LINE SYSTEMS, INC. v. SPRINT NEXTEL CORPORATION

Filing 30

MEMORANDUM AND ORDER THAT SPRINT NEXTEL CORPORATION'S MOTION TO DISMISS THE COMPLAINT OF LINE SYSTEMS, INC ARE DISMISSED. DEFENDANT'S MOTION IS DENIED IN ALL OTHER RESPECTS; ETC.. SIGNED BY HONORABLE THOMAS N. ONEILL, JR ON 7/24/12. 7/24/12 ENTERED AND E-MAILED.(jl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
LINE SYSTEMS, INC
v.
SPRINT NEXTEL CORPORATION

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O’NEILL, J.

CIVIL ACTION
NO. 11-6527

JULY 24, 2012
MEMORANDUM

Whenever a Sprint cellular telephone customer calls a Line Systems customer’s telephone
number, Line Systems provides a service by completing the call. Line Systems has charged
Sprint for completing Sprint-originated calls but Sprint hasn’t paid. Line Systems now sues to
recover payments and Sprint moves to dismiss for failure to state a claim. For the following
reasons I will grant in part and deny in part Sprint’s motion.
BACKGROUND
Line Systems alleges the following facts. Line Systems is a competitive local exchange
carrier that operates in Pennsylvania, Delaware, Maryland, New Jersey and New York. Compl.
¶ 5. Sprint is a commercial mobile radio service provider, or in everyday parlance, a provider of
cellular telephone service. Id. ¶ 6. Sprint offers service across the United States, which the
Federal Communications Commission has divided into fifty-one “Major Trading Areas.” Id.
¶ 13. In the territory where Line Systems operates, most states have more than one MTA within
their borders. Id. Calls from Sprint customers to Line Systems customers fall into one of three
categories: those that begin and end within the same MTA (“intraMTA”), those that begin and
end in the same state but different MTAs (“intrastate interMTA”) and those that begin and end in
different states and different MTAs (“interstate interMTA”). Id. ¶ 14.

The law requires Line Systems to “terminate,” or complete, calls to its customers and
Line Systems has terminated more than 26 million minutes of calls originating from Sprint
customers since January 2007. Id. ¶¶ 1, 11. Plaintiff incurs costs for providing termination
services and it has billed Sprint access charges for calls by defendant’s customers. Id. ¶¶ 1, 12.
Sprint, however, refuses to pay. Id. ¶ 1. In the present suit Line Systems seeks payment only for
Sprint’s interMTA calls. Id. ¶ 15. Line System charges for interMTA calls pursuant to tariffs
that it has filed at the FCC (for interstate interMTA calls) and at state public utility commissions
(for intrastate interMTA calls). Id. As of August 31, 2011, Sprint was past due on $240,558.88
in access charges for interMTA calls. Id. ¶ 24. That amount increases as Line Systems continues
to terminate calls from Sprint customers. Id.
Line Systems asserts claims for breach of federal and state tariffs, violations of the
Telecommunications Act of 1996, unjust enrichment and account stated.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action
for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6).
Typically, “a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed
factual allegations,” though plaintiff’s obligation to state the grounds of entitlement to relief
“requires more than labels and conclusions, and a formulaic recitation of the elements of a cause
of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “Factual
allegations must be enough to raise a right to relief above the speculative level on the assumption
that all of the allegations in the complaint are true (even if doubtful in fact).” Id. (citations
omitted). The complaint must state “‘enough facts to raise a reasonable expectation that
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discovery will reveal evidence of’ the necessary element.” Wilkerson v. New Media Tech.
Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008), quoting Twombly, 550 U.S. at 556. The
Court of Appeals has made clear that after Ashcroft v. Iqbal, 556 U.S. 662, (2009), “conclusory
or ‘bare-bones’ allegations will no longer survive a motion to dismiss: ‘threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.’ To
prevent dismissal, all civil complaints must now set out ‘sufficient factual matter’ to show that
the claim is facially plausible.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009),
quoting Iqbal, 556 U.S. at 678. The Court also set forth a two part-analysis for reviewing
motions to dismiss in light of Twombly and Iqbal: “First, the factual and legal elements of a
claim should be separated. The District Court must accept all of the complaint’s well-pleaded
facts as true, but may disregard any legal conclusions. Second, a District Court must then
determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a
‘plausible claim for relief.’” Id. at 210-11, quoting Iqbal, 556 U.S. at 679. The Court explained,
“a complaint must do more than allege the plaintiff’s entitlement to relief. A complaint has to
‘show’ such an entitlement with its facts.” Id., citing Phillips v. Cnty. of Allegheny, 515 F.3d
224, 234-35 (3d Cir. 2008). “Where the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has alleged–but it has not ‘show[n]’–‘that
the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679.
DISCUSSION
I.

