Inteliquent, Inc. v. Free Conferencing Corp.

503 F.Supp.3d 608

INTELIQUENT, INC., Plaintiff and Counterclaim Defendant,

v.FREE CONFERENCING CORPORATION, individually and d/b/a HD Tandem; HDPSTN, LLC d/b/a/ HD Tandem; Wide Voice, LCC; and CarrierX, LLC, Defendants and Counterclaimants.

Case No. 16-cv-06976

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

Signed November 30, 2020

John J. Hamill, Jr., Eric Michael Roberts, Joseph Michael Carey, Kenneth L. Schmetterer, Michael S. Pullos, Pamela Begaj, DLA Piper LLP, Chicago, IL, Brian H. Benjet, Nathan P. Heller, DLA Piper LLP, Philadelphia, PA, for Plaintiff and Counterclaim Defendant.

Lauren J. Coppola, Pro Hac Vice, David E. Marder, Pro Hac Vice, Stephen Wald, Timothy D. Wenger, Robins Kaplan LLP, Boston, MA, Brian P. O'Connor, Jerome Raymond Weitzel, Paul J. Kozacky, Larry Joseph Lipka, Kozacky Weitzel McGrath P.C., Chicago, IL, for Defendants and Counterclaimants Free Conferencing Corporation, Wide Voice, LLC.

Lauren J. Coppola, Pro Hac Vice, Timothy D. Wenger, Robins Kaplan LLP, Boston, MA, Brian P. O'Connor, Jerome Raymond Weitzel, Paul J. Kozacky, Larry Joseph Lipka, Kozacky Weitzel McGrath P.C., Chicago, IL, for Defendant and Counterclaimant HD Tandem.

Lauren J. Coppola, Pro Hac Vice, David E. Marder, Pro Hac Vice, Timothy D. Wenger, Robins Kaplan LLP, Boston, MA, for Defendant and Counterclaimant HDPSTN, LLC.

David E. Marder, Lauren J. Coppola, Pro Hac Vice, Timothy D. Wenger, Robins Kaplan LLP, Boston, MA, Brian P. O'Connor, Jerome Raymond Weitzel, Paul J. Kozacky, Kozacky Weitzel McGrath P.C., Caroline Pritikin, James David Duffy, Thompson Coburn LLP, Chicago, IL, Michael Raynsford Newhouse, II, Pro Hac Vice, Suzanne Margaret Henry, Pro Hac Vice, Newhouse Law Group, PC, Los Angeles, CA, for Defendant and Counterclaimant Yakfree, LLC.

Lauren J. Coppola, Pro Hac Vice, David E. Marder, Pro Hac Vice, Timothy D. Wenger, Robins Kaplan LLP, Boston, MA, Brian P. O'Connor, Jerome Raymond Weitzel, Paul J. Kozacky, Kozacky Weitzel McGrath P.C., Chicago, IL, for Defendant and Counterclaimant Carrier X, LLC.

ZenoFon, Inc., pro se.

ZenoRadio, LLC, pro se.

MEMORANDUM OPINION AND ORDER

John Robert Blakey, United States District Judge

This case arises from the breakdown of the relationship between Inteliquent, Inc. and various players in the telecommunications industry. Plaintiff Inteliquent, Inc. sued Free Conferencing, HD Tandem, Wide Voice, CarrierX, and Yakfree. See [315]. Defendants counter-sued, see [336], [338], naming Inteliquent and Matthew J. Carter as counter-defendants. Defendants move for summary judgment on all of Inteliquent's remaining claims. See [566]. They also move for partial summary judgment on all claims as to the calls HD Tandem transmitted to local exchange carriers (LECs) other than certain Native American Telecommunications (NATs) entities that terminated in the geographic regions of those non-NAT LECs. [566]; [582]. Inteliquent and Carter (collectively Inteliquent or Counter Defendants) cross-move for summary judgment on Inteliquent's remaining claims. [580]. Inteliquent and Carter also seek summary judgment in their favor on HD Tandem, CarrierX, and Free Conferencing's remaining counterclaim and on Wide Voice's counterclaims.

For the reasons explained herein, the Court grants in part and denies in part the parties’ motions.

BACKGROUND

The following facts come from Defendants’ LR 56.1 statement of material facts, [570], and Counter Defendants’ statement of material facts, [583].

I. The Parties

Inteliquent, a Delaware corporation, operates its principal place of business in Chicago, Illinois. [583] ¶ 1. Inteliquent's business includes servicing other telecommunication companies such as T-Mobile, primarily as a long-distance carrier, known as an interexchange carrier (IXC). Id. ¶ 16.

Counter Defendant Matthew J. Carter formerly served as Inteliquent's CEO from June 2015 to March 2017. Id. ¶ 2. Mr. Carter served as CEO when Inteliquent entered into a commercial agreement with T-Mobile, allowing Inteliquent to carry a substantial portion of T-Mobile's long-distance traffic. Id. ¶ 46.

Defendant Free Conferencing runs a free voice, video, and data conferencing service. Id. ¶ 3; [570] ¶ 12.

Defendant Yakfree similarly offers conferencing and calling card services. [570] ¶ 18.

