Centurytel of Chatham, LLC v. Sprint Commc'ns Co.

861 F.3d 566

CENTURYTEL OF CHATHAM, LLC, et al., Plaintiffs–Appellees

v.SPRINT COMMUNICATIONS COMPANY, L.P. Defendant–Appellant

No. 16-30634

United States Court of Appeals, Fifth Circuit.

FILED June 27, 2017

Michael J. Lockerby, Benjamin Rodes Dryden, Jarren Neil Ginsburg, Foley & Lardner, L.L.P., Washington, DC, Edward Hart Bergin, Mark Alan Mintz, Jones Walker, L.L.P., New Orleans, LA, for Plaintiffs–Appellees.

Christopher Joseph Wright, Jared Paul Marx, Timothy J. Simeone, Harris, Wiltshire & Grannis, L.L.P., Washington, DC, Glenn Michael Farnet, Esq., Kean Miller, L.L.P., Baton Rouge, LA, Scott Louis Zimmer, Cook, Yancey, King & Galloway, A.P.L.C., Shreveport, LA, for Defendant–Appellant.

Scott H. Angstreich, Joshua D. Branson, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Washington, DC, for Amicus Curiae.

Before BARKSDALE, GRAVES, and HIGGINSON, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Regarding the amount Sprint Communications Company, L.P., was required to pay for the right to access the telephone-service subscribers of various local administrators (collectively, CenturyLink), primarily at issue is the proper application of the 1996 Telecommunications Act as applied by the Federal Communications Commission (FCC). Sprint partnered with cable companies to, inter alia , convert calls from Internet-based calling technology for delivery to CenturyLink customers with otherwise-incompatible traditional-format telephone services. Pursuant to federal and state regulatory regimes, CenturyLink billed Sprint at CenturyLink's exchange-access tariff rates for Sprint's being able to connect to CenturyLink's subscribers; and Sprint paid these rates without dispute until 2009, when it began claiming its transfer service was exempt from the tariff rates.

Following a bench trial, the district court concluded, inter alia , that Sprint's transfer service was subject to the tariff rates. CenturyTel of Chatham, LLC, et al. v. Sprint Commc'ns Co., L.P. , 185 F.Supp.3d 932, 946 (W.D. La. 2016). Also at issue is the court's imposing, inter alia , attorney's fees against Sprint for violating the 1996 Act by using "unjust and unreasonable" practices. Id. AFFIRMED.

I.

It goes without saying that, for a bench trial, "findings of fact are reviewed for clear error". In re Mid-South Towing Co. , 418 F.3d 526, 531 (5th Cir. 2005). In any event, neither party challenges the court's factual findings. Accordingly, they are relied upon and cited.

Plaintiffs (again, CenturyLink) are various entities operating in numerous States as "local exchange carriers" (local administrators). CenturyTel , 185 F.Supp.3d at 933–34. This action against Sprint claimed damages resulting from, inter alia , Sprint's refusal to pay over $8.7 million in "access charges". Id . at 934. Sprint counterclaimed, seeking a declaration it was not required to pay CenturyLink the higher statutory "tariff" rates under federal and state laws. Id .

Beginning in 2004, Sprint partnered with cable companies offering "voice-over-internet-protocol services" (VoIP) to provide, inter alia , the conversion of VoIP telephone calls to a "time division multiplexing" protocol (traditional format) to facilitate calls between the two types of networks. Id . at 935–36. Conversion for these two types of calling is necessary because they are otherwise incompatible; VoIP is a newer technology that delivers telephone calls by splitting data into tiny packets traveling the most efficient pathways available, rather than the traditional format, which transmits data over a single pathway. Id . at 935 n.4.

Therefore, for a VoIP subscriber to call someone still using traditional-format technology, a conversion is required. Id . at 935. Once converted, Sprint transmitted the calls to, inter alia , local administrators, like CenturyLink, which administer the distribution of telephone calls for termination to their subscribers. Id . at 936.

But, Sprint also transferred calls originating in traditional format to CenturyLink's traditional-format customers. Id . During the period relevant to this dispute, CenturyLink did not distinguish between the originating format of calls it received from Sprint, and, concomitantly, charged Sprint the same rates for calls from both VoIP callers and traditional-format callers; by the time CenturyLink received the calls from Sprint, they had already been converted. Id ."The VoIP-originated calls were thus in the same format as and intermingled with [traditional-format-originated] calls." Id .

