Peerless Network, Inc. et al v. MCI Communications Services, Inc. et al
Filing
69
MEMORANDUM Opinion and Order: For the foregoing reasons, the Court grants Verizon's motion to dismiss in part and denies the motion in part. 28 The Court denies Verizon's motion to dismiss Counts I-II, in full, and Counts XI-XII, in part , for failure to state a claim for breach of the Switched Access Agreement. The Court grants Verizon's motion to dismiss Count X for failure to state a claim for breach of the Standstill Agreement without prejudice. Should Peerless wish to file an amended complaint repleading Count X, it must do so within 30 days, by June 22, 2015. The Court grants Verizon's motion to dismiss Counts VI-IX with prejudice. Finally, the Court denies Verizon's motion to dismiss Counts III-V and Counts XI-XII, insofar as they purport to state a claim for violation of the FCA, as moot. Signed by the Honorable Thomas M. Durkin on 5/21/2015:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Peerless Network, Inc. et al.,
)
)
Plaintiffs – Counterclaim Defendants, )
)
v.
)
)
MCI Communication Services, Inc.,
)
Verizon Services Corp. and Verizon Select
)
Services Inc.,
)
)
Defendants – Counterclaim Plaintiffs. )
No. 14 C 7417
Judge Thomas M. Durkin
MEMORANDUM OPINION AND ORDER
Peerless Network, Inc., et. al., (“Peerless”), sued the Defendants MCI
Communication Services, Inc., Verizon Services Corp., and Verizon Select Services,
Inc., (collectively “Verizon”), alleging claims of breach of contract, breach of tariffs,
breach of implied contract, unjust enrichment, quantum meruit, and seeking
declaratory judgments. Verizon filed four counterclaims against Peerless alleging
breach of federal and state tariffs. This matter is before the Court on Verizon’s
motion to dismiss Counts I-II and VI-X, in full, and Counts III-V and XI-XII, in
part, of Peerless’s complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). R.
28. For the following reasons, the Court grants the motion in part and denies the
motion in part.
1
Background
Peerless and Verizon are both telecommunications carriers that provide a
variety of telecommunication services. R. 1 ¶¶ 7-8. Telecommunication services in
the United States can be divided into two categories: (1) local exchange services and
(2) interexchange services. Id. ¶ 15. Local exchange services involve phone calls that
originate when the calling party dials the call in one exchange service area and
terminate when the call is delivered to the receiving party in the same exchange
service area. Id. Interexchange services involve phone calls that originate in one
exchange area and terminate in a different exchange area. Id. Interexchange
services can be intrastate or interstate. Id. Intrastate services are calls exchanged
in the same state. Id. Interstate services are calls exchanged between multiple
states. Id.
Many
telecommunication
carriers
provide
both
local
exchange
and
interexchange services. Id. ¶ 16. “Local Exchange Carriers” (“LECs”) are carriers
that provide local exchange services. Id. For purposes of this action, Verizon’s local
affiliates and Peerless are LECs. Id. “Interexchange Carriers” (“IXCs”) are carriers
that provide interexchange services. Id. For the purposes of this action, Verizon
functions as an IXC. Id. ¶ 9.
The Federal Communications Commission (“FCC”) adopted a compensation
structure that requires LECs to allow IXCs to use their telephone lines to originate
and terminate calls so all carriers can exchange calls between their customers. Id. ¶
18. IXCs are required to compensate LECs for their use of LECs’ telephone lines. Id.
Peerless provides an example of how LECs and IXCs collaborate on long distance
2
phone calls:
When a consumer makes an interexchange call, the consumer’s LEC
originates the call, and performs transport and switching functions and
delivers the call (i.e., “hands the call off”) to an IXC, and the IXC then
hands off the call 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 LEC in Chicago) performs switching functions and originates
the call on its network, and hands over the call to an IXC, such as Sprint
Long-Distance, which carries the call to St. Louis. Sprint then hands off
the call off to AT&T Missouri (the incumbent LEC in St. Louis), which
performs transport and switching functions and carries the call across its
network to deliver the call to the called party.
Id. ¶ 19. In this example, Sprint (the IXC) must compensate AT&T (the LEC)
because AT&T performed switched access service by carrying the customer’s call on
Sprint’s phone lines. Id. ¶ 20. IXCs are required to pay LECs “access charges” for
“originating” and “terminating” the phone calls. Id. These access charges are set
forth in negotiated contracts between IXCs and LECs, tariffs on file with the FCC,
and tariffs on file with state public service commissions. Id.
