Midcontinent Communications v. MCI Communications Services, Inc.

Filing 58

ORDER denying 47 Motion for Summary Judgment; denying 50 Motion for Summary Judgment; denying as moot 31 Motion for Summary Judgment. Signed by U.S. District Judge Karen E. Schreier on 3/16/2018. (JLS)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
MIDCONTINENT COMMUNICATIONS,

4:16-CV-04070-KES

Plaintiff,
ORDER DENYING CROSS MOTIONS
FOR SUMMARY JUDGMENT

vs.
MCI COMMUNICATIONS SERVICES,
INC., d/b/a VERIZON BUSINESS,
Defendant.

Plaintiff, Midcontinent Communications (Midco), initiated this action
naming MCI Communications Services, Inc., d/b/a Verizon Business (Verizon)
as the defendant. Midco alleges that Verizon breached its contract and that
Midco is entitled to a declaratory judgment under SDCL § 21-24-2. Docket 40.
Verizon filed counterclaims for breach of contract and declaratory judgment
against Midco. Docket 41. Both parties move for summary judgment on all
claims and counterclaims.
FACTUAL BACKGROUND
The undisputed facts are:
Midco is a cable company that provides local telephone service to
residential and business customers and is classified as a local exchange carrier
(LEC). Docket 46 ¶¶ 1, 3. Midco operates in South Dakota, North Dakota,
Minnesota, and Kansas, but only its operations in South Dakota, North
Dakota, and Minnesota are relevant to this dispute. Id. Midco operates under

certificates granted by the South Dakota Public Utilities Commission, North
Dakota Public Utilities Commission, and Minnesota Public Utilities
Commission. Id. ¶ 2. An LEC’s network connects directly to the LEC’s end-user
customers – the people who answer or dial the phone. Id. ¶ 3. When an LEC’s
end-user customer receives a phone call, the call travels across the LEC’s local
network and is delivered directly from the LEC’s network customer. Id. When
an LEC’s end-user customer places a telephone call, the call is delivered
directly from the customer to the LEC’s local network. Id. ¶ 3.
There are two types of LECs. In general, the LECs that existed before the
effective date of the Telecommunications Act of 1996 (February 8, 1996) are
known as incumbent LECs (ILECs). See 47 U.S.C. § 251(h)(1). LECs that
entered the marketplace after the 1996 Act took effect and compete with ILECs
and each other are known as competitive LECs (CLECs). See 47 C.F.R. §
61.26(a)(1). Midco is classified as a CLEC. Docket 46 ¶ 5. A carrier that offers
long-distance telephone service to end-user customers and transmits longdistance calls between the networks of two LECs is known as an
“interexchange carrier” or “IXC.” Id. ¶ 6. As an LEC, Midco provides switched
access service when it permits an IXC, like Verizon, to access its network to
terminate and originate long-distance calls to and from the LEC’s end-user
customers. Id. ¶ 7. Thus, Midco allows Verizon to access Midco’s local
exchange network to originate or terminate long-distance telephone calls
involving Midco’s end-user customers. Id. ¶ 8. Verizon is classified as an IXC
operating throughout the United States. Id. ¶ 9. Since 2006, Verizon has
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delivered long distance calls to, and received them from, Midco’s network. Id. ¶
10. On those calls, Midco charges Verizon for switched access service. Id.
Since 2006, Midco has operated a single switch located in Sioux Falls,
South Dakota (Sioux Falls Switch). Id. ¶ 11. All of the long-distance calls that
Verizon has exchanged with Midco have travelled through the Sioux Falls
Switch on their way to or from Midco’s end-user customers in South Dakota,
Minnesota, and North Dakota. Id. The only way that Verizon’s long-distance
traffic can reach Midco’s local customers or for Midco’s local customer traffic to
reach Verizon’s long-distance network, is for the traffic to travel through the
Sioux Falls Switch. Id.
Midco also operates equipment called “gateways.” Id. ¶ 12. Gateways are
spread throughout Midco’s three-state footprint and permit other carriers to
connect and deliver calls to Midco’s network. Id. Their function is to receive
calls from other carriers and carry them to the Sioux Falls Switch. Id. All of
Midco’s gateways are connected to the Sioux Falls Switch. Id. The Sioux Falls
Switch then decides where to route the calls, also referred to as “switching,”
and sends the calls out over Midco’s network to the appropriate Midco enduser customer for termination. Id.
IXCs can establish calls with Midco’s network in one of two ways. First,
IXCs can establish a “direct trunk” that connects their network directly to
Midco’s network by either connecting with the Sioux Falls Switch itself or into a
Midco-owned gateway that is connected to the Sioux Falls Switch. Id. ¶ 13.
This allows long-distance carriers to send calls directly to, or receive calls
3

