Sancom, Inc. v. Qwest Communications Corporation

Filing 444

MEMORANDUM OPINION AND ORDER. Signed by U.S. District Judge Karen E. Schreier on 11/9/2017. (JLS)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
QWEST COMMUNICATIONS
CORPORATION, a Delaware
corporation,
Third-Party Plaintiff,

4:07-CV-04147-KES

MEMORANDUM OPINION
AND ORDER

vs.
FREE CONFERENCING
CORPORATION, a Nevada corporation,
Third-Party Defendant.

Third-party plaintiff, Qwest Communications Corporation (Qwest),
brought claims against third-party defendant, Free Conferencing Corporation
(FC), alleging that FC engaged in conduct amounting to unfair competition,
civil conspiracy, and alternatively that FC was unjustly enriched. This court
found that Qwest failed to prove its claims. On appeal, the Eighth Circuit Court
of Appeals affirmed this court’s decision on the unfair competition and
intentional interference with a business relationship claim, but reversed and
remanded on the claim for unjust enrichment. Qwest Commc’ns Corp. v. Free
Conferencing Corp., 837 F.3d 889, 893 (8th Cir. 2016) (hereinafter Free
Conferencing).

FACTUAL BACKGROUND
Qwest is a long-distance telephone service provider, referred to as an
interexchange carrier (IXC). As an IXC, Qwest delivers long-distance calls from
one local area to another. Docket 407 at 2. FC provides conference calling
services to its customers, operates a website, and provides 24-hour customer
support. Id. FC does not charge customers for its services and is not a common
carrier under the Communications Act of 1934, as amended. Id.
Sancom, Inc. is a local telephone service provider, referred to as a local
exchange carrier (LEC), for the Mitchell, South Dakota area. Id. As an LEC,
Sancom owns the facilities that allow calls carried by IXCs, such as Qwest, to
be originated and terminated with Sancom’s customers. Id. at 3. Sancom, a
common carrier, is regulated by and filed tariffs with both the Federal
Communications Commission (FCC) and the South Dakota Public Utilities
Commission. Id.
The Communications Act of 1934 governs the contractual relationship
between an IXC and an LEC. Section 203(c) of the Communications Act
provides that “[n]o carrier, unless otherwise provided by or under authority of
this chapter, shall engage or participate in [wire or radio communication]
unless schedules have been filed and published in accordance with the
provisions of this chapter.” 47 U.S.C. § 203(c). It requires LECs such as
Sancom to assess interstate access charges against carriers such as Qwest
“either by filing tariffs with the [FCC] or by negotiating contracts.” In re Sprint
Commc’ns Co. v. N. Valley Commc’ns, LLC, 26 FCC Rcd. 10780, 10782 (2011).
2

An LEC may not charge an IXC a fee for terminating calls to local customers
that is not specified in the tariff. In re AT&T Corp. v. All Am. Tel. Co., 28 FCC
Rcd. 3477, 3494 (2013). But LECs may receive some compensation from IXCs
for calls they deliver to noncustomers. Qwest Commc’ns Corp. v. Farmers &
Merchs. Mut. Tel. Co., 24 F.C.C. Rcd. 14801, 14812 n.96 (2009) (hereinafter
Farmers II).
Sancom’s tariff permitted it to charge IXCs, including Qwest, more than
three cents per minute for calls it delivered to an “end user.” Free Conferencing,
837 F.3d at 893. An “end user” is defined in the tariff as an individual or entity
“which subscribe[d] to the services” Sancom offered. Id. Thus, Sancom could
not charge IXCs under the terms of the tariff unless it delivered a call to an
individual or entity that subscribed to its services.
In 2004, FC and Sancom entered into an agreement that provided that
Sancom would host FC’s conference call bridges on its premises in Mitchell,
South Dakota. Docket 407 at 6. FC guaranteed its conference call bridges
would increase call traffic to Sancom’s service area, and in return, Sancom
paid FC a “marketing fee” of 2 cents for each minute of call traffic that
terminated at FC’s conference call bridges. Id. Thus, FC increased the volume
of call traffic IXCs delivered to Sancom and Sancom subsequently billed IXCs
under its tariff for the increased traffic. Id. Sancom would then pay FC its
marketing fee. Id. In effect, this contract resulted in Sancom and FC splitting
the access charges paid by the IXCs on calls destined for FC’s conference
bridges. Id.
3

