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Communication Management Services, LLC v. Qwest Corp.

United States District Court, D. Oregon

December 15, 2014


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[Copyrighted Material Omitted]

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For Plaintiffs: FRANKLIN G. PATRICK, Portland, OR.

For Qwest, Defendant: LAWRENCE H. REICHMAN, MISHA A.D. ISAAK, Perkins Coie, LLP, Portland, OR.

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ANNA J. BROWN, United States District Judge.

This matter comes before the Court on Plaintiffs' Motion (#10) for Partial Summary Judgment and Defendant Qwest Corporation's Motion (#28) to Dismiss Plaintiff's First Amended Complaint. For the reasons that follow, the Court GRANTS Qwest's Motion to Dismiss and DENIES as moot Plaintiffs' Motion for Partial Summary Judgment.


I. General Background

Plaintiffs' Amended Complaint (#1-1) is based on a long-running dispute between Plaintiffs and Qwest over an administrative

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process that, inter alia, served to set payphone tariff rates in the State of Oregon. This matter represents the fifth time this and related disputes have come before this Court. See Nw. Pub. Commc'ns Council (NPCC) v. Qwest Corp., No. 3:09-cv-01351-BR ( NPCC I ); NPCC v. Oregon Pub. Util. Comm'n, No. 3:10-cv-00685-BR ( NPCC II ); NPCC ex rel State of Oregon v. Qwest Corp., No. 3:12-cv-00121-BR ( NPCC III ); Commc'n Mgmt. Servs. v. Harlow, No. 3:12-cv-01923-BR. The Court dismissed NPCC I, NPCC II, and NPCC III. Communications Management Services v. Harlow, No. 3:12-cv-01923-BR, is still pending before this Court.

In NPCC I the plaintiffs brought a variety of state-law and federal-law claims seeking relief similar to the relief sought by Plaintiffs in this matter. The Court concluded each of the plaintiffs' federal-law claims in NPCC I was barred by the statute of limitations, and, based in part on the agreement of the parties, the Court declined to exercise supplemental jurisdiction over the state-law claims. NPCC I, No: 3:09-cv-01351-BR, 2010 WL 4260341, at *10 (D. Or. Oct. 25, 2010). On August 20, 2013, the Ninth Circuit affirmed this Court's decision and found the plaintiffs were on notice of their refund-based claims when they filed the Refund Case in 2001 and again when Qwest filed lower rates in 2003. Nw. Pub. Commc'ns Council v. Qwest Corp., 538 F.App'x 822, 823 (9th Cir. 2013).

On January 14, 2014, Plaintiffs filed an action in Multnomah County Circuit Court in which they raised the state-law claims over which this Court declined to exercise supplemental jurisdiction in NPCC I. In spite of its previous assertion that this Court should not exercise supplemental jurisdiction over Plaintiffs' state-law claims, Qwest removed this action to this Court asserting federal-question and diversity jurisdiction.

On February 28, 2014, Plaintiffs filed a Motion (#7) to Remand. The Court denied Plaintiffs' Motion and found the Court properly had federal-question jurisdiction over this case and supplemental jurisdiction over Plaintiffs' state-law claims.

On March 12, 2014, before Defendant's time to answer Plaintiffs' Amended Complaint had expired, Plaintiffs filed a Motion (#10) for Partial Summary Judgment seeking summary judgment on their Claims One, Two, Four, and Nine.

On March 19, 2014, Qwest filed a Motion (#28) to Dismiss Plaintiffs' First Amended Complaint. Qwest asserted the Court should dismiss each of Plaintiffs' claims.

II. Regulatory Background

Unless otherwise noted, the facts are taken from Plaintiffs' Amended Complaint and accepted as true for purposes of the Motions presently before the Court.

Plaintiffs are payphone-service providers (PSPs) who purchased public-access lines (PAL), related telephone-exchange services, " CustomNet" fraud-protection services, and exchange-access services from Qwest. In 1995 Qwest, a regulated monopoly, was required to begin the process of setting new rates for its payphone services with the Oregon Public Utilities Commission (PUC). The PUC determines and sets " just and reasonable" rates for the payphone services that Plaintiffs purchase from Qwest. At the point that this process began, Qwest's previous rates were permitted to stay in place. They were, however, designated as interim and subject to refund if the new rates were lower than the previous rates.