directly from, the Sioux Falls Switch. Id. Second, long-distance carriers can
send calls to Midco’s network via another LEC’s tandem switch. Id. A tandem
switch is a switch that routes calls between other switches. Id. A tandem
switch is sometimes called a class 4 switch. Id. In contrast, an end-office
switch routes calls directly to and from end users. Id. An end-office switch is
sometimes called a class 5 switch. Id. Switches that are capable of performing
both as a tandem switch and as an end-office switch are commonly referred to
as class 4/5 switches. Id. The Sioux Falls Switch is a class 4/5 switch, so it
has the physical capability of performing both tandem and end-office switching
functions. Id. ¶ 14.
The Local Exchange Routing Guide (LERG) is an industry-standard
database that LECs and IXCs use to route long-distance and local calls. Id.
¶ 15. Carriers are responsible for populating the LERG with information about
their own switches and other equipment. Id. Both Midco and Verizon rely on
the LERG to make call-routing decisions and to make assessments of other
carriers’ equipment. Id. Midco maintains that there are no requirements or
standards as to how or with what information a carrier must populate the
LERG. Id.
Since 2011, Midco has registered the Sioux Falls Switch as an end-office
switch in the LERG. Id. ¶ 16. According to the LERG, Midco’s Sioux Falls
Switch subtends a tandem switch that is owned by CenturyLink and is located
in Sioux Falls, South Dakota. Id. Thus, calls sent to the CenturyLink Tandem
can be routed to the Sioux Falls Switch for termination, and calls originating
4

from the Sioux Falls Switch can be routed to the CenturyLink Tandem. Id. The
LERG describes the CenturyLink Tandem as the tandem switch associated with
the Sioux Falls Switch. Id. The LERG also associates the Sioux Falls Switch
with Midco’s various gateways. Id. ¶ 17. Since 2011, Midco has not registered
any end-office switch that subtends the Sioux Falls Switch. Id. Midco
maintains that it is not required to do so. Id.
Embedded Multimedia Terminal Adaptors (EMTAs) are boxes that reside
inside the premises of Midco’s end-user customers. Id. ¶ 18. EMTAs convert
incoming voice signals traveling across Midco’s network into analog form
capable of being interpreted by a customer’s traditional telephone. Id. Midco
does not offer long-distance companies the ability to connect directly into its
end-users’ EMTAs. Id. An EMTA is not capable of routing in-bound calls to any
destination other than the particular telephones within the premises to which
it is connected, and it is not capable of routing out-bound calls to a destination
other than Midco’s Sioux Falls Switch. Id. Similar to other LECs, Midco does
not register its EMTAs in the LERG. Id. Midco contends that its EMTAs
functioned as end-office switches on long-distance calls exchanged with
Verizon’s network. Id. ¶ 19.
Before 2007, Verizon exchanged long-distance calls with Midco’s network
by sending them to and receiving them from the CenturyLink Tandem. Id. ¶ 20.
Since 2007, Midco has billed Verizon for switched access service under its
tariffs filed with the Federal Communication Commission (FCC) and relevant
state Public Utility Commissions (PUCs). Id. ¶ 21. Midco’s provision of switched
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access service on interstate long-distance calls was governed by Midco’s FCC
Tariff No. 1, and Midco’s provision of switched access service on intrastate
long-distance calls was governed by the tariff filed with the corresponding state
PUC. Id.
In October 2006, Verizon and Midco began negotiations to establish an
agreement between the two carriers to establish direct trunks connecting
Verizon’s long-distance network to Midco’s Sioux Falls Switch. Id. ¶ 24. Verizon
wanted to establish direct trunks with Midco to avoid overflow problems with
the CenturyLink Tandem and to avoid the tandem-switching charges that
Verizon was paying to CenturyLink. Id. Midco knew about the two reasons
Verizon wanted to establish direct trunking. Id. The parties executed the final
Switched Access Service Agreement (Agreement) on March 7, 2007. Id. ¶ 33.
The initial term of the Agreement was three years. Id. The Agreement was later
renewed for another four years, after which the Agreement would renew on an
annual basis. Id. ¶ 38.
Section 4 of the Agreement states:
4.1 Switched Access Charge Rates. The charges for minutes of use
for Switched Access Service provided by Midco to MCI under this
Agreement are as follows:
4.1.1 MCI will pay Midco to terminate interstate traffic
according to FCC tariff rates and intrastate traffic pursuant to rates
under Midco tariff in South Dakota.
4.1.2 MCI will pay Midco $250 per month per T1 and $500
installation charge per T1 for direct end office trunks for connectivity
to the switching facilities listed in Attachment 1.
Id. ¶ 34.
6

