Opinion
B165005.
11-3-2003
NOS COMMUNICATIONS, INC., Plaintiff and Respondent, v. SPRINT COMMUNICATIONS COMPANY, L.P., et al., Defendants and Appellants.
Reed Smith Crosby Heafey, Michele Floyd, Raymond A. Cardozo and Kirsten Handelmen for Defendant and Appellant Sprint Communications Company. Russakow, Ryan & Johnson, Kelly F. Ryan, Mark L. Russakow and Jeffrey D. Olster for Defendants and Appellants Hi-Tech Gateway, Inc., Scott Dance, Jay Lazaroff, Francine Logan and Andrew Lukich. Stroock & Stroock & Lavan, Richard W. Davis, Laurie DeYoung; Kelley Drye & Warren, Danny E. Adams, Joseph T. Casey, Jr., and Ira T. Kasdan for Plaintiff and Respondent.
The trial court was presented with a motion by one telecommunications company for a preliminary injunction against its competitors. The motion involved resolution of numerous factual and evidentiary issues and interpretation of a complex federal tariff. Instead of reaching the issues raised, the court issued an injunction which, in essence, ordered defendants "not to violate the law" and "not to make any false statements." We concluded the trial court abdicated its responsibilities. Remand is warranted to enable the trial court to exercise the discretion with which it has been vested.
FACTUAL AND PROCEDURAL BACKGROUND
The parties, the toll free telephone system, and the FCC Tariff.
Plaintiff and respondent NOS Communications, Inc. (NOS), and defendant and appellant Sprint Communications Company (Sprint) are competitors in the telecommunications business. Both companies provide long distance toll free telephone services for their customers commercial operations. NOS concentrates its marketing efforts almost exclusively on small business customers, and its sales are undertaken entirely through direct telephonic marketing. Sprint also competes in this market. NOS is a much smaller company than Sprint, which, together with AT&T and MCI (formerly WorldCom), is one of the "big three" long distance companies. Appellant Hi-Tech Gateway, Inc. (Hi-Tech) is an authorized sales agent for Sprint.
Individual appellants Scott Dance, Jay Lazaroff, Francine Logan and Andrew Lukich (a.k.a. Andrew Stuart) are sales representatives employed by Hi-Tech.
Subscribers of toll free telephone services agree in advance to pay for calls they receive at a predesignated toll-free (e.g ., "800") number. In the initial years of toll free service availability, numbers were assigned in a manner that made it impossible for a customer to switch to a new service provider without also changing its toll free number. This inability to retain a particular number restricted competition because businesses which had invested significantly in advertising their toll free numbers were reluctant to change them.
By 1986, the Regional Bell Operating Companies had developed a computer system and database, known as the Service Management System 800 database (database), that allowed toll free subscribers to change service providers without having to change their toll free numbers, thereby making those numbers "portable." Records in the database include routing instructions and information about each toll free subscriber, including its name, address, billing phone number, and the identity of the entity responsible for managing the subscribers database records and the subscribers service provider. The database is administered by the private companies Ameritech and SBC, which maintain two 800 numbers to ensure public access to the database. Use of information in the database is governed by the Federal Communications Commissions SMS/800 Functions Tariff, FCC No. 1 (Tariff).
The Tariff itself is lengthy and complex. The portions of the Tariff framing the parameters of this dispute provide, in pertinent part:
2.2.1 Limitations on Use
The Resp Org will not perform any functions using the [database] which are not expressly provided for under this tariff, nor will the Resp Org access data contained in the [database] which belongs to any other entity.
2.2.2 Unlawful Use
The services provided under this tariff may not be used for any unlawful purpose.
2.3 Obligations/responsibilities of the Resp Org
The Resp Org is the entity identified by the 800 subscriber . . . that assumes the duty of managing and administering the appropriate records in the [database]. Functions provided include data entry, record change and trouble acceptance, referral, and/or clearance.
2.3.5 System Security
Resp. Org.s will adhere to the following:
(B) Resp Orgs may not disclose or use information which may be learned as a consequence of access to the [database] except as may be directly required to insure the proper operation of the subscribers telecommunications service. Resp. Org.s must take all reasonable precautions to prevent any other person or entity who does not have a need to know from acquiring such information.
2.6.1 Proprietary Information (General)
(B) Without limiting the generality of proprietary Information, as defined in 2.7 following, the Resp Orgs Proprietary Information includes the Resp Orgs . . . individual and compiled listings of the Resp Orgs customers . . . .
(C) Proprietary Information shall not include any 800 number, the status of any 800 number, the name of the entity which is the Resp Org for any 800 number and the Resp Orgs trouble referral number.
2.7 Definitions
Proprietary Information: Any information or data of a party which is disclosed by that party . . . to the other party . . . under or in contemplation of this tariff and which . . . is clearly marked [or identified] as confidential or proprietary when disclosed . . . .
To obtain a toll free number, a subscriber must choose a "Responsible Organization" (Resp Org) to manage and administer its toll free service records in the database. A subscribers Resp Org may or may not be the same entity as the carrier providing that subscribers toll free service. For example, Hi-Tech is a Resp Org, but does not provide toll free services. In addition, some Resp Orgs—such as WilTel, the Resp Org for some of NOSs customers—act as the Resp Org for many carriers. If a Resp Org is not responsible for administering a particular toll free number, it may obtain from the database only the name and phone number of the Resp Org responsible for that toll free number. It cannot obtain from the database the name, address or billing number of other subscribers, or the identity of the carrier for another Resp Orgs customers.
Any entity able to meet certain financial, technical and service-related criteria may act as a Resp Org.
Hi-Techs marketing efforts.
