Verizon and TracFone Jointly File for Dismissal of Lifeline Distributor’s Complaint

Verizon and TracFone previously filed independent motions to dismiss (see 2405060032). But U.S. District Judge Kathleen Williams, in a paperless May 6 order, struck those motions for failure to comply with her Feb. 20 order requiring them to file jointly.

Lifeline distributor Team Marketing alleges that it entered into a contract with TracFone in May 2022 under which Team Marketing would establish retail locations in designated territories to sign up customers for TracFone telecommunications services, supported by Lifeline for eligible customers. It alleges that TracFone and Verizon breached the agreement by terminating it in such a way that didn’t comply with its termination provisions.

But the contract at issue “is plainly between” Team Marketing and TracFone only, said the motion to dismiss. Team Marketing’s claim against Verizon fails because that company isn't a party to the contract that Team Marketing “conclusorily alleges” it breached, and “this lack of privity” dooms Team Marketing’s claim as a matter of law, it said.

As for Team Marketing’s claim against TracFone, even taking the plaintiff’s factual allegations as true, TracFone “fully complied with the contractual provision” permitting it to terminate immediately, without prior notice or an opportunity to cure, for Team Marketing’s “failure to adhere to federal law in connection with its performance under the agreement,” said the motion. Verizon and TracFone allege -- falsely, Team Marketing contends -- that Team Marketing paid field agents on commission, a practice barred by the FCC Lifeline program (see 2402160016).

Even if notice and a cure opportunity had been required under a separate provision of the contract, the complaint makes clear that TracFone “also satisfied those requirements,” said the motion. Because Verizon isn’t a party to the contract at issue, and TracFone’s termination fully complied with that agreement’s requirements, the complaint must be dismissed, it said.

In the contract, Team Marketing acknowledged that the FCC established regulations governing the Lifeline program and that those regulations prohibited paying field agents on a commission basis, said the motion. Team Marketing “agreed to abide by that federal law and ensure that its subcontractors did the same,” it said. By its terms, the contract would remain in effect through December 2022 unless terminated beforehand by either party, said the motion. If not terminated, the contract would have renewed automatically for an additional year, it said. The terms entitled TracFone to terminate the contract immediately without any opportunity for cure if Team Marketing breached the agreement by violating federal or state law, it said.

Team Marketing’s complaint acknowledges that TracFone wrote the plaintiff in July 2022, raising concerns that the plaintiff was paying field agents on commission, in violation of FCC regulations and the contract, said the motion. In that letter, TracFone asked Team Marketing to address that apparent breach and self-report any commission payments or provide additional documentation confirming that field agents were paid properly, it said.

Notably, Team Marketing doesn’t allege that after receiving TracFone’s notice, it did anything to “cure or address” the breaches raised in that letter, said the motion. Team Marketing doesn’t allege that it complied with TracFone’s request that the plaintiff self-report any commission payments or provide documentation of proper payments, it said. Instead, the complaint shows that after allowing more than four months to pass, TracFone then sent the plaintiff a second letter in November 2022 terminating the contract due to Team Marketing’s violations of federal law, it said.

Verizon is neither a party to nor referenced in the contract, said the motion. The “scarcity of allegations” against Verizon is “not surprising,” because the contract was “plainly between” Team Marketing and TracFone only, it said. Verizon acquired TracFone in a $6.9 million deal that the FCC approved in November 2021.

The complaint’s factual allegations “are insufficient to substantiate a claim against Verizon for breach of a contract to which it was not a party,” said the motion. Because Verizon is not a party to the contract at issue, and because Team Marketing sets forth no factual allegations regarding any conduct by Verizon, its claim against Verizon “fails as a matter of law,” it said.

Team Marketing’s claim against TracFone for breach of contract “likewise fails,” said the motion. That claim alleges that TracFone breached the contract by terminating it with cause, without providing the notice and opportunity to cure as required by the terms, it said.

But even taking the plaintiff’s factual allegations as true, Team Marketing still fails to state a claim upon which relief can be granted, said the motion. The contract permitted TracFone to terminate immediately upon any Team Marketing violation of federal or state law, it said. Because TracFone identified that the plaintiff had failed to comply with federal law, the contract allowed TracFone to terminate immediately without providing notice or an opportunity to cure, it said.