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Northern Valley Communications, LLC v. AT&T Corporation

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

March 28, 2017

NORTHERN VALLEY COMMUNICATIONS, L.L.C., A SOUTH DAKOTA LIMITED LIABILITY COMPANY, Plaintiff,
v.
AT&T CORP., A NEW YORK CORPORATION, Defendant.

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT

          ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE

         Northern Valley Communications, LLC (NVC) filed this collection and declaratory judgment action against AT&T Corp. (AT&T), alleging that AT&T was unlawfully withholding payment for telecommunications services provided by NVC to AT&T. Doc. 1. NVC's complaint has four claims for relief: 1) a collection action based on NVC's tariffed charges for interstate and intrastate switched access services provided to AT&T, but not fully paid since March 2013; 2) in the alternative, a state law quantum meruit claim if the charges cannot be recovered under NVC's tariffs; 3) in the alternative, a state law unjust enrichment claim if the charges cannot be recovered under NVC's tariffs; and 4) a declaratory judgment action seeking to require AT&T to pay NVC's invoices in the future. Doc. 1 at 11-14.[1] AT&T filed a motion for partial judgment on the pleadings, Doc. 33, and an amended answer and counterclaim against NVC that consists of a long argument of why AT&T believes that NVC ought not to recover, Doc. 52 at 1-51. AT&T's counterclaim ultimately made three claims for relief: 1) that NVC was unlawfully billing for services under the rules and orders of the Federal Communication Commission (FCC); 2) that NVC was billing for services that violated its own tariffs; and 3) that AT&T is entitled to a declaratory judgment on its first two claims thereby relieving AT&T of any obligation to pay the disputed charges. Doc. 52 at 46-49. After a motion hearing, this Court denied AT&T's motion for partial judgment on the pleadings. Doc. 60.

         Both parties simultaneously moved for partial summary judgment. Docs. 80, 84. AT&T seeks summary judgment on all four of NVCs claims for relief, and summary judgment on the liability portions of its own Counts I and II in its counterclaim. Doc. 80 at 1. NVC seeks summary judgment on Counts I and TV of its Complaint, or on Count II of its Complaint in the alternative, and summary judgment on each of AT&T's counterclaims. Doc. 84 at 1. This Court read extensive filings and held a lengthy hearing on the cross-motions for summary judgment. Doc. 119. The parties' disagreement relates primarily to application of the law to facts not actually in dispute. For the reasons explained below, this Court grants NVC's motion for summary judgment on Count I of its complaint in part, grants AT&T's motion for summary judgment on Counts II and III of NVC's Complaint, denies at this time NVC's motion for summary judgment on Count IV of its Complaint, denies AT&T's motion for summary judgment on its counterclaim, and grants in part and denies in part NVC's motion for summary judgment on AT&T's counterclaim.

         I. Background

         A. FCC Telecommunications Regulatory Framework

         This case involves a dispute between two types of telecommunications carriers. NVC is a local exchange carrier (LEC), which provides telephone services to local residents and businesses. AT&T is an interexchange carrier (IXC), which is responsible for carrying telephonic traffic between LECs in different geographic areas, enabling long-distance phone service. As a LEC, NVC is responsible for a service known as "exchange access, " which connects local customers to the IXC necessary to call and receive calls from other LECs. There are two types of LECs: incumbent LECs (ILECs) and competitive LECs (CLECs). An ILEC is the original LEC that held a monopoly on local exchange services in a community prior to the Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (1990). An ILEC may also be the successor company of the original LEC in an area. CLECs, such as NVC, are those LECs formed after the Telecommunications Act that compete with an established ILEC in an area. The Telecommunications Act forms the basis for the existing FCC regulations and orders on all telecommunications carriers.

