, it was unable to do so because the telephone number provided by AT&T in its letter was answered only by a machine. Baytree alleges that it was unable to speak to an AT&T employee until after the transfer was effected, and then only upon the PSC's intervention on Baytree's behalf. Baytree also asserts that the transfer caused an interruption of its telephone service, resulting in a loss of business, and that it incurred substantial charges in switching its telephone service back to Verizon, its chosen provider.

With these allegations, Baytree has asserted a scheme by AT&T using deliberate misrepresentations regarding the service ordered and the ability to cancel it which results in a transfer of its telephone service away from its chosen provider, causing it to incur business losses and fees which it would otherwise not have incurred. These allegations state with particularity the elements of a common law fraud claim sufficient to satisfy the CPLR pleading requirements (see Drizin v Sprint Corp., 3 AD3d 388 [1st Dept 2004]). Therefore, that branch of the motion to dismiss the common law fraud cause of action is denied.

The consumer fraud claim is not cognizable at law because Baytree is not a "consumer" as defined by the GBL. To state a claim for relief under GBL § 349, a plaintiff must allege "first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act" (Stutman v Chemical Bank, 95 NY2d 24, 29 [2000]; Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, N.A., 85 NY2d 20 [1995]). Under New York law, "the term 'consumer' is consistently associated with an individual or natural person who purchases goods, services or property primarily for 'personal, family or household purposes' " (Cruz v NYNEX Info. Resources, 263 [*4]AD2d 285, 289 [1st Dept 2000], citing GBL §§ 399-c, 399-p [1] [c]; Gen. Oblig. Law § 5-327 [1] [a]; CPLR 105 [f]; UCC § 9-109 [1]; see Sheth v New York Life Ins. Co., 273 AD2d 72 [1st Dept 2000]). The primary concern of the consumer fraud statute is with the consumer (id.). Here, the plaintiff is a corporation and the telephone service at issue was purchased by the corporation for business use. Therefore, that branch of the motion to dismiss the GBL § 349 cause of action is granted and the claim is dismissed.

The claim for intentional tortious interference with the Verizon contract is legally viable. The elements of a claim for tortious interference with a contract are: "(1) the existence of a valid contract between plaintiff and a third party, (2) defendant's knowledge of the contract, (3) defendant's intentional procurement of a breach of the contract without justification, (4) actual breach of the contract, and (5) resulting damages" (American Preferred Prescription, Inc. v Health Mgt., Inc., 252 AD2d 414, 417 [1st Dept 1998]). Here, Baytree alleges that, in April 2003, it entered into a written agreement with Verizon for the provision of Centrex telephone service for a 61-month period and that the contract was in effect when AT&T unilaterally transferred Baytree's telephone service to itself. Baytree further alleges that AT&T knew of the existence of the contract when it transferred the service. Baytree also alleges that the transfer caused it to incur business losses and service restoration fees. With these allegations, Baytree has sufficiently pleaded the necessary elements of a viable claim for tortious interference. Therefore, that branch of the motion to dismiss the claim is denied. The contract at issue is the contract between plaintiff and Verizon. The breach of the contract occurred when plaintiff's telephone service was switched to another provider.

AT&T next contends that the claim for unjust enrichment asserted for the first time in the proposed amended complaint is fatally defective on its face. In the proposed claim, Baytree alleges that AT&T "has been unjustly enriching itself by misappropriating customers from other telephone companies" (Complaint, at ¶ 54). Baytree does not allege that AT&T was unjustly enriched by any sums paid by Baytree to AT&T as a result of the unauthorized transfer of service or that Baytree made any such payments to AT&T. Baytree has wholly failed to allege that AT&T was enriched at the expense of Baytree or the putative class members. Baytree thus lacks standing to assert this claim. Therefore, Baytree's request to amend the complaint to add an unjust enrichment claim is denied.

However, that branch of Baytree's request to amend the complaint by adding the factual allegations set forth in the proposed amended complaint is granted.

Last, AT&T seeks to dismiss the class action claims.

Contrary to Baytree's contention, a motion to dismiss the class claims is appropriate at this juncture. Dismissal is appropriate where the complaint, on its face, cannot support a class action pursuant to the requirements of CPLR 901 (a)[FN1] [*5](Wojciechowski v Republic Steel Corp., 67 AD2d 830 [4th Dept], lv dismissed 47 NY2d 802 [1979]). Class allegations may be dismissed where questions of law and fact affecting the particular class members would not be common to the class proposed (Williams v Blum, 93 AD2d 755 [1st Dept 1983], lv dismissed 61 NY2d 905 [1984]; MFT Investment Co. v Diversified Data Servs. & Sciences, Inc., 52 AD2d 761 [1st Dept], lv dismissed 40 NY2d 845 [1976]).

Here, the proposed class, as broadly defined by Baytree, lacks commonality with respect to the specific fraudulent conduct with which each individual putative class member's service was changed improperly or illegally. Assuming that the class definition were narrowed to only those consumers whose purported service transfer authorization was recorded on audio tape, then discovery into the circumstances surrounding the making of each individual tape recording would be necessary in order to demonstrate that any fraudulent conduct occurred. In order to prove damage as the result of fraud, each individual putative class member would be required to demonstrate how its business was affected and whether it was required to pay fees to restore service to its original carrier and the amount of the fee. Similarly, in order to demonstrate tortious interference, each individual putative class member would be required to demonstrate the existence of a contract and AT&T's knowledge of the contract. These unique issues predominate over any issues common to the class. For these reasons as well, Baytree's own claims are not typical of the putative class members. Therefore, the branch of the motion to dismiss the class action claims is granted and the claims are dismissed.

Accordingly, it is

ORDERED that the motion is granted to the limited extent that the consumer fraud and class action claims are dismissed; and it is further

ORDERED that the branch of plaintiff's request to serve and file an amended complaint including additional factual allegations in support of the fraud and tortious interference with contract claims is granted and the branch of the request to add an unjust enrichment claim is denied; and it is further [*6]

ORDERED that plaintiff shall serve a complaint amended in accordance with this order within thirty (30) days after service of this order with notice of entry; and it is further

ORDERED that the common law fraud and tortious interference with contract claims shall continue.

Dated: May 31, 2005

ENTER:

______/s/_________________________

J.S.C. Footnotes

Footnote 1:Section 901 (a) of the CPLR provides that: One or more members of a class may sue or be sued as representative parties on behalf of all if: 1. the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable; 2. there are questions of law or fact common to the class which predominate over any questions affecting only individual members; 3. the claims or defenses of the representative parties are typical of the claims or defenses of the class; 4. the representative parties will fairly and adequately protect the interests of the class; and 5. a class action is superior to other available methods for the fair and efficient adjudication of the controversy. (Friar v Vanguard Holding Corp., 78 AD2d 83 [2d Dept 1980].)