Blitz Telecom Consulting, LLC v. Peerless Network, Inc.

Citations: 151 F. Supp. 3d 1294; 2015 U.S. Dist. LEXIS 170093; 2015 WL 9269413Docket: Case No: 6:14-cv-307-Orl-40GJK

Court: District Court, M.D. Florida; December 20, 2015; Federal District Court

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The Court addresses motions related to a contract dispute between Plaintiff Blitz Telecom Consulting, LLC and Defendant Peerless Network, Inc. regarding nonpayment of co-marketing fees for telecommunications traffic. The discussion begins by explaining the structure of telephone service payments in the U.S., distinguishing between local and long-distance calls. For local calls, the originating local exchange carrier (LEC) charges its customer, and compensates the terminating LEC through reciprocal compensation. In contrast, long-distance calls involve an interexchange carrier (IXC) that pays access charges to the LECs for using their facilities. Issues arise with prepaid calling cards, where customers connect through a toll-free access number, leading the originating LEC to impose access charges on the calling card provider, which in turn deducts from the customer's prepaid balance. This framework sets the context for the legal disputes in the case.

Prepaid calling card companies are increasingly issuing cards with access numbers that fall within local calling areas, such as a Miami customer using a 305 area code. This local designation leads the originating Local Exchange Carrier (LEC) to treat the call as local, transmitting it to the access number's LEC without assessing the standard access charges. The access number is, in fact, a switching platform operated by the calling card provider, which then processes the call as long-distance, debiting the customer's prepaid card without paying the originating LEC the fees typically required for non-local calls. This has prompted lawsuits from originating LECs seeking recovery of these avoided access charges, including notable cases like Broadvosx-CLEC, LLC v. AT&T Corp. and Dollar Phone Access, Inc. v. AT&T Inc. A pivotal case in this context is Southwestern Bell Telephone Co. v. IDT Telecom, Inc., which concluded that all prepaid calling card traffic is subject to access charges payable by the service provider, resulting in a partial summary judgment in favor of the LECs on liability. Following this decision, the case settled regarding damages. Peerless, a telecommunications carrier, relies on the IDT Decision to support its position in ongoing litigation. 

Blitz, a business that purchases and resells telephone numbers from various telecommunications carriers, entered into an IP Control Agreement with Peerless on November 9, 2010. Under this agreement, Peerless assigned telephone numbers to Blitz for a fee, allowing Blitz to either sell them to other carriers or generate traffic directly. In return, Peerless agreed to pay a 30% commission to Blitz, calculated based on revenues from charges imposed on the customers and carriers whose traffic Blitz facilitated. Peerless paid these commissions regularly from 2010 until approximately mid-2012.

On April 11, 2012, Peerless informed Blitz via mail that it would stop paying co-marketing fees due to the IDT Decision, finalized on April 9, 2012. Peerless claimed it had the right to modify their agreement under Section 23 of the Contract, which allows for renegotiation if a "Change in Law" materially impacts a party's ability to fulfill obligations. Peerless argued the IDT Decision constituted such a change, justifying its cessation of payments, while Blitz contested this assertion, leading to litigation initiated by Blitz on February 24, 2014. Blitz's complaint included claims for breach of contract, quantum meruit, declaratory judgment, and equitable accounting. In response, Peerless filed an amended answer and counterclaims for breach of contract and quantum meruit due to Blitz's alleged nonpayment. Both parties are now seeking summary judgment. The court will grant summary judgment if there are no genuine disputes regarding material facts and the movant is entitled to judgment as a matter of law, requiring specific citations to support claims. The burden of proof initially lies with the moving party, and if they demonstrate a lack of evidence for the non-moving party's case, the burden shifts to the latter to show genuine disputes of material facts.

The non-movant in a summary judgment must present specific facts demonstrating a genuine issue for trial, as established in relevant case law. The court evaluates evidence in favor of the non-moving party and resolves reasonable doubts in their favor. Summary judgment is appropriate only when no rational fact-finder could rule in favor of the non-moving party. Blitz seeks summary judgment on Counts III and IV of its Complaint, which involve claims for declaratory judgment and equitable accounting, while Peerless seeks summary judgment on all of Blitz’s claims. The court must apply Florida law to Blitz's quantum meruit and equitable accounting claims due to its jurisdictional diversity, but will apply Illinois law to the breach of contract claim based on a contractual choice of law provision. For declaratory relief, Illinois law will apply regarding the breach of contract, while Florida law governs the quantum meruit and equitable accounting claims.