The types of services that LECs provide to IXCs vary depending on need and
function. Id. ¶ 26. For example, an IXC can use an LEC’s tandem switch (the
telephone switch that connects LEC switches to IXC switches) or an LEC’s end office
switch (the telephone switch that connects LEC switches to the customer’s phone) to
reach the end customer. Id. An IXC can also use an LEC’s physical infrastructure
(e.g., fiber optic cables) or electronic database to carry the call to and from the
tandem or end office switch, which is known as “transport services.” Id. These
services are collectively known as “access services.” Id.
On February 11, 2009, Peerless and Verizon entered into a contract
3
(“Switched Access Agreement”) under which Peerless agreed to provide access
services to Verizon in certain markets. Id. ¶¶ 35-36. Section 3 of the Switched
Access Agreement spells out the types of interstate and intrastate access service
Peerless was to provide Verizon. Id. ¶ 36. Since February 11, 2009, the parties have
amended the Switched Access Agreement four times, most recently on October 9,
2013. Id. ¶ 35.
The Switched Access Agreement states that any services or charges it does
not govern “are subject to the applicable Peerless tariffs.” R. 1-1 at 4. The FCC
requires telecommunication carriers to file tariffs with the FCC that publicly
display the carriers’ rates for interstate and foreign telecommunication services. 47
U.S.C. § 203. Peerless filed its initial interstate access tariff with the FCC in June
2008. R. 1 ¶ 39. It subsequently cancelled and replaced the tariff three times to
reflect its modified rates. Id.
Historically, the FCC has exercised jurisdiction over interstate calls, while
each individual state’s public service commission has exercised jurisdiction over
intrastate calls. Id. ¶ 17. Generally, public service commissions require carriers to
file intrastate tariffs just as the FCC does. Id. ¶¶ 20, 42-43. Peerless filed state
tariffs with the proper public service commissions in those states where it provided
intrastate access services to Verizon. Id. ¶ 42.
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. R. 29-1 at 2. On September 18,
2013, in an effort to reach an accord on Verizon’s outstanding payments to Peerless,
4
the parties entered into a new contract (“Standstill Agreement”) to attempt to
resolve their disputes without litigation. Id. Specifically, the parties created the
Standstill Agreement to address Verizon’s unpaid access charges under Peerless’s
tariffs and the Switched Access Agreement. Id.
In its complaint, Peerless alleges that it properly billed for the services it
provided to Verizon pursuant to the Switched Access Agreement, its federal tariffs,
and its state tariffs. R. 1 ¶¶ 34-36, 44-45. Peerless claims Verizon refused to make
full payment for the interstate and intrastate access services Peerless provided to
Verizon. Id. ¶¶ 47-48. Specifically, Peerless’s complaint alleges Verizon refused to
pay for three types of calls: (1) calls for which Peerless provided end office switching
and transport services to deliver long distance calls to Verizon customers; (2) calls
for which Peerless provided end office switching and transport services to deliver
long distance calls originated by Verizon’s customers; and (3) calls for which
Peerless provided end office switching, but not transport services, to deliver long
distance calls to Verizon’s toll-free customers. Id. ¶ 34.
Verizon admits that it disputed and withheld some payments owed to
Peerless pursuant to Peerless’s federal and state tariffs. R. 27. Verizon argues it
does not owe Peerless the withheld amounts because Peerless: (1) improperly billed
Verizon its tariffed end office switched access rate for calls that were routed over the
internet; (2) engaged in traffic pumping 1 by charging a federal tariffed end office
Traffic pumping, also known as access stimulation, is the practice of a competitive
local exchange carrier (“CLEC”) generating large volumes of long distance calls for the
purpose of collecting switched access revenues, which it shares with its purported
customers. R. 27 at 37 ¶ 16. A carrier satisfies the elements for traffic pumping if it
5
1
switched access rate that exceeds permissible rates in Illinois; and (3) improperly
billed Verizon its tariffed terminating switched access rate for international calling
card services where an international telephone company—not Peerless—terminated
the call. Id. at 36-38.
Furthermore, Verizon argues that the three types of calls at issue in
Peerless’s complaint are not covered by any provision of the Switched Access
Agreement. Id. at 12, 16, 18. Verizon argues the three types of calls only involve end
office switching services, whereas the Switched Access Agreement governed tandem
switching services. R. 29 at 6-7.
Peerless also alleges that Verizon breached the Standstill Agreement by
refusing to pay for access service charges due under that agreement. Id. ¶¶ 50-51.
Peerless asserts that Verizon refused to pay for access service charges due under the
Standstill Agreement because it disputes charges it previously paid under the
Switched Access Agreement—before the Standstill Agreement went into effect. Id.
Peerless argues this “clawing back” of previously paid payments violates the
Standstill Agreement. Id.
