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AT&T v. NEW YORK CITY HUMAN RESOURCES ADMIN.

September 7, 1993

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Plaintiff,
v.
THE NEW YORK CITY HUMAN RESOURCES ADMINISTRATION and THE CITY OF NEW YORK, Defendants. THE CITY OF NEW YORK, Third-Party Plaintiff, v. NORTHERN TELECOM, INC., Third-Party Defendant.


Leisure


The opinion of the court was delivered by: PETER K. LEISURE

LEISURE, District Judge:

 This is an action in which American Telephone & Telegraph ("AT&T") seeks to recover unpaid long distance charges from the City of New York (the "City"). *fn1" The City has impleaded Northern Telecom, Inc. ("Northern Telecom") as a third-party defendant, alleging that Northern Telecom, as the seller of the City's phone equipment, is liable for the long distance charges in dispute.

 AT&T and Northern Telecom have filed separate motions for summary judgment against the City pursuant to Rule 56 of the Federal Rules of Civil Procedure. The City has brought a cross-motion for summary judgment against AT&T. For the reasons set forth below, AT&T's motion for summary judgment against the City is granted and the City's cross-motion for summary judgment against AT&T is denied. In addition, Northern Telecom's motion for summary judgment against the City is granted.

 BACKGROUND

 On August 16, 1985, the City purchased a private branch exchange ("PBX") from Northern Telecom for three of the City's Human Resources Administration ("HRA") offices, including one located at 80 Lafayette Street in Manhattan. The PBX is part of HRA's Customer Premises Equipment which is under HRA's exclusive control and is not part of the public switchboard network. Its primary function is to connect HRA's internal telephone extensions, as well as to connect the offices' telephone system to outgoing trunk lines. HRA subscribed to AT&T's Long Distance Message Telecommunications Service ("LDMTS") under AT&T Tariff FCC No. 1 (the "Tariff") and, as a result, HRA's PBX was connected to AT&T's long distance service. Thus, long distance calls made from HRA's telephone numbers were carried over the AT&T network and the charges for such calls were billed to HRA.

 From January to April 1986, Northern Telecom installed the PBX in a room at HRA's 80 Lafayette Street office (the "PBX room"). Northern Telecom trained certain HRA personnel, selected by the City, to operate the PBX. The PBX's operation was turned over to the City in or about April 1986.

 Among other capabilities, a PBX can be equipped with a remote access feature which allows a PBX customer's selected off-premise employees to call their office's telephone number, enter a special code, and access outgoing trunk lines connected to their office's PBX. Many users of PBXs employ this feature to take advantage of the cost-savings that can be realized by having their employees make calls, including long distance calls, through a central system. The particular PBX licensed to the City and installed in HRA's 80 Lafayette Street office by Northern Telecom was not originally equipped with a remote access feature. However, as explained below, after the PBX's installation, it was manipulated by HRA employees to simulate such a remote access feature, enabling unauthorized off-premise callers to place long distance calls through HRA's PBX.

 HRA's PBX was under the direct control of Gary Glaser, the Director of HRA's Division of Telecommunications Technologies, who supervised approximately twelve employees, including a technician named Everett Casazza. Casazza possessed a key to the PBX room and knew the password necessary to access the PBX.

 After Northern Telecom turned the PBX's operation over to HRA, technician Casazza entered the PBX room and manipulated the PBX, which as originally installed by Northern Telecom did not have a remote access feature, so as to simulate such a feature. Glaser has admitted that he was aware of the modification to the PBX made by Casazza. Casazza created a "phantom phone" by programming into the PBX an extension number which did not correspond to any operating telephone at 80 Lafayette Street. Casazza then call forwarded this "phantom phone's" extension to the outgoing trunk lines connected to the PBX. These trunk lines were connected to AT&T's LDMTS. By this simulated remote access feature, an off-premise caller who called the HRA office at 80 Lafayette Street and entered the "phantom phone's" extension number would be forwarded to an outgoing trunk line, enabling the off-premise caller to dial long distance calls. As a result of these alterations to the system made by the HRA employee, any individual with knowledge of the "phantom phone" extension number could make interstate and international calls through HRA's PBX. HRA, as the subscriber to AT&T's LDMTS, received the bill for any long distance calls placed through HRA's PBX by an off-premise caller.

