14 Cellular Partnerships Sue AT&T Over Breaches of Contract, Fiduciary Duty

Fourteen cellular partnerships filed breach of contract and breach of fiduciary duty suits against AT&T and several subsidiaries in Delaware Chancery Court in relation to a decade-long court case over cellular partnerships, said multiple filings Monday.

The plaintiffs, which include Chin Cellular, the Seminole Tribe of Florida and Pioneer Telephone Cooperative, were in cellular partnerships with AT&T that provided spectrum and resources that formed part of the telecom company’s nationwide network. The nearly identical complaints say AT&T knowingly distributed profits to those partnerships under an outdated regime from the 1980s that didn’t account for advancements in how cellular networks are used, costing the partnerships millions of dollars. AT&T “used its management control to deprive the Cellular Partnerships” of their “fair share of revenues from these business activities,” said the filings. AT&T declined to comment.

The plaintiffs want the profits AT&T gained from the breaches of fiduciary duty, along with compensatory damages, and a trust imposed over all property “created or acquired with proceeds traceable to breaches of fiduciary duty and misuse of Partnership property or assets,” the complaints said. “The claim stated herein extends to every AT&T business activity that directly or indirectly monetizes the unified unitary nationwide network,” the filing said. AT&T has said that all of its offerings make use of the entire network, the complaints said.

AT&T’s accounting regime with the cellular partnerships was created in the 1980s and based on the unique 10-digit cellular numbers assigned to each user, allowing the entities to clearly know when a cellular user was using the infrastructure of a given cellular partnership or was roaming. With the advent of number portability and advances in tech such as the iPhone and IoT -- which don’t rely on the 10-digit numbers -- that method of accounting became “decoupled” from “operational reality,” the complaints said. “These newer, nontraditional business activities made direct and indirect use of Partnership assets” but “failed to capture, on behalf of the Partnership, any of the net revenues these non-traditional activities generate.” AT&T devised a system based on traffic to compensate cellular partnerships but didn’t implement it, the complaints said.

Evidence for the plaintiff’s claims is based on testimony from In Re Cellular Telephone Partnership Litigation, a case concerning AT&T’s management of cellular partnerships that began in Delaware Chancery Court in 2011 and reached a final decision in March 2022. In that case, evidence emerged that AT&T wasn't diverting the proper amount of revenue to the partnerships and that the telecom company knew the framework under which the cellular partnerships were operating didn’t reflect the current state of the market and developed, but never implemented, alternative systems, the complaints said. AT&T “knew its allocation of revenue and expense to the Partnership was unfair; it knew how to fix that unfairness; and it chose not to do so,” they said. In a letter Monday, plaintiff’s counsel Norman Monhait of Reid Collins asked the court to assign the proceeding to Vice Chancellor Travis Laster, who oversaw the decade long original case.

AT&T also profited from the partnerships' resources by collecting and selling user data and by artificially suppressing the value of the partnerships, "which enabled it to liquidate certain Cellular Partnerships and cash out minority partners at unfairly low prices for their interests," said the complaints. AT&T "treated the Cellular Partnerships’ assets (including the Partnership’s assets) as though they were its own without compensation or recognition of the Cellular Partnerships’ distinct ownership interest in any non-traditional business that used those assets," the complaints said.

The 14 plaintiffs and docket numbers are: Delcambre Cellular (C.A. No. 2022-1079), The Seminole Tribe of Florida (C.A. No. 2022-1078), J&J Celcom (C.A. No. 2022-1089), Cellular 7 (C.A. No. 2022-1080), Sharon Telephone-Madison (C.A. No. 2022-1081), Sharon Telephone-Milwaukee (C.A. No. 2022-1082), Kingdom Telephone (C.A. No 2022-1083), Marais Des Cygnes Cellular of Missouri (C.A. No. 2022-1084), Chickasaw Holding (C.A. No. 2022-1085), Stojmat (C.A. No. 2022- 1090), Pioneer Telephone Cooperative (C.A. No. 2022-1086), Cherokee Telephone (C.A. No. 2022-1087), Chin Cellular General Partnership (C.A. No. 2022-1091) and Rainbow Communications (C.A. No. 2022-1088).