Peerless Network, Inc. et al v. MCI Communications Services, Inc. et al

Filing 243

MEMORANDUM Opinion and Order; For the foregoing reasons, the Court grants Peerless's motion for summary judgment R. 170 on its collection counts (Counts III, IV). The Court grants Verizon's motion R. 159 as to the Standstill Agreement, and denies it in all other respects. The Court refers the access stimulation, VoIP, and 8YY issues to the Federal Communications Commission, and accordingly stays Verizon's Counterclaims I and III. Status hearing set for 5/24/2018 at 09:00 AM. Signed by the Honorable Thomas M. Durkin on 3/16/2018:Mailed notice(srn, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PEERLESS NETWORK, INC., et al.,
Plaintiffs-Counterclaim Defendants,
vs.
MCI COMMUNICATIONS SERVICES, INC.,
VERIZON SERVICES CORP., and VERIZON
SELECT SERVICES, INC.,
Defendants-Counterclaim Plaintiffs.

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No. 14 C 7417
Judge Thomas M. Durkin

MEMORANDUM OPINION AND ORDER
This matter presents a billing dispute between two telecommunications
companies. On September 23, 2014, Peerless Network, Inc. and its subsidiaries1

Peerless’s wholly owned subsidiaries include Peerless Network of Arkansas, LLC,
Peerless Network of Arizona, LLC, Peerless Network of California, LLC, Peerless
Network of Colorado, LLC, Peerless Network of Connecticut, LLC, Peerless
Network of Delaware, LLC, Peerless Network of the District of Columbia LLC,
Peerless Network of Florida, LLC, Peerless Network of Georgia, LLC, Peerless
Network of Illinois, LLC, Peerless Network of Indiana, LLC, Peerless Network of
Kansas, LLC, Peerless Network of Kentucky, LLC, Peerless Network of Louisiana,
LLC, Peerless Network of Maine, LLC, Peerless Network of Maryland, LLC,
Peerless Network of Massachusetts, LLC, Peerless Network of Michigan, LLC,
Peerless Network of Minnesota, LLC, Peerless Network of Missouri, LLC, Peerless
Network of Nevada, LLC, Peerless Network of New Hampshire, LLC, Peerless
Network of New Jersey, LLC, Peerless Network of New York, LLC, Peerless
Network of North Carolina, LLC, Peerless Network of Ohio, LLC, Peerless Network
of Oklahoma, LLC, Peerless Network of Oregon, LLC, Peerless Network of
Pennsylvania, LLC, Peerless Network of Rhode Island, LLC, Peerless Network of
South Carolina, LLC, Peerless Network of Tennessee, LLC, Peerless Network of
Texas, LLC, Peerless Network of Utah, LLC, Peerless Network of Vermont, LLC,
Peerless Network of Virginia, LLC, Peerless Network of Washington, LLC, and
Peerless Network of Wisconsin, LLC (collectively, “Peerless”).
1

brought suit to recover amounts allegedly owed by Verizon 2 for telephone exchange
traffic that Verizon either delivered to or received from Peerless’s network
beginning sometime in 2008. Verizon admits it has withheld payment on portions of
Peerless’s invoices, but denies Peerless is entitled to collect the full amounts billed.
Currently before the Court are the parties’ cross-motions for partial summary
judgment. R. 159; R. 170. For the reasons that follow, both motions are denied in
part and granted in part.
BACKGROUND 3
A.

OVERVIEW OF TELEPHONE EXCHANGE SERVICES

As a general matter, telephone exchange services 4 in the United States are
divided into two service categories based on the distance of a call: (1) local exchange

Defendants include MCI Communications Services, Inc., Verizon Services Corp.,
and Verizon Select Services Inc. (collectively “Verizon”).

2

The information in this background section comes from a variety of sources,
including the allegations of the complaint that are admitted in Verizon’s answer or
in response to Peerless’s Statement of Facts or denied on a basis not proper under
the Federal Rules of Civil Procedure and therefore deemed admitted. In addition,
the Court considered relevant facts from the parties’ Joint Stipulation of
Undisputed Facts (“JSOF”), R. 155, and additional facts in the parties’ separately
filed fact statements that are properly presented and undisputed, which the Court
identified after taking into consideration Peerless’s two motions to strike, R. 168,
188, and Verizon’s responses thereto, R. 180, 191. Finally, large portions of the
overview and historical sections are taken directly without further citation from the
exhaustive opinions in CallerID4u, Inc. v. MCI Commc’ns Servs. Inc., 2018 WL
493161 (9th Cir. Jan. 22, 2018), and Great Lakes Commc’ns Corp. v. AT&T Corp.,
2015 WL 897976 (N.D. Iowa Mar. 3, 2015). For additional history of the FCC’s
regulation of telephone exchange services, the Court references those decisions.
3

“The term ‘telephone exchange service’ means (A) service within a telephone
exchange, or within a connected system of telephone exchanges within the same
exchange area operated to furnish to subscribers intercommunicating service of the
character ordinarily furnished by a single exchange, and which is covered by the
exchange service charge, or (B) comparable service provided through a system of

4

2

services, which involve calls that originate (i.e., begin with a calling party) in one
exchange service area 5 and terminate (i.e., end to a called party) in the same
exchange service area; and (2) interexchange services, which involve calls that
originate in one exchange area and terminate in a different exchange area. 6
Interexchange services provide the “middle portion” of calls crossing local exchange
area boundaries, and can be either intrastate (i.e., calls that are exchanged within
the same state) or interstate (i.e., calls that are exchanged over state boundary
lines). In common parlance, local exchange services may be referred to as “local
calling” or “local service,” and interexchange services may be referred to as “long
distance calling” or “long distance service,” though these terms are imprecise.
In 1996, Congress adopted the Telecommunications Act of 1996, codified at
various provisions in 47 U.S.C. §§ 153 et seq. (the “1996 Act”). The 1996 Act requires
all telecommunications carriers to interconnect their networks “directly or
indirectly with the facilities and equipment of other telecommunications carriers.”
47 U.S.C. § 251(a). Interconnection ensures that consumers can place calls to and
receive calls from consumers served by a different telecommunications carrier. 7
Historically, the Federal Communications Commission (“FCC”) has exercised
switches, transmission equipment, or other facilities (or combination thereof) by
which a subscriber can originate and terminate a telecommunications service.” 47
U.S.C. § 153(54).
An exchange service area is a “[g]eographic area in which telephone services and
prices are the same.” R. 73 at 6 n.1.

5

6

See 47 U.S.C. § 153(28) (definition of “interstate communication”).

See 47 U.S.C. § 153(20) (“The term ‘exchange access’ means the offering of access
to telephone exchange services or facilities for the purpose of the origination or
termination of telephone toll services.”).

7

3

jurisdiction over interstate calls, while each individual state’s public service
commission has exercised jurisdiction over intrastate calls.
To enable carriers to exchange calls between their customers, the FCC has
adopted a compensation structure which requires local exchange service companies
(“LECs”) to allow interstate exchange service companies (“IXCs”) to use their
telephone lines to originate and terminate interexchange service telephone calls. 8
Thus, when a consumer makes an interexchange call, the consumer’s LEC
originates the call, performs switching functions and delivers the call (i.e., “hands
the call off”) to an IXC, and the IXC then hands the call off to the terminating LEC
so that the call can be delivered to the called party. A common example of this
would be a long-distance call from Chicago to St. Louis. In that example, AT&T
Illinois (the incumbent 9 LEC in Chicago) performs transport and switching
functions and originates the call on its network, and hands the call over to an IXC,
such as Sprint Long-Distance, which carries the call to St. Louis. Sprint then hands
the call off to AT&T Missouri (the incumbent LEC in St. Louis), which performs

See 47 U.S.C. § 259 (requiring the FCC to prescribe regulations that require local
exchange carriers “to make available to any qualifying carrier such public switched
network infrastructure, technology, information, and telecommunications facilities
and functions as may be requested by such qualifying carrier for the purpose of
enabling such qualifying carrier to provide telecommunications services, or to
provide access to information services, in the service area in which such qualifying
carrier has requested and obtained designation as an eligible telecommunications
carrier under section 214(e) of this title”).

8

An “incumbent” LEC typically means the Bell operating company that provided
local exchange service in a certain area prior to the government break-up of AT&T
and its local operating subsidiaries. See 47 U.S.C. § 251(h)(1).
9

4

switching functions and delivers the call to the called party. While the process
sounds cumbersome, in practice it happens in fractions of seconds.
To compensate LECs for use of their networks, IXCs are required to pay
“access service charges,” also known as “switched exchange access services,” 10 for
originating and terminating interexchange telephone calls and for the transport of
these calls. These access service charges are set forth either in negotiated
agreements between the LECs and IXCs, or in regulated terms of service and price
lists—known as tariffs—filed either with a state public service commission for calls
originating and terminating within each state, or with the FCC for calls originating
and terminating across state lines.
B.

BRIEF HISTORY OF
EXCHANGE SERVICES

FCC

REGULATION

OF

TELEPHONE

Until the 1970s, AT&T and its subsidiaries maintained a virtual monopoly
over interstate wire telephone services, including both long distance and local wire
telephone services. See MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218,
220 (1994). AT&T provided long-distance services to consumers, while the Bell
See 47 C.F.R. § 61.26(a)(3) (“Switched exchange access services shall include:
(i) The functional equivalent of the ILEC interstate exchange access services
typically associated with the following rate elements: Carrier common line
(originating); carrier common line (terminating); local end office switching;
interconnection charge; information surcharge; tandem switched transport
termination (fixed); tandem switched transport facility (per mile); tandem
switching; (ii) The termination of interexchange telecommunications traffic to any
end user, either directly or via contractual or other arrangements with an affiliated
or unaffiliated provider of interconnected VoIP service, as defined in 47 U.S.C.
153(25), or a non-interconnected VoIP service, as defined in 47 U.S.C. 153(36), that
does not itself seek to collect reciprocal compensation charges prescribed by this
subpart for that traffic, regardless of the specific functions provided or facilities
used.”).

10

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operating companies, twenty-two local telephone companies wholly owned by
AT&T, provided local services to consumers. See Access Charge Reform Price Cap
Order, 11 12 FCC Rcd. at 15991. Beginning in the 1970s, new IXCs began entering
the long-distance market to compete with AT&T. But because AT&T controlled the
Bell operating companies, AT&T could freeze out competition by having its LECs
charge higher prices to competing IXCs. Id. The federal government challenged
these activities in an antitrust lawsuit against AT&T, which resulted in AT&T
agreeing to divest itself of all twenty-two Bell operating companies. Id. The former
Bell LECs are now known as incumbent LECs, or ILECs. Id.
After the break-up of AT&T, consumers, specifically the caller and the call
recipient, were able to choose their LECs. In doing so, they pay the LECs’ charges
for local telephone services, but they do not pay the LEC for the switched access
services that the LEC provides to the IXC to complete the call. Rather, the IXC
must pay those charges. Although the divestiture ended AT&T’s anticompetitive
control over the ILECs, the ILECs themselves had few competitors, and could use
their local monopoly power to charge the IXCs unreasonable and discriminatory
switched access rates. To avoid this problem, the FCC began regulating ILEC rates
by requiring ILECs to file and maintain tariffs with the FCC for interstate switched
access services.

