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Sancom, Inc. v. AT&T Corp.

March 11, 2010

SANCOM, INC., PLAINTIFF,
v.
AT&T CORP., DEFENDANT.



The opinion of the court was delivered by: Karen E. Schreier Chief Judge

ORDER STAYING CASE AND REFERRING SEVERAL ISSUES TO FEDERAL COMMUNICATIONS COMMISSION

Plaintiff, Sancom, Inc. (Sancom), moves the court to stay the case and refer several issues to the Federal Communications Commission (FCC) for resolution. Defendant, AT&T Corp. (AT&T), opposes the motion.

BACKGROUND

I. History of the Present Case

Sancom brought this action to recover amounts allegedly due under its federal and state tariffs. Sancom, a competitive local exchange carrier (CLEC) based in South Dakota, alleges that it provided originating and terminating access services to AT&T, an interexchange carrier (IXC), and billed AT&T the applicable rates set forth in Sancom's interstate access tariff filed with the FCC and intrastate access tariff filed with the South Dakota Public Utilities Commission (SDPUC).*fn1 Sancom alleges that AT&T has failed to pay the invoices and as a result owes Sancom at least $5,733,162.90 plus interest and applicable fees. Sancom filed suit against AT&T alleging breach of contract based on AT&T's failure to pay the access charges set out in Sancom's federal and state tariffs, breach of implied contract, unjust and unreasonable practices in violation of 47 U.S.C. § 201(b) (§ 201(b)) based on AT&T's refusal to pay the access charges, violation of 47 U.S.C. § 203 (§ 203) based on AT&T's refusal to pay the tariffed rate, failure to pay intrastate access charges, and quantum meruit and unjust enrichment.

AT&T denies that it failed to pay switched access charges for services provided pursuant to Sancom's tariffs on the ground that the services provided by Sancom do not qualify as "switched access service," as that term is defined in Sancom's tariffs. AT&T's argument is based on the nature of the traffic at issue, which was originated by AT&T's long-distance customers and terminated to several companies that provide free telephone services such as conference calling, pornographic chatting, and international calling.*fn2 AT&T also alleges that Sancom participated in a "traffic pumping scheme" with the free calling providers under which the free calling providers stimulated long-distance calls by offering various calling services to the public free of charge. When a call was made from one of AT&T's long-distance customers to one of the free calling providers, Sancom routed the call to or through equipment owned by the free calling provider or provided by Sancom, charged AT&T the terminating switched access charge for delivering that call, and paid a portion of the charge to the free calling provider. AT&T counterclaimed against Sancom alleging that Sancom assessed charges for terminating switched access services in a manner contrary to its published tariff in violation of § 203(c), engaged in unjust and unreasonable practices by charging for service under its tariff that it did not provide in violation of § 201(b), engaged in fraudulent and negligent misrepresentation by billing AT&T for services that were not in fact switched access services, was unjustly enriched, and engaged in a civil conspiracy. AT&T also requested declaratory relief.

Sancom moved for judgment on the pleadings on all of Sancom's claims and all of AT&T's counterclaims. Now Sancom moves to stay the case and refer certain issues to the FCC. Sancom's motion for judgment on the pleadings is still pending.

II. Related Cases

This case is one of a number of cases pending in this court and in other courts involving a dispute between an LEC and an IXC regarding access charges associated with traffic delivered to free calling providers. In each of these cases, an LEC claims that an IXC has wrongfully refused to pay terminating access charges for services performed pursuant to the LEC's tariffs and requests compensation under breach of contract, breach of implied contract, and/or unjust enrichment theories. In each case, the IXC claims that the services provided were not covered by the applicable tariffs because the LEC did not "terminate" the calls and the free calling providers were not "end users" within the meaning of the tariffs. Many of the IXCs also claim that the applicable LEC engaged in unlawful "traffic pumping."

The following cases are pending in the District of South Dakota: Northern Valley Communications, LLC v. MCI Communications Services, Inc. d/b/a Verizon Business Services, Civ. 07-1016-KES;*fn3 Sancom, Inc. v. Sprint Communications Co., Civ. 07-4107-KES; Sancom, Inc. v. Qwest Communications Co., Civ. 07-4147-KES; Northern Valley Communications, LLC v. Sprint Communications Co., Civ. 08-1003-KES; Splitrock Properties, Inc. v. Qwest Communications Co., Civ. 08-4172-KES; Northern Valley Communications L.L.C. v. AT&T Corp., Civ. 09-1003-CBK; Northern Valley Communications L.L.C. v. Qwest Communications Co., Civ. 09-1004-CBK; and Splitrock Properties, Inc. v. Sprint Communications Co., Civ. 09-4075-KES.*fn4