To locate leads for potential customers, Hi-Tech purchases publicly available lists of toll free numbers from internet websites. A Hi-Tech employee then calls one of the toll free numbers the Tariff requires Ameritech and SBC to maintain to ensure public access to the database. The caller receives a computerized prompt and enters the toll free numbers on the purchased list to learn who the Resp Org is for each number. Hi-Tech then eliminates from its list the numbers for Sprints existing customers, and contacts the remaining numbers on the list to market Sprints toll free telecommunications services.
In Summer 2000, Hi-Tech, on Sprints behalf, began directing marketing efforts at NOSs customers. NOS believed the Sprint sales agents were giving false, misleading and defamatory information to NOSs long distance customers in an attempt to persuade those customers to switch to Sprint. This information related to NOSs billing rate plans, approximately 60% of which are sold on a "cents per call unit" basis unique to NOS and its affiliates, rather than the industrys traditional billing method format of "cents per minute." The "cents per call unit" rate structure is also known as a "total call unit" or "TCU" plan. A TCU is composed of usage and non-usage charges. A TCU may but need not equal a minute and is not a uniform measure of time.
Usage sensitive charges include network transmission expenses, and local telephone company access fees. Non-usage sensitive charges include costs such as overhead, sales commissions and equipment amortization. Non-usage costs are not typically calculated or billed as a component of a carriers cents per minute rate.
Government investigations of NOS.
Between 1997 and early 2001, the FCC received approximately 900 complaints about NOSs TCU billing practices. Those complaints evinced widespread consumer confusion regarding NOSs service plans and charges. Consumers commonly complained NOSs pricing methodology was complicated, confusing and seemed designed to cheat the public. Another frequent complaint was that NOS misrepresented its rates, resulting in charges substantially higher than the rates it had promised. Consumers said NOS was unresponsive to their complaints, and often promised credits or discounts that never materialized. There were also complaints that, when customers refused to pay disputed bills, NOS threatened them with referring their accounts to bill collectors, initiating legal action, or holding their toll free numbers "hostage." Consumers complained that, when they attempted to discontinue using NOS as their carrier, they often experienced undue delays or difficulty switching to a new carrier, or continued to be billed for services by NOS even after the switch was effected.
In response to these and other complaints, the FCC conducted an investigation. In April 2001, it issued a "Notice of Apparent Liability for Forfeiture" in which it concluded NOS had in all likelihood committed numerous violations of section 201(b) of the Communications Act of 1934 (47 U.S.C. § 201(b)), and had engaged in deceptive marketing of its interstate telecommunication services by failing clearly and conspicuously to disclose material facts regarding its promotions and pricing methodology. NOS was given a month to pay a fine, or "forfeiture," of $1 million, or explain why the forfeiture should be reduced or not imposed.
NOS filed a response, and then engaged in negotiations with the FCC. In December 2002, the FCC issued an Order adopting a Consent Decree. Under the terms of that Consent Decree, NOS was ordered to "make a voluntary contribution (not a fine or penalty) to the United States Treasury in the amount of $ 1 million dollars." NOS also agreed to make certain changes to its marketing practices by late January 2003.
Specifically, NOS agreed that, "with regard to the marketing/advertising, sale, or customer service of any call unit promotional or non-promotional interstate communications service," it would, in its telephonic marketing:
(1) "Make only those representations concerning rates or other material facts which [it knew] or reasonably believe[d] to be true and accurate";
(2) "Represent or imply at the time of sale that rates are in minutes or cents per minute only where such is the case during and beyond any promotional period";
(3) "Market or promote only in a manner which is consistent with and which accurately represents the customers rates during and beyond any promotional period, and in a manner which is appropriate for reasonable understanding by a customer to which the plan is offered"; and
(4) "Concerning a call unit promotional rate plan, clearly and conspicuously indicate that the initial rate is promotional, specify the basis on which future charges will be billed after the promotional period ends, and state the duration of the promotional period."
NOS made substantially similar promises with regard to the dissemination of its written marketing materials.
Throughout 2001 and 2002, governmental authorities in California, Wisconsin, Florida, South Dakota, Minnesota and Nevada also investigated NOS and some of its affiliates for deceptive business and billing practices.
The lawsuit.
NOS initiated this action for monetary, declaratory and injunctive relief in October 2002. It alleged six causes of action for unfair competition in violation of Business and Professions Code section 17200 (first); trade disparagement (second); interference with contractual relations (third); interference with prospective economic advantage (fourth); common law unfair competition (fifth); and an accounting (sixth).
NOS alleged that Hi-Tech, acting as Sprints agent, improperly used confidential and proprietary information obtained from the database to target NOSs customers. It also alleged that, in its attempts to convince NOSs customers to switch to Sprint as their service provider, Hi-Tech "conveyed false and misleading information, including but not limited to:
• "Falsely telling customers that they are being charged for Total Call Units ("TCUs") as opposed to actual call minutes;
• "Falsely telling customers that NOS in [sic] engaged in deceptive billing practices; [and]
• "Faxing NOS customers documents containing the aforementioned false and deceptive statements."
On an ex parte basis, NOS obtained a temporary restraining order, and then filed a motion for a preliminary injunction, the partial granting of which is at issue here.
NOS seeks a preliminary injunction.
By its motion for a preliminary injunction, NOS argued Sprint and Hi-Tech had misused highly confidential information in an ongoing attempt to steal away NOSs customers, in violation of the Tariff and antitrust laws; had defamed NOS by falsely representing to its existing and potential customers that NOS was using improper billing practices; and had solicited NOSs customers through the use of false and deceptive information. NOS argued Hi-Tech and Sprints actions constituted "unfair," unlawful" and "fraudulent business practices in violation of section 17200 of the Business and Professions Code, for which temporary and permanent injunctive relief was appropriate.
