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Peerless Network, Inc. v. McI Communication Services, Inc.

United States District Court, N.D. Illinois, Eastern Division

May 21, 2015

Peerless Network, Inc. et al., Plaintiffs-Counterclaim Defendants,
v.
MCI Communication Services, Inc., Verizon Services Corp. and Verizon Select Services Inc., Defendants-Counterclaim Plaintiffs.

MEMORANDUM OPINION AND ORDER

THOMAS M. DURKIN, District Judge.

Peerless Network, Inc., et. al., ("Peerless"), sued the Defendants MCI Communication Services, Inc., Verizon Services Corp., and Verizon Select Services, Inc., (collectively "Verizon"), alleging claims of breach of contract, breach of tariffs, breach of implied contract, unjust enrichment, quantum meruit, and seeking declaratory judgments. Verizon filed four counterclaims against Peerless alleging breach of federal and state tariffs. This matter is before the Court on Verizon's motion to dismiss Counts I-II and VI-X, in full, and Counts III-V and XI-XII, in part, of Peerless's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). R. 28. For the following reasons, the Court grants the motion in part and denies the motion in part.

Background

Peerless and Verizon are both telecommunications carriers that provide a variety of telecommunication services. R. 1 ¶¶ 7-8. Telecommunication services in the United States can be divided into two categories: (1) local exchange services and (2) interexchange services. Id. ¶ 15. Local exchange services involve phone calls that originate when the calling party dials the call in one exchange service area and terminate when the call is delivered to the receiving party in the same exchange service area. Id. Interexchange services involve phone calls that originate in one exchange area and terminate in a different exchange area. Id. Interexchange services can be intrastate or interstate. Id. Intrastate services are calls exchanged in the same state. Id. Interstate services are calls exchanged between multiple states. Id.

Many telecommunication carriers provide both local exchange and interexchange services. Id. ¶ 16. "Local Exchange Carriers" ("LECs") are carriers that provide local exchange services. Id. For purposes of this action, Verizon's local affiliates and Peerless are LECs. Id. "Interexchange Carriers" ("IXCs") are carriers that provide interexchange services. Id. For the purposes of this action, Verizon functions as an IXC. Id. ¶ 9.

The Federal Communications Commission ("FCC") adopted a compensation structure that requires LECs to allow IXCs to use their telephone lines to originate and terminate calls so all carriers can exchange calls between their customers. Id. ¶ 18. IXCs are required to compensate LECs for their use of LECs' telephone lines. Id. Peerless provides an example of how LECs and IXCs collaborate on long distance phone calls:

When a consumer makes an interexchange call, the consumer's LEC originates the call, and performs transport and switching functions and delivers the call (i.e., "hands the call off") to an IXC, and the IXC then hands off the call to the terminating LEC so that the call can be delivered to the called party. A common example of [this] would be a long-distance call from Chicago to St. Louis. In that example, AT&T Illinois (the incumbent LEC in Chicago) performs switching functions and originates the call on its network, and hands over the call to an IXC, such as Sprint Long-Distance, which carries the call to St. Louis. Sprint then hands off the call off to AT&T Missouri (the incumbent LEC in St. Louis), which performs transport and switching functions and carries the call across its network to deliver the call to the called party.

Id. ¶ 19. In this example, Sprint (the IXC) must compensate AT&T (the LEC) because AT&T performed switched access service by carrying the customer's call on Sprint's phone lines. Id. ¶ 20. IXCs are required to pay LECs "access charges" for "originating" and "terminating" the phone calls. Id. These access charges are set forth in negotiated contracts between IXCs and LECs, tariffs on file with the FCC, and tariffs on file with state public service commissions. Id.

The types of services that LECs provide to IXCs vary depending on need and function. Id. ¶ 26. For example, an IXC can use an LEC's tandem switch (the telephone switch that connects LEC switches to IXC switches) or an LEC's end office switch (the telephone switch that connects LEC switches to the customer's phone) to reach the end customer. Id. An IXC can also use an LEC's physical infrastructure (e.g., fiber optic cables) or electronic database to carry the call to and from the tandem or end office switch, which is known as "transport services." Id. These services are collectively known as "access services." Id.

