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Central Telephone Co. of Virginia v. Sprint, No. 12-1322

Decided: April 29, 2013

The Fourth Circuit affirmed the United States District Court for the Eastern District of Virginia on all issues arising out of a dispute over an interconnection agreement entered into by nineteen incumbent local exchange carriers (collectively “CenturyLink”) and Sprint Communications Company of Virginia, Inc., and Sprint Company L.P. (collectively “Sprint”) under the Telecommunications Act of 1996 (the “1996 Act”).

In April 2004, when the interconnection agreements (“ICAs”) at issue in this case were entered into, both the CenturyLink Plaintiffs and Sprint were wholly owned subsidiaries of Sprint Corporation. In 2006, Sprint Corporation spun off the CenturyLink Plaintiffs, which then formed a separate company that was ultimately acquired by CenturyTel, Inc. in July 2009. The resulting entity began doing business as “CenturyLink.” The parties did business together for several years in accordance with the terms of the ICA’s. However, beginning in June 2009, Sprint began filing written disputes with CenturyLink, ultimately leading to their unilaterally reducing rates and demanding that CenturyLink remit previous payments made by Sprint, which Sprint deemed to be in excess of what it should have paid. In November 2009, CenturyLink filed a breach of contract claim against Sprint. Sprint moved to dismiss and counterclaimed alleging that CenturyLink breached the North Carolina ICA (the “NC ICA”) by billing Sprint for local traffic not subject to access charges. In two separate bench trials, the district court found in favor of the CenturyLink Plaintiffs for both the breach of contract claim and Sprint’s counterclaim. Following the completion of both bench trials, while preparing his financial disclosure for the financial year of 2010, the presiding judge discovered that he had owned eighty shares of CenturyLink in a managed IRA during the time he presided over the trials. After alerting the parties and considering a briefing between the parties, the judge determined that the circumstances did not require recusal or vacatur. Sprint appealed.

On appeal, Sprint argued that the district court should not have gotten to the merits of the case because its role is limited to reviewing a State commission’s determination and no such determination occurred here. However, the Fourth Circuit, supported by the FCC’s amicus brief, held that neither the text nor structure of the 1996 Act supported Sprint’s position that the Act contains a statutory exhaustion requirement. In so holding, the Fourth Circuit reasoned that, although other circuits have interpreted the 1996 Act to confer authority upon State commissions to interpret and enforce an ICA, nothing in the text grants State commissions such authority; thus it follows that, likewise, nothing grants State commissions the exclusive authority to do so in the first instance. Similarly, the court did not find it necessary to impose such a requirement as a prudential matter. Sprint further contended that the district court should not have gotten to the merits of the case because the district judge should have recused himself and vacated all orders and judgments issued in the case. The Fourth Circuit did not agree, citing to the judicial recusal statute’s definition of “financial interest,” which specifically carves out an exemption for ownership of securities in a common investment fund over which a judge exercises no management responsibilities.

Having concluded that the district court properly reached the merits of the case, the Fourth Circuit addressed Sprint’s alternative arguments on the merits. First, Sprint maintained that the district court misconstrued the ICAs as applying to long distance calls that are transmitted via the Internet or a private IP network, known as VoIP traffic. Because the court found that the ICAs were ambiguous as to whether it applied to VoIP traffic, it looked to the previous course of dealings between the parties and noted that Sprint drafted the ICAs at issue. Therefore, the court was compelled to reject this argument. Second, Sprint contended that CenturyLink improperly billed Sprint for local calls under the NC ICA. Sprint alleged that CenturyLink improperly identified calls as intrastate long distance, in violation of the terms of the NC ICA, using an impermissible method—the Billing Telephone Number (“BTN”) method, rather than the Calling Party Number (“CPN”) method. However, the Fourth Circuit found that the NC ICA did not specifically establish a method for identifying local traffic. Therefore, because the BPN method is an acceptable identification method used in the industry, Sprint’s counterclaim was rejected.

Full Opinion

– W. Ryan Nichols