Postpichal v. Cricket Wireless, LLC ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 11 12 JAMIE POSTPICHAL, et al., No. C 19–07270 WHA 13 Plaintiffs, 14 v. ORDER DENYING MOTION TO DISMISS RICO CLAIM 15 CRICKET WIRELESS, LLC, 16 Defendant. 17 18 INTRODUCTION 19 In this putative class action, plaintiffs allege a RICO claim against a phone retailer and 20 cellular service provider for overcharging customers for 4G phones and wireless plans in areas 21 without 4G coverage. Defendant moves to dismiss. 22 STATEMENT 23 Plaintiffs allege that Cricket put profits over principles by selling 4G LTE plans and 24 phones despite knowing full well that its service fell far short of providing 4G LTE coverage to 25 most customers (TAC ¶ 1). Cricket’s designation of its wireless service plans as “4G” stands 26 for fourth generation — successors to second and third generation networks — that offer users 27 faster speeds on devices capable of connecting to the next generation network. “LTE” stands 1 for long-term evolution, a designation used to indicate improving wireless speeds that can 2 adapt to increasing demand. These terms appeared together on Cricket’s marketing materials 3 and packaging in the form of logos and statements. 4 Cricket had its own 3G network and a more limited 4G LTE network, but faced 5 obsolescence if it could not keep up with consumer demand for faster 4G coverage in more 6 areas (TAC ¶ 2–3). Cricket acknowledged “the competitive climate require[d], and our 7 Customers expect[ed] us to offer 4G technology if [it] want[ed] to maintain, let alone grow 8 market share” (Compl. ¶ 76). 9 But expanding its 4G network to reach more customers presented significant obstacles. 10 Cricket lacked the resources to either buy or build network capabilities to increase its 4G 11 coverage (TAC ¶¶ 87–88, 91, 96). Cricket also lacked the capacity, reliant on its spectrum 12 holdings, to make its wireless coverage as fast and efficient as its competitors (TAC ¶ 40, 90). 13 Spectrum holdings refer to the portions of the radio wave spectrum (the waves of energy that 14 transmit wireless cellular service) used to provide wireless coverage. Spectrum is a limited 15 resource which must be licensed through the Federal Communications Commission and bought 16 through FCC auctions or acquired on the secondary market from other private entities. 17 Cellular service providers must have a sufficient portion of the spectrum and, typically, some 18 combination of low-, mid-, and high-range frequency spectrum in order to provide high speed 19 wireless connectivity and broad coverage. Cricket admitted that its competitors had “greater 20 spectrum capacity than [Cricket did] in the markets in which [Cricket] would launch LTE,” 21 acknowledging that “competitors who have access to more spectrum [than Cricket] . . . are 22 likely to offer faster speeds for their next-generation services or operate those networks more 23 efficiently than [Cricket] could” (TAC ¶ 90). 24 While its competitors quickly evolved to provide 4G, Cricket trailed behind (TAC ¶ 77, 25 80, 96). In 2012, Cricket reported to the SEC that its inability to compete had “negatively 26 impacted [Cricket’s] financial and operating results in 2012 . . . when [Cricket] experienced net 27 customers losses” (TAC ¶ 77). Cricket’s reports to the SEC became more dire in 2013, as 1 prepaid subscribers f[e]ll even faster than its rapidly declining share of the wireless market” 2 (TAC ¶ 77). 3 Though Cricket did provide 4G to eleven metropolitan areas, it lacked 4G coverage 4 everywhere else. So Cricket executives created a marketing scheme — internally dubbed “4G 5 in non-4G markets” — to keep its sinking ship afloat. This strategy involved a “company[- 6 ]wide directive to talk about [4G] LTE even in non-[4G] LTE markets and push [4G] LTE 7 capable handsets” and to “message [4G] LTE aggressively – including [in] non-4G markets” 8 (TAC ¶ 129). Plaintiffs allege that a 2012 marketing presentation directed Cricket agents to 9 “focus” on “[n]ationwide / 4G,” even though Cricket did not and never planned to provide 4G 10 service to most customers (TAC ¶ 135). Plaintiffs allege Cricket’s 4G advertising campaign 11 began on or around November 2012 and by September 2013 the campaign had been expanded 12 to reach all of Cricket’s markets, including all of its non-4G markets (TAC ¶ 129). In May 13 2014, AT&T acquired Cricket (TAC ¶ 2, 180). 14 Plaintiffs allege that Cricket executives made centralized decisions about the “4G in non- 15 4G markets” strategy to create a uniform marketing plan to be followed by Cricket stores, 16 including authorized dealers. Though authorized dealers were technically considered 17 independent businesses from Cricket itself, the in-store experience for customers visiting 18 Cricket-owned stores and independent authorized dealers remained indistinguishable (TAC ¶ 19 130, 199). Cricket also sold its phones through big-box stores such as Walmart and Best Buy. 20 Cricket’s marketing strategy used radio, television, and internet advertisements, in-store 21 marketing, and mailers to push its 4G messaging. Cricket’s authorized independent dealers 22 received their marketing materials from Cricket, including banners and posters with 4G logos 23 and claims (TAC ¶ 200, 271). Marketing materials broadcasted messages, like “Your next 24 phone is here with the speed of 4G LTE.” (TAC ¶ 135) Cricket touted 4G speeds using 25 advertisements like those below: 26 27 1 = = ANA = i =i-a- i i ae Rinses p ee Ny, ie re + | San □□ leg nee 5 2 a a ee Ts) al 6 CD tale