United States District Court, D. South Dakota, Southern Division
ORDER DENYING CROSS MOTIONS FOR SUMMARY
E. SCHREIER, UNITED STATES DISTRICT JUDGE.
Midcontinent Communications (Midco), initiated this action
naming MCI Communications Services, Inc., d/b/a Verizon
Business (Verizon) as the defendant. Midco alleges that
Verizon breached its contract and that Midco is entitled to a
declaratory judgment under SDCL § 21-24-2. Docket 40.
Verizon filed counterclaims for breach of contract and
declaratory judgment against Midco. Docket 41. Both parties
move for summary judgment on all claims and counterclaims.
undisputed facts are:
is a cable company that provides local telephone service to
residential and business customers and is classified as a
local exchange carrier (LEC). Docket 46 ¶¶ 1, 3.
Midco operates in South Dakota, North Dakota, Minnesota, and
Kansas, but only its operations in South Dakota, North
Dakota, and Minnesota are relevant to this dispute.
Id. Midco operates under certificates granted by the
South Dakota Public Utilities Commission, North Dakota Public
Utilities Commission, and Minnesota Public Utilities
Commission. Id. ¶ 2. An LEC's network
connects directly to the LEC's end-user customers - the
people who answer or dial the phone. Id. ¶ 3.
When an LEC's end-user customer receives a phone call,
the call travels across the LEC's local network and is
delivered directly from the LEC's network customer.
Id. When an LEC's end-user customer places a
telephone call, the call is delivered directly from the
customer to the LEC's local network. Id. ¶
are two types of LECs. In general, the LECs that existed
before the effective date of the Telecommunications Act of
1996 (February 8, 1996) are known as incumbent LECs (ILECs).
See 47 U.S.C. § 251(h)(1). LECs that entered
the marketplace after the 1996 Act took effect and compete
with ILECs and each other are known as competitive LECs
(CLECs). See 47 C.F.R. § 61.26(a)(1). Midco is
classified as a CLEC. Docket 46 ¶ 5. A carrier that
offers long-distance telephone service to end-user customers
and transmits longdistance calls between the networks of two
LECs is known as an “interexchange carrier” or
“IXC.” Id. ¶ 6. As an LEC, Midco
provides switched access service when it permits an IXC, like
Verizon, to access its network to terminate and originate
long-distance calls to and from the LEC's end-user
customers. Id. ¶ 7. Thus, Midco allows Verizon
to access Midco's local exchange network to originate or
terminate long-distance telephone calls involving Midco's
end-user customers. Id. ¶ 8. Verizon is
classified as an IXC operating throughout the United States.
Id. ¶ 9. Since 2006, Verizon has delivered long
distance calls to, and received them from, Midco's
network. Id. ¶ 10. On those calls, Midco
charges Verizon for switched access service. Id.
2006, Midco has operated a single switch located in Sioux
Falls, South Dakota (Sioux Falls Switch). Id. ¶
11. All of the long-distance calls that Verizon has exchanged
with Midco have travelled through the Sioux Falls Switch on
their way to or from Midco's end-user customers in South
Dakota, Minnesota, and North Dakota. Id. The only
way that Verizon's long-distance traffic can reach
Midco's local customers or for Midco's local customer
traffic to reach Verizon's long-distance network, is for
the traffic to travel through the Sioux Falls Switch.
also operates equipment called “gateways.”
Id. ¶ 12. Gateways are spread throughout
Midco's three-state footprint and permit other carriers
to connect and deliver calls to Midco's network.
Id. Their function is to receive calls from other
carriers and carry them to the Sioux Falls Switch.
Id. All of Midco's gateways are connected to the
Sioux Falls Switch. Id. The Sioux Falls Switch then
decides where to route the calls, also referred to as
“switching, ” and sends the calls out over
Midco's network to the appropriate Midco end-user
customer for termination. Id.
can establish calls with Midco's network in one of two
ways. First, IXCs can establish a “direct trunk”
that connects their network directly to Midco's network
by either connecting with the Sioux Falls Switch itself or
into a Midco-owned gateway that is connected to the Sioux
Falls Switch. Id. ¶ 13. This allows
long-distance carriers to send calls directly to, or receive
calls directly from, the Sioux Falls Switch. Id.
Second, long-distance carriers can send calls to Midco's
network via another LEC's tandem switch. Id. A
tandem switch is a switch that routes calls between other
switches. Id. A tandem switch is sometimes called a
class 4 switch. Id. In contrast, an end-office
switch routes calls directly to and from end users.
Id. An end-office switch is sometimes called a class
5 switch. Id. Switches that are capable of
performing both as a tandem switch and as an end-office
switch are commonly referred to as class 4/5 switches.