NOSs argument regarding the likelihood it would prevail at trial, rested, in large measure, on its argument that Hi-Tech had violated the Tariff by compiling proprietary lists of NOSs customers by improperly using information obtained through the Ameritech and SBC 800 numbers, information which in turn came from the database and which was not intended to be used for the marketing purposes to which Hi-Tech put it. Specifically, NOS asserted Hi-Tech violated the following Tariff provisions:
(1) Section 2.2.1, which prohibits a Resp Org from "perform[ing] any functions using the [database] which are not expressly provided for under this Tariff." NOS asserted Hi-Techs use of information obtained from the database to obtain customers for Sprint was an activity "not provided for, and certainly not intended by, the Tariff."
(2) Section 2.2.1, which also prohibits a Resp Org from accessing" data contained in the [database] which belongs to any other entity." NOS asserted its customer/subscriber list is proprietary information contained in the database to which Hi-Tech is not entitled to gain access for the purposes it does.
(3) Section 2.2.2, which prohibits [anyone] using "services provided under [the Tariff] . . . for any unlawful purpose." NOS argued Hi-Techs use of database information for competitive commercial purposes was not a lawful use under the Tariff, which is designed solely to facilitate Resp Orgs provision of toll free administrative functions and services.
(4) Section 2.3.5, which precludes a Resp Org from using "information which may be learned as a consequence of access to [the database] for purposes not directly required to insure the proper operation of its subscribers telecommunications service." NOS contended that Hi-Techs use of database information—regardless of whether it obtained the information itself directly from the database or through a third party—for competitive commercial purposes violated the Tariff, because it was not obtained or required to insure the operations of a subscribers toll free services.
Although NOSs accusations were largely leveled at conduct undertaken by Hi-Tech, it argued the allegedly unlawful conduct was equally attributable Sprint because: (1) under principles of agency, Sprint was liable for its agents misconduct; (2) Sprint was an Resp Org itself, and was not entitled to benefit from the "ill gotten gains" obtained by its agent in violation of the Tariff; and (3) Sprint had been alerted to Hi-Techs activities, but had undertaken no effort to stop it.
NOS also argued Hi-Tech had violated Californias statutory prohibitions against libel, and its common law prohibition of trade libel by using false and deceptive information about NOS to solicit its existing and future customers, by making false assertions about NOSs TCU billing method and the calculation thereof, and by making false assertions about actions taken against NOS by government agencies. According to NOS, Hi-Techs allegedly defamatory conduct constituted both "unlawful" and "fraudulent" acts in violation of Business and Professions Code section 17200, for which NOS was entitled to injunctive relief.
NOS further argued that, by virtue of Hi-Techs ongoing course of conduct, it was suffering irreparable injury in the form of lost profits, irretrievable revenues, devaluation of its reputation, a reduced market share and significant and permanent loss of customer goodwill. It asserted it was likely to suffer greater harm if its request for preliminary injunctive relief were denied than Sprint and Hi-Tech would suffer if the motion were granted. NOSs motion was accompanied by affidavits from Mary De Luca, a telecommunications consultant, and William Wright, NOSs executive director of corporate and regulatory affairs.
DeLuca opined that Hi-Tech violated the Tariff by using services and data protected under the Tariff for the unlawful purpose of wooing NOSs customers to Sprint. She said Sprint was also liable because it had misused protected data and services for unlawful purposes, and had used its agent Hi-Tech to accomplish that which it could not directly do itself.
Wright explained the use and calculation of TCUs, and identified several instances in which people whom he believed to be representatives of Hi-Tech or Sprint defamed NOS. As a result of that wrongful conduct, he claimed NOS had lost goodwill, a disproportionate number of customers, and over $90,000 in monthly revenue.
Sprint and Hi-Tech oppose the motion.
Sprint and Hi-Tech opposed the motion. Sprint argued NOS was not likely to prevail on the merits of its claim for violation of section 17200. First, Sprint argued that, under the terms of the Tariff, the identity of a Resp Org was not proprietary information. In addition, Sprint argued NOS was incorrect in its assertion that Hi-Tech accessed the database in order to obtain information from which it compiled NOSs customer list. On the contrary, Sprint asserted that Hi-Tech merely purchased its lists of leads of toll free numbers from publicly available information, and then had an employee contact one of two public access numbers to obtain the non-proprietary identity of the Resp Org for each number on its list. Thus, Sprint argued NOS was incorrect in its assertion that Hi-Tech directly accessed the database to obtain information for marketing purposes. And, it argued, since the Tariff governs only access to the database, neither it nor Hi-Tech could be liable absent direct access to the database.
On the issue of defamation, Sprint argued that each of the allegedly defamatory statements Hi-Tech was accused of making in its effort to get NOSs customers to switch carriers was "grounded in truth." It submitted information regarding the FCCs investigation of NOSs billing practices, and its apparent finding of liability, proposed fine and Consent Decree. It also submitted information from various state regulatory agencies and attorneys general which had investigated or were engaged in investigating NOSs allegedly deceptive billing practices. As a result of those investigations, Sprint submitted evidence NOS itself had admitted that, at least up until August 2002, it had advertised in "cents per minute" but billed at TCU rates. Sprint noted that NOS had offered no evidence any of Hi-Techs allegedly defamatory representations were made after July 2002. Sprint also pointed to the exhibits NOS offered in support of its argument that Hi-Tech agents had falsely represented NOS had been "fined." Sprint pointed out that the documents on which NOS relied actually state the "FCC proposes $ 1 million in total fines," and that the "NOS Companies face [a] $300,000 fine in Florida." In support of its assertions, Sprint pointed to a press release from the FCC which states: "FCC fines NOS/ANI $1 million," and another released by Floridas Attorney General which says: "NOS Fined! Long Distance Company to pay $2.5 million under agreement."
