Vermont National Telephone Company v. Northstar Wireless, LLC

• Court: District Court, District of Columbia
• Decided: December 12, 2017
• Docket: Civil Action No. 2015-0728
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA, ex rel. VERMONT NATIONAL TELEPHONE CO., Plaintiff Civil Action No. 15-728 (CKK) v. NORTHSTAR WIRELESS, L.L.C., et al., Defendants

MEMORANDUM OPINION AND ORDER (December 12, 2017)

Relator Vermont National Telephone Company brings this action under the False Claims

Act (“FCA”), 31 U.S.C. § 3730, alleging that Defendants deprived the United States of

approximately $3.3 billion through misconduct during an auction of wireless spectrum licenses

conducted by the Federal Communications Commission (“FCC”) between November 13, 2014,

and January 29, 2015 (the “Auction”), in which Relator also participated. Relator alleges that the

Defendants engaged in “a massive fraud” designed to obtain “bidding credits to which they were

not entitled,” Rel.’s Opp’n to Defs.’ Mot. to Temporarily Stay Case Pending Related Appeal and

Request for Expedited Consideration, ECF No. 48, at 1, credits which the FCC awarded them

through its “designated entity” program. That program defines “designated entities” as either

“small businesses” or “very small businesses” that are entitled to bidding credits based on “their

average annual gross revenues during the preceding three years.” Defs.’ Mot. to Temporarily Stay

Case Pending Related Appeal and Request for Expedited Consideration, ECF No. 41, at 3. A

qualifying “very small business” is eligible for a 25% credit. Id.

Two months prior to the Auction, Defendants Northstar Wireless, L.L.C. (“Northstar”) and

SNR Wireless LicenseCo, L.L.C. (“SNR”) filed “short-form” applications to participate in the

Auction as designated entities. Id. at 2-3; Compl. ¶ 76. Relator’s Complaint alleges that Northstar 1 and SNR falsely represented to the FCC that they qualified as “very small businesses” and were

thereby entitled to a 25% bid credit, even though the two entities were in fact controlled by

Defendant DISH Network Corporation, “a Fortune 250 corporation with annual revenues of $14

billion and a market capitalization of over $32 billion.” Rel.’s Opp’n to Defs.’ Mot. to Temporarily

Stay Case Pending Related Appeal and Request for Expedited Consideration, ECF No. 48, at 2.

Relator also alleges that Defendants engaged in a “complex bidding scheme . . . to create the

appearance of intense competition in order to scare off legitimate bidders.” Id.

Northstar and SNR ultimately secured 345 wireless spectrum licenses during the Auction,

for a gross bid amount of $13.3 billion; but because they participated as designated entities entitled

to a 25% bid discount, Northstar and SNR were only obligated to pay $10 billion. Id. at 3.

Subsequently, Northstar and SNR filed “long-form” applications to obtain the wireless spectrum

licenses they had won in the Auction. Defs.’ Mot. to Temporarily Stay Case Pending Related

Appeal, ECF No. 41, at 3-4. Relator and seven other parties filed petitions with the FCC to deny

those applications shortly thereafter. Id. at 4. While its petition was pending before the FCC,

Relator filed this qui tam action, in which the United States has declined to intervene. See The

United States’ Notice of Election to Decline Intervention, ECF No. 17.

On August 18, 2015, the FCC issued a Memorandum Opinion and Order, which concluded

that “DISH is . . . a controlling entity of, or affiliated with [SNR and Northstar] . . . and therefore

neither SNR nor Northstar is eligible for very small business bidding credits.” FCC Order ¶ 49. 1

The FCC, however, expressly declined to hold that Northstar and SNR had been disingenuous in

1 Northstar Wireless, LLC, SNR Wireless LicenseCo, LLC, Applications for New Licenses in the 1695-1710 MHz, and 1755-1780 MHz and 2155-2180 MHz Bands, Mem. Op. and Order, File Nos. 0006670613, 0006670667, FCC 15-104 (rel. Aug. 18, 2015) (“FCC Order”), filed in SNR Wireless LicenseCo, LLC v. F.C.C., No. 15-1330 (D.C. Cir.), Document 1579390 (Oct. 22, 2015).

