Global Naps, Inc. v. Verizon New England, Inc.

• Decision Date: 30 May 2007
• Docket Number: No. 06-2120.,No. 06-2095.,06-2095.,06-2120.
• Citation: 489 F.3d 13
• Parties: GLOBAL NAPS, INC., Plaintiff, Appellant, v. VERIZON NEW ENGLAND, INC. d/b/a Verizon Massachusetts; Massachusetts Department of Telecommunications and Energy; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre K. Manning, in her capacity as Commissioner; Eugene J. Sullivan, Jr., in his capacity as Commissioner, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

489 F.3d 13

GLOBAL NAPS, INC., Plaintiff, Appellant, v. VERIZON NEW ENGLAND, INC. d/b/a Verizon Massachusetts; Massachusetts Department of Telecommunications and Energy; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre

K. Manning, in her capacity as Commissioner; Eugene J. Sullivan, Jr., in his capacity as Commissioner, Defendants, Appellees.

No. 06-2095.

No. 06-2120.

United States Court of Appeals, First Circuit.

Heard April 4, 2007.

Decided May 30, 2007.

John W. McGuinness, with whom Glenn B. Manishin, Kelley Drye & Warren LLP, William J. Rooney, and Jeffrey Melick were on brief, for appellant.

Scott H. Angstreich, with whom David F. Engstrom, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Bruce P. Beausejour, Richard P. Owens, Keefe B. Clemons, Robert Weigel, and Gibson, Dunn & Crutcher LLP were on brief, for appellee Verizon New England, Inc.

Before LYNCH, LIPEZ, and HOWARD, Circuit Judges.

LYNCH, Circuit Judge.

This appeal raises issues concerning the release of security when an appellant has previously been ordered to post that security as a condition for obtaining an injunction pending appeal. See Fed.R.Civ.P. 65(c). In this case, the district court released the security after this court had rejected the appeal and dissolved the injunction.

We affirm the district court's release of $16 million in security to appellee Verizon New England, Inc. ("Verizon"), over the protests of appellant Global NAPs, Inc. ("GNAPs"). In order to maintain the status quo pending appeal, Verizon had been enjoined from terminating its services to GNAPs for failure to pay access fees; GNAPs, in turn, had been ordered to provide security for the costs and damages Verizon would incur during the period of the injunction. Our analysis construes Federal Rule of Civil Procedure 65(c) and adopts standards for the release of security under this rule.

I. BACKGROUND

This marks the third time that aspects of this dispute have appeared in our court. See Global NAPs, Inc. v. Verizon New Eng., Inc. (GNAPs I), 396 F.3d 16 (1st Cir.), cert. denied, 544 U.S. 1061, 125 S.Ct. 2522, 161 L.Ed.2d 1110 (2005); Global NAPs, Inc. v. Verizon New Eng., Inc. (GNAPs II), 444 F.3d 59 (1st Cir.2006). The parties' underlying litigation pertains to GNAPs' failure to make payments to Verizon, notwithstanding a December 2002 order from the Massachusetts Department of Telecommunications and Energy (DTE) which required these payments. As reflected in a subsequent interconnection agreement between Verizon and GNAPs, the DTE order had required GNAPs to pay Verizon for Virtual NXX ("VNXX") calls originated by Verizon's Massachusetts customers and delivered to GNAPs.¹ See GNAPs II, 444 F.3d at 66.

In GNAPs I, we rejected a particular argument from GNAPs that it did not need to comply with the DTE's December 2002 order. See GNAPs I, 396 F.3d at 23. This resolved only part of the dispute. In GNAPs II, we rejected GNAPs' remaining arguments that the DTE's rulings conflicted with and were preempted by federal law, and so we affirmed the DTE order. See GNAPs II, 444 F.3d at 71-75. The current dispute pertains to a security posted after our decision in GNAPs I, and which was released to Verizon after our decision in GNAPs II.

A. The Remand After GNAPs I

After our ruling in GNAPs I, Verizon notified GNAPs on March 17, 2005 that GNAPs had accrued more than $42 million in access charges (excluding late payment charges). Verizon further informed GNAPs that it would terminate services to GNAPs on April 19, 2005 if payments were not made. The companies later agreed to postpone the termination date to May 12, 2005, in order to explore settlement possibilities. When the settlement discussions failed, GNAPs moved for a TRO and/or preliminary injunction to prevent disconnection while it litigated the GNAPs II case. See id. at 67 n. 6.