Finally, Peerless alleges that Verizon continues to receive access services
has one or more access revenue sharing agreements and its ratio of terminating to
originating traffic exceeds a certain number. See 47 C.F.R. § 61.3(bbb)(1).
LECs are divided into competitive local exchange carriers (“CLEC”) and incumbent
local exchange carriers (“ILEC”). ILECs are usually the monopoly LEC in a
geographic location, and CLECs are ILEC’s “rivals” who are competing in the same
market. See Illinois Bell Tele. Co. v. Box, 526 F.3d 1069, 1070 (7th Cir. 2008). Peerless
describes its subsidiaries as CLECs, R. 1 ¶ 7, but for the purposes of this motion, the
distinction between a CLEC, ILEC, and LEC is irrelevant.
6
from Peerless that are covered by the Switched Access Agreement, its federal tariffs,
and its state tariffs that Verizon refuses to pay for, thereby improperly receiving a
benefit. Id. at ¶¶ 52-53, 57, 63, 71, 76, 81. Peerless alleges that Verizon’s refusal to
pay for such access services has damaged Peerless in excess of $1,000,000, an
amount which continues to accrue each month. Id. ¶ 54.
Legal Standard
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This “standard demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels
and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ”
Ashcroft, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.’”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
7
Analysis
I.
Peerless Sufficiently Pleads a Cause of Action for Breach of the
Switched Access Agreement.
In Counts I-II, VI-IX, XI, and XII, Peerless alleges that Verizon breached the
Switched Access Agreement by failing to pay originating and terminating access
service charges set forth under the Switched Access Agreement. R. 1 ¶¶ 58-60.
Verizon moves to dismiss Counts I and II in full and Counts VI-IX, XI, and XII in
part. R. 29. Verizon claims Peerless did not plead Verizon’s alleged breach of the
Switched Access Agreement with the required specificity. Id.
To state a cause of action for a breach of contract under Illinois law, a plaintiff
must allege four elements: (1) a valid and enforceable contract exists, (2) substantial
performance by the plaintiff, (3) breach by the defendant, and (4) damages resulting
from defendant’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 Switched Access
Agreement is a valid and enforceable contract. Peerless has also sufficiently pled
damages by alleging that Verizon refused to pay for three types of calls covered under
the Switched Access Agreement, resulting in damages in excess of one million dollars.
R. 1 ¶ 54.
Verizon argues that Peerless’s breach of contract claim fails for two reasons.
First, Verizon disputes that the end office switching services for which Verizon
allegedly owes payment are covered by the Switched Access Agreement. R. 29.
Verizon argues that the three types of calls in dispute that are described in Peerless’s
complaint do not involve any type of tandem switching service. Id. Verizon interprets
8
the Switched Access Agreement to govern only Peerless’s tandem switching services
to Verizon, not its end office switching services. Id. at 6-7. According to Verizon, the
only form of service Peerless provides Verizon in those three types of calls is end office
switching. Id. Thus, Verizon argues Peerless has not alleged that Verizon failed to
pay for a service under the Switched Access Agreement. Id.
Peerless disputes this argument. While it does not explicitly argue that the
Switched Access Agreement covers only tandem services, it contends that the services
it provided Verizon with respect to the three types of calls included tandem service
functions that are covered by Section 3 of the Switched Access Agreement. R. 39 at 45. Peerless argues that some of the functions it performed in completing the three
types of disputed calls are functions covered by Section 3 of the Switched Access
Agreement—including services that may be tandem switching services. Id. at 5.
Peerless calls Verizon’s argument that the complaint—in referring to the disputed
calls—only identifies tariffed end office switching services, “disingenuous.” Id.
Despite its assertion that it provided tandem services that are covered by the
Switched Access Agreement, Peerless admits it cannot identify without more
discovery the specific services it provided on each call and whether the service created
a charge due under the Switched Access Agreement or instead, under one of
Peerless’s tariffs. Id. at 4. At oral argument before the Court on February 12, 2015
and in its response, Peerless stressed that the nature of phone records makes it
difficult at this stage of litigation to determine what function Peerless provided on
each call. Id. However, Peerless argues that through discovery, it can examine records
to determine what functions were provided, the appropriate rate for those functions,
9
and which charges Verizon owes Peerless for those functions under the Switched
Access Agreement. Id.
Because the Court must accept all well-pleaded facts as true and draw all
reasonable inferences in favor of Peerless, the Court finds that Peerless has
sufficiently pled that the Switched Access Agreement governs at least some of the
unpaid tandem services Peerless provided to Verizon. Mann, 707 F. 3d at 877. R. 1 ¶
36. Peerless alleges that the Switched Access Agreement covers “certain interstate
and intrastate access service[s]” Peerless was to provide to Verizon. Section 3 of the
Switched Access Agreement describes the access service functions that Peerless
provided to Verizon and Peerless has sufficiently pled that at least some of the unpaid
services Peerless provided to Verizon are covered by the functions in Section 3.