2 their applications. Id. ¶ 9 (“[B]ased on the record before us, we find that [SNR’s and Northstar’s]

disclosure of their agreements and of the existence of their bidding arrangements was sufficient to

comply with the disclosure obligations of our rules, and we further find that their bidding activity

did not violate the previous FCC rules that governed [the] Auction . . . .”), ¶ 131 (“The fact that

the Commission, upon review of the Agreements, concludes that, as a legal matter, the facts

disclosed show that DISH controlled the applicants does not compel a finding that the applicants

lacked candor.”), ¶ 132 (“Based on the record before us, we find no substantial and material

question of fact as to whether SNR and Northstar have shown a lack of truthfulness or reliability

in their dealings with the Commission.”). As a result of the FCC’s decision, “Northstar and SNR

paid the full auction price to the FCC for spectrum licenses they retained; agreed to the re-auction

of licenses they did not retain; and will reimburse the government if those licenses sell for lower

prices than their full Auction . . . prices.” Defs.’ Reply in Supp. of Mot. to Temporarily Stay Case

Pending Related Appeal, ECF No. 50, at 4.

Northstar and SNR appealed the FCC order to the United States Court of Appeals for the

District of Columbia Circuit (the “D.C. Circuit”). SNR Wireless LicenseCo, LLC, et al. v. F.C.C.,

868 F.3d 1021 (D.C. Cir. 2017). On March 2, 2017, the Court stayed the proceedings in the present

action pending the issuance of the D.C. Circuit’s opinion regarding the appeal of the FCC Order.

Mem. Op. and Order, ECF No. 53, at 7. The Court determined that the resolution of the appeal

before the D.C. Circuit was likely to have a considerable impact on the next stage of the

proceedings in the present action, because it could shed light on whether the FCC properly denied

Northstar’s and SNR’s application for bidding credits, and in what amount the Defendants

benefitted from receiving those credits. Id. at 6.

3 On August 29, 2017, the D.C. Circuit rendered a decision which concluded that the FCC

“reasonably interpreted and applied” FCC precedent “when it determined that DISH had de facto

control over SNR and Northstar.” SNR Wireless LicenseCo, LLC, 868 F.3d at 1030. The D.C.

Circuit thus “affirm[ed] the Commission’s decision that the petitioners are required to pay full

price for the spectrum licenses they won in [the] Auction.” Id. However, the D.C. Circuit also

held that “[b]ecause the FCC did not give clear notice” that it would deny Defendants an

opportunity to modify their agreements with DISH, “an opportunity for petitioner to renegotiate

their agreements with DISH provides the appropriate remedy here.” Id. at 1046. The D.C. Circuit

thus remanded the matter to the FCC.

In light of that remand, Defendants filed the pending [54] Motion to Extend the Court-

Ordered Stay Pending Further Administrative Proceedings (“Motion to Extend Stay”), which

requests a stay of this case until the conclusion of administrative proceedings before the FCC.

Defs.’ Mot. to Extend Court-Ordered Stay Pending Further Administrative Proceedings, ECF No.

54, at 7. Relators subsequently filed the [55] Motion to Set Deadlines for Response to the

Complaint and Briefing Schedule (“Motion to Set Deadlines”), opposing a continued stay. Having

reviewed the pleadings,2 the relevant legal authorities, and the record as a whole, the Court

GRANTS-IN-PART and DENIES-IN-PART Defendants’ [54] Motion to Extend Stay and

DENIES Relator’s [55] Motion to Set Deadlines. While Defendants did not specify a sunset for

2 The Court’s consideration has focused on the following documents: • Compl., ECF No. 1; • Defs.’ Mot. to Extend Court-Ordered Stay Pending Further Administrative Proceedings, ECF No. 54; • Rel.’s Opp’n to Defs.’ Mot. to Extend Stay and in Supp. of Rel.’s Mot. to Set Deadlines for Resp. to Compl. and Briefing Schedule, ECF No. 56; and • Defs.’ Reply Mem. in Supp. of Mot. to Extend Court-Ordered Stay, and Mem. in Opp’n to VTel’s Mot. to Set Deadlines, ECF No. 57. 4 this stay aside from the resolution of the FCC proceedings, the Court understands them to seek an

extension of at least ninety days from the October 13, 2017, deadline for the parties to request en

banc review of the D.C. Circuit decision. 3 See Defs.’ Reply Mem. in Supp. of Mot. to Extend

Court-Ordered Stay, and Mem. in Opp’n to VTel’s Mot. to Set Deadlines, ECF No. 57, at 7. This

Court finds it appropriate to key the ninety-day period instead from the issuance of the D.C.