Breach of Tariff Claims
According to Sprint, the Complaint fails to state a claim for breach of tariff because the

Telecommunications Act of 1996 prohibits the tariff-based access charges for which Line
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Systems demands payment. According to Line Systems, the Act requires tariff-based charges.
The resolution of Sprint’s motion to dismiss the breach of tariff claims therefore hinges on my
interpretation of the Act.
Two provisions of the Act are especially pertinent. The first requires local exchange
carriers, such as Line Systems, to “to establish reciprocal compensation arrangements for the
transport and termination of telecommunications.” 47 U.S.C. § 251(b)(5). The parties agree that
they have not reached a “reciprocal compensation arrangement.” Rather, Line Systems’ charges
are based on its tariffs. Whether Line Systems may collect payments from Sprint pursuant to
tariffs depends on the second key provision of the Act, 47 U.S.C. § 251(g), entitled “Continued
enforcement of exchange access and interconnection requirements.” It provides:
On and after February 8, 1996, each local exchange carrier, to the
extent that it provides wireline services, shall provide exchange
access, information access, and exchange services for such access
to interexchange carriers and information service providers in
accordance with the same equal access and nondiscriminatory
interconnection restrictions and obligations (including receipt of
compensation) that apply to such carrier on the date immediately
preceding February 8, 1996 under any court order, consent decree,
or regulation, order, or policy of the Commission, until such
restrictions and obligations are explicitly superseded by regulations
prescribed by the Commission after February 8, 1996. During the
period beginning on February 8, 1996 and until such restrictions
and obligations are so superseded, such restrictions and obligations
shall be enforceable in the same manner as regulations of the
Commission.
Id. § 251(g). “Section 251(g) . . . preserved the pre-1996 Act regulatory regime that applies to
access traffic, including rules governing receipt of compensation, and thereby precluded the
application of section 251(b)(5) to such traffic unless and until the Commission by regulation
should determine otherwise.” In the Matter of Connect America Fund, 26 FCC Rcd. 17663,
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17916 (2011) (internal quotation marks omitted). “Access traffic” is local and “non-access
traffic” is long-distance. See In re Empire One Telecomms., Inc., 458 B.R. 692, 695 n.1 (Bankr.
S.D.N.Y. 2011). Accordingly, § 251(g) provides for the continued use of tariff-based charges for
long-distance calls.
Either § 251(b)(5) or § 251(g) applies to Line Systems’ termination services and the
parties point to no other statutory provision that could govern their relationship. Sprint and Line
Systems agree that if § 251(g) applies, Line Systems may charge Sprint pursuant to tariffs,
despite the command in § 251(b)(5) that local exchange carriers establish reciprocal
compensation agreements. If § 251(b)(5) applies, Line Systems may not charge tariff-based
access charges and instead must establish a reciprocal compensation agreement with Sprint. The
parties’ main dispute is whether § 251(g) or § 251(b)(5) governs the calls at issue in this case.
A.

Whether Line Systems Provides “Exchange Access”

