In re Universal Serv. Fund Tele. Billing Practices

Decision Date01 December 2003
Docket NumberNo. 02-MD-1468-JWL.,02-MD-1468-JWL.
Citation300 F.Supp.2d 1107
CourtU.S. District Court — District of Kansas

Isaac L. Diel, Diel & Seelman, P.C., Prairie Village, KS, Jennifer F. Connolly, The Wexler Firm, Chicago, IL, Marc R. Stanley, Stanley, Mandel & Iola, Dallas, TX, for plaintiff.

Christopher J. Leopold, Mark M. Iba, Stinson, Morrison, Hecker, LLPKansas City, Kansas City, MO, Julie E. Grimaldi, Sprint, Mark D. Hinderks, Stinson, Morrison, Hecker, LLP — Overland Park, Overland Park, KS, Lynn S. McCreary, Bryan Cave, LLPKansas City, Kansas City, MO, Mark B. Blocker, Sidley, Austin, Brown & Wood, Chicago, IL, for defendants.

Fred Campbell, Michael Nilsson, Patrick O'Donnell, Harris, Wiltshire & Grannis, LLP, Washington, DC, for respondent.

Patricia C. Howard, Washington, DC, pro se.


LUNGSTRUM, District Judge.

This multidistrict litigation consists of numerous putative class action lawsuits arising from the practices of defendants AT & T Corporation ("AT & T") and Sprint Communications Company, L.P. ("Sprint") and non-party MCI WORLDCOM Network Services, Inc. and MCI WorldCom Communications, Inc. (collectively " MCI")1 of charging their customers to recoup these carriers' contributions to the federal Universal Service Fund ("USF") program. The Federal Communications Commission (the "FCC") administers the USF, a federal fund that subsidizes telecommunications service for low-income consumers, consumers in rural and high-cost areas, schools, libraries, and health care providers. 47 U.S.C. § 254. Long distance carriers such as defendants AT & T and Sprint are required to contribute a percentage of their revenues to maintaining the USF. Id. All major long distance carriers attempt to recover the costs of their contributions to the USF fund from their customers by way of line-item surcharges.

Plaintiffs are customers or former customers of AT & T, Sprint, and MCI who allege defendants engaged in an illegal scheme of conspiring to overcharge them for these USF fund pass-through charges, thereby creating a secret profit center that allowed defendants to deceptively advertise lower rates for their services. For example, plaintiffs allege that the USF contribution factor during most of 2001 and 2002 ranged from 6.68% to 7.28%, and that during this same time period AT & T and Sprint imposed USF surcharges on their customers ranging from 9.6% to 11.5%. AT & T and Sprint explain that this disparity is attributable to several factors such as their declining long distance revenues, uncollectible accounts, and their attempts to recoup their costs to administer the program.

From this general theory, which is explained in much more detail in plaintiffs' second consolidated and amended class action complaint ("second amended complaint"), plaintiffs assert the following claims: (1) a claim seeking a declaratory judgment that the arbitration and limitation of liability provisions in AT & T and Sprint's service contracts are unenforceable; (2) an antitrust claim under the Sherman Act, 15 U.S.C. § 1, and sections 4 and 16 of the Clayton Act, 15 U.S.C. § 15; (3) an unjust and unreasonable charges claim under § 201(b) of the Federal Communications Act, 47 U.S.C. §§ 151 et seq. ("FCA"); (4) an unreasonable discrimination claim under § 202(a) of the FCA; (5) a claim against AT & T under the New York consumer protection statute, N.Y. Gen. Bus. Law § 349; (6) a claim against Sprint under the Kansas Consumer Protection Act, K.S.A. §§ 50-623 et seq. ("KCPA"); (7) a money had and received claim; and (8) a breach of contract claim.

This matter is presently before the court on a variety of motions by defendants Sprint and AT & T including: (1) defendants' motions to compel arbitration and to dismiss or stay proceedings (Docs. 68 & 75); (2) defendants' motions to dismiss (Docs. 71 & 77); and (3) defendants' joint motion to dismiss or stay and for referral to the FCC under the doctrine of primary jurisdiction (Doc. 73). For the reasons explained below, the court will grant in part and deny in part all of these motions.

Specifically, the court will stay all of the claims of plaintiffs Michael Thome, Tomi White Bryan, and Elizabeth Tiffany against Sprint pending arbitration. Also, the court will stay plaintiff Thomas F. Cummings' claims against AT & T pending arbitration except insofar as some of those claims are based on USF fund pass-through charges prior to August 1, 2001. In addition, the court will compel arbitration of the residential customer plaintiffs' antitrust claims against long distance carriers other than their own, except that the court will not compel plaintiff Cummings to arbitrate his antitrust claim against Sprint insofar as that claim is based on USF fund pass-through charges prior to August 1, 2001.

