OPINION
Plaintiffs Orlando S. Ramirez and Alberto Torres-Hernandez have filed a class action complaint against STi Prepaid LLC, STi Phoneeard, Inc., Telco Group, Inc., VOIP Enterprises, Inc., and Leucadia National Corp. alleging violations of consumer protection statutes in New Jersey and New York, as well as other “sister states” including California, Connecticut, Florida, Illinois, Massachusetts, Maine, Vermont, Washington, and West Virginia. Ramirez and Torres-Hernandez seek to represent a class of all consumers who purchased prepaid calling cards from Defendants beginning on January 1, 2004, or in the alternative, purchasers in the “sister states.” Plaintiffs allege Defendants violated consumer protection statutes by marketing
Before the Court is Defendants’ motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Defendants argue the Complaint should be dismissed because (1) the Complaint fails to meet the required pleadings standards under Fed.R.Civ.P. 8(a) (generally and specifically with regard to Defendant Leucadia); (2) the Complaint does not meet the heightened pleadings standards for fraud under Fed.R.Civ.P. 9(b); and (3) named Plaintiffs lack standing to bring claims on behalf of consumers in states other than those in which the named Plaintiffs actually purchased calling cards. For the reasons set forth below, Defendants’ motion is denied in part and granted in part.
I. Factual Background and Procedural History
Defendants sell prepaid calling cards in denominations ranging from $2 to $100 through retail outlets including news stands, gas stations, and convenience stores. (Compl. ¶¶3, 25.) As the name suggests, consumers purchase a prepaid calling card for a specified sum in exchange for telephone calling time, including long distance. (Id. ¶ 25.) Defendants market their cards to ethnically diverse consumers in multiple languages. Some of Defendants’ cards include “STi La Onda”, “STi Mundo”, “STi Muchacho”, and “STi Que Pasa.” (Id. ¶28.) To use the card, consumers dial an access code and enter a pin number imprinted on the card. (Id. ¶ 26.) A recorded message then states the remaining card value. (Id. ¶¶ 26, 30.) After each call, the calling time used, in addition to various fees and charges, are deducted from the balance on the card. (Id. ¶¶ 26, 29-30.) The cards do not state the per-minute cost of using the cards. (Id. ¶ 34.)
Torrez-Hernandez, a citizen of New Jersey, and Ramirez, a citizen of New York, allege they purchased prepaid calling cards from Defendants, who “imposed hidden conditions and costs that reduced the promised minutes of calling time, significantly reducing [the cards’] stated value.” (Id. ¶ 29.) Plaintiffs contend that Defendants’ cards “systematically, intentionally and surreptitiously” failed to disclose, or inadequately disclosed, pertinent information including the price-per-minute for using the cards and the fact that Defendants impose (1) a per-call fee and the amount of that fee; (2) a higher rate for calling cellular phones and the amount of that rate; and (3) a weekly fee and when it applies. (Id. ¶ 34.) The Complaint alleges “were it not for the Defendants’ course of conduct,” Plaintiffs and the class they seek to represent “would not have purchased STI Cards or paid the full price on the cards.” (Id. ¶ 40.)
Torres-Hernandez initiated this action in New Jersey Superior Court on January 7, 2008. Defendant STi Phonecard removed the case to this Court on February 28, 2008, pursuant to 28 U.S.C. §§ 1332 and 1441. On July 28, 2008, a Consent Order was entered consolidating Ramirez v. STi Prepaid, LLC, et al., Civil Action No. 08-1735, with the instant case. Plaintiffs filed a Consolidated Amended Complaint on August 18, 2008. The pending motion to dismiss was filed on October 6, 2008, and Interim Class Counsel was appointed on December 17, 2008.
II. Standard for Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6)
The adequacy of pleadings are governed by Fed.R.Civ.P. 8(a)(2), which requires
In considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court must “ ‘accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.’ ”
Id.
at 233 (quoting
Pinker v. Roche Holdings Ltd.,
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the “grounds” of his “entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.
Bell Atlantic Corp. v. Twombly,
The Supreme Court’s Twombly formulation of the pleading standard can be summed up thus: “stating ... a claim requires a complaint with enough factual matter (taken as true) to suggest” the required element. This “does not impose a probability requirement at the pleading stage,” but instead “simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of’ the necessary element.