The NOS representative who made this concession later declared he had intended to refer to August 2000, not August 2002.
Sprint also argued NOS was unlikely to prevail as to its contention that Hi-Tech had made misrepresentations to NOSs customers regarding the TCU calculations, because Hi-Techs allegedly defamatory representations (calculations) were substantially true and supported by materials NOS itself had submitted in support of its motion. Finally, Sprint argued that statements made by business competitors were protected by a qualified privilege which could be defeated only by a showing of malice, which NOS had not made and could not make, particularly in light of the credible information contained in governmental and press reports in the record.
With respect to the balancing of hardships involved in the courts decision to grant or deny the request for preliminary relief, Sprint argued NOS had presented no evidence that it would suffer irreparable harm, no evidence of damage to its reputation and good will (other than that it caused itself by engaging in the deceptive billing practices which were the subject of several investigations), and no evidence it had lost any customers. Sprint also lodged extensive evidentiary objections to the De Luca and Wright affidavits.
Hi-Tech made similar arguments in opposition to the motion, submitted substantially similar evidentiary objections to the De Luca and Wright affidavits, and lodged additional evidentiary objections to some of NOSs materials.
NOS filed a reply to Sprint and Hi-Techs opposition papers, accompanied by numerous documents, including responses to the defendants evidentiary objections, and objections to portions of the defendants affirmative evidence. It also offered, for the first time, a declaration from Barbara Jablonski, an SBC employee responsible for, among other things, retail management and 800 number service. She said the database was intended solely to facilitate Resp Orgs provision of administrative services, not to enable them to help Resp Orgs identify and solicit another entitys customers for competitive commercial purposes. As with DeLucas earlier affidavit, defendants objected to Jablonskis declaration on the grounds that, among other things, she was not qualified to interpret the Tariff and had rendered an improper expert opinion.
The hearing and the order.
The hearing on the motion for preliminary injunction was held January 30, 2003. The next day, the trial court issued an order granting "part of the relief sought by NOS," and enjoining Hi-Tech, Sprint, and their agents from:
"1. violating [the Tariff ] governing the use of information obtained from the [database] as a consequence of access to the [database] and using information derived therefrom for any reason other than as allowed by the Tariff.
"2. making any false statements to NOS customers regarding NOS billing practices.
"3. contacting anyone and falsely telling them that NOS is engaged in fraudulent or deceptive billing practices or has been found to be guilty of such practices,
"4. Contacting anyone and calculating the charges for any call under the NOS call unit rate structure in a manner that is incorrect or misleading,
"5. Faxing anyone, including NOS customers documents containing the above-mentioned false and deceptive statements,
"6. maintaining any website containing the above-mentioned false and deceptive statements or referring anyone to such a website."
The language of the courts order largely tracked the proposed order submitted by NOS, but deleted certain specific proposed provisions. NOSs proposed order, with the now excised (italicized) portions states, in pertinent part:
"1. violating [the Tariff ] governing the use of information obtained from the [database] as a consequence of access to the [database] and using information derived therefrom for any reason other than as allowed by the Tariff, and specifically enjoin Hi-Tech and its employees from compiling or using lists of NOS customers based on information Hi-Tech obtained or possesses that comes from the [database,] including from the two 800 numbers . . . operated by Ameritech and Pacific Bell;
"2. contacting NOS customers and falsely telling NOS customers that they are being overcharged because NOS bills its customers according to TCUs as opposed to actual call minutes, because such statements are mischaracterizations of fact capable of being proved false;
"3. contacting anyone and falsely telling them that NOS is engaged in fraudulent or deceptive billing practices or has been found to be guilty of such practices, or has been fined for such practices, because such statements are mischaracterizations of fact capable of being proved false;
"4. Contacting anyone and calculating the charges for any call under the NOS call unit rate structure in a manner that is incorrect or misleading.
"5. Faxing anyone, including NOS customers documents containing the above-mentioned false and deceptive statements, because these documents contain statements that are mischaracterizations of fact which are capable of being proved false; and
"6. maintaining any website containing the above-mentioned false and deceptive statements or referring anyone to such a website."
"In addition, [Sprint and Hi-Tech] shall forthwith destroy any lists compiled based on information Hi-Tech ever obtained or possesses that comes from the [database,] including from the two 800 numbers . . . operated by Ameritech and Pacific Bell, and shall so certify to [NOS] and this Court within three business days of the date of this Order."
The court did not address or rule on the parties objections at the hearing, and made no findings of fact or conclusions of law in its order.
On February 7, 2003, Sprint and Hi-Tech filed a notice of appeal from the order issuing the injunction.
NOSs threatens contempt and the court conducts its first post-order hearing.
Both sides appellate materials refer to incidents and trial court proceedings which occurred after entry of the order appealed from. Ordinarily, we will not consider matters outside the record. However, consideration of such matters is appropriate here and, for that reason, we granted appellants motion to augment.
On February 11, 2003, the trial court convened a hearing in response to an ex parte request by Sprint to stay enforcement of the preliminary injunction pending resolution of the appeal. Sprint informed the court it had already been threatened with contempt proceedings, and said the parties had "fundamental disputes about what [the] injunction means." It said the parties differing interpretations of the order was impacting its ability to conduct business, and requested the clarification of the order.
At the hearing, Hi-Tech argued that, based on NOS strict interpretation of the order, Hi-Tech was precluded from using the SBC 800 numbers to identify any Resp Org at all. In other words, Hi-Tech asserted that, because, by dialing the SBC numbers, it would be able to identify NOSs Resp Org (which has many customers other than NOS) as well as others, it was precluded from using the database to identify any Resp Org for any customer, at all, including Sprints own customers.
