Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Pa.: Consumer claims against Comcast’s customer swap agreements fail, (Oct 23, 2014)

By Linda O’Brien, J.D., LL.M.

In a consolidated class action by a group of consumers against a cable television provider for allegedly entering into customer swap agreements with competitors, unreasonably restraining competition for cable television services in the Boston area, the federal district court in Philadelphia denied the plaintiffs’ motion for leave to file an amended complaint and dismissed the action with prejudice (Rogers v. Comcast Corporation, October 22, 2014, Padova, J.).

Cable, Internet and telephone service provider AT&T entered into swap agreements with competitors Charter Communications, Cablevision Systems Corp., and MediaOne Group to exchange cable television customers in certain parts of the country for customers in the Boston area. Subsequently, AT&T merged its cable subsidiary with Comcast. Cable television customers Jack Rogers, Paul Pinella, and Math Kristian filed putative class action suits in Massachusetts state court against Comcast and AT&T, alleging that the swap agreements created customer “clusters” and eliminated competition in violation of Sections 1 and 2 of the Sherman Act and the Massachusetts Antitrust Act.

The cases were removed to the federal district court, consolidated, and transferred to the Eastern District of Pennsylvania. Subsequently, the plaintiffs moved to file an amended complaint. In their proposed amended complaint, the plaintiffs sought to abandon all federal and state antitrust claims and to substitute two Massachusetts state law claims based on conversion and a violation of the Massachusetts Consumer Protection Act.

Conversion. The court found that amendment of the complaint to include the new claims was futile. The elements of conversion require that a party be proved to have intentionally or wrongfully exercised acts of ownership, control, or dominion over the property to which he has no right of possession. In this case, the plaintiffs alleged that the property that was converted was their overpayments for cable television service to which the defendants had no right of possession. The court noted that the allegations failed to state a claim for the tort of conversion, since the plaintiffs did not identify a specific sum of money that was wrongfully converted or claim that Comcast’s right of possession of its billing receipts was wrongful.

Consumer protection claim. The plaintiffs’ attempt to state a claim under the Massachusetts Consumer Protection Act was also futile, according to the court. The Act provides that unfair methods of competition and unfair or deceptive acts or practices are unlawful and that the burden is on the defendant to show that an exemption to the conduct in question applies.

The plaintiffs asserted that, as a result of the swap agreements, potential competitors were removed from the Boston area, Comcast was able to raise prices, and Comcast’s conduct was an unreasonable restraint on competition for cable television services in the Boston area. Comcast contended that the swap agreements were approved by the Federal Communications Commission and therefore fell within the exemption that a regulatory scheme covered the transaction.The court determined that, since the plaintiffs alleged that the ability to charge monopolistic prices was a direct result of the clustering activity and the transactions that created the cluster were approved by regulators, the regulatory scheme affirmatively permitted the practice that was alleged to be unfair or deceptive.

Undue delay. The court found that the plaintiffs’ undue delay in seeking to add new claims also justified denial of their motion to amend. The case was actively litigated for four years before the case was transferred, and the plaintiffs were not diligent in seeking to add new claims prior a deadline imposed by the Massachusetts federal district court for filing amended pleadings. The plaintiffs had already twice amended their pleadings and the new claims were based on factual allegations previously pleaded. Finally, although the litigation of the scope of the arbitration clause dominated the parties’ efforts while the case was pending in Massachusetts, the court found no basis for the plaintiffs’ failure to assert the new claims in a timely manner.

The case is No. 07-218.

Attorneys: Jeffrey G. Thorn (Adkins Kelston & Zavez PC) for Jack Rogers. Alycia Regan Benenati (Kasowitz, Benson, Torres & Friedman LLP) and Arthur J. Burke (Davis Polk & Wardwell) for Comcast Corporation.

Companies: Comcast Corporation

Cases: Antitrust StateUnfairTradePractices PennsylvaniaNews