Wake Forest Law Review

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By Paige Topper

On November 13, 2015, in the civil case of CoreTel Virginia, LLC v. Verizon Virginia, LLC, a published opinion, the Fourth Circuit affirmed the District Court’s decision to grant damages for use of telecommunications facilities and late-payment fees.

The Telecommunications Act of 1996

The Telecommunications Act requires incumbent local exchange carriers, like Defendants, Verizon Virginia and Verizon South (collectively “Verizon”), to allow competitive local exchange carriers, like Plaintiff, CoreTel, to connect with users over the incumbent’s network. This arrangement is executed through private agreements that determine the rates and terms under which the companies’ networks will be interconnected. Here, the two interconnection agreements (the “ICAs”) at issue were between CoreTel and Verizon Virginia and between CoreTel and Verizon South.

CoreTel I: Procedural History

The Fourth Circuit first encountered these parties in a dispute over what rates CoreTel had to pay to use Verizon’s facilities. CoreTel had ceased paying for the use of Verizon facilities since the parties could not agree as to the proper rate. Subsequently, Verizon filed suit bringing both a declaratory relief claim (to enforce Verizon’s tariffs as the rate) and a claim for damages. The Fourth Circuit found that Verizon should have billed CoreTel for facilities at TELRIC rate (a cost-based pricing method established by the Federal Communications Commission) rather than the tariff rates of Verizon. As a result, CoreTel was entitled to summary judgment on that first claim. However, the Fourth Circuit did not resolve Verizon’s claim for damages associated with CoreTel’s breach of the ICAs for failure to pay.

On remand, the district court heard evidence from Verizon regarding CoreTel’s debts for the both the Verizon Virginia and Verizon South facilities. Verizon further argued that it was entitled to late fees. The district court entered judgment in favor of Verizon for the full amount of damages plus the late fees.

Mandate in CoreTel I Did Not Preclude the District Court’s Finding of Damages

The Fourth Circuit found that CoreTel misconstrued the mandate rule, which prohibits lower courts from considering questions that a mandate of a higher court laid to rest. The Fourth Circuit emphasized that the only matter its mandate in CoreTel I laid to rest was that TELRIC rates should apply. While the Fourth Circuit held in favor of CoreTel on Verizon’s claim for declaratory relief, the Court did not resolve Verizon’s claim for damages related to CoreTel’s breach of the ICAs. Therefore, the decision in CoreTel I did not preclude the district court’s findings on damages.

Fourth Circuit Found District Court Did Not Err in Calculating the Outstanding Facilities Charges

Under the ICAs, parties establish “interconnection points,” at agreed-upon locations. When a CoreTel customer calls a Verizon customer, CoreTel is responsible for delivering that call to the relevant Verizon Internet Protocol (IP). In this case, CoreTel completed the delivery of the calls by purchasing access to Verizon’s facilities at the TELRIC rates. CoreTel had to pay TELRIC-based facilities charges for any Verizon facilities it used to transport the calls. CoreTel completely failed to make these payments.

CoreTel argued six reasons for why the district court erred in granting the specified amount of damages. The Fourth Circuit found each argument unpersuasive. The majority of the Fourth Circuit’s discussion revolves around the language of the ICAs and what the parties contractually agreed on. For instance, CoreTel argued that it should not owe facility charges to Verizon South because all its traffic entered the Verizon network through Verizon Virginia facilities. The Fourth Circuit concluded that the ICAs made clear that CoreTel must pay Verizon Virginia for the use of Verizon Virginia facilities and Verizon South for the use of Verizon South facilities, regardless of where CoreTel traffic enters the Verizon network.

District Court Did Not Err in Awarding Late Fees

CoreTel further challenged the district court’s award of late fees to Verizon on three claims. Again the Fourth Circuit found each argument unpersuasive. In disputing CoreTel’s arguments, the Fourth Circuit determined that, despite the fact that Verizon had never issued CoreTel formal bills at the proper TELRIC rate, CoreTel still owes late fees because CoreTel did not even pay the undisputed amount (the TELRIC rate). Additionally, the Fourth Circuit concluded that although Virginia law requires late fees to be limited to 5% per year, when a state utilities commission approves an ICA, its provisions are not subject to state law claims. Here, Virginia’s state utilities commission approved both ICAs and thus CoreTel could not claim a violation of Virginia law.

Fourth Circuit Affirmed

The Fourth Circuit affirmed the district court’s damages award for both the use of Verizon facilities and late fees because the district court properly calculated Verizon’s damages for CoreTel’s breach of contract according to the TELRIC rate, as the Fourth Circuit instructed in CoreTel I.

By Michael Mitchell

Today, in Lynn v. Monarch Recovery Management, Inc., the Fourth Circuit affirmed the summary judgment granted to Kevin Lynn for Monarch Recovery Management’s violation of the Telephone Consumer Protection Act (“TCPA”).   On appeal, the Court rejected Monarch’s argument that it was exempt from the TCPA as a debt collector.