In the Matter of Access Charge Reform Price Cap Performance Review for Local
Exch. Carriers Transp. Rate Structure & Pricing End User Common Line Charges,
12 F.C.C. Rcd. 15982 (1997).
11

6

After years of experimenting with permissive detariffing of both ILECs and
CLECs 12, the FCC determined that some CLECs were taking advantage of the
system by filing tariffs setting unreasonably high switched access rates that were
“subject neither to negotiation nor to regulation designed to ensure their
reasonableness.” In re Access Charge Reform, 16 F.C.C. Rcd. 9923 at ¶ 2 (2001). As
it turned out, CLECs, like ILECs, were generally “insulated from the effects of
competition,” because the caller and call recipient who choose their LECs (but do
not pay for terminating switched access services) have “no incentive to select an
[LEC] with low rates.” Id. at ¶ 28. Under this framework, the IXCs had to pay
whatever rate was set by the CLECs in their tariffs in order to provide phone
service to their customers, because the customers that actually choose the
terminating CLEC do not also pay their access charges and have no incentive to
select CLECs with low rates. Id. The CLECs therefore could impose rates far higher
than the ILECs (whose rates were regulated), with no risk that those high rates
would drive away the CLECs’ individual customers. See Developing a Unified
Intercarrier Comp. Regime, 16 FCC Rcd. 9610 at ¶ 133 (2001).
In response to this regulatory arbitrage opportunity, the FCC issued the
Access Reform Order in 2001, revising its CLEC tariffing system and conducting a
new forbearance analysis. In re Access Charge Reform, 16 F.C.C. Rcd. 9923 (2001).
In this order, the FCC first established a “benchmark” level for CLEC rates based
A CLEC is a “local exchange carrier that provides some or all of the interstate
exchange access services used to send traffic to or from an end user and does not fall
within the definition of ‘incumbent local exchange carrier.’” 47 C.F.R. § 61.26(a)(1).
12

7

on the rates charged by the ILEC or ILECs operating in a CLEC’s service area. In re
Access Charge Reform, 16 F.C.C. Rcd. at 9941. A CLECs’ tariffed rates would be
“presumed to be just and reasonable” as long as they did not exceed the benchmark
rate. Id. at 9938. Second, the FCC revised its decision in the Hyperion Order; 13
rather than give CLECs free rein to choose whether to file tariffs, the FCC decided
to exercise its forbearance authority “only for those CLEC interstate access services
for which the aggregate charges exceed our benchmark” by requiring CLECs that
sought to charge rates above the benchmark to negotiate agreements with IXCs. In
re Access Charge Reform, 16 F.C.C. Rcd. at 9957.
As a result of the Access Reform Order,
[t]here are two means by which a CLEC can provide an
IXC with, and charge for, interstate access services. First,
a CLEC may tariff interstate access charges if its rates
are no higher than the rates charged for such services by
the competing ILEC (the benchmark rule). If a CLEC
provides only a “portion of the switched exchange access
services used to send traffic to or from an end user not
served by that CLEC,” its rate must “not exceed the rate
charged by the competing ILEC for the same access
services.” [ 14] . . . Second, as an alternative to tariffing, a
CLEC may negotiate and enter into an agreement with an
Hyperion Telecomms., Inc. Petition Requesting Forbearance, 12 FCC Rcd. 8596
(1997).
13

See 47 C.F.R. § 61.26(c) (“The benchmark rate for a CLEC’s switched exchange
access services will be the rate charged for similar services by the competing ILEC.
If an ILEC to which a CLEC benchmarks its rates, pursuant to this section, lowers
the rate to which a CLEC benchmarks, the CLEC must revise its rates to the lower
level within 15 days of the effective date of the lowered ILEC rate.”). The FCC
exempted “a narrow class of rural CLECs from its benchmark rule, . . . permitting
qualifying carriers to file tariffs containing rates “at the level of those in the NECA
[National Exchange Carrier Association] access tariff.” In re AT&T Servs. Inc., 30
F.C.C. Rcd. at 2588.
14

8

IXC to charge rates higher than those permitted under
the benchmark rule.
In re AT&T Servs. Inc., 30 F.C.C. Rcd. 2586, 258–889 (2015), review denied in part,
cause remanded by Great Lakes Comnet, Inc. v. Fed. Commc’ns Comm’n, 823 F.3d
998 (D.C. Cir. 2016).
C.

THE PRESENT CASE

With two exceptions, the Peerless subsidiaries are CLECs, 15 while Verizon is
an IXC that provides telephone services nationwide. 16 See R. 155, JSOF, ¶¶ 3, 4.
Peerless seeks compensation for unpaid access charge rate elements and related
services beginning in 2008. Specifically, Peerless seeks payment of billed charges for
switched access services, both originating and terminating, provided to Verizon at
an “end office” and at a “tandem.” 17 Id., JSOF, ¶ 7.

The parent company, Peerless Network, Inc., is not itself a CLEC. See R. 155,
JSOF, ¶ 2. The two exceptions among Peerless’s subsidiaries that apparently are
not CLECs are Peerless Network of Louisiana, LLC (which is a certified
Competitive Access Provider) and Peerless Network of Maine, LLC. Id. at ¶ 3.
Although the parties discuss and dispute the relevance of the fact that Peerless
Network, Inc. is not a CLEC, neither have made any argument concerning the
relevance, if any, of the fact that two subsidiaries are not CLECs. Further, the
Court notes that Peerless “admitted” in its answer that “each of [Peerless’s]
subsidiaries is certified by the relevant state public utility commission as a
competitive local exchange carrier.” R. 77, Peerless Answer, ¶ 6.
15

More specifically, MCI Communications Services, Inc. provides long distance
services as an IXC, while Verizon Select Services, Inc. is a telecommunications
carrier that provides long-distance telephone services and Verizon Services
Corporation is a management company that provides centralized administrative
services to Verizon companies. R. 155, JSOF, ¶ 4.
16

Generally, tandem charges are incurred for connecting and routing telephone
traffic between end office switches, see, e.g. AT&T Corp. v. Beehive Tel. Co., 2010
U.S. Dist. LEXIS 5804, *6 (D. Ut. Jan. 26, 2010), and end office charges are
incurred for the functions of processing and exchanging calls to subscribers, In the
17

9

1.

2008-2014 BILLING DISPUTES

Originally, Peerless billed Verizon access service charges pursuant to its
tariffed rates. But in 2009, Peerless made a sales pitch to Verizon that Peerless
would beat the tandem switching rates offered by AT&T, the company from which
Verizon had been purchasing those services. R. 236-2, Resp. to Verizon Statement of
Facts (“VSOF”), ¶ 2 (admitted). To this end, in February 2009, Verizon and Peerless
entered into the Tandem Service Agreement under which Peerless agreed to provide
Verizon tandem switching services at rates that were lower than Peerless’s tariffed
rates. Id., Resp. to VSOF, ¶ 4 (admitted). In addition, Peerless agreed to amend the
contractual rates “such that the rates remain lower than the prevailing ILEC level
in the event ILEC rates are lowered.” Id., Resp. to VSOF, ¶ 3.
In 2013, “the relationship between Peerless and Verizon broke down because
Verizon disputed its bills from Peerless for switched access charges and Peerless
alleged Verizon wrongfully disputed its billings.” See R. 69 at 4 (Peerless Network,
Inc. v. MCI Commc’n Servs., Inc., 2015 WL 2455128, at *2 (N.D. Ill. May 21, 2015)).
Verizon internally decided that Peerless was engaged in a practice Verizon calls
“traffic pumping,” 18 which artificially inflated Peerless’s access charges. As a result,
Verizon began withholding full payment for Peerless’s services. According to
Peerless, Verizon “implemented a plan to withhold full payment . . . all while not
challenging Peerless’s rates with the FCC or state commissions,” and, beginning in
Matter of Connect America Fund, 30 FCC Rcd 1587, 600-1603 ¶¶ 26–31 (rel. Feb.
11, 2015) (“Declaratory Ruling”).
Verizon refers to the practice as “traffic pumping,” but the Court will use the
FCC’s term of “access stimulation.”
18

10

2014, “stopped paying for Peerless’s switched access services altogether.” R. 236-1,
Peerless Statement of Facts (“PSOF”), ¶¶ 17–18 (citations omitted). Verizon, on the
other hand, asserts that it stopped paying Peerless’s tariffed charges after
determining, inter alia, that Peerless was billing for services it was not providing
and was engaging in access stimulation without complying with the FCC’s access
stimulation rules. R. 162-1, VSOF, ¶ 10. Further, Verizon rejects any contention
that it has failed to pay “all” end office and tandem charges, stating that, since
January 2012, it has paid Peerless more than $24.9 million in switched access
charges (not counting Verizon’s additional payments to Peerless for other types of
telecommunications services not at issue in this litigation).
On September 18, 2013, in an effort to postpone litigation, Peerless and
Verizon entered into a Standstill Agreement. See R. 155, JSOF, ¶ 62. Section 2(b) of
that Agreement provides that:
Peerless may continue to bill Verizon for certain
intercarrier compensation charges that it contends in
good faith apply to services rendered by Peerless to
Verizon (the “Peerless New Charges,”), and Verizon shall
pay any such charges that are not subject to a good faith
dispute, but Verizon may dispute and withhold payment
of any such charges as to which Verizon brings a good
faith dispute. Verizon shall state with specificity the basis
of any good faith dispute (e.g. that the charges do not
apply given the nature of the jurisdiction, that the call
detail records do not support the charge or that the
charges are inconsistent with law).
R. 236-2, Resp. to VSOF, ¶ 7 (admitted).
While the Standstill Agreement may have postponed litigation, it did not
resolve the parties’ disagreements. Apparently in response to Verizon’s continued
11

withholding of payment on billed charges, Peerless notified Verizon in July 2014
that, “effective immediately,” it was replacing the contractual tandem switched
access rates with its higher tariff rates. 19 The federal tariffs at issue include
Peerless’s FCC Tariff No. 3, in effect from May 2011 to September 2013, and FCC
Tariff No. 4, initially filed with the FCC on September 13, 2013, with an effective
date of September 28, 2013, and amended in July 2014, July 2015, November 2015,
and July 2016 (collectively hereinafter “the Tariff”). 20 After Peerless cancelled the
lower rates in the Tandem Services Agreement, Peerless asserts that Verizon’s
payments to it dropped even further, with Verizon withholding additional amounts
on even undisputed charges as a way of recouping previous charges paid by Verizon
but which Verizon now sought to dispute. As of the summary judgment filings,
Peerless alleges that Verizon owed it $256,563.44 under the Tandem Services
Agreement, and $34,301,674.49 in combined federal and state tariffs. R.236-1,
PSOF, ¶¶ 26, 30.
2.