Furthermore, the discovery process will enable Peerless to investigate and identify
with specificity which charges are allegedly due under the Switched Access
Agreement.
As its second ground for dismissing Peerless’s claim that it breached the
Switched Access Agreement, Verizon argues that Peerless has not provided fair notice
of which unpaid charges violated the Switched Access Agreement because Peerless
has not pled which provisions of the Switched Access Agreement Verizon allegedly
violated. R. 29. Peerless argues that it does not need to recite “verbatim” the contract
provisions that Verizon breached in order to properly state a claim. R. 39 at 6.
While Peerless attached the Switched Access Agreement to its complaint, it did
not identify specific provisions that Verizon allegedly breached. The law on the issue
of whether it is necessary to cite specific contract provisions to state a claim for
10
breach of contract is divided in this district. See e.g., Int’l Capital Group v. Starrs, No.
10 C 3275, 2010 WL 3307345, at *1 (N.D. Ill. Aug. 19, 2010) (noting that judges in
this district have “come out both ways on” whether a complaint must identify a
particular contract provision that was breached before concluding that a plaintiff “is
not required to identify a specific contract provision that was breached in order to
plead breach of contract under the federal pleading standard, but a plaintiff must still
plead enough facts to establish a breach, for example, the existence of some
unsatisfied obligation”); Urlacher v. Dreams, Inc., No. 09 C 6591, 2010 WL 669449, at
*2 (N.D. Ill. Feb. 22, 2010) (“[Plaintiff] is not required at the pleading stage to identify
the exact provision of the Agreement that [Defendant] violated.”); Carlson v. Nielsen,
No. 13 C 5207, 2014 WL 4771669, at *4 (N.D. Ill. Sept. 24, 2014) (citing Urlacher,
2010 WL 669449, at *2 for the same proposition); see also Cont’l Cas. Co. v. Duckson,
No. 11 C 00459, 2011 WL 2293873, at *3 (N.D. Ill. June 9, 2011); but see Gandhi v.
Sitara Capital Mgmt., LLC, 689 F. Supp. 2d 1004, 1016 (N.D. Ill. 2010) (“By not
identifying in their complaint the provision of the [contract] allegedly breached,
plaintiffs fail to satisfy” the low threshold in Rule 8(2)(a).); Burke v. 401 N. Wabash
Venture, LLC, No. 08 C 5330, 2010 WL 2330334, at *2 (N.D. Ill. June 9, 2010) (“The
Court fails to see how, post-Iqbal, a plaintiff could state a claim for breach of contract
without alleging which provision of the contract was breached.”).
The Court finds useful the analysis in In re Ameriquest Mortg. Co. Mortg.
Lending Practices Litig., 589 F. Supp. 2d 987, 991 (N.D. Ill. 2008), in which the court
denied defendant’s motion to dismiss for failure to specify the contractual provision
the plaintiff allegedly breached. In re Ameriquest involved a contractual dispute
11
between the plaintiff mortgage company and a group of mortgage broker defendants
who allegedly failed to comply with contractual duties when closing mortgage loans.
Id. at 989. The plaintiff did not cite contract provisions in its complaint because there
were hundreds of contracts at issue. Id. at 990. Instead, the plaintiff created a chart
summarizing the information for each contract that the defendants allegedly
breached (i.e., names of relevant borrower plaintiffs who had sued Ameriquest, case
information for those underlying suits, third-party defendants involved in disputed
transactions, and approximate dates of agreements between the third-party
defendants). Id. at 990-91. The court held that although the complaint and
accompanying chart did “not offer much detail on the terms of the contracts,” it still
“plainly allege[d] [the] Third Party Defendants had a contractual duty to provide”
services to the plaintiff. Id. at 991. The court further noted that the complaint’s
allegations were “sufficient to give Third Party Defendants fair notice of the contract
actions against them and enable them to conduct a meaningful investigation into
such claims and possible defenses.” Id. While In re Ameriquest is not controlling, it is
persuasive. Estate of Warner v. U.S., 743 F. Supp. 551, 556 (N.D. Ill. 1990) (“though it
is true that District Court decisions . . . do not constitute binding precedent, they can
of course be persuasive”) (emphasis in original).
Verizon cites three cases where the court required the plaintiffs to identify
specific contract provisions to state a claim for breach of contract. Tsitsopoulou v.
