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Legent Comm, LLC v. Billing Concepts, Inc.

United States District Court, W.D. Texas, San Antonio Division

July 16, 2019

LEGENT COMM, LLC, Plaintiff,



         Before the Court in the above-styled cause of action are Defendant Billing Concept, Inc.'s Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6) [#11] and Plaintiff's Motion for Leave to File Second Amended Complaint [#14]. The Court held an initial pretrial conference in this case on June 28, 2019, at which both parties addressed the issues raised by these two motions. After considering the arguments of counsel at the conference, as well as the motions, the various responses and replies filed to the motions, and the governing law, the Court will grant Plaintiff's motion for leave to amend and deny Defendant's motion to dismiss.

         I. Procedural Background

         This is an action for breach of contract arising out of a Services Agreement between Plaintiff Legent Comm, LLC and Defendant Billing Concepts, Inc. Plaintiff filed its Original Complaint for breach of contract and for an accounting under the parties' Services Agreement on February 28, 2019, alleging diversity jurisdiction. (Orig. Compl. [#1].) The District Court promptly issued an order for Plaintiff, as a limited liability corporation, to file an amended complaint in order to more precisely allege the citizenship of all its members in order to confirm the diversity of Plaintiff and Defendant and this Court's jurisdiction. (Show Cause Order [#3].) Plaintiff timely filed its First Amended Complaint with these additional jurisdictional allegations on March 5, 2019, which is the current live pleading in this case. (First Am. Compl. [#7].)

         II. Plaintiff's Factual Allegations

         Plaintiff's First Amended Complaint alleges that Plaintiff is a regulated Interexchange Carrier, a company authorized to provide long-distance telephone service to residential and business customers through the purchase and resale of these telecommunications services. (First Am. Compl. [#7] at ¶¶ 6, 8.) Plaintiff's customers are either billed directly for these services by Plaintiff or by having the long-distance charges included as a third-party charge on the bill they receive from the local telephone company providing landline services (known as a Local Exchange Carrier or “LEC”). (Id. at ¶¶ 9-11.)

         Defendant is one of several operating subsidiaries of Billing Services Group Limited (“BSG”), a British holding company that is publicly traded on AIM (a market operated by the London Stock Exchange plc). (Id. at ¶ 3.) Defendant is a billing clearinghouse that aggregates third-party telecommunications charges (like the long-distance charges billed by Plaintiff) in order to facilitate the billing by LECs without requiring Plaintiff to negotiate separate agreements with each LEC across the country. (Id. at ¶¶ 12, 15.)

         Plaintiff and Defendant entered into the Service Agreement at issue in this lawsuit on September 14, 2001; the agreement has been renewed and amended over the years. (Id. at ¶ 20.) Under this agreement, Plaintiff submits its billing records to Defendant, and Defendant purchases the accounts receivable generated by these bills; Defendant then in turn sells the same accounts receivable to the relevant LEC. (Id. at ¶ 26.) The LEC distributes the funds received from its customers less its fees to Defendant, and Defendant then distributes the funds less its fees to Plaintiff. (Id. at ¶ 16.)

         In addition to providing billing services to Plaintiff and other providers of long-distance telephone service, Defendant provides billing services to companies that provide “enhanced services, ” such as website hosting, directory listings, e-mail, voicemail, and streaming video services. (Id. at ¶¶ 32-33.) These services are unregulated, which has resulted in “cramming”- the practice of placing unauthorized enhanced-services charges on a customer's LEC bill without valid consent. (Id. at ¶¶ 34-37.)

         In April 2009, two class action lawsuits were commenced against AT&T and Verizon for cramming stemming from LEC billing originated by Defendant's parent company and other aggregators. (Id. at ¶ 38.) These cases were settled in 2013. (Id. at ¶ 38.) As a result of the settlements, Defendant faced an enormous indemnity obligation for the class action claims, fees, and expenses attributable to the enhanced service providers pursuant to its contractual arrangements with the LECs. (Id. at ¶¶ 43, 46.) Accordingly, beginning in late 2011 (in the case of AT&T) and 2012 (in the case of Verizon), the LECs proactively began imposing assessments on revenue streams generated from Defendant and its parents and affiliates to secure the indemnity obligations to the LECs; i.e., funds were withheld from Plaintiff's accounts receivables to pay for or secure Defendant's indemnity obligations. (Id. at ¶¶ 44, 69.) Plaintiff alleges that the administration of the settlements with AT&T and Verizon took years to complete and were still ongoing as of September 21, 2018. (Id. at ¶ 59.)

         On February 7, 2019, Plaintiff received a letter from Defendant, which presented Defendant's analysis of Plaintiff's account history with respect to the AT&T and Verizon holdbacks and purported to account for and allocate Plaintiff's proportionate share of class action expenses. (Id. at ¶¶ 79, 80.) Plaintiff contends this accounting was incomplete and inaccurate and that Plaintiff's own calculations establish that Defendant withheld at least $1.762 million in holdbacks and that Plaintiff's proportionate allocation of shared expenses totaled only $183, 310 meaning Defendant owes Plaintiff at least $1.579 million. (Id. at ¶¶ 86-87.)

         Plaintiff contends this failure to fully account for and remit to Plaintiff all money that was not used to satisfy Plaintiff's proportionate share of obligations for the class actions constitutes a breach of the parties' Service Agreement. (Id. at ¶¶ 89, 111.) Plaintiff separately alleges that Defendant breached the Services Agreement by unilaterally imposing a rate increase in the processing fees charged Plaintiff without notifying Plaintiff or obtaining Plaintiff's verbal or written consent. (Id. at ¶¶ 96, 111.) In addition to its breach of contract cause of action, Plaintiff sues Defendant for an accounting, arguing that Defendant is obligated under the Services Agreement and common law to provide a full and accurate accounting with respect to the holdbacks and the excessive processing fee. (Id. at ¶¶ 116-117.)

         Defendant has moved to dismiss Plaintiff's breach of contract claims as to the class action holdbacks and rate increase as barred by the governing statute of limitations. (Mot. to Dismiss [#11].) In response, Plaintiff has moved for leave to amend its pleadings and file a Second Amended Complaint adding specificity to the allegations as to the class action holdbacks and an additional breach of contract claim regarding Defendant's failure to properly account for direct billing activity. (Mot. to Amend [#14].) Plaintiff attached a proposed Second Amended Complaint to its motion and filed a corrected version of the amended pleading at a later date. (Second Am. Compl. [#24-1].)

         III. ...

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