Uph Holdings, Inc. v. Sprint Nextel Corp. (In re Uph Holdings, Inc.)

CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas
Decision Date28 August 2014
Docket NumberCASE NO. 13-10570-TMD,ADV. NO. 13-01096-TMD
PartiesIN RE: UPH HOLDINGS, INC. et al., Debtors. UPH HOLDINGS, INC. et al., Plaintiffs, v. SPRINT NEXTEL CORPORATION et al., Defendants.

IN RE: UPH HOLDINGS, INC. et al., Debtors.

UPH HOLDINGS, INC. et al., Plaintiffs,

CASE NO. 13-10570-TMD
ADV. NO. 13-01096-TMD


August 28, 2014

(Jointly Administered)


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Termination: This word applies to much of what is going on in these adversary proceedings.1 Defendants, Leap Wireless International, Inc., Cricket Communications, Inc., Sprint Nextel Corp., Sprint Communications Company L.P. and T-Mobile USA, Inc., filed Motions to Dismiss in their respective adversary proceedings seeking to terminate these suits on the basis that Plaintiff, Lowell Feldman, Liquidating Trustee of the UPH Liquidating Trust,2 failed to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Should Defendants succeed in terminating these suits, Plaintiff's prospects for a material distribution to creditors in this bankruptcy case may be terminated, as these are the largest suits Plaintiff has on file to recover money for creditors of UPH.3 But termination has another meaning that is more precise and technical. Plaintiff seeks to recover for performing the service of "termination," which, counterintuitively, means completing cell phone calls that have originated with Defendants' customers, by connecting those calls to the call recipients. For the reasons that follow as to the intraMTA issues, and as stated on the record of today's date as to the interMTA issues, the Motions to Dismiss filed by the Defendants are denied.

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I. Background

A. Case Summary: What Plaintiff Seeks

Defendants are commercial mobile radio service ("CMRS") providers.4 Pac-West Telecomm, Inc. ("Pac-West") is a CLEC, or competitive local exchange carrier.5 When a cell phone customer places a call to someone served by Pac-West's network, Pac-West has no choice but to complete (terminate) the call by connecting it to the called party. When that call is placed within a defined geographic area called a "major trading area" or MTA,6 it is called an intraMTA call, and Plaintiff believes Pac-West is entitled to "reasonable compensation" for terminating that call under 47 C.F.R. § 20.11(b) ("Rule 20.11").7 When that call is made from one MTA to another MTA, it is called an interMTA call, and in that situation, Plaintiff believes Pac-West is entitled to collect a tariffed charge for terminating the call. In the alternative, contends Plaintiff, if the tariff that would otherwise apply to the interMTA call is invalid, as Defendants have alleged, Pac-West can recover under quasi-contract or under state law equitable remedies such as quantum meruit or unjust enrichment. Defendants argue that Pac-West is not entitled to any

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payment because "reasonable compensation" should be construed as, literally, nothing, and also say that this court should defer to the Federal Communications Commission ("FCC") or state regulators through a primary jurisdiction referral. Further, Defendants contend that the state law theories under which Plaintiff seeks to recover are preempted by federal telecommunication laws and regulations.

B. Regulatory Background

The FCC was created eighty years ago to regulate wire and radio communications by the Communications Act of 1934 (the "1934 Communications Act"). In re FCC, 753 F.3d 1015, 1035 (10th Cir. 2014) (citing 47 U.S.C. § 151)). The FCC's mandate was later expanded to cover telephone service, id, and to include the wireless industry. Leonard J. Kennedy & Heather A. Purcell, Section 332 Of The Communications Act Of 1934: A Federal Regulatory Framework That is "Hog Tight, Horse High, and Bull Strong," 50 Fed. Comm. L.J. 547, 561 (1998). The 1934 Communications Act allowed the FCC to regulate interstate and foreign communications, but reserved intrastate regulation for the states. Id. at 555-56.

When mobile phone technology first developed, Congress was faced with the challenge of integrating cell phones into a regulatory structure that was shared between the FCC and state public utility commissions, and that was originally tasked to regulate landline technology operating in a monopolized industry. Id. at 559-60. To address this challenge, Congress in 1993 gave the FCC authority over CMRS providers. Id. at 560-61. In this legislation, Congress limited, but did not eliminate, the state's regulatory authority. Id. at 559-65, 753.