The court noted "that certainly wasnt the intent," and asked the parties to stipulate to a change in the first paragraph of the order to clarify that the order was not intended to "have any impact other than as it involves NOS Communications." NOS argued the trial court had been divested of jurisdiction by the filing of this appeal, and lacked the power to modify the order. Acknowledging a loss of its jurisdiction would render its changes ineffective, the court nevertheless proceeded to modify the first paragraph of the order. As it reads now, the first paragraph of the order precludes Sprint, Hi-Tech and their agents from: "violating [the Tariff ] governing the use of information obtained from the [database] relating to NOS Communications, Inc. as a consequence of access to the [database] and using information derived therefrom for any reason other than as allowed by the Tariff. The court also ordered a two-week stay of the injunction.
Our conclusion renders it unnecessary for us to decide whether the court had jurisdiction to modify the order.
The threat of contempt continues, as does the dispute about what the order means.
On March 5, 2003, NOS filed an "Ex Parte Application for Explanation of the Preliminary Injunction," which was argued March 10, 2003. Once again, the parties noted their contradictory interpretations of the courts order, as modified. According to NOS, the order precluded Sprint and Hi-Tech from using the SBC 800 numbers for marketing purposes. In Sprint and Hi-Techs interpretation, the order merely said "dont violate the Tariff," and, because the court had rejected the specific provisions of NOSs proposed order which, if accepted, would have enjoined the defendants from using compilations of toll free numbers (some of which might have been NOSs customers), and had not mentioned use of the SBC 800 numbers at all, the defendants were free to continue to use the SBC 800 numbers to continue identifying potential Sprint customers. They also argued the language "relating to NOS" did not preclude them from using the 800 numbers to identify Resp Orgs because an identification of a given Resp Org did not necessarily "relate to NOS." That is, because, for example, WilTel acts as the Resp Org for NOS as well as several hundred other carriers, its identification through use of the Database was not the same as a direct attempt to ferret out only NOSs customers. Moreover, they argued that merely making a call to a NOS customer, in and of itself, did not violate the preliminary injunction. When the court noted the injunction did not bar Sprint and Hi-Tech from talking to NOSs customers, only from lying to them, Sprints counsel said that was exactly the problem. In other words, despite the parties disagreement as to the conduct permitted by the Tariff, and whether Hi-Techs statement about NOS was defamatory, the courts order failed to clarify what, in the context of this case, constituted a violation of the Tariff or a prohibited "false" statement.
Once again, the court noted it lacked the power to alter the terms of the injunction while an appeal was pending. Sprints counsel then asked the court to clarify whether Hi-Techs marketing practices about which NOS complained violated the injunction. Sprint noted such guidance was necessary to enable it "to structure [its] conduct against the risk of contempt." The court denied Sprints request and said "I cant give you guidance. I can only issue an injunction and deal with contempt if it comes up." Sprints counsel then asked for the courts understanding of the language of the Tariff that states that the identity of a Resp Org is not proprietary information, noting there had been no express ruling on that disputed issue. The court informed the parties it had not interpreted the Tariff and did not intend to do so unless there was a contempt proceeding: "Well, Im not an expert on the Tariff. I cant—I havent read the darn thing. . . . I will if its a contempt hearing. All right?"
Appellants filed two writ petitions to stay the injunction. Both were denied.
DISCUSSION
On appeal, Sprint contends the order issuing an injunction must be reversed because: (1) the trial court failed to make the requisite findings regarding the likelihood of success and interim harm; (2) the order is fatally uncertain and fails to specify the speech or conduct that is proscribed; and (3) it is overbroad as to Sprint which has engaged in no unlawful actions independent of those allegedly undertaken by its sales agent, Hi-Tech. Sprint also invites this court to decide whether the conduct at issue by Hi-Tech violates the Tariff, and whether NOS must show that Hi-Techs allegedly false statements were made with malice.
Hi-Tech has not filed its own appellate briefs, but has "joined" in Sprints.
We conclude the order suffers from two fatal flaws: first, the trial court failed to exercise its discretion; and second, because the truth or falsity of the statements at issue was not resolved, the order lacks certainty as to the conduct or speech that is proscribed. However, we decline Sprints invitation to interpret the Tariff or to make initial factual findings on appeal.
1. The standards governing the trial courts determination of a motion for a preliminary injunction, and appellate review of that ruling.
The standards governing the issuance of a preliminary injunction are well established. The decision to grant or deny a request for a preliminary injunction rests in the sound discretion of the trial court (14859 Moorpark Homeowners Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402-1403), and its decision will not be reversed on appeal absent a showing of abuse of discretion. (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.) The party challenging the injunction has the burden to make a clear showing that the trial court abused its discretion, i.e., that its decision "exceeded the bounds of reason or contravened the uncontradicted evidence." (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69.)
"In determining the propriety of preliminary relief, neither the trial court nor an appellate court may undertake a final adjudication of the lawsuit." (Hunt v. Superior Court (1999) 21 Cal.4th 984, 999, fn. and citation omitted.) A decision to grant or deny a preliminary injunction is not an ultimate adjudication of the dispute, but simply a provisional remedy intended to preserve the status quo pending a trial on the merits. (Ibid.; Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528 .)
When deciding whether to grant an injunction, the trial court must consider two factors: (1) the likelihood that the plaintiff will prevail on the merits of its case at trial; and (2) the interim harm the movant is likely to sustain if the injunction is denied as compared to the harm its opponent will likely suffer if the preliminary injunction is granted. (14859 Moorpark Homeowners Assn., supra, 63 Cal.App.4th at pp. 1402-1403, citation.) A determination as to the latter factor involves consideration of such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo. (Ibid.) "In the last analysis the trial court must determine which party is the more likely to be injured by the exercise of its discretion and it must then be exercised in favor of that party." (Continental Baking Co., supra, 68 Cal.2d at p. 528.) This two-part inquiry must be made before an injunction may issue. (See Casmalia Resources, Ltd. v. County of Santa Barbara (1987) 195 Cal.App.3d 827, 832.)