Section 8.1 of the Agreement provides in part:
Subject to the audit rights below, MCI may initiate good faith
disputes regarding billing and withhold payment up to six (6)
months of its receipt of an invoice. Resolution of billing disputes will
be handled according to the procedures in the dispute resolution
section of this Agreement.
Id. ¶ 35.
Section 8.2 of the Agreement provides in part:
A Party shall have the right, at its own expense, upon reasonable
notice and at reasonable times, to examine the books and records of
the other Party only to the extent reasonably necessary to verify the
accuracy of any statement, charge, payment, or computation made
under the Agreement if made within two (2) years after the month of
Service delivery. Any disputes resulting from such audit shall be
resolved in accordance with Section 9, Dispute Resolution below. All
retroactive adjustments under this Agreement will be paid in full by
the Party owing payment within thirty (30) days of notice and
substantiation of such inaccuracy.
Id. ¶ 36.
Section 9 of the Agreement provides:
Any dispute between the Parties regarding the interpretation or
enforcement of this Agreement or any of its terms shall be addressed
by good faith negotiation between the Parties in the first instance,
provided however, that MCI shall not be prohibited from withholding
amounts billed and due, to the extent such withholding is based
upon a good faith determination that the billed amount is in error.
To the extent MCI withholds payments of such amounts and the
related disputes are resolved in Midco’s favor, MCI shall pay Midco
simple interest on the withheld amounts in the amount of 1.5% per
month until paid. Upon request of a Party, each Party will appoint a
knowledgeable, responsible representative with decision-making
authority to meet and negotiate in good faith to resolve any dispute
arising out of or relating to this Agreement. Should such
negotiations fail to resolve the dispute within (90) ninety days, the
7

