Qwest Commc'ns Corp. v. Free Conferencing Corp.
Decision Date | 06 November 2014 |
Docket Number | CIV. 07-4147-KES |
Court | U.S. District Court — District of South Dakota |
Parties | QWEST COMMUNICATIONS CORPORATION, a Delaware corporation, Third-Party Plaintiff, v. FREE CONFERENCING CORPORATION, a Nevada corporation, Third-Party Defendant. |
Third-party plaintiff, Qwest Communications Corporation (Qwest), brought claims against third-party defendant, Free Conferencing Corporation (FC), alleging that FC engaged in conduct amounting to unfair competition, civil conspiracy, and alternatively that FC was unjustly enriched. A court trial was held May 13-20, 2014. The court has considered the testimony, exhibits, briefs, and oral arguments in determining the outcome of this case.
FINDINGS OF FACT
The following constitutes the court's findings of fact pursuant to Federal Rule of Civil Procedure 52(a)(1), which were found by a preponderance of the evidence:
Qwest1 is a telecommunications provider throughout the United States and provides long-distance, or interexchange, service. As an interexchange carrier (IXC),2 Qwest delivers long-distance calls from one local area to another.
FC provides conference calling services to its customers. FC operates a website and provides 24-hour customer support. Tr. 1138:13-1145:5. FC does not charge its customers for its services. FC is not a common carrier under the Communications Act of 1934, as amended. Ex. 1 at 2.
Sancom is a competitive local exchange carrier (CLEC),3 which serves local customers in the Mitchell, South Dakota, area. Sancombegan operating in 2004 and does business as Mitchell Telecom. Tr. 281:13-282:2. As a CLEC, Sancom owns the facilities that allow calls carried by IXCs, such as Qwest, to be originated and terminated with Sancom's customers. Sancom, a common carrier, is regulated by and filed tariffs with both the Federal Communications Commission (FCC) and the South Dakota Public Utilities Commission (SDPUC). See Ex. 4 & 6 (Sancom's intrastate tariff) and Ex. 85 (Sancom's interstate tariff). At times, Sancom worked with Vantage Point, a Mitchell-based telecommunications consulting company.
FC hired Darin Rohead, who operated as PowerHouse Communications, to identify rural LECs that were interested in contracting with FC to provide free conferencing services to FC's customers. See Ex. 16 ( ). Rohead identified Sancom, drafted the contract used between Sancom and FC, and handled all the negotiations with Sancom. Tr. 1150:3-1151:18 ( ); Tr. 1154:1-9 ( " ); Tr. 1226:5-1227:3 ( ).
Rohead also had a separate contract with Sancom under which Rohead received 0.22 cents per minute for all minutes to Rohead's clients' bridges. Ex. 13 ( ). That agreement further provided that if Sancom collected less than 100 percent of the fees it was entitled to collect on those minutes, Rohead's fee would be proportionally reduced. Id. Rohead and Sancom kept this arrangement secret from Erickson and FC. Ex. 218 (confidentiality agreement); Ex. 46 ( ). Nonetheless, numerous witnesses credibly testified that they understood that Rohead acted on behalf of FC. See Tr. 671:17-20 ( ); Tr. 676:5-18 ( ); L. Thompson depo. at 30:14-16 () ; Tr. 403:2-6 ( ); Tr. 427:16-24 ( ); Tr. 463:3-11 ( ); Tr. 545: 14-21 ( ); Tr. 625:5-24 ( ); Tr. 1221 ( ); Ex. 197 ( ).
Shortly after Sancom began operating, it entered into an agreement with FC. Ex. 11. The agreement stated that Sancom would provide FC alocation for a conference call bridge on Sancom's premises in Mitchell. Id. at ¶ 2. FC promised to provide a minimum number of minutes to the bridge located at Sancom's headquarters in exchange for a marketing fee of 2 cents per minute generated by FC's traffic. Id. at ¶¶ 3, 10. The agreement was signed by Gene Kroell, Sancom's general manager at the time, and Erickson. Id. Sancom did not have any contracts in place with the IXCs. As a result, FC's marketing fee was paid from the revenue generated by Sancom's terminating switched access charges under its tariffs, in effect resulting in an arrangement whereby Sancom and FC split the access charges paid by the IXCs on calls destined for FC's conference bridges. See Ex. 1 at ¶¶ 3-4 ( ); Thompson depo. at 43: ( that the arrangement between the LECs and conference call companies involved sharing terminating access revenue); Lorenzetti depo. at 24:4-16 (same); Tr. 403:17-404:3 ( ); Rohead depo. at 54:9-12 ( ); Ex. 29 ( ).
Erickson claimed he was unaware that the arrangement between Sancom and FC would result in a split of Sancom's tariffed accesscharges to IXCs. See, e.g., Tr. 1174:11-16 ( ). Erickson also claimed to be unaware of how Sancom would bill its clients. Tr. 1152:18-21. This lack of knowledge is contradicted by evidence that Erickson and FC knew that FC's income would arise from the revenue LECs collected from IXCs. Ex. 326 ( ); Tr. 1248:1-1249:5 ( ); Ex. 29 (FC revenue model); Tr. 1293:13-1294:10 ( ); Ex. 11 at ¶ 10 ( ); Ex. 46 ( ). Erickson also stated he was unaware that the arrangement did not comply with Sancom's tariffs, that he did not intend to premise his business model on an unlawful source of revenue, and that he would have taken any steps he thought necessary to comply with the law as it existed at the time. Tr. 1190:10-1191:24; Tr. 1216:6-14.
FC's relationship with Sancom involved a high volume of traffic. During the billing cycle of March 23, 2005, through April 22, 2005,Sancom terminated roughly 3.7 million minutes of FC traffic. Ex. 133. By the end of 2005, Sancom was terminating between 7 and 9 million minutes of FC traffic per month. Id. In September 2006, that number roughly doubled to 16 million minutes of terminating FC traffic, and nearly doubled again by the January 23, 2007-February 22, 2007, billing cycle that reported 30,101,366 minutes of traffic. Id. From May 2007 through January of 2008, Sancom's terminating minutes of FC traffic ranged from 41,788,919 to 54,535,148 minutes per monthly billing cycle. Id. For the 17 months beginning January 23, 2007, and ending June 22, 2008, FC traffic represented 98.02 percent of Sancom's traffic. Ex. 155 ( ).
Eventually, Qwest and other IXCs began disputing bills they received from certain LECs. Numerous lawsuits resulted, including this case, which was initially brought by Sancom to recover amounts Qwest allegedly owed under Sancom's tariffs. Qwest filed counterclaims against Sancom and a third-party complaint against FC.
In Qwest Communications Corp. v. Farmers & Merchants Mutual Telephone Co., 2007 WL 2872754, 22 F.C.C.R. 17973 (2007) (hereinafter Farmers I), which was a lawsuit filed in a companion case, the FCC heldthat the LEC did terminate the traffic at issue and that the conference calling companies were end users under the tariff. After reconsideration based in part on discovery of fabricated evidence, the FCC issued a second order finding that conference call customers were neither end users nor customers within the meaning of the LEC's tariff and that the LEC was not entitled to switched access charges for those calls. Qwest Commc'ns Corp. v. Farmers &...
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