Sandwich Isles Commc'ns, Inc. v. Nat'l Exch. Carrier Ass'n, Civil Action No. 10–02341 (ABJ).

• Decision Date: 29 July 2011
• Docket Number: Civil Action No. 10–02341 (ABJ).
• Citation: 799 F.Supp.2d 44
• Parties: SANDWICH ISLES COMMUNICATIONS, INC., et al., Plaintiffs, v. NATIONAL EXCHANGE CARRIER ASSOCIATION, Defendant.
• Court: U.S. District Court — District of Columbia

799 F.Supp.2d 44

SANDWICH ISLES COMMUNICATIONS, INC., et al., Plaintiffs,

v.NATIONAL EXCHANGE CARRIER ASSOCIATION, Defendant.

Civil Action No. 10–02341 (ABJ).

United States District Court, District of Columbia.

July 29, 2011.

James Archie Stenger, Dana Frix, Washington, DC, for Plaintiffs.

Andrew C. Bernasconi, Reed Smith LLP, Washington, DC, Gregory J. Vogt, Law Office Of Gregory J. Vogt, PLLC, Alexandria, VA, Regina McNeil, Robert J. Deegan, National Exchange Carrier Association, Inc., Whippany, NJ, for Defendant.

MEMORANDUM OPINION

AMY BERMAN JACKSON, District Judge.

Plaintiffs Sandwich Isles Communications (“SIC”), Gold Ivory LLC (“Gold Ivory”), Healii Heine, and Harry Johnston bring this action against the National Exchange Carrier Association (“NECA”) alleging claims for breach of contract, violations of the Equal Protection Clause of the U.S. Constitution, and tortious interference with Gold Ivory's prospective business opportunities. NECA moved to dismiss this action for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. Since there is a proceeding pending before the Federal Communications Commission (“FCC”) addressing the same matters, the Court will grant defendant's motion and dismiss this case.

I. Background

Defendant NECA is a nonprofit corporation that was formed by the FCC following the breakup of AT & T to perform certain services on behalf of local telephone companies (local exchange carriers or “LECs”). Allnet Commc'n Svc., Inc. v. Nat'l Exch. Carrier Ass'n, 965 F.2d 1118, 1119 (D.C.Cir.1992). See also 47 C.F.R. § 69.601 et seq. ; Compl. ¶¶ 27–31. NECA administers the FCC's “access charge” plan by creating revenue pools into which LEC members contribute their revenue, and by making distributions from those pools to reimburse members for their respective costs. Compl. ¶ 28. See also 47 C.F.R. § 69.601 et seq.

Plaintiff SIC was established to provide telephone and broadband service to native Hawaiian home sites located in the Hawaiian Home Lands (“HHL”). Compl. ¶ 1. In light of the unique geography of Hawaii, its distance from the mainland, and other factors, providing service to the HHL is particularly costly. Id. ¶ 32. To fulfill its mission, SIC contracted with NECA to participate in its revenue pools, including one known as the Traffic Sensitive Pool (“Pool”). Id. ¶¶ 2, 37, 48. The purpose of the Pool is to enable high-cost LECs to be reimbursed for their network expenses so they can provide telecommunications services to customers in more remote locations at affordable rates. Id. ¶ 2. SIC and approximately 800 other rural LECs submit their eligible construction and operational costs to the Pool, and NECA compensates them in accordance with FCC rules. To fund the Pool, SIC and the other rural LECs agree to charge an “access” tariff to other carriers delivering calls to their customers, and they turn those payments over to NECA. Id.

The dispute in this case arose when NECA refused to reimburse SIC for 100% of the lease expenses it incurred in utilizing the Paniolo cable network (“Paniolo”)—a submarine and terrestrial fiber optic cable connecting five Hawaiian Islands—to connect its networks on those islands. Id. ¶ 3. On May 20, 2009, NECA advised SIC that in its view, the lease costs SIC paid for Paniola were not “used and useful” and they would be excluded from the June 16, 2009, access charge tariff. As a result, SIC could not recover those costs from the Pool. Id. ¶¶ 4, 61; Mot. to Dismiss, App. B.¹

On June 26, 2009, SIC initiated a proceeding before the Wireline Competition Bureau (“WCB”) of the FCC in which it sought a declaratory ruling that the Paniola lease costs were “used and useful,” and that NECA was required to accept them in the Pool. Compl. ¶ 75; Mot. to Dismiss, App. C at 1. On September 29, 2010, the WCB ruled that “some—but not all—of [the Paniola lease] costs are properly recoverable consistent with Commission rules and precedent.” See Mot. to Dismiss, App. A, In re Sandwich Isles Communications, Inc. Petition for Declaratory Ruling, Declaratory Ruling, WC Docket No. 09–133, DA 10–1880, slip op. at 1 (Wir.Comp.Bur., rel. Sept. 29, 2010) (“Declaratory Ruling”).

[W]e do not find 100 percent of [SIC]'s lease expenses per se “used and useful” and appropriate for inclusion in the NECA pool. Nor do we find NECA's determination not to include the lease costs in its pool unreasonable as a matter of that entity performing its role in the pooling process.

