IDT Telecom, Inc. v. Voice Distributors, Inc.

23 Mass. L. Rptr. 663
CourtMassachusetts Superior Court
DecidedApril 11, 2008
DocketNo. 072465
StatusPublished

This text of 23 Mass. L. Rptr. 663 (IDT Telecom, Inc. v. Voice Distributors, Inc.) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
IDT Telecom, Inc. v. Voice Distributors, Inc., 23 Mass. L. Rptr. 663 (Mass. Ct. App. 2008).

Opinion

Fremont-Smith, Thayer, J.

Plaintiffs IDT Telecom, Inc. (“IDT’) sells personal identification numbers for prepaid calling cards and provides telecommunication services relating to those cards. Plaintiff Union Telecard Alliance, LLC (“UTA”) distributes IDT cards to sub-distributors, who distribute the cards to retail locations in Massachusetts and elsewhere. Defendants are competitors of plaintiffs in the business of creating, distributing and selling prepaid calling cards.

Plaintiffs allege that defendants have and continue to deceptively advertise their prepaid cards by falsely representing that the cards will deliver an inflated amount of minutes to consumers. This, they argue, has damaged them in the form of lost market share and profits because customers and distributors have diverted their business from plaintiffs in reliance on defendants’ deceptive advertising, in violation of c. 93A, §§2 and 11. Plaintiff UTA further claims that defendants have tortiously interfered with their contractual relations with various sub-distributors by inducing such sub-distributors to purchase prepaid calling cards from them rather than from UTA.

Defendants now move for summary judgment on both counts, arguing, inter alia, that plaintiffs cannot establish a sufficient causal nexus between any unfair or deceptive conduct and any alleged damages, and that any damages are, in any event, incapable of reasonable calculation and are barred by the “economic loss doctrine.”

It is clear that a purported loss of “market share” in and of itself is an intangible not compensable under G.L.c. 93A, § 11, as c. 93A only allows recovery for “loss of money or property.” Property means “the kind of property that is purchased or leased, not such intangibles as a right to a sense of security, to peace of mind, or to personal liberty.” Baldassari v. Public Finance Trust, 369 Mass. 33, 45 (1975).1 Lost profits, moreover, are recoverable only if proven to a degree of reasonable certainly. See e.g., RGJ Associates, Inc. v. Stainsafe, Inc., 338 F.Sup.2d 215, 237 (D.Mass. 2004).

Accordingly, to recover under c. 93A, plaintiff must establish that: (1) the defendant’s wrongful conduct is the proximate cause of its injury; (2) plaintiffs have suffered tangible loss in the form of money or property; (3) such damages are not based on speculation but are calculable to a reasonable degree of certainty; and (4) such damages are not precluded by the “pure economic loss” doctrine discussed in Canal Electric Co. v. Westinghouse Elec. Corp., 756 F.Sup. 620, 630 (D.Mass. 1990). Plaintiffs can also obtain injunctive relief if they can prove that defendants’ unfair practices “may have the effect of causing [a] loss of money.” See G.L.c. 93A, §11.

With respect to defendants’ primary argument, that the causal relationship between any alleged consumer deception and plaintiffs’ loss of profits is too tenuous for c. 93A liability, the problem is well stated in McCarthy on Trademark and Unfair Competition at §27:41, 27

How can one seller out of many who are selling the bona fide product prove that a certain customer of the falsely advertising defendant would have bought from the plaintiff but for the false advertising? If the plaintiff is merely one of many sellers vending the “real McCoy,” it is practically impossible for him to plead or prove that “but for” the false advertising, defendant’s customers would have bought from the plaintiff. That is, if there are numerous sources in an open market, it will be impossible to ascertain whether consumers would have [664]*664dealt with a particular seller but for the defendant’s deceptive advertising. Thus, even though there is false advertising which is illegal, the court may say that this plaintiff has no standing to sue to prevent it even though a defrauded consumer would have standing.

This problem of proof may be overcome where the defendant is the only competitor in a two-firm market. See Electronics Corp. of America v. Honeywell, Inc., 428 F.2d 191, 196 (1st Cir. 1970). There, the Court of Appeals reversed the District Court’s denial of a preliminary injunction against unfair competition where the defendant-competitor, which made replacement parts for plaintiffs electronic safeiy-control systems, used a brochure to solicit customers which was deceptive as to the ease of installation of its replacement parts and as to the price comparison with plaintiffs replacement parts. Id. at 194-96. The Courtfound that in these circumstances, where plaintiffs lost customers “had nowhere else to turn,” a likelihood of damages had been shown so as to justify a preliminary injunction. Id. at 196.

Similarly, in Ricky Smith Pontiac, Inc. v. Subaru, Inc., 14 Mass.App.Ct. 396, 424 (1982), the Appeals Court suggested that a causal link between unfair competition and damages is inferable under circumstances where the plaintiff, a franchised car dealer, sued a regional distributor who had unlawfully franchised a competing dealership in violation of c. 93B, §4(3) (1), and was permitted to recoup the net profits it would have received if “it had not been wrongfully deprived by the defendant of the opportunity to sell more vehicles in its relevant market area.” Id. at 426. The Court concluded that “[cjommon sense suggests that the placement of a competing automobile dealership within the market area of an existing dealer should normally have some direct negative economic impact on the existing dealer in terms of lost sales and diminished profits.” Id. at 424.

Here, however, where there are other competitors in the market, it cannot confidently be inferred that any customers procured by defendant’s false advertising were at plaintiffs’ expense. See Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1388-89 (5th Cir. 1995) (chronology of loss of business of specific bottlers was not sufficient evidence for jury to conclude that defendant’s false representations were a substantial factor in the decision for bottlers to switch brands); Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 209 (1989) (reversing verdict where no direct evidence of lost sales from defendant’s unfair competitor); R.S.A. Media, Inc. v. AK Media Group, Inc., 260 F.3d 10, 16 (1st Cir. 2001) (where the court affirmed the grant of summary judgment to the defendant because the evidence was insufficient to establish that defendant’s unfair competition, rather than the existence of exclusionary state regulations regarding billboards, was a proximate cause of plaintiffs damages).

For the plaintiffs to prevail here, then, they must elicit direct evidence, in addition to their loss of market share or revenues, to establish that defendant’s wrongful acts proximately caused plaintiffs’ loss of sales and profits.2

Next, the defendant claims that there was and is an insufficient nexus between defendants and the plaintiffs for c. 93A liability because the parties are not engaged in “trade or business. ” Cash Energy v. Weiner, 768 F.Sup. 892, 894 (D.Mass. 1991) (the court dismissed the plaintiffs’ c.

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Bluebook (online)
23 Mass. L. Rptr. 663, Counsel Stack Legal Research, https://law.counselstack.com/opinion/idt-telecom-inc-v-voice-distributors-inc-masssuperct-2008.