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AT&T CORP. v. PAB

July 25, 1996

AT&T CORP.
v.
PAB, INC. and PAB GROUP, INC. d/b/a/ PAB, INC. AT&T CORP. V. PUBLIC SERVICES ENTERPRISES OF PENNSYLVANIA, INC.



The opinion of the court was delivered by: PADOVA

 Padova, J.

 July 25, 1996

 This is a consolidated action by AT&T to collect contract damages allegedly arising out of its sale of long distance telephone services to Public Services Enterprises of Pennsylvania ("PSE") and PAB Group ("PAB") (collectively "Defendants"). Currently before the Court is Defendants' joint motion to refer the case to the Federal Communications Commission ("FCC") and/or to transfer the case to the United States District Court for the Southern District of New York. Pursuant to this Court's directive, Defendants filed Answers and Counterclaims, and Plaintiff filed its Reply. Oral argument was held on May 22, 1996, and the matter is now ripe for disposition. For the reasons that follow, Defendants' motion will be granted in part and denied in part.

 I. BACKGROUND

 AT&T is a New York corporation with its principal place of business in New York. Defendants are both Pennsylvania corporations with their principal places of business in Pennsylvania. AT&T is a provider of long distance telephone services. Defendants are "switchless resellers" of long distance services. Defendants do not have physical facilities. Rather, they purchase large quantities of telephone services from AT&T at bulk (reduced) rates. Defendants then resell the services to smaller businesses that do not use sufficient quantities of telephone services to warrant the bulk discount. Defendants are, in essence, in direct competition with AT&T for the sale of long distance services. The FCC requires AT&T, and other long distance carriers, to permit unlimited resale of their long distance services.

 AT&T sells bulk long distance services by means of schedules of rate and contract conditions known as "tariffs" or "contract tariffs." Tariffs include descriptions of classifications, regulations, and practices which may affect rates. Phonetele, Inc. v. American Tel. & Tel. Co., 664 F.2d 716, 721 (9th Cir. 1981), cert. denied, 459 U.S. 1145, 103 S. Ct. 785, 74 L. Ed. 2d 992 (1983). AT&T, as are all common carriers, is required to file such tariffs with the FCC for public display. 47 U.S.C.A. § 203(a) (West 1991); Richman Bros. Records, Inc. v. U.S. Sprint Communications Co., 953 F.2d 1431, 1435 (3d Cir. 1991), cert. denied, 505 U.S. 1230, 112 S. Ct. 3056, 120 L. Ed. 2d 921 (1992). AT&T must make the terms of its tariffs available to all similarly situated parties, including AT&T's competitors such as Defendants. Customers seeking to purchase services published in an AT&T tariff subscribe to particular "Plans" offered through the tariff.

 Defendants obtained long distance services from AT&T by subscribing to AT&T's Customer Specific Term Plan IIs ("CSTP IIs" or "CSTP II Plans") offered pursuant to FCC Tariff No. 2 ("Tariff No. 2"). Under CSTP IIs, subscribers commit to the purchase of a large volume of telecommunications services over a certain period of time. If the subscriber fails to meet its usage revenue commitments over the contract period, it must pay the shortfall amount to AT&T. *fn1" These shortfall amounts are referred to hereinafter as "shortfall penalties."

 In or about June 1994, PSE subscribed under CSTP IIs for telecommunications services with total annual revenue commitments of $ 88,650,000.00 These subscriptions were made Pursuant to CSTP II Plan reference numbers 908, 1073, 1488, 1862, 1938, 2936, 2985, and 2989. AT&T alleges that PSE failed to meet its revenue commitments under these plans in the amount of $ 79,574,221.28. Similarly, PAB subscribed under CSTP IIs for 800 services with a total annual revenue commitment of $ 3,000,000.00. This subscription was made pursuant to CSTP II Plan number 3128. AT&T alleges that PAB failed to meet its revenue commitment in the amount of $ 2,703,083.73. AT&T's consolidated lawsuit against PSE and PAB seeks recovery of these shortfall penalties.