On February 11, 2009, Peerless and Verizon entered into a contract ("Switched Access Agreement") under which Peerless agreed to provide access services to Verizon in certain markets. Id. ¶¶ 35-36. Section 3 of the Switched Access Agreement spells out the types of interstate and intrastate access service Peerless was to provide Verizon. Id. ¶ 36. Since February 11, 2009, the parties have amended the Switched Access Agreement four times, most recently on October 9, 2013. Id. ¶ 35.

The Switched Access Agreement states that any services or charges it does not govern "are subject to the applicable Peerless tariffs." R. 1-1 at 4. The FCC requires telecommunication carriers to file tariffs with the FCC that publicly display the carriers' rates for interstate and foreign telecommunication services. 47 U.S.C. § 203. Peerless filed its initial interstate access tariff with the FCC in June 2008. R. 1 ¶ 39. It subsequently cancelled and replaced the tariff three times to reflect its modified rates. Id.

Historically, the FCC has exercised jurisdiction over interstate calls, while each individual state's public service commission has exercised jurisdiction over intrastate calls. Id. ¶ 17. Generally, public service commissions require carriers to file intrastate tariffs just as the FCC does. Id. ¶¶ 20, 42-43. Peerless filed state tariffs with the proper public service commissions in those states where it provided intrastate access services to Verizon. Id. ¶ 42.

In 2013, the relationship between Peerless and Verizon broke down because Verizon disputed its bills from Peerless for switched access charges and Peerless alleged Verizon wrongfully disputed its billings. R. 29-1 at 2. On September 18, 2013, in an effort to reach an accord on Verizon's outstanding payments to Peerless, the parties entered into a new contract ("Standstill Agreement") to attempt to resolve their disputes without litigation. Id. Specifically, the parties created the Standstill Agreement to address Verizon's unpaid access charges under Peerless's tariffs and the Switched Access Agreement. Id.

In its complaint, Peerless alleges that it properly billed for the services it provided to Verizon pursuant to the Switched Access Agreement, its federal tariffs, and its state tariffs. R. 1 ¶¶ 34-36, 44-45. Peerless claims Verizon refused to make full payment for the interstate and intrastate access services Peerless provided to Verizon. Id. ¶¶ 47-48. Specifically, Peerless's complaint alleges Verizon refused to pay for three types of calls: (1) calls for which Peerless provided end office switching and transport services to deliver long distance calls to Verizon customers; (2) calls for which Peerless provided end office switching and transport services to deliver long distance calls originated by Verizon's customers; and (3) calls for which Peerless provided end office switching, but not transport services, to deliver long distance calls to Verizon's toll-free customers. Id. ¶ 34.

Verizon admits that it disputed and withheld some payments owed to Peerless pursuant to Peerless's federal and state tariffs. R. 27. Verizon argues it does not owe Peerless the withheld amounts because Peerless: (1) improperly billed Verizon its tariffed end office switched access rate for calls that were routed over the internet; (2) engaged in traffic pumping[1] by charging a federal tariffed end office switched access rate that exceeds permissible rates in Illinois; and (3) improperly billed Verizon its tariffed terminating switched access rate for international calling card services where an international telephone company-not Peerless-terminated the call. Id. at 36-38.

Furthermore, Verizon argues that the three types of calls at issue in Peerless's complaint are not covered by any provision of the Switched Access Agreement. Id. at 12, 16, 18. Verizon argues the three types of calls only involve end office switching services, whereas the Switched Access Agreement governed tandem switching services. R. 29 at 6-7.

Peerless also alleges that Verizon breached the Standstill Agreement by refusing to pay for access service charges due under that agreement. Id. ¶¶ 50-51. Peerless asserts that Verizon refused to pay for access service charges due under the Standstill Agreement because it disputes charges it previously paid under the Switched Access Agreement-before the Standstill Agreement went into effect. Id. ...


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