Typically, our job as the reviewing court is merely to assess whether the trial court exceeded the bounds of reason in determining that a plaintiff has a reasonable probability of prevailing on the merits and that the balance of hardships tips in its favor. (Paradise Hills Associates v. Procel (1991) 235 Cal.App.3d 1528, 1538.) However, such an assessment is not possible in this case in which the trial court abdicated its responsibilities and failed to exercise any discretion at all. Accordingly, for the reasons discussed below, we conclude the injunction must be dissolved, and the matter remanded to enable the trial court to perform its responsibilities.
A pivotal issue in this dispute is whether Hi-Techs conduct violates the Tariff. Sprint contends it is not violative because the identity and phone number of the Resp. Org. for any given toll free number is expressly excluded from the Tariffs definition of proprietary information, and must be made available to any individual or entity requesting that information. NOS, on the other hand, claims Hi-Techs conduct violates the Tariff because the FCC has made access to the information Hi-Tech seeks available to it and other Resp Orgs solely for the purpose of enabling Resp Orgs to manage and administer their customers toll free numbers, and clearly did not intend the exploitation of such access for commercial purposes. A mere recitation of the parties respective contentions illustrates immediately that, in order to determine if NOSs interpretation of the Tariff would likely carry the day at trial, the trial court was required, at a minimum, to "read the darn thing."
The "discretion" vested in the trial court "is the power to make the decision, one way or the other." (People v. Myers (1999) 69 Cal.App.4th 305, 309.) That power necessarily entails the duty to make a decision after considering the evidence, the merits of the parties respective arguments and the relevant factors involved in a determination as to whether injunctive relief is appropriate and how it should be framed. (See People v. Tenorio (1970) 3 Cal.3d 89, 95 [discretion is "a judicial power which must be based upon an examination of the circumstances of the particular case before [the court], and which is subject to review for abuse"]; Gossman v. Gossman (1942) 52 Cal.App.2d 184, 194-195 [discretion "`is that power of decision, exercised to the necessary end of awarding justice, and based upon reason and the law, but for which decision there is no special governing statute or rule. [Citation.]"].)
A trial courts failure to consider the factors relevant to the determination it must make constitutes a breach of duty by the court which is itself an abuse of its discretion. (Richards, Watson & Gershon v. King (1995) 39 Cal.App.4th 1176, 1180 ["The trial courts failure to exercise its discretion was itself an abuse of discretion."]; Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 449 [same];Dubois v. Corroon & Black Corp. (1993) 12 Cal.App.4th 1689, 1696.)
2. Trial court failed to determine whether the Tariff was likely violated.
NOS contends the Tariff permits database access only to identify a given Resp Org for specific administrative or trouble-shooting purposes. In NOS view, Hi-Techs use of the database, or its use of information obtained from the database, to identify Resp Orgs for marketing purposes is an unpermitted, and thus unlawful, use. Sprint, on the other hand, insists the Tariff limits use only of information it defines as "proprietary information." Sprint contends, because the identity of any given Resp Org is specifically excluded from the Tariffs definition of "proprietary information," Hi-Techs practice of using the database to identify the Resp Org for a given toll free number, and its subsequent marketing to that Resp Org of Sprints toll free services is a lawful and permitted use under the Tariff. Obviously, in making a decision as to whether preliminary injunctive relief is warranted, the trial court could not determine whether NOS would likely prevail at trial without first reading the Tariff and making at least a preliminary assessment as to the merits of the parties arguments.
The trial court failed to conduct the proper inquiry. First, the court never found, or even intimated, that the specific conduct about which NOS complained was unlawful.
On this basis, Sprint argues it actually "won" below, but chose to appeal because the courts order is so vague as to leave it exposed to contempt for unspecified future acts for which it lacks notice. Such an injunction would be impermissible. (See City of Redlands v. County of San Bernardino (2002) 96 Cal.App.4th 398, 416 [injunction ordering party to obey the law in the future is impermissible].)]
Second, the court granted NOS only "part" of the relief it sought, rejected the specific findings proposed by NOS as to Hi-Techs allegedly unlawful conduct (each of which related to use of the database to identify Resp Orgs), and only prohibited Sprints usage the database "for any reason other than as allowed under the Tariff." Given the basis of the parties dispute, the scope of the order strongly suggests the court did not conclude, as NOS urges, that Hi-Techs access of the database to obtain Resp Org information for marketing purposes violated the Tariff. Indeed, given the courts statement that it had not intended to restrict all use of the database to identify Resp Orgs, and its belated attempt to modify its order to enjoin Hi-Tech from accessing the database to obtain only information specifically "relating to NOS," it appears the courts intention was only to prevent the defendants from obtaining NOSs proprietary customer information, not from obtaining the identity of any Resp Org.
Finally, after the parties were forced twice to seek clarification and judicial guidance as to the meaning of the order, the court specifically admitted it had not analyzed whether Hi-Tech had violated the Tariff, and did not intend to do so unless there was a contempt proceeding. To grant the motion for a preliminary injunction, the court was, at a minimum, obligated to decide whether the moving party would likely prevail at trial. That determination could only have been made after the court read and analyzed the Tariff. The court could not avoid that obligation by issuing the equivalent of an order "not to violate the law." Such an order is meaningless where the dispute involves whether certain activities violate the Tariff.