 II. RELATED LITIGATION AND ADMINISTRATIVE PROCEEDINGS

 According to AT&T, the two cases filed in this court and now consolidated are simple collection actions brought under the relevant provisions of the CSTP IIs and Tariff 2. Defendants, however, argue that these collection actions are part of a much larger dispute involving these Defendants and other switchless resellers of telecommunications services. Defendants and other switchless resellers have claims against AT&T pending before the FCC and the United States District Court for the Southern District of New York.

 The crux of the underlying dispute is Defendants' allegation that AT&T has attempted to use the CSTP IIs to put its competitors (Defendants and other CSTP II subscribers) out of business. Defendants allege that by providing inferior service to CSTP II subscribers, and engaging in other intentional misconduct, AT&T forced the CSTP II Plans into shortfall. Thereafter, Defendants' allege, AT&T wrongfully prevented Defendants from "rolling over" older CSTP II Plans into newer more competitive plans, thereby ensuring that Defendants and other CSTP II subscribers would incur shortfall penalties on a scale large enough to put many of them out of business.

 A. FCC Proceedings

 Defendants have brought several FCC proceedings against AT&T. These proceedings involve the interpretation and implementation of certain discontinuance provisions in AT&T's contract tariffs. These discontinuance provisions allow a subscriber to "roll-over" the unused revenue commitments from an old plan into a new plan without suffering shortfall penalties. *fn2" According to Defendants, the FCC proceedings stem from AT&T's refusal to allow Defendants to roll-over the unused revenue commitments from the CSTP II Plans listed above. There are two FCC proceedings of particular relevance -- the "Contract Tariff 1081 Dispute" and the "Contract Tariff 1470 Dispute."

 1. The Contract Tariff 1081 Dispute

 PSE acquired CSTP II Plans 908, 1862, 1938 and 2985 from other resellers. *fn3" It was PSE's intention to use the discontinuance provisions from these plans to roll-over the unused revenue commitments into a new plan -- Contract Tariff 1081. PSE alleges that after it had acquired the CSTP II Plans, but before it could implement the discontinuance provisions, AT&T amended the terms of Contract Tariff 1081 to impose significant penalties on parties that tried to use the roll-over provision.

 Following several months of negotiation, PSE and AT&T entered into a settlement agreement whereby AT&T agreed to "grandfather" PSE's CSTP II Plans into the old rule. Defendants allege that AT&T then refused to honor that agreement, demanding payment of the unused revenue commitments (approximately $ 57 million).

 On November 7, 1995, PSE filed a seven-count complaint with the FCC (hereinafter the "FCC Complaint") seeking to enforce the settlement agreement and alleging violations of §§ 201 and 203 of the Federal Communications Act ("FCA"). *fn4" On January 4, 1996, AT&T brought the current action in this Court to collect the disputed shortfall penalties stemming from the unused revenue commitments of, among others, the 908, 1862, 1938, and 2985 Plans.

 Defendants allege that a successful resolution of the FCC proceeding will negate AT&T'S claims before this Court. AT&T argues that the enforcement of settlement agreements is traditionally a judicial function and is well within this Court's area of expertise.

 2. The Contract Tariff 1470 Dispute

 PSE and PAB sought to terminate their respective remaining CSTP II Plans *fn5" into AT&T'S Contract Tariff 1470. AT&T interpreted the terms of Contract Tariff 1470 to require that the discontinuance of the prior Plan and the subscription of the new Plan occur "concurrently." AT&T further defined the term "subscription" as occurring when the customer orders service. AT&T used these contract interpretations to prevent Defendants from utilizing the discontinuance provisions of their Plans.

 PSE sought FCC intervention and, on November 8, 1995, the FCC issued an advisory opinion rejecting AT&T'S interpretation of the Contract Tariff 1470 provisions.

 AT&T believes that this FCC proceeding is now closed because it has agreed to adhere to the FCC advisory opinion. Therefore, AT&T argues that the dispute is properly before this court. PSE argues that it must now follow up on the non-binding advisory opinion to acquire final FCC resolution of the issue. Once again, Defendants argue that ...


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