Under 47 U.S.C. § 227, the TCPA prohibits “making any call . . . [using] an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service . . . or any service for which the called party is charged for the call.”   The United States District Court for the District of Maryland, at Baltimore, found that Monarch’s calls to Lynn violated the TCPA because Lynn was individually charged for each call.  Monarch made these calls to Lynn in its capacity as a debt collection company.

Affirming the district court’s grant of summary judgment to Lynn in an unpublished per curiam decision, the Fourth Circuit rejected Monarch’s attempt to avoid liability under the call-charged provision of the TCPA.  Specifically, Monarch argued that the FCC’s regulation excepted debt collectors from the TCPA’s prohibition on “call[s] to any residential telephone line using an artificial or prerecorded voice to deliver a message.”

The Court relied on its review of legislative intent in denying Monarch’s assertion that it was exempt from the call-charged provision of the TCPA.  Citing Clodfelter v. Republic of Sudan, 720 F.3d 199, the Court held that Congress did not intend for companies like Monarch to use the TCPA to limit their liability.  Thus, the Fourth Circuit has maintained civil liability for debt collectors under the call-charged provision of the TCPA.

By Jordan Crews

Today, in T-Mobile Northeast LLC v. Loudon County Board of Supervisors, the Fourth Circuit affirmed the district court’s grant of summary judgment for T-Mobile.  The Court held that the Board, in denying T-Mobile’s application to build a tower, violated the Telecommunications Act of 1996 by impermissibly relying on the environmental effects of radio frequency.

In October 2011, the Board denied T-Mobile’s application for a permit to build a telecommunications tower in Loudon County.  T-Mobile challenged the Board’s decision.  The district court granted summary judgment for T-Mobile, concluding that the Board improperly denied the application because the Board relied on the environmental effects of radio frequency–a statutorily prohibited basis for regulation.

The Telecommunications Act of 1996 was enacted “to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunication consumers and encourage the rapid deployment of new telecommunications technologies.”  The Act provides that, in regulating the siting and construction of wireless facilities, a state or local government:

(1) may not “unreasonably discriminate among providers”; (2) may not effectively prohibit “the provision of personal wireless services”; (3) must act on a request to place, construct, or modify such facilities “within a reasonable period of time”; (4) must render its decisions “in writing” and with the support of “substantial evidence contained in a written record”; and (5) may not regulate the placement, construction or modification of such facilities “on the basis of the environmental effects of radio frequency emissions to the extent that such facilities comply with the [FCC’s] regulations concerning such emissions.”

On appeal, the board argued that the district court erred in ordering it to grant T-Mobile’s permit on the basis that the Board illegally relied on the environmental effects of radio frequency transmissions.  The Board acknowledged that this reason was illegal, but opined that it was given by only one Board member and therefore was not binding on the Board as a whole.  The Board argued further that even if this reason were binding on it, its decision to deny the application was also based on valid reasons that were sufficient to deny the application.  The Court addressed, and then discarded, both of these arguments.

First, the Court, when looking to the record, found that the health concerns were prevalent throughout the several hearings; the environmental concerns were not isolated to one Board member, as the Board suggested.  The Court thus concluded that it was “indisputable that the Board as a whole regulated on the basis of radio frequency emissions, a prohibited practice under the Act.”

Second, the Court held that, even if the Board relied on valid reasons to support its decision, this did not immunize its violation of the statutory limitation.  Quoting the Supreme Court, the Court stated that this statutory limitation is a “specific limitation on the traditional authority of state and local governments to regulate the placement, construction, and modification of wireless facilities.”  Thus, even if the Board gave valid reasons for its decision, which by themselves would have been sufficient, this did not immunize it from its statutory violation.

The district court’s grant of summary judgment for T-Mobile was affirmed.

By Karon Fowler

Under the Telecommunications Act of 1996, telephone companies are requirements to enter contracts known as interconnection agreements with new market entrants seeking to connect with existing networks. The goal of this requirement was to increase competition in local telephone markets. The plaintiff, Core Communications, was a new market entrant in Baltimore seeking an interconnection agreement (“ICA”) with the established, phone company, Defendant Verizon. In order to expedite the process, the two companies agreed to adopt the terms of a previously approved ICA between Verizon’s predecessor and another new entrant. The Maryland Public Service Commission (“PSC”) approved the Core ICA.

Following delays in the agreed interconnection timeline and subsequent activities in initiating the litigation, a series of Core’s claims were consolidated. These claims included a single count for breach of contract, three related claims for promissory estoppel, unjust enrichment, and breach of warranty, as well as three state law tort claims for misrepresentation (both negligent and intentional), concealment (both negligent and intentional), and unfair competition. After a series of legal events regarding the various claims, the parties submitted cross-motions for summary judgment on the matters of contract damages and resolution of Core’s surviving tort claims.

