United States District Court, D. South Dakota, Southern Division
MEMORANDUM OPINION AND ORDER
E. SCHREIER UNITED STATES DISTRICT JUDGE.
issue before the court is whether defendant, Native American
Telecom, LLC. (NAT), is entitled to collect access service
charges that it billed to plaintiff, Sprint Communications
Company, L.P.. A court trial was held on April 12-13, 2016.
The court has considered the testimony, exhibits, and briefs
in determining the outcome of this dispute.
HISTORY AND BACKGROUND
provides nationwide long-distance telephone services and is
known under the telecommunications regulatory framework as an
interexchange carrier (IXC). Sprint delivers long-distance
calls to a local exchange carrier (LEC) for termination to
end-users. Under the FCC’s current regulatory
framework, Sprint pays the LEC a terminating access charge
based on the LEC’s interstate access tariff, which is
filed with the FCC.
October 2008, the Crow Creek Sioux Tribal authority
authorized NAT to provide telecommunications services on the
Crow Creek Reservation subject to the tribe’s laws.
Pursuant to the 2008 approval order, NAT began to operate as
a LEC. NAT filed interstate tariff number one with the FCC,
which became effective on September 15, 2009. NAT’s
interstate tariff number two became effective on November 30,
2010, and canceled and replaced NAT’s tariff number
one. NAT revised its tariff number two, which revision became
effective on June 26, 2011. NAT’s interstate tariff
number three was filed with the FCC in August 2011, and
became effective on August 23, 2011.
also operates a free conference calling system (used for
conference calling, chat-lines, and similar services) in
connection with Free Conferencing Corporation. A party using
NAT’s services does not pay NAT for the conference
call, but rather is assessed charges by the party’s
telecommunications provider. NAT then bills the
telecommunications provider an access fee as defined in its
interstate tariff. NAT’s access charges that were
billed to Sprint for conference calls are at issue here.
paying two of NAT’s bills for charges connected to
conference calls, Sprint ceased paying NAT’s
terminating access tariffs because Sprint believed that NAT
was involved in a traffic-pumping scheme, otherwise known as
access stimulation, to generate traffic from free conference
calls and chat services. On August 16, 2010, Sprint filed
suit against NAT alleging a breach of the Federal
Communications Act (FCA) and a state-law unjust enrichment
claim. Docket 1.
March 8, 2011, NAT amended its answer and asserted
counterclaims against Sprint alleging a breach of contract
and a collection action pursuant to its tariffs, a breach of
implied contract resulting from a violation of its tariffs,
and a quantum meruit/unjust enrichment claim. NAT also sought
declaratory relief. Docket 99.
November 29, 2011, the FCC released its Connect America
Fund final rule that addresses access stimulation and
traffic pumping. See Connect America Fund; A National
Broadband Plan for Our Future; Establishing Just and
Reasonable Rates for Local Exchange Carriers; High-Cost
Universal Service Support, 76 Fed. Reg. 73, 830 (Nov.
29, 2011). On December 27, 2011, this court issued an order
directing the parties to discuss what effect, if any, the
FCC’s Connect America Fund final rule had on
the issues presented in this case. Docket 128. On February
22, 2012, this court found that the FCC’s final rule
did not apply retroactively. Docket 141 at 9-11 (“Thus,
the final rule is inapplicable to the time period before the
final rule became effective.”). As part of the same
order, this court granted Sprint’s then-pending motion
to stay this proceeding and referred three issues to the FCC
for resolution. Id. at 25. The parties were directed
to provide periodic updates to this court describing the
status of the FCC proceeding. The updates were filed over the
next two years. The status of the FCC referral remained
unchanged from November 2012 to July of 2014.
Compare Docket 154 with Docket 163. Because
of the limited progress on the FCC referral, a telephonic
status conference was held on July 23, 2014. See
parties stated that they had been engaged in litigation
before the South Dakota Public Utilities Commission (SDPUC).
