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Communications Network International, Ltd. v. Mullineaux

Superior Court of Pennsylvania

May 11, 2018


          Appeal from the Judgment Entered June 1, 2017 in the Court of Common Pleas of Philadelphia County Civil Division at No.: 141201519

          BEFORE: GANTMAN, P.J., McLAUGHLIN, J., and PLATT, J. [*]


          PLATT, J.

         Appellant, Communications Network International, Ltd. (CNI), appeals from the trial court's order granting summary judgment in favor of all defendants/Appellees, William Mark Mullineaux, Esquire; Astor Weiss Kaplan & Mandel, LLP; and Flamm Walton P.C.; in this legal malpractice case.[1] The trial court concluded that the suit was barred by the statute of limitations. Appellant claims that the trial court should have found the limitations period tolled under the doctrine of equitable estoppel. We affirm.

         This seventeen-year-old case is lengthy, complicated and convoluted.[2]We derive the facts from the opinion of the trial court, the bankruptcy court opinion together with the subsequent federal appeals decisions, and our independent review of the record. To the extent possible, we summarize only the facts most relevant to the claims at issue in this appeal.

         In the late 1990's, CNI, now defunct, operated as a reseller of long distance telephone services, which it bought "in bulk" at a volume discount from licensed common carriers, most notably for this case, WorldCom. Lawrence Willis was the chief executive officer of CNI. Curtis Cooke was the chief financial officer. CNI resold the long distance services to end-users, seeking to profit as the "middleman" or wholesaler.

         Around 1999, CNI switched common carriers, to WorldCom. CNI identified three agreements with WorldCom: an alleged oral agreement, a standard services contract (the "Rebiller Agreement"), and a second written agreement, the Intelenet Agreement (also apparently referred to as the "Donohue Agreement"), with additional rebates and other price concessions and service enhancements. WorldCom eventually disavowed the Intelenet Agreement as inappropriate for the business relationship with CNI.

         It bears noting that special concessions to a favored customer on their face violate the anti-discrimination requirements of the Filed Rate, or Filed Tariff Doctrine as provided in the Federal Communications Act. The Filed Rate Doctrine is an anti-discrimination statute which makes it unlawful for a carrier to "extend to any person any privileges or facilities in such communication, or employ or enforce any classifications, regulations, or practices affecting such charges, except as specified in such schedule." 47 U.S.C.A. § 203(c).[3]

         Here, CNI appears to assert, inter alia, that its business model assumed a cost structure which depended on the rate concessions contained in the additional agreement. When these discounts were not forthcoming, and

         WorldCom raised its rates, CNI suffered a cash flow crisis. It lacked income to pay its bills, and its checks to WorldCom were dishonored for insufficient funds. CNI disputes that its checks were dishonored, and claims they were cashed in the ordinary course of business.

         In any event, in 2001, WorldCom, claiming non-payment, sued CNI for breach of contract. WorldCom also stopped supplying carrier services to CNI and began providing long distance telephone services directly to the end-user customers, bypassing CNI, (as provided under the pertinent tariff in the event of a breach of contract).

         CNI retained Attorney Mullineaux, then with the firm of Ratner & Prestia, to represent it to defend against the WorldCom complaint.[4] Mullineaux filed an answer to WorldCom's complaint and counterclaimed for breach of contract, notably "slamming" and defamation. Slamming is the illegal practice of switching telephone service subscribers to a new communications carrier without proper authorization.[5]

         In July of 2002, WorldCom filed for bankruptcy in the Bankruptcy Court of the Southern District of New York.[6] CNI filed a proof of claim in the bankruptcy case, which tracked its counter-claims in the previous suit. In 2006, the bankruptcy court filed an opinion, which concluded that CNI had breached its agreement with WorldCom. The court rejected most, but not all, of CNI's counterclaims on the ground that the rate concessions and rebates CNI claimed by special contract were prohibited by the Filed Rate Doctrine.

         The bankruptcy court noted that there was debate about the continued relevance of the Filed Rate Doctrine after the Federal Communications Commission (FCC) issued "detariffing" orders. These orders required carriers to withdraw their tariffs by July 31, 2001, in an apparent effort to make the telecommunications market more competitive. Nevertheless, the court concluded:

The view prevails, however, that the filed-rate doctrine still applies until the United States Supreme Court or Congress expressly reject it. Moreover, this [c]ourt is bound by Second Circuit precedent, which held that the FCC unsuccessfully tried to regulate the doctrine out of existence and that therefore the doctrine still applies. The [c]ourt also notes that the events giving rise to the present controversy occurred before the detariffing orders took effect. Thus, the filed-rate doctrine applies to the instant proceeding.

In re WorldCom, Inc., No. 02-13533AJG, 2006 WL 693370, at *5 (Bankr. S.D.N.Y. Mar. 13, 2006), amended sub nom. In re Worldcom, Inc., No. 02-13533AJG, 2008 WL 2079943 (Bankr. S.D.N.Y. May 14, 2008).