Phillips,
III. Discussion
A. Adequacy of the Pleadings under Rule 8(a)
Defendants argue that Plaintiffs’ Complaint fails to satisfy basic pleading standards under Fed.R.Civ.P. 8(a) because it does not allege facts “showing” that Plaintiffs are entitled to relief. Defendants characterize the Complaint as a “formulaic,” “cookie-cutter,” and “fill-in-the-blanks” in part based on reference to nine other cases brought by Ramirez in this District against pre-paid calling card companies. {See Defs.’ Br. 1 n. 1.)
In order to state a claim under the New Jersey Consumer Fraud Act (“NJCFA”), “a plaintiff must allege that the defendant engaged in an unlawful practice that caused an ascertainable loss to the plaintiff.”
Frederico v. Home Depot,
[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby ....
N.J. Stat. Ann. § 56:8-2.
Accepting the allegations in the Complaint as true, this Court is satisfied that the Complaint includes sufficient “grounds” to establish that Plaintiffs may be entitled to relief under the NJCFA.
See Phillips,
The second element required to state a claim under the NJCFA, “ascertainable loss[,] ... has been broadly defined as embracing more than a monetary loss. An ascertainable loss occurs when a consumer receives less than what was promised.”
Union Ink Co., Inc. v. AT & T Corp.,
Finally, a causal relationship between the unlawful conduct and the loss is established in that the Plaintiffs allege they would not have purchased the cards if the charges, fees, and actual per-minute value of the card was clearly disclosed. (Compl. ¶¶6, 40.) Hence, the Complaint contains sufficient allegations to state a claim under the NJCFA.
To state a claim under New York’s consumer protection statute, N.Y. Gen. Bus. Law. § 349, plaintiffs must allege “(1) the act or practice was consumer-oriented, (2) the act or practice was misleading in a material respect, and (3) the plaintiff was injured as a result.”
Maurizio v. Goldsmith,
In sum, this Court is satisfied that when construed in a light most favorable to the Plaintiffs, the Complaint contains sufficient allegations to “suggest” the required elements of a claim under the NJCFA and New York’s consumer protection statute and presents “enough facts to raise a reasonable expectation that discovery will reveal evidence” of those elements.
See Phillips,
B. Adequacy of the Pleadings under Rule 9(b)
Because Plaintiffs’ primary claim is brought under the NJCFA, the Complaint must meet the requirements of Fed. R.Civ.P. 9(b).
See Pacholec v. Home Depot USA Inc.,
No. 06-CV-827,
Rule 9(b) requires that a party alleging fraud “state with particularity the circumstances constituting fraud.” Fed. R.Civ.P. 9(b). In meeting the particularity requirements of Rule 9(b), a plaintiff must plead “the ‘circumstances’ of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.”
Seville Indus. Mach. Corp. v. Southmost Mach. Corp.,
While we have acknowledged the stringency of Rule 9(b)’s pleading requirements, we have also stated that, in applying Rule 9(b), courts should be “sensitive” to situations in which “sophisticated defrauders” may “successfully conceal the details of their fraud.” Where it can be shown that the requisite factual information is peculiarly within the defendant’s knowledge or control, the rigid requirements of Rule 9(b) may be relaxed. Nevertheless, even when the defendant retains control over the flow of information, “boilerplate and conclusory allegations will not suffice. Plaintiffs must accompany their legal theory with factual allegations that make their theoretically viable claim plausible.”
Rockefeller Ctr. Properties,
Defendants’ characterization of the Complaint is only partially correct. It is true that the Complaint does not contain allegations regarding the particular circumstances of each named Plaintiffs purchase of Defendants’ calling cards. For example, the Complaint contains no allegation regarding the specific monetary value of the cards Plaintiffs allegedly purchased, when and where they purchased the cards, and how the monetary value of the cards they purchased was diminished by the charges and fees imposed. All this information is within Plaintiffs’ exclusive knowledge and could have been alleged in detail.
However, Defendants are not correct in stating that the Complaint contains “no specific reference to any of the cards produced by Defendants.” (Defs.’ Br. 6.) To the contrary, the Complaint attaches a photocopy of one of Defendants’ calling cards (Compl. Ex. A) and states that the “standard verbiage” on the back of the example card is the same as the language on the cards Plaintiffs purchased. In addition, contrary to Defendants’ characterization, the Complaint alleges that Plaintiffs purchased Defendants’ pre-paid calling cards. (See Compl. ¶¶ 1, 12, 30.) Although the Complaint does not allege that Defendants made affirmative misrepresentations, it does allege that Defendants failed to adequately disclose “material facts and conditions” including details of the charges and fees related to using the card. (Id. ¶¶ 5, 6, 29, 34.) The Complaint also alleges that Plaintiffs received “a fraction of the calling time” they expected (see id. ¶ 4), although it does not indicate what “fraction” Plaintiffs actually received. In addition, the Complaint alleges that Plaintiffs would not have purchased the cards if the charges, fees, and actual per-minute value of the cards were clearly disclosed. (Id. ¶¶ 6, 40.)
