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Splitrock Properties, Inc. v. Qwest Communications Corp.

July 20, 2010

SPLITROCK PROPERTIES, INC., A SOUTH DAKOTA CORPORATION, PLAINTIFF AND COUNTERCLAIM DEFENDANT,
v.
QWEST COMMUNICATIONS CORPORATION, A DELAWARE CORPORATION, DEFENDANT AND THIRD-PARTY PLAINTIFF,
v.
FREE CONFERENCING CORP., A NEVADA CORPORATION; AND ALLIANCE COMMUNICATIONS COOPERATIVE, INC., A SOUTH DAKOTA CORPORATION, THIRD-PARTY DEFENDANTS.



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

ORDER STAYING CASE AND REFERRING SEVERAL ISSUES TO FEDERAL COMMUNICATIONS COMMISSION

This case is one of several similar cases pending in the District of South Dakota. This court has stayed five of these cases and referred specific issues to the Federal Communications Commission (FCC) pursuant to the primary jurisdiction doctrine. Although none of the parties in the present case have moved the court to stay the action and refer specific issues to the FCC, the court ordered the parties to address whether this case should be stayed and referred to the FCC. Plaintiff, Splitrock Properties, Inc. (Splitrock), and defendant, Qwest Communications Corporation, now known as Qwest Communications Company, LLC (Qwest), assert that referral is not appropriate, at least not at this time. Third-party defendant, Free Conferencing Corp. (Free Conferencing), supports referral of specific issues to the FCC, or in the alternative, a stay of the case during the pendency of the referral in Splitrock v. Sprint, Civ. 09-4075. Third-party defendant, Alliance Communications Cooperative, Inc. (Alliance), did not file a brief on the referral issue. Despite the opposition of Splitrock and Quest, the court finds that referral of certain issues to the FCC is called for under the primary jurisdiction doctrine.

BACKGROUND

A. History of the Present Case

Splitrock brought this action to recover amounts allegedly due under its federal and state tariffs. Splitrock, an incumbent local exchange carrier (ILEC) based in South Dakota, alleges that it provided originating and terminating access services to Qwest, an interexchange carrier (IXC), and billed Qwest the applicable rates set forth in Splitrock's interstate access tariff filed with the FCC and intrastate access tariff filed with the South Dakota Public Utilities Commission (SDPUC).*fn1 Splitrock alleges that Qwest has failed to pay the invoices and as a result owes Splitrock an amount to be proven at trial. Splitrock filed suit against Qwest alleging breach of contract based on Qwest's failure to pay the access charges set out in Splitrock's federal and state tariffs, breach of implied contract, and unjust enrichment. The court dismissed Splitrock's breach of implied contract and unjust enrichment claims.

Qwest denies that it failed to pay switched access charges for services provided pursuant to Splitrock's tariffs on the ground that the services provided by Splitrock do not qualify as "switched access service," as that term is defined in Splitrock's tariffs. Qwest's argument is based on the nature of the traffic at issue, which was originated by Qwest's long-distance customers and terminated to several companies that provide free telephone services such as conference calling, chat-line, and similar services.*fn2 Qwest also alleges that Splitrock and Alliance, Splitrock's parent company, 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 Qwest's long-distance customers to one of the free calling providers, Splitrock routed the call to or through equipment owned by the free calling provider or provided by Splitrock, charged Qwest the terminating switched access charge for delivering that call, and paid a portion of the charge to the free calling provider.

Qwest counterclaimed against Splitrock and Alliance, alleging unjust and unreasonable practices in violation of 47 U.S.C. § 201(b), violation of 47 U.S.C. § 203(c), illegal discrimination under South Dakota law, unlawful cross-subsidization under 47 U.S.C. § 254(k), failure to comply with 47 U.S.C. § 223, unfair competition, breach of contract, civil conspiracy, and unjust enrichment and requesting declaratory relief. Qwest also named Free Conferencing, a free calling provider, as a defendant on its unfair competition, civil conspiracy, and unjust enrichment counterclaims. Free Conferencing, in turn, counterclaimed against Qwest alleging tortious interference with business relations, unjust and unreasonable practices in violation of § 201(b), and violation of 47 U.S.C. § 202(a). Qwest moved to dismiss Free Conferencing's counterclaims. This motion is still pending.

B. 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; Sancom, Inc. v. AT&T Corp., Civ. 08-4211-KES; 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. Five of these cases have been stayed pending referral of several issues to the FCC, and a motion to stay and refer is pending in one other.*fn4

And, based on information available to the court, there are currently nine similar cases pending in the United States District Court for the Southern District of Iowa, one case pending in the United States District Court for the Northern District of Iowa, three cases pending in the United States District Court for the District of Minnesota, two cases pending in the United States District Court for the Southern District of New York, two cases pending in the United States District Court for the Western District of Kentucky, and one case pending in the United States District Court for the Southern District of California. Several of these cases have been stayed pending referral of specific issues to the FCC. See Qwest Commc'ns Co. v. Tekstar Commc'ns, Inc., Civil File No. 10-490 (MJD/SRN), Docket 80 (D. Minn. July 12, 2010); 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 (S.D.N.Y. Jan. 19, 2010); see also Bluegrass Tel. Co., Inc. v. Qwest Commc'ns Co., No. 4:09-CV-70-M, Docket 31 (W.D. Ky. Mar. 26, 2010) (staying case pending resolution of referrals in District of South Dakota, District of Minnesota, and Southern District of New York cases). But see North County Commc'ns Corp. v. Verizon Global Networks, Inc., 685 F. Supp. 2d 1112, 1117 (S.D. Cal. 2010) (denying motion to refer Verizon's counterclaims pursuant to primary jurisdiction doctrine). Motions to stay and refer certain issues to the FCC are pending in several of the Southern District of Iowa cases.

C. 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), which is pending before the FCC. 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 & Merchants Mutual Tel. Co., 2009 WL 4073944, 24 F.C.C.R. 14801, ¶ 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 in a separate proceeding and suggested that its ruling that the services Farmers provided did not qualify as "switched access services" under Farmers' tariff did not mean that Farmers was entitled to no compensation for these services. Id. at ¶ 24 n.96.

DISCUSSION

"Primary jurisdiction is a common-law doctrine that is utilized to coordinate judicial and administrative decision making." Access Telecomms. v. Southwestern Bell Tel. Co., 137 F.3d 605, 608 (8th Cir 1998). The doctrine "applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative ...


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