According to Sprint, § 251(g) cannot apply to calls originating from Sprint customers
because Line Systems does not provide “exchange access,” as that term is used in § 251(g), to
calls by defendants’ customers. Sprint’s argument is based on a sequence of defined terms in the
Act. “Exchange access” is “the offering of access to telephone exchange services or facilities for
the purpose of the origination or termination of telephone toll services.” 47 U.S.C. § 153(20).
“Telephone toll service” is “telephone service between stations in different exchange areas for
which there is made a separate charge not included in contracts with subscribers for exchange
service.” Id. § 153(55). Sprint argues that Line Systems has failed to allege that Sprint charges
any separate charge for long-distance calls. Furthermore, Sprint represents that it “does not
charge an extra fee to the vast majority of its customers for calling a long distance number.” Dkt.
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No. 18 at 10. Accordingly, defendant avers that it does not provide “telephone toll service,”
which means that calls from Sprint customers do not involve “exchange access” and that Line
Systems cannot charge Sprint pursuant to § 251(g).
The Court of Appeals for the Second Circuit rejected a similar argument in a case that
presented slightly different factual circumstances. At issue was whether a local exchange carrier
had to pay access charges to another local exchange carrier. The carrier seeking to avoid
payment argued that it should not have to pay access charges because it does not impose on its
customers any “separate charges.” The Court summarized the carrier’s argument as follows:
[The carrier] centers its argument on the “separate charge”
language in the statutory definition of “telephone toll services”
(which in turn defines exchange access, which in turn determines
whether access charges apply). [The carrier] reasons that, since the
regulations prescribe that a charge separate from the applicable
service contracts is necessary to make a call a “toll” call and since
[the carrier] imposes no separate toll charges, its traffic is not
subject to access fees . . . .
Global NAPs, Inc. v. Verizon New Eng., Inc., 454 F.3d 91, 98 (2d Cir. 2006). The Court
rejected this argument, reasoning that it “attributes far too much significance to the term
‘separate charge.’” Id. It explained that
[i]t seems likely that the “separate charge” language in the statute
was written to underscore that “tolls” applied exclusively to
long-distance service and were charged separately. But what really
mattered in determining whether an access charge was appropriate
was whether a call traversed local exchanges, not how a carrier
chose to bill its customers.
Id. In sum, the Court rejected the carrier’s argument that its billing practices determined whether
it involved “exchange access” and was therefore subject to access charges. What mattered
instead was the nature of the underlying call.
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Here, Sprint argues that its decision not to charge its customers separate fees means that
Line Systems does not provide Sprint “exchange access.” I do not find this argument persuasive
for the same reasons the Global NAPs Court rejected a similar argument. Sprint’s billing
methods are, in the words of that Court, “beside the point.” Id. The type of phone call, not
Sprint’s approach to charging its customers, controls.
As the Court in Global NAPs noted, the key consideration is “whether a call traversed
local exchanges.” Id. Unfortunately, “[t]raditional notions of ‘local exchange areas’ do not fit
neatly into this new world of wireless communications.” Iowa Network Servs. v. Qwest Corp.,
363 F.3d 683, 687 (8th Cir. 2004). In light of this somewhat uneasy fit between the text of the
Act and modern cellular communications, I find the Act ambiguous as it applies to the calls at
issue in this case. Pursuant to Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984), I must “defer to an agency’s reasonable interpretation of any ambiguities in
a statute which it administers.” Time Warner Telecom, Inc. v. Fed. Commc’ns Comm’n, 507
F.3d 205, 214 (3d Cir. 2007).
The FCC has recognized that communications through commercial mobile radio service
providers involve different technology and determined that MTAs “serve[] as the most
appropriate definition for local service area for CMRS traffic.” In the Matter of Implementation
of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd.
15499, 16014 (1996) (“Local Competition Order”); see also Empire One, 458 B.R. at 695 n.1
(“Since CMRS (‘cellular’) carriers . . . transmit their calls via radio waves rather than over
exchanges, the relevant geographical areas for classifying calls as essentially ‘local’ or
‘long-distance’ are MTAs.”). “Accordingly, traffic to or from a CMRS network that originates
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and terminates within the same MTA is subject to transport and termination rates under section
251(b)(5), rather than interstate and intrastate access charges.” Local Competition Order, 11
FCC Rcd. at 16014.
The FCC has codified this distinction between interMTA and intraMTA calls in its
regulations, which provide that reciprocal compensation applies to “[t]elecommunications traffic
exchanged between a [local exchange carrier] and a CMRS provider that, at the beginning of the
call, originates and terminates within the same Major Trading Area.” 47 C.F.R. § 51.701(b)(2).
The FCC’s distinction between interMTA and intraMTA calls is reasonable and therefore I defer
to the FCC’s interpretation of the Act pursuant to Chevron. Accordingly, intraMTA calls are
subject to reciprocal compensation under § 251(b)(5). InterMTA calls, like the ones at issue in
this case, are subject to tariff-based access charges pursuant to § 251(g). See Atlas Tel. Co. v.
Okla. Corp. Comm’n, 400 F.3d 1256, 1264 (10th Cir. 2005) (noting that 47 C.F.R.
§ 51.701(b)(2) “narrows” a local exchange carrier’s obligation to establish reciprocal
compensation agreements by limiting reciprocal compensation to traffic that begins and ends in
the same MTA); Verizon Wireless (VAW) LLC v. Sahr, 457 F. Supp. 2d 940, 951 (D.S.D. 2006)
(explaining that “intraMTA calls are local calls, whether intrastate or interstate, and are subject to
reciprocal compensation” and that “[i]nterMTA calls are non-local calls, whether intrastate or
interstate, and are subject to access charges”).
The conclusion that interMTA calls are subject to access charges is consistent with 47
C.F.R. § 20.11(d), which provides that “[l]ocal exchange carriers may not impose compensation
obligations for traffic not subject to access charges upon commercial mobile radio service
providers pursuant to tariffs.” Sprint argues that its calls are not subject to access charges and
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therefore may not be tariffed. I have concluded, however, that Sprint’s interMTA calls are
subject to access charges. Accordingly, § 20.11(d) does not prohibit Line Systems’ tariff-based
charges for interMTA calls.
B.