Univ. of Notre Dame, No. 2:10–CV–309, 2011 WL 839669, at *5 (N.D. Ind. Mar. 7,
2011); GKP, LLC v. Wells Fargo & Co., No. 1:13 CV 01482, 2013 WL 5353799, at *3
(N.D. Ohio Sep. 24, 2013); Wolff v. Rare Medium, Inc., 171 F. Supp. 2d 354, 358-59
12
(S.D.N.Y. 2001). All three cases are distinguishable and outside of this district.
In Wells Fargo, the plaintiff did not attach to the complaint the loan agreement
on which the breach of contract claim was premised. 2013 WL 5353799, at *1. The
plaintiff did not specify any terms of the contract or specify any terms that the
defendant allegedly breached. Id. Additionally, plaintiff’s counsel admitted to never
having seen a copy of the loan agreement, and defendant’s counsel also did not
possess a copy of the agreement. Id.
In Tsitsopoulou, the plaintiff filed suit against the University of Notre Dame
for wrongful termination. 2011 WL 839669, at *1. The defendant attached a copy of
the plaintiff’s most recent employment contract (referenced in her complaint), but the
Court held it was “undisputed” the contract was already terminated. Id. at *1 n. 2, *5.
The plaintiff then attempted to base her argument in response to the defendant’s
motion to dismiss on Notre Dame’s Faculty Handbook, which she did not attach to her
complaint. Id. The court rejected the plaintiff’s “convoluted argument” that the
University breached a “contract” by not following a provision in the Faculty
Handbook. Id. The court dismissed the plaintiff’s breach of contract claim because
“most importantly,” the plaintiff’s complaint only referred to a terminated
employment contract. Id. The court held the plaintiff could not claim in her response
that the breach of contract was based upon a different document than the one
referenced in her complaint. Id.
In Wolff, although the plaintiff attached the contract to his complaint, the court
dismissed the plaintiff’s breach of contract claim because the plaintiff failed to
identify the contract provisions at issue. 171 F. Supp. 2d at 358. However, that case
13
came out of the Southern District of New York and cited another New York district
court case for its contention that plaintiffs are required to cite the contract provisions.
Id. at 358 (citing Levy v. Bessemer Trust Co., N.A., No. 97 Civ. 1785 (JFK), 1997 WL
431079, at *5 (S.D.N.Y. July 30, 1997)). As noted, this district has been inconsistent
with respect to that issue. Starrs, 2010 WL 3307345, at *1. Additionally, the Wolff
court cited the fact that the plaintiff failed to provide the defendant notice of the
nature of its alleged breach. Id. at 358-59.
Verizon’s cited authority is unavailing. As articulated in Peerless’s complaint,
Peerless and Verizon’s history of conducting business together since 2008 renders less
plausible Verizon’s claim it does not know how it breached the Switched Access
Agreement. See R. 39. Additionally, both parties previously attempted to settle their
dispute over payments under the Switched Access Agreement and Peerless’s tariffs
through the Standstill Agreement. Most recently, during oral argument on February
12, 2015, Verizon’s counsel admitted that there had been correspondence between the
two parties over the disputed charges stemming from the Switched Access Agreement
in Peerless’s complaint. Also, Verizon can use contention interrogatories or requests
to admit in order identify the specific provisions at issue.
Therefore, the Court finds that Peerless has sufficiently pled a claim for a
breach of contract under Illinois law and denies Verizon’s motion to dismiss Counts III in full and XI-XII in part. Reger Dev., 592 F.3d at 764; Mann, 707 F.3d at 877.
Although Peerless does not specify what provisions of the Switched Access Agreement
Verizon allegedly breached, Peerless alleges sufficient facts to put the defendants on
notice of their alleged breach of the Switched Access Agreement. R. 1 ¶ 34. Peerless
14
describes the services it provided in the three types of calls it believes are covered
under the Switched Access Agreement that Verizon refused to pay for and attaches
the Switched Access Agreement to its complaint. Id. ¶¶ 34, 37. Peerless has thus
alleged enough facts to put Verizon on fair notice of the “contractual duty” it
breached. In re Ameriquest, 589 F. Supp. 2d at 991. Peerless does not need to be
anymore specific at this stage of litigation. See Dempsey v. Nathan, No. 14 CV 812,
2014 WL 4914466, at *8 (N.D. Ill. Sept. 30, 2014); In re Ameriquest, 589 F. Supp. 2d
at 989; Urlacher, 2010 WL 669449, at *2; Starrs, 2010 WL 3307345, at *1.
Of course, moving forward in proving its claims, Peerless will be required to
respond to Verizon’s discovery requests related to the breach of the Switched Access
Agreement in compliance with Rule 26 of the Federal Rules of Civil Procedure.