         An ordinary long distance phone call involves three carriers-an originating LEC, an IXC, and a terminating LEC. The originating LEC has the responsibility for connecting the caller's terminal-the telephone device-to its main local switch through the use of copper or fiber-optic cables. At its main local switch, the originating LEC aggregates these local cables into common "trunks" that can carry multiple separate calls simultaneously. The originating LEC delivers the call to the circuit of the caller's chosen long-distance provider, the IXC. This hand-off occurs at a centralized, or tandem, switching location. The IXC then transmits the call through its circuit system, from tandem trunk to tandem trunk, to the LEC for the recipient's location. At this terminating LEC, the LEC receives the call at its main local switch, then delivers it through its local network of cables to the recipient's terminal. In remote areas, the LEC may have a main "host" switch that branches off into additional "remote" end office switches, which are then connected to a caller's terminal.

         Consumers generally pay for this service through contracts with IXCs. The EXCs, in turn, pay both the originating and terminating LECs for their services through charges billed by the LECs. Broadly defined, the main components of these charges are either "transport" charges or "terminating switched access" charges. Transport charges are those incurred by a LEC for transporting the IXC's call on its local circuit from where it picks the call up at an interconnection point to the LECs end office switch, where it can be connected directly to the called party. An IXC might connect directly to a LEC using a direct trunked transport system that only carriers the traffic of one IXC, or it might connect indirectly to the LEC, which allows traffic from multiple IXCs to use the same circuit. Terminating switched access charges, also known as end office charges, are those incurred by a LEC for routing a telephone call to its final called party from the LECs end office switch.

         Because of their distinct histories, ILECs and CLECs are regulated through separate regimes under the FCC to ensure consumers receive reasonable pricing and broad access to telecommunications services. See AT&T Corp. v. All Am. Tel. Co.. 28 FCC Red. 3477, 3479-80 (2013) (explaining the regulatory framework for ILECs and CLECs). The FCC requires ILECs to file tariffs to monitor the rates charged by ILECs to IXCs for interstate exchange access services. See 47 U.S.C. § 203. These tariffs set out the telecommunications services offered by an ILEC to an IXC, and the corresponding rates to be charged. See 47 C.F.R. § 61.26. The FCC has the authority to determine the "just and reasonable charge" for a telecommunications service. 47 U.S.C. § 205. In contrast, CLECs like NVC are subject to "minimal rate regulation." All Am. Tel. Co.. 28 FCC Red. at 3480. CLECs can file tariffs, like ILECs, detailing their charges for interstate exchange access services, but these tariffs are subject to the "benchmark rule;" that is, a CLECs rates for a specified service can be no higher than the local, competing ILECs tariffed rates for that same service. Id; 47 C.F.R. § 61.26(b). A CLEC can only charge rates higher than the local, competing ILEC if it negotiates and enters into a separate agreement with an IXC to charge higher rates. All Am. Tel. Co.. 28 FCC Red. at 3480.

         Some LECs engage in a practice known as "access stimulation"[2] to increase the volume of calls they handle, thereby increasing their revenue without violating the FCC's benchmark rule by raising their rates. See In re Connect Am. Fund, A Nat'l Broadband Plan for our Future. 26 FCC Red. 17663, 17874-90 (2011) fhereafter Connect Am. Fund Orderl. Access stimulation occurs when a LEC enters into an agreement with a high-volume telecommunications customer. These customers are identified as free calling parties (FCP) because they often provide "free" services to their users, such as free conference calls, free chat lines, or free international calling. The FCP is assigned a telephone number within the LECs service area, although the high-volume customer may not have any other connection with the LECs service area. Id., at 17877. The increase in traffic to the LEC generated from the FCP's users is billed to the EXC, which results in increased revenue for the LEC. Id. In return, the LEC often returns a portion of their increased revenue to the high-volume customer. Id. at 17878-88. The practice of access stimulation has led to increased levels of litigation between LECs and IXCs, and resulted in changes to FCC rules. IcL at 17874-90. In addition to the general tariff and benchmarking requirements for all CLECs, CLECs engaged in access stimulation are prohibited from filing rates for interstate exchange access services that are higher than the "price cap"[3] LEC with the lowest switched access rates in the state. 47 C.F.R. § 61.26(g); Connect Am. Fund Order. 26 FCC Red. at 17886; All Am. Tel. Co.. 28 FCC Red. at 3480 n.27.