On May 12, 2005, the district court indicated that it would maintain the status quo pending a resolution on the merits of GNAPs' preemption argument; the court stated at a hearing that it would grant GNAPs' motion, subject to GNAPs posting appropriate security. On June 2, 2005, the court entered the preliminary injunction which GNAPs had requested, conditioned on GNAPs providing security in the amount of $1 million (a condition that GNAPs fulfilled). The court also expedited the briefing schedule for the parties' cross-motions for summary judgment. On September 21, 2005, the district court denied GNAPs' motion for partial summary judgment, and it granted Verizon's and the DTE's cross-motions for partial summary judgment.

In light of its success in the district court, Verizon again notified GNAPs (this time by letter dated September 23, 2005) that it would soon terminate service for non-payment. GNAPs sought clarification from the district court on whether the preliminary injunction had been dissolved by the court's opinion, and the court confirmed that its decision had that effect. GNAPs then stipulated to the dismissal with prejudice of its remaining challenges to the DTE's decision, thereby freeing GNAPs to pursue an appeal.

B. GNAPs II and the Injunction Pending Appeal

GNAPs next sought an injunction pending appeal, first from the district court, and then from this court, in order to prevent Verizon from terminating service. See id. at 68 n. 8. GNAPs represented to both courts that without such an injunction it would "suffer a fatal revenue loss," and in its motion to this court it characterized the litigation as an "all-or-nothing dispute." GNAPs also represented that it had offered to pay Verizon, over time, the more than $56 million Verizon claimed was now due, which GNAPs asserted "would fully pay the access charges, if Verizon prevails here." That offer, according to GNAPs, required only that Verizon agree to refrain from cutting off service, and agree to return the sums paid if GNAPs prevailed on appeal.

The district court denied GNAPs' request for additional injunctive relief. But this court granted GNAPs' motion on November 2, 2005, and we enjoined Verizon from terminating service pending GNAPs' appeal. This injunction was contingent on GNAPs providing "additional security" in an amount to be set by the district court, and we remanded the issue of the amount and form of the security. In the district court, GNAPs proposed that the court set security — beyond the $1 million GNAPs had already posted as security for the first injunction — in the amount of $16,676,313. GNAPs further stated that it would post that amount by assigning funds that Verizon's affiliates, most of which operated in other states and were not parties to the underlying suit, had withheld from GNAPs or its affiliates to secure debts in what Verizon claims are unrelated disputes. Not coincidentally, those withheld funds totaled $16,676,313.

The district court ordered GNAPs to post an additional $15 million in security. This was roughly $1.7 million less than the $16,676,313 in additional security that GNAPs had itself proposed as appropriate. Over Verizon's objection, the district court also permitted GNAPs to satisfy that requirement by assigning funds withheld by Verizon's affiliates.

On April 11, 2006, this court issued its ruling on the merits in GNAPs II, and we affirmed the district court's grant of summary judgment. See id. at 61. This court rejected GNAPs' claim that the Federal Communications Commission, in a decision known as the "ISP Remand Order," had altered the preexisting intercarrier payment rules for all calls delivered to ISPs. We instead agreed with Verizon that the ISP Remand Order preempted state-imposed payment rules only for calls where the caller and the ISP are located in the same local calling area. See id. at 71-75.

C. Dissolution of the Injunction and Release of the Security

On April 13, 2006, Verizon moved this court to issue its mandate in GNAPs II early; in the alternative, it asked for an order lifting the injunction pending appeal, as either relief would permit Verizon to terminate services to GNAPs for non-payment of access charges.

GNAPs opposed Verizon's motion on April 18, 2006. It contended for the first time that if access charges were due at all, GNAPs actually owed Verizon only about $7.5 million in total damages in the case. This amount was far less than the $56 million GNAPs had earlier offered to pay Verizon, and was also lower than the $16 million in security that GNAPs had previously posted. GNAPs' new argument was that the FCC's ISP Remand Order capped Verizon's access charges for VNXX calls to ISPs at $0.0007 per minute.

We granted Verizon's motion in part, vacating the injunction pending appeal later that same day, April 18, 2006.²

After this court vacated the injunction, and still on April 18, Verizon moved in the district court for the release of the $16 million in security. Its motion was supported by affidavits evidencing that the harm to Verizon from issuance of the injunction exceeded $16 million.

On May 2, 2006, the day GNAPs' opposition to Verizon's motion was due in the district court, GNAPs moved for leave to oppose that motion only after this court issued its mandate in GNAPs II. Until that happened, GNAPs contended, the district court lacked jurisdiction. GNAPs requested that the district court give it "leave to submit the grounds for its opposition three days after [the district court] regains jurisdiction upon issuance of . . . the mandate." Verizon opposed GNAPs' motion on May 4, 2006, contending that the mandate's issuance was not necessary for the district court to release the security.

GNAPs did file an opposition in the district court on May 5, 2006, contesting Verizon's motion for release of security. GNAPs continued to press its argument that the district court did not have jurisdiction to consider Verizon's motion until after this court's mandate had...