3 Rivers Telephone Cooperative Files Motion To Dismiss Capital Credits Lawsuit
February 1, 2022 – 3 Rivers Telephone Cooperative, Inc. has filed a motion to dismiss all but one of the nine claims in a lawsuit filed against it by Native American members of the Blackfeet Tribe.[1] 3 Rivers also denied the remaining claim – breach of contract – in its motion. The class action lawsuit, initiated in December 2021, concerns over $8 million in capital credits that the Blackfeet Tribe Plaintiffs allege belong to them and the class.[2]
In their Class Action Complaint And Demand For Jury Trial, the Plaintiffs claim that upon 3 Rivers’ sale of its Browning Exchange to Siyeh Communications in December 2020, 3 Rivers failed to retire $8.88 million in capital credits belonging to the now former Browning Exchange members. The Plaintiffs allege 3 Rivers retained the Browning Exchange members’ capital credits even though “3 Rivers has capital reserves in excess of operating costs and expenses in an amount sufficient to retire the capital credits of the former members of the Browning Exchange without impairing the financial condition of 3 Rivers.”[3] In addition, the Plaintiffs allege racial discrimination by 3 Rivers, and seek “non-economic, compensatory, and punitive damages and costs and reasonable attorney’s fees and costs pursuant to Title VI of the Civil Rights Act.”[4]
In response to the complaint, 3 Rivers has filed a Rule 12(b)(6) motion to dismiss eight of the claims set forth in the Plaintiffs’ class action complaint for “failure to state a claim upon which relief can be granted.” With respect to the remaining breach of contract claim, 3 Rivers denies that it breached any contract with the Plaintiffs or any contractual duty owed to them. Below is a general summary from 3 Rivers’ Motion Brief of the arguments against all of the Plaintiffs’ alleged claims.
Count I – Violation of Sections 201(b) and 202 of The Communications Act of 1934
3 Rivers has violated the Federal Communications Act by adopting, implementing, and enforcing an unjust and unreasonable Policy and Practice that denies Plaintiffs and the Class the benefit of their capital credits on the basis of race.[5]
3 Rivers Response:
The Federal Communications Act (“FCA”) claim should be dismissed because plaintiffs do not cite any regulation that was allegedly violated, and the Federal Communications Commission (“FCC”) could not properly hold that the FCA was violated on the facts alleged.
Here, unlike the plaintiff in Global Crossing, plaintiffs cite no FCC regulation which prohibits racial discrimination based on the requirement that rates and charges be “just and reasonable” under 47 U.S.C.A. § 201(b). There appear to be none. Plaintiffs do not allege that the 3 Rivers’ rates and charges were racially discriminatory. Plaintiffs’ allegations have nothing whatsoever to do with the rates and charges for the service provided by 3 Rivers. Patronage capital is neither a rate nor a charge within the meaning of the statute or any regulations promulgated thereunder.[6]
Count II – Violation of Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d
3 Rivers has violated Title VI of the Civil Rights Act of 1964 by adopting, implementing, and enforcing an unjust, unreasonable, and discriminatory Policy and Practice that denies Plaintiffs and the Class the benefit of their capital credits on the basis of race. 3 Rivers has violated Title VI of the Civil Rights Act of 1964 by adopting, implementing, and enforcing an unjust, unreasonable, and discriminatory Policy and Practice that denies Plaintiffs and the Class the benefit of equal treatment and protection on the basis of race. Plaintiffs and the Class have suffered injury as a result of 3 Rivers’ violation of Title VI of the Civil Rights Act of 1964.[7]
3 Rivers Response:
The Civil Rights Act claim should be dismissed because plaintiffs fail to allege fact showing racial discrimination and fail to allege racial animus with particularity.[8]
Count III – Violation of Montana Consumer Protection Act, Mont. Code Ann. §§ 30-14-101 et seq.