Parties may, upon mutual agreement, submit the matter to
alternative dispute resolution or, in the absence of such an
agreement, either Party may initiate an appropriate action in any
regulatory or judicial forum of competent jurisdiction.
Id. ¶ 37.
From January 2001 through March 2016, Verizon purchased direct
trunks from Midco under § 4.1.2 of the Agreement. Id. ¶ 39. Until March 7,
2016, nearly all of the long-distance calls that Verizon and Midco exchanged
traveled across those direct trunks. Id. The Agreement also stated in § 4.1.1
that Verizon would pay Midco for any switched access services provided at the
rates outlined in the applicable tariffs. Id. ¶ 40. Thus, both parties agree that
Midco was permitted under the Agreement to charge its tariffed rates for the
services it provided. Id.
On October 27, 2010, Midco initiated complaint proceedings against
Verizon relating to Midco’s monthly billing statements for intrastate switched
access services. Id. ¶ 42. On July 1, 2011, Midco and Verizon executed a
Confidential Agreement and Release to resolve the action, and section 4 of that
settlement agreement included a mutual release covering all access disputes
between the parties concerning invoices dated on or before April 30, 2011. Id.
¶ 44.
Between March 2007 and January 2016, Midco billed Verizon monthly
for switched access service, and Verizon paid Midco for tandem-switching
charges until October 2015. Id. ¶ 45. Both parties agree that the validity of
Midco’s tandem-switching charges depends on whether the Sioux Falls Switch
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functioned as a tandem switch on calls that Midco exchanged with Verizon’s
network. Id. ¶ 47. On March 7, 2016, Midco terminated the Agreement and
disconnected the direct trunks connecting Verizon’s network to the Sioux Falls
Switch. Id. ¶ 64. Midco understood that the March 7 disconnection would
require Verizon to find an alternative way to exchange traffic with Midco’s
network. Id. ¶ 65. Verizon chose to exchange that traffic through two new
routes: (1) the CenturyLink Tandem, and (2) other long-distance companies
with whom Verizon has wholesale relationships. Id. ¶ 65. Verizon alleges that it
has incurred costs associated with re-routing long-distance calls using the
above described routes. Id. ¶ 66.
After the March 7, 2016 disconnection, Midco stopped billing Verizon
tandem-switching charges. Id. ¶ 70. It continues to bill Verizon end-office
switching charges and tandem-mileage charges. Id. On July 27, 2017, Verizon
sent Midco a dispute notice that disputed additional tandem-switching and
tandem-mileage charges that Midco had billed prior to the March 2016
disconnection and that calculated interest on the disputed amounts. Id. With
respect to interstate calls, Verizon disputed tandem-mileage charges that Midco
billed between November 8, 2013 and April 8, 2016. Id. As to intrastate calls,
Verizon disputed tandem-mileage charges that Midco billed between January 8,
2011 and April 8, 2016. Id. Verizon disputes $1,067,027.70, not including
interest, in tandem switching and tandem mileage charges. Id. ¶ 71.
LEGAL STANDARD
Summary judgment is proper “if the movant shows that there is no
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genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). “[A] party seeking summary judgment
always bears the initial responsibility of . . . demonstrat[ing] the absence of a
genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). The moving party must inform the court of the basis for its motion and
also identify the portion of the record that shows there is no genuine issue in
dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citation
omitted).
To avoid summary judgment, “[t]he nonmoving party may not ‘rest on
mere allegations or denials, but must demonstrate on the record the existence
of specific facts which create a genuine issue for trial.’ ” Mosley v. City of
Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. County of Le
Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). “[T]he mere existence of some alleged
factual dispute between the parties is not sufficient by itself to deny summary
judgment . . . . Instead, ‘the dispute must be outcome determinative under
prevailing law.’ ” Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir.
1992) (quoting Holloway v. Pigman, 884 F.2d 365, 366 (8th Cir. 1989)). On a
motion for summary judgment, the facts and inferences drawn from those facts
are “viewed in the light most favorable to the party opposing the motion.”
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88
(1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
Under Fed. R. Civ. P. 56(d), the nonmoving party may also request a
continuance until the nonmovant has had adequate time for discovery to
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justify his opposition to the other party’s motion for summary judgment. Toben
v. Bridgestone Retail Operations, LLC, 751 F.3d 888, 894 (8th Cir. 2014)
(citations omitted). A party moving for a Rule 56(d) continuance must file an
affidavit showing how postponement of ruling on the motion for summary
judgment will allow him to elicit more facts in discovery that are “essential” to
rebut the summary judgment motion. Id. A district court has “wide discretion”
in ruling on a Rule 56(d) motion. Id. at 895.
Both Midco and Verizon move for summary judgment on Midco’s claims
for breach of contract and declaratory judgment and for summary judgment on
Verizon’s counterclaims for breach of contract. As an initial matter, Verizon
previously filed a motion for summary judgment. Docket 31. Midco
subsequently moved for leave to amend the complaint under Fed. R. Civ. P.
15(a) and Verizon did not object. Docket 38. The court granted Midco’s motion.
Docket 39. Thus, Midco’s previous motion for summary judgment (Docket 31)
is denied as moot.
DISCUSSION
I.

Verizon’s Counterclaims are Partially Time-Barred.
A.

Applicable statutes of limitations

Midco argues that both of Verizon’s counterclaims are time barred under
federal law. Title 47 U.S.C. § 415(c) governs the statute of limitations on claims
of overcharges and states:
For recovery of overcharges action at law shall be begun or
complaint filed with the Commission against carriers within two
years from the time the cause of action accrues, and not after,
11

subject to subsection (d) of this section, except that if claim for the
overcharge has been presented in writing to the carrier within the
two-year period of limitation said period shall be extended to include
two years from the time notice in writing is given by the carrier to
the claimant of disallowance of the claim, or any part or parts
thereof, specified in the notice.
47 U.S.C. § 415(c).
Verizon acknowledges that its counterclaim for breach of the federal tariff
is limited by the two-year statute of limitations contained in § 415(c), but
argues that its counterclaim for breach of the state tariff is controlled by the
six-year statute of limitations on contract claims under South Dakota law. See
SDCL § 15-2-13.
Midco cites to Firstcom, Inc. v. Qwest Corp., 555 F.3d 669 (8th Cir. 2009)
and Firstcom, Inc. v. Qwest Commc’ns, 618 S. Supp. 2d 1001, aff’d, 555 F.3d
669 (8th Cir. 2009) as support for its argument that § 415(c) applies to
Verizon’s claims for breach of the state tariff. In Firstcom, the district court
held, and the Eighth Circuit affirmed, that Firstcom’s negligence claim was
preempted by federal law because it sought recovery for breach of a duty
imposed by federal law. Firstcom, 555 F.3d at 678. In contrast, the court found
that Firstcom’s promissory estoppel and fraud claims were not preempted by
federal law because the alleged conduct amounted to a violation of state
common law, regardless of the federal law. Id.
Here, Verizon’s counterclaim for breach of the state tariff is not premised
merely on a violation of federal law. If the Federal Communications Act did not
exist, Verizon would still have a claim for breach of contract because the
12

parties entered into a valid intrastate tariff sanctioned by state law 1 and Midco
would not be permitted to breach the contract. Thus, the alleged wrong was not
created by federal law and the six-year statute of limitations imposed by SDCL
§ 15-2-13 is applicable to Verizon’s counterclaim for breach of state tariff.
B.