In 1996 while the PUC was in the process of resetting Qwest's payphone-service rates, Congress amended the Federal

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Communications Act (FCA) of 1934. See Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996). As part of these amendments Congress provided all rates must be compliant with a " new services test" (NST) beginning April 15, 1997. The PUC is responsible for determining whether rates are NST-compliant. Accordingly, in April 1996 the PUC initiated a rate case that was bifurcated into two phases: (1) a " revenue-requirement phase" in which the PUC would determine the revenue necessary for Qwest to generate a reasonable rate of return and (2) a " rate-design phase" in which the PUC would establish rates sufficient to permit Qwest to meet its revenue requirements.

On its own motion on April 4, 1997, the Federal Communications Commission (FCC) issued an order providing a 45-day waiver period during which Qwest and similarly-situated providers (RBOCs) were to submit all information necessary to calculate NST-compliant rates.

On April 10, 1997, Qwest and the other RBOCs submitted a " Waiver Request Letter" to the FCC seeking (1) a 45-day period to review previously-filed intrastate payphone rates and to file new rates; (2) to collect as of April 15, 2007, payments that were contingent on NST compliance; and (3) to continue collecting such payments even if the PUC did not complete its review of the previously-filed rates within the period provided by the FCC. To assure the FCC and payphone-service providers that this requested relief would not have a discriminatory effect, Qwest and the RBOCs offered in their Waiver Request Letter to refund to any PSP the difference between the interim rates and any lower NST-compliant rate that the PUC ultimately set. The FCC issued an order (the Waiver Order) on April 15, 1997, granting the relief requested in the Waiver Request Letter, and, based on the assurances of Qwest and the other RBOCs in the Waiver Request Letter, the PSPs did not object or appeal.

The " revenue-requirement phase" of the Rate Case terminated on May 19, 1997, when the PUC found Qwest was required to refund $102 million to the PSPs because the interim rates were higher than Qwest's revenue requirement. That same day Qwest issued new rates for payphone services that it certified were NST-compliant. Qwest maintained these rates were NST-compliant until December 1999 when it proposed new rates as part of the " rate-design phase" of the Rate Case. At this time Qwest asserted its 1999 PAL rates were NST-compliant and its CustomNet rates did not need to comply with NST.

On September 9, 1999, Qwest and the staff at the PUC entered into a stipulation to settle Qwest's pending appeals of the revenue-requirement phase of the Rate Case, and Qwest and the PUC staff agreed to reduce the refund rate. The PUC staff, however, does not have the authority to bind the PUC. By orders (collectively referred to as the Settlement Order) dated April 14, 2000, the PUC modified the stipulation, which Qwest subsequently accepted. In the Settlement Order Qwest agreed to pay the ordered refunds before any appeal of the final rates. In addition, Qwest agreed to pay additional refunds if the final rates were lowered as the result of an appeal.

The PUC adopted Qwest's proposed rates on September 14, 2001, over Plaintiffs' objections. The approved PAL rates were lower than the interim rates, and the approved CustomNet rates were the same as the interim rates. In March 2002 Plaintiffs appealed the PUC order adopting Qwest's proposed rates.

As a result of the reduction of PAL rates in the April 14, 2000, Settlement

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Order that were finalized in the PUC's September 14, 2001, order, Plaintiffs filed an action (the Refund Case) with the PUC in May 2001 seeking refunds of PAL rates that Plaintiffs allegedly paid in excess of the NST-compliant rates.[1] On March 19, 2003, and August 28, 2013, Qwest unilaterally reduced its PAL and CustomNet rates respectively in compliance with the New Services Order without prejudice to its position on appeal that the previous PAL rates were NST-compliant and that CustomNet rates did not need to be NST-compliant.[2] See NPCC I, No. 3:09-cv-01351-BR, Stipulation (#65) Regarding Procedural History of Case, Ex. 1 at 4.

On November 10, 2004, the Oregon Court of Appeals reversed Qwest's final rates and remanded the matter to the PUC to set PAL and CustomNet rates compliant with the NST. Up to this point Qwest had insisted its rates were NST-compliant or did not need to comply with the NST standard. After this remand, however, Qwest shared its cost data associated with its Oregon payphone services with Plaintiffs and proposed rates identical to those that it began charging in 2003. Based in part on the stipulation of the parties, the PUC adopted Qwest's proposed rates as NST-compliant on November 15, 2007. These NST-compliant rates were between three and twenty times less than the rates that the PUC approved on September 14, 2001.

IV. Plaintiffs' Additional Allegations

Plaintiffs allege Qwest knew the proposed rates that it submitted to the PUC in 1999 and that it certified were in compliance with NST were, in fact, not NST-compliant. Plaintiffs allege Qwest knowingly submitted NST-noncompliant rates as part of a " deliberate scheme and plan" to make Plaintiffs' payphone business as unprofitable as possible in order to eliminate Plaintiffs as competitors and to enhance the value of Qwest's payphone-services business for ultimate sale to a successor. Moreover, Plaintiffs assert Qwest was able to subsidize its own payphone services in part as the result of Plaintiffs' alleged overpayment of payphone tariffs.

