At&T v Central Office Telephone

• Decision Date: 15 June 1998
• Docket Number: 97679
• Citation: 118 S.Ct. 1956,524 U.S. 214,141 L.Ed.2d 222
• Parties: AMERICAN TELEPHONE & TELEGRAPH CO. (97-679) 108 F.3d 981, reversed. SUPREME COURT OF THE UNITED STATES 118 S.Ct. 1956 141 L.Ed.2d 222679 AMERICAN TELEPHONE AND TELEGRAPH COMPANY, PETITIONER v. CENTRAL OFFICE TELEPHONE, INC. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT [
• Court: U.S. Supreme Court

524 U.S. 214

118 S.Ct. 1956

141 L.Ed.2d 222

AMERICAN TELEPHONE & TELEGRAPH CO.

(97-679)

108 F.3d 981, reversed

SUPREME COURT OF THE UNITED STATES

118 S.Ct. 1956

141 L.Ed.2d 222

No. 97 679

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, PETITIONER v. CENTRAL OFFICE TELEPHONE, INC.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

[June 15, 1998]

Justice Scalia delivered the opinion of the Court.

Respondent Central Office Telephone, Inc. (COT), a reseller of long-distance communications services, sued petitioner AT&T, a provider of long-distance communications services, under state law for breach of contract and tortious interference with contract. Petitioner is regulated as a common carrier under the Communications Act of 1934, 48 Stat. 1064, as amended, 47 U.S.C. § 151 et seq. The issue before us is whether the federal filed-tariff requirements of the Communications Act pre-empt respondent's state-law claims.

I

Respondent purchases "bulk" long-distance services volume-discounted services designed for large customers from long-distance providers, and resells them to smaller customers. Like many other resellers in the telecommunications industry, respondent does not own or operate facilities of its own; it is known as a "switchless reseller," which is the industry nomenclature for arbitrageur. Of course respondent passes along only a portion of the bulk-purchase discount to its aggregated customers, and retains the remaining discount as profit.

Petitioner provides long-distance services and, as a common carrier under the Communications Act, §153(h), must observe certain substantive requirements imposed by that law. Section 203 of the Act requires that common carriers file "schedules" (also known as "tariffs") containing all their "charges" for interstate services and all "classifications, practices and regulations affecting such charges." §203(a). The Federal Communications Commission (FCC), which is the agency responsible for enforcing the Act, requires carriers to sell long-distance services to resellers such as respondent under the same rates, terms, and conditions as apply to other customers.

Prior to 1989, petitioner had developed a type of long-distance service known as Software Defined Network (SDN), designed to meet the needs of large companies with offices in multiple locations. SDN established a "virtual private network" that allowed employees in different locations to communicate easily. For example, an employee in Washington could call a co-worker in Denver simply by dialing a four-digit extension. SDN customers, in exchange for a commitment to purchase large volumes of long-distance communication time, received this service at a rate much below what it would otherwise cost.

Several changes to SDN in 1989 made the service extremely attractive to resellers, such as respondent, who aggregate smaller customers. Petitioner developed the capability to allow customers to use ordinary ("switched access") telephone lines to connect locations to their SDN networks. Previously, locations had to be connected over special "dedicated access" lines, which are direct lines from a location's telephone system to petitioner's long-distance network, bypassing the switches of the local exchange carrier. Dedicated access involves large fixed costs, so it is cost-effective only when a location originates a large volume of calls. Switched access, in contrast, does not entail additional high fixed costs, so it is better suited to small users and hence to resellers. Petitioner also instituted two pricing promotions for SDN in 1989: additional discounts from the basic SDN rates for customers making large usage and duration commitments, and waiver of installation charges for customers making multiyear commitments (subject to penalties for early termination). Petitioner also added a new billing option. In addition to network billing, whereby petitioner prepares a single bill that applies the tariffed rate to all usage at all locations, petitioner started to offer multilocation billing (MLB), which allows the SDN volume discounts to be apportioned between an SDN customer and individual locations on its network, with the proportion being chosen by the customer. Under this option, petitioner sends bills directly to the customer's individual locations (which, in the case of resellers, means to the reseller's customers) but the customer (or reseller) remains responsible for all payments. The tariff provides, however, that petitioner is not responsible for the allocation of charges. See AT&T Tariff FCC No. 1, §6.2.4 (1986), App. to Brief for Petitioner 24a.

