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Qwest Communications Co., LLC v. Free Conferencing Corp.

United States Court of Appeals, Eighth Circuit

September 25, 2018

Qwest Communications Company, LLC, a Delaware limited liability company, doing business as CenturyLink QCC Plaintiff- Appellee
v.
Free Conferencing Corp., a Nevada corporation Defendant-Appellant Audiocom, LLC, a Nevada limited liability company; Global Conference Partners, a California corporation; Basement Ventures, LLC, a California limited liability company; Vast Communications, LLC, a California limited liability company Defendants

          Submitted: May 17, 2018

          Appeal from United States District Court for the District of Minnesota - Minneapolis

          Before SHEPHERD, KELLY, and GRASZ, Circuit Judges.

          KELLY, Circuit Judge.

         This tort action involves land-line telephone services. In the district court, [1]long-distance carrier[2] Qwest Communications Company LLC (Qwest) succeeded in showing that a free conference call provider, Free Conferencing Corporation (FC), intentionally interfered with its contract with a local carrier[3] called Tekstar. On appeal, FC claims that it is not liable for tortious interference with Qwest's contractual relationship with Tekstar, and that the district court erred in calculating damages.

         I.

         A.

         Qwest is a long-distance land-line telephone service carrier. When a person places a long-distance phone call, their long-distance carrier connects the call (also called "traffic") to the local carrier where the dialed number is located. The customer pays their long-distance carrier for the call, and the receiving local carrier in turn bills the long-distance carrier. The rate, terms, and conditions required to impose these charges on long-distance carriers are generally governed by tariffs filed with the Federal Communications Commission (FCC). Here, we refer to the contract between Qwest and Tekstar as a tariff. See generally 47 U.S.C. § 203(a).

         Generally, tariffs authorize long-distance carriers like Qwest to route their customers' traffic through other long-distance carriers when doing so would be less expensive than transmitting the traffic through their own networks. This practice is called "least cost routing." Whenever least cost routing occurs, the long-distance carrier through which the traffic is routed is entitled to reimbursement from the routing long-distance carrier. For instance, when Qwest least cost routes its traffic through AT&T, AT&T charges Qwest for transmitting that traffic.

         One of Qwest's tariffs was with a local carrier called Tekstar. Tekstar services certain rural parts of Minnesota and North Dakota. In rural areas, telecommunications infrastructure has to cover expansive territory despite fewer paying customers. Therefore, rural local carriers often charge long-distance carriers higher rates to complete calls.

         Several years before this case began, a new type of company sought to leverage the relationship between long-distance and local carriers: free conferencing companies, of which FC is one. Free conferencing companies sought to increase long-distance traffic to rural local carriers (with their higher tariff rates), thereby making money for the local carriers and themselves. To do this, free conferencing companies would offer conference-calling services to the public-users would sign up (at no charge to the user) to host a conference call on the service. The free conferencing company would then provide the conference-call organizer a number hosted by a rural local carrier. When participants called the free conferencing number, their long-distance carrier would transmit each participant's call to the rural local carrier. The local carrier would then bill the long-distance carrier for all of the conference call traffic, ostensibly pursuant to its tariff. And, pursuant to its contract with the free conferencing company, it would pay the company a fee. Local carriers did not charge the free conferencing companies to place their numbers on their exchange. Tekstar signed its first contract with a free conferencing company (not FC) in 2005. FC began contracting with rural local carriers (not Tekstar) in 2004.

         The telecommunications industry is regulated by the FCC; the FCC approves and interprets the terms of tariffs between local and long distance carriers. See generally All Am. Tel. Co., Inc. v. FCC, 867 F.3d 81, 84 (D.C. Cir. 2017). Many tariffs, including the one between Qwest and Tekstar, only allowed the local carrier to bill the long-distance carrier for calls delivered to "end users."[4] After both Tekstar and FC became involved in the free conferencing industry, long-distance carriers began to challenge the legality of the free conferencing business model. The basis for the challenge was this: If the free conferencing companies were not "end users," local carriers could not charge long-distance carriers tariff rates for the free conferencing traffic. See 47 U.S.C. § 203(c); Qwest Commc'ns Corp. v. Free Conferencing Corp., 837 F.3d 889, 893 (8th Cir. 2016). The legal question was, therefore, whether free conferencing companies like FC were "end users." The FCC answered this question twice: first it said yes, then it said no.

         In October 2007, the FCC held, in a case we call Farmers I, that free conferencing companies were end users under a tariff with Qwest. See Qwest Commc'ns Corp. v. Farmers & Merchs. Mut. Tel. Co., 22 F.C.C. Rcd. 17973, 17987-88 (2007). That conclusion was based in substantial part on the free conferencing companies' assertions that they "were billed the federal subscriber line charge as well as for local telephone service and rental of floor space in [the local carriers'] central office[s]." Farmers & Merchs. Mut. Tel. Co. v. FCC, 668 F.3d 714, 717 (D.C. Cir. 2011).

