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Great Lakes Communication Corporation v. AT&T Corporation

United States District Court, N.D. Iowa, Western Division

March 3, 2015

GREAT LAKES COMMUNICATION CORPORATION, Plaintiff,
v.
AT&T CORPORATION, Defendants.[1]

ORDER ON REPORT AND RECOMMENDATION

DONALD E. O'BRIEN, Senior District Judge.

Before the Court is a Report and Recommendation ("R&R"), Docket No. 32, issued by United States Magistrate Judge Leonard T. Strand, concerning the Plaintiff Great Lakes Communication Corporation's [hereinafter GLCC or Great Lakes] Motion to Dismiss Counterclaim and Motion for Summary Judgment, Docket No. 17.

On June 24, 2014, Judge Strand issued the R&R recommending that the Plaintiff's Motion to Dismiss Counterclaim be granted in part and denied and part, and that Plaintiff's Motion for Summary Judgment be denied. Docket No. 32. On July 8, 2014, AT&T filed Objections to the Magistrate's R&R. Docket No. 33. On that same date, the Plaintiff also filed Objections to the Magistrate's R&R. Docket No. 34. The Court will discuss the particulars of the Magistrate's R&R and the Objections below.

The Court held a hearing on the parties' Objections on August 20, 2014. After listening to the parties' arguments, the Court took the matters under consideration and now enters the following.

I. BACKGROUND

Magistrate Strand sets out the relevant facts in this matter, which this Court adopts and will not repeat here. However this case is complex as it involves fees associated with telephone calls. Accordingly, some background is necessary.

Although in modern society telephone services are taken for granted, telephone calls are both technically and legally complicated. Thankfully, this case only involves the later issue. Phone calls (and the companies that provide phone services) are governed by a dense and overlapping regulatory scheme. The Federal Communications Commission (FCC) controls national telephone regulations, while the Iowa Utilities Board (IUB) regulates services exclusive to the State of Iowa. The parties in this case are in the business of providing telephone service. The Plaintiff, Great Lakes, is a local telephone service provider (referred to as an LEC) while the Defendant, AT&T, provides telephone service nationwide (referred to as a long distance company or IXC).

Local telephone companies, such as the Plaintiff, are just that, local. They provide telephone services to a specific geographic location, such as Northwest Iowa. However, it goes without stating, that many phone calls placed in one area are to parties far away, outside the province of an LEC. If a local caller wants to talk to someone far away, the call is transferred from the LEC to a national carrier, such as AT&T. The national long distance company then deposits the call with an LEC in the locality of where the original caller was calling. Thus, for example, a call placed in Sioux City, Iowa, to Denver, Colorado, would involve three companies: an LEC in Sioux City where the call is placed, a national IXC which carries the call across state lines, and a final LEC in Denver, where the call ends.[2]

The fees earned or payed in this type of arrangement by the LECs and IXCs are referred to as switched access service charges. To accomplish national (and international) telephone service, and to ensure profit for the involved businesses, local and national telephone companies either establish tariffs or enter into contracts to establish the switched access service charges.[3]

For a long time, one major phone company controlled all telephone service in the United States. After a series of anti-trust lawsuits, the "Ma Bell" telephone monopoly was broken up. In the wake of that break, the first local exchange carriers (incumbent local exchange carriers or ILECs) were formed. In Iowa, the ILEC is Century Link (formally Qwest). Younger, local carriers, such as Great Lakes, are known as competing local exchange carriers (CLECs) because they compete with the old, established phone carriers.

In 2001, the FCC issued In Re Access Charge Reform, 16 FCC Rcd. 9923, 9924 (2001) [hereinafter CLEC Access Charge Order] and promulgated corresponding regulations. In general, the FCC limited a CLEC's tariffed switched access rate to the rate charged by the ILEC that serves the same geographic area. A CLEC could impose a higher rate only by negotiating agreements with individual IXCs. In addition, the FCC recognized that CLECs serving rural areas face unique cost challenges and, therefore, created a "rural exemption." Instead of being limited to the access rates tariffed by the ILEC, a CLEC meeting the FCC's definition of a "rural CLEC" could benchmark its interstate access rates to those tariffed by the National Exchange Carrier Association (NECA).

The particular phone company practice at issue in this case is referred to as "access stimulation." Access stimulation occurs when an LEC partners with some business that generates lots of phone calls. The actual equipment/hardware necessary to accommodate the business' call operation is installed at or near the LEC. The result of this type of arrangement is a sharp increase in call traffic coming over the IXC's to the LEC in question. The LEC benefits from this arrangement because the LEC can charge the IXC whatever switched access service fee that was previously applicable for the increased number of incoming calls. It is undisputed that the Plaintiff, Great Lakes, engages in access stimulation.

Because access stimulation can cause a crippling spike in the fees incurred by IXCs, the FCC has sought to limit and regulate the practice. To that end, the FCC issued In the Matter of Connect Am. Fund A Nat'l Broadband Plan for Our Future Establishing Just & Reasonable Rates for Local Exch. Carriers High-Cost Universal Serv. Support Developing an Unified Intercarrier Comp. Regime Fed.-State Joint Bd. on Universal Serv. Lifeline & Link-Up Universal Serv. Reform - Mobility Fund, 26 FCC Rcd. 17663 (2011) [hereinafter the Connect America Fund Order]. The Connect America Fund Order defines access stimulation as when a revenue sharing agreement exists between an LEC and a business and the LEC had a three-to-one interstate terminating-to-originating traffic ratio in a calendar month, or has had a greater than 100 percent increase in interstate originating and/or terminating switched access minutes of use in a month compared to the same month in the preceding year. The Connect America Fund Order went on to say that an LEC engaged in access stimulation must file a revised tariff in which it benchmarks its access rates "to the rates of the price cap LEC with the lowest interstate switched access rates in the state.[4]

II. STANDARD

Pursuant to statue, this Court's standard of review for a magistrate judge's Report and Recommendation is as follows:

[a] judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made. A judge of the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate [judge].

28 U.S.C. ยง 636(b)(1).

Similarly, Federal Rule of Civil Procedure 72(b) provides for review of a magistrate judge's Report and Recommendation on dispositive motions and prisoner petitions, where objections are made as follows: [t]he district judge to whom the case is assigned shall make a de novo determination upon the record, or after additional evidence, of any portion of the magistrate judge's disposition to which specific written objection has been made in accordance with this rule. The district judge may accept, reject, or modify the recommendation decision, receive further evidence, or recommit the matter to the magistrate judge with instructions.

FED. R. CIV. P. 72(b).

Failure to object to the Report and Recommendation waives the right to de novo review by the district court of any portion of the Report and Recommendation as well as the right to appeal from the findings of fact contained therein. United States v. Wise, 588 F.3d 531, 537 n.5 (8th Cir. 2009).

III. ISSUES

Before the Connect American Fund Order came down, Great Lakes and AT&T entered a settlement agreement in regards to access rates. Great Lakes filed a new tariff after the Connect America Fund Order came into effect, which Great Lakes contends complies with that Order in regards to the access stimulation issue. However, AT&T stopped paying switched access fees after the new tariff came into effect. Great Lakes alleges that AT&T has refused to pay approximately $400, 000 in interstate access fees due and owing under the Agreement and a substantial amount of interstate access fees billed pursuant to the Tariff. See Docket No. 1. Great Lakes contends that the total unpaid balance owing from AT&T is over $4 million. Id . In its complaint, Great Lakes asserts claims for breach of contract, collection ...


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