Notice provisions in tariffs and Agreement

Midco contends that Verizon is barred from filing this dispute because it
did not conform with the notice provisions detailed in the tariffs and
Agreement. The federal tariff states “Any claim must be submitted to the
Company within 180 days of receipt of billing for the disputed services . . . . If
the Customer does not submit a claim in accordance with the procedure
described in this Section 2.11, the Customer waives all rights to filing a claim
thereafter.” Docket 46-1 at 22. The state tariff includes identical language.
Dockets 46-2; 46-3; 46-4. The notice provision in the Agreement states
“Subject to the audit rights below, MCI may initiate good faith disputes
regarding billing and withhold payment up to six (6) months of its receipt of an
invoice. Resolution of billing disputes will be handled according to the
procedures in the dispute resolution section of this Agreement.” Docket 46-8 at
4. Section 7 of Midco’s FCC tariff and state tariffs indicates that the Agreement
controls as to any services related to the tariff. Dockets 46-1; 46-2; 46-3; 46-4.
As to the federal tariff, courts have consistently held that notice
provisions in tariffs cannot require a party to take action within a shorter

See also Final Decision & Order, Black Hills Fibercom, L.L.C. v. Qwest Corp.,
CT03-154, 2005 WL 783414, ¶ 46 (S.D.P.U.C. Feb. 24, 2005).
1

13

period of time than the two-year statute of limitations provided in § 415(c). See
Memorandum Opinion & Order, Sprint Commc’ns Co. L.P. v. N. Valley
Commc’ns, LLC, 26 FCC Rcd. 10780, ¶ 14 (2011), aff’d N. Valley Commc’ns,
LLC v. FCC, 717 F.3d 1017 (D.C. Cir. 2013); PAETEC Commc’ns, Inc. v. MCI
Commc’ns Servs., Inc., 712 F. Supp. 2d 405, 41-6-17 (E.D. Pa. 2010); Great
Lakes Commc’n Corp. v. AT&T Corp., No. 13-cv-4117, 2014 WL 2866474, at *23
(N.D. Iowa June 24, 2014); Bowers v. Windstream Ky. E., LLC, 709 F. Supp. 2d
526, 539-40 (W.D. Ky. 2010). Here, Midco’s tariff requires customers to raise
disputes within 180 days, a period shorter than the applicable statute of
limitations, or otherwise it waives its rights to file a claim. See Docket 46-1 at
22. Such a provision hinders a customer’s ability to exercise its statutory right,
Northern Valley Order, ¶ 14, and the provision is invalid.

The same reasoning applies to the state tariff. South Dakota has

consistently held that no contractual provision can shorten the time for an
action on the contract. See Leuning v. Dornberger Ins., Inc., 250 N.W.2d 675,
676 (S.D. 1977). “A surety can limit the extent of its liability, but not the time
for bringing suit.” Sheehan v. Morris Irrigation, 410 N.W.2d 569, 570-71 (S.D.
1987) (emphasis in original). Thus, the provision in the state tariff is also void.
Midco argues that the provision in section 8.1 of the Agreement is
distinguishable from other cases because it simply requires Verizon to notify
Midco of any billing disputes and is not an attempt to unlawfully shorten the
statute of limitations. Midco cites to several cases from other states that
distinguish between notice provisions and waiver provisions. See Docket 56 at
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11. But South Dakota has not recognized such a distinction and the law is
clear that “[e]very provision in a contract restricting a party from enforcing his
rights under it by usual legal proceedings in ordinary tribunals, or limiting his
time to do so, is void.” SDCL § 53-9-6. Further, the provision does not bar
Verizon’s claim. Section 8.1 states with permissive language that Verizon “may
initiate good faith disputes” within six months of an invoice. Docket 46-8 at 4.
And it does not state that Verizon waives its ability to raise disputes if it does
not raise them within six months. So section 8.1 does not prohibit Verizon from
bringing its counterclaims, and to interpret the section as a waiver of Verizon’s
right to bring a claim, would render the section void under SDCL § 53-9-6.
Thus, Verizon’s claims as to interstate calls made before May 24, 2014 are time
barred by § 415(c). And Verizon’s claims for intrastate calls made before May
24, 2010 are time barred by SDCL § 53-9-6.
C.

