Midcontinent Communications v. MCI Communications Services, Inc.
Filing
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ORDER granting 8 Motion to Dismiss Count II. Signed by U.S. District Judge Karen E. Schreier on 11/18/16. (SLW)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
MIDCONTINENT COMMUNICATIONS,
Plaintiff,
vs.
4:16-CV-04070-KES
ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS
MCI COMMUNICATIONS SERVICES,
INC.,
d/b/a VERIZON BUSINESS
Defendant.
Defendant, MCI Communications Services d/b/a Verizon (Verizon),
moves to dismiss Count II of plaintiff’s complaint pursuant to 12(b)(6) of the
Federal Rules of Civil Procedure and to dismiss plaintiff’s request for
declaratory relief to the extent that it relies on Count II. Docket 8. Plaintiff,
Midcontinent Communications (Midco), opposes the motion. Docket 10.
FACTUAL BACKGROUND
Viewed in the light most favorable to Midco, the nonmoving party, the
facts are as follows:
Midco is a competitive local exchange carrier (CLEC) that operates in
several states, including South Dakota, North Dakota, and Minnesota. Among
a variety of services, Midco provides telecommunications services to its
customers and originating and terminating access services, also described as
switched access service, to long-distance companies. Verizon is a long-distance
company that utilizes Midco’s switched access service. Because Midco’s access
charges pertain to interstate and intrastate communications, Midco filed tariffs
with the Federal Communications Commission (FCC) and the South Dakota,
North Dakota, and Minnesota Public Utilities Commissions.
In March 2007, Midco and Verizon executed a contract for switched
access services. The agreement, titled Switched Access Service Agreement,
included a three-year term and called for payment at the tariffed rates. In
March of 2010, Midco and Verizon extended the term of the Switched Access
Service Agreement for four years with additional one-year renewals absent
termination by either party. In January of 2016, Verizon notified Midco that
Midco had overbilled Verizon in excess of $640,000. Verizon then informed
Midco that it would withhold payment for the alleged overbilled amounts until
it regained the overbilled amount. Verizon also stated that it would withhold
payments it had previously promised to pay in connection with other
litigation. 1 At the time the complaint was filed, Verizon had withheld $180,000.
Midco filed suit against Verizon, alleging breach of contract and unjust
enrichment. Midco also seeks a declaratory judgment under SDCL § 21-24-2.
DISCUSSION
I.
Motion to Dismiss
Under Rule 12(b)(6), the defendant may move to dismiss for “failure to
See MCI Communications Services Inc., et al. v. 360 Networks (USA) Inc., et al., U.S. District
Court, District of North Dakota, Civ. No. 3:14-cv-00088.
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state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). In
considering a motion to dismiss, the court assumes all facts alleged in the
complaint are true and construes the complaint in the light most favorable to
the plaintiff. The court should dismiss only if “it appears beyond a doubt that
the plaintiff can prove no set of facts which would entitle the plaintiff to relief.”
Coleman v. Watt, 40 F.3d 255, 258 (8th Cir. 1994). “The issue is not whether a
claimant will ultimately prevail but whether the claimant is entitled to offer
evidence to support the claims.” Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),
overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 191 (1984). “A
well-pleaded complaint may proceed even if it appears ‘that recovery is very
remote and unlikely.’ ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)
(quoting Scheuer, 416 U.S. 232, 236 (1974)).
II.
Filed Rate Doctrine
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 CLECs such as Midco to assess interstate access
charges against carriers such as Verizon “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). So “until a CLEC files valid interstate
tariffs under Section 203 of the Act or enters into contracts . . . for the access
services it intends to provide, it lacks authority to bill for those services.” In re
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AT&T Corp. v. All Am. Tel. Co., 28 FCC Rcd. 3477, 3494 (2013)(All American II).
The filed-rate doctrine provides that “once a carrier’s tariff is approved by the
FCC, the terms of the federal tariff are considered to be ‘the law’ and to
therefore ‘conclusively and exclusively enumerate the rights and liabilities’ as
between the carrier and the customer.” Iowa Network Servs., Inc. v. Quest
Corp., 466 F.3d 1091, 1097 (8th Cir. 2006) (quoting Evanns v. AT&T Corp., 229
F.3d 837, 840 (9th Cir. 2000)). Verizon claims that the filed rate doctrine bars
Midco’s unjust enrichment claim. The filed rate doctrine provides that the
Communications Act “preempts claims concerning the price at which service is
to be offered, and . . . claims concerning the services that are offered.” Access
Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 711 (5th Cir. 1999).