Id. at 4. But the WCB noted that the FCC possessed the “flexibility itself to consider a variety of equitable factors beyond current and actual usage in evaluating the costs that are ‘used and useful’ and appropriate for inclusion in the revenue requirement.” Id. Based on that analysis and relevant Commission precedent, the FCC concluded that 50% of SIC's lease expenses should be included in the Pool. Id.

Not satisfied with that result, SIC filed a petition for reconsideration of the FCC's Declaratory Ruling with the WCB on October 29, 2010. Mot. to Dismiss, App. D (“Petition for Reconsideration” or “Petition”). Among other arguments, SIC asserted in its Petition that instead of applying the “used and useful” doctrine, NECA should have applied its Spare Fiber C & WF Investment Cost Reporting Guidelines (“Spare Fiber Guidelines” or “SFG”) in determining whether SIC's costs should have been included in the Pool. Id. at i-iv, 1–12. Under those Guidelines, SIC argued, NECA would have been required to reimburse SIC in full. Id. at iii.

While the Petition for Rehearing was still pending before the FCC, Compl. ¶ 81, SIC, along with plaintiffs Gold Ivory, Healii Heine, and Harry Johnston, brought suit in this Court. Gold Ivory is a corporate affiliate of SIC's parent company. Compl. ¶ 124. In 2010, Gold Ivory allegedly filed two applications for $180 million in stimulus grants to develop a public safety broadband network in Hawaii that would have relied on the Paniolo network. Id. ¶¶ 125–26. Heine is a native Hawaiian and a customer of SIC, and Johnston is a native Hawaiian homesteader in the HHL who is not currently being served by SIC. Id. ¶ 12–13.²

In the December 30, 2010 complaint, SIC sued NECA for breach of contract (Count I), for breach of the implied covenant of good faith and fair dealing (Count II), and for violating of the Equal Protection Clause of the Fourteenth Amendment by applying a different standard—the “used and useful” doctrine—to SIC than to other similarly situated rural LECs (Count III). See id. ¶¶ 82–108. SIC, Heine, and Johnston also claim that NECA violated the Equal Protection Clause because the application of the standard will result in a lack of telecommunications services for native Hawaiian customers in the HHL (Count IV). Id. ¶¶ 109–122. Finally, Gold Ivory sued NECA for tortious interference with prospective business advantage (Count V), alleging that its grant applications were unsuccessful because of concerns about the viability of SIC and its network that arose out of NECA's non-payment decision. Id. ¶¶ 127–29.

Plaintiffs seek compensatory damages of not less than $160 million for SIC and $180 million for Gold Ivory. Id. at 31. They also seek a judgment directing NECA to apply the Spare Fiber Guidelines and to include all of SIC's Paniola lease costs in the Pool. Id.

On December 30, 2010, NECA moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(1) and 12(b)(6), arguing that this Court lacks subject matter jurisdiction or, alternatively, that the complaint fails to state a claim upon which relief can be granted.

II. Legal Standard

In evaluating a motion to dismiss, the Court must “treat the complaint's factual allegations as true ... and must grant plaintiff ‘the benefit of all inferences that can be derived from the facts alleged.’ ” Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C.Cir.2000), quoting Schuler v. United States, 617 F.2d 605, 608 (D.C.Cir.1979) (citations omitted). Nevertheless, the Court need not accept inferences drawn by the plaintiff if those inferences are unsupported by facts alleged in the complaint, nor must the Court accept plaintiff's legal conclusions. Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir.2002).

When considering a motion to dismiss for lack of jurisdiction, the plaintiff bears the burden of establishing jurisdiction by a preponderance of the evidence. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992); Shekoyan v. Sibley Int'l Corp., 217 F.Supp.2d 59, 63 (D.D.C.2002). Federal courts are courts of limited jurisdiction and the law presumes that “a cause lies outside this limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); see also Gen. Motors Corp. v. EPA, 363 F.3d 442, 448 (D.C.Cir.2004) (“As a court of limited jurisdiction, we begin, and end, with examination of our jurisdiction.”). Because “subject-matter jurisdiction is ‘an Art[icle] III as well as a statutory requirement ... no action of the parties can confer subject-matter jurisdiction upon a federal court.’ ” Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir.2003), quoting Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982).

Moreover, unlike when deciding a motion to dismiss under Rule 12(b)(1), the court “is not limited to the allegations of the complaint....” Hohri v. United States, 782 F.2d 227, 241 (D.C.Cir.1986), vacated on other grounds, 482 U.S. 64, 107 S.Ct. 2246, 96 L.Ed.2d 51 (1987). Rather, a court “may consider such materials outside the pleadings as it deems appropriate to resolve the question whether it has jurisdiction to hear the case.” Scolaro v. D.C. Bd. of Elections & Ethics, 104 F.Supp.2d 18, 22 (D.D.C.2000). See, e.g., Herbert v. Nat'l Acad. of Sciences, 974 F.2d 192, 197 (D.C.Cir.1992); see also Jerome Stevens...