N. Valley Commc'ns, L. L.C. v. At & T Corp.

• Decision Date: 28 March 2017
• Docket Number: 1:14–CV–01018–RAL
• Citation: 245 F.Supp.3d 1120
• Parties: NORTHERN VALLEY COMMUNICATIONS, L.L.C., a South Dakota Limited Liability Company, Plaintiff, v. AT & T CORP., a New York Corporation, Defendant.
• Court: U.S. District Court — District of South Dakota

245 F.Supp.3d 1120

NORTHERN VALLEY COMMUNICATIONS, L.L.C., a South Dakota Limited Liability Company, Plaintiff,

v.AT & T CORP., a New York Corporation, Defendant.

1:14–CV–01018–RAL

United States District Court, D. South Dakota, Northern Division.

Signed March 28, 2017

James M. Cremer, Bantz, Gosch & Cremer, LLC, Aberdeen, SD, G. David Carter, Joseph P. Bowser, Innovista Law PLLC, Washington, DC, for Plaintiff.

Benjamin R. Brunner, Brian A. McAleenan, Sidley Austin LLP, Chicago, IL, Daniel F. Duffy, Jeffrey G. Hurd, Terry G. Westergaard, Benjamin D. Tronnes, Bangs, McCullen, Butler, Foye & Simmons, Rapid City, SD, James F. Bendernagel, Jr., Michael J. Hunseder, Sidley Austin, LLP, Washington, DC, for Defendant.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART CROSS–MOTIONS FOR SUMMARY JUDGMENT

ROBERTO A. LANGE, UNITED STATES DISTRICT JUDGE

Northern Valley Communications, LLC (NVC) filed this collection and declaratory judgment action against AT & T Corp. (AT & T), alleging that AT & T was unlawfully withholding payment for telecommunications services provided by NVC to AT & T. Doc. 1. NVC's complaint has four claims for relief: 1) a collection action based on NVC's tariffed charges for interstate and intrastate switched access services provided to AT & T, but not fully paid since March 2013; 2) in the alternative, a state law quantum meruit claim if the charges cannot be recovered under NVC's tariffs; 3) in the alternative, a state law unjust enrichment claim if the charges cannot be recovered under NVC's tariffs; and 4) a declaratory judgment action seeking to require AT & T to pay NVC's invoices in the future. Doc. 1 at 11–14.¹ AT & T filed a motion for partial judgment on the pleadings, Doc. 33, and an amended answer and counterclaim against NVC that consists of a long argument of why AT & T believes that NVC ought not to recover, Doc. 52 at 1–51. AT & T's counterclaim ultimately made three claims for relief: 1) that NVC was unlawfully billing for services under the rules and orders of the Federal Communication Commission (FCC); 2) that NVC was billing for services that violated its own tariffs; and 3) that AT & T is entitled to a declaratory judgment on its first two claims thereby relieving AT & T of any obligation to pay the disputed charges. Doc. 52 at 46–49. After a motion hearing, this Court denied AT & T's motion for partial judgment on the pleadings. Doc. 60.

Both parties simultaneously moved for partial summary judgment. Docs. 80, 84. AT & T seeks summary judgment on all four of NVC's claims for relief, and summary judgment on the liability portions of its own Counts I and II in its counterclaim. Doc. 80 at 1. NVC seeks summary judgment on Counts I and IV of its Complaint, or on Count II of its Complaint in the alternative, and summary judgment on each of AT & T's counterclaims. Doc. 84 at 1. This Court read extensive filings and held a lengthy hearing on the cross-motions for summary judgment. Doc. 119. The parties' disagreement relates primarily to application of the law to facts not actually in dispute. For the reasons explained below, this Court grants NVC's motion for summary judgment on Count I of its complaint in part, grants AT & T's motion for summary judgment on Counts II and III of NVC's Complaint, denies at this time NVC's motion for summary judgment on Count IV of its Complaint, denies AT & T's motion for summary judgment on its counterclaim, and grants in part and denies in part NVC's motion for summary judgment on AT & T's counterclaim.

I. Background

A. FCC Telecommunications Regulatory Framework

This case involves a dispute between two types of telecommunications carriers. NVC is a local exchange carrier (LEC), which provides telephone services to local residents and businesses. AT & T is an interexchange carrier (IXC), which is responsible for carrying telephonic traffic between LECs in different geographic areas, enabling long-distance phone service. As a LEC, NVC is responsible for a service known as "exchange access," which connects local customers to the IXC necessary to call and receive calls from other LECs. There are two types of LECs: incumbent LECs (ILECs) and competitive LECs (CLECs). An ILEC is the original LEC that held a monopoly on local exchange services in a community prior to the Telecommunications Act of 1996, Pub. L. 104–104, 110 Stat. 56 (1990). An ILEC may also be the successor company of the original LEC in an area. CLECs, such as NVC, are those LECs formed after the Telecommunications Act that compete with an established ILEC in an area. The Telecommunications Act forms the basis for the existing FCC regulations and orders on all telecommunications carriers.