Whether Sprint is an “Interexchange Carrier”

Sprint also makes a separate definitional argument, which is that it is not an
“interexchange carrier” as that term is used in § 251(g)’s command that local exchange carriers
provide “exchange services . . . to interexchange carriers.” The Act does not define the term
“interexchange carrier” but Sprint argues that the term refers to a “traditional long distance
authority.” Sprint avers that it provides commercial mobile radio services and is not an
interexchange carrier. Some authority supports Sprint’s position. See Nat’l Cable &
Telecomms. Ass’n v. F.C.C., 555 F.3d 996, 998 (D.C. Cir. 2009) (noting that in a 1998 order the
FCC made “a distinction between three traditional categories of telecommunications services:
local telephone service, interexchange (primarily long distance calling service), and commercial
mobile radio services (primarily mobile or cellular phone service)”). If Sprint is not an
“interexchange carrier,” then Line Systems’ services to Sprint cannot fall within the scope of
§ 251(g).
Sprint, however, concedes in its motion to dismiss that a local exchange carrier may
impose access charges “in situations where cell phone companies like Sprint do charge a separate
fee for long distance calls.” Dkt. No. 18 at 12. Sprint therefore acknowledges that a cellular
provider can act as an interexchange carrier as that term is used in § 251(g); otherwise an access
charge would never be permissible. Sprint apparently believes that its status as an
“interexchange carrier” depends on whether it charges its customers a separate fee for long
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distance calls. I reject this argument for the same reasons I rejected Sprint’s argument that its
billing practices determine whether its calls involve “exchange access.”
At least one other court has determined that a cellular provider acts as an interexchange
carrier on non-local calls. See Union Tel. Co. v. Pub. Serv. Comm’n of Utah, No.
2:08CV495DAK, 2009 WL 2019062, at * 3 n.3 (D. Utah July 6, 2009) (“When [the cellular
provider] acts as the carrier on a non-local call, it is acting as an [interexchange carrier] and is
responsible to pay a landline carrier . . . for terminating access.”). I therefore conclude that
Sprint acts as an interexchange carrier for the purpose of § 251(g).
In sum, Line Systems may impose tariff-based access charges pursuant to § 251(g). I will
therefore deny Sprint’s motion to dismiss Line Systems’ breach of tariff claims.
II.