Circuit’s mandate on October 24, 2017. Accordingly, this matter shall be STAYED until

JANUARY 22, 2018, or until resolution of the proceedings before the FCC, whichever is earlier.

If the FCC proceedings are not resolved by January 22, 2018, the parties shall file a Joint Status

Report on JANUARY 22, 2018, as further instructed herein.

I. LEGAL STANDARD

“[T]he power to stay proceedings is incidental to the power inherent in every court to control

the disposition of the causes on its docket with economy of time and effort for itself, for counsel,

and for litigants. How this can best be done calls for the exercise of judgment, which must weigh

competing interests and maintain an even balance.” Air Line Pilots Ass’n v. Miller, 523 U.S. 866,

879 n.6 (1998) (quoting Landis v. North American Co., 299 U.S. 248, 254-55 (1936)) (internal

quotation marks omitted); see also Clinton v. Jones, 520 U.S. 681, 707 (1997). A party

requesting a stay of proceedings “must make out a clear case of hardship or inequity in being

required to go forward, if there is even a fair possibility that the stay for which he prays will

work damage to some one else.” Landis, 299 U.S. at 255.

II. DISCUSSION

The Court’s determination of whether a stay is warranted “is inextricably intertwined with

the nature of the specific case.” Wrenn v. District of Columbia, 179 F. Supp. 3d 135, 137 (D.D.C.

3 The Court’s review of the D.C. Circuit docket indicates that no party sought en banc review.

5 2016) (Kollar-Kotelly, J.). Accordingly, Defendants must show “that a stay is proper in this case,

at the present time,” given the circumstances specific to this matter. Id. In the present case, the stay

inquiry reduces to the following two questions: (i) What effect, if any, will the completion of the

FCC proceedings have on the proceedings before this Court?; and (ii) How, if at all, will Relator

be burdened if a stay is granted, and how, if at all, will Defendants be burdened if a stay is denied?

Defendants represent that, following the FCC Order, they “paid the full auction price to the

FCC for spectrum licenses they retained; agreed to the re-auction of licenses they did not retain;

and will reimburse the government if those licenses sell for lower prices than their full Auction . . .

prices.” Defs.’ Reply in Supp. of Mot. to Temporarily Stay Case Pending Related Appeal, ECF No.

50, at 4. As recounted above, the D.C. Circuit has ordered the FCC “to give petitioners an

opportunity to seek to negotiate a cure for the de facto control the FCC found that DISH exercises

over them.” SNR Wireless LicenseCo, LLC, 868 F.3d at 1025. Consequently, one of the following

two scenarios will occur. First, after re-auctioning of licenses that Defendants did not retain,

Defendants will pay the United States the difference between the bid and re-auction prices. Or

second, the FCC proceedings will result in a restructuring of the agreements between DISH and

the defendants, curing the de facto control the FCC found, and Defendants will be able to purchase

the licenses at the original Auction price. See SNR Wireless LicenseCo, LLC, 868 F.3d at 1046

(finding that opportunity-to-cure remedy was consistent with FCC precedent where it gave “small

companies a chance to modify their contractual agreements with large investors, in an effort to

give the small companies enough independence to satisfy the FCC” such that they would qualify

for bidding credits). Relator insists that regardless of whether Defendants pay the government

back, damages will still be present because the reverse false claim occurred when Northstar

allegedly underpaid for the bidding contracts, an act that would be unaffected by subsequent

6 contractual renegotiations between Northstar and DISH. See United States v. Newman, No. 1:16-

cv-01169-CKK, 2017 WL 3575848, at *9 (D.D.C. Aug. 17, 2017) (“[A] reverse false claim is any

fraudulent conduct that results in no payment to the government when a payment is obligated.”)

