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Sprint Communications Company Lp v. Native American Telecom, LLC

United States District Court, D. South Dakota, Southern Division

January 14, 2015

NATIVE AMERICAN TELECOM, LLC., B. J. JONES, in his capacity as Special Judge of Tribal Court; and CROW CREEK SIOUX TRIBAL COURT, Defendants.


VERONICA L. DUFFY, Magistrate Judge.


This matter is before the court on the complaint of plaintiff Sprint Communications Company L.P. ("Sprint"). See Docket No. 1. Sprint invokes this court's federal question, diversity, and supplemental jurisdiction. Id .; see 28 U.S.C. §§ 1331, 1332, and 1367. Sprint has filed a motion to compel [Docket No. 183] and a motion for leave to take limited discovery [Docket No. 199]. Defendant Native American Telecom, LLC ("NAT") has filed a motion directing Sprint to complete the parties' planning conference under Fed.R.Civ.P. 26(f) and for a scheduling order [Docket No. 201]. All three of these motions were referred to this magistrate judge for determination pursuant to 28 U.S.C. § 636(b)(1)(A) and the October 16, 2014, standing order issued by the Honorable Karen E. Schreier. See Docket No. 204.


A. Initial Pleadings

This four-year old case has been much-litigated. The facts, including the procedural history of this case, are as follows.

Sprint is a nationwide long-distance carrier known in telecommunications lingo as an "interexchange carrier (IXC). NAT is a "local exchange carrier" (LEC). LECs usually own the "real estate" in telecommunications: the facilities that connect to users' telephones within the LEC. One of the things LECs do is provide switched access services to IXCs, which allow IXCs to transmit long-distance phone calls to customers in the LEC's area, even though the IXC does not own or lease the facilities that connect to the customers' telephones. When a call begins in the LEC and travels out of the LEC's area, the LEC charges an origination access fee to the IXC; when a call begins elsewhere and ends in the LEC's area, the LEC charges the IXC a termination access fee.

The Federal Communications Commission (FCC) establishes rules for the rates that LECs can charge IXCs for these services. These rates are based on tariffs filed with the FCC for interstate services and with the South Dakota Public Utilities Commission (SDPUC) for intrastate services. These fees for switched access services can be thought of as "rent": a fee paid by the IXC (here, Sprint) to the LEC (here, NAT) for the temporary use of the LEC's property-the facilities used to connect to customers' telephones-for purposes of connecting the IXC's customer to a customer within the LEC.

Where a telephone call originates and terminates within the LEC's area, no fees to an IXC are generated because the LEC handles the call from start to finish. It is only where the call originates from outside the LEC and terminates within the LEC (or vice versa) that the LEC is allowed to charge a switched access fee to the IXC. Enter the concept of "traffic pumping."

Traffic pumping occurs when an LEC artificially increases its long-distance telephone call volume by partnering with a service that purports to offer free (or nearly free) calling services. Usually, the free calling service is located outside the LEC, but it obtains a telephone number within the LEC. Then, when calls are placed to the calling service, they are routed through the LEC, often terminating in a place other than the LEC. Thus, sometimes the call neither originates in the LEC nor terminates there, but it "pumps" the LEC's long distance traffic, allowing the LEC to charge IXCs switched access fees. Traffic pumping schemes often involve an agreement between the LEC and the free calling service to share the switched access fees generated paid by the IXC.

NAT filed a tariff before the FCC on September 14, 2009. However, it never completed the process of filing a tariff before the SDPUC. Instead, NAT proceeded under a tariff it filed with the Crow Creek Sioux Tribal Authority.

Sprint accuses NAT of traffic pumping. NAT operates a free conference calling system with partner Free Conferencing Corporation, which is owned by WideVoice. NAT owns a conference call bridge in its LEC, on a South Dakota Indian Reservation. When a party uses NAT's conferencing system, it does not pay NAT for the call but instead is charged by the party's IXC. NAT then bills the IXC a switched access fee pursuant to its tariff. Sprint has been the recipient of bills from NAT for these charges. Sprint alleges beginning in December 2009, NAT began invoicing Sprint for switched access fees that were the result of traffic pumping. Sprint initiated an action before the SDPUC to stop the traffic pumping, but NAT refused to acknowledge SDPUC's jurisdiction over it. NAT then sued Sprint in Crow Creek Tribal Court, seeking punitive damages against Sprint. Sprint ultimately brought this action in this court.

NAT filed a motion to stay these federal court proceedings in order to allow the tribal court to determine, in the first instance, whether it had jurisdiction over NAT's lawsuit against Sprint there. See Docket No. 14. Sprint then moved for a preliminary injunction, seeking to enjoin the tribal action from going forward. See Docket No. 20. The court granted Sprint's motion and enjoined the tribal action and denied NAT's motion to stay, holding that actions on federal tariffs were required to be determined in federal court. See Docket No. 62.