The parties’ Agreement and Release

On July 1, 2011, the parties entered into a Confidential Agreement and
Release. Docket 46 ¶ 42. Section 4 of the Agreement and Release includes a
mutual release covering all access disputes between the parties related to
invoices dated on or before April 30, 2011. Id. ¶ 44. The current dispute relates
to invoices between Midco and Verizon. Thus, under the Agreement and
Release, Verizon cannot challenge any billing disputes related to invoices dated
on or before April 30, 2011.
D.

Filed-Rate Doctrine Bars Equitable Defenses

Section 203(c) of the Communications Act provides that “[n]o carrier,
15

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.” 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.” 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 equitable
defenses. 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).
Midco alleges that all of Verizon’s billing disputes are barred by the
affirmative defenses of waiver, laches, and the voluntary payment doctrine.
Docket 51 at 26-31. This court previously determined that the filed-rate
16

doctrine applies to this case, see Docket 12, so the court must then determine
whether the doctrine bars Midco’s defenses. 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, 1124 (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.” Id.
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,
489 (8th Cir. 1992). To determine the impact of the court’s decision, the court
must evaluate the nature of Midco’s affirmative defenses and the relief it seeks.
In South Dakota, waiver is established when “one in possession of any
right, whether confirmed by law or contract, and with full knowledge of the
material facts, does or forbears something inconsistent with the existence of
the right or of his intention to rely on it.” Boxa v. Vaughn, 674 N.W.2d 306, 311
(S.D. 2003). Similarly, laches is established where “the [claiming party] must be
guilty of unreasonable and inexcusable delay that has resulted in prejudice to
the [other party].” Goodman v. McDonnell Douglas Corp., 606 F.2d 800, 804 (8th
Cir. 1979) (citing Gardner v. Panama R.R. Co., 342 U.S. 29, 31 (1951). And the
17

voluntary payment doctrine is a long standing rule “that money voluntarily
paid under a claim of right to the payment and with knowledge of the facts by
the person making the payment cannot be recovered on the ground that the
claim was illegal or that there was no liability to pay in the first instance.”
Siefkes v. Clark Title Co., 215 N.W.2d 648, 651 (S.D. 1974).
Midco argues that Verizon knew that Midco billed for tandem switching
services for nine years under the tariffs and Agreement before it finally
contested the charges, and thus, has waived its right to challenge the charges.
Verizon now claims that Midco billed for tandem switching services that it did
not provide—violating the terms of the tariffs, Agreement, and law. Thus, both
parties agree Verizon’s counterclaims arise from the type of services (tandem
switching services) specifically covered by the tariffs.
Because the services at issue are covered by the applicable tariff, Midco
cannot use an equitable defense against Verizon’s claims because the terms of
the tariffs exclusively enumerate the rights between the parties. Taking
Verizon’s claims and Midco’s defenses as true, the nonjusticiability prong of the
filed-rate doctrine would be implicated because permitting Midco to keep fees
that it wrongfully charged in violation of the tariffs infringes on “the exclusive
role of federal agencies in approving rates for telecommunications services that
are reasonable by keeping courts out of the rate-making process.” Sancom, Inc.,
643 F. Supp. 2d at 1124. “The filed rate doctrine prohibits a carrier from
collecting charges for services that are not described in its tariff.” PAETEC
Commc’ns, Inc., 712 F. Supp. 2d at 417 (finding that the filed-rate doctrine bars
18

equitable relief based on the voluntary payment doctrine) (citing Am. Tel. & Tel.
Co. v. Cent. Office Tel., 524 U.S. 214, 222 (1998)). Thus, the filed-rate doctrine
bars Midco’s equitable defenses because Midco cannot keep charges that it
collected in violation of the tariffs.
In conclusion, Verizon’s counterclaims are timely under the applicable
statute of limitations and the parties’ Release as to all charges on interstate
calls on or after May 24, 2014 and on all charges on intrastate calls on or after
April 30, 2011. Additionally, Midco’s equitable defenses are barred under the
filed-rate doctrine.
II.

Tandem Switching Services
A.