THIS LAWSUIT

Not surprisingly, the history of this litigation has been marked by as much
confrontation and brinksmanship as the parties’ relationship outside this litigation.
Peerless filed the original complaint over three years ago on September 23, 2014,
alleging twelve causes of action arising out of Verizon’s withholding of payments on
Peerless’s invoices. R. 1, Compl. Shortly thereafter, Peerless filed a motion to stay
R. 236-2, Resp. to VSOF, ¶¶ 5–6 (“Peerless did not cancel the Tandem Service
Agreement; it terminated the contract rates which then defaulted the tandem rates
under the agreement to the tariff.”); R. 178-1, Resp. to PSOF, ¶¶ 24–25.
19

20

See R. 178-1, Resp. to PSOF, ¶¶ 32–33, 36; see also R. 155, JSOF, ¶¶ 11–12.
12

one count in the complaint, which dealt with Peerless’s originating end office
switched access service charges for calls destined to Verizon’s customers that
subscribe to Verizon’s 8YY services. 21 Peerless sought to stay that count because it
concerned access charges where VoIP (voice-over-internet-protocol) technology is
used to place the call, and issues related to VoIP technology were then pending
before the FCC. R. 32. Not long afterwards, the FCC ruled in favor of Peerless’s
position on the VoIP/8YY issue in the Declaratory Ruling, 22 and, as a result, on
February 12, 2015, Peerless withdrew its motion to stay. In 2016, however, the
FCC’s order was vacated by the D.C. Circuit Court of Appeals, affecting issues
related to the parties’ summary judgment briefings. AT&T Corp. v. Fed. Commc’ns
Comm’n, 841 F.3d 1047 (D.C. Cir. 2016).
Verizon responded to the complaint by filing a partial motion to dismiss.
After the Court granted in part and denied in part Verizon’s partial motion to
dismiss, R. 69, Peerless filed the operative amended complaint. See R. 73; see also
R. 76, Supp. to Am. Complaint. The amended complaint asserts the following eight
claims against Verizon:
Count I—Breach of the Tandem Services Agreement with
respect to interstate access services;
Count II—Breach of the Tandem Services Agreement
with respect to intrastate access services;

“8YY” calls are toll-free 1-800 calls. R. 73, Am. Compl., ¶ 1; see also Teliax, Inc. v.
AT&T Corp., 2017 WL 3839459, at *1 (D. Colo. Sept. 1, 2017).
21

In re Connect America Fund, 30 FCC Rcd. 1587 (2015) (hereinafter “Declaratory
Ruling”).

22

13

Count III—Collection action pursuant to Peerless’s
federal tariffs;
Count IV—Collection action pursuant to Peerless’s federal
tariffs for 8YY calls;
Count V—Collection action pursuant to Peerless’s state
tariffs;
[Counts VI through IX were dismissed with prejudice
pursuant to the Court’s May 21, 2015 Order]
Count X—Breach of the parties’ Standstill Agreement;
Count XI—Declaratory relief with respect to interstate
switched access services; and
Count XII—Declaratory relief with respect to intrastate
switched access services.
In response to the amended complaint, Verizon alleged Peerless’s claims were
barred in whole or in part by four affirmative defenses: (1) the filed rate doctrine;
(2) the applicable statute of limitations; (3) the doctrines of laches, estoppel, and
unclean hands; and (4) the doctrine of recoupment. R. 75 at 28. Verizon also alleged
the following counterclaims by which it sought to recover charges previously paid by
it:
Counterclaim One: Breach of Federal Tariff;
Counterclaim Two: Breach of State Tariffs;
Counterclaim Three: Declaratory Judgment—Breach of
Federal Tariff; and
Counterclaim Four: Declaratory Judgment—Breach of
State Tariffs.
R. 75 at 34–36.

14

On July 31, 2015, Peerless filed a new federal tariff. Even though Peerless
maintained that it was not and never had been engaged in access stimulation, as
Verizon asserted, Peerless claimed that its newly filed tariff met the requirements
for access charges stemming from access stimulation activities, and thus that
Verizon had no good faith basis for continuing to withhold payments under the new
tariff. Based on this premise, and in an effort to put a stop to Verizon’s withholding
of payments on at least some of Peerless’s switched access charges, on December 15,
2015, Peerless filed a motion for preliminary injunction. See R. 96. Peerless’s motion
sought to require Verizon to pay certain categories of switched access charges going
forward based on the new Tariff, which Peerless contended satisfied even Verizon’s
view of what those charges should be.
An injunction hearing was held beginning on February 11, 2016, see R. 118.
The Court heard two full days of testimony and received hundreds of pages of
documents into evidence. At the end of the second day, the Court questioned
Verizon on why it was disputing Peerless’s interpretation of certain FCC orders
when it appeared from the testimony presented at the hearing that, if Peerless had
used Verizon’s interpretation instead, it would have charged Verizon more, not less,
than what Peerless in fact charged. See R. 127, Prel. Inj. Hrg. Tr., Feb. 12, 2016,
259:23–260:1 (Court: “I hope we’re not fighting about [Peerless] being wrong, but
the result of their error resulted in lower charges to [Verizon], and [Verizon is] not

15

paying [simply] because [Peerless] is wrong, because that is senseless.”). 23 It was
unclear at the time whether Verizon conceded that was the case, 24 and the
injunction hearing was continued without resolution of that question. At the
continued hearing date, the parties informed the Court that an agreement had been
reached to resolve Peerless’s preliminary injunction motion.
On August 10, 2016, Verizon filed its motion for partial summary judgment,
R. 159. On August 31, 2016, Peerless filed its cross-motion for partial summary
judgment and combined response in opposition to Verizon’s motion for partial
summary judgment. R. 170. 25 The parties filed supplemental briefs after the D.C.
Circuit vacated the Declaratory Ruling 26 (R. 207 and R. 208) and various
supplemental authority discussing cases decided by other courts on issues relevant
here. See R. 199, 222, 228, 238.

See R. 172-7, Decl. of Patrick Phipps, at 2 (“[F]ollowing Peerless’s July 2015 tariff
filing (which modified Peerless’s interstate switched access rates to mirror those of
the LPCL in each state), Peerless billed the relevant Verizon defendant
interexchange carriers (“IXCs”) less for interstate switched access services than
Peerless would have billed to those same Verizon IXCs if Peerless would have
mirrored the interstate switched access rates of the price cap local exchange
carriers who Verizon claims are the lowest price cap LECs”).
23

Verizon appears to take the position that the issue is not before the Court because
“Peerless did not further amend its amended complaint to include charges billed
under the new tariff, nor was the new tariff a significant subject of discovery
between the parties.” R. 162 at 10.
24

Peerless later filed an Amended Memorandum of Law in Support of Its Motion for
Partial Summary Judgment, R. 236, which the Court cites throughout this opinion.
25

In the Matter of Connect Am. Fund, 30 F.C.C. Rcd. 1587 (2015) (hereinafter
“Declaratory Ruling”).
26

16

STANDARD OF REVIEW
Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322–23 (1986). The Court considers the entire evidentiary record and must view all
of the evidence and draw all reasonable inferences from that evidence in the light
most favorable to the nonmovant. Ball v. Kotter, 723 F.3d 813, 821 (7th Cir. 2013).
To defeat summary judgment, a nonmovant must produce more than “a mere
scintilla of evidence” and come forward with “specific facts showing that there is a
genuine issue for trial.” Harris N.A. v. Hershey, 711 F.3d 794, 798 (7th Cir. 2013).
Ultimately, summary judgment is warranted only if a reasonable jury could not
return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986).
DISCUSSION
Peerless alleges that Verizon’s refusal to comply with the terms of the
Tandem Services Agreement and Peerless’s federal and state tariffs is unlawful and
on-going, that Verizon refuses to pay for access services despite continuing to
receive those services from Peerless, and that Peerless has an obligation under the
law to prevent telephone users’ service disruptions by continuing to provide those
services to Verizon even though Verizon refuses to pay Peerless’s charges for them.
It is undisputed that Verizon delivered the traffic at issue to Peerless’s network,
that, in return, Peerless delivered switched access and related services to Verizon,

17

and that Peerless invoiced Verizon for those services. It also is undisputed that
Verizon has withheld payment on disputed portions of those invoices, as well as set
off against undisputed portions previously paid amounts that Verizon did not
dispute when it paid them but now wants to dispute. See R. 178-1, Resp. to PSOF, ¶
49 (admitting that Verizon deducted amounts from current bills to recoup previous
amounts that Peerless unlawfully collected from Verizon).
Peerless moves for summary judgment on its claims to collect under the
Tandem Services Agreement and its federal and state tariffs, and seeks a
declaration as to its right to recover under those tariffs. Verizon, on the other hand,
moves for summary judgment on Peerless’s collection and declaratory judgment
claims, as well as on Verizon’s counterclaims seeking to recover amounts Peerless
already has collected and retained pursuant to its tariffs. According to Verizon,
Peerless is not entitled to recover under its tariffs for three reasons. First, Verizon
argues Peerless’s tariffs are unlawful because they fail to comply with the FCC’s
regulations concerning “access stimulation.” This is also the basis of Verizon’s
counterclaims. Second, Verizon argues Peerless has billed its tariffed end office
switched access rate for calls that it routes over the public Internet, but routing
such calls is not end office switching. Third, some of Peerless’s customers offer
international calling card services, which require a pre-paid calling card and the
dialing of a number to reach the international destination. Verizon argues that
because the calls terminate internationally, Peerless cannot charge for terminating
switched access services it provides for these calls.

18

The Court will first address Verizon’s arguments against Peerless’s collection
actions and then proceed to the remaining issues. Virtually all of the summary
judgment briefing focuses on Verizon’s access stimulation arguments, and therefore
the Court will do the same here. The parties will be permitted to file a supplemental
statement regarding the state tariffs following the entry of this order. 27
I.

