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MCI Telecommunications Corp. v. Teleconcepts

December 8, 1995

MCI TELECOMMUNICATIONS CORPORATION

v.

TELECONCEPTS, INCORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT

v.

BELL OF PENNSYLVANIA, THIRD-PARTY DEFENDANT-APPELLEE TELECONCEPTS, INCORPORATION, APPELLANT.



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 92-244)

Before: GREENBERG, NYGAARD and McKEE, Circuit Judges.

McKEE, Circuit Judge

Argued: March 1, 1995

Filed December 8, 1995

OPINION OF THE COURT

MCI Telecommunications ("MCI"), a long distance telecommunications service provider, has sued Teleconcepts to recover the cost of services MCI provided under MCI's Federal Communications Commission tariff ("FCC tariff"). Teleconcepts raised the untimely service of the complaint and the statute of limitations as defenses, and also brought a third-party action against Bell of Pennsylvania ("Bell"), Teleconcepts' local telephone exchange carrier. Bell disclaimed liability under the terms of its Pennsylvania Public Utility Commission Tariff ("PUC Tariff"). The district court held that the action was not time-barred and that "good cause" existed for the late service of the complaint. The court also granted summary judgment to both MCI and Bell holding that the FCC and PUC tariffs both placed the responsibility for unauthorized telephone calls on Teleconcepts.

Because we find that MCI's action was partially barred by the statute of limitations, and that the doctrine of primary jurisdiction required the district court to transfer the third-party complaint to the Pennsylvania Public Utility Commission, we will reverse in part and remand for further proceedings.

I. FACTUAL BACKGROUND

Teleconcepts owns coin operated telephones - commonly referred to as "pay phones" - that it places on the premises of various businesses. MCI supplied long distance telephone service to Teleconcepts from January 1988 through March 1990 under the terms and conditions of the tariff MCI had filed with the Federal Communications Commission. When Teleconcepts' pay phones are used, Teleconcepts incurs a cost to Bell of Pennsylvania for the use of Bell's telephone lines. The monthly bill for the line charges also includes the customer's long distance charges for the preceding month. Teleconcepts' November 1989 bills from MCI for long distance calls included long distance service charges for international telephone calls in excess of $7,000. Teleconcepts was billed under six different account numbers, which presumably represent six different Teleconcepts' pay phones. The November charges exceeded prior months' long distance charges to such an extent that Teleconcepts was certain that a billing error had occurred, and so informed Bell. However, since Bell was merely a conduit for billing long distance charges, it responded by telling Teleconcepts to contact its long distance carrier - MCI.

Teleconcepts contacted MCI and informed it of the numerous long distance calls to the Dominican Republic and Puerto Rico that Teleconcepts believed had not been made from any of its phones and requested a credit. When MCI refused, Teleconcepts told MCI that it would not pay for these long distance charges, but MCI continued to provide long distance service. When Teleconcepts received its December bills it discovered over $13,000 in doubtful charges to Puerto Rico and the Dominican Republic. Teleconcepts again refused to pay these charges.

On December 27, 1989, MCI notified Teleconcepts that its long distance service was terminated. However, for some reason, MCI failed to terminate long distance service until the following March. In the interim, Teleconcepts continued to receive bills containing exorbitant long distance charges, and Teleconcepts continued to refuse to pay. Finally, MCI sued Teleconcepts to recover the amount of unpaid charges for long distance services MCI had provided to Teleconcepts through March 1990 - $47,565.84. Eventually, Teleconcepts came to believe that the questioned telephone calls had resulted from a fraudulent process known as "hacking." *fn1 This occurred when a person called an 800 number on a pay phone and remained silent until the receiving party hung up. A second dial tone would then be given to the 800 caller who could then call anywhere he or she desired without placing any additional coins in the telephone.