3 Rivers’ adoption, implementation, and enforcement of the Policy and Practice constitutes unfair and/or deceptive acts or practices with respect to Plaintiffs and the Class, who have suffered injury as a result.[9]
3 Rivers Response:
The Montana Consumer Protection Act claim should be dismissed because plaintiffs are not consumers of cooperative services with respect to the claims asserted; they are members/owners. There are no allegations that 3 Rivers engaged in any unfair or deceptive practices with respect to the services it provided to consumers, including plaintiffs.[10]
Count IV – Breach of Contract
3 Rivers did not obtain the authorization of its members prior to selling the Browning Exchange to SiyCom, as required by Article IX of the Bylaws. Consequently, Plaintiffs and the Class had no voice in the sale to SiyCom, or as to how their capital credits would be handled by 3 Rivers in connection with the sale. By failing to obtain the authorization of its members prior to selling the Browning Exchange to SiyCom, as required by Article IX of the Bylaws, 3 Rivers breached its contract with its members and the Class.[11]
3 Rivers Response:
The only claim that 3 Rivers does not move to dismiss is the breach of contract claim. However, 3 Rivers denies that it breached any contract with the plaintiffs, or any contractual duty owed to plaintiffs.[12]
Count V – Breach of Fiduciary Duty
3 Rivers’ adoption, implementation, and enforcement of a Policy and Practice that denies Plaintiffs and the Class the benefit of their capital credits is a breach of its fiduciary duty to Plaintiffs and the Class, who have suffered injury as a result.[13]
3 Rivers Response:
The breach of fiduciary duty claim should be dismissed because the Montana Supreme Court has determined that rural utility cooperatives like 3 Rivers do not owe a fiduciary duty to their members/owners. Rather, the relationship between a cooperative and its owners/members is a standard contractual relationship.[14]
Count VI – Breach of Implied Covenant of Good Faith and Fair Dealing
The contract between 3 Rivers and the Class contained an implied covenant of good faith and fair dealing. There was a special relationship between 3 Rivers and the Class, in that 3 Rivers owed fiduciary duties to the Class.[15] 3 Rivers’ adoption, implementation, and enforcement of the Policy and Practice that denies Plaintiffs and the Class the benefit of their capital credits is a breach of the implied covenant of good faith and fair dealing.[16]
3 Rivers Response:
The claim for breach of the implied covenant of good faith and fair dealing should be dismissed because Montana statute provides 3 Rivers with business judgment discretion regarding allocation and retirement of patronage capital. No allegations show abuse of 3 Rivers’ business judgment. The apparent tort claim for breach of the implied covenant should be dismissed because, inter alia, contract damages are adequate.[17]
Count VII – Unjust Enrichment (Contract Implied in Law)
Plaintiffs and the Class request the Court to recognize a contract between 3 Rivers and the Class based on the principles of justice and equity. As alleged herein, 3 Rivers used its authority as a fiduciary and trustee to take advantage of Plaintiffs and the Class by denying them the right to vote on the sale of the Browning Exchange to SiyCom and by retaining their capital credits upon the sale. Furthermore, because Plaintiffs and the Class are no longer members of 3 Rivers by virtue of the sale, they now have no vote or other say in any future matters involving 3 Rivers or their capital credits. As a result of the Policy and Practice, 3 Rivers was unjustly enriched by the patronage capital of Plaintiffs and the Class. 3 Rivers continues to use this patronage capital for its own benefit and for the benefit of its current members, to the detriment of Plaintiffs and the Class.[18]
3 Rivers Response:
Here, plaintiffs allege, and 3 Rivers stipulates, that the bylaws of 3 Rivers constitute a valid and binding contract. Furthermore, plaintiffs allege, and 3 Rivers stipulates, that the bylaws (amongst other things, such as Montana statute) regulate the parties’ obligations with respect to patronage capital. Therefore, unjust enrichment is not applicable and not an available remedy. If plaintiffs are aggrieved by the decision of 3 Rivers concerning their patronage capital, plaintiffs have an adequate legal remedy in a breach of contract claim.[19]
The two unjust enrichment claims have no place in this contract case, and therefore both Count VII (“Unjust Enrichment (Contract Implied in Law)”) and Count VIII (“Unjust Enrichment (Constructive Trust)”) should be dismissed with prejudice.[20]
Count VIII – Unjust Enrichment (Constructive Trust)