In addition to overcharging Plaintiffs for PAL and CustomNet services, Plaintiffs allege Qwest denied or impeded Plaintiffs' access to " comparably efficient interconnections" and other features and functionalities that were otherwise available to payphones owned by Qwest. Plaintiffs allege Qwest provided several additional services for its payphones that it refused to

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make available to Plaintiffs including the ability to handle the calls of more than one payphone on a single line, to enable simultaneous video and audio recording and the required enhancements to provide payphone service to jails and prisons, and to collect compensation for calls that did not require coin payment for each payphone attached to such single or enhanced line. Plaintiffs further allege Qwest took action to prevent or, in the alternative, refused to take action to allow Plaintiffs to integrate their enhanced services with Qwest's basic services. When terminating services to the site of a payphone, Plaintiffs allege Qwest destroyed connections when Plaintiffs obtained the site even though Qwest did not do so when it sold its payphones to other entities.

In May 2004 three Qwest executives formed FSH Communications, LLC (which is not a named defendant in this case), to purchase Qwest's payphone-service assets. In August 2004 Qwest sold " substantially all" of its payphone-service assets to FSH, and today FSH is the largest PSP in Oregon. Plaintiffs allege Qwest continues to provide preferential rates and services to FSH that are not provided to Plaintiffs.

V. Plaintiffs' Claims

In their Amended Complaint Plaintiffs state the following fourteen claims for relief:

In Claim One Plaintiffs seek payment of all refunds now due based on specific performance of the settlement agreement between Qwest and the PUC staff, the Settlement Order, and the PUC's November 15, 2007, order.

In Claim Two Plaintiffs bring a common-law unjust enrichment claim seeking repayment of the allegedly outstanding refunds.

In Claim Three Plaintiffs seek repayment of the allegedly outstanding refunds on the grounds of promissory estoppel and judicial estoppel.

In Claim Four Plaintiffs bring a third-party beneficiary claim asserting that Plaintiffs were a third-party beneficiary to the settlement agreement between Qwest and the PUC staff and that Plaintiffs, therefore, are entitled to enforce that agreement to recover the allegedly outstanding refunds and the damages to be proven at trial,

In Claim Five Plaintiffs allege Qwest's refusal to pay the allegedly outstanding refunds gives rise to a common-law conversion claim.

In Claim Six Plaintiffs bring a claim for intentional fraud alleging Qwest made intentional material misrepresentations about the compliance of Qwest's proposed rates with the NST standard and Qwest's intention to refund any overpayment of interim rates that were ultimately found to be higher than permitted under the NST standard.

In Claim Seven Plaintiffs raise a claim for negligent fraud based on grounds similar to those underlying Claim Six.

In Claim Eight Plaintiffs allege Qwest violated the Oregon Deceptive Trade Practices Act (ODTPA), Oregon Revised Statute § 646.608 (1)(s), (u).

In Claim Nine Plaintiffs raise a claim under Oregon Revised Statute § 759.185 in which Plaintiffs assert their payment of interim rates higher than the NST-compliant rates triggers a statutory right to mandatory refunds.

In Claim Ten Plaintiffs assert Qwest provided undue preferences and advantages In telephone-exchange services to Plaintiffs' competitors including FSH and Qwest's own payphone services in violation of Oregon Revised Statute § 759.275.

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In Claim Eleven Plaintiffs allege Qwest provided FSH, Qwest's own payphone services, and Plaintiffs' other competitors access to network elements that it denied to Plaintiffs in violation of Oregon Revised Statute § 759.455.

In Claim Twelve Plaintiffs allege Qwest intentionally interfered with Plaintiffs' business relationships with its customers by discriminating against Plaintiffs in pricing and the provision of services.

In Claim Thirteen Plaintiffs raise a breach-of-contract claim alleging Qwest's representations made in the Waiver Request Letter, Qwest's representations to Plaintiffs directly, and Plaintiffs" agreement not to appeal based on those representations formed a contract that Qwest breached when it failed to pay Plaintiffs the allegedly outstanding refunds.

In Claim Fourteen Plaintiffs argue Qwest's failure to pay the allegedly outstanding refunds gave rise to a constructive trust as to those refunds and to the payments that Qwest received as a result of its assurances that it would pay refunds for any overpayment of interim rates.


Qwest moves to dismiss each of Plaintiffs' claims on the grounds that they are untimely, barred by claim preclusion, vested in the exclusive jurisdiction of the ...

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