NAT then filed its own motion for a preliminary injunction, asking the court to order Sprint to pay all switched access charges from March 1, 2010, forward. See Docket No. 67. Before that motion had been decided, NAT also filed a motion to amend its answer to Sprint's complaint so that it could assert counterclaims against Sprint for nonpayment of the switched access charges. See Docket No. 86.

The parties held a telephonic planning conference pursuant to FED. R. CIV. P. 26(f) on January 26, 2011. See Docket No. 88. At that conference, the parties agreed to expedited discovery relevant to NAT's pending preliminary injunction motion. Id . The report of the meeting indicated that the parties would reconvene their Rule 26(f) meeting to address plans for additional discovery if the court's ruling on NAT's motion made further discovery necessary. Id. at p. 3.

NAT then filed a motion for a protective order, seeking to prevent Sprint from deposing Thomas Reiman as NAT indicated that it did not intend to call Reiman as a witness at its preliminary injunction hearing. See Docket No. 89. Sprint, in turn, filed a motion to compel NAT to respond to a written interrogatory. See Docket No. 92.

A hearing was held on NAT's preliminary injunction hearing on March 3, 2011. See Docket No. 97. The court took the matter under advisement at the conclusion of the hearing. NAT's motion to amend its answer was orally granted at the hearing. Id.

The court later granted in part Sprint's motion to compel. See Docket No. 117. The court denied NAT's motion to avoid Reiman's deposition. See Docket No. 106. Still later, the court denied NAT's motion for preliminary injunction after receiving and taking into consideration a transcript of Reiman's deposition. See Docket No. 118. In responding to NAT's motion, Sprint indicated that it was going to amend a complaint it currently had pending before the FCC to include a request that the FCC determine the validity of NAT's tribally-filed tariff. Id . The court found it appropriate that the FCC determine, in the first instance, the validity of NAT's tariff because of the highly technical nature of telecommunications tariffs and the FCC's expertise in this area. Id . In addition, the FCC had recently issued a notice of proposed rulemaking to address the issue of traffic pumping and the court did not want to issue a ruling that might conflict with that later-promulgated rule. Id.

NAT then moved to stay the proceeding pending a decision by the FCC. See Docket No. 121. Sprint filed its own motion also asking for a stay; in addition, Sprint asked the court to refer five issues to the FCC, to include the validity of NAT's tariffs. See Docket No. 124. In the interim, the FCC issued its final rule and both parties agreed that the rule had no impact on this case. See Docket No. 141. On February 22, 2012, the court granted Sprint's motion to stay and to refer the five issues to the FCC. Id.

B. The FCC's CAF Order

On October 27, 2011, the FCC issued a Report and Order and Further Notice of Rulemaking in the matter entitled In re Connect America Fund, FCC 11-161 ("CAF Order"). See Docket No. 191-1 at pp. 6-28.[1] In this document, the FCC addresses the issue of traffic pumping, which it called "access stimulation." Id . The report first noted the crucial importance of wide-spread availability of fixed and mobile broadband to this country's economic growth, global competitiveness, civil life, and education. Id. at ¶¶ 1-5. The report noted that currently, many Americans do not have access to modern broadband networks, especially in rural and isolated areas. Id . The purpose of the opinion was to ensure the extension of broadband access to those populations where "private sector economics still do not add up, and therefore the immediate prospect for" such citizens to receive mobile broadband service via "stand-alone private sector action is limited." Id. at ¶ 5. The Commission therefore proposed a "gradual reduction of intercarrier charges and [eventual] movement to a bill-and-keep methodology" in order to "promote the nation's transition to IP networks." Id.

The Commission then described the process of traffic pumping, or "access stimulation, " which is consistent with the above description provided herein. Id. at ¶ 656. The Commission noted that the arrangement was unfair in that it resulted "in a jump in revenues and thus inflated profits" for the LECs who employ the practice, thus making the "LEC's interstate switched access rates unjust and unreasonable" under the Telecommunications Act, 47 U.S.C. § 201(b), which requires reasonable rates to be charged to common carriers. Id. at ¶ 657. This established a need to reform the practice of access stimulation, which the Commission estimated had cost IXCs over $2.3 billion in the five years preceding the opinion. Id. at ¶¶ 662, 664. The practice had spawned a multitude of disputes in a variety of forums and was harmful to competition. Id. at ¶¶ 664-65.

The Commission addressed this unfairness by first adopting a definition of "access stimulation" that included two conditions. Id. at ¶ 657. If an LEC meets both of those conditions, the LEC is generally required to reduce its switched access tariff rates to "the rates of the price cap LEC in the state with the lowest rates." Id . ¶¶ 657, 688-89. In this way, the Commission held that the extent to which "IXC customers that do not use the ...

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