On January 15, 1992, MCI filed its initial summons and complaint in an effort to collect the unpaid charges from Teleconcepts. MCI attempted service through the Mercer County Sheriff's Department, but its initial attempt was unsuccessful. Service was eventually made on June 25, 1992. Teleconcepts responded by filing a third-party complaint against Bell of Pennsylvania in which it alleged that Bell was responsible for the defect in the dial tone that allowed the illegal "hacking" and that Bell should therefore indemnify Teleconcepts for any liability it may have to MCI. *fn2 Teleconcepts eventually moved to dismiss the complaint because MCI had failed to effect service of process within 120 days of filing of the complaint as required by Federal Rule of Civil Procedure 4(j). In an order dated September 15, 1992, the district court denied Teleconcepts' motion to dismiss MCI's complaint finding that "good cause" excused the late service.

Subsequently, the parties filed cross-motions for summary judgment. Teleconcepts claimed that MCI's action was untimely since it was not filed within the two year statute of limitations contained in the Communications Act. Teleconcepts argued that MCI's cause of action accrued either when it refused to pay the November 1989 bills, or at the latest, on December 27, 1989, when MCI gave notice that Teleconcepts' long distance services were terminated. MCI countered by arguing that its action was timely because Teleconcepts' services continued until March 1990 despite the December 27, 1989 disconnect notice. MCI further argued that under a 30 day payment provision of its federal tariff, final payment of the bills would not become due until either April 1990, or January 27, 1990, at the earliest even accepting Teleconcepts' position. Thus, MCI claimed the operative date for commencing an action was either March or April of 1992, or at the earliest, January 27, 1992.

The district court denied Teleconcepts' motion for summary judgment in a memorandum opinion and order dated December 28, 1993. Additionally, the court held that MCI's federal tariff placed responsibility for unauthorized calls on Teleconcepts, and thus, granted MCI's cross-motion for summary judgment. The court also granted MCI's request for attorney's fees and, in a separate memorandum opinion and order dated February 25, 1994, determined the reasonable amount of such fees to be $11,812.50. The court also held that the PUC tariff placed responsibility for unauthorized calls on payphone owners, and therefore granted summary judgment in favor of Bell and against Teleconcepts in a memorandum and order entered on June 20, 1994.

On appeal, Teleconcepts challenges the district court's denial of its motion to dismiss for failure to timely serve the complaint, the denial of its motion for summary judgment on the statute of limitations defense, the grant of summary judgment in favor of Bell, and the amount of the attorney's fee award.

II. DISCUSSION

A. Appellate Jurisdiction

We must first determine whether we have jurisdiction to review the issues raised by Teleconcepts on appeal. The notice of appeal reads as follows:

Teleconcepts, Inc., defendant-third party plaintiff appeals to the United States Court of Appeals for the Third Circuit from an order of summary judgment disposing the remaining claims of the District Court for the District of New Jersey entered in this case June 20, 1994, in favor of third party defendant, Bell of Pennsylvania and December 28, 1993 in favor of plaintiff, MCI Telecommunications, Inc. App. at 1.

Federal Rule of Appellate Procedure 3(c) provides, in pertinent part, that a notice of appeal "must designate the judgment, order or part thereof appealed from . . . ." Fed. R. App. P. 3(c). If a party does not satisfy the requirements of Federal Rule of Appellate Procedure 3(c), then the appellate court does not acquire jurisdiction over the undesignated issues. United States v. Rivera Constr. Co., 863 F.2d 293, 298 (3d Cir. 1988). Even though the notice of appeal does not mention the September 15, 1992 order (denying Teleconcepts' motion to dismiss) or the district court's February 25, 1994 memorandum and order (calculating MCI's award of reasonable attorney's fees), Teleconcepts challenges both of these decisions in its brief to this court. MCI argues that we did not acquire jurisdiction over these issues since these orders are neither directly nor indirectly referred to in the notice of appeal. Appellee's brief at 6.