Docket 169 at 5. In that litigation, NAT was granted a
certificate of authority by the SDPUC to provide certain
telecommunications services in South Dakota. Based on the
results of the SDPUC litigation and the lack of action by the
FCC during the period of the stay, the parties discussed
whether some of the disputes in this case remained viable.
Id. at 8-10. The court proposed entering an order
that would lift the stay, withdraw the issues that had been
referred to the FCC, and establish deadlines for the parties
to amend the complaint, to file counterclaims, and to file
any motions to dismiss. Id. at 12. The court also
stated that it would rule on any motions to dismiss based on
a statute of limitations defense and that a new referral of
issues to the FCC could then be discussed. Id. With
the parties in agreement, a formal order was issued that same
day. See Docket 168. Sprint did not amend its
complaint. NAT amended its counterclaim on September 9, 2014,
and added a number of allegations that arose during the
period of the stay and FCC referral. Docket 172. Additional
motions were filed by the parties.
to the issue now pending is the court’s August 7, 2015
memorandum order that resolved motions for summary judgment
filed by both parties. See Docket 250. There, and
among other things, the court addressed whether NAT’s
various interstate tariffs were lawful or otherwise
enforceable. The court concluded that NAT’s interstate
tariffs numbers 1 and 2 were unenforceable, and granted
summary judgment in Sprint’s favor. See Id. at
40. The court could not, however, determine summarily whether
NAT’s tariff number 3 was enforceable. See Id.
status conference was held on September 15, 2015, to
determine the issues in this case that remained for trial and
whether another referral to the FCC was necessary.
See Docket 254 (Transcript). The parties agreed that
the court could resolve without a referral to the FCC whether
NAT’s tariff number 3 is enforceable. Id. at
6-7. A court trial was held on April 12-13, 2016. The parties
submitted post-trial briefs, and the dispute is now ripe for
following constitutes the court’s findings of fact
pursuant to Federal Rule of Civil Procedure 52(a)(1), which
were found by a preponderance of the evidence:
founded in approximately 2007 or 2008 to provide telephone
and broadband service on the Crow Creek Sioux Reservation.
Tr. 18:18-24. Gene DeJordy and Tom Reiman were NAT’s
original owners. Tr. 19:2-3. NAT provides Tribal members on
the Reservation with telephone and broadband service through
a high-speed wireless network. Tr. 46:10-15. According to
DeJordy, most Tribal customers receive subsidized or
discounted service. Tr. 44:15-25; Tr. 45:1-3.
focus is to encourage private entities to locate on the
Reservation and to spur economic development. Tr. 19:13-25.
NAT reached out to several companies about investing in and
developing on the Reservation. Only Free Conferencing
expressed an early interest going forward. Tr. 20:13-19. As
time went on, NAT turned away several other commercial
entities that sought to do business with NAT. Tr. 37:12-25;
Tr. 38:1-3; Tr. 53:3-24 (DeJordy cited NAT’s ongoing
legal disputes as the reason why companies were discouraged
from doing business with NAT at this time). ZenoRadio and
YakFree did, however, eventually do business with NAT. Tr.
54:5-9; Tr. 242:1-11.
Crow Creek Sioux Tribal Utility Authority entered an order in
2008 that granted approval for NAT to provide
telecommunications services on the Reservation. Tr. 24:18-24;
Ex. 9. NAT’s facilities were also housed on the
Reservation. The location was “a fairly small
shelter” approximately “8-by-10 [feet], [and]
kind of a small room.” Tr. 28:16-24. Free Conferencing
was permitted by NAT to co-locate its equipment in
NAT’s facilities. Tr. 29:8-11.
ownership was restructured after Free Conferencing agreed to
operate on the Reservation. Tr. 20:20-25; Tr. 21:1-14. The
Crow Creek Sioux Tribe became the majority owner of NAT with
a 51% ownership interest in the company. A private
investor known as Wide Voice Communications holds a 25%
ownership interest in NAT, and another company established by
DeJordy, Native American Telecom Enterprise (NATE), holds the
other 24%. The Tribe, Wide Voice, and NATE signed a Joint
Venture Agreement in 2009, and the parties govern NAT jointly
as members. Tr. 21:15-18; Tr. 22:10-16.
