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Telstar Resource Group, Inc. v. MCI

January 19, 2007

TELSTAR RESOURCE GROUP, INC., ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
MCI, INC., DEFENDANT.



The opinion of the court was delivered by: John G. Koeltl, District Judge

OPINION AND ORDER

The plaintiff, Telstar Resource Group, Inc. ("Telstar"), brought this action against the telecommunications services provider MCI, Inc.,*fn1 alleging that MCI violated the Federal Communications Act of 1934 ("FCA"), as amended by the Telecommunications Act of 1996, 47 U.S.C. §§ 151 et seq., by including in its bills both federal and state fees for universal service funds. The FCA calls for the federal government to create a universal service fund ("USF") to create the support necessary to provide affordable, modern telecommunications services for low-income customers and those in rural areas and to provide discounts on Internet access to schools, libraries, and rural health care providers. See 47 U.S.C. § 254. The FCA and Federal Communications Commission ("FCC") regulations established pursuant to the FCA require "interstate" telecommunications providers to contribute to the federal USF, 47 U.S.C. § 254(d); 47 C.F.R. § 709, and the FCA also allows states to require providers of "intrastate" telecommunications services to contribute to analogous state USFs, if the states choose to establish them, although these state mechanisms for providing universal service must be consistent with federal regulations and must not "rely on or burden" the federal USF, 47 U.S.C. § 254(f).

Telstar contracted with MCI to provide "frame relay service," a type of direct access service which allows high-speed data transmission without relying upon public telephone lines. (Compl. ¶¶ 5, 10.) Some "mixed-use" direct access lines carry both interstate and intrastate traffic. In its Complaint, Telstar alleges that the FCC has adopted regulations designed to separate the jurisdictions of federal and state regulatory bodies which make it plain that a service provider cannot impose both federal and state USF surcharges on such a mixed-use direct access line. Telstar alleges that, in violation of these regulations, MCI imposes surcharges for both federal and state USFs on its direct access lines-including both mixed-use lines and lines that carry only interstate traffic.

Telstar asserts four claims against MCI: (1) imposing "unjust and unreasonable" USF surcharges in violation of 47 U.S.C. § 201(b); (2) unreasonably discriminating in its charges for communications services by charging both state and federal USF fees for some customers but not others in violation of 47 U.S.C. § 202(a); (3) violating the tariff requirements of 47 U.S.C. § 203(c); and (4) unjustly enriching itself by retaining money it collected via USF surcharges. Jurisdiction for the first three claims arises under 47 U.S.C. § 207 and 28 U.S.C. § 1331, and the Court has supplemental jurisdiction over the state law claim pursuant to 28 U.S.C. § 1367. Telstar styles its suit as a class action on behalf of itself and other MCI direct access service customers, seeking an injunction against MCI's alleged double-surcharging practice and an award of damages or restitution, among other relief. Telstar has moved for class certification.

MCI has moved to dismiss the Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). MCI asserts various arguments in support of its motion, including a disagreement that the FCC's jurisdictional separations regulations restrict USF surcharges at all, and an assertion that the Court should refer the matter to the FCC under the doctrine of primary jurisdiction.

The Court has deferred ruling on Telstar's motion to certify a class and has stayed discovery pending the resolution of this motion to dismiss.

I.

A.

On a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the Complaint are accepted as true. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendant's present motion should only be granted if it appears that the plaintiff can prove no set of facts in support of its claims that would entitle it to relief. See Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002) (citing Hishon v. King & Spaulding, 467 U.S. 69, 73 (1984)); Conley v. Gibson, 355 U.S. 41, 45--46 (1957); Grandon, 147 F.3d at 188; Goldman, 754 F.2d at 1065.

While the Court should construe the factual allegations in the light most favorable to the plaintiff, the Court is not required to accept legal conclusions asserted in the Complaint. See Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002); Barile v. City of Hartford, 386 F. Supp. 2d 53, 54 (D. Conn. 2005).

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the Complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Taylor v. Vermont Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991); Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); VTech Holdings Ltd. v. Lucent Techs., Inc., 172 F. Supp. 2d 435, 437 (S.D.N.Y. 2001).

B.

For the purposes of this motion, the following facts are accepted as true.

MCI is a common carrier, as defined by the FCA and FCC regulations. (Compl. ¶ 28.) MCI offers a variety of telecommunications services that allow businesses to communicate between multiple offices directly, rather than over public telephone lines. (Id. ¶ 8.) MCI's "private line services" use a single, dedicated high-speed line to connect different offices. MCI's billing for its private line services includes a fixed monthly charge based on the quality of service provided and a fixed mileage charge based on the mileage between office locations. (Id. ¶ 9.) Customers with private line service do not incur per-use fees. (Id.) MCI's "frame relay services" provide high-speed packet data transmissions without using public telephone lines by establishing "Permanent Virtual Circuits" between locations with port connections. (Id. ¶ 10.)

Telstar entered into a Service Agreement with MCI on July 25, 2005. (Ex. A to Decl. of Theresa A. Coetzee, Apr. 4, 2006.) The Service Agreement incorporates by reference MCI's Service Publication and Rate Guide ("Guide") (id. ¶ 2), which contains some of the terms of the agreement (Ex. B. to Coetzee Decl.; Def.'s Mem. of Law in Supp. of Its Mot. to Dismiss 5). The Service Agreement provides for both "network access," a local service that connects customer offices to an MCI "Point-of-Presence" (Ex. A to Coetzee Decl. ¶ 1; Ex. B. to Coetzee Decl.), and "frame relay" service (Ex. A. to Coetzee Decl. ¶ 1; Ex. B to Coetzee Decl.). MCI's Guide states that MCI will collect a federal USF surcharge of 10.9% on all charges subject to regulation by the FCC. (Ex. B to Coetzee Decl.) The Service Agreement includes a clause titled "Governmental Charges" which states:

MCI may . . . impose additional rates and charges in order to recover amounts it is required or permitted by governmental or quasi-governmental authorities to collect from or pay to others in support of statutory or regulatory programs ("Governmental Charges"). Examples of such Governmental Charges include, but are not limited to, Universal Service funding . . . . (Ex. A to Coetzee Decl. ¶ 9.)

MCI's bills to Telstar have included surcharges for both federal and state USFs for the same billing period. (Compl. ¶¶ 1, 5, 18.) The state surcharge consists of a "California End User Surcharge." (Id. ¶ 5; see also Def.'s Mem. 4--5.) California's regulatory body, the California Public Utilities Commission ("CPUC"), requires carriers to "assess, collect, and remit" surcharges to pay for its USF, which supports the Universal Lifeline Telephone Service. Cal. PUC Gen. Order 153 ¶¶ 2.1.53, 10.1. The CPUC specifically requires carriers to surcharge end-users of intrastate telecommunications services to fund the Universal Lifeline program. (Id. ¶ 10.5.1; see also Def.'s Mem. 5.)

Telstar alleges that MCI's Guide does not set out specific circumstances under which its bill for private line or frame relay service customers will include both federal and state USF surcharges for the same line and the same billing period. (Compl. ¶ 30.)

While MCI bills some customers for both federal and state USF surcharges, it surcharges other customers only for the federal USF or a state USF, but not both. (Id. ΒΆ 36.) MCI also has "reversed, refunded, or credited back" USF surcharges for some customers who were billed for both ...


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