All Am. Tel. Co. v. AT & T Corp.

Decision Date10 September 2018
Docket Number07cv861
Citation328 F.Supp.3d 342
Parties ALL AMERICAN TELEPHONE COMPANY, INC., et al., Plaintiffs, v. AT & T CORP., Defendant.
CourtU.S. District Court — Southern District of New York

Hunter T. Carter, Arent Fox LLP, New York, NY, Jonathan Edward Canis, Pro Hac Vice, Canis PLLC, Michael Brian Hazzard, Pro Hac Vice, Ross Allen Buntrock, Pro Hac Vice, Arent Fox PLLC, James William Gladstone, Womble Bond Dickinson LLP, Washington, DC, for Plaintiffs.

Eamon Paul Joyce, Benjamin Robert Nagin, Steven M. Bierman, Sidley Austin LLP, New York, NY, Michael J. Hunseder, Brendon J. McMurrer, Pro Hac Vice, Justin Adam Benson, Sidley Austin LLP, Washington, DC, for Defendant.


WILLIAM H. PAULEY III, Senior United States District Judge:

This action involves a long-running dispute between telecommunications carriers over access charges. Plaintiffs All American Telephone Company, Inc., Chase Com, and e-Pinnacle Communications, Inc. are competitive local exchange carriers—in lay terms, local telephone companies—operating in Utah and Nevada. Over a decade ago, Plaintiffs initiated an action against AT & T to collect tariffed access charges. Plaintiffs also asserted claims under the Federal Communications Act of 1934 (the "Communications Act") for AT & T's refusal to pay the tariffed rates and for quantum meruit. In essence, Plaintiffs sought to recover unpaid access charges that AT & T allegedly owed them for connecting long distance telephone calls carried by AT & T in its capacity as an interexchange carrier. Unsurprisingly, AT & T has a different perspective, counterclaiming that Plaintiffs violated the Communications Act by acting as "sham" carriers created as part of a scheme to artificially generate long distance call volume—and by extension, access charges that AT & T posits it should not be required to pay.

Similar disputes have found their way into federal courts nationwide. And like other judges, this Court saw fit to refer the key issues in this action to the Federal Communications Commission (FCC) under the primary jurisdiction doctrine in recognition of the FCC's specialized expertise and the virtues of uniformity in telecommunications regulation. This action returned to this Court in 2017 following the FCC's issuance of two separate orders on liability and damages and the D.C. Circuit's resolution of an appeal of the FCC's order on damages. AT & T now moves for summary judgment dismissing Plaintiffs' Second Amended Complaint and granting relief on its counterclaims. For the reasons that follow, both of AT & T's motions are granted.


To assist in better understanding Plaintiffs' claims and AT & T's counterclaims, a brief primer on access charges and telecommunications carriers precedes a description of the relevant facts and extensive procedural history of this case.

I. Regulatory Framework

The regulatory scheme that governs the fees that a carrier may recover from another carrier has been exhaustively detailed in myriad judicial opinions. This Opinion & Order draws primarily from the Ninth Circuit's 2018 decision in CallerID4u v. MCI Communications Services Inc. and the D.C. Circuit's 2017 decision resolving Plaintiffs' appeal of the FCC's damages order issued pursuant to this Court's primary jurisdiction referral.

When a long-distance call is placed, a local exchange carrier that operates in the caller's local service area (or "telephone exchange area") routes the call to an "interexchange carrier" (or "IXC" or "interstate exchange carrier"). All Am. Tel. Co., Inc. v. Fed. Commc'ns Comm'n ("All American III"), 867 F.3d 81, 84 (D.C. Cir. 2017). The interexchange carrier then delivers the call to the local exchange carrier that services the recipient's geographic area. All American III, 867 F.3d at 84. When the recipient's local exchange carrier completes the call, the interexchange carrier must pay an access charge to the local exchange carriers for the connection service—i.e., the "originating" switched access service provided by the caller's local carrier and the "terminating" switched access service provided by the recipient's local carrier. All American III, 867 F.3d at 84.

The rate that a local exchange carrier may charge for switched access service depends on how the carrier is classified. Incumbent local exchange carriers (or "ILECs") are local exchange carriers that, "on or prior to February 8, 1996, provided service to a particular area or were part of an exchange carrier association." All American III, 867 F.3d at 84 (citing 47 U.S.C. § 251(h) ). ILECs may only impose access charges by filing a tariff with the FCC that governs their rate structure. All American III, 867 F.3d at 84 ; All Am. Tel. Co. v. AT & T, Inc. ("All American I"), 2009 WL 691325, at *1 (S.D.N.Y. Mar. 16, 2009) (citing 47 U.S.C. § 203 ); see CallerID4u, Inc. v. MCI Commc'ns Servs. Inc., 880 F.3d 1048, 1058 (9th Cir. 2018) (explaining that ILECs are "both required to file tariffs and [are] also subject to FCC rate regulations").

