American Telephone and Telegraph Company, Plaintiff-Cross-Appellee v. The City of New York and the New York City Corrections Department, Defendants-Third-Party-Plaintiffs- Appellees-Cross-Appellants v. New York Telephone Company, Third-Party-Defendant-Appellant

Citations: 83 F.3d 549; 3 Communications Reg. (P&F) 101; 1996 U.S. App. LEXIS 9948Docket: 514

Court: Court of Appeals for the Second Circuit; April 26, 1996; Federal Appellate Court

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American Telephone and Telegraph Company (AT&T) sued the City of New York and the New York City Department of Corrections (DOC) for $201,871.88, reflecting unpaid long-distance charges for calls made from Rikers Island correctional facility. The City contested the charges, claiming they were unauthorized, and brought New York Telephone Company (NYT) into the case, alleging NYT failed to provide ordered blocking services to prevent unauthorized long-distance calls. The District Court granted summary judgment in favor of AT&T against the City and in favor of the City against NYT for indemnification.

The DOC operates over 2,000 telephone lines and has specific regulations requiring inmates to make periodic calls. Inmates are allowed to make long-distance calls only collect or at their own expense. The City had ordered a blocking service from NYT, intended to restrict outgoing calls to specific local area codes and to prevent collect calls or access to certain service codes. However, this blocking service was ineffective for three years, resulting in unauthorized long-distance calls made on 307 lines across 29 DOC accounts.

NYT provided billing and collection services for AT&T long-distance charges, billing the City approximately seventy-five times over three years for unauthorized calls, which the City disputed and did not pay. The City complained to NYT about inadequate blocking services, leading NYT to refer the unpaid bills to AT&T for collection. Between August 27, 1991, and February 5, 1992, AT&T issued five bills totaling $201,871.88, which the City continued to refuse on the grounds of unauthorized calls. Subsequently, AT&T filed a lawsuit against the City, which denied liability and counterclaimed against NYT. AT&T sought summary judgment, while the City cross-moved for summary judgment against both AT&T and NYT. The district court granted summary judgment for AT&T against the City and for the City against NYT, prompting appeals from both the City and NYT.

The district court had jurisdiction over AT&T's claims under the Federal Communications Act, although there is a circuit disagreement on such jurisdiction. The court also exercised supplemental jurisdiction over the City-NYT dispute. Summary judgment was granted based on the standard that a fair-minded jury could not reasonably find for the non-moving party. Key to this case is whether the City is considered AT&T's "customer," as this determines the City's obligation to pay. The determination of the City's status is crucial for the resolution of the case.

The legal relationship between AT&T and its customers is governed by tariffs filed with the Federal Communications Commission (FCC), specifically under the FCA, 47 U.S.C. 203(a). These tariffs, which include terms and conditions for service and rates, possess the force of law. AT&T Tariff No. 1, relevant to this case, outlines that customers are responsible for placing orders, ensuring compliance with tariff regulations, and paying for long-distance services, including unauthorized calls. The City concedes that this responsibility is broad, encompassing liability for unauthorized calls.

The parties dispute whether the City qualifies as a "customer" under AT&T Tariff No. 1. While both agree on key facts—such as the occurrence of unauthorized calls totaling $201,871.88 made through DOC telephone lines at Rikers Island—the determination of the City's status as a customer remains contentious. The tariff defines a "customer" as the entity ordering long-distance message telecommunications service. The district court ruled that the City was a customer, arguing that the City’s blocking service allowed calls to the New Jersey "local 201" area code, necessitating long-distance service from AT&T. However, there is a consensus that the blocking service did not include long-distance calls, undermining the conclusion that the City ordered such service.

AT&T argues that the City qualifies as a "customer" under FCC guidelines, which define a customer as one who either affirmatively orders long-distance service by presubscribing to AT&T LDMTS or constructively orders it by not taking reasonable steps to prevent unauthorized charges. The FCC's interpretations receive significant deference. AT&T claims both conditions apply here, while the City contends it never ordered the service in question. 