In support of their Rule 9 argument, Defendants rely on an opinion from this District involving a similar case brought by plaintiff Torres-Hernandez.
See TorresHernandez v. CVT Prepaid Solutions, Inc.,
No. 08-CV-1057, slip op.,
In
CVT,
plaintiffs complaint provided no specificity regarding Defendant’s allegedly deceptive misrepresentations and instead made only general allegations. In addition, the
CVT
complaint “failed to specify which marketing or advertising materials allegedly mislead him.”
Id.
at 11. In contrast, the Complaint in this case contains specific details regarding the information Defendants allegedly failed to adequately disclose on their calling cards, including the price-per-minute billing increment and the specifics of various fees and charges associated with using the cards.
(See
Compl. ¶¶ 34, 37.) The Complaint also attached a photocopy of a calling card, allegedly with the same disclosures as the ones Plaintiffs purchased. These allegations and others contained in
Construing the Complaint in a light most favorable to the Plaintiffs, this Court is satisfied that the allegations in the Complaint, including references to the example calling card attached as Exhibit A, go beyond “boilerplate and conclusory allegations” and have sufficient factual basis to “make their theoretically viable claim plausible.”
Id.
at 216. Although devoid of certain details clearly within Plaintiffs’ knowledge, this Court is satisfied that the Complaint meets the heightened pleading standard of Rule 9(b) and is sufficient to “place the defendants on notice of the precise misconduct with which they are charged.”
See Lum,
C. Standing
Defendants argue that the Plaintiffs lack Article III standing to bring claims based on violations of consumer protection laws in states other than New Jersey and New York. In support of this argument, Defendants cite examples of consumer protection statutes from these “sister states,” most of which require a plaintiff to have been injured in that state in order to benefit from the statute’s protections. Defendants reason that the class allegations should be dismissed because neither named Plaintiff claims to have been injured in any state other than New York or New Jersey. This argument is without merit.
The elements of standing are well-established:
[I]n order to have Article III standing, a plaintiff must adequately establish: (1) an injury in fact (i.e., a “concrete and particularized” invasion of a “legally protected interest”); (2) causation (i.e., a “fairly ... trace[able]” connection between the alleged injury in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is “likely” and not “merely ‘speculative’ ” that the plaintiffs injury will be remedied by the relief plaintiff seeks in bringing suit).
Sprint Communications Co. v.
APCC
Services, Inc.,
— U.S. -,
In the class action context, named representative plaintiffs initially need only establish that they individually have standing to bring their claims. “The initial inquiry ... is whether the lead plaintiff individually has standing, not whether or not other class members have standing.”
Winer Family Trust,
In a class action, those represented are, in the words of the Supreme Court, passive members of the class, in contrast to the named plaintiff who is actively prosecuting the litigation in their behalf. These passive members need not make any individual showing of standing, because the standing issue focuses on whether the plaintiff is properly before the court, not whether represented parties or absent class members are properly before the court. Whether or not the named plaintiff toho meets individual standing requirements may assert the ñghts of absent class members is neither a standing issue nor an Article III case or controversy issue but depends rather on meeting the prerequisites of Rule 28 governing class actions. The fact that the plaintiff now seeks to represent the rights of absent parties because the case or controversy is common to those parties does not in any way create additional constitutional standing requirements.
William B. Rubenstein et al., 1 Newberg on Class Actions § 2:7 (4th ed. 2008) (emphasis added & footnotes omitted).
Defendants’ argument appears to conflate the issue of whether the named Plaintiffs have standing to bring their individual claims with the secondary issue of whether they can meet the requirements to certify a class under Rule 23. Defendants do not contest the fact that the named Plaintiffs have standing to bring their individual claims. The Complaint makes clear that the so-called “sister state” consumer protection laws are only implicated by members of the putative class. (See Compl. ¶ 43.) Hence, the fact that the named Plaintiffs may not have individual standing to allege violations of consumer protection laws in states other than those in which they purchased Defendants’ calling cards is immaterial. The issue Defendants raise is one of predominance — whether “questions of law or fact common to class members predominate over any questions affecting only individual members.” Fed. R.Civ.P. Rule 23(b)(3). See generally 7AA Charles Allen Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure § 1780.1 (3d ed. 2008) (discussing the requirements of Rule 23(b)(3)). This is an issue to be resolved at the class certification stage of the litigation.