         Notably for this appeal, the bankruptcy court rejected CNI's slamming counterclaim, but not on the basis of the Filed Rate Doctrine. The court rejected the slamming claims for pleading defects. It decided that the slamming counterclaims asserted only "[m]ere conclusory allegations" and dismissed them for failure to allege supporting facts. Id. at *10 ("CNI, however, has merely stated that WorldCom engaged in slamming practices without alleging supporting facts. WorldCom's settlement with the FCC [involving an unrelated reseller] does not prove WorldCom's actual practices toward CNI. Mere conclusory allegations fail to state a claim and must therefore be dismissed.").[7]

         CNI asserts that Mullineaux, rather than admit that the bankruptcy court dismissed the slamming allegations for lack of supportive facts (which it blames solely on Mullineaux), falsely advised Willis and Cooke that the bankruptcy court had rejected all claims based on the Filed Rate Doctrine.[8]

         CNI appealed to the federal district court. The district court affirmed. See Commc'ns Network Int'l, Ltd. v. MCI WorldCom Commc'ns, Inc., No. 08-CV-7254 GBD, 2010 WL 3959601, at *10 (S.D.N.Y. Sept. 14, 2010). Notably, it is undisputed that Mullineaux sent CNI (both Willis and Cooke) copies of both adverse decisions (the bankruptcy court and district court opinions), rejecting the slamming claim for lack of factual support.

         Nevertheless, CNI argues that Willis and Cooke relied solely on Mullineaux's oral explanations, and did not read the opinions themselves, even though they concede that the decisions were discussed at meetings of CNI's board of directors. Willis and Cooke maintain, through CNI, that they were unsophisticated laypersons who would not have understood the "legalese" anyway.

         CNI asserts that Mullineaux concealed the bankruptcy court's "failure to support" conclusion to avoid responsibility for not properly pleading the counterclaim. It maintains that Mullineaux falsely claimed to Willis and Cooke that the bankruptcy court rejected all claims based on the Filed Rate Doctrine, and incorrectly advised CNI that the court's interpretation of the Filed Rate Doctrine was wrong and would be overturned on appeal.

         On receipt of the district court opinion, (which affirmed the bankruptcy court decision), Mullineaux sent an email to Curtis Cooke, (again, with a copy of the decision). In pertinent part, he wrote:

This firm would not be interested in taking an appeal on a contingency agreement. I still think the decision by the court is incorrect but two judges now disagree and I have invested a large amount of lawyers (sic) time with no return. I cannot make further investments with this case.

(E-mail from Mark Mullineaux to Curtis Cooke, 10/28/10, Exhibit R to Motion for Summary Judgment of Astor Weiss and Mullineaux, 12/19/16, [RR 1246a]). For reasons not readily apparent from the record before us, the appeal proceeded anyway.

         Pertinent to the issues in this appeal, Mullineaux had neglected to update his email address with the district court. As a result, the district court sent its decision to Mullineaux's prior firm. By the time Mullineaux found the decision on the court's website, and filed an appeal, the time to file had expired. He was allowed to file an appeal nunc pro tunc.

         On January 24, 2013, in a two-to-one decision, a panel of the Second Circuit reversed the district court's order (which had reopened the time for appeal), and dismissed all of CNI's claims as untimely filed. See In re WorldCom, Inc., 708 F.3d 327, 342 (2d. Cir. 2013).

         The Second Circuit opinion does not address the merits of the underlying case. Instead, it dismissed all claims solely on its determination that counsel (Attorney Mullineaux) was negligent in not updating his email address. The Majority conceded that its own decision was the only one it could find which denied nunc pro tunc relief even when the petitioner had satisfied every requirement of the applicable rule, as Mullineaux did here. See id. at 340. It is difficult to dispute that the author of the Court of Appeals decision was highly critical of Mullineaux's failure to maintain a current email address to receive notice, characterizing it as "egregious, " (id. at n.67), and "entirely and indefensibly a problem of [ ] counsel's making[.]" [9] (Id.). The court added, "Rule 4(a)(6) was not designed to reward such negligence." (Id.) (footnote omitted).

         CNI maintains that "[i]t was at this moment . . . that CNI was put on notice that it needed an independent review of the litigation." (Appellant's Brief, at 32) (emphasis added). CNI filed the instant malpractice lawsuit on December 9, 2014, almost twenty-three months later.[10]

         Appellees moved for summary judgment, based on the statute of limitations, which the trial court granted. The trial court summarized its reasoning as follows: "In this legal malpractice action, it appears plaintiff's former attorney may have violated the standard of care on multiple occasions. However, plaintiff did not file this action until after the applicable statutes of limitations had run upon its malpractice claims." (Trial Court Opinion, 7/13/17, at 1).

         The court decided that under controlling caselaw, CNI, through Willis and Cooke, had a duty to exercise reasonable diligence to protect its legal rights before the statute of limitations expired. The court concluded that CNI's principals should have known at least by October 28, 2010 (the date of the district court opinion) that CNI ...

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