VERIZON’S ACCESS STIMULATION ARGUMENT
Verizon argues that Peerless cannot collect on its Tariff because it violates

FCC regulations governing a practice known as access stimulation. According to the
FCC:
Access stimulation occurs when a LEC with high switched
access rates enters into an arrangement with a provider
of high call volume operations such as chat lines, adult
entertainment calls, and “free” conference calls. The
arrangement inflates or stimulates the access minutes
terminated to the LEC, and the LEC then shares a
portion of the increased access revenues resulting from
the increased demand with the “free” service provider, or
offers some other benefit to the “free” service provider.
The shared revenues received by the service provider
cover its costs, and it therefore may not need to, and
typically does not, assess a separate charge for the service
Verizon argues that Peerless’s state tariffs are invalid based on its federal access
stimulation arguments. R. 178 at 4 n. 5. However, the FCC explained that states
retain regulatory authority over state tariff regulations. In the Matter of Connect
Am. Fund A Nat’l Broadband Plan for Our Future Establishing Just & Reasonable
Rates for Local Exch. Carriers High-Cost Universal Serv. Support Developing an
Unified Intercarrier Comp. Regime Fed.-State Joint Bd. on Universal Serv. Lifeline
& Link-Up Universal Serv. Reform -- Mobility Fund, 26 F.C.C. Rcd. 17663 ¶ 790
(2011) (“States…will continue to oversee the tariffing of intrastate rate reductions
during the transition period”); see also In re Qwest Commc’ns Corp., dkt. FCU-20070002, Order Initiating Refund Proceedings and Requesting Responses, 2013 WL
3778429 (Ia. Util. Bd. Jul. 16, 2013) (examining access stimulation under its own
complaint procedures). Further, Verizon has not raised any state-specific access
stimulation claims.
27

19

it is offering. Meanwhile, the wireless and . . . IXCs[ ]
paying the increased access charges are forced to recover
these costs from all their customers, even though many of
those customers do not use the services stimulating the
access demand.
Connect America Fund, 26 F.C.C. Rcd. 17663, ¶ 656. 28
Because access stimulation can lead to inflated profits for the LEC, id., ¶ 657,
in 2011 the FCC sought to limit and regulate the practice with a second benchmark
rule. Under the access stimulation benchmark, an LEC engaging in access
stimulation must “reduce its interstate switched access tariffed rates to the rates of
the price cap LEC in the state with the lowest rates.” Id. This rule is codified in 47
C.F.R. § 61.26(g), which provides that:
(1) A CLEC engaging in access stimulation, as that term
is defined in § 61.3(bbb), shall not file a tariff for its
interstate exchange access services that prices those
services above the rate prescribed in the access tariff of
the price cap LEC with the lowest switched access rates in
the state.
(2) A CLEC engaging in access stimulation, as that term
is defined in § 61.3(bbb), shall file revised interstate
switched access tariffs within forty-five (45) days of
commencing access stimulation, as that term is defined in
§ 61.3(bbb), or within forty-five (45) days of [date] if the
CLEC on that date is engaged in access stimulation, as
that term is defined in § 61.3(bbb).

In the Matter of Connect Am. Fund A Nat’l Broadband Plan for Our Future
Establishing Just & Reasonable Rates for Local Exch. Carriers High-Cost Universal
Serv. Support Developing an Unified Intercarrier Comp. Regime Fed.-State Joint
Bd. on Universal Serv. Lifeline & Link-Up Universal Serv. Reform—Mobility Fund,
26 F.C.C. Rcd. 17663 (2011) (hereinafter “Connect America Fund”).
28

20

47 C.F.R. § 61.26(g). Verizon argues that the undisputed facts show Peerless has
been engaged in access stimulation since January 2012, but did not file tariffs that
comply with § 61.26(g) until July 2015.
To decide whether Peerless has in fact been engaged in access stimulation,
the Court must consult the FCC regulations. Those regulations provide that an LEC
engages in access stimulation if it has entered into an “access revenue sharing
agreement,” which is defined at 47 C.F.R. § 61.3(bbb)(1)(i). In addition, for a CLEC
to be considered an access stimulator, it must meet one of two possible tests: either
(a) it has “an interstate terminating-to-originating traffic ratio of at least 3:1 in a
calendar month,”; or (b) it has “more than a 100 percent growth in interstate
originating and/or terminating switched access minutes of use in a month compared
to the same month in the preceding year.” Id., § 61.3(bbb)(1)(ii).
The Court finds that Verizon is not entitled to summary judgment on its
access stimulation argument because that issue depends on the resolution of
numerous interpretative questions concerning, among others, the FCC’s definition
of an “access revenue sharing agreement,” and the proper methodology for
identifying the benchmark rate of the “price cap LEC with the lowest switched
access rates in the state.” See 47 C.F.R. §61.26(g)(1); see also R. 162 at 17–18; R. 236
at 10, 12. The parties present dueling evidence on these issues. 29 It is clear from the

See, e.g., R. 162-1, VSOF, ¶ 45 (“The lowest price cap incumbent LEC in each
state, as calculated based on the tariffed terminating end office switching rate
elements, is set forth in the Traffic Pumping Rate Determination that Verizon
provided to Peerless during discovery.”); R. 236-2, Resp. to VSOF, ¶ 45 (“DENIED.
The methodology used by Verizon to create that list is not the proper methodology
29

21

record that guidance is needed from the agency that devised the access stimulation
rule as to how to interpret and apply that rule. Verizon recognizes as much when it
argues that, in the alternative to resolving the issues raised in its summary
judgment motion, the Court should refer those issues to the FCC under the primary
jurisdiction doctrine. See R. 178 at 30–31.
Primary jurisdiction is a permissive doctrine that applies when resolving a
claim requires administrative expertise. See United States ex rel. Sheet Metal
Workers Int’l Ass’n, Local Union 20 v. Horning Invests., LLC, 828 F.3d 587, 592 (7th
Cir. 2016); Williams Pipe Line Co. v. Empire Gas Corp., 76 F.3d 1491, 1496 (10th
Cir. 1996) (“courts apply primary jurisdiction to cases involving technical and
intricate questions of fact and policy that Congress has assigned to a specific
agency”). “In such cases, a federal court may stay the proceeding to allow the agency
to take the first look at the case.” Horning Invests, 828 F.3d at 592. Rulings on
whether Peerless has been engaged in access stimulation, and, if so, whether its
Tariff does not exceed the benchmark, which in turn raises issues of methodology
for identifying the benchmark rate of the price cap LEC with the lowest switched
access rates in the state, are within the FCC’s primary jurisdiction. Pennington v.
Zionsolutions LLC, 742 F.3d 715, 719–20 (7th Cir. 2014) (“‘Primary jurisdiction’ . . .
applies where a claim is originally cognizable in the courts, and comes into play

to make that determination as it does not take into account Peerless’s mix of
traffic….Verizon’s methodology fails to account these differences in the quantity of
minutes.”); Id., ¶ 46 (citing to expert testimony to dispute methodology used by
Verizon in determining whether Peerless’s tariffs were required to benchmark to
the lowest price cap incumbent LEC).
22

whenever enforcement of the claim requires the resolution of issues which, under a
regulatory scheme, have been placed within the special competence of an
administrative body; in such a case the judicial process is suspended pending
referral of such issues to the administrative body for its views.”) (quoting United
States v. Western Pacific R.R., 352 U.S. 59, 63–64 (1956)).
“That description of the doctrine fits this case to a T.” Id. at 720. The FCC
first set forth the access stimulation rules in Connect America Fund. Here, Peerless
contends that it complied with the rules established by the FCC by filing the Tariff,
while Verizon claims that Peerless’s Tariff rates are too high. The parties disagree
on several key definitional issues, which determine how to calculate the appropriate
access stimulator benchmark rate, as well as how to determine whether a CLEC is
an access stimulator required to set its prices at or below that benchmark. Connect
America Fund does not speak specifically to those definitional issues. In short, the
interests of agency expertise, consistency, and uniformity compel a finding that the
FCC has primary jurisdiction over Verizon’s claims that (1) Peerless is or was
engaged in access stimulation, and (2) if Peerless was so engaged, that its switched
access rates are or were not properly benchmarked as required by Connect America
Fund. See, e.g., Teliax, Inc. v. AT&T Corp., 2017 WL 3839459, at *2-3 (D. Colo.
Sept. 1, 2017) (transferring case to FCC under the doctrine of primary jurisdiction
because “[a]lthough it perhaps goes without saying, judges with no technical
background in telecommunications are ill-prepared when compared to the FCC to
decide [certain technical issues]”); Great Lakes Commun’c Corp. v. AT&T Corp.,

23

2014 WL 2866474, at *14 (N.D. Iowa June 24, 2014) (Report and Recommendation)
(holding that AT&T’s claims that the CLEC’s interstate switched access rates were
so high as to be unjust and unreasonable, “present[ ] a textbook scenario for
invoking primary jurisdiction”), aff’d, 2015 WL 897976, *6 (N.D. Iowa Mar. 3, 2015).
II.

VERIZON’S VOIP ARGUMENT
Verizon’s second argument against Peerless’s Tariff collection action is that

Peerless cannot collect on its tariffs involving Voice-over-Internet-Protocol (“VoIP”).
Specifically, Verizon argued that Peerless cannot collect charges on calls provided
with a VoIP partner unless Peerless assigned the telephone to the calling party.
Following summary judgment briefing, however, the D.C. Circuit vacated and
remanded a FCC ruling. As explained in more detail below, the vacatur of the
ruling allowed Verizon to also argue that CLECs like Peerless cannot charge for
terminating switched access charges at all when partnering with a VoIP provider.
“VoIP is a newer technology that delivers telephone calls by splitting data
into tiny packets traveling the most efficient pathways available, rather than the
traditional format, which transmits data over a single pathway.” CenturyTel of
Chatham, LLC v. Sprint Commc’ns Co., 861 F.3d 566, 568–69 (5th Cir. 2017).
“There are two types of VoIP providers—“facilities based” providers, which typically
provide the last-mile facility that connects the end user to the end office switch (e.g.
Comcast), and “over the top” (OTT) providers that do not provide the last-mile
facility to the end user (e.g. Vonage). R. 172 at 34-35. According to Verizon, the FCC
has a “long-standing policy” under which a LEC “should charge only for those
services that they provide.” R. 162 at 22.
24

