Blitz Telecom Consulting, LLC v. Peerless Network, Inc.

• Decision Date: 21 December 2015
• Docket Number: Case No: 6:14-cv-307-Orl-40GJK
• Citation: 151 F.Supp.3d 1294
• Parties: Blitz Telecom Consulting, LLC, Plaintiff, v. Peerless Network, Inc., Defendant.
• Court: U.S. District Court — Middle District of Florida

151 F.Supp.3d 1294

Blitz Telecom Consulting, LLC, Plaintiff,
v.
Peerless Network, Inc., Defendant.

Case No: 6:14-cv-307-Orl-40GJK

United States District Court, M.D. Florida, Orlando Division .

Signed December 21, 2015

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Lee W. Marcus, Ernest J. Myers, Marcus & Myers, PA, Orlando, FL, Tammy G. Cohen, David S. Sellman, Sellman Hoff, LLC, Baltimore, MD, James Christopher Falvey, Eckert, Seamans, Cherin & Mellott, LLC, Washington, DC, for Plaintiff.

Henry T. Kelly, Matthew Charles Luzadder, Michael R. Dover, Kelley Drye & Warren LLP, Chicago, IL, Ronnie J. Bitman, Pearson Bitman, LLP, Maitland, FL, for Defendant.

ORDER

PAUL G. BYRON, UNITED STATES DISTRICT JUDGE

This cause comes before the Court without oral argument on the following:

1. Plaintiff's Motion for Partial Summary Judgment as to Counts III and IV of the Complaint and Supporting Memorandum of Law (Doc. 55), filed May 5, 2015;

2. Defendant's Brief in Opposition to Blitz's Motion for Partial Summary Judgment on Counts III and IV (Doc. 67), filed May 19, 2015;

3. Defendant's Motion and Memorandum in Support of Summary Judgment on Counts I Through IV (Doc. 109), filed September 1, 2015; and

4. Plaintiff's Response in Opposition to Defendant Peerless Network Inc.'s Motion and Memorandum in Support of Summary Judgment on Counts I– IV (Doc. 115), filed September 22, 2015.

I. INTRODUCTION

This lawsuit involves a contract dispute between Plaintiff, Blitz Telecom Consulting, LLC (“Blitz”), and Defendant, Peerless Network, Inc. (“Peerless”), over Peerless' alleged nonpayment of co-marketing fees owed to Blitz for telecommunications

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traffic Blitz placed on Peerless' network. To provide context for the parties' dispute, the Court finds it prudent to begin by outlining the general framework of how telecommunications services—most pertinently, telephone services—are provided and paid for in the United States.

Fundamentally, there are two types of telephone traffic: local and long-distance. When a customer wishes to complete a local telephone call, the customer begins by dialing the call through his “originating” local exchange carrier (“LEC”) (i.e., AT&T, Sprint, BellSouth, etc.). The originating LEC then transmits the call to the call recipient's “terminating” LEC. The terminating LEC ultimately connects the call to its recipient. In the case of a local call, the originating LEC's customer pays the originating LEC for initiating the call and the originating LEC pays the terminating LEC for completing the call.¹ This compensation structure is termed “reciprocal compensation.” In re Implementation of the Local Competition Provisions in the Telecomms. Act of 1996 , 11 FCC Rcd. 15499, ¶ 1034 (1996) ; 47 U.S.C. § 251(b)(5).²

When a customer wishes to complete a long-distance call, the customer again begins by dialing the call through his originating LEC. The originating LEC then collaborates with a long-distance interexchange carrier (“IXC”) which facilitates transmission of the call by carrying the call on its own network until it reaches the call recipient's terminating LEC. The terminating LEC then connects the call to its recipient. Instead of reciprocal compensation, the LECs involved in a long-distance call assess an “access charge” to the IXC for the privilege of using the LECs' physical facilities to connect the call. The originating LEC's customer pays the IXC directly for its services, which in turn pays the access charges imposed by the LECs. Implementation of Local Competition Provisions , 11 FCC Rcd. 15499, ¶ 1035 ; see also 47 C.F.R. §§ 69.1 –69.5.

Where problems are beginning to emerge is with the use of prepaid calling cards to complete long-distance calls. Ordinarily, a customer who wants to make a call with a prepaid calling card begins by dialing a toll-free or an out-of-area “access number” through his originating LEC. This access number allows the customer to reach the calling card service provider's centralized switching platform. The switching platform then transmits the call to the intended recipient. Similar to a long-distance call, the originating LEC recognizes the access number as a long-distance number and assesses an access charge to the calling card service provider. The calling card service provider debits against the balance of the customer's prepaid calling card and pays the access charge imposed by the originating LEC. In re Regulation of Prepaid Calling Card Servs. , 21 FCC Rcd. 7290, ¶ 2 (2006) ; In re AT&T Corp. Petition for Declaratory Ruling Regarding Enhanced Prepaid Calling Card Servs. , 20 FCC Rcd. 4826, ¶¶ 3–5 (2005).