II.
Peerless Fails to Sufficiently Plead a Cause of Action for Breach of
the Confidential Standstill Agreement.
In Count X, Peerless alleges that Verizon breached the Standstill Agreement
in three ways: (1) refusing to pay access service charges billed by Peerless since the
effective date of the Standstill Agreement; (2) disputing previously made payments
for access service charges with no proper or legal justification; and (3) clawing-back
previously paid access charges by not paying for current charges. R. 1 ¶ 132. In
other words, Peerless alleges that Verizon attempted to recoup its prior payments
for access services charges from before the creation of the Standstill Agreement, and
by not paying access service charges due after the creation of the Standstill
Agreement, tried to “claw back” those payments. R. 39. Verizon moves to dismiss
Count X because Peerless has not identified any specific provisions of the Standstill
15
Agreement that Verizon allegedly breached. R. 29.
The only element in dispute is whether Verizon breached the Standstill
Agreement. 2 Peerless alleges that Verizon’s practice of clawing back prior payments
breached Section 2(b) of the Standstill Agreement. R. 39. Section 2(b) states:
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. 29-1 at 3. Peerless argues that Verizon’s claw-back of prior payments violated
this section of the Standstill Agreement because Verizon withheld payment with “no
proper or legal justification.” R. 1 ¶ 132.
Peerless argues “Verizon’s bad faith
conduct is clearly described in [¶ 132]” of its complaint. R. 39 at 9. Thus, Peerless
argues that they have pled enough facts to allege that Verizon breached Section 2(b)
of the Standstill Agreement. Id.
Verizon argues that Peerless fails to allege any facts indicating “that
Verizon’s disputes and refusals to pay post-agreements invoices were raised in bad
faith.” R. 29 at 8. Verizon argues that the Standstill Agreement was silent with
The elements of a contract under New York law, which, as Verizon points out in
reply, governs the Standstill Agreement, R. 29-1 at 6, are the same as those under
Illinois law. VFS Fin., Inc. v. Falcon Fifty LLC, 17 F. Supp. 3d 372, 379 (S.D.N.Y.
2014) (noting that the elements of breach under New York law—contract existence,
performance, breach, and damages—are well established).
2
16
respect to Verizon’s ability to dispute charges on previously paid bills that were
invoiced before the Standstill Agreement went into effect. Id. at 7-8. Thus, Verizon
argues the Standstill Agreement did not bar Verizon from “withhold[ing] payments
to recoup past overpayments.” Id. at 8. Consequently, Verizon argues that Peerless’s
complaint is deficient because it does not identify a provision of the contract Verizon
allegedly breached. Id.
For this count, the Court finds that Peerless fails to properly state a claim
that Verizon breached the Standstill Agreement. The conduct Peerless alleges does
not violate Section 2(b) of the Standstill Agreement. By its plain language, Section
2(b) allows Verizon to dispute in good faith access service charges that Peerless
billed. R. 29-1. Nothing on the face of the Standstill Agreement prohibits Verizon
from disputing charges paid before the effective date of the Standstill Agreement. R.
29-1; see Villa Health Care, Inc. v. Illinois Health Care Mgmt. II, LLC, No. 12–3205,
2013 WL 3864418, at *2 (N.D. Ill. July 25, 2013) (“If the contractual language is
unambiguous, then the court will . . . interpret the contract according to its plain
meaning”). Furthermore, Peerless’s only allegation that Verizon withheld the
“clawed back” charges in bad faith is that Verizon had “no proper or legal
justification” to claw back prior payments. R. 1 ¶ 132. Without more, this is a
conclusory allegation that is insufficient to state a claim for breach of contract.
Twombly, 550 U.S. at 555 (“labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do”).
Therefore, the Court grants Verizon’s motion to dismiss Count X for failure to
state a claim for breach of the Standstill Agreement. The Court dismisses Count X
17
without prejudice.
III.
The Filed Rate Doctrine Bars Peerless’s Equitable Causes of Action.
In Counts VI-IX, Peerless asserts four equitable causes of action in the
alternative in the event the Court finds the Switched Access Agreement and
Peerless’s tariffs do not apply to cover the services involved with the calls at issue in
the breach of contract claim. R. 1 ¶¶ 86, 100, 114, 122. Counts VI and VII assert a
cause of action for breach of an implied contract; Count VIII asserts a cause of
action for unjust enrichment; and Count IX asserts a cause of action for quantum
meruit. Id.