An ordinary long distance phone call involves three carriers—an originating LEC, an IXC, and a terminating LEC. The originating LEC has the responsibility for connecting the caller's terminal—the telephone device—to its main local switch through the use of copper or fiber-optic cables. At its main local switch, the originating LEC aggregates these local cables into common "trunks" that can carry multiple separate calls simultaneously. The originating LEC delivers the call to the circuit of the caller's chosen long-distance provider, the IXC. This hand-off occurs at a centralized, or tandem, switching location. The IXC then transmits the call through its circuit system, from tandem trunk to tandem trunk, to the LEC for the recipient's location. At this terminating LEC, the LEC receives the call at its main local switch, then delivers it through its local network of cables to the recipient's terminal. In remote areas, the LEC may have a main "host" switch that branches off into additional "remote" end office switches, which are then connected to a caller's terminal.

Consumers generally pay for this service through contracts with IXCs. The IXCs, in turn, pay both the originating and terminating LECs for their services through charges billed by the LECs. Broadly defined, the main components of these charges are either "transport" charges or "terminating switched access" charges. Transport charges are those incurred by a LEC for transporting the IXC's call on its local circuit from where it picks the call up at an interconnection point to the LEC's end office switch, where it can be connected directly to the called party. An IXC might connect directly to a LEC using a direct trunked transport system that only carriers the traffic of one IXC, or it might connect indirectly to the LEC, which allows traffic from multiple IXCs to use the same circuit. Terminating switched access charges, also known as end office charges, are those incurred by a LEC for routing a telephone call to its final called party from the LEC's end office switch.

Because of their distinct histories, ILECs and CLECs are regulated through separate regimes under the FCC to ensure consumers receive reasonable pricing and broad access to telecommunications services. See AT&T Corp. v. All Am. Tel. Co. , 28 FCC Rcd. 3477, 3479–80 (2013) (explaining the regulatory framework for ILECs and CLECs). The FCC requires ILECs to file tariffs to monitor the rates charged by ILECs to IXCs for interstate exchange access services. See 47 U.S.C. § 203. These tariffs set out the telecommunications services offered by an ILEC to an IXC, and the corresponding rates to be charged. See 47 C.F.R. § 61.26. The FCC has the authority to determine the "just and reasonable charge" for a telecommunications service. 47 U.S.C. § 205. In contrast, CLECs like NVC are subject to "minimal rate regulation." All Am. Tel. Co. , 28 FCC Rcd. at 3480. CLECs can file tariffs, like ILECs, detailing their charges for interstate exchange access services, but these tariffs are subject to the "benchmark rule;" that is, a CLEC's rates for a specified service can be no higher than the local, competing ILEC's tariffed rates for that same service. Id. ; 47 C.F.R. § 61.26(b). A CLEC can only charge rates higher than the local, competing ILEC if it negotiates and enters into a separate agreement with an IXC to charge higher rates. All Am. Tel. Co. , 28 FCC Rcd. at 3480.

Some LECs engage in a practice known as "access stimulation"² to increase the volume of calls they handle, thereby increasing their revenue without violating the FCC's benchmark rule by raising their rates. See In re Connect Am. Fund, A Nat'l Broadband Plan for our Future , 26 FCC Rcd. 17663, 17874–90 (2011) [hereafter Connect Am. Fund Order ]. Access stimulation occurs when a LEC enters into an agreement with a high-volume telecommunications customer. These customers are identified as free calling parties (FCP) because they often provide "free" services to their users, such as free conference calls, free chat lines, or free international calling. The FCP is assigned a telephone number within the LEC's service area, although the high-volume customer may not have any other connection with the LEC's service area. Id. at 17877. The increase in traffic to the LEC generated from the FCP's users is billed to the IXC, which results in increased revenue for the LEC. Id. In return, the LEC often returns a portion of their increased revenue to the high-volume customer. Id. at 17878–88. The practice of access stimulation has led to increased levels of litigation between LECs and IXCs, and resulted in changes to FCC rules. Id. at 17874–90. In addition to the general tariff and benchmarking requirements for all CLECs, CLECs engaged in access stimulation are prohibited from filing rates for interstate exchange access services that are higher than the "price cap"³ LEC with the lowest switched access rates in the state. 47 C.F.R. § 61.26(g) ; Connect Am. Fund Order , 26 FCC Rcd. at 17886 ; All Am. Tel. Co. , 28 FCC Rcd. at 3480 n.27.

The disputes in this case are controlled broadly by two main sections of the Telecommunications Act of 1996, 47 U.S.C. §§ 201(b) and 203(c). Section 201(b) requires that "[a]ll charges, practice, classifications, and...