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WORLDCOM INC. v. FREE PAGING

March 27, 2003

WORLDCOM, INC., D/B/A WORLDCOM TECHNOLOGIES, INC., PLAINTIFF,
v.
FREE PAGING, INC., GO TELCO, INC. AND JAMES WON DEFENDANTS.



The opinion of the court was delivered by: Joan Humphrey Lefkow, United States District Judge

MEMORANDUM DECISION AND ORDER

This case arises from a breakdown of a business relationship between plaintiff, WorldCom, Inc., d/b/a WorldCom Technologies, Inc. ("WorldCom"), and defendants, Free Paging, Inc. ("Free Paging"), Go Telco, Inc. ("Go Telco") and James Won ("Won") (collectively, "defendants") where WorldCom provided telecommunication services for defendants' pre-paid long distance calling cards. WorldCom alleges Free Paging is liable for breach of contract (Count I), promissory estoppel (Count II) and unjust enrichment (Count III). WorldCom alleges the same claims against Go Telco (Counts IV, V and VI, respectively). WorldCom also alleges Won is liable for breach of the Free Paging and Go Telco guaranties (Counts VII and VIII, respectively) WorldCom moves for summary judgment on all claims and defendants move for summary judgment on Counts I, II, III, VII and VIII. Diversity jurisdiction is properly invoked pursuant to 28 U.S.C. § 1332. For the reasons set forth below, the court grants WorldCom's motion and denies defendants' motion.

SUMMARY JUDGMENT STANDARDS

Summary judgment obviates the need for a trial where 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). To determine whether any genuine fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed R. Civ. P. 56(c) Advisory Committee's notes. The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the non-moving party cannot rest on bare pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be outcome determinative under the governing law. Insolia, 216 F.3d at 598-99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most favorable to the non-moving party as well as view all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). On cross-motions for summary judgment, the court must consider the merits of each motion and assess the burden of proof that each party would bear on an issue at trial. Santaella v. Metropolitan Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997).

FACTS

A. The parties

WorldCom is a Georgia corporation with its principal place of business in Tulsa, Oklahoma. Free Paging and Go Telco are Illinois corporations with their respective principal places of business in Chicago, Illinois. Won is a citizen of Illinois. He is the president and the sole stockholder of Free Paging. He also is the president and a majority owner of Go Telco.

B. The pre-paid long distance calling card business

Free Paging and Go Telco engage in the business of pre-paid long distance calling cards. From the perspective of a prepaid calling card company, there are three legs of a long distance call that impose costs: (1) the customer call from the local service to the long distance network; (2) the call traveling over the long distance network; and (3) the call from the long distance network to the local service of the receiver. Defendants had a business plan to minimize the cost of the second leg, which was to bypass the traditional long distance network and use the Internet instead. Defendants would use "voice-over-Internet" technology, where they would purchase and install their own equipment, which would allow the speaker's voice to be digitized, sent over the Internet and "put back together on the other side." (Barnes Dep. at 5.) Defendants would be able to reduce costs by passing calls over the Internet rather than purchasing bulk minutes from traditional long distance carriers such as WorldCom.

Defendants, however, still needed a carrier to provide telecommunication services for the first and third legs of the call, which the parties refer to as "T-1 service." (Id. at 31.)*fn1 With respect to the second leg, because there may be an "overflow" of calls on the Internet those calls would need to be re-routed to a traditional long distance network. Furthermore, defendants planned to use the voice-over-Internet technology only between Chicago and the Mexican cities of Monterey and Mexico City and thus they still needed a traditional long distance network for the second leg of calls to other countries.

Sometime around November 1998, Won along with James Barnes ("Barnes"), who was a partial owner/shareholder of Go Telco and a technical consultant or employee on whom Won relied, contacted WorldCom at one of its offices located in Los Angeles, California, to obtain the required telecommunication services on credit. Soon thereafter, the Chicago office for WorldCom contacted Won and Barnes, saying it could give them a better "deal" with the T-1 service. Instead, Won and Barnes waited for their deal with the Los Angeles office to go through. (Id. at 40.) Subsequently, they complained to the Chicago office that they were not getting the T-1 service. The Chicago office responded, "those guys out there [(the Los Angeles office)], they don't run Chicago, we run Chicago. You want something done in Chicago, come to the Chicago team." (Id. at 42.) Won and Barnes decided to receive T-1 service from the Chicago office but kept alive their order for the T-1 service with the Los Angeles office. (Id. at 24, 42-43.)

WorldCom took approximately six months to install the T-1 service. (Id. at 73.) Barnes represented in two letters to WorldCom, dated August 9, 1999 and August 23, 1999, respectively, that Go Telco was losing $3,500 a day due to WorldCom's "lagging" in the installation of the T-1 lines. (Def Mot. Exs. 1 and 2.) Defendants, however, do not provide bank or credit reports indicating this business loss.

C. The agreements between the parties and Won's personal guaranties

1. The Free Paging Agreement

On or about May 19, 1999, WorldCom and Free Paging entered into an agreement entitled, "Option 1 MCI WorldCom On-Net Voice Agreement with FREE PAGING, INC." (Verified Compl. Ex. A, hereinafter referred to as the "Free Paging Agreement.") In the Free Paging Agreement, WorldCom agreed to provide an "On-Net Voice term plan" that included discounts associated with the plan and additional discounts on domestic and international long distance usage charges. Free Paging agreed to meet an annual volume commitment ("AVC") of $120,000 and agreed that WorldCom would assess Free Paging with an underutilization charge in the event that Free Paging failed to meet the AVC. Furthermore, Free Paging would pay WorldCom for its services within 25 days of receipt of the invoice. Free Paging also could not transfer or assign its rights or obligations without WorldCom's prior written consent. Moreover, the Free Paging Agreement provided that all services were governed by Federal Communication Commission ("FCC") tariffs Nos. 1 and 2 as well as any other applicable tariffs.*fn2 Specifically, under FCC tariff No. 1, section 2.5.3 required Free Paging to cover attorneys' fees, court costs, costs of investigation and other related expenses in WorldCom's attempts to collect charges, and assigned at least a 1.5% per month finance charge assessed against delinquent balances. The Free Paging Agreement also contained an integration provision, providing that the Agreement and the referenced "Attachments" represented "the complete agreement of the parties and supersede[d] any prior agreements or representations, whether oral or written[.]" (Verified Compl. Ex. A at 2.) The Free Paging Agreement further provided that New York law was the applicable choice of law.

From May 1999 to May 2000, WorldCom provided Free Paging with telecommunication services under account numbers 8770073909, 9150022611, 9150022613 and 9150022626.

2. The purported transfer of the Free Paging account(s) to Go Telco

In a letter dated August 9, 1999 to WorldCom, Barnes requested that "all accounts and billing be corrected and placed under the GO TELCO name." (Def Mot. Ex. 1.) In a second letter dated August 23, 1999 to WorldCom, Barnes requested "all GO TELCO accounts be name changed and listed as GO TELCO. Account Numbers #0039020 [sic] and #9150096586." (Def Mot. Ex. 2.) (emphasis in original). WorldCom responded to Go Telco in a letter, referencing a Free Paging account number 9150096586 and writing that WorldCom changed that account from Free Paging to Go Telco. (Def. Mot. Ex. 3.) ...


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