Chicago Business Litigation Lawyer Blog
When a contract dispute arose between two telecommunications companies over the rates charged during the switching process of telephone call transmission, district court committed error in granting partial summary judgment to plaintiff, as it was likely that the same facts and issues would appear before the appellate court in the future after the FCC resolved certain regulatory issues.
Local Exchange Carriers and Interexchange Carriers are types of telecommunications service providers. LECs operate in limited geographical regions, and IXCs transport calls between them, enabling consumers to make long distance telephone calls. IXCs pay a fee in exchange for access to an LEC’s network. These rates are set either by regulatory agencies or in negotiated agreements between the IXC and the LEC.
In February 2009, Peerless Network, a LEC, and Verizon, an IXC, entered into one such agreement. The contract provided for lower rates for certain switching services. If a rate in the agreement did not apply, Peerless billed Verizon at its tariff rates, which were the rates that Peerless had filed with the Federal Communications Commission. In 2013, the relationship between Peerless and Verizon broke down, and Verizon began withholding payment. In September 2014, after negotiations failed to resolve the dispute, Peerless sued Verizon.
Peerless’ complaint alleged several counts, including breach of the Tandem Service Agreement, and breach of federal and state tariffs. Verizon asserted that Peerless was not entitled to the higher rates that it charged, due to its status as an Access Stimulator, which is a LEC that charges high rates to companies engaged in high volume call services, such as adult entertainment calls, chat lines and “free” conference call lines. Such LECs charge high rates to IECs and then pass a portion of the tariff revenue back to the companies that generated the high call volume. In turn, the FCC regulates the maximum rates that LECs meeting this definition can charge.
The parties filed cross-motions for summary judgment. The district court referred three of Verizon’s counterclaims to the FCC under the primary-jurisdiction doctrine as they involved complex issues of telecommunications law. The district court then granted partial summary judgment under Rule 54(b) to Peerless on its breach of contract and breach of tariff claims. The court reasoned that Verizon’s defense could be litigated separately and that Verizon was therefore required to pay disputed charges before challenging them. Verizon then appealed.
The appellate panel began by addressing the breach of tariff claims. The panel noted that Verizon’s defense to the claims resolved by the district court were the exact same arguments it made in its counterclaims that were referred by the court to the FCC. The panel stated that, regardless of how the FCC decides those claims, the unsuccessful party could appeal the district court’s application of that decision to the stayed counterclaims. Therefore, the panel found, it was likely that the very same facts and issues would arise before the 7th Circuit again once the district court resolved Verizon’s counterclaims. The panel stated that this type of judicial inefficiency made a decision on Peerless’ claims under Rule 54(b) inappropriate.
Next, the panel turned to the breach of contract claims. The panel noted that the breach of contract claims relied entirely upon the negotiated provisions in the agreement between Peerless and Verizon, and was thus separate from Verizon’s counterclaims or its defenses to Peerless’ tariff rates. The panel found that the district court’s determination that prompt payment outweighed the risk that Verizon may be entitled to a refund was not an abuse of discretion, as it was unclear how long the tariff matters may be pending before the FCC. Therefore, the panel stated that Rule 54(b) judgment was appropriate for the breach of contract claims.
However, the panel then found that the district court erred in granting summary judgment on those claims. The panel noted that, contrary to the district court’s opinion, Verizon had disputed whether it owed amounts under the agreement. The panel determined that genuine issues of material fact existed for the breach of contract claims and that such claims were thus inappropriate for summary judgment. The panel, therefore, reversed the decision of the district court.
You can read the full decision here.
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