Ordinarily, we imply such findings as are necessary to support the trial courts exercise of discretion. However, we will not exercise our discretion in favor of the trial court on any theory it did not consider, and will not blindly affirm the judgment below, even if there may be some evidence to support it. The rules of appellate review cannot let form control substance. (See Blue Chip Enterprises, Inc. v. Brentwood Savings & Loan Assn. (1977) 71 Cal.App.3d 706, 717 [B. Jefferson dissent, citing Lippold v. Hart (1969) 274 Cal.App.2d 24, 26. —appellate court cannot use an un-relied upon reason to sustain a trial courts decision where such reasons represent a failure of the trial court to pass on the merits of the matter presented to it].)
NOS insists the trial court did determine it would likely prevail on the merits based on the expert opinions of DeLuca and Jablonski that Hi-Techs use of the database was illegal. This argument lacks merit. First, the declarations may be irrelevant, as NOS has not made a sufficient showing that either declarant has the requisite expertise to testify as to the purpose of the Tariff. Appellants objected to the declarations on foundational grounds, but the court failed to address the objections.
More importantly, as with any statute, the interpretation of the Tariff is a question of law beyond either declarants competence. (See Communications Satellite Corp. v. Franchise Tax Bd. (1984) 156 Cal.App.3d 726, 747; Sullivan v. Fox (1987) 189 Cal.App.3d 673, 682, fn. 4.) Therefore, even if the record reflected that the court read and considered DeLuca and Jablonskis opinion as to the legality of Hi-Techs activities, their declarations would not have been properly considered in making the legal determination as to whether to grant preliminary injunctive relief. (Communications Satellite Corp., supra, 156 Cal.App.3d at p. 747.)
The court also failed to conduct the second part of the analysis as to the interim harm each side is likely to suffer by a grant or denial of the motion. First, NOS does not appear to have made an adequate showing that an award of damages after trial would inadequately compensate it for any harm defendants caused. Injunctions are rarely granted where damages would provide a clear remedy. (Code Civ. Proc., §526, subd. (a); see also Thayer Plymouth Center, Inc. v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300, 307; People ex rel. Gow v. Mitchell Brothers Santa Ana Theater (1981) 118 Cal.App.3d 863, 870-871 [injunctive relief is unlikely absent a showing by the movant it will be badly hurt in a way which cannot later be repaired].) Moreover, preliminary injunctions rarely issue in disputes, such as this, between business competitors involving claims of unfair competition. As a well-respected treatise explains, "the reason is that there is usually no `irreparable injury, and also because most cases have meritorious claims on both sides which must be explored fully [at trial] before injunctive relief can be granted." (Weil & Brown, Cal. Practice Guide: Civil Procedure before Trial (The Rutter Group 2003) ¶ 9:689, p. 9(II)-36.)
It necessarily follows that, having failed to make the preliminary determination as to whether defendants violated the Tariff or made false statements, the court could not logically conclude that injunctive relief was necessary to preserve the status quo, or that NOS would suffer irreparable harm if relief were denied.
3. The trial court also failed to conduct the proper inquiry as to issues of defendants allegedly false statements.
NOSs request for preliminary injunctive relief was also premised on its claim that Hi-Tech falsely represented that NOS engaged in deceptive billing practices for which it had been investigated and fined, and falsely told NOS customers that NOS billed in TCUs rather than actual call minutes. Sprint and Hi-Tech disputed NOS contentions and pointed to evidence of numerous governmental investigations of NOS billing practices, governmental press releases and the FCC Consent Decree, as well as NOSs own admission, to support their assertion that the statements which NOS disputed were indisputably, or at least substantially, true.
The trial court never addressed or resolved this fundamental dispute. Instead, it simply ordered Hi-Tech and Sprint not to make any disparaging statements to NOS customers regarding its billing practices, and not to falsely tell anyone NOS engaged in fraudulent or deceptive billing practices, or had been found guilty of such practices. Given the strong disagreement as to whether the statements were false or deceptive, the courts conclusory ruling left the defendants with an injunction that fails to define the proscribed speech, and gives no clear indication as to which statements would expose defendants to the risk of criminal sanctions if found in contempt for violating the order.
The threat of contempt is not idle. Indeed, within days of the filing of this appeal, NOS threatened to initiate contempt proceedings against Sprint and Hi-Tech for violating the injunction. In response to that threat, the court conducted a hearing, attempted to clarify the injunction by adding the "relating to NOS" language to the first paragraph, and granted a short stay. Two weeks later, NOS again threatened contempt. The threat was withdrawn only after Sprint pointed out that the contempt NOS alleged was premised on a portion of the proposed order the court had rejected. At that point, NOS abandoned its effort to obtain an OSC re contempt and chose instead to ask the trial court to "explain" its order, thereby implicitly acknowledging that the terms of the injunction were too vague to give rise to the potential exposure to the quasi-criminal sanction of contempt.
As the post-injunction events demonstrate, the vague terms of the injunction leave Sprint and Hi-Tech subject to contempt even though they may not know precisely what actions or statements are prohibited. As such, the injunction cannot stand. "Before a party may be held in contempt of an order of the court, `the acts constituting the contempt must be clearly and specifically prohibited by the terms of the injunction, and the `party bound by an injunction must be able to determine from its terms what he may and may not do; he cannot be held guilty of contempt for violating an injunction that is uncertain or ambiguous." (Gottlieb v. Superior Court (1959) 168 Cal.App.2d 309, 312, citing Weber v. Superior Court (1945) 26 Cal.2d 144, 148, City of Vernon v. Superior Court (1950) 38 Cal.2d 509, 513, Brunton v. Superior Court (1941) 20 Cal.2d 202, 205, and Matos v. Superior Court (1939) 30 Cal.App.2d 641, 649.) In light of the specifics of the parties dispute, the injunction, as drafted, is too vague and uncertain to be enforceable.