Services Midco may charge

Verizon’s dispute with Midco’s billing initially began because Verizon
believed that Midco was unlawfully charging for tandem switching services.
Verizon argues that the one-switch-one-rate rule prohibits Midco from charging
for both end-office and tandem switching services because Midco only used one
switch—the Sioux Falls Switch. Under 47 C.F.R. § 61.26(a)(3), the FCC defines
switched exchange access services as the following:
The functional equivalent of the ILEC interstate exchange access
services typically associated with the following rate elements:
Carrier common line (originating); carrier common line
(terminating); local end office switching; interconnection charge;
information surcharge; tandem switched transport termination
(fixed); tandem switched transport facility (per mile); tandem
switching;
(ii) The termination of interexchange telecommunications traffic to
any end user, either directly or via contractual or other
arrangements with an affiliated or unaffiliated provider of
interconnected VoIP service, as defined in 47 U.S.C. 153(25), or a
non-interconnected VoIP service, as defined in 47 U.S.C. 153(36),
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that does not itself seek to collect reciprocal compensation charges
prescribed by this subpart for that traffic, regardless of the specific
functions provided or facilities used.
47 C.F.R. § 61.26(a)(3) (2012). The FCC further clarified its regulations in §
61.26(a)(3) in the Eighth Report & Order & Fifth Order on Reconsideration,
Access Charge Reform, 19 FCC Rcd. 9108, ¶ 21 (2004) (Eighth Report and
Order) and the Order, Access Charge Reform, 23 FCC Rcd. 2556, ¶ 26 (2008)
(Cox Clarification Order). “It is well established that where administrative
regulations are ambiguous on their face, the court should look to the
construction which the responsible agency has given them.” Kickapoo Oil Co.,
Inc. v. Murphy Oil Corp., 779 F.2d 61, 65 (Temp. Emer. Ct. App. 1985) (quoting
Standard Oil Co. v. Dep’t of Energy, 596 F.2d 1029, 1055 (Temp. Emer. Ct. App.
1978)).
In the Eighth Report & Order, the FCC clarified the rules on what services
CLECs could charge IXCs. Eighth Report & Order, ¶ 10. The FCC stated that
“[t]he rate elements identified in section 61.26(a)(3) reflect those services
needed to originate or terminate a call to a LEC’s end-user.” Id. ¶ 13. And
“[w]hen a competitive LEC originates or terminates traffic to its own end-users,
it is providing the functional equivalent of [switched access] services . . . .” Id.
Thus, a CLEC may charge the full benchmark rate for switched access service
when it provides “the functional equivalent of the services associated with the
rate elements listed in 61.26(a)(3).” Id. Ultimately, the FCC stated that if a
CLEC switch “is capable of performing both tandem and end-office functions,

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the applicable switching rate should reflect only the function(s) actually
provided to the IXC.” Id. ¶ 21.
The FCC provided further clarification in the Cox Clarification Order. Cox
Communications requested clarification from the FCC “that competitive LECs
with multiple switches in a serving area may levy both tandem and end-office
switching charges when their switches actually perform both functions.” Cox
Clarification Order, ¶ 22. The FCC granted Cox’s clarification stating that
competitive LECs can charge “for both tandem and end office switching when
these functions are provided by separate switches” and applied the principle “to
a situation where a single switch is capable of providing tandem and end office
functions.” Id. ¶ 26. The FCC stated that “the Commission found that
competitive LECs can charge the end office switching rate when they originate
or terminate calls to end users, and the tandem switching rate when they pass
calls between two other carriers.” Id. These clarifications do not impose a
hardline “one-switch-one-rate” rule as Verizon argues. Instead, the FCC
clarified that CLECs can charge for both end office and tandem switching
services when CLECs provide both services—even when those services are
performed by a single switch.
But Verizon argues to the contrary and relies heavily on an amicus brief
that was submitted by the FCC to support its one-switch-one-rate argument.
See Brief for FCC as Amicus Curiae, PAETEC Commc’ns, Inc. v. MCI Commc’n
Servs., Inc., Nos. 11-2268, et. al (3d. Cir. Mar. 14, 2012). But only “[i]n the
absence of any unambiguous statute or regulation, [do] we turn to the FCC’s
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interpretation of its regulations in its amicus brief.” Talk Am., Inc. v. Mich. Bell
Tel. Co., 564 U.S. 50, 59 (2011). Here, the FCC’s explanation in its Eighth
Report & Order is clear—that a CLEC may charge for the services it provides
even where it simply provides the functional equivalent of switched access
service from a single switch. Thus, the court does not consider the arguments
made in the amicus brief and instead finds the FCC’s interpretations
controlling. See United States v. Larionoff, 431 U.S. 864, 872 (1977); Kickapoo,
779 F.2d at 67. So, based on the FCC’s interpretations in the Eighth Report &
Order, Midco was permitted to charge for tandem switching services if it
provided the functional equivalent of those services.
B.