Attracted by these changes, in October 1989, respondent approached petitioner regarding its possible purchase of SDN. LaDonna Kisor, a sales representative in petitioner's Portland, Oregon office, described the service and gave respondent literature on SDN. She predicted that petitioner could establish an initial SDN network for respondent in four to five months, and could thereafter add new locations within 30 days of receiving an order. Respondent subscribed to a tariffed switched-access SDN plan under which the up-front installation charges would be waived and respondent would receive a 17 to 20% discount off basic SDN rates in exchange for a 4-year commitment to purchase two million minutes of service annually. Respondent also requested MLB. Petitioner confirmed respondent's order, stating that respondent would obtain SDN " 'pursuant to the rates, terms and conditions in AT&T's [FCC Tariff No.1],' " and that the provisions of the tariff, " 'including limitations on AT&T's liabilities, shall govern your and AT&T's obligations and liabilities with respect to the service and options you have selected.' " Brief for Petitioner 14. Respondent accepted these terms in writing on October 30, 1989.

By February 1990, it had become apparent that the demand for SDN exceeded petitioner's expectations largely because of the switchless resellers attracted to the service. Petitioner could not fill the volumes of switched-access orders as rapidly as dedicated access orders, or as quickly as petitioner's personnel had predicted. Accordingly, Ms. Kisor notified respondent that it would take up to 90 days to add new locations after the initial SDN was established. She suggested placing respondent's customers with another AT&T service, the Multilocation Calling Plan (MLCP), until they could be placed on SDN. Respondent agreed to this, and ordered MLCP. Again, respondent signed a letter confirming that MLCP " 'is provided under the terms and conditions stated in AT&T's Tariff F. C. C. Nos. 1 and 2.' " Brief for Appellant in Nos. 94 36116, 94 36156 (CA9), p. 15.

Ms. Kisor informed respondent that its initial SDN network was functioning in April 1990. At that point, respondent elected to increase to a larger SDN volume commitment in order to qualify for a larger discount. In placing this order, respondent signed a form stating that the SDN service " 'WILL BE GOVERNED BY THE RATES AND TERMS AND CONDITIONS IN THE APPROPRIATE AT&T TARIFFS.' " Brief for Petitioner 14 15. Respondent then began reselling SDN to its own customers and placing orders with petitioner that required petitioner to treat respondent's customers as if they were new locations on a corporate SDN.

Almost from the outset, respondent experienced problems with the network, including delays in provisioning (the filling of orders) and in billing. An additional billing problem was especially damaging to respondent: respondent's customers received bills reflecting 100% of the discount instead of the 50% respondent selected. These problems continued, and in October 1990, they led respondent to switch to network billing. Although respondent continued to resell SDN, it was ultimately unable to meet its usage commitment for the first period in which it was applicable. In September 1992, respondent notified petitioner that it was terminating its SDN service effective September 30, 1992, with 18 months remaining on its contract.

Meanwhile, on November 27, 1991, respondent had filed suit against petitioner in the United States District Court for the District of Oregon. The complaint contained a variety of claims, none of which arose under the Communications Act, and ultimately two state-law claims went to trial: (1) breach of contract (including breach of an implied covenant of good faith and fair dealing); and (2) tortious interference with contractual relations (viz., respondent's contracts with its customers). Respondent's state-law claims rested on the allegation that its contracts with petitioner were not limited by petitioner's tariff but also included certain understandings respondent's president derived from reading petitioner's brochures and talking with its representatives. According to respondent, petitioner promised various service, provisioning, and billing options in addition to those set forth in the tariff. Respondent also claimed that petitioner violated its state-law implied duty of good faith and fair dealing by taking actions that undermined the purpose of the contract for respondent, which was to purchase SDN services for resale at a profit. The tortious interference claim was derivative of the contract claim. Respondent asserted that, because respondent promised certain benefits of SDN to its customers, and because petitioner provided competing services, any intentional violation of petitioner's contractual duties constituted tortious interference with respondent's relationship with its customers. Respondent also asserted that, since petitioner's conduct was willful, consequential damages were available under the terms of the tariff. Petitioner filed a counterclaim to recover $200,000 in unpaid tariffed charges from April to October 1990, and to obtain the termination charges that respondent did not pay in 1992.

Throughout the proceedings in District Court, petitioner...