Globalrock Networks, Inc. v. MCI Commc'ns Servs., Inc.

• Decision Date: 06 May 2013
• Docket Number: No. 1:09–CV–1284 (MAD/RFT).,1:09–CV–1284 (MAD/RFT).
• Parties: GLOBALROCK NETWORKS, INC., Plaintiff, v. MCI COMMUNICATIONS SERVICES, INC., d/b/a Verizon Business Network Services, Defendant.
• Court: U.S. District Court — Northern District of New York

943 F.Supp.2d 320

GLOBALROCK NETWORKS, INC., Plaintiff,

v.MCI COMMUNICATIONS SERVICES, INC., d/b/a Verizon Business Network Services, Defendant.

No. 1:09–CV–1284 (MAD/RFT).

United States District Court, N.D. New York.

May 6, 2013.

Herzog Law Firm, P.C., Keith J. Roland, Esq., Albany, NY, for Plaintiff.

Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Melanie L. Bostwick, Esq., Scott H. Angstreich, Esq., Brendan J. Crimmins, Esq., Washington, D.C., for Defendant.

Phillips Lytle LLP, William D. Christ, Esq., Marc H. Goldberg, Esq., Albany, NY, for Defendant.

MEMORANDUM–DECISION AND ORDER

MAE A. D'AGOSTINO, District Judge.

INTRODUCTION

Plaintiff GlobalRock Networks, Inc. (“plaintiff” or “GlobalRock”) commenced this action against MCI Communication Services, Inc., (“MCI”) doing business as Verizon Business Network Services (“Verizon” or “defendant”), alleging causes of action for breach of contract, fraud and gross negligence in connection with Verizon's provision of telecommunication services to GlobalRock. Presently before the Court are three motions. Defendant moves for summary judgment and dismissal of plaintiff's complaint and for summary judgment and an award of damages on defendant's counterclaims pursuant to Fed.R.Civ.P. 56. (Dkt. No. 95). In the alternative, defendant moves to exclude the proposed expert testimony of Stu Sleppin and David J. Malfara (Dkt. Nos. 94 and 96). Plaintiff has opposed the motions.

BACKGROUND¹

Defendant is a provider of wholesale and retail long-distance telecommunications services. Plaintiff is a prepaid calling-card provider selling calling cards that have a preset value and function like debit cards. Customers who purchase the calling cards dial a toll-free access number printed on the cards to reach GlobalRock's calling card platform. The customer is then prompted to enter a PIN number, also printed on the calling card, which allows GlobalRock's calling card platform to authenticate the customer and ensure that the card has adequate funds. After the customer is authenticated, plaintiff is prompted to enter the destination number (the number of the person that the customer is trying to call). Plaintiff's calling card platform determines what rate will apply to the call and whether any surcharges will be imposed. The calling card platform also determines which outbound carrier plaintiff should send the call to for delivery to its destination (in telecommunications terms, “terminate” the call). This determination is made based on the least-cost routing process. This process identifies the possible carriers and sorts the carriers in an attempt to place the call through the carrier that will charge the lowest price. As the call progresses, plaintiff's calling card platform deducts money from the card until the call ends or until the fund's on the card are depleted.

Telecommunications Services Agreement

In 1999, plaintiff's predecessor-in-interest and defendant's predecessor-in-interest entered into a contract, the Telecommunications Services Agreement (“TSA”). The TSA governed plaintiff's purchase of wholesale services from defendant. The TSA included attachments describing the specific services that GlobalRock ordered from defendant and setting forth the rates and terms applicable to those services. One of the service-specific attachments is entitled, “Attachment for Access Based Billing Carrier Origination Service.” This attachment governed the origination service (inbound toll-free service) that GlobalRock ordered from Verizon. That origination service enabled plaintiff's customers to dial a toll-free number in order to be connected to plaintiff's calling card platform. Other service-specific agreements entitled, “Attachment for Access Based Billing Carrier Termination Service” and “Attachment for Carrier IP Termination Service”, governed termination service (outbound service). Both types of termination service enabled plaintiff to pass calls from its calling card platform to Verizon for delivery to the local telephone company (or wireless carrier) service the number that the calling card user was trying to reach.

In 2003, the parties' predecessors-in-interest entered into a contract called the Digital Services Agreement (“DSA”) that governed plaintiff's purchase of digital services from Verizon.