(quoting Pencheng Si v. Laogai Research Found., 71 F. Supp. 3d 73, 78 (D.D.C. 2014)) (internal

quotation marks omitted). This is an issue for another day. The important point, for purposes of

the stay, is that in either scenario, Defendants will have paid in full the amount that they were

properly required to pay for the licenses. Consequently, the FCC proceedings are unlikely to have

any effect on the amount of money remaining due to the government. Consequently, from a factual

standpoint, the amount of money that the government has been deprived of is settled. In

Defendants’ view, the government has been paid in full. In Relator’s view, because the original

$3.3 billion in bidding credits must be trebled, substantial damages remain even if Defendants pay

in full. The ossification of this factual issue counsels in favor of denying a further stay.

Nonetheless, other prudential factors do counsel in favor of waiting for the FCC

proceedings to unfurl. To the extent the FCC decides that Defendants can cure, and to the extent

this means they could have cured had they been given the opportunity to do so, and to the extent

the FCC was required to provide this opportunity, Defendants may be in a stronger litigating

position on a motion to dismiss with respect to liability and damages. Further guidance from the

FCC on these issues would also be of assistance to the Court in ruling on a motion to dismiss. The

benefit of this guidance, however, is not without its temporal limits. Relator asserts that a further

stay “inevitably will prejudice Relator’s presentation of its case” and result in “a material and

irreparable financial loss on both the United States and Relator.” Rel.’s Opp’n to Defs.’ Mot. to

Extend Stay and in Supp. of Rel.’s Mot. to Set Deadlines for Resp. to Compl. and Briefing

Schedule, ECF No. 56, at 11-12. As before, because Relator’s position assumes a fully favorable

7 outcome at such an early stage in the proceedings, the burdens Relator may suffer from a further

stay remain highly speculative, although certainly not non-existent. Conversely, Defendants

suggest that the administrative proceedings before the FCC could “substantially impact the nature

of this matter” and “the outcome of the FCC proceedings could provide additional grounds to

dismiss this matter altogether.” Defs.’ Mot. to Extend Court-Ordered Stay Pending Further

Administrative Proceedings, ECF No. 54, at 6-7. The Court agrees that denying a stay of

proceedings in this action before the FCC proceedings are completed could prejudice Defendants

in crafting a motion to dismiss, and if the FCC proceedings are completed subsequent to the filing

of the parties’ responsive pleadings, the parties may seek to amend their pleadings and engage in

supplemental motion practice, which would strain judicial resources. Nonetheless, the longer this

case remains stayed, the less the benefit of delay outweighs the burden on Relator. Consequently,

the uncertainty surrounding the length of the administrative proceedings counsels against granting

an indefinite stay pending the conclusion of those proceedings.

Rather, the Court shall adopt an alternative suggested by Defendants. Defendants’ Reply

Memorandum alternatively suggested an intermediate remedy, namely, that the parties provide the

court with a status update every 90 days after the deadline for which the parties have to seek en

banc review of the D.C. Circuit’s opinion. Defs.’ Reply Mem. in Supp. of Mot. to Extend Court-

Ordered Stay, and Mem. in Opp’n to VTel’s Mot. to Set Deadlines, ECF No. 57, at 7. As discussed

above, this matter shall be stayed for an additional 90 days from the issuance of the D.C. Circuit

mandate, until January 22, 2018, or until the FCC proceedings conclude, whichever is earlier. If

the FCC proceedings remain ongoing, the parties shall file a Joint Status Report on January 22,

2018, updating the Court on the status of those proceedings, and when they are likely to conclude.

At that time, Defendants may request a further stay of proceedings for 90 days, but their position

8 must be justified in terms of the likelihood of FCC proceedings concluding in the near future, and

of those proceedings having a substantial impact on the motion practice in this case. Absent

substantial justification, the Court is disinclined to further delay this matter.

III. CONCLUSION

For all of the foregoing reasons, the Court GRANTS-IN-PART and DENIES-IN-PART

Defendants’ [54] Motion to Extend Stay and DENIES Relator’s [55] Motion to Set Deadlines.

This matter shall be STAYED until JANUARY 22, 2018.

SO ORDERED.

/s/ COLLEEN KOLLAR-KOTELLY United States District Judge