Services Midco actually provided

Verizon and Midco acknowledge that Midco provided end office switching
services with the Sioux Falls Switch but disagree as to whether Midco provided
the functional equivalent of tandem switching services. See Docket 51 at 2
(“The parties disagree, however, about the narrow issue of whether Midco
provided tandem-switching services and related tandem mileage for which it
billed.”); Docket 49 at 11 (“[B]ecause the Sioux Falls Switch functioned as an
end-office switch to which Verizon had directly connected, Midco had not
transported Verizon’s long-distance calls between its end-office switch and any
tandem switch.”). Thus, there is a question of fact as to whether Midco actually
provided Verizon with the functional equivalent of tandem switching services.
The parties stipulate that a tandem switch is a switch that routes calls
between other switches, see Docket 46 ¶ 13, and that an end-office switch
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routes calls directly to and from end users. Id. The FCC tariff 2 defines “Access
Tandem” as “A switching system that provides a traffic concentration and
distribution function for originating or terminating traffic between end offices
and a Customer’s premises.” Docket 46-1 at 9. Midco’s Manager of Network
Voice for Midcontinent Communications, Charles Fejfar, testified in his sworn
affidavit that Midco’s Sioux Falls Switch performed a tandem-switching
function because:
Verizon’s traffic came in to Midco’s switch through ports or trunks
assigned to the tandem switching software. . . . Midco’s switch then
routed Verizon’s traffic to the end-users or customers for which the
calls were intended. A call reached or was terminated to the
appropriate end-user through additional equipment called an
embedded multimedia terminal adapter or EMTA, which was located
at the end-user’s business or home. The EMTA functions as an
extension of Midco’s Class 5 switch and enables the call to reach its
final destination.
Docket 52-2 ¶¶ 7-8.
In contrast, Verizon’s Product Manager in the Voice Services Group for
Verizon Services Corporation, Peter J. D’Amico, testified in his sworn affidavit
that “the Sioux Falls Switch does not function as a tandem switch” because it
is “not registered in the LERG as a tandem switch” and “none of the
Subtending Equipment is registered in the LERG as an end-office switch.”
Docket 46-21 ¶¶ 5-7. Where both parties rely on battling experts to establish a
material fact, the fact is disputed. Thus, there is a dispute of fact between the
parties as to whether or not Midco provided tandem switching services for
Verizon. As a result, Midco’s motion for summary judgment and Verizon’s cross
2

The state tariffs contain identical definitions. See Dockets 46-2; 46-3; 46-4.
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motion on Midco’s claims for breach of contract and declaratory judgment are
denied.
C.

Verizon’s counterclaims

Verizon argues that even if it is incorrect as to its tandem billing dispute,
it is still entitled to summary judgment because Midco terminated the direct
trunks in violation of the Agreement. The Agreement permitted Midco to
disconnect the direct trunks only if the Agreement was terminated for a
“material breach.” Docket 46-8. A material breach occurs if the breach
threatens to “defeat the very object of the contract.” Thunderstik Lodge, Inc. v.
Reuer, 585 N.W.2d 819, 824 (S.D. 1998). Verizon was permitted to dispute and
withhold charges based on a “good faith determination.” Docket 46-8. Midco
has presented evidence that Verizon did not act in good faith because it would
not inform Midco as to why it was withholding payment, so Midco could not
resolve the issue. See Docket 46 ¶¶ 47-48. Viewing the facts in the light most
favorable to Midco, a reasonable jury could determine that Verizon’s actions
were not in good faith, regardless of whether it is successful on the tandem
billing dispute, and that its decision to withhold payments for several months
without explanation defeated the object of the contract. Thus, Verizon’s motion
for summary judgment on its counterclaims is denied. Further, determinations
of good faith are traditionally questions of fact properly left to a trier of fact, so
Midco’s cross motion for summary judgment on Verizon’s counterclaims is also
denied.

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CONCLUSION
In conclusion, Verizon’s counterclaims are partially time barred by
applicable statutes of limitation and the parties’ Release. A question of fact
exists as to whether Midco provided tandem switching services to Verizon. And
there are also questions of fact as to whether Verizon materially breached the
Agreement by withholding payments for services and acted in good faith and
whether Midco breached the Agreement by disconnecting the direct trunks. It
is,
ORDERED that Midco’s first motion for summary judgment (Docket 31)
is DENIED as moot. It is
FURTHER ORDERED that Verizon’s updated motion for summary
judgment (Docket 47) is DENIED. And it is
FURTHER ORDERED that Midco’s motion for summary judgment
(Docket 50) is DENIED.
DATED March 16, 2018.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE

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