Northern Valley Communications L.L.C. v. Qwest Communication Corporation
Filing
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ORDER AND OPINION denying 171 Motion to Vacate Stay Pending Referral, To Consolidate with Northern Valley v. Qwest, CIV. No. 11-4052-KES, and in the Alternative to Assign Both Cases to One Judge. Signed by Charles B. Kornmann on 6/19/12. (SKK)
FILED
UNITED STATES DISTRICT COURT
DISTRlCT OF SOUTH DAKOTA
NORTHERN DIVISION
JUN 2 0 2012
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NORTHERN VALLEY
COMMUNICATIONS, L.L.C.,
Plaintiff,
-vsQWEST COMMUNICATIONS
CORPORATION,
Defendant,
-vsGLOBAL CONFERENCE PARlNERS,
Involuntary Plaintiff.
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1:09-CV-01004
ORDER AND
OPINION
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Plaintiff, a competitive local exchange carrier ("LEC"), brought this diversity action to
collect for amounts allegedly due from defendant, a long-distance carrier or interexchange carrier
("IXC"), for providing originating and terminating telephone access services. Plaintiff alleged
breach of contract and breach of implied contract arising out of federal and state tariffs, for
violations of the Communications Act ("the Act"), 47 U.S.C. §§ 201 and 203, for a collection
claim pursuant to its state tariff, and for unjust enrichment.
On September 29, 2010, this court granted plaintiffs motion to stay this action for the
purpose of referring key issues to the Federal Communications Commission ("FCC"), namely:
(1) whether plaintiff is entitled to collect interstate switched access charges it has billed to
defendant pursuant to plaintiffs tariff for calls to free calling providers; (2) if plaintiff is not
entitled to collect switched access charges for these billings, determination of the proper
classification of these services and whether plaintiff is entitled to any compensation for these
services; and (3) if plaintiff is not entitled to collect switched access charges for these billings,
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yet is entitled to compensation for those services, determination of a reasonable rate for those
services.
Nearly a year and a half after the order and without final FCC action on the referral,
defendant requested this court to vacate its stay pending referral, consolidate this proceeding with
N. Valley Commc'ns. L.L.C. v. Owest Commc'ns Co. (N. Valley II} No. 11-04052-a similar
case presided over by Judge Karen E. Schreier-and assign both cases to one judge. After
defendant's motion, Judge Schreier issued an order to stay the aforementioned proceeding and to
refer issues to the FCC, this in the face of opposition by plaintiff and defendant. N. Valley II,
2012 WL 996999 (D. S.D. March 23,2012). Plaintiff and involuntary plaintiff ("Global") filed a
joint response to defendant's motion. In light of Judge Schreier's order, defendant replied and
withdrew without prejudice its request for consolidation or assignment to one jUdge. It
maintained its request to vacate the stay. Defendant contends that binding FCC precedents
delivered since this court's referral are comprehensive enough that all issues referenced in the
stay order have been addressed by the FCC, making further delay unnecessary. Defendant
believes it is now proper for this court to decide this case.
I.
BACKGROUND
A.
Status of Similar Cases in the District
This case shares similar issues with ten other cases filed in the District of South Dakota.
Each of these cases involve LEes engaging in "access stimulation," which involves aLEC
partnering with a conference service company by assigning the company use of the LEe's local
telephone numbers, thereby placing their service upon the LEC's local infrastructure for the
purpose of call termination, even if the service is physically located far from the LEe's service
area. When a customer of a long-distance carrier. otherwise known as an interexchange carrier
("IXC"), calls a conference service company, the LEC bills the IXC an access fee, claiming to
have provided a service to the IXC. The resulting fee is then split between the LEC and the
conference service company in an arranged revenue sharing agreement. In this way, LECs
"artificially inflate their traffic volumes to increase [intercarrier compensation] payments."
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Connect America Fund; A National Broadband Plan for Our Future, 76 Fed. Reg. 73830, 73832
(Nov. 29, 2011). For some of these conference service companies who advertise their services as
"free" to customers, their only discernible revenue for their services has been their portion of
shared fee payments. These companies may not actually pay the LEC for obtaining the LEe's
phone numbers, with the LEC instead receiving "payment" from their portion of the shared fees
obtained from the IXCs. Defendant and other IXCs call what has been happening "traffic
pumping."