Claim for Violation of 47 U.S.C. § 201
Line Systems seeks damages that exceed the unpaid access charges and brings claims in

addition to its claims for breach of tariff. Plaintiff brings a claim under 47 U.S.C. § 201(b),
which provides that “[a]ll charges, practices, classifications, and regulations for and in
connection with . . . communication service, shall be just and reasonable, and any such charge,
practice, classification, or regulation that is unjust or unreasonable is declared to be unlawful.”
47 U.S.C. § 201(b). The sole basis for Line Systems’ § 201 claim is Sprint’s alleged failure to
pay access charges. Compl. ¶ 36.
The FCC, however, has explained that “although a customer-carrier’s failure to pay
another carrier’s tariffed charges may give rise to a claim in court for breach of tariff/contract, it
does not give rise to a claim . . . for breach of the Act itself.” In the Matter of All American
Telephone Co. v. AT&T Corp., 26 FCC Rcd. 723, 727 (2011). Line Systems acknowledges this
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principle but argues in its opposition to Sprint’s motion to dismiss that the Complaint alleges
other unjust and unreasonable conduct that could support a claim under § 201. Line Systems’
claim for violation of § 201, however, does not allege that any conduct other than non-payment
of tariffs violated § 201. I will therefore grant Sprint’s motion to dismiss the § 201 claim. I will
grant Line Systems leave to amend this claim because amendment would not be futile. See Free
Speech Coal., Inc. v. Attorney Gen. of the U.S., 677 F.3d 519, 545 (3d Cir. 2012) (“Leave to
amend should be freely given when justice so requires, including for a curative amendment
unless such an amendment would be inequitable or futile.”).
III.

Claim for Violation of 47 U.S.C. § 203
Line Systems also brings a claim under 47 U.S.C. § 203, which requires carriers to file

tariffs with the FCC and provides that “no carrier shall . . . charge, demand, collect, or receive a
greater or less or different compensation for such communication, . . . than [the charges specified
under the filed tariffs].” 47 U.S.C. § 203(c). Line Systems avers that Sprint has refused to pay
tariffs, thereby “‘demanding’ and ‘receiving’ a rate less than the tariffed rate.” Compl. ¶ 43.
Sprint moves to dismiss this claim on the ground that the failure to pay tariffed charges does not
give rise to a claim under the Act. I agree and will grant Sprint’s motion to dismiss this claim.
Furthermore, I will not grant Line Systems leave to amend this claim. Section 203(c) makes it
unlawful for a carrier to “charge, demand, collect, or receive” “compensation” that differs from
the charges allowed by the tariffs. This case does not involve any attempt by Sprint to “charge,
demand, collect or receive” any compensation. Rather, the case involves Sprint’s alleged failure
to compensate Line Systems. Amendment of the § 203 claim would therefore be futile.

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IV.

Claims for Unjust Enrichment and Account Stated
Sprint moves to dismiss Line Systems’ claims of “unjust enrichment, quantum meruit

and/or implied contract” and account stated on the ground that these claims are preempted by
federal law. Sprint relies on Union Telephone Co. v. Qwest Corp., 495 F.3d 1187 (10th Cir.
2007), which concluded that “federal law requires [Union and Qwest] . . . to set rates through
interconnection agreements” pursuant to 47 U.S.C. § 252. Union Tel., 495 F.3d at 1197. The
Court then reasoned that “allowing Union to recover damages under a theory of unjust
enrichment or quantum meruit would frustrate the federal regulatory mechanism.” Id. In the
present matter, however, there has been no determination that the parties have an obligation
under federal law to establish interconnection agreements. Union Telephone is therefore
inapposite and I will deny this portion of Sprint’s motion.1
Additionally, Sprint moves to dismiss the account stated claim on the ground that it has
not accepted Line Systems’ account. “An account stated is an account in writing, examined, and
expressly or impliedly accepted by both parties thereto.” Braverman Kaskey, P.C. v. Toidze, No.
09-3470, 2011 WL 4851069, at *4 (E.D. Pa. Oct. 12, 2011). An allegation that a defendant
“never contested its bills is not sufficient to show acquiescence in the correctness of the
account.” Id. Accordingly, Line Systems’ allegation that Sprint “accepted and retained . . .
statements of account without dispute,” Compl. ¶ 62, does not support its claim for account

1

I note that the filed rate doctrine might bar Line Systems’ unjust enrichment
claim. See Sancom, Inc. v. Qwest Commc’ns Corp., 643 F. Supp. 2d 1117, 1125-26 (D.S.D.
2009) (“Where the services in question are covered by the applicable tariff, the filed rate doctrine
bars any request for damages pursuant to the doctrine of unjust enrichment.”). I will not decide
the issue at this stage without the benefit of a developed factual record and the parties’
arguments.
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stated. I will therefore dismiss the account stated claim.
An appropriate Order follows.

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