In support of their standing argument, Defendants rely on
In re AIG Advisor Group Sec. Litig.,
No. 06-CV-1625,
Defendants’ reliance on In re AIG is misplaced. Here, unlike AIG, there is no dispute that the named Plaintiffs claim to have been injured by the same calling cards as the putative class plaintiffs they seek to represent. The ability of the named Plaintiffs to adequately represent class plaintiffs in different states and the extent to which common issues of law and fact predominate across the putative class members are factors that will be considered in the class certification phase.
D. Claims Against Leucadia
1) Piercing the Corporate Veil
Defendants argue that claims against Leucadia should be dismissed because the Complaint does not allege Leucadia sold or marketed the calling cards and because Leucadia’s ownership interest in STi is insufficient to impose liability. Plaintiffs argue that the Complaint contains sufficient allegations to suggest that Leucadia abused the corporate form, thus weighing against dismissal at this stage. Although not articulated explicitly, Plaintiffs appear to characterize the allegations against Leucadia as being sufficient to pierce its corporate veil. The only allegation in the Complaint specific to Leucadia states:
Leucadia owns a 75% controlling membership interest in STI Prepaid, L.L.C. On March 8, 2007, Leucadia, through STI Prepaid, L.L.C., completed the acquisition of virtually all the assets and liabilities of ... [other corporations named as Defendants] pursuant to an Asset Purchase and Contribution Agreement .... Leucadia conducts and manages its telecommunications (including Prepaid Calling Card sales) operation through STi Prepaid, L.L.C..... Leucadia and STI Prepaid, L.L.C. share upper management personnel.
(Compl. ¶ 19.)
Under New Jersey law, a plaintiff may state a claim for piercing the corporate veil by showing: “(1) one corporation is organized and operated as to make it a mere instrumentality of another corporation, and (2) the dominant corporation is using the subservient corporation to perpetrate fraud, to accomplish injustice, or to circumvent the law.”
Bd. of Trs. of Teamsters Local 863 Pension Fund v. Foodtown, Inc.,
To succeed in piercing the corporate veil, a plaintiff must allege that the parent “completely dominate^] the finances, policy, and business practice with respect to the subject transaction” to such a degree that the subsidiary has “no separate mind, will, or existence of its own.”
Craig,
Gross undercapitalization ... failure to observe corporate formalities, non-payment of dividends, the insolvency of the debtor corporation at the time, siphoning of the funds of the corporation by the dominant stockholder, non-functioning of other officers or directors, absence of corporate records, and the fact that the corporation is merely a fagade for the operations of the dominant stockholder or stockholders.
Id.
(quoting
American Bell, Inc. v. Fed’n of Tel. Workers,
A useful illustration of allegations sufficient to pierce the corporate veil can be found in
Bd. of Trs. of Teamsters Local 863 Pension Fund v. Foodtown, Inc.,
Based in part on the Third Circuit’s analysis in
Foodtown,
a court in this District found allegations that one corporation was a subsidiary of another, that both corporations shared the same chief financial officer, and that one corporation had a controlling interest in the other to be insufficient to pierce the corporate veil.
See Premier Pork L.L.C. v. Westin, Inc.,
No. 07-1661,
2) Agency Theory of Liability
Plaintiffs also argue that Leucadia could be held liable for STi’s actions because STi was acting as Leucadia’s agent in operating its calling card business. Plaintiffs state that “Leucadia is, in fact, the present mastermind behind STi’s operation” and that “[a]s the principal directing its agents’ actions, Leucadia is liable for any wrongdoing undertaken by its agents.” (Pis.’ Br. at 21.) Neither of these allegations is sufficiently pled.
Under an agency theory, “the issue of liability rests on the amount of control the parent corporation exercises over the actions of the subsidiary. The parent corporation will be held liable for the activities of the subsidiary only if the parent dominates those activities.”
Phoenix Canada Oil Co. v. Texaco, Inc.,
IV. Conclusion
For the foregoing reasons, Defendants’ motion to dismiss the Complaint is denied with respect to all Defendants except Leucadia. Defendant Leucadia is dismissed without prejudice. However, Defendants are granted 30 days in which to file a Second Amended Complaint and re-plead allegations against Leucadia.
SO ORDERED.