Then, in 1996, Congress amended the 1934 Communications Act with the 1996 Telecommunications Act (the "1996 Telecommunications Act"). In re FCC 11-161, 753 F.3d at 1036 (citing Qwest Corp. v. FCC, 258 F.3d 1191, 1196 (10th Cir. 2001)). In doing so, Congress

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sought to restructure local telephone markets by introducing competition between LECs into those markets, while preserving service to all users. Id. This promised to be a challenge. As noted by one commentator:

The [1996 Telecommunications Act] envisions competitive, deregulated telecommunications markets, in which services are provided by multiple complementary and competing interconnected networks. Unfortunately, the existing patchwork of interconnection regimes, which are based on such historical, regulatory distinctions as local vs. long-distance, interstate vs. intrastate, and basic vs. enhanced, was not designed for competitive and deregulated telecommunications markets, and may not facilitate the efficient development of competition in telecommunications markets. Moreover, the existing interconnection regimes may not be sustainable in increasingly competitive telecommunications markets.

Patrick DeGraba, Bill and Keep at the Central Office as the Efficient Interconnection Regime 1 (Federal Communications Commission, Office of Plans and Policy, Working Paper No. 33, Dec. 2000), www.fcc.gov/Bureaus/OPP/working_papers/oppwp33.pdf (citing 47 U.S.C. § 151).

It is hardly surprising that the 1996 Telecommunications Act has not completely resolved these conflicting constraints:

It would be gross understatement to say that the 1996 [Telecommunications] Act is not a model of clarity. It is in many important respects a model of ambiguity or indeed even self-contradiction. That is most unfortunate for a piece of legislation that profoundly affects a crucial segment of the economy worth tens of billions of dollars.

AT&T Corp. v. Iowa Util. Bd., 525 U.S. 366, 397 (1999).

The FCC has struggled with these constraints in developing rules for compensation between telecommunication carriers. Under most historic regimes governing intercarrier compensation, the calling party's carrier has been required to pay the called party's carrier for terminating the call.8 In some circumstances, carriers have charged or attempted to charge for

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terminating calls by filing a tariff. In re Developing a Unified Intercarrier Comp. Regime, 20 FCC Rcd. 4855, 4856 (2005) (the "T-Mobile Declaratory Order"). However, with respect to intraMTA calls, the FCC eliminated the use of tariffs by CMRSs in 2002 and by all LECs in 2005. Id. (amending rules to prohibit the use of tariffs to impose compensation obligations). Moreover, the FCC began a rulemaking process in 2001, which was largely completed in 2011, that prohibited the collection of termination charges for intraMTA calls by one carrier from another carrier. In re Connect America Fund, 26 FCC Rcd. 17663, 17676 (Nov. 18, 2011) (the "CAF Order"). Carriers are now required to collect the cost of terminating calls from their own customers. Id. This regime, called "bill-and-keep," was established by the CAF Order9 and generally applies to intraMTA traffic between CMRS providers and CLECs as of December 29, 2011, and as of July 1, 2012 for carriers with interconnection agreements.10 In re Connect America Fund, 26 FCC Rcd. 17633, 17635-36 (Dec. 23, 2011) (the "CAF Order on Reconsideration").

The question, then, is whether the law in effect prior to the operative date of the CAF Order allows Pac-West to collect termination charges from CMRSs. Section 201 of the 1996 Telecommunications Act simply says all charges have to be "just and reasonable."11 Section 251(a) imposes a general duty on each telecom carrier to interconnect with other telecom

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carriers.12 Under section 251(b), each local exchange carrier (including a CLEC such as Pac-West) has a duty to "establish reciprocal compensation arrangements for the transport and termination of telecommunications."13 Section 251(c) then imposes the additional duty on incumbent local exchange carriers ("ILECs") to negotiate terms and conditions of interconnection, including the amounts payable for terminating calls.14 The process by which ILECs, but not CLECs or CMRSs, can obtain an interconnection agreement through voluntary negotiation or compulsory arbitration is set forth in section 252.15

Rule 20.11 was initially published in the Federal Register at 59 Fed. Reg. 18495 (Apr. 19, 1994) (codified at 47 C.F.R. § 20.11).16 The exact text of 20.11(b), as promulgated in 1994, and as in effect until December 28, 2011, provided:

(b) Local exchange carriers and commercial mobile radio service providers shall comply with principles of mutual compensation.

(1) A local exchange carrier shall pay reasonable compensation to a commercial mobile radio

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