 After a series of events which are not pertinent to the resolution of the instant action, HRA's telephone number and the "phantom phone's" extension were widely disseminated. As a result, HRA received a telephone bill in August 1987 for the sum of $ 352,142.42 and in September 1987 for the sum of $ 185,364.22 in connection with LDMTS charges. *fn2"

 The City has refused to pay these LDMTS charges and AT&T has brought the instant suit to recover that sum pursuant to AT&T Tariff F.C.C. No. 1. *fn3" The City has brought a third-party action against Northern Telecom, the seller and installer of the PBX system, alleging that the unauthorized LDMTS calls were caused by a defect in Northern Telecom's PBX system which allowed unauthorized persons to exploit the remote access (i.e. "Direct Inward System Access" or "DISA") capability. The City has asserted claims for breach of contract, negligent design, negligent installation, and negligent failure to warn in connection with the PBX system. The City seeks to hold Northern Telecom liable for any LDMTS charges which the City must pay to AT&T relating to the unauthorized calls.

 AT&T and the HRA have cross-moved for summary judgment in the main action, and Northern Telecom has moved for summary judgment against HRA's complaint in the third-party action.

 DISCUSSION

 I. STANDARD FOR SUMMARY JUDGMENT

 Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Lang v. Retirement Living Publishing Co., 949 F.2d 576, 580 (2d Cir. 1991). Accordingly, "'summary judgment is appropriate when, after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the nonmoving party.'" Leon v. Murphy, 988 F.2d 303, 308 (2d Cir. 1993) (quoting Lund's, Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir. 1989)); see also United States v. Certain Funds on Deposit in Scudder Tax Free Inv. Account #2505103, 998 F.2d 129 (2d Cir. 1993) ("In determining whether the moving party has satisfied this burden [on a summary judgment motion], the court must resolve all ambiguities in favor of the non-moving party and draw all reasonable inferences against the moving party."); Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir. 1992) ("The nonmovant's allegations are taken as true and it receives the benefit of the doubt when its assertions conflict with those of the movant."). The substantive law governing the case will identify those facts that are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.

 The party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion," and identifying which materials "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323. Once a motion for summary judgment is properly made, however, the burden then shifts to the non-moving party, which "'must set forth specific facts showing that there is a genuine issue for trial.'" Anderson, 477 U.S. at 250 (quoting Fed. R. Civ. P. 56(e)). However, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original). As the Second Circuit has noted, "conclusory allegations will not suffice to create a genuine issue. There must be more than a 'scintilla of evidence,' and more than 'some metaphysical doubt as to the material facts.'" Delaware & Hudson Ry. Co. v. Consolidated Rail Corp., 902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson, 477 U.S. at 252 and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)), cert. denied, 111 S. Ct. 2041 (1991). Thus, "the non-movant cannot escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts, or defeat the motion through mere speculation or conjecture." Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (quotations omitted).

 II. AT&T'S MOTION FOR SUMMARY JUDGMENT

 AT&T has moved for summary judgment asserting the following: (A) the Tariff which governs this dispute is unambiguous and requires judgment in its favor, (B) there are no material issues of fact as to "willful misconduct" by AT&T which would preclude summary judgment in favor of AT&T, (C) equitable considerations do not estop AT&T from asserting its rights under the Tariff, and (D) the City's allegation of an unreasonable discriminatory practice on the part of AT&T is not legally cognizable as an affirmative defense in the instant action. For the reasons articulated below, the Court finds that summary judgment in AT&T's favor is appropriate.

 A. ORIGINATION OF THE LDMTS CALLS

 AT&T, as a carrier providing interstate telecommunication services, is governed by the provisions of the Communications Act of 1934. See 47 U.S.C. § 151 et seq. Section 203(a) of Title 47, United States Code, requires every carrier to file with the Federal Communications Commission ("FCC") tariffs "showing all charges for itself and its connecting carriers for interstate and foreign wire or radio communication . . . and showing the classifications, practices, and regulations affecting such charges." It is clear from the case law in this area that these tariffs are not mere contracts, but rather have the force of law. See Lowden v. Simonds-Shields-Lonsdale Grain Co., 306 U.S. 516, 520, 83 L. Ed. 953, 59 S. Ct. 612 (1939) ("Until changed, tariffs bind both carriers and shippers with the force of law."); Carter v. American Telephone & Telegraph Co., 365 F.2d 486, 496 (5th Cir. 1966) ("[A] tariff, required by law to be filed, is not a mere contract. It is the law."), cert. denied, 385 U.S. 1008, 17 L. Ed. 2d 546, 87 S. Ct. 714 (1967); see also Illinois Cent. Gulf R.R. Co. v. Golden Triangle Wholesale Gas Co., 586 F.2d 588, 592 (5th Cir. 1978); Southern Pac. Co. v. Brown, Alcantar & Brown, Inc., 409 F.2d 1331, 1332 (5th Cir. 1969).