         The disputes in this case are controlled broadly by two main sections of the Telecommunications Act of 1996, 47 U.S.C. §§ 201(b) and 203(c). Section 201(b) requires that "[a] 11 charges, practice, classifications, and regulations for and in connection with . . . communication service, shall be just and reasonable, and any such charge, practice, classification or regulation that is unjust or unreasonable is hereby declared to be unlawful." 47 U.S.C. § 201(b). Section 203(c) prohibits a carrier from imposing any charges that are not specified in its tariffs. 47 U.S.C. § 203(c) ("[N]o carrier shall . . . charge, demand, collect, or receive a greater or less or different compensation . . . than the charges specified in the schedule then in effect.").

         B. Undisputed Facts

         Consistent with Civil Local Rule 56.1, both parties filed statements of undisputed material facts with their respective motions for summary judgment. Docs. 86, 88; see D.S.D. Civ. LR 56.1. Both parties under Local Rule 56.1 filed responses to those statements of undisputed material facts, Docs. 96, 100, and statements of additional material facts, Docs. 95, 101. NVC also filed an additional appendix of facts with its reply brief, which AT&T moves for this Court to strike. Docs. 104-1, 114. Competing motions for summary judgment present a challenge to any court in setting forth pertinent facts. Under Rule 56 of the Federal Rules of Civil Procedure, this Court must view the genuinely disputed facts in the light most favorable to the non-movant, and NVC and AT&T are both movants and non-movants here. This Court has taken care to draw undisputed facts from both NVC's and AT&T's statements of undisputed material facts, Docs. 86, 88, where they are undisputed by both parties, as indicated by the responsive filings, Docs. 96, 100.

         NVC is a CLEC in South Dakota that has been engaging in access stimulation since November 2005. Doc. 88 at ¶ 1; Doc. 100 at ¶ 1. AT&T is an KC carrier that provides intrastate and interstate long distance telecommunications services throughout the United States including in South Dakota. Doc. 86 at ¶ 1; Doc. 96 at ¶ 1. Because of uncertainty with the rules surrounding access stimulation and charges resulting therefrom, AT&T and NVC have had and settled disputes in the past regarding AT&T's payments to NVC. Doc. 88 at ¶¶ 3, 32; Doc. 100 at ¶¶ 3, 32. These disputes took place prior to the FCC's Connect Am. Fund Order, which in addition to establishing a plan for widespread, affordable fixed and mobile voice and broadband telephone services, also overhauled and provided greater clarity to the access stimulation practice. See 26 FCC Red. at 17667, 17676.

         As part of the Connect Am. Fund Order's requirements, NVC filed a new tariff with the FCC that took effect in January of 2012. Doc. 88 at ¶¶ 5-6; Doc. 100 at ¶¶ 5-6. AT&T paid NVC's invoices in full until the March 2013 invoice. Doc. 88 at ¶ 33; Doc. 100 at ¶ 33. NVC contacted AT&T through email requesting payment, and AT&T informed NVC that it was withholding payment "until it can determine the nature of the nearly 200% increase in traffic to your switches since December." Doc. 88 at ¶ 37; Doc. 100 at ¶ 37. Since that invoice, AT&T has been paying NVC for its end office switching charges, but not its transport charges. Doc. 86 at ¶¶ 49-50; Doc. 96 at ¶¶ 49-50; Doc. 100 at ¶ 33. Between April 2013 and November 2014, NVC and AT&T attempted to resolve their disputes. Doc. 86 at ¶ 51; Doc. 88 at ¶¶ 40-65; Doc. 96 at ¶ 51; Doc. 100 at ¶¶ 40-65. No agreement was reached, so NVC filed this suit against AT&T.