Free Conferencing executed a service agreement in 2009. Tr.
25:12-14; Ex. 5 (2009 Service Agreement). The 2009 Service
Agreement required Free Conferencing to generate a monthly
minimum number of minutes of conferencing traffic. Ex. 5,
¶ 7. NAT was obligated to pay Free Conferencing in
return a so-called “marketing fee” based on the
number of minutes of traffic terminated on Free
Conferencing’s equipment. Ex. 5, ¶ 7. NAT also
agreed to provide Free Conferencing with a number of services
“without charge.” Ex. 5, ¶ 22 (NAT agreed to
provide co-location space, rack space, dedicated Internet
access, analog telephone circuits, electrical power, fire
protection, generator and battery backup, switch technician
labor, and switch programming service, among others). The
2009 Service Agreement contained an exclusivity clause and a
confidentiality agreement. Ex 5, ¶¶ 2, 7. The 2009
Service Agreement also contained a choice of law clause
providing that the laws of California would govern any claims
arising out of the agreement. Ex. 5, ¶ 21.
NAT received a certificate from the Tribal Utility Authority
to provide telecommunications services in 2008, the 2009
Service Agreement was executed before NAT filed an intrastate
or interstate tariff, and before NAT began its
telecommunications operations. Tr. 26:8-16. The 2009
Agreement, however, purported to incorporate all of
NAT’s tariffs by reference “[t]o the extent
applicable.” Ex. 5, ¶ 8.
2009 Service Agreement was amended on approximately December
6, 2012. Tr. 39:6-15; Ex. 6 (2012 Service Agreement). The
2012 Service Agreement is not a new document. Rather, it is a
redlined version of the 2009 Service Agreement. DeJordy
acknowledged that drafting of the 2012 Service Agreement
“wasn’t really the normal course of doing
business[.]” Tr. 40:19-21. Portions of the 2009 Service
Agreement were deleted, but no provisions were added to it.
Tr. 94:9-13. For example, the exclusivity clause was deleted,
and so was the language stating that NAT’s provision of
numerous services to Free Conferencing was “without
charge.” See Ex. 6, ¶¶ 7, 22. The
2012 Service Agreement still contained a provision that NAT
would pay Free Conferencing a marketing fee, but the language
explaining how the fee is calculated was deleted.
See Ex. 6, ¶ 9. Several other clauses are
similarly incomplete. For example, the provisions stating
where Free Conferencing could locate its equipment and the
duration of the agreement are not completed. See Ex.
6, ¶¶ 1, 3. The clause incorporating NAT’s
tariffs “to the extent applicable, ” however, was
not altered. Ex. 6, ¶ 8.
2012 Service Agreement was amended on October 29, 2015. Tr.
42:8-17; Ex. 7 (2015 Service Agreement). The 2015 Service
Agreement is a two-page document that purports to modify
several specific sections of the 2012 Service Agreement. For
example, the choice of law provision was modified to state
that “the laws of the Crow Creek Sioux Tribe and/or the
laws of the State of South Dakota” shall apply. Ex. 7.
The section detailing the services NAT would provide to Free
Conferencing was also amended to state only that “[NAT]
shall charge [Free Conferencing] for service in accordance
with the provisions of its effective tariff for tariff
services.” Ex. 7. And the section pertaining to the
marketing fee was amended so that Free Conferencing received
a flat 85% share of gross access revenue based on the traffic
it generated. Ex. 7. Finally, the 2015 Service Agreement
provides that “[a]ll other provisions” of the
previous agreement remain in effect. Ex. 7.
filed its first interstate tariff with the FCC in August 2009
that became effective on September 15, 2009. Tr. 32:18-20.
Relevant here is NAT’s third interstate tariff that NAT
filed with the FCC in August 2011. Ex. 1. Carey Roesel, a
telecommunications consultant and NAT’s expert witness,
drafted and filed NAT’s third interstate tariff. Tr.