But, starting with the Connect America Fund, the FCC departed from this
“long-standing” principle by clarifying carrier compensation requirements for newer
VoIP technology:
When multiple providers [i.e., a wholesale LEC or its
retail VoIP partner] jointly provided access, the
Commission was concerned that, for example, permitting
a single competitive LEC to impose via tariff all the same
charges as an incumbent LEC, regardless of the functions
that competitive LEC performs, could result in double
billing. In light of the policy considerations implicated
here, we adopt a different approach to address concerns
about double billing. As discussed above, we believe that a
symmetrical approach to VoIP-PSTN intercarrier
compensation is the best policy, and thus believe that
competitive LECs should be entitled to charge the same
intercarrier compensation as incumbent LECs do under
comparable circumstances.
26 F.C.C. Rcd. 17663, ¶ 970. The FCC codified this principle in what is now known
as the “VoIP symmetry rule.” The VoIP symmetry rule states that an LEC can
assess and collect full access charges, “regardless of whether the local exchange
carrier itself delivers such traffic to the called party’s premises or delivers the call to
the called party’s premises via contractual or other arrangements with an affiliated
or unaffiliated provider of interconnection VoIP service, as defined in 47 U.S.C.
153(25), or a non-interconnected VoIP service, as defined in 47 U.S.C. 153(36).” 47
C.F.R. 51.913(b).
The rule has limitations. For example, an LEC cannot “charge for functions
not performed by the local exchange carrier itself or the affiliated or unaffiliated
provider of interconnected VoIP service or non-interconnected VoIP service.” Id. In
addition, the FCC amended 47 C.F.R. § 61.26(f), which is the tariffing provision
25

intended to implement the VoIP symmetry rule, to allow CLECs to assess rates for
access services based on the portion of the service provided. Those services include
end office access services provided as the “functional equivalent of the incumbent
local exchange carrier access service provided by a non-incumbent local exchange
carrier.” 47 C.F.R. § 51.903(d)(3). In Connect America Fund, the FCC recognized
that LECs partnered with VoIP providers to supply end office access services. It
specified that a LEC could collect for access services “regardless of whether the
[LEC] itself delivers such traffic to the called party’s premises or delivers the call ...
via contractual or other arrangements with an affiliated or unaffiliated provider of
interconnected VoIP service.” 30 In short, Connect America Fund allowed a VoIP
provider and its LEC partner (collectively, “VoIP-LEC”) to charge for providing the
“functional equivalent” of end-office switching services. In the Declaratory Ruling,
the FCC upheld Connect America Fund, ruling that such services are end-office
access under subsection (3) of § 51.903(d). Declaratory Ruling at 1588–89, ¶ 3.
AT&T challenged the Declaratory Ruling. The D.C. Circuit held that the FCC
had not explained what the phrase “functionally equivalent” meant “with the
requisite clarity to enable [the court] to sustain [the] conclusion” that the services
that LECs like Peerless provide are the “functional equivalent” of end-office
switching.

AT&T

Corp.

v.

FCC,

841

F.3d

1047,

1049

(D.C.

Cir.

In the Matter of Connect Am. Fund A Nat’l Broadband Plan for Our Future
Establishing Just & Reasonable Rates for Local Exch. Carriers High-Cost Universal
Serv. Support Developing an Unified Intercarrier Comp. Regime Fed.-State Joint
Bd. on Universal Serv. Lifeline & Link-Up Universal Serv. Reform -- Mobility Fund,
26 F.C.C. Rcd. 17663 at 388 (2011).
30

26

2016) (vacating Declaratory Ruling, 30 FCC Rcd. 1587 (2015)) (“AT&T Order”). The
D.C. Circuit vacated the Declaratory Ruling and remanded to the FCC the issue of
what services, if any, provided by over-the-top VoIP–LEC providers constitute the
“functional equivalent” of end-office switching.
Both parties submitted supplemental briefs on the effect of the AT&T Order.
R. 207, 208. Verizon argues that the AT&T Order brings into question whether
Peerless and its VoIP partner perform the functional equivalent of end-office
switching, meaning Peerless could not charge for those services under its tariff
pursuant to the VoIP Symmetry Rule. R. 207. Peerless argues the AT&T Order had
very little effect on the VoIP Symmetry Rule. Peerless says the AT&T Order merely
vacated the Declaratory Ruling that interpreted the rule, without affecting the rule
itself.
Like the access stimulation issues, the Court finds it appropriate to refer the
VoIP issue to the FCC. The Teliax court referred an identical issue to the FCC
because, “[a]lthough it perhaps goes without saying, judges with no technical
background in telecommunications are ill-prepared when compared to the FCC to
decide what services if any performed by over-the-top VoIP-LEC providers
constitute the ‘functional equivalent’ of the end-office switching. Furthermore, it is
quite clear that the FCC desires uniformity with respect to this issue as its previous
attempt to do so through the [Declaratory Ruling] evidences.” See, e.g., Teliax, Inc.
v. AT&T Corp., 2017 WL 3839459, at *2-3 (D. Colo. Sept. 1, 2017). Peerless argues
against referral because of the procedural posture of this case—specifically that the

27

case has been pending for a number of years and that referral to the FCC will
further delay payment on its long overdue collection action. 31 But the Court finds
referral appropriate in light of the Teliax court’s recent referral, the technical
nature of these issues, and the need to ensure uniformity. And, in light of the
Court’s decision later in this opinion granting Peerless’s collection action, the Court
finds that Peerless will not be prejudiced by referral to the FCC.
Because the Declaratory Ruling was in effect during the parties’ initial
briefing, Verizon did not make an argument regarding this issue on summary
judgment. Verizon instead argued for summary judgment on the basis that Peerless
cannot collect its tariffed end office originating switched access charges for calls
customers of Peerless’s VoIP partners dialed where a competitive LEC other than
Peerless assigned the telephone number to the person placing the call. 32 To the

In supplemental briefings, Verizon argued that the Court could decide the issue
based on a recent order in O1 Communications, Inc. v. AT&T Corp., No. 16-cv01452, Dkt. 106 (N.D. Ca. Dec. 19, 2017). The court there held that when a CLEC
like Peerless routes over-the-top Voice-over-Internet Protocol (“VoIP”) traffic, the
services that a telephone company provides are “not end office access services” or a
“functional equivalent of those services.” Id. at 2. Instead of following the Teliax
court’s approach of referring the matter to the FCC, the O1 court decided that VoIP
calls are not the functional equivalent of end office access services, relying on AT&T
Corp. v. FCC, 841 F.3d 1047 (D.C. Cir. 2016). The Court finds that the AT&T Order
did not go so far to find that VoIP traffic is not the functional equivalent of end
office access services. Rather, it merely held that the FCC had not sufficiently
explained what constitutes the functional equivalent of end office access services.
This issue is proper for the FCC to decide, not a court lacking the appropriate
technical knowledge.
31

The Court is skeptical of Verizon’s arguments on this issue. 47 C.F.R. § 61.26(f)
appears to pose two alternatives to collection of switched access charges: (1) calls
where the CLEC provides service to the end user where the CLEC may assess a
rate not to “exceed the rate charged by the competing ILEC for the same access
services provided” as long as the CLEC “provides some portion of the switched
32

28

extent Verizon intends on pursuing this alternative argument, the Court refers that
issue to the FCC as well.
III.

VERIZON’S 8YY ARGUMENT
Verizon’s final claim against Peerless’s Tariff collection action is that Peerless

cannot collect its tariffed end office terminating switched access charges for calls
that it delivers to a two-stage dialing platform—such as those used to place
international calls with a prepaid calling card—because Peerless does not terminate
those calls.
The FCC has described two-stage calls as follows:
A calling card customer typically dials a number to reach the service
provider’s centralized switching platform and the platform requests
the unique personal identification number associated with the card for
purposes of verification and billing. When prompted by the platform,
the customer dials the destination number and the platform routes the
call to the intended recipient.

exchange access services used to send traffic to or from an end user,” and (2) calls
where the CLEC is the assigning carrier in the NPAC database, for which the
CLEC may assess “a rate equal to the rate that would be charged by the competing
ILEC for all exchange access services required to deliver interstate traffic to the
called number.” 47 C.F.R. § 61.26(f). Verizon argues that Peerless can collect only
for the second category. But 47 C.F.R. § 61.26(f) does not require Peerless to be the
assigning carrier in the NPAC database to charge for the services it provides. It
only requires Peerless be the assigning carrier to charge the rate charged “for all
exchange access services.” Nor does the Court agree with Verizon’s argument that
because “Peerless alone does not provide end office switching,” it is not entitled to
charge the tariffed rates for over-the-top VoIP calls provided by it and its VoIP
partners. R. 178 at 21. Verizon provides no support for this assertion. Indeed, the
VoIP Symmetry Rule explicitly allows Peerless to charge a rate that does not exceed
the rate charged by the ILEC for “access services provided” by “contractual or other
arrangements with an affiliated or unaffiliated provider of interconnection VoIP
service.” 47 C.F.R. 51.913(b). However, because the AT&T Order questioned
whether CLECs like Peerless can collect under the VoIP Symmetry Rule at all, the
Court finds referral appropriate.
29

Order and Notice of Proposed Rulemaking, AT&T Corp. Petition for Declaratory
Ruling Regarding Enhanced Prepaid Calling Card Servs., 20 FCC Rcd 4826, ¶ 3
(2005). Relying on Broadvox-CLEC, LLC v. AT&T Corp., No. 13-1130 (D. Md. Mar.
31, 2016) (Dkt. 119)), Verizon argues that the FCC treats such two-stage calls as a
single, “end-to-end” call that terminates at the location where the person answers
the telephone, and that as such, Peerless does not terminate the call because it
hands the call off to the calling card platform rather than the end-user. See R. 162
at 25-26.
Peerless disagrees. It argues that the end-to-end approach relied on by
Broadvox-CLEC was adopted before the advent of IP enabled services, and that
because internet communications do not have a point of termination, “the fact that
the VoIP provider ‘may originate further telecommunications does not imply that
the original telecommunication does not “terminate” at the ISP.’” R. 236 at 39–40
(citing Bell Atlantic Telephone Co.’s v. F.C.C., 206 F.3d 1, 7 (D.C.C 2000)). Peerless
argues that the FCC “has confirmed that ISP traffic is not governed by the end-toend analysis, because a call to an ESP/ISP is ‘a continuous transmission from the
end user to a distant Internet site.’” Id. at 40–41. Peerless also cites the FCC’s
Declaratory Ruling in support, which concludes that a CLEC is entitled to charge
switched access on calls destined to a VoIP partner:
Specifically, under the ESP exemption, rather than paying intercarrier
access charges, information service providers were permitted to
purchase access to the exchange as end users, either by purchasing
special access services or ‘pay[ing] local business rates and interstate
subscriber line charges for their switched access connections to local
exchange company central offices’ . . . the Commission has always
30

recognized that information-service providers providing interexchange
services were obtaining exchange access from the LECs.
Declaratory Ruling, ¶ 957 (citations omitted). In sum, the question boils down to
whether two-stage calls “terminate” upon transfer to a VoIP provider, even if the
call continues to an international number.
The Broadvox-CLEC court analyzed the FCC Orders and case law
surrounding this issue. See Broadvox-CLEC, Dkt. 119, at 25-32. All that matters
here is that the FCC eventually announced that jurisdiction over IP-transport
calling card calls would be governed by the end-to-end analysis, meaning that calls
made with prepaid cards that originate and end in the same state are intrastate,
regardless of a call’s actual route. In the Matter of Regulation of Prepaid Calling
Card Servs., 21 F.C.C. Rcd. 7290 at ¶¶ 10, 27 (2006), vacated on other grounds by
Qwest Servs. Corp. v. F.C.C., 509 F.3d 531, 534 (D.C. Cir. 2007). But the FCC did
not discuss whether the end-to-end approach should be used to determine switched
access charges.
After analyzing the state of the end-to-end approach, the Broadvox-CLEC
court determined that the approach should be applied both for jurisdictional
purposes (i.e., to determine whether particular traffic is interstate to assess
appropriate compensation) and non-jurisdictional purposes (i.e., here, to determine
whether Peerless can assess its terminating switched access charges). The court
based its determination partly on the Bell Atlantic case. The Broadvox-CLEC court
found that the D.C. Circuit in Bell Atlantic remained silent on whether the end-toend approach could be applied beyond the jurisdictional analysis. See Broadvox31

CLEC, Dkt. 119, at *30 (“But, significantly, Bell Atlantic also does not hold that the
end-to-end analysis cannot apply outside the jurisdictional context.”) BroadvoxCLEC then relied on two FCC orders 33 to state that attempts to distinguish
between the “jurisdictional” nature of a call from its status for “billing” purposes
were unwarranted, and that as a result, the FCC “has made it clear that the end-toend analysis applies for purposes of determining access charges, as well as for
jurisdictionalizing.” Broadvox-CLEC at 32.
The Court does not find Broadvox-CLEC convincing. It appears to
oversimplify the D.C. Circuit’s holding in Bell Atlantic, and it fails to recognize the
important distinctions between services provided by traditional telecommunications
providers and internet service providers (“ISPs”). 34 As with the access stimulation
claim and the VoIP issue, however, the Court refers this issue to the FCC in light of
the D.C. Circuit’s ruling in the AT&T Order, which may affect how CLECs charge
for services provided with VoIP partners.
Teleconnect Co. v. Bell Tel. Co. of Penn., 10 FCC Rcd. 1626 (1995) and In re Long
Distance/usa, Inc., 10 FCC Rcd. 1634 (1995).