         As part of its access stimulation business, NVC has separate "Telecommunications Service Agreements" with its high-volume customers, reciting the procurement and provision of "Telecommunications Services" as currently defined by 47 U.S.C. § 153(46). Doc. 88 at ¶¶ 28, 30; Doc. 100 at ¶¶ 28, 30. NVC does business with a number of high-volume customers, and not all provide free services to their customers, as suggested by the name "free calling parties" (FCPs). Doc. 86 at ¶ 6; Doc. 96 at ¶ 6. However, in the interest of simplicity for this Court in comparing NVC's business practices with the case law and FCC precedent on the issue, the term "FCP" will be used to reference all high-volume customers of NVC that make up its access stimulation business. These Agreements with FCPs require that NVC provide "at a minimum, DID [direct inward dialing] trunks, DID numbers, [and] connectivity to the Public Switched Telephone Network." Doc. 88 at ¶ 29; Doc. 100 at ¶ 29. NVC also provides corollary services to the FCPs, such as rack space, electrical power, and fire protection for the building. See Doc. 100 at ¶ 29. In return, the FCPs are issued and pay invoices on a routine basis. Doc. 88 at ¶ 31; Doc. 100 at ¶ 31. NVC routes its traffic for access stimulation, along with its relatively small portion of "traditional" telephone calls, [4] from its centralized host switch in Groton to its remote end switches in either Redfield or Aberdeen, depending on where the user directed the call. See Doc. 86 at ¶¶ 31-35; Doc. 88 at ¶¶ 23, 27; Doc. 96 at ¶¶ 31-35; Doc. 100 at ¶¶ 23, 27.

         The parties have different characterizations of how the traffic moves between Sioux Falls, where AT&T routes the call to a tandem switch owned by South Dakota Network, LLC (SDN), [5] and NVC's switch in Groton 147 miles away. NVC alleges that its "Point of Interconnection" with SDN is in Sioux Falls, where it either picks up the traffic and transports it along a circuit it claims to be leasing from SDN to Groton, or drops off the traffic transported through Groton along the SDN circuit it claims to be leasing from SDN. Doc. 88 at ¶¶ 20-24. NVC alleges that it has leased SDN's circuit since NVC's inception as a company and that nothing has changed in the physical transportation of the traffic in the last fifteen years, including NVC's monthly lease payments to SDN. Doc. 88 at ¶¶ 20-22. After this dispute over NVC's billings to AT&T arose, AT&T negotiated with SDN to pay SDN directly for the transportation of calls where AT&T is the IXC and NVC is the CLEC between Sioux Falls and Groton. See Doc. 86 at ¶¶ 56-58; Doc. 96 at ¶¶ 56-58. AT&T asserts that, since its agreement with SDN, NVC no longer is carrying the traffic along the circuit between Sioux Falls and Groton and thus cannot bill for that service. Doc. 100 at ¶¶ 20-24. In short, AT&T maintains that because it is paying SDN directly for the transportation between Sioux Falls and Groton, it cannot be required to pay NVC for the same 147 miles of transport. Doc. 100 at ¶¶ 19, 20-24. This dispute regarding the NVC-SDN lease and the AT&T-SDN Agreement is currently the subject of a separate lawsuit in the Fifth Judicial Circuit in Brown County, South Dakota. Doc. 111-2.

         C. Standard of Review

         Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is proper when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." On summary judgment, the evidence is "viewed in the light most favorable to the nonmoving party." True v. Nebraska. 612 F.3d 676, 679 (8th Cir. 2010) (quoting Cordrv v. Vanderbilt Mortg. & Fin.. Inc.. 445 F.3d 1106, 1109 (8th Cir. 2006)). There is a genuine issue of material fact if a "reasonable jury [could] return a verdict for either party" on a particular issue. Mayer v. Countrywide Home Loans. 647 F.3d 789, 791 (8th Cir. 2011). A party opposing a properly made and supported motion for summary judgment must cite to particular materials in the record supporting the assertion that a fact is generally disputed. Fed.R.Civ.P. 56(c)(1); Gacek v. Owens & Minor Distrib.. Inc.. 666 F.3d 1142, 1145 (8th Cir. 2012). "Mere allegations, unsupported by specific facts or evidence beyond the nonmoving party's own conclusions, are insufficient to withstand a motion for summary judgment." Thomas v. Corwin. 483 F.3d 516, 527 (8th Cir. 2007). Summary judgment is not "a disfavored procedural shortcut, but rather ... an integral part of the Federal rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).