Of the ten other cases in the District of South Dakota, six are currently stayed for the
purpose of referring issues of proper compensation and classification of these services. The
referrals have been made to the FCC (for interstate transfers) or the South Dakota Public Utilities
Commission ("SDPUC") (for intrastate transfers). N. Valley Commc'ns, L.L.C. v. Sprint
Commc'ns Co., No 11-4053,2012 WL 997000 (Mar. 23, 2012) (refer to FCC); N. Valley
Commc'ns. L.L.C. v. Owest Commc'ns Co., No. 11-4052,2012 WL 996999 (Mar. 23,2012)
(refer to FCC); Sprint Commc'ns Co. v. Native Am. Telecom. L.L.C., No. 10-4110,2012 WL
591674 (Feb. 22,2012) (refer to FCC); Splitrock Props .. Inc. v. Owest Commc'ns Corp., No. 08
4172,2010 WL 2867126 (July 20,2010) (refer to FCC); N. Valley Commc'ns. L.L.C. v. Sprint
Commc'ns Co., No. 08-1003 (May 26, 2010) (refer to FCC and SDPUC); Sancom. Inc. v. Owest
Commc'ns Com., No. 07-4147, 2010 WL 960005 (Mar. 12,2010) (refer to FCC). Two cases
have settled, namely Splitrock Props .. Inc. v. Sprint Commc'ns Co., No. 09-4075 (Sept. 13,
2011), and Sancom. Inc. v. AT&T Corp., No. 08-4211 (July 14,2010). One case involves a
defendant who has settled but the third party defendants are seeking costs and attorney's fees as a
condition for accepting the stipulation for dismissal. Sancom. Inc. v. Sprint Commc'ns Co., No.
08-1003. One case is currently in the discovery phase. N. Valley Commc'ns. L.L.C. v. MCI
Commc'ns Servs.. Inc., No. 07-1016 (Dec. 22, 2011).
B.
Developments Since the Court's Last Order
Since the order of September 29, 2010, the parties have updated this court on the status of
the referred proceeding before the FCC and upon any activities conducted between the parties.
The FCC has not acted on the referred issues. There was some discussion that once a plan for
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discovery was established in a similar case between plaintiff and Sprint Communications
Company L.P. ("Sprint"), defendant could participate in that discovery process. Subsequent
reports fail to indicate the progress of discovery between the parties.
While the FCC has not acted on the referred issues, plaintiff has sought and obtained a
revision of its tariffs to formalize access stimulation services with a switched access rate assessed
against IXCs. This process began on July 8, 2010, when plaintiff filed its Tariff No. 3 with the
FCC. This tariff was meant to respond to the FCC's decision in Qwest Commc'ns Corp. v.
Farmers and Merchants Mut. Tel. Co. (Farmers II). 24 FCC Rcd. 14801 (Nov. 24, 2009), pet. for
recons. denied, 25 FCC Rcd. 3422 (2010), pet. for rev. denied, 668 F.3d 714 (D.C. Cir. 2011),
which established what plaintiff characterizes as a "fact-specific test." In that case, the FCC
found that Farmers' tariff defined the conference call providers (with which Farmers-the
LEC-had revenue sharing agreements) as not being "end users" for whose services IXCs may
be charged switched access fees by Farmers. Id. at 14806-14808. Farmers then argued that the
Communications Act, 47 U.S.C. § 151 et seq., and FCC rules support its theory of what
constitutes switched access, even if the conference service companies are not defined as end
users under the tariff. The FCC found, however. that Farmers is bound by the terms of its tariff
as to whether the tariff definition is narrower than that used in the Communications Act or FCC
rules. Id. at 14812. As a result, Farmers could not receive switched access fees for these services
under its tariff.
On June 7, 2011, the FCC granted defendant's formal complaint against plaintiff's Tariff
No.3 as written at the time. Qwest Commc'ns Co. v. N. Valley Commc'ns. L.L.C. (Northern
Valley I), 26 FCC Rcd. 8332 (June 7, 2011), pets. for recons. denied, 26 FCC Rcd. 14520 (2011).
Broadening its fact-specific test in the Farmers II decision, the FCC noted that even though
plaintiff expanded its definition of "End User" by stating that "an End User need not purchase
any service provided by [plaintiftJ," FCC rules override the tariff language and require that
tariffed competitive LEC charges for switched access services must be for services that are at
least "the functional equivalent" of traditional switched access services. Id. at 8336 (citing 47
C.F.R. § 61.26). The FCC noted that FCC rules define a switched access service's "functional
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equivalent" to include when a competitive LEC such as plaintiff transmits the call "to its own
end user." Id. A competitive LEe's "own end users," by FCC definition, "do not include
entities that receive free services from the [competitive] LEC." Id. at 8336-8337. The FCC also
asserted that tariff language must comply with the Communications Act and FCC rules and
orders. Id. at 8339. Thus, plaintiff was directed to revise its tariff. Id. at 8340.