"Our jurisprudence liberally construes notices of appeals." Drinkwater v. Union Carbide Corp., 904 F.2d 853, 858 (3d Cir. 1990). Thus, we have held that it is proper to exercise appellate jurisdiction over orders not specified in the notice of appeal if "`there is a connection between the specified and unspecified order, the intention to appeal the unspecified order is apparent and the opposing party is not prejudiced and has a full opportunity to brief the issues.'" Lusardi v. Xerox Corp., 975 F.2d 964, 972 (3d Cir. 1992) (quoting Williams v. Guzzardi, 875 F.2d 46, 49 (3d Cir. 1989)). These factors are present here. We have repeatedly held that "`since . . . only a final judgment or order is appealable, the appeal of a final judgment draws into question all prior non-final orders and rulings.'" Drinkwater, 904 F.2d at 858 (quoting Elfman Motors, Inc. v. Chrysler Corp., 567 F.2d 1252, 1253 (3d Cir. 1977)). Teleconcepts could not appeal the September 15, 1992 order denying its motion to dismiss MCI's complaint until the district court filed the December 28, 1993 order of summary judgment in favor of MCI. Moreover, in disposing of the remaining issues, the December 28, 1993 memorandum opinion refers to the district court's September 15, 1992 order denying Teleconcepts' motion to dismiss. Thus, the requisite connection is present.

Similarly, while the notice of appeal does not refer to the February 25, 1994 memorandum and order calculating MCI's award of reasonable attorney's fees, an adequate connection exists between a specified order that designates the prevailing party for purposes of attorney's fees and an unspecified order that quantifies the attorney's fee award. See Bernardsville Bd. of Educ. v. J.H., 42 F.2d 149, 156 n.10 (3d Cir. 1994). Since the December 28, 1993 order specifically granted MCI's request for attorney's fees and merely directed MCI to file an affidavit of reasonable attorney's fees, there is an adequate connection between these two orders.

Moreover, MCI is not prejudiced as it had an opportunity to brief the disputed issues, and has done so. See id. at 156 n.10. Accordingly, we hold that we have jurisdiction to review the September 15, 1992 order denying Teleconcepts' motion to dismiss and the February 25, 1994 memorandum and order calculating an award of attorney's fees.

B. Subject Matter Jurisdiction

Before addressing the substantive issues raised by Teleconcepts we must determine if the district court had subject matter jurisdiction over MCI's action against Teleconcepts in the first place. While neither the district court nor Teleconcepts ever raised this issue we have an obligation to do so sua sponte. See Medlin v. Boeing Vertol Co., 620 F.2d 957, 960 (3d Cir. 1980); Carlsberg Resources Corp. v. Cambria Sav. & Loan Ass'n, 554 F.2d 1254, 1256 (3d Cir. 1977).

MCI's action is based upon Teleconcepts' failure to pay MCI for long distance telephone service MCI provided under the terms and conditions set forth in MCI's FCC Tariff. MCI alleges that since it is required to collect the charges on the services specified in the tariff under Section(s) 203 of the Communications Act of 1934, 47 U.S.C. Section(s) 203 (1982), subject matter jurisdiction exists under 28 U.S.C. Section(s) 1331 and 1337, and the Communications Act of 1934, 47 U.S.C. Section(s) 151, et seq. (1982). *fn3

While this circuit has never addressed whether the collection of unpaid charges for long distance telephone service under an FCC tariff "arises under" federal law (28 U.S.C. Section(s) 1331) or an act of Congress regulating commerce (28 U.S.C. Section(s) 1337) the majority of courts of appeals that have addressed this issue have answered in the affirmative. See Western Union Int'l, Inc. v. Data Dev., Inc., 41 F.3d 1494 (11th Cir. 1995); MCI Telecommunications Corp. v. Graham, 7 F.3d 477 (6th Cir. 1993); MCI Telecommunications Corp. v. Garden State Inv. Corp., 981 F.2d 385 (8th Cir. 1992); Ivy Broadcasting Co., Inc. v. Am. Tel. & Tel. Co., 391 F.2d 486 (2d Cir. 1968). But see MCI Telecommunications Corp. v. Credit Builders of Am., Inc., 980 F.2d 1021 (5th Cir. 1993), vacated, U.S. ____, 113 S.Ct. 2925 (1993), prior opinion reinstated, 2 F.3d 103 (5th Cir.), cert. denied, ____ U.S. ____, 114 S.Ct. 472 (1993).