         "In considering a motion for summary judgment the court does not weigh the evidence, make credibility determinations, or attempt to discern the truth of any factual issue." Morris v. Citvof Chillicothe. 512 F.3d 1013, 1018 (8th Cir. 2008). The standard for summary judgment set out under Rule 56(a) does not change because both parties have moved concurrently for summary judgment. See Sterneck v. Equitable Life Ins. Co. of Iowa, 237 F.2d 626, 628 (8th Cir. 1956). "That both sides move for summary judgment does not mean that there are no genuine issues, obliging a court to grant judgment for one side or the other." Hot Stuff Foods, LLC v. Houston Cas. Co.. 771 F.3d 1071, 1076 (8th Cir. 2014) (quoting St. Paul Fire & Marine Ins. Co. v. Engelmann. 639 N.W.2d 192, 199 (S.D. 2002)). Each party's motion for summary judgment must be evaluated independently in accordance with the standard weight of evidence accorded to the non-moving party to determine if there is any genuine issue of material fact. See Wermager v. Cormorant Twp. Bd, 716 F.2d 1211, 1214 (8th Cir. 1983); see also St. Luke's Methodist Hosp. v. Thompson. 182 F.Supp.2d 765, 769 (N.D. Iowa 2001), affd. 315 F.3d 984 (8th Cir. 2003).

         II. Discussion

         The issues framed by the cross-motions for summary judgment are best considered in a specific order. First, the Court must decide, if it can do so based on facts not subject to genuine dispute, whether NVC's billings to AT&T are within the scope of NVC's filed tariffs and are lawful charges. This requires a consideration of several issues concerning the FCC's requirements for LECs charging IXCs for business from access stimulation under the Connect Am. Fund Order, including whether NVC has properly benchmarked its rates to those charged by the price cap LEC with the lowest rates in South Dakota, whether NVC's services are functionally equivalent to that LECs services, whether NVC's Tariff is sufficiently clear in defining transport charges, and whether some or all of the FCPs are end users. Next, if NVC's Tariff applies and the charges are lawful, this Court must consider what, if any, effect NVC's dispute resolution clause in its Tariff has on AT&T's claims. This Court also must consider the effect of the pending dispute between NVC and SDN regarding billing of AT&T for the 147-mile stretch between Sioux Falls and Groton in dispute. Only if the charges do not fall under the Tariff must this Court consider whether NVC is entitled to any relief through the state law doctrines of quantum meruit and unjust enrichment.

         In briefing, both parties raise the issue of possible referral to the FCC under the primary jurisdiction doctrine, "a common-law doctrine that is utilized to coordinate judicial and administrative decision making." Access Telecomms. v. Sw. Bell Tel. Co., 137 F.3d 605, 608 (8th Cir. 1998). There is no "fixed formula" for determining whether a question should be referred to an agency under the primary jurisdiction doctrine. Id The primary jurisdiction doctrine is applied to obtain agency expertise, Red Lake Bands of Chippewa Indians v. Barlow, 846 F.2d 474, 476 (8th Cir. 1988), and to promote uniformity and consistency, Nader v. Allegheny Airlines. Inc., 426 U.S. 290, 303-04 (1976). "Ordinarily, the construction of a tariff is a matter of law for the Court, being no different than the construction of any other written document." United States v. Great N. Rv. Co., 337 F.2d 243, 246 (8th Cir. 1964). However, where '"words in a tariff are used in a peculiar or technical sense, and where extrinsic evidence is necessary to determine their meaning or proper application, ' ... the issue should first go to the appropriate administrative agency." Access Telecomms., 137 F.3d at 609 (quoting United States v. Western Pac. R.R. Co., 352 U.S. 59, 66 (1956)) (holding that a complicated question involving voice grades, circuits, and length of a local loop connection fell within the FCC's primary jurisdiction). The expense and delays that often result from referrals to agencies make the Eighth Circuit "reluctant" to invoke the doctrine. Id. at 608; United States v. McDonnell Douglas Corp., 751 F.2d 220, 224 (8th Cir. 1984). Although some of the questions involved in this lawsuit are complex, none necessitate referral to the FCC. In the interests of reducing costs and avoiding delay awaiting an FCC ruling for two companies whose dispute has lingered too long, this Court can provide a straightforward construction of NVC's Tariff in light of existing case law, regulations, and FCC orders.

