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Verizon New Jersey, Inc. v. Ntegrity Telecontent Services

August 16, 2002

VERIZON NEW JERSEY, INC. AND VERIZON PENNSYLVANIA, INC., PLAINTIFFS,
v.
NTEGRITY TELECONTENT SERVICES, INC., DEFENDANT,
v.
VERIZON MARYLAND, INC., THIRD PARTY DEFENDANT.



The opinion of the court was delivered by: Brown, District Judge

FOR PUBLICATION

OPINION

This matter comes before the Court upon the motion of Verizon for dismissal of Ntegrity's antitrust Counterclaim and Third Party Complaint, and upon Ntegrity's cross-motion to dismiss plaintiffs' collection action. The Court exercises jurisdiction over this matter pursuant to 28 U.S.C. § 1332 and having considered the submissions and the arguments of the parties, grants in part and denies in part Verizon's motion, and denies Ntegrity's motion.

I. BACKGROUND

A. Legislative and Factual Background

As it serves as the basis for the instant litigation and motion practice, the Court must first review the history and purpose of the Telecommunications Act of 1996 ("1996 Act" or "the Act"), which amended the Communications Act of 1934, 47 U.S.C. § 151 et. seq. At one point in history, local telephone service was a sanctioned monopoly. See Trinko v. Bell Atlantic Corp., 294 F.3d 307 (2d Cir. 2002). However, in 1996, Congress enacted the Telecommunications Act in an effort to create competition in the once monopolized market. See id. at 312. Under the Act, states are no longer permitted to enforce laws prohibiting entry into the local telephone market. See id. In order to generate competition in the local telephone service market, the Act imposes affirmative duties upon existing incumbent local exchange carriers ("ILECs") such as Verizon. See id. These duties include providing "access to the poles, ducts, conduits, and rights-of-way of such carrier to competing providers." Id. (quoting 47 U.S.C. § 251(b)(4)). Additionally, the Act requires that ILECs provide interconnection with their networks to the competing local exchange carriers ("CLECs") "that is at least equal in its quality to that provide by the local exchange carrier to itself." Id. (quoting 47 U.S.C. § 251(c)(2)(C)).

The 1996 Act therefore imposed a duty upon Verizon, an ILEC, to provide services to CLECs such as Ntegrity. See Amended Answer Counterclaims and Third Party Complaint of Ntegrity ("Am. Answer") ¶¶ 16 - 17. Ntegrity was founded as a minority owned CLEC in 1998, with the goal of providing local telephone services to the general public. See id. ¶ 17. Pursuant to the 1996 Act, Ntegrity entered into contracts with Bell Atlantic New Jersey, Bell Atlantic Pennsylvania and Bell Atlantic Maryland. *fn1 See id. Each of the interconnection agreements were filed with and approved by the respective state commissions. See Verizon's Brief in Support of Dismissal ("Verizon Br.") at 5. The negotiated contracts each provided for a one year term, after which either party could terminate the agreement by providing written notice 90 days in advance of the desired termination date. See id.

Ntegrity describes the local exchange services they sought to provide as the "originating or terminal point for interstate telephone and data transmission services." Am. Answer ¶ 17. Ntegrity acquired its first customer in July 1998, and added more than 1,000 customers by September of that year and nearly 8,000 customers in both November and December of 1998. See id. ¶ 18. The contracts created by Ntegrity and the Verizon entities serve as the basis for the instant disputes.

B. Procedural History

The parties in the instant matter have been engaged in this litigation for nearly three years. In November 1999, Verizon, formerly known as Bell Atlantic, filed two separate Complaints against the defendant, Ntegrity Telecontent Services. See Ntegrity's Brief in Opposition ("Ntegrity's Br.") at 6. Verizon Pennsylvania, claimed that defendant failed to pay overdue bills in violation of the resale agreement between the parties. See id. Similarly, Verizon New Jersey filed a complaint alleging that Ntegrity failed to pay its bills according to their contract. See id. In response, Ntegrity filed a Counterclaim alleging violations of Section 2 of the Sherman Act, 15 U.S.C. §2, and Section 2(a) of the Clayton Act, 15 U.S.C. § 13(a), as well as New Jersey and Pennsylvania state law antitrust statutes. See Am. Answer ¶¶ 84 - 181. Additionally, Ntegrity included a Third Party Complaint against Verizon Maryland alleging similar violations. See id. Ntegrity also included a number of state law breach of contract and tortious interference claims against all three Verizon parties. See id.

The parties consented to the consolidation of the Verizon Pennsylvania and Verizon New Jersey claims and this Court entered an Order to that effect on April 11, 2000. Shortly thereafter, Verizon filed a motion to dismiss Ntegrity's Counterclaim and Third Party Complaint in its entirety. The Court considered whether Ntegrity had properly asserted the necessary elements of an antitrust claim.

1. Decision of the Court in the Previous Motion to Dismiss

In the prior Memorandum and Order of the Honorable Anne E. Thompson, U.S.D.J., the Court concluded that Ntegrity had sufficiently pled the elements of a section 2 Sherman Act claim for abuse of monopoly power. *fn2 See October 31, 2000 Memorandum and Order ("10/31/00 Order") at 3. Specifically, the Court found that Ntegrity alleged that Verizon "willfully acquired and maintained monopoly power" through various anti-competitive techniques. Id. at 3 - 4.