As a result of the capital contributions of Plaintiffs and the Class, 3 Rivers’ revenue has exceeded its expenses, allowing it to accumulate capital reserves. Furthermore, as previously stated, prior to the completion of the sale of the Browning Exchange to SiyCom, 3 Rivers took advantage of new FCC rules pertaining to accounting for consumer broadband-only loops (CBOLs), which resulted in 3 Rivers receiving a windfall of excess revenue believed to total approximately 18 to 20 million dollars. 3 Rivers was able to obtain this excess revenue partly by utilizing Plaintiffs and the Class in its accounting calculations, even though 3 Rivers ultimately never furnished any CBOL service to them.[21]
3 Rivers had an appreciation or knowledge of the benefits that Plaintiffs and the Class conferred upon it, by virtue of 3 Rivers’ use of capital contributions to fund its operations and to build its capital reserves, and by utilizing Plaintiffs and the Class in its CBOL accounting calculations to obtain a windfall of excess revenue without ever furnishing any CBOL service to them.[22]
3 Rivers Response:
Here, plaintiffs allege, and 3 Rivers stipulates, that the bylaws of 3 Rivers constitute a valid and binding contract. Furthermore, plaintiffs allege, and 3 Rivers stipulates, that the bylaws (amongst other things, such as Montana statute) regulate the parties’ obligations with respect to patronage capital. Therefore, unjust enrichment is not applicable and not an available remedy. If plaintiffs are aggrieved by the decision of 3 Rivers concerning their patronage capital, plaintiffs have an adequate legal remedy in a breach of contract claim.[23]
The two unjust enrichment claims have no place in this contract case, and therefore both Count VII (“Unjust Enrichment (Contract Implied in Law)”) and Count VIII (“Unjust Enrichment (Constructive Trust)”) should be dismissed with prejudice.[24]
Count IX – Injunctive Relief
3 Rivers’ implementation and enforcement of the Policy and Practice threatens to cause irreparable injury to Plaintiffs and the Class. The payment of money damages is not sufficient to compensate Plaintiffs and the Class for the threatened injury. Balancing of the equities in this case weighs in favor of Plaintiffs and the Class. 3 Rivers’ decision to deny the members of the Browning Exchange their benefit of their capital credits deprives and continues to deprive them of resources that are needed for many things, including basic necessities such as school supplies for their children, paying electrical bills, etc. Issuance of a preliminary and permanent injunction to prohibit 3 Rivers from dissipating the funds necessary to make Plaintiffs and the Class whole would be in the public interest.[25]
3 Rivers Response:
The injunctive relief claim fails to state a claim because plaintiffs, based on their own allegations, have an adequate remedy at law: a money judgment. Apparently recognizing this, plaintiffs attempt to allege something more than mere economic harm by asserting an inability to pay for school supplies and electric bills. These, however, are still economic damages. There are no allegations in the complaint to suggest that plaintiffs, if successful, will not be able to be compensated by a money judgment. For example, plaintiffs do not allege that 3 Rivers is undercapitalized, underfunded, about to go bankrupt, or purposefully dissipating and depleting assets to deprive them of recovering a money judgment should they obtain one. There are no allegations that 3 Rivers will not, absent an injunction, be able to pay any judgment entered against it. The injunctive relief claim should be dismissed. [26]
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[1] Barnes et al. v. 3 Rivers Telephone Cooperative, Inc., Case No. 4:21-cv-00118, Defendant’s Motion To Dismiss, United States District Court for the District of Montana, Document 4 (filed Feb. 1, 2022); Barnes et al. v. 3 Rivers Telephone Cooperative, Inc., Case No. 4:21-cv-00118, Defendant’s Brief In Support Of Motion To Dismiss, United States District Court for the District of Montana, Document 5 (filed Feb. 1, 2022) (Motion Brief).
[2] Barnes et al. v. 3 Rivers Telephone Cooperative, Inc., Case No. 4:21-cv-00118, Class Action Complaint And Demand For Jury Trial, United States District Court for the District of Montana (filed Nov. 30, 2021) (Complaint); See also Native American 3 Rivers Communications Members Denied Capital Credits Worth Millions, Class Action Alleges, Corrado Rizzi, www.classaction.org (Dec. 3, 2021), https://www.classaction.org/news/native-american-3-rivers-communications-members-denied-capital-credits-worth-millions-class-action-alleges.
[3] Complaint at ¶ 35.
[4] Complaint at ¶ 7.
[5] Complaint at ¶ 65.
[6] Motion Brief at p. 33.
[7] Complaint at ¶¶ 70 – 72.
[8] Motion Brief at p. 8.
[9] Complaint at ¶ 77.
[10] Motion Brief at p. 8.
[11] Complaint at ¶¶ 83 – 84.
[12] Motion Brief at p. 9.
[13] Complaint at ¶ 94.
[14] Motion Brief at p. 7.
[15] Complaint at ¶¶ 96 – 97.
[16] Complaint at ¶ 102.
[17] Motion Brief at p. 8.
[18] Complaint at ¶¶ 105 – 107.
[19] Motion Brief at pp. 20 – 21.
[20] Motion Brief at p. 21.
[21] Complaint at ¶ 111.
[22] Complaint at ¶ 112.
[23] Motion Brief at pp. 20 – 21.
[24] Motion Brief at p. 21.
[25] Complaint at ¶¶ 117 – 120.
[26] Motion Brief at pp. 22 – 23.
