Opinion
Civil Action No. 04-1479.
August 31, 2005
MEMORANDUM OPINION
This matter comes before the Court on Plaintiff's and Defendant's Cross-Motions for Summary Judgment. Plaintiff filed suit against Defendant alleging breach of interstate and intrastate telecommunications tariffs. Defendant filed counterclaims against Plaintiff alleging breach of interstate and intrastate telecommunications tariffs, breach of implied contract, quantum meruit, and unjust enrichment. Plaintiff seeks summary judgment on its claim and Defendant's counterclaims. Defendant seeks summary judgment on its counterclaims.
Plaintiff, MCI Worldcom Network Services, Inc. (MCI), is a corporation organized under the laws of Delaware, with a principal place of business in Ashburn, Virginia. MCI provides local and long-distance telecommunications services to customers throughout the United States. To provide these services, MCI makes use of other telecommunications carrier's services, and interconnects with other carrier's phone lines. Thus, MCI is both a telecommunications carrier and a customer of other telecommunications carriers.
Defendant, Paetec Communications, Inc. (Paetec), is a privately held corporation with its principal place of business in New York. Paetec has customers and facilities in the Eastern District of Virginia. Among other things, Paetec provides local telecommunications service to its customers. Paetec's services are set out in interstate and intrastate tariffs — documents that set the terms and conditions upon which customers purchase services from Paetec. Paetec unilaterally establishes the terms and conditions governing its tariffs according to the provisions of the Federal Communications Act, 47 U.S.C. §§ 151- 615b (2000), (the Act). Paetec has both federal and state "access tariffs" that establish the terms upon which Paetec allows MCI and other telecommunications carriers to reach Paetec's local customers who want to use MCI's long distance service.
Paetec and MCI have a well established relationship through which MCI receives access service from Paetec. As part of this relationship, on December 14, 2000 Paetec and MCI executed a Switched Access Agreement that was later rejected in August 2003 as part of the Worldcom, Inc. (MCI's predecessor) bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York. That rejection became effective October 31, 2003.
One service that Paetec continued to provide MCI under its interstate and intrastate tariffs was "originating access service." When one of Paetec's own local customers ("end-users") dials a toll-free 800 number assigned to one of MCI's customers, the call originates on Paetec's network, travels to a point at which Paetec's network interconnects with MCI's network, is transferred to MCI's network, and then is sent to the MCI customer who purchased the toll-free service. In this circumstance, MCI pays Paetec an "originating access charge" for its service. If the call is an interstate call, the service and its applicable charge are governed by Paetec's interstate tariff. If the call is an intrastate call, the service and its applicable charge are governed by Paetec's appropriate state tariff.
At some point prior to October 2003, Paetec altered the manner in which it provided this access service to MCI. Paetec began acting as a middleman between MCI and other wireless telephone companies. Paetec entered into contracts with these other telecommunications carriers under which Paetec would pay to have a portion of the wireless calls to MCI's toll-free customers routed through Paetec and then passed on to MCI, after which it would charge MCI for the re-routed calls according to the originating access charges specified in its tariffs.
This practice continued from October 2003 until June 21, 2004 without MCI's knowledge because the billing statements sent by Paetec to MCI did not separate calls being routed to MCI from Paetec's own end-users from those calls being routed to MCI from the end-users of other telecommunications carriers. Starting with the June 26, 2004 invoice, these separate calls were distinguished on Paetec's invoices. In response to this, MCI withheld payments of the July 2004 and August 2004 billing invoices sent to MCI by Paetec in an effort to recoup funds it believed it had been illegally charged by Paetec.
MCI then filed a complaint in this Court alleging that Paetec violated 47 U.S.C. § 203 by illegally charging MCI from October 2003 to June 21, 2004 for telecommunications services not within its interstate tariff. MCI's complaint alleged that Paetec violated its intrastate tariffs. MCI calculates its damages at $5,762,993.63; offset by the $2,041,657.45 withheld on the July 2004 and August 2004 invoices. Paetec then counterclaimed against MCI for payment of the July and August 2004 invoices. Paetec's four part counterclaim alleged that by withholding payment of the July 2004 and August 2004 invoices MCI was in violation of 47 U.S.C. § 203, applicable state communications laws, and contractual principles of implied contract, quantum meruit, and unjust enrichment. Both parties have now filed for summary judgment on their respective claims.
Under Rule 56(c), the Court must grant summary judgment if the moving party demonstrates that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). In reviewing a motion for summary judgment, the Court views the facts in a light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Once a motion for summary judgment is properly made and supported, the opposing party then has the burden of showing that a genuine dispute as to any material fact does exist. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. Anderson, 477 U.S. at 248. "Rule 56(e) requires the nonmoving party to go beyond the pleadings and by [his] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
There are no material issues of fact as to MCI's interstate claim against Paetec. The only issue is whether Paetec's access tariff during the disputed time period included the service of transmitting interstate toll-free calls made by end-users of other telecommunications carriers to MCI. Resolution of this issue is a question of law within the competency of this Court.See Dunlop Tire Rubber Corp. v. Interstate Commerce Comm'n, 724 F.2d 349, 350 (2d Cir. 1983).
