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Sancom, Inc. v. Qwest Communications Corp.

January 20, 2009


The opinion of the court was delivered by: Veronica L. Duffy United States Magistrate Judge



Defendant and Counterclaimant Qwest Communications Corporation ("Qwest"), filed a motion seeking an order from the court compelling plaintiff and counterclaim defendant Sancom, Inc. ("Sancom") to provide responses to various requests for the production of documents and to provide answers to various interrogatories. Sancom resists the motion. The district court, the Honorable Karen E. Schreier, Chief Judge, referred this motion to this magistrate judge for determination pursuant to 28 U.S.C. § 636(b)(1)(A).


The facts, insofar as they are pertinent to the pending motion, are as follows. Sancom brought suit to recover from Quest amounts required to be paid by federal and state tariffs for providing originating and terminating telephone access services. The basis for jurisdiction is the diverse citizenship of the parties, with Sancom being a South Dakota corporation and Qwest being a Delaware corporation.

Sancom is a "local exchange carrier" ("LEC") and Qwest is a long distance company. LECs usually hold the "real estate" in telecommunications: the telephone lines that connect to users' telephones. One of the things LECs do is to provide originating and terminating access services to long distance companies like Qwest, which allows Qwest to transmit long distance calls to customers in the LEC's area even though Qwest does not own or lease the telephone lines that connect to the customers' telephones. Sancom alleges that it has provided Qwest with originating and terminating services in accordance with the applicable rates set forth in its tariffs filed with the Federal Communications Commission ("FCC") and the South Dakota Public Utilities Commission ("PUC").

Sancom alleges that Qwest has refused to pay Sancom for these services in the amount of $108,320.04. Sancom asserts claims for breach of contract, breach of implied contract from violation of the tariffs, and unjust enrichment.

In Qwest's answer and counterclaim, Qwest acknowledges receiving the invoices from Sancom and refusing to pay the same. Qwest denies that the unpaid invoices which are the subject of Sancom's complaint constitute charges for originating and terminating access service. Qwest denies that switched access charges apply to the services at issue in the complaint.

Qwest also asserts counterclaims for affirmative relief. In support of these claims, Qwest asserts that Sancom has engaged in "traffic pumping." As Sancom set forth in its complaint, there are two types of phone companies: long distance carriers, like Qwest, and local exchange carriers, like Sancom. When a call originates and terminates within a single local calling area, the LEC handles the call exclusively. But when a long distance call is placed from one local calling area to another, different, local calling area, the call is carried by a long distance carrier.

Sometimes a long distance carrier handles a call from origination to termination. More frequently, because it is cheaper, the long distance carrier hands the call off to another carrier for completion. When a long distance carrier hands the call off to an LEC for completion, the long distance carrier pays the LEC serving the user who is making the call an "originating switched access charge." Similarly, the long distance carrier pays the LEC serving the user who is receiving the call a "terminating switched access charge." These charges for switching access are the means by which the LEC gets compensation for the use of its "real estate" (the telephone wires connecting users to the system) by long distance carriers. It is helpful to think of the switched access charges as "rent" paid by the long distance carrier for temporary use of a physical property, the wires.

Significantly, an LEC can only charge a termination charge (or an origination charge) if it is actually terminating (or originating) a telephone call in its local calling area. The amount that LECs are allowed to charge long distance carriers for switched access service is set forth in a tariff, which is set by the FCC or a PUC.

Qwest accuses Sancom of "traffic pumping," that is, charging Qwest a "terminating switched access charge" to which Sancom is not entitled under its federal and state tarrifs, for routing calls to companies that offer free phone services for things like voice mail, international calling, adult content calling, podcasts, and conference calls. Qwest alleges that Sancom provides a portion of the "switched access fee" paid by Qwest to Sancom as a kickback to the free phone service companies to whom the calls are routed.

Qwest alleges that the traffic pumping scheme works like this. A company which offers free services such as free international calling, free chat lines, free podcasts, free voice mail, and free conference calling will obtain a South Dakota telephone number within Sancom's local calling area. The Free Calling Service Company (FCSC"), is not really located in South Dakota, but they connect their equipment, such as an intelligent voice response system, to Sancom's network facilities. The FCSC's voice recognition equipment is actually located outside of South Dakota. The recipients of the telephone calls placed through the FCSC's telephone number are not located in South Dakota either.*fn1

The FCSCs then advertise free phone services and encourage people to place calls through their South Dakota numbers assigned to Sancom. Although the calls are not directed to persons living in Sancom's local calling area, it dramatically "pumps up" the long distance traffic coming through Sancom's calling area, allowing Sancom to charge fees to Qwest and other long distance carriers that Sancom would not otherwise get to charge. Sancom then splits the terminating switched access fees it receives from Qwest with its partner, the FCSC. Sancom has thereby increased its income, maximizing the fact that it alone has exclusive access to the telephone facilities in its local calling area. The FCSC has just subsidized its "free" calling services that it would otherwise have to charge its customers for.

Qwest asserts that before Sancom began its traffic pumping scheme, a typical monthly bill for terminating switch access fees from Sancom to Qwest was $1,263, as it was in April, 2005. Qwest alleges that Sancom began traffic pumping after April 2005 and its terminating switched access fees rose dramatically. The highest such bill Qwest has received was in November, 2007, for $195,981.

Although the FCC has given Qwest and other long distance carriers permission to refuse to carry long distance calls destined to FCSCs, Qwest alleges that Sancom and the FCSCs frustrate this ability by frequently switching the telephone number assigned to the FCSCs, sometimes on a daily basis. Because Sancom is not actually terminating the FCSC's telephone calls in Sancom's local calling area, Qwest alleges, Sancom is not allowed to charge termination fees to Qwest, but it is doing so.

Qwest alleges federal question and supplemental jurisdiction for its counterclaims. Qwest asserts claims of violation of 47 U.S.C. §§ 201, 203, 206, and 207; and common law claims of fraudulent concealment; unfair competition; civil conspiracy; breach of contract; tortious interference with contract; and unjust enrichment.

Qwest served Sancom with various requests for the production of documents and interrogatories. Sancom objected to interrogatory numbers 6(a) and 12 and to requests for production numbers 3 and 6. The parties attempted in good faith to resolve these discovery disputes, but to no avail, a matter attested to by Qwest as required by the rules of civil procedure. Subsequently, Qwest filed this motion to compel.*fn2 Each of the discovery requests will be discussed in turn.


A. Scope of Discovery in a Civil Case

The scope of discovery as set forth in Fed. R. Civ. P. 26(b)(1) is broad: Unless otherwise limited by a court order, the scope of discovery is as follows: Parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense--including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C).

See Fed. R. Civ. P. 26(b)(1).

This broad scope of discovery is limited by subsection (b)(2)(C). That subsection provides that:

On motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules or by local rule if it determines that:

(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive;

(ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or

(iii) the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.

See Fed. R. Civ. P. 26(b)(2)(C).

If a party fails to properly respond to discovery requests, the party seeking the discovery is entitled to move for an order compelling ...

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