33

The D.C. Circuit in Bell Atlantic was skeptical of using the end-to-end analysis
outside of the jurisdictional context. Bell Atl. Tel., 206 F.3d at 7 (“However sound
the end-to-end analysis may be for jurisdictional purposes, the Commission has not
explained why viewing these linked telecommunications as continuous works for
purposes of reciprocal compensation.”). The court was also skeptical of applying the
analysis to ISPs. For example, the court noted the difference between traditional
long-distance carriers and ISPs. Id. It explained that ISPs are not necessarily
telecommunications providers, but may be information services providers, and that
the FCC had not offered significant explanation as to why ISPs were not
communications-intensive business end users selling products to other consumer
and business end-users. Id. at 7-8 (vacating a ruling “[b]ecause the Commission has
not provided a satisfactory explanation why LECs that terminate calls to ISPs are
not properly seen as ‘terminat[ing] ... local telecommunications traffic,’ and why
such traffic is ‘exchange access’ rather than ‘telephone exchange service.’”).
34

32

In practice, a primary jurisdiction referral means that the court either stays
the case or dismisses it without prejudice, so that the parties may seek an
administrative ruling. There is no formal transfer of the case. Rather, the parties
are responsible for initiating administrative proceedings themselves. Clark v. Time
Warner Cable, 523 F.3d 1110, 1115 (9th Cir. 2008) (citations omitted); see Great
Lakes Communication, 2014 WL 2866474, at *15 (“When primary jurisdiction
applies, a federal court may either stay or dismiss a claim in favor of the
appropriate agency.”).
Accordingly,

Verizon’s

summary

judgment

motion

regarding

access

stimulation, VoIP, and the 8YY calls against Peerless’s collection claims is denied
without prejudice. Verizon’s Counterclaims I and III, which seek to recoup amounts
paid by Verizon to Peerless under the Tariff and seek a declaration on Verizon’s
rights going forward under the Tariff, are stayed pending decision by the FCC on
the access stimulation issue. If Verizon chooses not to file a complaint with the FCC
on that issue by June 15, 2018, Verizon’s Counterclaims I and III will be dismissed.
IV.

PEERLESS’S COLLECTION CLAIMS 35 (COUNTS III AND IV)
The conclusion that Verizon’s arguments should be referred to the FCC under

the primary jurisdiction doctrine does not end the Court’s inquiry. It remains to be
seen how that referral impacts Peerless’s collection action to recover for switched
access fees for which Verizon has refused to pay. Despite the complexity of the

The Court refers primarily to the access stimulation claim and its effect on the
Tariff in this section, but the reasoning in this section applies to the parties’ dispute
on the VoIP and 8YY issues as well.
35

33

subject matter, the volume of briefing devoted to the issue, and the number of
disputed issues of fact on which the parties’ arguments are based, the crux of this
case is captured in a single sentence in Verizon’s response to Peerless’s statement of
additional facts, where Verizon states:
Verizon admits that it did not challenge Peerless’s rates with
state commissions or the FCC, but denies any implication
that it had the obligation to do so. Instead, Peerless had the
obligation to file lawful tariffs with state commissions and
the FCC.
R. 178-1, Resp. to PSOF, ¶ 17 (emphasis added). This admission raises a central
question: does Verizon have the right to unilaterally declare Peerless’s Tariff
unlawful and then withhold payments otherwise required to be made under the
Tariff, without ever seeking an authoritative resolution of that issue through either
an action filed in court or a complaint brought before the FCC, 36 thereby
transferring the litigation burden to Peerless, which is required by law to continue
providing Verizon the services for which Verizon is refusing to pay? The Court turns
to that question now.
A. THE FILED RATE DOCTRINE
Before the Tariff became effective, the parties that Peerless would bill under
it, including Verizon, had a fifteen-day window to object to the terms and rates set
out in that document. See 47 U.S.C. § 203(a)(3). The FCC itself could also reject,
suspend, or investigate the Tariff. See 47 C.F.R. § § 61.69; 61.191. Neither Verizon

See 47 U.S.C. §§ 204–205 (granting the FCC the ability to either “upon complaint
or upon its own initiative” determine the lawfulness, justness, and reasonableness
of charges under the chapter).

36

34

nor any other party objected to the Tariff, and the FCC also took no action. See R.
73, Am. Compl., ¶ 40 (“Verizon had an opportunity to object to this tariff and/or any
amendments or modifications thereto when they were filed but did not do so, and
the FCC permitted this tariff to become effective without suspension.”); R. 75,
Verizon Answer, ¶ 40 (“Admitted that Verizon did not file objections with the FCC
during the period between Peerless’s tariff filings and Peerless’s chosen effective
date for those filings.”). Verizon does not contest that Peerless filed the Tariff with
the FCC, that Verizon received services under the Tariff, or that Peerless billed the
rates set forth in the Tariff. 37
“The filed-rate doctrine comes into play when an entity is required to file
rates for its services with a governing regulatory agency and the agency has been
given exclusive authority by federal statute to set, approve, or disapprove the
rates.” First Impressions Salon, Inc. v. Nat’l Milk Producers Fed’n, 214 F. Supp. 3d
723, 731 (S.D. Ill. 2016) (citing Cohen v. Am. Sec. Ins. Co., 735 F.3d 601, 607 (7th
Cir. 2013)). The doctrine forbids an entity from charging any rate that is different
than the one properly filed and approved; this protects consumers from
unreasonable or discriminatory rates. Cahnmann v. Sprint Corp., 133 F.3d 484, 487

See R. 176-1, Resp. to PSOF, ¶ 32 (responding “undisputed” to the statement that
“Peerless’s FCC Tariff No. 4 was initially filed . . . with an effective date of
September 28, 2013”); id., Resp. to PSOF, ¶ 15 (responding “undisputed” to the
statement that Verizon “delivered traffic to, and received traffic from, Peerless’s
Network”); id., Resp. to PSOF, ¶ 16 (responding “undisputed” to the statement that
Verizon received services under the Tariff); id., Resp. to PSOF, ¶ 47 (responding
“undisputed” to the statement that, “[f]rom January 2010 through July 2015, the
vast majority of Peerless’s rates were addressed on a composite rate for the switch
access functions identified in its tariffs”).
37

35

(7th Cir. 1998); see Carlin v. DairyAmerica, Inc., 705 F.3d 856, 867 (9th Cir. 2013)
(“[T]he initial raison d’être for the doctrine concerned stabilizing rates and
preventing pricing discrimination amongst ratepayers.”).
More important to this case, the doctrine protects public utilities and other
regulated entities from civil actions attacking rates that are subject to federal
agency approval and disapproval, prevents courts from becoming “enmeshed in
rate-making,” and preserves “the agency’s primary jurisdiction over reasonableness
of rates.” First Impressions Salon, 214 F. Supp. 3d at 731; see also Arsberry v.
Illinois, 244 F.3d 558, 562 (7th Cir. 2001) (a customer cannot ask the court in a civil
rights or antitrust suit to invalidate or modify a rate); Simon v. KeySpan Corp., 694
F.3d 196, 204 (2d Cir. 2012) (“Simply stated, the doctrine holds that any ‘filed
rate’—that is, one approved by the governing regulatory agency—is per se
reasonable and unassailable in judicial proceedings brought by ratepayers.”)
(citation

omitted);

Alliance

Commc’ns

Co-op.,

Inc.

v.

Global

Crossing

Telecommunications, Inc., 2007 WL 1964271, at *3 (D.S.D. July 2, 2007) (under
“[the filed rate] doctrine, once a carrier’s tariff is approved by the FCC, the terms of
the federal tariff are considered to be the law and to therefore conclusively and
exclusively enumerate the rights and liabilities as between the carrier and the
customer.” (quoting Iowa Network Servs., Inc. v. Qwest Corp., 466 F.3d 1091, 1097
(8th Cir. 2006)) (internal quotation marks omitted).
The principle that a ratepayer may not seek to invalidate or modify a tariff
rate in a collection action brought by the service provider serves the purpose of

36

preventing courts from becoming involved in rate-making, and preserves “the
agency’s primary jurisdiction over reasonableness of rates.” Arkansas Louisiana
Gas Co., 453 U.S. at 577–78; see Arsberry, 244 F.3d at 562 (“[t]he filed-rate doctrine
. . . is based . . . on historical antipathy to rate setting by courts, deemed a task they
are inherently unsuited to perform competently”). “[I]f customers were allowed to
challenge the rate in court, varying litigation outcomes might result in non-uniform
rates.” Simon, 694 F.3d at 205; see also Great Lakes Commun’c Corp., 2014 WL
2866474, at *13 (“The filed tariff doctrine prevents a court from awarding any form
of relief that would have the effect of imposing rates other than those reflected in a
duly-filed tariff.”).
A straight-forward application of the filed-rate doctrine shows that Verizon
has gotten it backwards. Verizon was required to pay the charges invoiced pursuant
to the Tariff first. Then, Verizon could challenge those charges by either filing suit
in federal court or filing a complaint with the FCC. See Frontier v. AT&T, 957 F.
Supp. 170 (C.D. Ill. 1997) (“The prevailing rule is that a customer must pay filed
rates before contesting them.”).
Verizon responds that the filed tariff doctrine does not preclude all legal
challenges to a tariff. That much is true. As the FCC has stated:
[T]he Filed Rate Doctrine does not insulate tariffs from
legal challenge. As we have previously stated, “it is well
established that the rates and practices carriers seek to
shelter pursuant to the Filed Rate Doctrine are always
subject to an inquiry into their reasonableness.” Where,
as here, Commission determines that a tariff violates [47
U.S.C. § 201(b)], the Filed Rate Doctrine is no defense.