121:1-6. Roesel testified that he drafted NAT’s third
interestate tariff to include “time-tested,
standardized language” used by other LECs. Tr. 128:25;
interstate tariff has a specific provision for “End
User Access Service.” Ex. 1, § 4.1. That service
applies to certain “end users who obtain local exchange
service” under NAT’s “general and/or local
exchange tariffs.” Ex. 1, § 4.1. A monthly
billable rate of $6.45 for End User Access Service applies on
a “per line or Trunk” basis. Ex. 1, § 4.1.2.
Dr. Brian Staihr is a professor of economics at the
University of Kansas. Tr. 359:16-18. Staihr worked previously
in the telecommunications industry, and he testified as
Sprint’s expert witness. Tr. 361:3-7. Staihr testified
that receiving local access service is a necessary condition
to receiving End User Access Service under § 4.1 of
NAT’s interstate tariff. Tr. 372:153:8-10.
interstate tariff also states that NAT “will pay a
percentage of its retail revenues to support the Universal
Service Fund (USF).” Ex. 1, § 4.2. The tariff
further provides that NAT will “pass-through the USF
assessment to its customers” by billing a surcharge to
those customers. Ex. 1, § 4.2. NAT’s third
interstate tariff was necessary to address then-recent FCC
decisions, such as Farmers II and Northern
Valley. Tr. 34:14-18; Tr. 125:17-25; Tr.
to NAT’s third interstate tariff were made and
subsequently filed with the FCC on July 16, 2014. Tr.
121:16-17; Ex 2. NAT’s tariff was again revised in part
on August 13, 2014. Tr. 123:9-10; Ex. 3. The section
pertaining to End User Access Service was not altered,
however, until NAT’s tariff was revised on July 16,
2015. Tr. 124:18-22; Ex. 43 (adding the words “or via
contract” to the end of the End User Access Service
also drafted NAT’s first intrastate tariff, and it was
filed with the Crow Creek Sioux Tribal Utility Authority on
November 4, 2011 (Tribal tariff). Tr. 123:20-25; Ex 4. Roesel
explained that the Tribal tariff was filed voluntarily
because the Tribal Utility Authority did not require it.
Tr.142:14-17. He explained that section 5.2 of the Tribal
tariff was drafted specifically to apply to high-volume
entities like Free Conferencing. Tr. 143:17-24; Ex 4. §
5.2 (“Inbound Calling Service”). By contrast,
section 5.1 of the Tribal tariff described a “basic
local exchange offering.” Tr. 146:3-4; Ex. 4 § 5.1
(“Nationwide Calling Plan”). Although Roesel
testified that § 5.2 applied to the services NAT billed
Free Conferencing, he acknowledged that NAT originally
represented to Sprint in a discovery response during the
SDPUC proceeding that NAT provided Free Conferencing with
local service under § 5.1. Tr. 184:2-12; Ex. 106. Staihr
in his report used the service definition and applicable
rates set forth in § 5.1 based on NAT’s
representation. Tr. 373:3-6; Tr. 375:13-21 (explaining that
he did not know § 5.2 was important until reading
Roesel’s expert report on March 9, 2016). Staihr opined
that no services under § 5.1 were provided to Free
Conferencing. Tr. 373:7-9. Roesel testified that no charges were
billed to Free Conferencing based on the service or rates
described in § 5.1 of the Tribal tariff. Tr. 192:22-25.
Tribal tariff contains a provision for an “Individual
Case Basis” or “ICB” agreement.
See Ex. 4, § 8.1. The agreement must be offered
“in writing and on a nondiscriminatory basis.”
Ex. 4, § 8.1. Roesel explained that ICB provisions are
common and that ICB agreements provide carriers with
flexibility for how services are provided. Tr. 146:21-25; Tr.
147:1-2. Roesel was not consulted on any of the NAT-Free
Conferencing service agreements. Tr. 158:13-15; Tr. 175:2-7.