Id. The Sioux Falls Switch is a class 4/5 switch, so
it has the physical capability of performing both tandem and
end-office switching functions. Id. ¶ 14.
Local Exchange Routing Guide (LERG) is an industry-standard
database that LECs and IXCs use to route long-distance and
local calls. Id. ¶ 15. Carriers are responsible
for populating the LERG with information about their own
switches and other equipment. Id. Both Midco and
Verizon rely on the LERG to make call-routing decisions and
to make assessments of other carriers' equipment.
Id. Midco maintains that there are no requirements
or standards as to how or with what information a carrier
must populate the LERG. Id.
2011, Midco has registered the Sioux Falls Switch as an
end-office switch in the LERG. Id. ¶ 16.
According to the LERG, Midco's Sioux Falls Switch
subtends a tandem switch that is owned by CenturyLink and is
located in Sioux Falls, South Dakota. Id. Thus,
calls sent to the CenturyLink Tandem can be routed to the
Sioux Falls Switch for termination, and calls originating
from the Sioux Falls Switch can be routed to the CenturyLink
Tandem. Id. The LERG describes the CenturyLink
Tandem as the tandem switch associated with the Sioux Falls
Switch. Id. The LERG also associates the Sioux Falls
Switch with Midco's various gateways. Id. ¶
17. Since 2011, Midco has not registered any end-office
switch that subtends the Sioux Falls Switch. Id.
Midco maintains that it is not required to do so.
Multimedia Terminal Adaptors (EMTAs) are boxes that reside
inside the premises of Midco's end-user customers.
Id. ¶ 18. EMTAs convert incoming voice signals
traveling across Midco's network into analog form capable
of being interpreted by a customer's traditional
telephone. Id. Midco does not offer long-distance
companies the ability to connect directly into its
end-users' EMTAs. Id. An EMTA is not capable of
routing in-bound calls to any destination other than the
particular telephones within the premises to which it is
connected, and it is not capable of routing out-bound calls
to a destination other than Midco's Sioux Falls Switch.
Id. Similar to other LECs, Midco does not register
its EMTAs in the LERG. Id. Midco contends that its
EMTAs functioned as end-office switches on long-distance
calls exchanged with Verizon's network. Id.
2007, Verizon exchanged long-distance calls with Midco's
network by sending them to and receiving them from the
CenturyLink Tandem. Id. ¶ 20. Since 2007, Midco
has billed Verizon for switched access service under its
tariffs filed with the Federal Communication Commission (FCC)
and relevant state Public Utility Commissions (PUCs).
Id. ¶ 21. Midco's provision of switched
access service on interstate long-distance calls was governed
by Midco's FCC Tariff No. 1, and Midco's provision of
switched access service on intrastate long-distance calls was
governed by the tariff filed with the corresponding state
October 2006, Verizon and Midco began negotiations to
establish an agreement between the two carriers to establish
direct trunks connecting Verizon's long-distance network
to Midco's Sioux Falls Switch. Id. ¶ 24.
Verizon wanted to establish direct trunks with Midco to avoid
overflow problems with the CenturyLink Tandem and to avoid
the tandem-switching charges that Verizon was paying to
CenturyLink. Id. Midco knew about the two reasons
Verizon wanted to establish direct trunking. Id. The
parties executed the final Switched Access Service Agreement
(Agreement) on March 7, 2007. Id. ¶ 33. The
initial term of the Agreement was three years. Id.
The Agreement was later renewed for another four years, after
which the Agreement would renew on an annual basis.
Id. ¶ 38.
4 of the Agreement states:
4.1 Switched Access Charge Rates. The charges for minutes of
use for Switched Access Service provided by Midco to MCI
under this Agreement are as follows:
4.1.1 MCI will pay Midco to terminate interstate traffic
according to FCC tariff rates and intrastate traffic pursuant
to rates under Midco tariff in South Dakota.
4.1.2 MCI will pay Midco $250 per month per T1 and $500
installation charge per T1 for direct end office trunks for
connectivity to the switching facilities listed in Attachment
Id. ¶ 34.
8.1 of the Agreement provides in part:
Subject to the audit rights below, MCI may initiate good
faith disputes regarding billing and withhold payment up to
six (6) months of its receipt of an invoice. Resolution of
billing disputes will be handled according to the procedures
in the dispute resolution section of this Agreement.
Id. ¶ 35.
8.2 of the Agreement provides in part:
A Party shall have the right, at its own expense, upon
reasonable notice and at reasonable times, to examine the
books and records of the other Party only to the extent
reasonably necessary to verify the accuracy of any statement,
charge, payment, or computation made under the Agreement if
made within two (2) years after the month of Service
delivery. Any disputes resulting from such audit shall be
resolved in accordance with Section 9, Dispute Resolution
below. All retroactive adjustments under this ...