In Richman Bros. Records, Inc. v. U.S. Sprint Communications Co., 953 F.2d 1431, 1438 (3d Cir. 1991), we held that the district court had jurisdiction over Sprint's action under a tariff filed with the FCC pursuant to 28 U.S.C. Section(s) 1337(a). However, we did not question jurisdiction because there was diversity of citizenship and we would thus have had jurisdiction even if federal question jurisdiction failed. See id. Given the subsequent decisions of our sister circuits and the lack of diversity here, we now undertake this analysis.

Those courts of appeals that have held that subject matter jurisdiction exists under 28 U.S.C. Section(s) 1331 and/or 1337(a), reason that a claim for unpaid long distance charges "arises under" an act of Congress regulating commerce (the Communications Act) because the claim relies on tariffs that must be filed with the FCC. *fn4 See Western Union, 41 F.3d at 1496; Graham, 7 F.3d at 479; Garden State Inv., 981 F.2d at 388; Ivy Broadcasting, 391 F.2d at 493-494. The lone appellate court to hold otherwise reasons that the federal common law is appropriate in only a "few and restricted" circumstances and doubts that collection of a delinquent phone bill falls within these limited circumstances. See Credit Builders, 980 F.2d at 1022-23.

This specific issue was first addressed in Ivy Broadcasting Co., Inc. v. Am. Tel. & Tel., supra. There, the district court sua sponte dismissed a suit against A.T. & T. that arose from problems that had occurred during a transmission over A.T. & T.'s telephone wires. The court reasoned that claims for negligence and breach of contract did not arise out of the Communications Act but were founded on tort and contract law, and that the counterclaim was merely an action for services rendered that also lacked a federal jurisdictional basis. On appeal the United States Court of Appeals for the Second Circuit noted that since the complaint did not allege a specific violation of the Communications Act, 47 U.S.C. Section(s) 207 did not confer jurisdiction. Nevertheless, the court reasoned that the broad scheme of federal regulation of communications carriers indicated a congressional intent to occupy the field to the exclusion of state law. See Ivy Broadcasting, 391 F.2d at 490.

It seems to us that the congressional purpose can be achieved only if a uniform federal law governs as to the standards of service which the carrier must provide and as to the extent of liability for failure to comply with such standards. Id. at 491.

The court concluded that since federal law controlled, the suit "arose under" the laws of the United States as required by 28 U.S.C. 1331.

The word 'laws' in Section(s) 1331 should be construed to include laws created by federal judicial decision as well as by congressional legislation. The rational of the 1875 grant of federal question jurisdiction -- to insure the availability of a forum designed to minimize the danger of hostility toward, and specially suited to the vindication of, federally created rights -- is as applicable to judicially created rights as to rights created by statute. Id. at 492.

The court also held that 28 U.S.C. Section(s) 1337 provided jurisdiction over the counterclaims.

The Communications Act of 1934 is an 'Act of Congress regulating commerce' within the meaning of [Section(s) 1337.] Since we conclude that the counterclaims arise under the Communications Act insofar as they rely upon tariffs which the Act requires to be filed with the FCC, we hold that [Section(s) 1337] gives the district court jurisdiction over so much of the counterclaims as relies upon such tariffs. Id. at 494 (footnote omitted) (citations omitted).

The court's analysis relied heavily upon an analogous inquiry of the Supreme Court under the Commerce Act in Louisville & N. R. v. Rice, 247 U.S. 201, 202 (1918).

Several other courts have employed the reasoning of Ivy Broadcasting to hold that federal district courts have subject matter jurisdiction over actions for unpaid charges for services provided under an FCC tariff. In MCI Telecommunications Corp. v. Garden State Inv. Corp, supra, MCI sued to recover unpaid telecommunications charges, and the district court dismissed the complaint sua sponte because the complaint did not allege a specific violation of the Communications Act. The court reasoned that there was no need for uniform federal common law governing claims to collect unpaid telecommunication service charges, and that there was therefore no basis for the exercise of subject matter jurisdiction.