Verizon argues that if the Court finds the charges in Counts VI-IX fall outside
of the Switched Access Agreement and Peerless’s tariffs, then the filed rate doctrine
bars Counts VI-IX as a matter of law. R. 29 at 11. The filed rate doctrine forbids
courts from determining the reasonableness of a tariff rate, altering a rate filed
with a regulatory agency, or awarding a plaintiff damages that are different from a
filed rate. See e.g., Arsberry v. Illinois, 244 F.3d 558, 562 (7th Cir. 2001); Schilke v.
Wachovia Mortg., FSB, 820 F. Supp. 2d 825, 835 (N.D. Ill. 2011).
Verizon argues the filed rate doctrine bars Peerless’s equitable causes of
action in light of the FCC’s decision in AT&T Corp. v. All American Tele. Co., 28
F.C.C. Rcd 3477, 3493-94 (rel. Mar. 25, 2013), subsequent to which federal district
courts have dismissed equitable claims whether or not the charges at issue are
covered by a negotiated contract or valid tariff. See e.g., XChange Telecom Corp. v.
Sprint Spectrum L.P., No. 1:14-cv-54, 2014 WL 4637042, at *1 (N.D.N.Y. Sept. 16,
2014); CallerID4u, Inc. v. MCI Commc’ns Servs., Inc., No. 14 CV 654, at 42 (W.D.
18
Wash. Nov. 5, 2014) (R. 29, Ex. 3); see also Connect Insured Tel., Inc. v. Qwest Long
Distance, Inc., No. 3:10-CV-1897-D, 2012 WL 2995063, at *11 (N.D. Tex. July 23,
2012) (granting summary judgment that filed rate doctrine bars unjust enrichment
claim because “charging for switched access services without a filed interstate tariff
or negotiated contract constitutes an unjust and unreasonable charge under [47
U.S.C. 23] § 201(b)”).
In XChange, the plaintiff, a CLEC, sued the defendant, an IXC, for unpaid
interstate and intrastate access charges under numerous causes of action including
breach of contract, breach of federal and state tariffs, unjust enrichment, and
breach of implied contract. 2014 WL 4637042, at *1. The plaintiff sought to recover
charges for access services provided before it filed a tariff and for those provided
after its tariff was on file with the FCC. Id. at *2-3. The parties did not have a
contract governing the access services at issue. Id. The plaintiff argued that the law
did not bar pleading an unjust enrichment or quasi-contract claim for those services
provided before it filed the tariff because the defendant unjustly benefited from
plaintiff’s services without payment. Id. at *5. The court rejected the plaintiff’s
argument and granted the defendant’s motion to dismiss the claim for charges
before the filing of the tariff “[b]ecause carriers are obligated under the [FCA] and
FCC interpretations to either submit schedules setting forth the applicable rates for
interstate access charges . . . or negotiate such rates directly with other carriers.”
Id. at *6. The plaintiff was unable to “avoid these requirements by instead asserting
equitable claims for unpaid charges.” Id.
In CallerID4u, the plaintiff, a CLEC, sought to recover unpaid access service
19
charges from the defendant, an IXC, for a time period prior to when the plaintiff
filed its tariff. No. C14-654-TSZ, at 39-40. The court held the plaintiff could not
recover under implied contract, quantum meruit, or any other equitable claim
because the filed rate doctrine preempted the equitable claims. Id. at 42. The court
cited All American, which held that “unless a carrier files a valid interstate tariff
under Section 203 of the [FCA], or enters into contract which have been interpreted
as negotiated contracts with [interexchange carriers] for the access services, it lacks
authority to bill for those services.” Id. (citing 28 F.C.C. Rcd at 3493-94). Thus, the
court granted the defendant’s motion to dismiss because the filed rate doctrine
prohibited the plaintiff from recovering unpaid access charges before the plaintiff
filed its tariff. CallerID4u, No. C14-654-TSZ, at 42.
Peerless argues the filed rate doctrine does not bar its equitable claims
because the FCC allows telecommunication carriers to “recover charges relating to
tandem and end office switched access that fall outside those covered by tariffs or
negotiated agreements.” R. 39 at 12. Peerless cites FCC cases to support its
position. See Qwest Commc’ns Corp. v. Farmers & Merch. Mut. Tel. Co., 24 F.C.C.
Rcd. 14801, 14813, (rel. Nov. 25, 2009); In re All Am. Tel. Co. v. AT&T Corp., 26
F.C.C. Rcd. 723, 731 (rel. Jan. 20, 2011). However, these FCC decisions were
decided prior to the 2013 FCC decision in All American, and Peerless has failed to
address why All American should not apply to this case.