The Act contains several relevant regulations of the interstate telecommunications industry. First, the Act provides that every common carrier, such as Paetec, must file a comprehensive schedule with the Federal Communications Commission (FCC) that shows all of the carrier's charges for interstate telecommunications services. 47 U.S.C. § 203(a) (2000). These schedules, or tariffs, must specifically list and define the telecommunications services offered by the common carrier and the carrier's charges for those services. 47 C.F.R. § 61.2 (1999). This rule, establishing that a carrier can only charge its customers according to the services and rates set forth in its tariff, is known as the "filed tariff doctrine." See Amer. Tel. Tel. Co. v. Central Office Tel., Inc., 524 U.S. 214, 222 (1998).
Second, the Act provides that it is unlawful for a common carrier to "charge, demand collect, or receive a greater or less or different compensation for such communication or for any service in connection therewith" other than "the charges specified" in the tariff. 47 U.S.C. § 203(c). Third, the Act provides that any "charge" that is "unjust or unreasonable is declared to be unlawful." 47 U.S.C. § 201(b). Therefore, the statutory rule that a common carrier can only charge customers for services set forth in its tariff, according to the related rates contained in the tariff, is also part of the filed tariff doctrine. See Amer. Tel. Tel. Co., 524 U.S. at 222.
Under the filed tariff doctrine, Paetec's tariff is "the exclusive source of the terms and conditions by which . . . [it] provides to its customers the services covered by the tariff."Brown v. MCI Worldcom Network Servs., Inc., 277 F.3d 1166, 1170 (9th Cir. 2002) (quotation and citation omitted). In addition, once a carrier's tariff is filed with the FCC it becomes binding upon the carrier and its customers. See In re Worldcom, Inc., 322 B.R. 530, 536 (Bankr. S.D.N.Y. 2005). Finally, because a tariff that is properly filed with the FCC carries the force of law, courts must strictly enforce its terms. Bryan v. Bellsouth Commc'ns., Inc., 377 F.3d 424, 429 (4th Cir. 2004).
Paetec's interstate tariff for the period in question did not include the service of transmitting interstate toll-free calls made by end-users of other telecommunications carriers to MCI. There are two key provisions within Paetec's interstate tariff that support this conclusion.
First, MCI was not a "customer", as defined in Paetec's interstate tariff. For an entity to be subject to charges under Paetec's interstate tariff, it must first fit within the tariff's definition of customer. Paetec's interstate tariff separates customers into two groups: subscribing customers and constructive customers. MCI does not qualify as a subscribing customer based upon the simple fact that there was no subscription agreement between MCI and Paetec for the service of transmitting interstate toll-free calls made by end-users of other telecommunications carriers to MCI. While the parties did execute a switched access agreement in December 2000, upon which Defendant relies in part, that agreement was duly rejected through the Worldcom, Inc. bankruptcy proceedings prior to the disputed time period and Paetec cannot seek continued performance of that rejected contract. See Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1048 (4th Cir. 1985).
The rejection of the switched access agreement through bankruptcy constituted a breach of contract under bankruptcy law. 11 U.S.C. § 365(g)(1) (2000); see also NLRB v. Bildisco Bildisco, 465 U.S. 513, 530 (1984); Lubrizol, 756 F.2d at 1048. Paetec's sole remedy for this breach was to file a proof of claim for pre-petition damages. See 11 U.S.C. § 365(g);Lubrizol, 756 F.2d at 1048. Paetec did not file such a claim, and is not entitled to continued performance of the contract.Lubrizol, 756 F.2d at 1048.
MCI does not qualify as a constructive customer either. Paetec's tariff provides that "[a] person, firm or corporation is deemed a Customer of [Paetec] if any of its traffic is terminated to a central office code (NPA-NXX) assigned to [Paetec] or if End Users originate traffic on Paetec's network that is routed to the person's, firm's or corporation's network." Paetec's FCC Tariff § 1.2. Since the calls in question did not originate on Paetec's network, they originated on the wireless carrier's network, MCI is not a constructive customer of Paetec. Therefore, with regard to the disputed services, MCI was not a Paetec customer as defined by Paetec's tariff.