A. Filed Rate Doctrine Applies to Midco’s Claims.
First, the court must determine if the filed-rate doctrine applies to this
case. Midco states in its complaint that it has “filed with the FCC a tariff which
establishes its rates for interstate switched access services.” Docket 1 at 2. And
Midco acknowledges that it entered into the parties’ Switched Access Service
Agreement with the understanding that it will “bill to Verizon the rates set forth
in its state and federal tariffs as filed.” Id. at 3. Also, the disputed payments in
this action arise from the switched access services provided under the tariff.
See id. at 4 (stating that “Verizon has failed and refused . . . to acknowledge
that the amounts in issue were validly billed and paid pursuant to the parties’
Switched Access Service Agreement.”). In short, Midco does not allege that any
other agreement besides the parties’ tariff-based Switched Access Agreement
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exists. Thus, the filed rate doctrine applies to Midco’s claims.
B. The Filed Rate Doctrine Bars Midco’s Claim for Unjust
Enrichment.
Second, the court must apply the filed rate doctrine to determine if the
filed rate doctrine bars Midco’s unjust enrichment claim. There are two main
principles underlying the filed-rate doctrine: “(1) nonjusticiability—‘preserving
the exclusive role of federal agencies in approving rates for telecommunications
services that are reasonable by keeping courts out of the rate-making process’
and (2) nondiscrimination—‘preventing carriers from engaging in price
discrimination as between ratepayers.’ ” Sancom Inc. v. Quest Commc’n Corp.,
643 F. Supp. 2d 1117, 1123 (D.S.D. 2009) (quoting Marcus v. AT&T Corp., 138
F.3d 46, 58 (2d Cir. 1998)). “The application of the filed-rate doctrine does not
depend on the nature of the cause of action the plaintiff seeks to bring.”
Sancom Inc., 643 F. Supp. 2d at 1125. “Rather, ‘the focus for determining
whether the filed rate doctrine applies is the impact the court’s decision will
have on agency procedures and rate determinations.’ ” Id. (quoting H.J. Inc. v.
Nw. Bell Tel. Co., 954 F.2d 485, 488 (8th Cir. 1992). To determine the impact of
the court’s decision, the court must evaluate the nature of Midco’s unjust
enrichment claim and the relief it seeks.
Under South Dakota law, “[u]njust enrichment occurs ‘when one confers
a benefit upon another who accepts or acquiesces in that benefit, making it
inequitable to retain that benefit without paying.’ ” Hofeldt v. Mehling, 658
N.W.2d 783, 788 (S.D. 2003) (quoting Parker v. W. Dakota Insurors, Inc., 605
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N.W.2d 181, 187 (S.D. 2000)). Midco alleges that it provided Verizon with
switched access services and that Verizon received a benefit from the services
because it could charge its customers for long distance service. Docket 1 at 5.
Midco alleges that Verizon now refuses to pay for the services, and it would be
inequitable for Verizon to retain the benefit of the services without
compensating Midco. Id.
In Count I, Midco alleges that Verizon’s refusal to pay for its switched
access services violates the rates and terms as set forth in its tariffs. Id. In
Count II, Midco acknowledges that Verizon has refused to pay for the
“contracted-for services” described as “origination and termination of long
distance calls.” Id. Origination and termination of long distance calls are also
referred to as switched access services. 2 So taking Midco’s allegations as true,
Midco’s claim arises from the type of services specifically covered by the tariff.
“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.” Iowa Network Servs., 466 F.3d at 1098. The terms of the tariffs
exclusively enumerate the rights between Midco and Verizon and Midco cannot
use an equitable theory of recovery for services included in its tariff.
But Midco contends that it is permitted to plead unjust enrichment as an
alternative theory of recovery and relies on the decision in Northern Valley
2 “Switched Access Service” is defined in the Switched Access Agreement as “Exchange Access
via switched origination or termination of CMRS Telecommunications Toll Traffic or for
Telecommunications Toll Service.” Docket 9-1. “Exchange Access” is defined in the Switched
Access Agreement as “access to telephone exchange services or facilities for the purpose of
origination or termination of telephone toll services.” Id.
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Communications as support. See N. Valley Commc’ns, LLC v. AT&T Corp., No.
1:14-CV-01018-RAL, 2015 WL 11675666 (D.S.D. Aug. 20, 2015). In Northern
Valley Communications, Northern Valley and AT&T entered into a valid tariff
filed with the FCC for switched-access services. Id. at *2. AT&T failed to make
several payments to Northern Valley and Northern Valley filed a complaint in
the District of South Dakota. Id. Count I of the complaint alleged that AT&T
failed to make payments for switched access services pursuant to the tariff. Id.
