Central Office Telephone, Inc. v. American Tel. and Tel. Co.

• Citation: 108 F.3d 981
• Decision Date: 26 February 1997
• Docket Number: 94-36156,Nos. 94-36116,s. 94-36116
• Parties: 97 Cal. Daily Op. Serv. 1339, 97 Daily Journal D.A.R. 2016 CENTRAL OFFICE TELEPHONE, INC., Plaintiff-Appellee-Cross-Appellant, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Defendant-Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 981

108 F.3d 981

97 Cal. Daily Op. Serv. 1339, 97 Daily Journal

D.A.R. 2016

CENTRAL OFFICE TELEPHONE, INC., Plaintiff-Appellee-Cross-Appellant, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Defendant-Appellant-Cross-Appellee.

Nos. 94-36116, 94-36156.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 8, 1996.

Decided Feb. 26, 1997.

Bruce M. Hall, James T. McDermott, Kathryn D. Whittaker, Ball, Janik & Novack, Portland, Oregon, and J. Richard Urrutia, James, Denecke & Harris, Portland, OR, for the plaintiff-appellee-cross-appellant.

David W. Carpenter, Joseph D. Kearney, Sidley & Austin, Chicago, IL, and Milo Petranovich, Lane, Powell, Spears Lubersky, Portland, OR, for the defendant-appellant-cross-appellee.

Appeals from the United States District Court for the District of Oregon, John A. Jelderks, Magistrate Judge, Presiding. D.C. No. CV-91-1236-JAJ.

Before FERGUSON and BRUNETTI, Circuit Judges, and KING, ^* District Judge.

SAMUEL P. KING, District Judge.

American Telephone & Telegraph Company ("AT&T") appeals the judgment of the magistrate judge, following a three-week jury trial, awarding Central Office Telephone, Inc. ("COT") $1.154 million in damages, and denying AT&T's claim for over $1 million in unpaid federally tariffed charges for long distance services, under the Federal Communications Act of 1934, ("Communications Act" or "Act") 47 U.S.C. § 153(h). COT's action against AT&T alleged breach of contract, breach of implied covenant of good faith and fair dealing, and tortious interference with contract. COT cross-appeals the magistrate judge's decision not to allow the jury to consider an award of punitive damages, as well as the magistrate judge's post-trial order reducing the original jury verdict of $13 million in compensatory damages in favor of COT.

COT, a reseller of long distance services, entered into a contract with AT&T for Software Defined Network ("SDN") services, which COT later resold to its customers. AT&T is a provider of long distance services and is classified as a common carrier under the Communications Act, 47 U.S.C. § 153(h), and therefore, its long distance services are subject to the requirements of § 203 of the Act, which contains statutory filed tariff requirements. ¹ 47 U.S.C. § 203.

The tariffs filed with the Federal Communications Commission ("FCC") by AT&T set forth the rates for each of its long distance services. One of the services provided by AT&T is SDN, a long distance service which provides a physically separate long distance network for a customer's long distance service. In addition to describing rates for the service, the SDN tariff limits AT&T's liability for all but wilful misconduct.

SDN customers make large volume commitments, and therefore, SDN rates are lower than rates for other AT&T services. Because the set-up of an SDN network is complex, the tariff provides for an up-front installation charge to the customer. Once SDN is set up, the customer may add new locations or drop old ones from the network.

SDN has several characteristics attractive to switchless resellers ² such as COT. It accommodates switched access, allowing resellers to offer the service to its customers who are generally small businesses or residences. Furthermore, Multilocation Billing ("MLB"), ³ added by AT&T in 1989, allows volume discounts to be apportioned between an SDN customer and individual locations on its network, in a proportion chosen by the customer. Under this option, AT&T sends bills directly to the reseller's customers, however, the reseller remains responsible for all payments. Another billing option offered is the Location Account Billing Option ("LABO"), under which AT&T sends bills to each location at the discount rate, and each location is responsible for payment.

AT&T also instituted two tariffed pricing promotions in 1989 which are attractive to resellers. Expanded Volume Pricing plans ("EVPs"), offering additional discounts from the basic SDN rates for customers making large usage and duration commitments, and another promotion which waived the installation charges and per-location installation charges for customers making multi-year commitments, subject to penalties for early termination.