“Today, it is well-settled that an LEC cannot bill an IXC under its tariff
for calls ‘terminated’ at a conference call bridge when the conference calling
company does not pay a fee for the LEC’s services.” Free Conferencing, 837
F.3d at 894. At the time that FC and Sancom first entered into their contract,
however, that issue had not been litigated. Id. Then in 2009, the FCC “held
that an LEC could not charge an IXC under its tariff for calls delivered to a
conference call bridge when the conference call company did not pay a fee to
subscribe to the LEC’s services.” Id. at 894 (citing to Farmers II, 24 F.C.C. Rcd.
at 14801).
In May 2014, this court held a bench trial on Qwest’s claims against FC
and ruled in favor of FC on all claims. Id. at 892. On appeal, the Eighth Circuit
Court of Appeals upheld this court’s judgment finding against Qwest on
Qwest’s claims of intentional interference with a business relationship and
unfair competition. Id. at 893. But the Eighth Circuit reversed and remanded
this court’s judgment on Qwest’s claim for unjust enrichment. Id.
DISCUSSION
To prove a claim for unjust enrichment under South Dakota law, “the
plaintiff must prove (1) it conferred a benefit upon another; (2) the other
accepted or acquiesced in that benefit; and (3) it would be inequitable to allow
the other to retain that benefit without paying.” Id. at 899 (citing to Dowling
Family P’ship v. Midland Farms, 865 N.W.2d 854, 862 (S.D. 2015). “[T]he
relevant inquiry is whether the circumstances are such that equitably the

4

beneficiary should restore to the benefactor the benefit or its value.” Hofeldt v.
Mehling, 658 N.W.2d 783, 788 (S.D. 2003).
Here, Qwest has shown that it conferred a benefit upon FC and that FC
accepted that benefit. The only issue is whether it would be inequitable to allow
FC to retain that benefit without paying Qwest. In South Dakota, “[u]njust
enrichment . . . allows an award of restitution for the value of the benefit
unjustly received, rather than the value of the services provided.” Johnson v.
Larson, 779 N.W.2d 412, 418 (S.D. 2010). “South Dakota measures damages
for unjust enrichment based on the amount the beneficiary received unjustly,
not the amount the benefactor lost.” Free Conferencing, 837 F.3d at 900.
In Parker v. Western Dakota Insurors, Inc., 605 N.W.2d 181, 187 (S.D.
2000), the South Dakota Supreme Court found that plaintiff could not
maintain a claim for unjust enrichment against defendant because the
defendant paid for the benefit. Defendant purchased substantially all of a
competing insurance agency’s income-generating assets and the purchase
agreement specifically excluded any of the insurance agency’s debts or
accounts payable. Id. at 183-84. Plaintiff, a former insurance agent, was
entitled to a portion of her commissions from the insurance agency, but
defendant never made payments to plaintiff after it purchased the agency’s
assets. Id. at 184. The South Dakota Supreme Court found that defendant had
received a benefit from plaintiff and was aware of the benefit, but that it was
not inequitable for defendant to keep the benefit because it paid for it. Id. at
187. The Court found that the insurance agency was the actor who violated the
5

plaintiff’s contract when it sold its right to receive renewal commissions
without arranging for the plaintiff’s commissions, but the defendant paid for
those commissions and was not unjustly enriched. Id. at 187.
Here, FC provided conference calling services, 24-hour customer
support, and access to a website in exchange for 2 cents per minute for calls
placed to FC’s conferencing bridges at Sancom. Docket 407 at 2. Qwest paid its
own conference calling vendor, Genesis, between 2 to 4.5 cents per minute. So
while FC received a benefit from Qwest, it earned that benefit. FC’s receipt of
the benefit was not unjust. Thus, it would not be inequitable for FC retain the
benefit in question.
CONCLUSION
In conclusion, FC was not unjustly enriched. Thus, it is
ORDERED that judgment will be entered in favor of third-party
defendant, Free Conferencing Corporation, and against third-party plaintiff,
Qwest Communications Corporation.
DATED November 9, 2017.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE

6