To establish the City's presubscription to AT&T, AT&T refers to an affidavit by John Corso, a former Operations Manager, who states that historically the City designated AT&T as its long-distance carrier, particularly for inmate lines at Rikers Island. However, this assertion lacks specificity regarding which lines are referenced, making it insufficient to prove that the City affirmatively ordered AT&T LDMTS. The City had switched its carrier for city-wide accounts to U.S. Sprint, yet claims that AT&T remains the designated carrier only for some inmate lines, leaving ambiguity regarding the specific lines involved in the unauthorized calls.

AT&T argues that its status as a long-distance carrier is evidenced by the absence of access codes for calls made, indicating that the City may have presubscribed to AT&T LDMTS. However, this presumption is not definitive, as it is possible that AT&T was either a default carrier or that long-distance service was inherently linked to local service, leading to a default arrangement or blocking service. The City denies having ordered long-distance service, asserting it did not establish a carrier-customer relationship with AT&T. Despite some evidence suggesting presubscription, it does not legally compel that conclusion, thus insufficient grounds exist for granting summary judgment in favor of AT&T.

Furthermore, AT&T posits that the City constructively ordered long-distance service due to unauthorized calls from Rikers Island phone lines. The City counters that it took reasonable measures to prevent such access and should not be deemed absolutely liable. Constructive ordering would only be applicable if the City failed to take reasonable steps to secure its phones from long-distance calls. The City implemented measures including blocking services and restricting inmate access, but whether these measures were adequate remains a factual issue, especially since billing records indicate some calls evaded restrictions. The district court is directed to examine the City's control over its equipment and the reasonableness of its preventive measures regarding unauthorized AT&T LDMTS calls.

Unauthorized calls made from inmate-accessible telephones were addressed, highlighting that a minority occurred over DOC administrative lines, which are exclusively for DOC personnel. While DOC personnel could be considered agents of the City under AT&T Tariff No. 1, 2.10, the existence of a blocking service agreement with NYT indicates that these calls were likely outside their employment scope. This raises a material issue regarding the agency status of DOC personnel, leading to the vacation of the district court's summary judgment on unauthorized long-distance calls made from DOC-only lines.

Regarding NYT's liability for damages, the district court granted summary judgment to the City for indemnification based on NYT's alleged gross negligence concerning its blocking agreements. Since the agency issue was unsettled, the judgment against NYT was also vacated. The City argued that NYT's failure to provide adequate blocking service over an extended period constituted gross negligence or willful misconduct, as outlined in relevant tariffs that supersede common law remedies. According to Tariff P.S.C. No. 900, NYT is only liable for service failures resulting from gross negligence or willful misconduct. The district court had found that NYT was aware of repeated failures in its blocking service but failed to take appropriate action, leading to claims that it was negligent in maintaining its equipment and service.

Under Tariff P.S.C. No. 900, the determination of whether NYT's negligence constitutes gross negligence hinges on the presence of reckless disregard for others' rights or elements of intentional wrongdoing, as defined in Colnaghi, U.S.A. Ltd. v. Jewelers Protection Servs. Ltd. While gross negligence can sometimes be established as a matter of law, the circumstances in this case do not meet that threshold at the summary judgment stage. The district court incorrectly applied the gross negligence standard by concentrating on the magnitude of harm caused to the City rather than assessing whether NYT's conduct constituted a gross failure in due care. The court's analysis resembled strict liability, focusing solely on the failure to block calls. NYT acknowledged issues with 121 phone lines and delays in resolving them; however, mere mistakes do not equate to gross negligence without evidence of recklessness. Consequently, even if NYT received immediate notice of the problems, the lack of prompt correction alone does not establish gross negligence. Therefore, the judgment against the City is vacated, and the matter is remanded for further proceedings.