The court will dismiss plaintiffs' declaratory judgment, New York consumer protection statute, and money had and received claims, as well as plaintiffs' pre-detariffing antitrust and KCPA claims. However, the court will deny defendants' motions to dismiss with respect to plaintiffs' FCA claims as well as plaintiffs' post-detariffing antitrust, KCPA, and breach of contract claims.

Lastly, the court will refer plaintiffs' FCA claims to the FCC for primary jurisdiction. The court will, however, decline to refer plaintiffs' post-detariffing antitrust, KCPA, and breach of contract claims to the FCC. The court will allow the parties to proceed with discovery on those claims.


Formerly, the FCA required interstate long distance carriers such as defendants to establish their rates, terms, and conditions of service in tariffs filed with the FCC. 47 U.S.C. § 203. However, the FCC implemented mandatory detariffing effective August 1, 2001. In lieu of tariffs, the FCC anticipated that carriers would establish "short, standard contracts" with their customers. In re Policy and Rules Concerning the Interstate, Interexchange Marketplace, 11 F.C.C.R. 20,730, ¶ 57 at 20,736 (1996) [hereinafter "Second Report and Order"]. By August 1, 2001, AT & T and Sprint had begun the process of forming these service contracts with their customers. As more thoroughly explained below, their residential customer service contracts contained arbitration clauses, and defendants now move to compel arbitration of their residential customers' claims pursuant to those arbitration clauses.

Specifically, Sprint moves the court to compel arbitration of the claims of its residential customers, plaintiffs Thome, Bryan, and Tiffany.2 AT & T moves to compel arbitration of the claims of one of its customers, plaintiff Cummings.3 In addition both defendants ask the court to compel arbitration of the other residential customers' antitrust claims. In response, these plaintiffs argue that some of their claims are not within the scope of the arbitration clauses, that the arbitration clauses are unconscionable, and that arbitration does not provide them with an effective forum to vindicate their statutory rights. Defendants, however, dispute the scope of the arbitration clauses and further contend that plaintiffs' state law unconscionability challenges are preempted by the FCA and that plaintiffs' antitrust claims are arbitrable.4

A. Legal Standard for a Motion to Compel Arbitration

The Courts of Appeals have uniformly held that "[i]n the context of motions to compel arbitration brought under the Federal Arbitration Act ('FAA'), 9 U.S.C. § 4 (2000), courts apply a standard similar to that applicable to a motion for summary judgment." Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir.2003) (applying a summary-judgment-like standard in ruling on a motion to compel arbitration); see, e.g., Tinder v. Pinkerton Sec., 305 F.3d 728, 735 (7th Cir.2002) (same); Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n. 9 (3d Cir.1980) (same); Brown v. Dorsey & Whitney, LLP, 267 F.Supp.2d 61, 66-67 (D.D.C.2003) (collecting case law on this issue and providing a helpful explanation of why the summary judgment standard applies); Doctor's Assoc., Inc. v. Distajo, 944 F.Supp. 1010, 1014 (D.Conn.1996) (same), aff'd, 107 F.3d 126 (2d Cir.), cert. denied, 522 U.S. 948, 118 S.Ct. 365, 139 L.Ed.2d 284 (1997). Although the Tenth Circuit has not precisely addressed this issue, there is no reason to believe that it would apply a different legal standard. See, e.g., Gibson v. Wal-Mart Stores, Inc., 181 F.3d 1163, 1166 (10th Cir.1999) (reviewing the district court's grant of a motion to compel arbitration under the summary judgment standard where the parties agreed that standard applied); Avedon Eng'g, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir.1997) (holding the district court must hold a jury trial on the existence of the agreement to arbitrate where the parties raise genuine issues of material fact regarding the making of the agreement to arbitrate (citing Par-Knit Mills, 636 F.2d at 54 & n. 9)); see also, e.g., Phox v. Atriums Mgmt. Co Inc., 230 F.Supp.2d 1279, 1282 (D.Kan.2002) (applying a summary-judgment-like standard to a motion to compel arbitration); Klocek v. Gateway, Inc., 104 F.Supp.2d 1332, 1336 (D.Kan.2000) (same).

Under this well-settled standard, summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Spaulding v. United Transp. Union, 279 F.3d 901, 904 (10th Cir.2002) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The movant need not negate the other ...

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