Following the 1989 changes in SDN service, orders from resellers increased, and AT&T experienced delays in provisioning SDN, especially switched access service. Billing problems also occurred, most notably, "suppressed billing" ⁴ which resulted in customers not receiving bills for calls for up to one year after the calls were made. ⁵

In light of the problems with SDN, AT&T limited the number of new SDN customers. AT&T also transferred servicing of all reseller customers to the Channel Development and Operations Center ("CDOC"). ⁶ The CDOC was the successor to the Carrier Service Center, which had previously done business with AT&T's reseller customers.

COT placed orders for SDN, after COT's president became aware of SDN in 1989, and contacted AT&T's Portland office regarding the service. On October 30, 1989, COT signed an agreement for SDN service, and selected Multi Location Billing. AT&T represented to COT that the service would be provisioned in four to five months, and thereafter, additional orders within 30 days. In February, AT&T advised COT that new orders would take 45 to 90 days due to provisioning problems, and informed COT that another AT&T service, Multi Location Calling Plan ("MLCP") would serve COT's customers until they were provisioned onto SDN.

COT began reselling SDN services in April 1990, and immediately experienced problems with the network including provisioning delays and suppressed billing. COT also experienced an additional billing problem; COT's customers received 100% of the discount instead of the 50% COT had selected, because COT was billed under the LABO billing option rather than the MLB billing COT had selected. COT continued to experience problems with provisioning and billing, and in October 1990 COT switched from MLB billing to Network Billing, under which AT&T sent COT a single bill which COT was responsible for paying. COT then sent individual bills to its customers.

Although COT continued to sell SDN, it was ultimately unable to meet its usage commitment for the first period in which it was applicable. In addition, AT&T claimed that COT had failed to pay nearly $200,000 in bills from the period in which COT was under MLB billing. On September 21, 1992, COT's president informed AT&T that COT was terminating its contract as of September 30, 1992, with 1 1/2 years remaining in the contract.

COT filed suit on November 27, 1991. COT ultimately pursued three state law claims at trial: breach of contract, breach of implied covenant of good faith and fair dealing, and tortious interference with contract. ⁷ COT's state law claims were based on COT's allegation that the contracts entered into with AT&T did not constitute the ordering of long distance pursuant to the requirements of AT&T's tariff, but rather constituted voluntary contracts in which COT agreed to purchase, and AT&T agreed to provide long distance services. COT also claimed that the contracts encompassed more than the written orders, and included all the understandings that COT's president had from reading service brochures and from talking with AT&T representatives.

COT argued that AT&T's failure to provision SDN orders in a reasonable manner failure to properly allocate discounts between COT and its customers under Multilocation Billing, failure to offer SDN and MLCP services which were functional for COT, failure to initially credit MLCP usage to SDN, failure to provide timely call detail to COT and its customers, and failure to afford COT international calling capability at a reasonable completion rate, as well as a requirement that COT post a deposit, and AT&T's provisioning of calling card capabilities under Network Remote Features rather than an SDN calling card bearing both COT's and AT&T's logo, constituted breach of contract.

COT also claimed that AT&T breached its state law implied duty of good faith and fair dealing by taking actions that undermined the purpose of the contract, which was to obtain services and resell them at a profit. COT's tortious interference with contract claim alleged that because COT had promised certain benefits of SDN to its customers, and because AT&T provided competing services, any violation of AT&T's contractual duties constituted tortious interference with COT's relationship with its customers.

Furthermore, COT alleged that AT&T's conduct was wilful and therefore consequential damages could be awarded under the terms of its tariff. COT claimed the wilful conduct consisted of running a promotion for SDN when AT&T did not have the capability to provision COT and other resellers to the CDOC. COT also argued that improper purpose could be inferred from certain internal AT&T documents discussing proposed SDN changes.

At three stages of the proceedings below, ⁸ AT&T asserted that COT's state law contract and tort claims were preempted by the filed tariff doctrine of § 203 of the Communications Act. The magistrate judge rejected this claim and denied AT&T's Motion for Summary Judgment as to its counterclaim and all of COT's claims, excepting COT's negligent misrepresentation claim. Central Office Tel. Co., Inc. v. AT&T, Civ. No. 91-1236-JE (E.D.Or.1991). In denying AT&T's motion for summary judgment on its counterclaim and on COT's claim for breach of contract, the magistrate judge found AT&T's reading of the filed-rate doctrine too broad. The magistrate judge also found that because COT was not disputing the filed-rate's reasonableness or validity, or that of the tariff in general, but rather was complaining about the manner in which AT&T provided the services for which COT contracted, the filed-rate doctrine did not apply. Id. at 16.

The magistrate judge also rejected AT&T's argument that there...