On June 14,2011, plaintiff filed revisions to Tariff No. 3 in response to Northern Valley
}. On the complaints of defendant and Sprint, the FCC rejected these revisions made under
Transmittal No.5. N. Valley Commc'ns Revisions to FCC Tariff No. 3, WCB/Pricing File 11
07, DA 11-1132 (F.C.C. June 28, 2011), available at http://hraunfoss.fcc.gov/edocs--.public/
attachmatchl DA-II-I132Al.pdf. The revisions involved the modification of two definitions.
First, plaintiff attempted to modifY its definition of "Customer of an Interstate or Foreign
Telecommunication Service" by deleting the phrase "without regard to whether and how much
payment is tendered to either the Company or the Buyer for interstate or foreign
Telecommunications service" and replacing it with "for a fee." Id., 2. Second, plaintiff
attempted to revise its definition of "End User" by deleting the final sentence in the definition,
which read: "[a]n End User need not purchase any service provided by the Company." Id. The
FCC found that these changes still conflicted with Northern Valley!, id. '4, since the language
changes were not "clear and explicit" in their conformance with Northern Valley LId. , 6.
Qwest argued this ambiguity was explained by the fact that, since the definition of "Customer" is
a component part of the definition of "End User," and a person becomes a customer merely for
paying a fee for potentially any telecommunications service under plaintiffs definition, that a
caller seeking conference services under an access stimulation arrangement might only need to
pay a fee for any telecommunications service (for example, a fee to its long-distance provider) to
vest a conference service company with end user status warranting payment of switched access
charges under the tariff. Id. Sprint asserted that this language could "be interpreted to mean that
the IXC's payment of access charges qualifies as the 'fee' for transmission across Northern
Valley's network." Id. The FCC found that these particular provisions may be interpreted as
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Qwest and Sprint suggested and, because these revisions were ambiguous, they must be revised
again. Id. ~~ 9-10.
On July 18, 2011, the FCC released its opinion and order granting in part and denying in
part a fonnal complaint made by Sprint against plaintiffs Tariff No. 3. Sprint Commc'ns Co. v.
N. Valley Commc'ns. L.L.C., 26 FCC Rcd. 10780. Echoing the reasoning in the June 28, 2011,
order, the FCC directed plaintiff to again revise a portion of its tariff. Id. at 10780-81.
On July 26, 2011, plaintiff filed changes to Tariff No. 3 in keeping with the FCC's orders.
Qwest filed its petition to suspend or reject the tariff on August 2, 2011. The FCC rejected
Qwest's petition, and Tariff No. 3 as revised was deemed lawful and effective on August 10,
2011. Protested Tariff Transmittal Action, 26 FCC Rcd. 11282, 11282 (Aug. 12,2011). This
approved tariff contains within the defInition of "End User" the requirement that an End User
"must pay a fee to [plaintiff] for telecommunications service." In response to Sprint's concerns,
the defInition further provides that "[o]ther carriers, including IXCs, are not considered to be End
Users under the tenns of this Tariff, unless [plaintiff] consents to such classifIcation in writing."
N. Valley Commc'ns, L.L.C., Access Service Tariff, FCC Tariff No. 3, at 8 (last revised Jan. 21,
2012). Additionally, this tariff clarifIes that a "Customer of an Interstate or Foreign
Telecommunications Service ... must pay a fee to [plaintiff] for telecommunications service,"
presumably in response to defendant's concerns. Id. at 7 (emphasis added). However, plaintiff
explicitly includes "conference call providers" and "chat line providers" within this defInition,
reinforcing the importance of the tenn as a component part of the defInition for "End User."
This tariff also contains a defInition of"Volume End User" or "VEU" as:
An End User that obtains Service from [plaintiff] in order to provide high
traffIc services, including, but not limited to, chat line services, conference calling
services, help desk assistance, or call center support, designates [plaintiffs]
central offIce as its [End User Designated Premises or EDP], and accordingly,
installs equipment in the [plaintiffs] central offIce.