Defendant HD Tandem provides "tandem and termination services" within the telecommunications industry (i.e., the handoff of traffic from a long-distance carrier to a local exchange carrier), [583] ¶ 19, offering its services through commercial agreements, [570] ¶ 13.

Defendant Wide Voice offers end-office services and tandem connection services pursuant to both federal and state tariffs as well as commercial agreements. Id. ¶ 15.

Defendant CarrierX participated in a restructuring involving Free Conferencing and HD Tandem, among other companies. Id. ¶ 14. It now owns all of HD Tandem's outstanding shares and partially owns and operates FreeConferenceCall.com. Id. Wide Voice is also a subsidiary of CarrierX. Id. ¶ 17. David Erickson founded Free Conferencing, HD Tandem, and other companies that support Free Conferencing's services. Id. ¶ 16. He also serves as the CEO of CarrierX, Free Conferencing, and HD Tandem. Id. Josh Lowenthal, a member of Free Conferencing's senior management, founded Yakfree. Id. ¶ 18.

Although not parties to the case, two other businesses play an important role in the parties’ motions. Native American Telecom, LLC provides local phone services on the Crow Creek reservation in South Dakota. Id. ¶ 26; [583] ¶¶ 9–10. Similarly, Native American Telecom—Pine Ridge, LLC (collectively, the NATs) provides local phone services in Pine Ridge, South Dakota. [583] ¶ 10. In the telecommunications industry, industry members refer to local phone companies like the NATs as local exchange carriers (LECs). The NATs and Defendants maintain degrees of overlapping ownership, employees, investors, management, and physical office locations. Id. ¶ 14; see [570] ¶¶ 37–38. On July 1, 2009, the NATs also signed revenue sharing agreements with Free Conferencing. [570] ¶ 40. Under these agreements, the NATs "assigned Free Conferencing telephone numbers, referred to [as] direct inward dials (‘DIDs’), and each agreed to pay Free Conferencing a portion of the ‘tariffed access charges’ they received from long distance providers for terminating calls to Free Conferencing's equipment." Id.

II. The Telecommunications Industry

The telecommunications industry involves many different players, each playing a role in what seems from the outside to be a straightforward process. When a customer places a long-distance call, that call may be completed in one of two ways. The first option constitutes the regulated path. When companies complete a call under the regulated path, the customer's phone carrier transfers the call to a long-distance carrier (like Inteliquent), which then connects that call to the LEC where the end user resides. [570] ¶¶ 2–3; [583] ¶¶ 16–17. Figure 1, [583] ¶ 19, illustrates the regulated path:

The FCC regulates this pathway through established benchmark rates LECs may charge the IXC for taking the call and terminating it to the dialed party. [570] ¶¶ 3–5. The end user's geographic location heavily informs these rates, meaning that LECs in remote areas often may charge substantially higher tariffs. [583] ¶ 21.

Commercial agreements govern the alternative pathway: rather than pay tariffed rates directly to an LEC, an IXC (like Inteliquent) may sign a private commercial contract with another intermediary company (here, HD Tandem) that will deliver traffic via non-regulated arrangements. Id. ¶ 22. In this scenario, the tandem "accepts traffic from the IXC and makes arrangements with LECs for switching and transport to end users." Id. That tandem company then delivers the call to the LEC. Id. Figure 2, id. ¶ 22, illustrates this pathway:

Because commercial agreements govern these transactions, the tariff rates do not bind the parties; rather, the parties negotiate the rates as reflected in various commercial agreements. Id. ¶ 22. IXCs typically enter these agreements to circumvent the FCC tariff system, as tandem switch providers often maintain established commercial rates with various LECs. [570] ¶ 10.

Under either pathway, however, IXCs make money by charging their business customers. [583] ¶ 18. In this case, Inteliquent charged T-Mobile. Id. T-Mobile, in turn, makes money by charging its customers according to the terms and conditions of their contracts. Id.

III. Access Stimulation

Access stimulation occurs when companies enter into revenue sharing agreements with LECs with high tariff rates. [570] ¶ 39. The agreements further the purpose of increasing traffic to high tariff LECs and then the parties split the increased revenue. Id. In this case, Free Conferencing and Yakfree entered into revenue sharing agreements with the NATs. [583] ¶ 27. The NATs provided Free Conferencing and Yakfree with NAT-associated phone numbers. [570] ¶¶ 39–40. Free Conferencing and Yakfree then had their customers use those numbers for their conference calls, driving traffic to NAT numbers and splitting the increased revenue with the NATs. Id. ¶¶ 63–64. This process greatly increased costs for Inteliquent because it delivered a high volume of free conferencing traffic to the NATs. Id. ; [583] ¶ 47. Aside from this free conferencing traffic, the NATs served a very small number of local customers. [583] ¶ 38.

Although the FCC has confirmed that access stimulation may be done lawfully in certain situations (while continuing to crack down on the practice), see Connect Am. Fund , 26 FCC Rcd. 17663 (2011), the FCC has also determined that free conferencing numbers do not meet the definition of "end user" under the FCC's tariff regime, Qwest Commc'ns Corp. , 24 FCC Rcd. 14801, 14805–13 (2009). Because free conferencing callers do not qualify as end users, the FCC held, the LEC in question could not charge IXCs the tariffed rates under the Communications...