In its summary judgment papers, Verizon raised for the first time that the Core ICA contained an exculpatory provision that served to insulate Verizon from the damages Core pursued. Verizon argued that the provision barred the consequential, lost-profit damages demanded by Core so that the only remaining damages available were nominal in nature. Verizon also argued that the provision barred recovery of damages for any tort claims, except for those involving “willful or intentional misconduct,” which Verizon contended Core was unable to prove.

Core, on the other hand, argued that Verizon had waived any rights under the exculpatory provision by failing to timely invoke the provision as an affirmative defense under Rule 8(c) of the FRCP and Verizon did not rely on the provision in its previous declaratory judgment action. Alternatively, Core argued that the clause was unenforceable under Maryland law as against public policy. During the pendency of the summary judgment motions, Core withdrew its tort claim for misrepresentation so that only the tort claims for concealment and unfair competition remained.

The district court rejected Core’s argument that Verizon had waived the benefit of the exculpatory provision by failing to properly and timely invoke it in its pleadings. The district court also ruled that the clause could not be enforced on the basis of state law public policy principles with regard to the tort claims. Moreover, the district court explained that the clause could not bar Core’s request for consequential damages on the breach of contract claim. As to the merits of the tort claims, the district court stated that Core’s claims failed for lack of proof on the issues of intent to defraud or deceive. A jury issue remained with respect to the contract damages for Verizon’s breach of the Core ICA; however, the case never reached the jury.

 Timeliness and Application of the Exculpatory Clause

The Fourth Circuit did not find that the district court abused its discretion in permitting Verizon to raise the exculpatory clause following the remand and in the summary judgment proceedings. The Circuit explained that there is a recognized exception to Rule 8(c)—the defense is not waived if the pertinent provision was “evident” in the contract “before the trial court.” In addition, Core was neither unfairly surprised nor unduly prejudiced by Verizon’s delay in invoking the clause. Therefore, the clause was timely and appropriately invoked.

The court also stated that the contractual duty at issue in the case is a duty imposed by the Telecommunications Act itself and the resolution of the claim regarding the scope of that statutory duty, including the appropriate remedies, depends on the interpretation and application of federal law. Although no other Circuit has addressed whether the Act abides in the existence of an exculpatory provision in an approved ICA, the Fourth adopted the district court’s conclusion that exculpatory clauses are not void under the Act.

Applying the familiar Chevron two-step framework, the court recognized that the Act itself does not address the issue of an exculpatory provision’s enforceability in an ICA. However, the FCC’s decisions clearly illustrate the agency’s reasonable conclusion that such provisions do not offend any aspect of the Act. Thus, the court held that Verizon’s reliance on the clause is not precluded by federal law.

Summary Judgment on State Tort Claims

Under Maryland law, Core must prove five elements by clear and convincing evidence to succeed on its concealment claim. The tort of unfair competition, on the other hand, is more flexible and requires proof of “fraud, deceit, trickery or unfair methods of any sort.” The Fourth Circuit agreed with the district court that no reasonable jury could find that Verizon unlawfully concealed any material fact from Core. Core failed to offer any evidence suggesting that Verizon’s failure to identify Core as the “customer of record” was driven by an intent to defraud or deceive. Core only asserted that the failure to disclose occurred and then asked the court to make the inference that Verizon must have done so intentionally in order to improperly delay the Core interconnection. However, the court refused to make such an extended inference.

The court likewise agreed with the district court on the unfair competition tort claim. There was simply no evidence offered on the element of intent to defraud or deceive. In this section of reasoning, the Court notes its distaste with Core’s intentional tort claims potentially appearing only as contract claims “in the guise of a tort.”

Nominal Damages for Breach of the ICA

Finally, the court reviewed the district court’s judgment awarding nominal damages of one dollar to Core for Verizon’s breach of the Core ICA.  The court explained that the “willful or intentional misconduct” exclusion to the exculpatory provision would apply exclusively to tort actions because an intent to defraud or deceive is ordinarily not at issue in a breach of contract claim. Nevertheless, Core was unable to show that Verizon engaged in such “willful or intentional misconduct.”

Core also argued that the exculpatory provision only limits Verizon’s liability for consequential damages “in connection with the provision or use of services offered” under the ICA. Core contends that interconnection is not a “service” within the meaning of the provision. The court rejected this argument and explained that according to its broad and ordinary meaning, the word “services” in the provision must include the provision of an interconnection at Core’s request.

In a last attempt, Core looked to a particular section of the Core ICA, which provides for a limited remedy not barred by the exculpatory provision, to argue that it is entitled to “performance penalties.” However, Core did not satisfy its own requirements under that section and failed to provide any evidence in the summary judgment proceedings as to the alleged performance failures. Thus, Core could not be entitled to the performance penalties and the district court properly entered judgment on Core’s breach of contract claim in the nominal sum of one dollar.

The case is Core Communications v. Verizon Maryland and the opinion can be foundhere.