Information Digits

Telephone companies create networks and transmit a variety of information that enables the companies to complete telephone calls and then bill for them. Switches, which are computers that route calls through a telephone network, record the information so that it can later be used for billing purposes.

Call-signaling information is typically transmitted by Signaling System No. 7 (“SS7”). One field of data in an SS7 message is Information Digits. Information Digits are two-digit codes that provide information about the equipment used to originate the telephone call; for example, whether the call was placed from a land line, payphone or wireless phone. The local telephone company that originates the call generates the Information Digits that are placed in the SS7 message. If the originating carrier places an incorrect value in the Information Digits field of an SS7 message, that value is passed to the subsequent carriers.

GlobalRock uses an older signaling method called Multi–Frequency signaling (“MF”). MF signaling occurs in-band (on the same network that carries the telephone call). MF signaling uses different, and fewer, data fields than SS7 signaling. The MF signals that GlobalRock received from defendant had three fields of information: Automatic Number Identification (“ANI”), Dialed Number Identification Services (“DNIS”) and Information Digits.

New York State Gross Tax Charges

Paragraph 5(b) of the TSA provides that GlobalRock “shall pay” for “any applicable federal, state or local use, excise, gross receipts, sales and privilege taxes, duties, fees or similar liabilities whether charged to or against [Verizon Business] or [GlobalRock] because of the Switched Services furnished to [GlobalRock,]” unless GlobalRock provides Verizon Business “with an appropriate exemption certificate.”

Beginning in 2006, defendant began invoicing plaintiff for New York State gross receipts tax surcharges on certain services that defendant provided to plaintiff. Plaintiff disputed the application of the charges and refused to pay. On or around June 16, 2006, plaintiff recognized that it needed the assistance of a tax attorney to confirm whether the New York State gross receipts tax surcharges were properly applied to the services it received from defendant and whether an exemption certificate was required. On or around August 16, 2006, plaintiff was represented by independent tax counsel.

In April 2008, plaintiff and defendant entered into a settlement agreement resolving their dispute about the tax receipts charges. Plaintiff consulted with tax counsel before entering into the agreement. As part of the settlement agreement, plaintiff released all claims against defendant relating to the disputed tax charges. As consideration, defendant credited plaintiff $116,180.02 and plaintiff paid defendant $128,135.00.

Invoices and Demands for Payment

The TSA and DSA required plaintiff to pay all undisputed charges within thirty days of the date of each invoice. The TSA provided that, if plaintiff did not pay all undisputed charges on or before the due date, a late fee of 1.5% would apply. Both the TSA and DSA provided that if defendant denied plaintiff's disputes in writing, the disputed amounts would become due and the contractual late fees would apply to those amounts.²

On October 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA during the month of September 2009 for account number 2100113660. The invoice contained charges of $769,324.22. Of these charges, $177,079.22 was for origination service. Plaintiff did not pay any portion of the charges. Plaintiff did not dispute any of the aforementioned invoice charges. On October 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA during the month of September 2009 for account number 2100116744. The invoice contained charges of $149,250.76. Plaintiff did not pay any portion of the charges. Plaintiff did not dispute any of the aforementioned invoice charges. On October 1, 2009, defendant issued an invoice to plaintiff for services provided under the DSA with charges of $2,373.51. Plaintiff did not pay any portion of the charges. Plaintiff did not dispute any of the aforementioned invoice charges.

On November 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA for October 2009 for account number 2100113660. This invoice contained charges of $928,860.17. Of these charges, $173,567.72 were for origination service. Plaintiff did not pay any portion of the charges. On November 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA for account number 2100116744 for October 2009. The invoice contained charges of $158,162.26. Plaintiff did not pay any portion of the charges. On November 1, 2009, defendant issued an invoice to plaintiff for services under the DSA with charges of $1,820.73. Plaintiff did not pay any portion of the charges.

On November 2, 2009, defendant sent a letter to plaintiff requesting that plaintiff pay the past-due, undisputed balance of $1,423,897.88 on the invoices issued by defendant on September 1, 2009 and October 1, 2009. The letter demanded payment of the undisputed portions of the two recent sets of invoices. Defendant did not include any demand for payment on disputed amounts and did not include any amounts that were more than 90 days overdue. Defendant notified plaintiff that if it did not pay the charges in question within five days, defendant would “terminate all telecommunications services currently being provided by Verizon Business and any of its affiliates, to [GlobalR...