Additionally, Peerless cites district court cases to suggest the filed rate
doctrine does not bar claims for services that are not governed by a tariff or
negotiated contract. R. 39 at 15 (citing F.T.C. v. Verity Intern, Ltd., 443 F.3d 48, 62
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(2d Cir. 2006)). However, the cases Peerless cites, all prior to the 2013 FCC decision
in All American, are irrelevant to the facts of this case. In F.T.C. v. Verity Intern,
Ltd., the plaintiff attempted to recover charges for information services, not
telecommunication services. 443 F.3d at 62. In Brown v. MCI WorldCom Network
Servs., Inc., the issue was not whether the filed rate doctrine permitted plaintiffs to
recover charges outside of a tariff or contract. 277 F.3d 1166, 1171-72 (9th Cir.
2002). The plaintiff in Brown merely claimed the defendant wrongly charged him a
fee under the defendant’s tariff. Id. In Iowa Network Servs., Inc. v. Qwest Corp., the
court held the filed rate doctrine did not apply to the plaintiff’s claim because the
telecommunication services at issue were solely intrastate. 466 F.3d 1091, 1095-96
(8th Cir. 2006). The holdings in Verity Intern, Brown, and Quest do not support the
argument that telecommunication carriers can recover for access service charges
outside of a filed tariff or negotiated contract.
As noted, while XChange and CallerID4u are not controlling, the Court finds
their analyses to be helpful and relevant to the facts at issue. Peerless’s equitable
claims attempt to recover for access service charges outside of the Switched Access
Agreement, Peerless’s FCC interstate tariffs, and Peerless’s state tariffs. R. 1 ¶¶ 86,
100, 114, 122. The Court finds that the filed rate doctrine bars Peerless from the
recovering the equitable relief it seeks—charges outside of a filed tariff or negotiated
contract. XChange, 2014 WL 4637042, at *6; CallerID4u, No. C14-654-TSZ, at 42;
Qwest, 2012 WL 2995063, at *11; All American, 28 F.C.C. Rcd 3477 at 3493-94.
Therefore, the Court grants Verizon’s motion to dismiss Counts VI-IX. The Court
dismisses Counts VI-IX with prejudice.
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IV.
Verizon’s Motion to Dismiss Counts III-V and XI-XII is Denied as Moot
Insofar as Peerless Purports to State a Claim for Violation of the FCA.
Verizon moves to dismiss Counts III-V and XI-XII insofar as the counts
purport to state a cause of action under the Federal Communications Act (“FCA”).
R. 29 at 12-13. Specifically, Verizon’s motion to dismiss refers to Peerless’s reliance
on 47 U.S.C. § 207 of the FCA as a source of jurisdiction for its action in addition to
federal question jurisdiction under 28 U.S.C. § 1331, R. 29. Section 207 of the FCA
provides “[a]ny person claiming to be damaged by any common carrier . . . may
either make complaint to the [FCC] . . . [or] in any district court of the United
States.” 47 U.S.C. § 207.
Although Peerless cites 47 U.S.C. § 207 for jurisdictional purposes, it does not
rely on 47 U.S.C. § 207 for any of the causes of action in its complaint. R. 1 ¶ 11.
Furthermore, Peerless concedes in its response to Verizon’s motion to dismiss that it
does “not seek any cause of action alleging violation of the [FCA]. Indeed, the sole
reference to . . . [§ 207] occurs only with respect to the Court’s jurisdiction over
carrier collection actions.” R. 39 at 14. Most recently, during oral argument on
February 12, 2015, Peerless again conceded it is neither asserting a cause of action
under the FCA nor seeking to shift attorneys’ fees under the FCA. Due to Peerless’s
repeated concessions, no real controversy exists about whether Peerless is
attempting to bring a cause of action under § 207 of the FCA. Therefore, Verizon’s
motion to dismiss Counts III-V and XI-XII insofar as the counts purport to state a
cause of action under the FCA is denied as moot.
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Conclusion
For the foregoing reasons, the Court grants Verizon’s motion to dismiss in
part and denies the motion in part. The Court denies Verizon’s motion to dismiss
Counts I-II, in full, and Counts XI-XII, in part, for failure to state a claim for breach
of the Switched Access Agreement. The Court grants Verizon’s motion to dismiss
Count X for failure to state a claim for breach of the Standstill Agreement without
prejudice. Should Peerless wish to file an amended complaint repleading Count X,
it must do so within 30 days, by June 22, 2015. The Court grants Verizon’s motion to
dismiss Counts VI-IX with prejudice. Finally, the Court denies Verizon’s motion to
dismiss Counts III-V and Counts XI-XII, insofar as they purport to state a claim for
violation of the FCA, as moot.
ENTERED:
Thomas M. Durkin
United States District Judge
Dated: May 21, 2015
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