         In the course of the Farmers I FCC proceeding, a Farmers I litigant asked FC to assist in falsifying documents that would show it was paying fees to the local carriers it worked with. FC declined to do so, but was aware that other free conferencing companies had agreed to provide falsified billing records. FC was also aware that, in January 2008, the FCC granted in part a motion to reconsider Farmers I, citing allegations "that [the local carriers'] invoices to, and agreements with, the conference calling companies were backdated." Qwest Commc'ns Corp. v. Farmers & Merchs. Mut. Tel. Co., 23 F.C.C. Rcd. 1615, 1618 (2008).

         By early 2008, most long-distance carriers, including Qwest, were refusing to pay for free conferencing traffic. Some long-distance carriers, however, entered settlements[5] with local carriers, whereby the long-distance carrier agreed to pay for free conferencing traffic, but at lower, below-tariff rates. Tekstar settled with AT&T.

         In April 2008, FC and Tekstar entered a contract. The contract provided that FC would pay nothing to Tekstar, and that Tekstar would pay FC a "per minute" fee for hosting conference calls on its exchange. When it entered into the contract, FC knew that Qwest was refusing to pay Tekstar for its free conferencing traffic, and that Tekstar's settlement with AT&T meant that most or all of its free conferencing traffic would be least cost routed through AT&T or another long-distance carrier that had settled at below-tariff rates.

         Qwest sent Tekstar a Notice of Dispute, expressing the view that the terminating access charges Tekstar was billing it for free conference companies' traffic were invalid under the tariff. Qwest suspected that Tekstar had entered an impermissible agreement with FC (and other companies) for conferencing services. In response, Qwest implemented a new least cost routing protocol for Tekstar's traffic. Instead of least cost routing Tekstar's free conferencing traffic any time it was cheaper than transmitting through its own lines, Qwest only least cost routed the traffic when it was at least 50% cheaper to use another long-distance provider's network. Thus, Qwest continued to transmit some of Tekstar's free conferencing traffic (including FC's traffic) on its own network, but continued to refuse to pay Tekstar for it. This is what the parties call the 50 Percent Rule.

         Afer reconsideration, in November 2009, the FCC reversed course in an opinion we will call Farmers II. See Qwest Commc'ns Corp. v. Farmers & Merchs. Mut. Tel. Co., 24 F.C.C. Rcd. 14801, 14806 (2009). The FCC found that free conferencing companies were not end users based on "new evidence . . . previously withheld [that] contradict[ed]" the claim that local carriers and free conferencing companies enjoyed "a carrier/customer relationship under the terms of the tariff." Id.[6]Thus, "[t]oday, it is well-settled that a[ local carrier] cannot bill a[ long-distance carrier] under its tariff for calls 'terminated' at a conference call [number] when the conference calling company does not pay a fee for the [local carrier's] services." Qwest, 837 F.3d at 894.

         B.

         Following Farmers II, Qwest initiated lawsuits against several local carriers and free conferencing companies. This is one of those suits. As relevant here, Qwest sued FC under Minnesota law for tortiously interfering with its contract (tariff) with Tekstar. After a bench trial, the district court found FC liable and awarded Qwest damages. In particular, the court determined that (1) FC knew of the existence of the Tekstar-Qwest tariff, (2) FC knew its free conferencing business model breached the Tekstar-Qwest tariff, (3) FC induced Tekstar to breach its tariff by pursuing the business relationship and negotiating terms that required Tekstar to bill Qwest for impermissible access charges, and (4) FC's interference was not justified.

         The district court awarded Qwest only "consequential" damages. The court reasoned that direct damages were unavailable because, by the time FC contracted with Tekstar, Qwest was already refusing to pay for free conferencing traffic that Qwest itself delivered. The court did, however, award Qwest close to $1 million in damages, which it said represented the costs that Qwest incurred in least cost routing FC calls to other long-distance carriers. The court concluded that these costs were foreseeable. The court also awarded Qwest attorneys' fees. FC appeals.

         II.

         On appeal, FC challenges both the district court's liability finding and award of attorneys' fees. We address each in turn.

         The parties agree that Minnesota law governs this case. In Minnesota, "[a] cause of action for tortious interference with contract has five elements: (1) the existence of a contract; (2) the alleged wrongdoer's knowledge of the contract; (3) intentional procurement of its breach; (4) without justification; and (5) damages." Sysdyne Corp. v. Rousslang, 860 N.W.2d 347, 351 (Minn. 2015) (quoting Furlev Sales & Assocs., Inc., v. N. Am. Auto. Warehouse, Inc., 325 N.W.2d 20, 25 (Minn. 1982)). FC argues that it is not liable for tortious interference because it did not induce or procure Tekstar's breach, and even if it had, ...


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