But Counts II and III alleged unjust enrichment and quantum meruit as
alternative theories of recovery. Id. The court denied a motion for partial
judgment on the pleadings on the equity claims because the parties disputed
whether the services were covered by the tariff. Id. at *5. The court reasoned
that “if the services Northern Valley provided to AT&T were not switched access
services, then they fell outside the filed tariff. Conversely, if the services were
switched access services, then the tariff would apply . . . and Counts Two and
Three must fail.” Id. Northern Valley is unpersuasive in this case.
Here, neither Midco nor Verizon denies that Midco provided Verizon with
switched access services. Midco specifically states in its complaint that it
should recover on a theory of unjust enrichment because Midco provided
“contracted-for services” to Verizon and Verizon failed to pay the billed amount.
Docket 1 at 5. Midco describes the provided services as “access services . . .
through the origination and termination of long distance calls” which is the
type of switched access service covered by the tariff. Id. Thus, Northern Valley
is factually distinguishable from this case. Also, one day after the Northern
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Valley decision was docketed, the FCC released its decision in All American III.
There, the FCC clarified that CLECs cannot bill for services provided outside a
valid tariff or negotiated contract. AT&T Corp. v. All Am. Tel. Co., 30 FCC Rcd.
8958, 8962, ¶ 13 n.50 (2015) (All American III). So not only is Northern Valley
distinguishable from this case, but the later decision in All American III
contradicts the reasoning Midco relies on in its brief.
If Midco had alleged that the services it provided were not covered by the
tariff, the filed rate doctrine would still bar a claim for unjust enrichment. As
this court found in Sancom, both the nonjusticiability and nondiscrimination
prongs of the filed rate doctrine would be implicated. First, awarding Midco
damages based on an unjust enrichment claim would “require the court to
determine the value of [switched access services], which amounts to judicial
rate-setting.” Sancom, 643 F.3d at 1126. Second, “an award for unjust
enrichment would risk violating the nondiscrimination principle,” because the
court could end up awarding Midco an amount that is more or less than what
Midco’s other customers pay for the same services. Id. Judicial rate-setting and
rate discrimination are barred by the filed rate doctrine. Marcus, 138 F.3d at
58; Am. Tel. & Tel. Co. v. Cent. Office Tel., Inc., 524 U.S. 214, 223 (1956).
The FCC recently reaffirmed this court’s Sancom holding in the All
American cases. In 2013, the FCC found that CLECs that had billed for “access
services that they did not provide pursuant to valid and applicable interstate
tariffs” violated Sections 201(b) and 203 of the Communications Act. All
American II, 28 FCC Rcd. 3477, 3492, ¶ 34 (2013). In 2015, the FCC made
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clear that CLECs cannot pursue alternate damage theories, such as unjust
enrichment, for services provided outside a valid tariff or negotiated contract.
All American III, 30 FCC Rcd. at 8962, ¶ 13 n.50. The purpose of the
prohibition is to prevent CLECs from avoiding regulation by the FCC. Id.
Several other districts also agreed with this court’s reasoning in Sancom. 3
Thus, if Midco did provide Verizon services that are not covered under the
parties’ tariff and accompanying Switched Access Agreement, then Midco
violated the Communications Act and it cannot charge Verizon for those
services.
Because this court finds that Midco and Verizon had a valid tariff, the
tariff exclusively governs the rights and liabilities between Midco and Verizon
as to switched access services. Thus, the filed rate doctrine bars any claim for
unjust enrichment arising from the tariff, and Midco is prohibited from
collecting money for services provided that fall outside the tariff. Midco cannot
plead any set of facts that would entitle it to relief on its unjust enrichment
claim.
It is ORDERED that
1. Verizon’s motion to dismiss (Docket 8) Count II of Midco’s complaint
is granted.
3 See, e.g., XChange Telecom Corp. v. Sprint Spectrum L.P., No. 1:14-cv-54, 2014 WL 4637042,
at *5 (N.D.N.Y. Sep. 16, 2014) (finding that the plaintiff could not charge for services provided
outside the tariff and dismissing equitable claims to recover for services provided within the
tariff); Peerless Network, Inc. v. MCI Commc’n Servs, Inc., No. 14 C 7471, 2015 WL 2455128
(N.D. Ill. May 21, 2015)(dismissing plaintiff’s equitable charges because the filed rate doctrine
bars recovery for services provided outside of a filed tariff or negotiated contract); Connect
Insured Tel., Inc. v. Quest Long Distance, Inc., No. 10-CV-197-D, 2012 WL 2995063, at *2 (N.D.
Tex. July 23, 2012) (dismissing equitable claims because the filed rate doctrine prohibits
parties from enforcing provisions of a tariff through an equitable claim).
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2. Count III of Midco’s complaint is dismissed to the extent it seeks relief
based on Count II.
Dated November 18, 2016.
BY THE COURT:
/s/Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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