Central to Blitz's claims is whether Peerless breached the contract by failing to pay co-marketing fees, with Peerless arguing that the IDT Decision signifies a material change in telecommunications law, exempting it from such payments. However, the court asserts that the IDT Decision cannot alter federal telecommunications law since district court decisions do not create binding precedents. The IDT Decision, made by a federal district court, is non-binding and has not been endorsed by the FCC or any authoritative court.

The IDT Decision is not recognized as a material change in telecommunications law and only applies to the specific parties involved in that case, resulting in Peerless being denied summary judgment on this basis. In assessing Peerless’ motion for summary judgment regarding Blitz’ declaratory judgment claim, the court identifies two key issues raised by Peerless: the absence of an actual controversy and the duplicative nature of the declaratory relief sought. The Declaratory Judgment Act allows federal courts to declare legal rights when there is an actual controversy, defined as a substantial disagreement between parties with adverse legal interests that is sufficiently immediate and real. Peerless argues that the termination of the Contract and the establishment of a new agreement void any actual controversy; however, the court finds that the ongoing disputes regarding rights and remedies under the former Contract, along with the implications of the IDT Decision, maintain the controversy as active and ripe for adjudication. Furthermore, the existence of other remedies does not negate the appropriateness of declaratory relief, which can be granted even alongside other claims. As a result, Peerless’ motion for summary judgment is denied.

Blitz seeks summary judgment on its declaratory judgment claim concerning the "Changes of Law" provision in its contract with Peerless. The Declaratory Judgment Act allows courts to clarify legal rights and obligations in actual controversies, and while courts have discretion in granting such judgments, they should refrain only when there is a compelling reason to do so. The merits of the claim should be addressed if it clarifies legal relations and alleviates uncertainty. Blitz contends that Peerless improperly invokes the "Changes of Law" provision based on the IDT Decision, arguing that this decision does not represent a change in telecommunications law nor does it alter Peerless’ obligation to pay co-marketing fees. The court must interpret whether the "Change in Law" provision is ambiguous. A contract is considered ambiguous if its language can be interpreted in multiple ways; conversely, it is unambiguous if the intent of the parties is clear from the language used. The determination of ambiguity is a matter of law, and merely claiming ambiguity does not make it so.

A contract is considered ambiguous only when its language can reasonably support multiple interpretations. If ambiguity exists, the interpretation becomes a factual question for a jury. Conversely, unambiguous contracts are interpreted by the court based on the plain meaning of their terms. In this case, the court determines that the "Change in Law" provision is unambiguous, defining it as any legal action that significantly impacts a party's ability to fulfill material obligations under the agreement. The term "material" is interpreted as significant or essential, requiring three criteria for establishing a "Change in Law": (1) a legal action, (2) that materially affects, (3) a material obligation under the contract.

The court finds no genuine dispute that the IDT Decision did not impact any material obligation owed by Peerless. Blitz claims that the IDT Decision did not affect Peerless’ obligation to pay co-marketing fees based on collected revenues from telecommunications services. Peerless argues that its obligation to pay these fees was hindered because the IDT Decision affected its ability to collect revenues. It cites a significant drop in revenue collection post-IDT Decision as evidence of this impact. However, the court rejects this argument, clarifying that the contract stipulates payment of co-marketing fees based on the traffic Blitz provided, not on the collection of revenues. Therefore, if Peerless collects no revenues in a given month, it is not obligated to pay a co-marketing fee for that month, and thus, would not be in breach of the contract.

The parties' intention regarding Peerless' payment of co-marketing fees is clearly stated: Peerless is obligated to pay Blitz based solely on collected revenues. Peerless acknowledged that it continued to collect revenues related to Blitz traffic post-IDT Decision, albeit at a lower value than expected. Despite Peerless' dissatisfaction with these lower revenues, it remained capable of fulfilling its payment obligations to Blitz. Peerless argued that the IDT Decision frustrated its purpose in the Contract, claiming it should be excused from paying co-marketing fees due to collecting less than anticipated. However, under Illinois law, the doctrine of commercial frustration—which excuses nonperformance due to unforeseeable events—was not raised by Peerless as an affirmative defense, rendering it unavailable for consideration in summary judgment. As such, Peerless cannot invoke the Change in Law provision based on the IDT Decision, leading to a partial grant of summary judgment in favor of Blitz.

