Line Sys., Inc v. Sprint Nextel Corp.

LINE SYSTEMS, INC

v.SPRINT NEXTEL CORPORATION

CIVIL ACTION NO. 11-6527

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Dated: July 24, 2012

O'NEILL, J.

MEMORANDUM

Whenever a Sprint cellular telephone customer calls a Line Systems customer's telephone number, Line Systems provides a service by completing the call. Line Systems has charged Sprint for completing Sprint-originated calls but Sprint hasn't paid. Line Systems now sues to recover payments and Sprint moves to dismiss for failure to state a claim. For the following reasons I will grant in part and deny in part Sprint's motion.

BACKGROUND

Line Systems alleges the following facts. Line Systems is a competitive local exchange carrier that operates in Pennsylvania, Delaware, Maryland, New Jersey and New York. Compl. ¶ 5. Sprint is a commercial mobile radio service provider, or in everyday parlance, a provider of cellular telephone service. Id. ¶ 6. Sprint offers service across the United States, which the Federal Communications Commission has divided into fifty-one "Major Trading Areas." Id. ¶ 13. In the territory where Line Systems operates, most states have more than one MTA within their borders. Id. Calls from Sprint customers to Line Systems customers fall into one of three categories: those that begin and end within the same MTA ("intraMTA"), those that begin and end in the same state but different MTAs ("intrastate interMTA") and those that begin and end in different states and different MTAs ("interstate interMTA"). Id. ¶ 14.

The law requires Line Systems to "terminate," or complete, calls to its customers and Line Systems has terminated more than 26 million minutes of calls originating from Sprint customers since January 2007. Id. ¶¶ 1, 11. Plaintiff incurs costs for providing termination services and it has billed Sprint access charges for calls by defendant's customers. Id. ¶¶ 1, 12. Sprint, however, refuses to pay. Id. ¶ 1. In the present suit Line Systems seeks payment only for Sprint's interMTA calls. Id. ¶ 15. Line System charges for interMTA calls pursuant to tariffs that it has filed at the FCC (for interstate interMTA calls) and at state public utility commissions (for intrastate interMTA calls). Id. As of August 31, 2011, Sprint was past due on $240,558.88 in access charges for interMTA calls. Id. ¶ 24. That amount increases as Line Systems continues to terminate calls from Sprint customers. Id.

Line Systems asserts claims for breach of federal and state tariffs, violations of the Telecommunications Act of 1996, unjust enrichment and account stated.

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Typically, "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," though plaintiff's obligation to state the grounds of entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). The complaint must state "'enough facts to raise a reasonable expectation thatdiscovery will reveal evidence of' the necessary element." Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008), quoting Twombly, 550 U.S. at 556. The Court of Appeals has made clear that after Ashcroft v. Iqbal, 556 U.S. 662, (2009), "conclusory or 'bare-bones' allegations will no longer survive a motion to dismiss: 'threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.' To prevent dismissal, all civil complaints must now set out 'sufficient factual matter' to show that the claim is facially plausible." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), quoting Iqbal, 556 U.S. at 678. The Court also set forth a two part-analysis for reviewing motions to dismiss in light of Twombly and Iqbal: "First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 210-11, quoting Iqbal, 556 U.S. at 679. The Court explained, "a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to 'show' such an entitlement with its facts." Id., citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008). "Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679.

DISCUSSION

I. Breach of Tariff Claims

According to Sprint, the Complaint fails to state a claim for breach of tariff because the Telecommunications Act of 1996 prohibits the tariff-based access charges for which LineSystems demands payment. According to Line Systems, the Act requires tariff-based charges. The resolution of Sprint's motion to dismiss the breach of tariff claims therefore hinges on my interpretation of the Act.

Two provisions of the Act are especially pertinent. The first requires local exchange carriers, such as Line Systems, to "to establish reciprocal compensation arrangements for the transport and termination of telecommunications." 47 U.S.C. § 251(b)(5). The parties agree that they have not reached a "reciprocal compensation arrangement." Rather, Line Systems' charges are based on its tariffs. Whether Line Systems may collect payments from Sprint pursuant to tariffs depends on the second key provision of the Act, 47 U.S.C. § 251(g), entitled "Continued enforcement of exchange access and interconnection requirements." It provides:

On and after February 8, 1996, each local exchange carrier, to the extent that it provides wireline services, shall provide exchange access, information access, and exchange services for such access to interexchange carriers and information service providers in accordance with the same equal access and nondiscriminatory interconnection restrictions and obligations (including receipt of compensation) that apply to such carrier on the date immediately preceding February 8, 1996 under any court order, consent decree, or regulation, order, or policy of the Commission, until such restrictions and obligations are explicitly superseded by regulations prescribed by the Commission after February 8, 1996. During the period beginning on February 8, 1996 and until such restrictions and obligations are so superseded, such restrictions and obligations shall be enforceable in the same manner as regulations of the Commission.

Id. § 251(g). "Section 251(g) . . . preserved the pre-1996 Act regulatory regime that applies to access traffic, including rules governing receipt of compensation, and thereby precluded the application of section 251(b)(5) to such traffic unless and until the Commission by regulation should determine otherwise." In the Matter of Connect America Fund, 26 FCC Rcd. 17663,17916 (2011) (internal quotation marks omitted). "Access traffic" is local and "non-access traffic" is long-distance. See In re Empire One Telecomms., Inc., 458 B.R. 692, 695 n.1 (Bankr. S.D.N.Y. 2011). Accordingly, § 251(g) provides for the continued use of tariff-based charges for long-distance calls.

Either § 251(b)(5) or § 251(g) applies to Line Systems' termination services and the parties point to no other statutory provision that could govern their relationship. Sprint and Line Systems agree that if § 251(g) applies, Line Systems may charge Sprint pursuant to tariffs, despite the command in § 251(b)(5) that local exchange carriers establish reciprocal compensation agreements. If § 251(b)(5) applies, Line Systems may not charge tariff-based access charges and instead must establish a reciprocal compensation agreement with Sprint. The parties' main dispute is whether § 251(g) or § 251(b)(5) governs the calls at issue in this case.

A. Whether Line Systems Provides "Exchange Access"

According to Sprint, § 251(g) cannot apply to calls originating from Sprint customers because Line Systems does not provide "exchange access," as that term is used in § 251(g), to calls by defendants' customers. Sprint's argument is based on a sequence of defined terms in the Act. "Exchange access" is "the offering of access to telephone exchange services or facilities for the purpose of the origination or termination of telephone toll services." 47 U.S.C. § 153(20). "Telephone toll service" is "telephone service between stations in different exchange areas for which there is made a separate charge not included in contracts with subscribers for exchange service." Id. § 153(55). Sprint argues that Line Systems has failed to allege that Sprint charges any separate charge for long-distance calls. Furthermore, Sprint represents that it "does not charge an extra fee to the vast majority of its customers for calling a long distance number." Dkt.No. 18 at 10. Accordingly, defendant avers that it does not provide "telephone toll service," which means that calls from Sprint customers do not involve "exchange access" and that Line Systems cannot charge Sprint pursuant to § 251(g).

The Court of Appeals for the Second Circuit rejected a similar argument in a case that presented slightly different factual circumstances. At issue was whether a local exchange carrier had to pay access charges to another local exchange carrier. The carrier seeking to avoid payment argued that it should not have to pay...