Increasingly, prepaid calling card companies are issuing prepaid calling cards bearing access numbers within customers' local calling areas. For example, such a prepaid calling card purchased by a customer in Miami, Florida would require the customer to dial an access number with a 305 area code. Because the access number

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is local, the originating LEC through which the customer initiates his long-distance call views the call as local; the originating LEC therefore transmits the call to the access number's LEC as if it will act as the terminating LEC for a local call. However, the access number's LEC is actually a switching platform operated by the calling card service provider. The calling card service provider then transmits the call as a long-distance call to the intended recipient. Because the originating LEC only recognizes the call as a local call, the originating LEC—expecting to be paid under the reciprocal compensation structure—never assesses an access charge to the calling card service provider. The result is that the calling card service provider debits against the balance of the customer's prepaid calling card at the same rate, but never pays any fees to which the originating LEC would normally be entitled had the access number been a toll-free or an out-of-area number.

Understandably, originating LECs have sued to recover the avoided access charges. See, e.g. , Broadvox – CLEC, LLC v. AT & T Corp. , 98 F.Supp.3d 839 (D.Md.2015) ; Dollar Phone Access, Inc. v. AT & T Inc. , No. 14–CV–3240 (SLT)(LB), 2015 WL 430286, at *1–3 (E.D.N.Y. Feb. 2, 2015). One such lawsuit, Southwestern Bell Telephone Co. v. IDT Telecom, Inc. , No. 3:09–CV–01268–P (N.D.Tex. Mar. 9, 2012) (hereinafter referred to as the “IDT Decision”), finds itself as the focal point of the instant litigation. Initiated in a Texas federal district court, the IDT Decision involved a number of LECs who sought to recover the value of access charges avoided by prepaid calling card service providers. Id. at 2–4. In granting partial summary judgment in favor of the LECs on the issue of liability, the IDT Decision held that all prepaid calling card traffic—no matter where a call originates or terminates—is subject to access charges which must be paid by the service provider. Id. at 9–13. The case subsequently settled on the issue of damages. See Dollar Phone , 2015 WL 430286, at *3. As will be revealed shortly, Peerless relies heavily on the IDT Decision to justify its actions in this case.

II. BACKGROUND

A. Facts

Blitz' business involves purchasing telephone numbers from various telecommunications carriers (such as LECs and IXCs) and subsequently marketing and reselling those numbers in bulk, along with other associated services, to companies and telecommunications carriers who offer telephone services to end consumers at a discounted price. (Doc. 55-1, ¶¶ 4–6). Many, but not all, of the companies to which Blitz resells these telephone numbers are prepaid calling card service providers. (Id. ¶ 4). Peerless is a telecommunications carrier whose subsidiaries provide local exchange and interexchange telephone services. (Doc. 67-1, ¶ 2).

On November 9, 2010, Blitz and Peerless entered into an IP Control Agreement (the “Contract”)³ whereby Peerless agreed to assign telephone numbers to Blitz for a fee. (Contract § 3.5; Contract App. A, p. 1). The Contract contemplates that Blitz would then use these numbers to place traffic on Peerless' network either by selling the numbers in bulk to other carriers and prepaid calling card providers, or by originating the traffic itself. (Contract §§ 3.5, 7.4; Doc. 55-1, ¶ 8; Doc. 67-1, ¶ 4). In exchange, Peerless agreed to pay a 30% commission to Blitz each month. (Contract App. A § 1.1). This commission, referred to as the “co-marketing fee,” was calculated based on revenues Peerless collected

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from certain charges it imposed on the customers and carriers whose traffic Blitz brought to Peerless' network. (Id. ).

From 2010 through approximately May or June 2012, Peerless accounted for and paid the monthly co-marketing fees to Blitz. (Doc. 55-1, ¶ 9; Doc. 67-1, ¶ 9). However, on April 11, 2012, Peerless notified Blitz by mail that it would no longer remit co-marketing fees to Blitz because of the IDT Decision, which became a final order on April 9, 2012. (Doc. 55-3). In its letter to Blitz, Peerless asserted that it was entitled to modify the parties' agreement pursuant to Section 23 of the...