Historically, for a company like Sprint to connect long-distance telephone-service subscribers to local administrators' customers, like CenturyLink's, it must pay an exchange-access tariff, as approved either by the FCC for interstate calls, or by state regulators for intrastate calls. Id . CenturyLink "properly filed with [the FCC] one or more tariffs for the provision of interstate switched access service", and accordingly, "its federal tariffs were legally binding". Id . The same was true for its state tariffs, relevant to the intrastate calls. Id . As discussed infra , the rates varied, based on the type of service being provided.

Prior to July 2009, Sprint paid, without dispute, the tariffs billed by CenturyLink, which, as discussed, included traditional-format and VoIP-originated calls. Id . Beginning in July 2009, however, Sprint began disputing the tariff-rate access charges assessed in invoices from CenturyLink, specifically the rates applied to VoIP-originated calls. Id . For those invoices, instead of paying the billed tariff rates, Sprint instead paid $0.0007 per minute—the rate the FCC applied to local Internet-service-provider-bound traffic—for its VoIP-originated calls converted for transfer to CenturyLink's traditional-format customers; but, CenturyLink "did not agree or acquiesce". Id . at 937 & n.7. On the other hand, Sprint continued to pay the undisputed amount billed for its calls originating in traditional format. Id . With its resulting partial payments, it submitted an explanation: "To date, although the FCC has asserted jurisdiction over VoIP services and has determined that information services [as discussed infra ] are not subject to access [tariffs], the FCC has not yet rendered a determination as to the applicable inter-carrier compensation for VoIP traffic". Id . at 937. Sprint stated it would continue this partial-payment practice until guidance was offered by the FCC. Id .

In addition to withholding the amount it deemed unjustified for ongoing VoIP-originated calls transferred to CenturyLink, Sprint retroactively estimated a percentage of VoIP-originated calls transferred to CenturyLink for the period August 2007 to July 2009, and calculated an amount of "overpayment" for that period. Id . Sprint deducted this "overpayment" from its July 2009 approved payments going forward. Id .

The disputed period ended October 2011, when the FCC's Comprehensive Reform Order was issued. Id . at 935, 938 (citing In the Matter of Connect Am. Fund , Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd. 17663 (2011)(Comp. Reform Order)). That order, inter alia , expressly clarified that, going forward, VoIP-originated calls would be subject to the interstate exchange-access tariff rates, Comp. Reform Order, 26 FCC Rcd. at 18002, ¶ 933 ; but, the tariff regime would be phased out completely by 2020. Id . at 17934, ¶ 801.

This action originated in 2009, before being transferred to multidistrict litigation in the northern district of Texas, with the claims at issue here being severed and remanded to the western district of Louisiana. See In re IntraMTA Switched Access Charges Litig. , No. 3:14-MD-2587, 2015 WL 7252948 (N.D. Tex. 17 Nov. 2015). After a two-day bench trial, followed by post-trial briefing, the court ruled in favor of CenturyLink. CenturyTel , 185 F.Supp.3d at 934, 946.

Regarding the federal tariffs, at issue was the proper application of § 251(g) of the 1996 Telecommunications Act, 47 U.S.C. § 251(g). CenturyTel , 185 F.Supp.3d at 940–41. That provision is a grandfather clause, preserving the pre-Act "restrictions and obligations (including receipt of compensation) that apply ... under any court order, consent decree, or regulation, order or policy of the [FCC], until such restrictions and obligations are explicitly superseded by regulations prescribed by the [FCC]". 47 U.S.C. § 251(g).

Prior to the passage of the 1996 Act, local administrators, like CenturyLink, were allowed monopolies over local services. See AT & T Corp. v. Iowa Utils. Bd. , 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). An "interexchange carrier" (IXC), like Sprint, provided the long-distance service, connecting callers in one locality to those in others. CenturyTel , 185 F.Supp.3d at 940. (As discussed infra , Sprint's being an "IXC" is critical to resolving this appeal.) Under the pre-Act framework, the local monopolies could impose an exchange-access tariff on the long-distance provider in exchange for access to that local network. Id . (citing In re IntraMTA , 2015 WL 7252948, at *2, *4–5 ).

Although these local monopolies were abolished under the 1996 Act, the already-established local administrators continued to be permitted to charge tariffs to telecommunications carriers for access unless and until the FCC explicitly superseded that system. Id . at 940–41. In that regard, however, the FCC in 1980 had recognized an exemption from the higher-tariff rates for "enhanced service" providers. See Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Svcs. , 545 U.S. 967, 976–77, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005) (citing In re Amendment of Section 64.702 of the Comm'n's Rules and Regulations (Second Computer Inquiry) , 77 F.C.C.2d 384, 420–22 (1980) ). Enhanced services were distinct from "basic services".

Basic services "meant a communications path that enabled the consumer to transmit an ordinary-language message to another point, with no computer...