The United States Court of Appeals for the Eighth Circuit relied heavily upon Supreme Court decisions involving federal jurisdiction under the Commerce Act to reverse. (i.e. Thurston Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460 U.S. 533 (1983) (per curiam)). *fn5 See Garden State Inv., 981 F.2d at 387-88. The court reasoned that: the district court failed to recognize that a claim arises under federal law when a right created by federal law is an essential element of the plaintiff's action. The district court stated MCI's claim brought under an FCC tariff 'is simply a contract action seeking to recover payment for services rendered.' The district court's characterization of MCI's claim overlooks the fact that federal tariffs are the law, not mere contracts. Although a user's refusal to pay charges fixed by a tariff will often arise in the context of a broken contract, the carrier's claim for payment is necessarily based on the filed tariff. Id. at 387 (citations omitted).

In analogous circumstances, the United States Court of Appeals for the Sixth Circuit reversed the district court's sua sponte dismissal for lack of federal jurisdiction in MCI Telecommunications Corp. v. Graham, supra. The court held that MCI's ability to sue was based upon its FCC tariff, and therefore was rooted in federal law. See Graham, 7 F.3d at 479-80. As in Ivy Broadcasting, the court was persuaded by similarities between the Communications Act and the Commerce Act and was guided by Thurston, Rice and the analysis of the United States Court of Appeals for the Second Circuit in Ivy Broadcasting. "[I]t would be incongruous to impose a different jurisdictional rule under the Communications Act than under the Commerce Act." Id. at 480. See also Western Union, 41 F.3d at 1496-97 (subject matter jurisdiction over a claim for unpaid telecommunications service charges existed under 28 U.S.C. Section(s) 1331 and 28 U.S.C. Section(s) 1337).

Only MCI Telecommunications Corp. v. Credit Builders of Am., Inc., supra, reached a contrary result. There, a supplier of telecommunications services appealed the district court's determination that a suit to collect unpaid telecommunications charges lacked a jurisdictional basis. On appeal, the plaintiff argued that the district court had independent federal question jurisdiction under 28 U.S.C. 1331 and jurisdiction over matters arising out of the Communications Act under 28 U.S.C. Section(s) 1337.

The United States Court of Appeals for the Fifth Circuit began its analysis by noting that: the Supreme Court has stated that a case arises under federal law if 'it really and substantially involves a dispute or controversy respecting the validity, construction, or effect of such a law, upon the determination of which the result depends.'

Credit Builders, 980 F.2d at 1022 (citations omitted).

The court was not persuaded by the reasoning of Ivy Broadcasting. Instead, the court reasoned that: [a]s the Supreme Court has emphasized, the federal common law is appropriate in only a 'few and restricted' circumstances. Milwaukee v. Illinois, 451 U.S. 304, 313, 101 S.Ct. 1784, 1790, 68 L.Ed.2d 114 (1981). In Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 641, 101 S.Ct. 2061, 2067, 68 L.Ed.2d 500 (1981), the Supreme Court went on to state that 'absent some congressional authorization to formulate substantive rules of decision, federal common law exists only in such narrow areas as those concerned with the rights and obligations of the United States, interstate and international disputes implicating the conflicting rights of States or our relations with foreign nations, and admiralty cases.' We do not believe that this case to collect a delinquent telephone bill falls within these limited instances. Id. at 1022-23.

The court held that for these same reasons Section(s) 1337 did not confer federal question jurisdiction, and that plaintiff's action for breach of contract or quantum meruit was a creature of state law.

We are not persuaded by the analysis in Credit Builders. MCI's action is based upon, and draws its life from, the tariff that MCI filed with the Federal Communications Commission. The reasoning of Ivy Broadcasting, and the analogous cases decided under the Commerce Act, see Thurston and Rice, supra, persuade us that the district court did have subject matter jurisdiction over MCI's action, and Teleconcepts' counterclaim. However, there are other jurisdictional problems with that counterclaim which we discuss in more detail below.

C. Late Service of the Complaint.

When the district court denied Teleconcepts' motion to dismiss for failure to timely serve the complaint, Federal Rule of Civil Procedure 4(j) read in pertinent part: Summons: Time Limit for Service. If a service of the summons and complaint is not made upon a defendant within 120 days after the filing of the complaint and the party on whose behalf such service was required cannot show good cause why such service was not made within that period, the action shall be dismissed as to that ...


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