On the other hand, all other local exchange carriers are competitive local exchange carriers (or "CLECs"). All American III, 867 F.3d at 84 (citing 47 C.F.R. § 51.903(a) ). Following revisions to the FCC's permissive de-tariffing policy for CLECs in 2001, there are only "two means by which a CLEC can provide an IXC with, and charge for interstate access services." CallerID4u, Inc., 880 F.3d at 1059 (quotation mark omitted) (citing AT & T Servs. Inc. v. Great Lakes Comnet, Inc., 30 FCC Rcd. 2586, 2588 ¶ 10 (2015) ). A CLEC may (1) under the benchmark rule, "tariff interstate access charges if its rates are no higher than the rates charged for such services by the competing ILEC" in the service area; or (2) privately "negotiate and enter into an agreement with an IXC to charge rates higher than those permitted under the benchmark rule." CallerID4U, Inc., 880 F.3d at 1059 (citation and quotation marks omitted); accord All American III, 867 F.3d at 84 (citations omitted); AT & T Corp. v. All Am. Tel. Co. ("Liability Order"), 28 FCC Rcd. 3477, 3480 ¶ 9 (2013).

Where a tariff has been filed, a carrier may not deviate from the rates that apply to the services set forth in the tariff. The "filed rate doctrine, also known as the filed tariff doctrine, is derived from the tariff-filing requirements of ... [§ 203 of the Communications Act] and ‘forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate federal regulatory authority.’ " Marcus v. AT & T Corp., 138 F.3d 46, 58 (2d Cir. 1998) (citations omitted); see also CallerID4u, Inc., 880 F.3d at 1052-53 (explaining that § 203(c)"prohibits common carriers from providing any interstate wire communications without filing tariffs with the FCC, and prohibits common carriers from charging, demanding, collecting, or receiving any compensation for such services except as specified in the carriers' filed tariffs").

This litigation plays out in the arena of "access stimulation," sometimes referred to as "traffic pumping." As explained by the D.C. Circuit, an access stimulation scheme works like this:

[A] local exchange carrier would enter into a contractual relationship with a company that generates a high volume of telephone calls, such as a conference calling provider or a provider of sexually explicit chat lines. The local carrier would house the phone-call-generating partner's equipment on its premises for free and would sometimes even provide the equipment itself at no cost. Not only would the local carrier forgo charging its partner for the phone calls that came in, but in fact the carrier would pay the partner a share of the per-minute long-distance access rates it charged the interexchange carriers.

All American III, 867 F.3d at 85.1

Such an arrangement benefits the local exchange carrier by boosting its phone traffic and access charge revenue as well as the conference call/chat line provider by providing free service and part of the access charge revenue—all at the expense of the interexchange carriers, who had to pay artificially inflated access charges. All American III, 867 F.3d at 85. Starting in 2010, however, the FCC issued orders ruling that local exchange carriers could not bill interexchange carriers under their tariffs to connect long-distance calls to a non-paying end user—i.e., an access stimulation scheme is unlawful under §§ 201(b) and 203(c) if the conference call/chat line provider does not pay for the local exchange carrier's services. See All American III, 867 F.3d at 85 (citing FCC orders affirmed by the D.C. Circuit).

II. Factual Background

The following facts are drawn from the FCC's orders pursuant to this Court's referral, on which the parties' Local Rule 56.1 statements primarily rely. Plaintiffs are CLECs who provide services exclusively to chat line/conference call providers in Utah and Nevada. Liability Order, 28 FCC Rcd. at 3478 ¶ 3. For purposes of this action, AT & T is an interexchange carrier that provides long-distance calling services. Liability Order, 28 FCC Rcd. at 3478 ¶ 2.

While not parties to this action, the cast is rounded out by Beehive Telephone Company, Inc. Nevada and Beehive Telephone Company, Inc. Utah ("Beehive"), ILECs that operate in rural Nevada and Utah, and Joy Enterprises ("Joy"), a Nevada chat line/conference call provider that All American served. Liability Order, 28 FCC Rcd. at 3478 ¶¶ 3-5. In 1994, Beehive was able to charge relatively high access rates under its tariff because its historic traffic volumes had been low. Liability Order, 28 FCC Rcd. at 3480 ¶ 10. Sometime between 1994 and the early 2000s, Beehive and Joy entered into an access revenue–sharing arrangement "in which Beehive paid Joy a portion of Beehive's tariffed access charges for every minute of long distance traffic routed to Joy's assigned telephone numbers." Liability Order, 28 FCC Rcd. at 3480 ¶ 11. While the scheme inflated Beehive's traffic precipitously, that escalation in...

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