NOS correctly notes that pinpoint precision is not required to render an injunction enforceable. Rather, the order need only be "definite enough to provide a standard of conduct for those whose activities are proscribed, as well as a standard for the ascertainment of violations of the injunctive order by the courts called upon to apply it." (Pitchess v. Superior Court (1969) 2 Cal.App.3d 644, 651; People v. Custom Craft Carpets, Inc. (1984) 159 Cal.App.3d 676, 681 [if it is reasonably possible to determine whether a particular act is within its grasp, an injunction may have wide scope and proscribe entire categories of conduct]). In addition, the intent underlying the order, and the conduct it seeks to enjoin, must and can usually be interpreted in light of the entire record. (Continental Baking Co., supra, 68 Cal.2d at p. 534.)
However, in this case, where the courts conclusory order instructs the defendants only to "not make any false statements," and "not violate the Tariff," it is impossible to ascertain which statements, if any, the court finds false, and which acts, if any, the court believes violate the Tariff. That this is true is evident from the courts admission that it has not yet decided exactly what its order enjoins. Such an order cannot be construed in context and is too uncertain to be an enforceable or valid regulation of defendants speech or conduct. As the short history of this case demonstrates, "[s]uch a broad restraint invites continual litigation and casts the constant shadow of possible criminal prosecution over" defendants marketing practices. (KGB, Inc. v. Giannoulas (1980) 104 Cal.App.3d 844, 859; Pitchess, supra, 2 Cal.App.3d at p. 651 [vague injunction ambiguously prohibiting a broad range of conduct is presumptively void because it is too uncertain to be a valid conduct regulation, whose violation may produce criminal sanctions].)
In sum, we agree with Sprint. The trial court sought to avoid deciding which, if either, partys interpretation of the Tariff was correct, and to preserve the status quo by simply entering a "dont break the law" injunction. For all the reasons stated above, and as we have stated before, the trial courts "failure to exercise discretion is an abuse of discretion," and remand is appropriate so the court may exercise the discretion with which it is vested, but has not exercised. (Kahn v. Lasordas Dugout, Inc. (2003) 109 Cal.App.4th 1118, 1124, citation; see also Brigante v. Huang (1993) 20 Cal.App.4th 1569, 1588, disapproved on other grounds by Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 983 fn. 12 ["A trial court may be required to exercise discretion if it has failed to do so."].) Accordingly, the injunction must be dissolved and the matter remanded to enable the trial court to exercise the discretion it has declined to exercise.
Sprint has invited us to decide whether Hi-Techs conduct violates the Tariff or whether its statements were false. We decline to do so. Numerous factual and evidentiary disputes must be resolved before those determinations can be made, and the task of making them is committed in the first instance to the trial courts discretion. Stated differently, it is the trial judges function to consider the relevant factors and to make a reasoned choice as to the grant and framing of an injunction. Abdication of those responsibilities in the hope the dispute will disappear does not constitute the exercise of discretion.
We conclude the matter must be returned to the trial court so that it may conduct a new hearing on the motion to determine (1) the likelihood NOS will prevail at trial on the merits of each cause of action for which it seeks provisional injunctive relief, and (2) whether the interim harm NOS will likely sustain if its request for injunctive relief is denied outweighs the harm Hi-Tech and Sprint are likely to suffer if the preliminary injunction is granted. (See 14859 Moorpark Homeowners Assn. v. VRT Corp ,supra, 63 Cal.App.4th 1396, 1402-1403.) In making its determination, the trial court is advised specifically to consider the likelihood NOS will prevail on the allegations in its complaint that Sprint and Hi-Tech: "(a) Solicited NOS customers through the use of false and deceptive information concerning NOS; (b) Misappropriated highly confidential information [in violation of the Tariff] in order to identify NOS customers for the purpose of stealing them away from NOS; (c) Approached NOS existing and potential customers and falsely represented that NOS was using improper billing practices; and (d) Interfered with NOS existing . . . and potential contractual relationships with customers and employees through the use of false and deceptive information."
By our conclusion we do not minimize the difficulty of analyzing the Tariff or resolving the numerous factual matters at issue. The Tariff is complex and its provisions lend some support to both parties interpretations. NOS may be correct that the FCC did not intend the information in the database to be used for the competitive commercial purposes. On the other hand, the fact that such a use may not have been intended or anticipated does not necessarily give rise to the conclusion that such an unintended use is also unlawful. We, like the trial judge, lack the expertise to resolve ambiguities in the Tariff, given its specialized nature and the impact its interpretation will have on the telecommunications industry.
Accordingly, if, on remand, the trial court deems it appropriate, it may do what is necessary to preserve the status quo, and exercise its discretion to defer the definitive interpretation to the administrative expertise of the FCC which, as Sprint (citing United States v. Yellow Freight System, Inc. (9th Cir. 1985) 762 F.2d 737, 739-741) acknowledges, is "the proper authority to interpret any ambiguities in the Tariff." The FCC unquestionably has the power to resolve the uncertainty. (See 47 C.F.R. 1.2 [Section 1.2 states that "(t)he Commission may . . . issue a declaratory ruling terminating a controversy or removing uncertainty."].)
We have read and considered the parties remaining arguments. However, our conclusion renders it unnecessary for us to address those issues.
DISPOSITION
The order granting the motion for preliminary injunctive relief is reversed, preliminary injunction is dissolved, and the matter remanded to the trial court to conduct a new hearing on the motion consistent with the views expressed herein. Appellants are to recover their costs on appeal.
We concur: COOPER, P.J. and RUBIN, J.