 Further, these tariffs conclusively and exclusively enumerate the rights and liabilities of the contracting parties. See American Telephone & Telegraph Co. v. Florida-Texas Freight, Inc., 357 F. Supp. 977, 979 (S.D. Fla.), aff'd, 485 F.2d 1390 (5th Cir. 1973). Neither party disputes the fact that HRA, as a subscriber to AT&T's LDMTS, is bound by the conditions set forth in the Tariff. Section 2.4.1.A of the Tariff states as follows:

 
The Customer is also responsible for the payment of bills for LDMTS. This includes payment for LDMTS calls or services:
 
- Originated at the Customer's numbers,
 
- Accepted at the Customer's numbers (e.g., Collect Calls),
 
- Billed to the Customer's number via Third Number Billing if the Customer is found to be responsible for such call or service, the use of a Calling Card, or the use of a Company-assigned Special Billing Number, and

 AT&T Tariff FCC No. 1, § 2.4.1.A (emphasis added), effective September 13, 1985 (Annexed as Exhibit I to the Affidavit of Barbara Yessel, Esq., sworn to on September 28, 1992 ("Yessel Affidavit")).

 The City contends that the remote access LDMTS calls billed to HRA by AT&T did not "originate at" HRA's telephone number, as that term is defined by the Tariff. Rather, the City claims that these remote access LDMTS calls "originated at" the handset where the unauthorized off-premise caller dialed HRA's 80 Lafayette Street office and entered the "phantom phone's" extension. Therefore, the City argues that, under the terms of the Tariff, the City, as a matter of law, is not liable for the payment of LDMTS charges resulting from these unauthorized calls and is entitled to summary judgment in its favor.

 In response and in support of its own motion for summary judgment, AT&T claims that the LDMTS calls billed to HRA, whether authorized or not, "originated at" HRA's PBX at 80 Lafayette Street. According to AT&T, even though the calls to HRA's PBX were made from the handset where the off-premise caller dialed the HRA number and the phantom phone's extension, the LDMTS calls "originated at" HRA's PBX, which is connected to outgoing long distance lines. AT&T asserts that the plain language of the Tariff requires HRA to pay for all LDMTS calls "originating at" HRA's PBX, whether authorized or not.

 Both parties agree that granting summary judgment on this issue is contingent upon determining the "origination" of the LDMTS calls, as defined by the Tariff. The Court notes that there is one FCC case and several federal district court cases examining the customer's liability under the Tariff for these unauthorized calls.

 In Chartways Technologies, Inc. v. AT&T Communications, 6 FCC Rcd. 2952, 1991 FCC LEXIS 2992 (May 29, 1991) (Annexed as Exhibit A to the Memorandum of Plaintiff American Telephone and Telegraph Company in Support of Its Motion for Summary Judgment, dated July 27, 1992 ("AT&T Memorandum")), the Common Carrier Bureau of the FCC reaffirmed the longstanding principle holding a customer liable for all LDMTS calls made from the customer's phone system, including those made by unauthorized callers through a PBX's remote access feature. Id. at P 13. In that case, Chartways Technologies, Inc. ("CTI"), had a remote access feature installed in its phone system which enabled off-premises callers to dial the PBX's telephone number, enter an access code, and access an outgoing long distance line. CTI, like the City in the instant case, was the victim of remote access fraud when unauthorized callers gained access to its PBX by using its remote access feature. The Chief of the FCC's Common Carrier Bureau held that, under the Tariff, CTI was responsible for the remote access LDMTS calls whether or not such calls were placed by authorized individuals. Id. at PP 12, 13; see also American Message Centers v. Sprint Communications Co., 1993 FCC LEXIS 4223, at P 10 (August 17, 1993) (customer liable for unauthorized long distance calls under the Tariff). The Commission recently affirmed this ruling of the Common Carrier Bureau and found that the Tariff required payment by CTI of long distance charges associated with unauthorized calls placed through CTI's PBX. See Chartways Technologies, Inc. v. AT&T Communications, FCC 93-394 (August 19, 1993).