According to Sancom, there are 9 similar cases pending in the United States District Court for the Southern District of Iowa, 3 cases pending in the United States District Court for the Northern District of Iowa, 2 cases pending in the United States District Court for the Southern District of New York, and 1 case each pending in the United States District Court for the District of Minnesota and the United States District Court for the Western District of Kentucky. Two of these courts have already stayed the action pending referral of several issues to the FCC. See Tekstar Commc'ns, Inc. v. Sprint Commc'ns Co., Civil No. 08-1130 (JNE/RLE), 2009 WL 2155930 (D. Minn. July 14, 2009); All Am. Tel. Co., Inc. v. AT&T, Inc., 07 Civ. 861 (WHP), Docket 88 (Jan. 19, 2010). Motions to stay and refer certain issues to the FCC are pending in several of the Southern District of Iowa cases.

III. Farmers

Similar cases are also pending before various regulatory agencies, the most significant of which is Qwest Communications Corp. v. Farmers & Merchants Mutual Telephone Co. (Farmers), pending before the FCC. Sancom's motion to stay and refer several issues to the FCC arises out of the FCC's latest decision in Farmers. In Farmers, Qwest filed a complaint against Farmers and Merchants Mutual Telephone Company (Farmers), an ILEC in Iowa, alleging that Farmers violated § 201(b) by earning an excessive rate of return as a result of its plan to increase dramatically the amount of terminating access traffic delivered to its exchange via agreements with conference calling companies. Qwest Commc'ns Corp. v. Farmers & Merchants Mutual Tel. Co., 2007 WL 2872754, 22 F.C.C.R. 17973, ¶ 1 (2007) (memorandum opinion and order) ("Farmers I"). Qwest also alleged that Farmers violated § 203(c) and § 201(b) by assessing switched access charges for services that were not switched access. Id. In October 2007, the FCC issued its memorandum opinion and order in Farmers I, ruling that Farmers violated § 201(b) by receiving an unlawfully high rate of return, but declining to award Qwest damages because Farmers' tariff was deemed lawful. Id. at ¶¶ 25-26. The FCC also rejected Qwest's argument that Farmers violated § 203(c) and § 201(b) by imposing terminating access charges on traffic that Farmers did not, in fact, terminate because, the FCC found, Farmers did "terminate" the traffic and the conference calling companies were "end users" as defined in Farmers' tariff. Id. at ¶¶ 30, 35. Qwest filed a petition to reconsider challenging various aspects of Farmers I.

In January 2008, the FCC granted in part Qwest's petition for partial reconsideration based on Qwest's assertions that Farmers falsely represented that the conference calling companies purchased interstate End User Access Service and paid the federal subscriber line charge and that Farmers backdated contract amendments and invoices to make it appear that the conference calling companies had been purchasing tariffed services. Qwest Commc'ns Corp. v. Farmers & Merchants Mutual Tel. Co., 2008 WL 246393, 22 F.C.C.R. 1615, ¶¶ 3, 6 (2008) (order on reconsideration). The FCC stated that it granted this motion for partial reconsideration because its finding in Farmers I that the conference calling companies were end users under Farmers' tariff was based on the above-mentioned representations made by Farmers. Id. at ¶ 6. The FCC ordered Farmers to produce all of the documents it produced in a related state utilities board proceeding, including documents relating to the decision to backdate contract amendments and invoices. Id. at ¶ 8.

In November 2009, the FCC issued its second order on reconsideration and ruled that the evidence brought to light pursuant to Qwest's petition for reconsideration warranted a change in its original ruling and compelled the conclusion that Farmers violated § 203(c) and § 201(b). Qwest Commc'ns Corp. v. Farmers and Merchants Mutual Tel. Co., No. EB-07-MD-001, 2009 WL 4073944, ¶ 1 (FCC Nov. 25, 2009) (second order on reconsideration) ("Farmers II").*fn5 The FCC found that the conference calling companies did not subscribe to the services offered under Farmers' tariff, so they were neither "customers" nor "end users" within the meaning of the tariff and Farmers was not entitled to charge Qwest switched access charges. Id. at ¶ 10. As a result, the FCC found that Farmers' practice of charging Qwest access charges for the traffic relating to the conference calling companies was unjust and unreasonable in violation of § 201(b). Id. at ¶ 26. The FCC stated that the amount of any damages would be calculated ...


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