37

In re Bell Atlantic-Delaware, Inc. 15 FCC Rcd. 20665, ¶ 20 (2000). But the Court’s
ruling is not that Peerless’s Tariff is unassailable simply because it went into effect
without any legal challenge. Rather, the Court finds that Verizon had a duty to
raise a legal challenge to the Tariff, not simply decide on its own that the Tariff was
invalid and refuse for years to make payments under it.
Despite some ambiguity in FCC pronouncements on the issue, Connect
America Fund, which established the access stimulation rule, supports the Court’s
view of the timing and burden issue with respect to Verizon’s access stimulation
challenge to Peerless’s Tariff. Connect America Fund states that “enforcement of the
new access stimulation rules in instances where a LEC meets the conditions for
access stimulation but does not file revised tariffs” should proceed as follows:
IXCs will be permitted to file complaints based on
evidence from their traffic records that a LEC has
exceeded either of the traffic measurements of the second
condition, i.e., that the second condition has been met. If
the IXC filing the complaint makes this showing, the
burden will shift to the LEC to establish that it has not
met the access stimulation definition and therefore that it
is not in violation of our rules. This burden-shifting
approach will enable IXCs to bring complaints based on
their own traffic data, and will help the Commission to
identify circumstances where a LEC may be in violation of
our rules.
Connect Am. Fund, 26 F.C.C. Rcd. 17663, ¶ 659; see also id., ¶ 699 (“A complaining
carrier may rely on the 3:1 terminating-to-originating traffic ratio and/or the traffic
growth factor for the traffic it exchanges with the LEC as the basis for filing a
complaint. This will create a rebuttable presumption that revenue sharing is
occurring and the LEC has violated the Commission’s rules.”).
38

Had Verizon followed the procedure outlined by the FCC in Connect America
Fund, and filed either a complaint with the FCC or a federal lawsuit challenging
Peerless’s Tariff as being in violation of the access stimulation rules, it could have
sought temporary preliminary relief from making further payments of the
challenged charges while the validity of Peerless’s Tariff was being litigated. But
instead of doing that, Verizon engaged in self-help. It withheld payments to
Peerless for more than six years before the suit was filed based on its unilateral
determination that Peerless’s Tariff was in violation of the access stimulation rule.
The Connect America Fund Order specifically mentions self-help as an approach
some IXCs took:
Non-payment Disputes. Several parties have requested
that the Commission address alleged self-help by long
distance carriers who they claim are not paying invoices
sent for interstate switched access services. As the
Commission has previously stated, “[w]e do not endorse
such withholding of payment outside the context of any
applicable tariffed dispute resolution provisions.” We
otherwise decline to address this issue in this Order, but
caution parties of their payment obligations under tariffs
and contracts to which they are a party. The new rules we
adopt in today’s Order will provide clarity to all affected
parties, which should reduce disputes and litigation
surrounding access stimulation and revenue sharing
agreements.
Id., ¶ 700. These comments show that the FCC does not approve of IXC self-help
tactics. To the contrary, the FCC explains that such tactics fall “outside the context
of any applicable tariffed dispute resolution provisions.” While the FCC “otherwise”

39

declined to address the topic, 38 its comments clearly indicate that Verizon’s
unilateral approach to enforcing the FCC’s access stimulation rules is in conflict
with the filed rate doctrine. See also CenturyTel of Chatham, LLC v. Sprint
Commc’ns Co., L.P., 861 F.3d 566, 577 (5th Cir. 2017) (“FCC precedent makes clear
‘self-help’ is not necessarily permissible.” (citing In re MCI Telecomm., 62 F.C.C.2d
at 705-06 (“We cannot condone MCI’s refusal to pay the tariffed rate for voluntarily
ordered services.”)), cert. denied sub nom. Sprint Commc’ns Co., L.P. v. CenturyTel
of Chatham, L.L.C., 2018 WL 311841 (U.S. Jan. 8, 2018).
B. VOID AB INITIO
Verizon further argues that its self-help strategy is supported by the FCC,
because the FCC has said in a number of instances that a tariff not in compliance
with the access stimulation benchmark is “void ab initio.” According to Verizon,
“void ab initio” means that Verizon never became obligated to pay the Tariff in the
first place, and therefore the filed rate doctrine does not apply.
To begin with, the Court agrees with Peerless that Verizon’s void ab initio
argument is an affirmative defense to Peerless’s collection action. To establish a
right to recover under its Tariff, Peerless “must demonstrate (1) that [it] operated
under a federally filed tariff and (2) that [it] provided services to [Verizon] pursuant

The FCC may have thought it unnecessary to say more because it was optimistic
that, “[w]ith the guidance in this Order, . . . parties should in good faith be able to
determine whether the definition [of access stimulation] is met without further
Commission intervention.” Connect Am. Fund, 26 F.C.C. Rcd. 17663, ¶ 699. As it
turns out, however, the access stimulation benchmark raises a number of
interpretative questions, as discussed previously in this opinion, making it not so
easy a benchmark to apply.
38

40

to that tariff.” Advamtel, LLC. v. AT&T Corp., 118 F. Supp. 2d 680, 683 (E.D. Va.
2000). Peerless has shown, and Verizon does not dispute, both of those things.
Instead, Verizon argues that the Tariff is void ab initio because it is in violation of
the FCC’s access stimulation benchmark. R. 75, Counterclaim, ¶ 19 (“Peerless’s
federal tariff is therefore unlawful and, moreover, is void ab initio”). In other words,
Verizon’s void ab initio argument seeks to excuse or avoid Verizon’s payment under
the Tariff. It thus constitutes an affirmative defense. 39
To make the case that its void ab initio argument is not an affirmative
defense, Verizon inserts the requirement that Peerless prove as part of its prima
facie case to recover under the Tariff that its Tariff is “lawful.” But Peerless is
required in its prima facie case to prove that the Tariff be “legal,” not that it be
“lawful.” There is a difference between “legal” and “lawful” rates. The D.C. Circuit
See Van Schouwen v. Connaught Corp., 782 F. Supp. 1240, 1246 (N.D. Ill. 1991)
(“An affirmative defense generally admits the matters alleged in a complaint but
brings up some other reason why the plaintiff has no right to recovery. It thus
introduces arguments not raised by a simple denial.”); see also Ft. Howard Paper
Co. v. Standard Havens, Inc., 901 F.2d 1373, 1377 (7th Cir. 1990) (“The evidence
necessary to establish a breach of warranty claim is significantly different from that
required to prove the misuse of the baghouse or hindrance of the contract. . . . As
such, the alleged defenses do not controvert Fort Howard’s proof of breach of
warranty and, therefore, are properly labeled affirmative defenses.”) (citations
omitted). Although Verizon did not assert an affirmative defense against Peerless’s
tariffs, the requirements of Rule 8(c), governing affirmative defenses, are not
absolute and Verizon may assert affirmative defenses “as long as [Peerless] had
adequate notice of the defense and was not deprived of the opportunity to respond.”
Sterling v. Riddle, 2000 WL 198440, at *4 (N.D. Ill. Feb. 11, 2000). “The purpose of
the rule is to avoid surprise and prejudice to the plaintiff by providing him notice
and the opportunity to demonstrate why the defense should not prevail.”
Id. (citing Blonder–Tongue Labs., Inc. v. University of Illinois Found., 402 U.S. 313,
350 (1971)). Peerless does not argue it did not have adequate notice of Verizon’s
arguments or that it was prejudiced by Verizon’s failure to plead it initially. The
Court will address the argument on its merits.
39

41

explained the distinction between the terms “legal” rate and “lawful” rate in ACS of
Anchorage, Inc. v. F.C.C., 290 F.3d 403 (D.C. Cir. 2002):
“Legality” mainly addresses procedural validity. “[T]o
render rates definite and certain, and to prevent
discrimination and other abuses,” rates must be filed and
published, and deviation from published rates is subject
to criminal and civil penalties. Arizona Grocery, 284 U.S.
at 384. A particular rate thus becomes “legal” when it is
filed with an agency and becomes effective. But a rate’s
legality is not enough to establish its substantive
reasonableness or “lawfulness.” See id. (noting that a
rate’s legality does not abrogate “the common-law duty to
charge no more than a reasonable rate”). A carrier
charging a merely legal rate may be subject to refund
liability if customers can later show that the rate was
unreasonable. Id. Should an agency declare a rate to be
lawful, however, refunds are thereafter impermissible as
a form of retroactive ratemaking.
Id. at 410–11. As ACS of Anchorage, Inc. makes clear, the carrier’s prima facie case
for enforcement of a tariff requires that it show only that the tariff is legal, i.e.,
properly filed and effective during the relevant time period. Consistent with it being
an affirmative defense, it then is up to the ratepayer to allege and show that the
tariff rate is “unreasonable,” a standard the D.C. Circuit equated with the term
“unlawful.”
Verizon points out that the applicable regulation states that an access
stimulator “shall not file a tariff” that fails to comply with § 61.26(g). See R. 162 at
19 (“Peerless violated the FCC’s express directive that, as a traffic pumper, it ‘shall
not file a tariff’ that fails to comply with § 61.26(g).’” (emphasis in original)).
According to Verizon, the FCC has explained that this regulatory language
implements the FCC’s “mandatory detariffing” policy, under which “a carrier is
42

prohibited from filing a tariff with rates above the benchmark.” Id. (quoting AT&T
Servs. Inc. v. Great Lakes Comnet, Inc., 30 FCC Rcd 2586, ¶ 28 (2015) (emphasis
added)). Verizon also cites to an amicus brief filed by the FCC in an appeal before
the Third Circuit, where the FCC said that it adopted this prohibition because it
“better serves the public interest” to prohibit such rates “from being tariffed in the
first instance” than to “attempt [ ] to identify such unreasonable rates on an ad hoc
basis after the tariffs are filed.” Id. (quoting FCC Brief as Amicus Curiae at 27-28,
in PAETEC Commc’ns, Inc. v. MCI Commc’ns Servs., Inc., Case Nos. 11-2268, et al.
(3d Cir. Mar. 14, 2012)). Verizon contends that the FCC’s opinion in Great Lakes
Comnet and its amicus brief in the Paetec case establish that filing a tariff that does
not comply with the access stimulation rules “violates the Commission’s Rules and
renders the prohibited tariff void ab initio.” Id. (quoting Great Lakes Comnet, 30
FCC Rcd 2586, ¶ 28; FCC Amicus Br. at 2)).
Verizon’s reliance on the FCC’s comments in Great Lakes Comnet and amicus
brief in Paetec as support for its self-help strategy is misplaced. The void ab initio
principle that the FCC discussed in its amicus brief in the Paetec case was
addressing the question of whether the IXC—AT&T in that case—could recover
payments made pursuant to the unlawful tariff. It was not addressing whether
AT&T could unilaterally withhold payments to the CLEC based on its view that the
CLEC had violated the access stimulation rules. Even though it was determined
that the CLEC was an access stimulator without properly benchmarked rates,
AT&T’s right to recover charges that later were determined to be improper was at