Tariff No. 3 at 10. Plaintiff asserts that this defInition is purposely meant to include conference
calling and similar services, which are absent from the "End User" defInition. Northern Valley
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also states that, unlike the definition of "End User," this definition contains no requirement that
the VEU pay a fee to plaintiff for a "telecommunications service." Thus, plaintiff created this
special category in order to incorporate access stimulation-related services into its service fees
under the tariff. Plaintiff also asserts that the corresponding rate for VEUs is "well below the
rate that [plaintiff] could have assessed under the FCC's benchmarking rules then in effect for
rural [competitive] LECs."
C.
The FCC's Compensation Regime for Access Stimulation
The FCC began addressing the compensation regime for access stimulation in its
rulemaking of November 29,2011. Connect America Fund; A National Broadband Plan for Our
Future (the Rulemaking), 76 Fed. Reg. 73830, 73832 (to be codified at 47 C.F.R. pts. 0, 1,20,
36,51,54,61,64, and 69). In short, the rules require that a LEC must refile their interstate
switched access tariffs at lower rates if access stimulation is occurring. The FCC provides two
criteria that together indicate that access stimulation exists: (1) a LEC has a revenue sharing
agreement and (2) the LEC either has (a) a three-to-one ratio ofterminating-to-originating traffic
in any month or (b) experiences more than a 100 percent increase in traffic volume in any month
measured against the same month during the previous year. Id.
II.
DISCUSSION
This court entered a stay to defer dispositive issues that required the expertise and
experience of the FCC under the doctrine of primary jurisdiction. This doctrine applies to
"claims properly cognizable in court that contain some issue within the special competence of an
administrative agency. It requires the court to enable a 'referral' to the agency, staying further
proceedings so as to give the parties reasonable opportunity to seek an administrative ruling."
United States v. Rice, 605 F.3d 473, 475 (8th Cir. 2010) (quoting Reiter v. Cooper, 507 U.S. 258,
268 (1993)). While no fixed formula exists for applying the doctrine, a court must decide
whether the purposes served by the doctrine "will be aided by its application in the particular
litigation." United States v. W. Pac. R.R. Co., 352 U.S. 59, 64 (1956). These purposes include
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the need for policy uniformity on the issue and the potential for a superior legal outcome in the
courts when administrative agencies use their expertise and more flexible procedures. See id. at
64-65. Nevertheless, the doctrine is to be "invoked sparingly, as it often results in added
expense and delay." Alpharma. Inc. v. Pennfield Oil Co., 411 F.3d 934,938 (8th Cir. 2005)
(internal quotations omitted).
In order to now vacate this stay, the purposes of the primary jurisdiction doctrine must no
longer be aided by the continuing referral to the FCC. Examples of courts of appeal who rejected
the application of primary jurisdiction referral by district courts are instructive here. In
Alpharma, the Eighth Circuit rejected the application of the primary jurisdiction doctrine because
the issue referred by the district court could have been resolved by interpreting materials clearly
displayed in the Federal Register and Code of Federal Regulations. Id. at 939. In F.T.C. v.
Verity Int'l, Ltd., 443 F.3d 48 (2d Cir. 2006), the Second Circuit affirmed the district court's
refusal to refer the case to the FCC, noting that (1) many FCC precedents existed on what the
terms "information service" and "telecommunications service" meant, (2) the terms were not so
abstract as other statutory terms such as "reasonable" or "public interest," and (3) there is no
danger of inconsistent rulings on the definition of these terms. Id. at 60-61.
Defendant contends that this court may apply existing FCC precedent to definitively
answer each of the three questions posed by the court in its referral. On the first issue, whether
plaintiff is entitled to collect switched access fees it has charged defendant in accordance with its
tariff, defendant believes the issue is no longer in doubt with the FCC's decisions in Owest
Commc'ns Co. v. N. Valley Commc'ns. L.L.C. (Northern Valley 1126 FCC Rcd. 8332 (June 7,
2011), and Sprint Commc'ns Co. v. N. Valley Commc'ns. L.L.C., 26 FCC Rcd. 10780 (July 18,
2011). Defendant argues that each stands for the principle that the only calls for which plaintiff
may recover switched access fees through its tariff are those calls delivered to an end user who
purchased an interstate telecommunications service from the plaintiff; otherwise plaintiff may
only recover such fees through a negotiated contract with the IXCs. Since plaintiff admits that it
did not charge the conference service companies for an interstate telecommunications service,
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defendant contends that the conference service companies were not end users and thus the
switched access tariff does not cover the calls. With no contract between plaintiff and defendant
covering these services, defendant argues that plaintiff is not entitled to any compensation,
thereby addressing the second and third issues for referral.