Second, even if MCI were a customer, the service that Paetec performed for MCI is not within its tariff. The service that Paetec actually performed for MCI was the transmission of interstate toll-free calls made by end-users of other telecommunications carriers to MCI. However, the service for which MCI was charged, according to Paetec's tariff, was switched access service. Paetec's tariff defines switched access service as providing "a two-point electrical communications path between a Customer's premises and an End User's premises." Paetec's FCC Tariff § 3.1. But, the communications path actually provided by Paetec to MCI was not between MCI (the alleged customer) and an end-user as defined in Paetec's tariff. See Paetec's FCC Tariff § 1.2 (providing, in relevant part, that an end-user is "[a]ny customer of an interstate telecommunications service that is not a Carrier or Common Carrier"). Rather, the communications path was between MCI and the switching facility of other telecommunications carriers that are not within the tariff's definition of end-users. Therefore, the services that Paetec performed for MCI were outside the scope of Paetec's tariff and MCI is entitled to summary judgment.
There are no material issues of fact as to MCI's intrastate claims against Paetec. The only issue is whether Paetec's intrastate access tariffs during the disputed time period included the service of transmitting intrastate toll-free calls made by end-users of other telecommunications carriers to MCI. Resolution of this issue is a question of law within the competency of this Court. See Dunlop, 724 F.2d at 350.
The discussion above of MCI's interstate claims is dispositive of its intrastate claims as well. First, the language in Paetec's interstate and intrastate tariffs for the period in question is identical in all respects relevant to this Court's inquiry. Second, the principles of the federal filed tariff doctrine applied above to Paetec's interstate tariff apply with equal force to Paetec's intrastate tariffs. See Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 20 (2d Cir. 1994); Taffet v. Southern Co., 967 F.2d 1483, 1494 (11th Cir. 1992) (en banc). Therefore, just as Paetec's interstate access tariff during the disputed time period did not include the service of transmitting toll-free calls made by end-users of other telecommunications carriers to MCI, Paetec's intrastate tariffs during the disputed time period did not include this service either and MCI is entitled to summary judgment.
As to Paetec's interstate counterclaim against MCI, there are no material issues of fact. The only issue is a matter of law; may MCI withhold payment on the July 2004 and August 2004 invoices when illegally charged from October 2003 to June 21, 2004 for telecommunications services not included in Paetec's interstate tariff.
MCI is entitled to withhold payment on the July 2004 and August 2004 invoices in lieu of Paetec's illegal charges. The Act explicitly provides that any charge for telecommunications that is "unjust or unreasonable is declared to be unlawful." 47 U.S.C. § 201(b). The disputed charges are thus unlawful as they are not included within Paetec's tariffs as required under the Act. 47 U.S.C. § 203(a). In addition, the Act provides that Paetec, as a telecommunications carrier, may not "charge, demand, collect, or receive . . . compensation for . . . any service [other] than the charges specified in the schedule then in effect." 47 U.S.C. § 203(c). As the disputed charges are clearly outside Paetec's tariff, Paetec is prohibited from collecting those charges.
Furthermore, allowing Paetec to retain the money it illegally charged MCI from October 2003 to June 21, 2004 by requiring MCI to pay the July 2004 and August 2004 invoices would violate the filed tariff doctrine. The Supreme Court has stated that the filed tariff doctrine explicitly prohibits a carrier from collecting charges for services that are not described in its tariff. See Amer. Tel. Tel., 524 U.S. at 222. The Supreme Court has further stated that the rates and services contained in a carrier's tariff are the only lawful charges that can be applied to a customer, and that deviation from the tariff is not permitted under any circumstance. See id. Therefore, to allow Paetec to collect at this time the charges included in the July 2004 and August 2004 invoices would violate the Act and the filed tariff doctrine. Therefore, summary judgment in favor of MCI is appropriate.
Likewise, there are no material issues of fact as to Paetec's intrastate counterclaims against MCI. MCI may withhold payment on the July 2004 and August 2004 invoices when illegally charged from October 2003 to June 21, 2004 for telecommunications services not included in Paetec's intrastate tariff. As stated above, the language of Paetec's interstate and intrastate tariffs is identical for all relevant purposes and the same legal principles of the filed tariff doctrine apply.
Finally, no material issues of fact remain as to Paetec's equitable counterclaims of quantum meruit and unjust enrichment. Under the filed tariff doctrine, where a carrier operates under the terms of a tariff, that tariff "conclusively and exclusively" governs the rights and liabilities of the parties. See Brown, 277 F.3d at 1170. As discussed above, Paetec has a strict obligation to specify its services and rates in its tariffs, and any claim that would allow Paetec to charge MCI outside the tariff is prohibited by the filed tariff doctrine. Central Office, 524 U.S. at 224; Bryan v. Bellsouth Commc'ns., Inc., 377 F.3d 424, 429-30 (4th Cir. 2004). As to any damages suffered by MCI, the Court finds there are material issues of fact in dispute, and Counsel should contact the Court to schedule a trial on the damages issue.
An appropriate Order shall issue.