43

issue because of the “deemed lawful” language in § 204(a)(3). As the D.C. Circuit
has explained:
“[A] streamlined tariff that takes effect without prior
suspension or investigation is conclusively presumed to be
reasonable and, thus, a lawful tariff during the period
that the tariff remains in effect.” [Streamlined Tariff
Order, 12 FCC Rcd 2170] at 2182, ¶ 19. In accordance
with Arizona Grocery, these “deemed lawful” tariffs are
not subject to refunds. If a later reexamination shows
them to be unreasonable, the Commission’s available
remedies will be prospective only. Id. at 2182-83, ¶¶ 20–
21. As the Commission emphatically recognized, §
204(a)(3) effected a considerable change in the regulatory
regime: before, tariffs that became effective without
suspension or investigation were only legal (not
conclusively lawful), and thereby remained subject to
refund remedies. Id. at 2176, ¶ 8.
ACS of Anchorage, Inc., 290 F.3d at 411. It is to this situation that the FCC’s void
ab initio argument applies. In other words, Paetec deals with how IXCs may recover
for tariffs “deemed lawful” but that are later deemed unreasonable by the FCC. It
does not hold that Verizon can engage in self-help and unilaterally withhold
payments to Peerless.
C. RELATIONSHIP BETWEEN PEERLESS’S COLLECTION ACTION
AND VERIZON’S RATE CHALLENGE
The Court must now determine whether to stay Peerless’s collection action
until the FCC resolves Verizon’s unreasonable rate claim. As explained by the court
in Frontier Communications, a claim by one carrier that a tariff is unlawful may be
raised only through a counterclaim and not as a defense to the other carrier’s
collection action. 957 F. Supp. at 174 (“The Supreme Court has held that claims
challenging the reasonableness or fairness of common carrier rates asserted in
44

response to collection actions by the common carrier are properly considered
counterclaims.”) (citing Reiter v. Cooper, 507 U.S. 258, 262–63 (1993)).
In Frontier, the court held that AT&T had forfeited its right to raise an
unreasonable rate counterclaim because it had previously filed suit before the FCC
raising the same claim and the statute allowed it to proceed with its claim in only
one forum. 957 F. Supp. at 175 (relying on Cincinnati Bell Tele. Co. v. Allnet
Commun’c Servs., Inc., 17 F.3d 921, 923 (6th Cir. 1994) (claims to recover unpaid
access charges are counterclaims and run afoul of 47 U.S.C. § 207 if the customer
has already filed a complaint relating to the same practices with the FCC)). Here,
there is no indication in the record that Verizon has raised its unreasonable rate
claim before the FCC. Therefore, Verizon may maintain its unreasonable rate
counterclaim in this action. As the Court indicated earlier in this opinion, however,
that claim must be referred to the FCC under the primary jurisdiction doctrine.
The Court declines to stay the case pending referral, following the path taken
by the Frontier court. That court enforced the CLEC’s tariff rates, leaving it to the
FCC to decide AT&T’s claim that Frontier’s rates were appropriate. The Frontier
court held that “[t]he only possible reason to delay a ruling until the FCC decides
AT&T’s claim is that AT&T might ultimately be entitled to a refund from Frontier
of the amount this Court orders AT&T to pay. The risk that Frontier may someday
have to pay AT&T back the money it receives in this proceeding is far outweighed
by the potential damage that the delay would cause Frontier if the FCC ultimately
upholds Frontier’s rates.” 957 F. Supp. at 176.

45

The balance of hardships in this case, like the balance in Frontier, weighs in
favor of Peerless. Verizon could have challenged Peerless’s rate by filing a claim
before the FCC or in federal court at any time during the eight years that it
withheld payments to Peerless on the belief that Peerless was engaged in access
stimulation. It would be unjust, in these circumstances, to place Peerless’s collection
action on hold while waiting for a decision by the FCC on Verizon’s access
stimulation argument. The risk that Peerless may have to pay Verizon backdated
charges is outweighed by the potential damages to Peerless from further delay in
being paid if the FCC ultimately upholds Peerless’ tariff against Verizon’s access
stimulation charge.
Peerless’s collection claims on its federal tariffs (Counts III and IV) are
granted. Peerless is directed to submit an itemized statement of charges owed, to
which Verizon will be given an opportunity to respond before the Court determines
the proper amount of damages. See Frontier, 957 F. Supp. at 177. The Court will
enter a final judgment after the charges are determined. Peerless’s declaratory
judgment count regarding its interstate switched access services going forward
(Count XI), is likewise granted in accordance with the discussion above.
V.

TANDEM SWITCHED ACCESS AGREEMENT (COUNTS I AND II)
Peerless also seeks compensation for non-payment of the interstate and

intrastate tandem switched access services that were provided and billed pursuant
to the Tandem Services Agreement (“TSA”).

46

To state a cause of action for a breach of contract under Illinois law, 40
Peerless must prove four elements: (1) a valid and enforceable contract exists, (2)
substantial performance by Peerless, (3) breach by Verizon, and (4) damages
resulting from Verizon’s breach. Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759,
764 (7th Cir. 2010) (citations omitted).
There is no dispute that the TSA is a valid and enforceable contract. The
TSA, signed in February 2009, provided Verizon a discounted rate on certain
originating and terminating, interstate and intrastate, tandem switched access
services in various states up through July 2014. R. 155, JSOF, ¶¶ 51–53; R. 178-1,
Resp. to PSOF ¶ 23 (undisputed that the TSA provided discounted rates). Peerless
issued invoices containing TSA rates corresponding to the amount of traffic billable
for each particular month for the intrastate traffic, R. 178-1, Resp. to PSOF ¶ 29
(admitted), and Verizon used the services relating to these invoices. See R. 155,
JSOF, ¶ 8.
Verizon also does not dispute that it breached the TSA. See R. 178-1, Resp. to
PSOF, ¶ 27 (not disputing the existence of at least one unpaid invoice). 41 Instead, it
challenges only the amount of damages appropriate for its breach. Verizon claims
that Peerless failed to identify the exact charges or invoices Verizon failed to pay,
Illinois law governs the TSA. See R. 160-5, Tandem Service Agreement, at Section
12.

40

Throughout this litigation, Verizon had admitted it has withheld payments under
the Tariff and the TSA. See, e.g., R. 75, Verizon. Answer, ¶ 99 (admitting that
Verizon continues to dispute and withhold amounts for switched access service
charges).
41

47

that it never produced the damages figure in discovery, and that Peerless’s damage
calculation includes charges for which the statute of limitations has run. See R. 178
at 28–29. Peerless will have the opportunity to present the Court with evidence on
the validity of the charges in later proceedings, using a procedure akin to the one
described in the Court’s ruling in Section IV.C. of this order.
Peerless’s motion for summary judgment on Counts I and II is granted.
VI.

STANDSTILL AGREEMENT (COUNT X)
Finally, Verizon moves for summary judgment on Peerless’s claim for breach

of the Standstill Agreement. Verizon argues that Peerless has not produced any
evidence that would allow a reasonable jury to conclude that Verizon breached that
Agreement.
Peerless and Verizon entered into the Confidential Standstill Agreement in
September 2013. R. 160-11, Standstill Agreement. The parties agreed that Peerless
would continue to bill Verizon for charges that in “good faith” represent services
rendered by Peerless, and that Verizon would pay any such charges that were not
subject to a “good faith dispute.” Id. at Section 2(b). Verizon acknowledged in the
Agreement that it withheld payments on Peerless’s charges, and Verizon has
continued to withhold payments on Peerless’s charges since the Standstill
Agreement took effect. In its Amended Complaint, Peerless alleges that Verizon
failed to pay Peerless’s originating and terminated end office and tandem switched
access charges for the period from April 2012 to June 2014. R. 73 (Am. Compl., ¶¶
50–58.)

48

Peerless’s claim for breach of the Standstill Agreement hinges on whether
Verizon acted in good faith. Acting in good faith requires honesty in fact. Gas
Natural v. Iberdrola, 33 F. Supp. 3d 373, 382 (S.D.N.Y. 2014). 42 But self-interest is
not bad faith, and acting in a financial self-interest, or for a good faith business
judgment, does not represent bad faith. Instead, “bad faith requires some ‘deliberate
misconduct’—arbitrary or capricious action taken out of spite or ill will or to back
out of an otherwise binding contractual commitment.” Id. at 383. “Whether
particular conduct violates or is consistent with the duty of good faith and fair
dealing necessarily depends upon the facts of the particular case, and is ordinarily a
question of fact to be determined by the jury or other finder of fact.” Id. (citations
omitted).
As purported evidence of bad faith, Peerless cites Verizon’s admission that it
withheld payments for charges that it admits are payable without calculating what
it believes it is owed under its counterclaim. See R. 236 at 45. Peerless also argues
Verizon did not submit any dispute provisions in Peerless’s tariffs for any of the
charges at issue in this action. Id. Verizon disputes these allegations, arguing that
it deducted amounts from current bills to recoup charges on unresolved disputes.
See R. 178 at 24. Verizon says this is neither prohibited by the Standstill Agreement
nor probative of bad faith.
As the Court held in its order on Verizon’s Motion to Dismiss, nothing on the
face of the Standstill Agreement prohibits Verizon from disputing charges paid
New York law governs interpretation of the Standstill Agreement. R. 160-11,
Standstill Agreement, at Section 10.
42

49

before the effective date of the Standstill Agreement. R. 69 at 17. Further, Peerless
fails to present any concrete evidence showing that Verizon acted in bad faith under
the Standstill Agreement. Instead, the undisputed evidence shows a disagreement
as to the amount owed under Peerless’s Tariffs and the TSA. Because Peerless has
failed to present evidence, from which a reasonable juror could find bad faith and
return a verdict in its favor on Count X, Verizon’s motion for summary judgment on
Count X is granted.
Conclusion
For the foregoing reasons, the Court grants Peerless’s motion for summary
judgment (R. 170) on its collection counts (Counts III, IV). The Court grants
Verizon’s motion (R. 159) as to the Standstill Agreement, and denies it in all other
respects. The Court refers the access stimulation, VoIP, and 8YY issues to the
Federal

Communications

Commission,

and

accordingly

stays

Verizon’s

Counterclaims I and III.

ENTERED:
_____________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: March 16, 2018

50