 In light of the FCC's role in enforcing the provisions of the Tariff, this Court accords great deference to the FCC's determination that the Tariff includes unauthorized remote access calls made through a PBX. See FCC v. WNCN Listeners Guild, 450 U.S. 582, 598, 67 L. Ed. 2d 521, 101 S. Ct. 1266 (1981) ("'the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong . . . .'") (quoting Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 23 L. Ed. 2d 371, 89 S. Ct. 1794 (1969)); see also Columbia Broadcasting Sys., Inc. v. Democratic Nat'l Comm., 412 U.S. 94, 121, 36 L. Ed. 2d 772, 93 S. Ct. 2080 (1973).

 
The language of the tariff is that when the LDMTS call originates from the customer's number, the customer is liable. The culprits here could only place unauthorized long distance calls once they accessed defendant's LDMTS service. And defendant's number was recorded for billing purposes only when the long distance portion of the call was initiated. It does not seem to the Court that it defies common sense to say that, however a customer's number is accessed, an [sic] LDMTS call begins at the customer's number, and that therefore (AT&T's) interpretation is reasonable.

 Bench Opinion, at 13 (Annexed as Exhibit A to Reply Memorandum of AT&T in Support of Summary Judgment Motion and in Opposition to Defendant's Cross-Motion for Summary Judgment, dated December 11, 1992 ("AT&T Reply Memorandum")).

 In Industrial Leasing Corp. v. GTE Northwest Inc., 818 F. Supp. 1372 (D. Or. 1992), Industrial Leasing Corp. ("ILC") was the victim of remote access fraud when unauthorized off-premise callers accessed ILC's PBX and placed long distance calls. The court dismissed ILC's motion seeking a declaratory judgment that it was not liable for such calls on the grounds that, inter alia, the calls did not "originate" from ILC as defined in the relevant tariffs. The court stated:

 
Liability for long distance charges depends upon where access to the AT&T long distance line originates. I agree with AT&T that ILC's long distance service originates with the GTE system [the PBX], through which all of ILC's long distance calls start. While clearly ILC "specifically requested" that the calls be made, the tariff allows billing for calls originating at ILC's numbers, and therefore unambiguously applies to the charges incurred through unauthorized access to the communications system purchased by ILC from GTE.

 818 F. Supp. at 1374-75.

 In American Telephone & Telegraph Co. v. Pacific Mutual Life Ins. Co., CV 91-6793-IH (C.D. Cal. Oct. 30, 1992), *fn4" summary judgment for AT&T was granted in an action involving long distance charges resulting from the unauthorized remote access use of Pacific Mutual Life Insurance Company's ("Pacific") PBX. The court rejected Pacific's claim that the term in the Tariff stating that customers are responsible for all calls which "originated at" their telephone numbers is ambiguous, stating:

 
Given our facts, I must tell you that I don't think the term in question, "originated at the customer's number" has any ambiguity in it.
 
The facts show that these long distance calls originated and resulted from their having passed through the PBX system at defendant customer's place of business.
 
. . . .
 
But for the secret code being punched in at the outside place, and as a result of it being punched in, the switching that took place on the customer's premises would not have occurred, and these long distance calls could not have taken place.
 
So in my tentative view, as far as I'm concerned, there is no ambiguity at all on the matter of where these calls originated. They originated at the defendant Pacific Mutual's phones and phone number.

 Bench Opinion, at 17-18, 27 (Annexed as Exhibit B to AT&T Reply Memorandum).

 
There is no genuine factual dispute as to the meaning of the Tariff, and specifically there is no question concerning the applicable meaning of the word "originated" as used in the Tariff. Indeed, the meaning of the Tariff is unambiguous. The Tariff squarely places responsibility upon a customer such as Jiffy Lube for calls, whether or not authorized, which "originated" at the customer's number. Herein, the calls at issue originated at Jiffy Lube's number, that is, at Jiffy Lube's PBX which was at Jiffy Lube's Baltimore office. Thus, in a case like this one, the word "originated" means that the calls in issue originated at Jiffy Lube's number when, after the "computer hacker" dialed the MCI 800 number and after the hacker reached that number and dialed the code "LUBE," the hacker was thereby able to access the AT&T long distance line running out of Jiffy Lube's Baltimore office.

 813 F. Supp. at 1167.

 While the City argues that it is not responsible for remote access LDMTS calls billed to HRA's PBX, all the above cited cases reaffirm well settled law that, under the Tariff, a customer is responsible for all calls placed from his or her telephone number, whether authorized or not. The Court agrees with the highly persuasive analysis of the above cited cases and finds that the meaning of the phrase "originated at" contained in the Tariff is clear and unambiguous under the circumstances of the instant case. The plain meaning of the Tariff requires the Court to conclude that remote access calls placed through a PBX's remote access feature "originate at" that ...


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