         A. Issues Concerning Tariff Applicability

         NVC argues that it is allowed to collect from AT&T under NVC's Tariff filed with the FCC. In a series of orders and rulings, the FCC has determined that charges levied by telecommunications companies must conform to a set of requirements. Telecommunications companies seek to meet these requirements through written tariffs filed with the FCC. Filed tariffs not only allow telecommunications customers to know exactly for what services and in what amounts they will be billed, but also ensure that similar customers will be charged similarly for services. NVC's Tariff declares that a "Buyer is responsible for the payment of charges for any service it takes from [NVC], " and a "buyer" is defined as "an Interexchange Carrier utilizing [NVC's] Access Service to complete a Call to or from End Users." Doc. 87 at 15. To recover under Count I of its Complaint based on tariffed charges, NVC argues it need only prove: "a) AT&T is an Interexchange Carrier that is b) utilizing NVC's Access Service c) to complete a call to or from End Users." Doc. 87 at 17-18. NVC submits that AT&T is an IXC, AT&T is utilizing NVC's access services, NVC's local customers and FCPs are End Users under the definition in the Tariff, and therefore NVC is entitled to collect on its invoices issued to AT&T at the rates set forth in NVC's Tariff. Doc. 87 at 18-20.

         AT&T counters that the invoices filed by NVC fall outside the Tariff because NVC's Tariff does not meet the FCC's requirements from the Connect Am. Fund Order, which requires the benchmarking of rates for functional equivalent service in order to collect for FCP business, the Tariffs definition of transport charges is deficient, the FCPs are not "end users, " and NVC cannot bill AT&T for transport between Sioux Falls and Groton because AT&T pays SDN separately for that transport. See Doc. 85 at 20. AT&T also argues that it is entitled to a refund for any end office switching charges paid, because they did not conform to the federal or state tariffs requirements. Doc. 85 at 37. NVC disputes AT&T's claims and asserts that it is entitled to summary judgment regardless because AT&T did not comply with NVC's dispute resolution clause to raise these issues. See Doc. 87 at 38-47.

         NVC oversimplifies what it must show in order to collect from AT&T under NVC's Tariff. The FCC has outlined specific requirements applicable to LECs billing FXCs for business attributable to access stimulation and FCPs. The cross-motions for summary judgment frame a series of issues addressed separately below.

         1. Benchmarking and Functional Equivalency

         In 2011, the FCC discussed its rules and orders applicable to access stimulation companies.

Resolution of the present dispute [between an IXC and a CLEC] requires an examination first of the Commission's rules and orders governing incumbent local exchange carrier ("ILEC") access services. ILECs are required to publish the rates, terms, and conditions applicable to their access service in tariffs filed with the Commission. The Commission's rules governing these tariffs provide that ILECs may recover access service costs through charges assessed on both IXCs and "end users." These rules have, since their promulgation in 1983 in anticipation of the AT&T divestiture, defined "end user" as "any customer of an interstate or foreign telecommunications service that is not a carrier." The Commission, since 1984, also has required that ILEC ...

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