The problem is that the progression of FCC precedent from Farmers II through Northern
Valley I and Sprint is at the very least interrupted by the Rulemaking. Instead of reasserting the
prohibition against access stimulation being charged under the switched access fee, the
Rulemaking simply requires that H[c ]arriers who meet the definition of access stimulation will
generally be required to file revised tariffs to account for the change in the volume of their
traffic." Rulemaking, 76 Fed. Reg. at 73847. The FCC states explicitly that "[o]ur revised
interstate access rules generally require competitive carriers and [LECs] to refile their interstate
switched access tariffs at lower rates" if the carrier is found to engage in the practice 0 f access
stimulation. Id. at 73832. While a much more technical interpretation of this language from the
FCC would be preferable, common sense dictates that the text shows the FCC wants rates to be
lowered for the purpose of accounting for (which translates into including) switched access fees
derived from access stimulation, contrary to defendant's interpretation. If it is the FCC's policy
that the charges associated with the practice of access stimulation are not to be assessed as fees
under the tariff at all, why then require LECs to lower a rate because of access stimulation? With
no fees assessed for access stimulation-related services, there is no need for LECs to refile their
tariffs with lower rates, since they receive no benefit from this "harmful" practice. While this
court is not a diviner of FCC intent, this casts sufficient doubt against the idea that the FCC has
found that access stimulation charges may never be assessed under the tariff in any fashion, as
defendant alleges. The FCC's denial of defendant's petition to reject or to suspend and
investigate Tariff No. 3 as filed on July 26, 2011, also casts doubt on defendant's interpretation.
As noted by Judge Schreier, the Rulemaking does not state that it is retroactive, and this
court should not assume that it is so. N. Valley
II. 2012 WL 996999, at *5 (citing Bowen v.
Georgetown Univ. Hosp., 488 U.S. 204,208 (1988». Since the charges referenced in the
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complaint occurred before the Rulemaking became effective, the Rulemaking does not directly
apply to settle the issues currently on referral. However, it shows that some inconsistencies exist
in the FCC's treatment of access stimulation-related fees which cannot be resolved by a perusal
of the C.F.R. or Federal Register and which involve technical concerns within the scope of the
FCC's expertise and experience. These are sufficient justifications at this time to warrant a
continuation of the stay for referral purposes. See W. Pac. R.R. Co., 352 U.S. at 64--65;
Alpharma, 411 F.3d at 939.
This opinion also reinforces the need for the FCC to provide clarity to the courts on how
access stimulation-related fees incurred before the Rulemaking became effective might be
assessed within a rate framework, if at all. Such a finding is better within the purview of the
FCC. Since the FCC has not acted on the first issue referred by this court, defendant's motion to
vacate the stay for referral to the FCC should be denied.
The only consistent theme connecting Farmers II and the Rulemaking appears to be that
LECs should receive some form of compensation for access stimulation-related services. See
Farmers 11,24 FCC Rcd. at 14812 n.96 ("This is not to say that Farmers is precluded from
receiving any compensation at all for the services it has provided to Qwest."); cf Farmers &
Merchants Mut. Tel. Co. v. FCC, 668 F.3d 714, 723-24 (D.C. Cir. 2011) (leaving open the
possibility that Farmers may be compensated for services associated with access stimulation).
Previous decisions such as Farmers II must be read as complementary to the Rulemaking.
Connect America Fund, 27 FCC Rcd. 605, 613 (Feb. 3,2012). Thus, it seems unlikely that the
FCC foreclosed any compensation for services plaintiff provided outside of the tariff or a
negotiated contract, as defendant argues. It is within the unique competence of the FCC to
determine what compensation, if any, plaintiff may receive for these access stimulation-related
fees and, for what period of time if the fees are legal. Since this determination has yet to be
made, defendant's motion to vacate the stay for referral to the FCC of issues two and three
should also be denied.
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The FCC is strongly urged to act in a timely manner and with sufficient clarity to be of
assistance to the courts and the parties.
III.
ORDER
Based upon the foregoing,
IT IS ORDERED that defendant's motion, Doc. # 171, to vacate stay pending referral is
denied.
Dated
thiS~ay of June, 2012.
BY TIlE COURT~
ATTEST:
JOSEPH HAAS, CLERK
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United States District Judge
EPUTY
(SEAL)
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