Both parties sought summary judgment on Blitz' equitable accounting claim, which requests an auditor to assess the amounts owed by Peerless under the Contract. Peerless contended that Blitz had not established a claim for equitable accounting due to the absence of a fiduciary relationship, the existence of an adequate legal remedy, and the straightforward nature of the transactions involved. Conversely, Blitz argued that an equitable accounting was necessary to determine the owed co-marketing fees. The court noted that equitable accounting is a remedy contingent on proving either complex transactions with inadequate legal remedies or a fiduciary relationship. Peerless successfully demonstrated that the transactions were not overly complex and that Blitz had adequate legal recourse through a breach of contract claim. Furthermore, the Contract explicitly negated any fiduciary relationship, supporting Peerless' position to deny the equitable accounting remedy.

Blitz raises factual disputes regarding the complexity of transactions and the adequacy of legal remedies. The evidence suggests that the accounts involved are too intricate for a jury to evaluate effectively, necessitating an equitable accounting, as established in Managed Care Solutions, Inc. v. Essent Healthcare, Inc. Blitz argues that accurately calculating co-marketing fees owed by Peerless requires extensive verification of call records, review of numerous lengthy invoices, and reconciliation of disputed revenues, tasks deemed beyond a jury's capability. Additionally, Blitz asserts that it cannot obtain judgment on its breach of contract claim without an accounting, indicating a lack of adequate remedy at law. Peerless is accused of being evasive in discovery, hindering Blitz's ability to ascertain damages, which under Illinois law must be measurable and not speculative. Consequently, Blitz presents a genuine dispute regarding the complexity of transactions and remedy adequacy, leading to the dismissal of its claim for equitable accounting as a standalone relief in Count IV, while leaving open the possibility of an accounting if liability is found on its breach of contract or quantum meruit claims.

Peerless also argues that the contract is illegal and unenforceable, claiming Blitz's failure to comply with FCC regulations renders the contract void. Illinois law allows for the defense of illegality if a contract's performance is contrary to law or public policy. The legality of a contract is a legal question determined by whether its conduct is significantly harmful to public welfare.

Telecommunications carriers are required to obtain certification from the FCC before offering services, as per 47 U.S.C. 214. Peerless contends that Blitz qualifies as a telecommunications carrier and lacked the necessary certification, rendering their contract illegal. Blitz disputes this classification, asserting it does not meet the FCC’s definition of a telecommunications carrier, which refers to providers of telecommunications services on a common carrier basis. The FCC defines a common carrier as one that serves all customers indiscriminately, and the court references a two-prong test to determine this status.

The first prong requires that a common carrier must serve all individuals who desire its services. The evidence presented by Peerless, primarily the contract indicating Blitz's role in reselling services, does not support the claim that Blitz operates as a common carrier. Instead, the contract grants Blitz exclusive responsibility for managing and reselling services, suggesting it selectively chooses its customers, contradicting the common carrier requirement. Peerless fails to provide conclusive evidence that Blitz operates indiscriminately and, therefore, cannot establish Blitz as a telecommunications carrier. 

As a result, the court grants in part and denies in part Peerless's motion for summary judgment: it rules in favor of Peerless regarding Count III, stating that a prior decision did not justify Blitz's changes to the contract, but denies it concerning Count IV.

Defendant's Motion for Summary Judgment on Counts I through IV is partially granted and partially denied. Specifically, summary judgment is granted for Count IV, which claims equitable accounting, resulting in its dismissal. The motion is denied for all other counts. The Federal Communications Commission (FCC) regulates the telecommunications industry under 47 U.S.C. 151, 154(i). The Court notes that it will not address additional declaratory relief requested by Blitz, deeming it unnecessary. Furthermore, the Court clarifies that the rejection of commercial frustration and impossibility defenses for Peerless on summary judgment does not imply waiver or forfeiture of those defenses. The Court also concludes that Peerless did not sufficiently demonstrate the first prong of the FCC's common carrier test, thus not examining the second prong concerning customer transmission rights. However, the equitable accounting remedy remains available to Blitz.