He opined that, nonetheless, the various NAT-Free
Conferencing contracts were ICB agreements. Tr. 157:22-25;
5.2 of the Tribal tariff details a calculation to assess a
fee for the local exchange service. The calculation
establishes a “DS0-equivalent basis” that NAT
also refers to as a number of “ports” or
“lines.” Tr. 153:11-14. But instead of using that
calculation, NAT billed Free Conferencing based on a
so-called “high water mark” methodology. Tr.
153:2-3. The “high water mark” was determined by
looking at Free Conferencing’s highest level of line
usage at any one point in time during a given month. Tr.
154:6-9. The “high water mark” is a different
method of calculation from what is described in § 5.2.
5.2 also describes separate “Transport Charges”
and “Port Charges” that are assessed based on the
DS0-equivalence calculation. Ex. 4, § 5.2. A
“Usage Charge” is also assessed based on a
customer’s total number of minutes of use during the
month. Ex. 4, § 5.2. None of the rates described in
§ 5.2 of the Tribal tariff were billed to Free
Conferencing. Tr. 185:3-7. Instead, NAT used the “high
water mark” to establish the number of ports/lines that
it charged Free Conferencing under the $6.45 “per line
or Trunk” rate in § 4.1 of NAT’s interstate
tariff. Tr. 153:7-10. According to Roesel, the arrangement
used by NAT allowed NAT to generate Universal Service Fund
contributions. Tr. 154:19-20. Roesel also opined that the $
6.45 charge in § 4.1 of NAT’s interstate tariff
was “apparently” also an
“all-inclusive” rate. Tr. 159:21-23. Thus,
according to Roesel, each of the various services that NAT
provided to Free Conferencing under the NAT-Free Conferencing
service agreements, such as power, Internet access, and rack
space, was included within the $6.45 per line/port charge.
Tr. 159:14-23. The service agreements, however, did not
explicitly provide for such an arrangement. Tr. 187:8-14; Tr.
began billing Free Conferencing for services in 2011, shortly
after NAT’s third interstate tariff was filed with the
FCC. Tr. 41:14-16. Shane Murphy provides accounting and
billing services for NAT. Tr. 95:8-11; 96:14-22. Murphy
testified that he prepared a spreadsheet each month that
calculated the fees that Free Conferencing owed NAT. Tr.
97:12-14; Ex. 13. He testified that NAT established Free
Conferencing’s fees by taking the “high water
mark” and multiplying that number by $6.45. Tr. 98:4-9.
The charge is described on the monthly invoices that were
issued to Free Conferencing as “End User Fees.”
See Ex. 12. The spreadsheet also contained a
calculation for the USF contributions that NAT paid every
month. Tr. 97:9-11; Ex. 13. The USF contribution was
calculated based on the revenue that NAT received for
“End User Fees” from Free Conferencing and
multiplying that number by a percentage established quarterly
by the FCC. Tr. 98:22-25; Tr. 99:1-5. Murphy explained that
NAT used his spreadsheets to issue monthly invoices to Free
Conferencing. Tr. 99:16-17. NAT has issued invoices to Free
Conferencing and has billed Free Conferencing for “End
User Fees” each month. See Ex. 12 (invoices
beginning with January 2012). Although NAT paid USF
contributions each month, NAT did not pass-through the USF
charge to Free Conferencing until January 2016. Tr.
168:20-25; Tr. 169:1-6; Tr. 238:1-6; see Ex. 13
the NAT-Free Conferencing revenue sharing (or “market
fee”) arrangement, NAT paid Free Conferencing roughly
$1.6 million from the period of January 2012 to September
2015. Ex. 108. During the same period of time, NAT received
from Free Conferencing approximately $340, 000 in fees.
See Ex. 12.
seeks as damages $463, 210.50. Ex. 11. That figure is
calculated by aggregating the invoices NAT sent to Sprint for
switched access service from January 2012 until March 2016
and subtracting a credit of $56, 048.68. The credit was
issued in January 2016 for traffic that was delivered to
YakFree and improperly billed to Sprint. Tr. 105:25; Tr.
106:1-5; Tr. 290:1-2.