The Court also sustained Ntegrity's claims for Sherman Act liability for attempted monopolization. See id. at 5. The Court found that Ntegrity relied upon the same allegations as set forth in their alternate Sherman Act claim, and thus sustained Ntegrity's allegations. See id. Similarly, the Court allowed Ntegrity's claim of price discrimination under section 2 of the Clayton Act. See id. To do so, the Court inferred that Ntegrity defined telephone service as a commodity. See id.

However, Ntegrity's allegations of illegal tie-ins under Section 1 of the Sherman Act were dismissed. See id. at 6. The Court determined that Ntegrity had failed to state a claim because it did not allege that it was denied telephone service because it refused to buy other services from Verizon. See id. Ntegrity's claim under Section 206 of the Telecommunications Act was also dismissed. See id. at 7. The Court found that Section 206 did not create a separate cause of action, and dismissed that portion of the Counterclaim. See id.

Moving on to Ntegrity's state law claims, the Court determined that it had adequately pled claims for breach of contract and malicious interference with business relations. See id. at 7-8. Similarly, the Court sustained Ntegrity's claims for breach of good faith and fair dealing. See id. at 8-9. In conclusion, the Court allowed Ntegrity the opportunity to amend its Counterclaim and Third Party Complaint. See id. at 9. Ntegrity subsequently filed its amended pleading.

2. Ntegrity's Amended Answer, Counterclaim and Third Party Complaint

Ntegrity alleges that at the time of its Counterclaim, Verizon controlled approximately 97% of the local telephone service in New Jersey, Pennsylvania and Maryland. See Am. Answer ¶ 19. Ntegrity states that Verizon engaged in a number of anti-competitive tactics in an effort to maintain its monopoly market share. See id. Those alleged practices included illegal tie-ins; unjust discriminatory switching fees; discriminatory denial of access to pricing information; intentionally error-prone and discriminatory computer interface systems; error prone billing; and preventing Ntegrity customers from placing long-distance phone calls. See id.

Specifically, Ntegrity alleges that Verizon intentionally utilized a discriminatory and error prone billing method for CLECs like Ntegrity. See id. ¶ 21. Ntegrity claims the billing errors created the need for it to extensively audit the bills submitted by Verizon, and this process utilized more than 100 hours per week. See id. ¶¶ 21, 25. Additionally, Ntegrity asserts that the error rate on the bills generated by Verizon for the CLECs was substantially higher than the error rate for Verizon's own large retail customers. See id. ¶ 21. Ntegrity maintains that the billing errors made it impossible to conduct an actual accounting of the money it owes to Verizon. See id. ¶ 24. Ntegrity contends that electronic billing would have alleviated some of the problems with the billing errors, but Verizon would only offer that service at "a prohibitive cost." Id.

Ntegrity also claims that the bills it received from Verizon were inaccurate because the tariffs assessed against Ntegrity were set by regulation based on the value of Verizon's equipment. See id. ¶ 28. Ntegrity points to an audit conducted in 1999 by the FCC, which determined that the value of Verizon's equipment was overstated in New Jersey, Pennsylvania and Maryland. See id. ¶ 29. Ntegrity maintains that this resulted in excess charges of more than $65,000,000.00 to Verizon customers. See id. Based on those figures, Ntegrity assumes that it has been overcharged by approximately $300,000.00. See id. ¶ 31.

Further, Ntegrity alleges that Verizon charged new Ntegrity customers a switching penalty when they transferred their service from Verizon. See id. ¶ 34. Ntegrity alleges that this was called a Record Order Charge, but that it was actually "without justification and unreasonable." Id. Ntegrity contends that the Record Order Charge is not specifically enumerated in the contract between the parties, and is only indirectly incorporated into those agreements. See id. ¶ 35. Ntegrity maintains that there is not a viable reason for the imposition of this charge, even though it is normally charged when a new customer establishes service with Verizon. See id. ¶ 36. Ntegrity states "Third Party Defendants said they would charge only a $3.00 - $6.00 switching fee," and alleges that if Verizon had only charged a $4.00 switching fee, then it has been over billed for approximately $125,000.00. Id. ¶ 38. Ntegrity also maintains that Verizon occasionally waives this Record Order fees for its retail customers, and thus alleges that these charges are discriminatory. See id. ¶ 40.

Ntegrity also contends that Verizon has repeatedly cut off long distance service prior to switching customers from Verizon to Ntegrity. See id. ¶ 43. Ntegrity alleges that when it switched its own long distance provider, its customers were unable to place long distance phone calls because Verizon failed to make that change in a timely manner. See id. ¶ 45. Ntegrity provided its customers with dial around numbers to correct the problem and alleges that Verizon blocked those codes. See id. ¶ 47. Ntegrity also complains of poor and late data it received about its customers from Verizon. See id. ¶ 49.

Ntegrity alleges that Verizon refused to supply it with meaningful billing information that could be used to bill Ntegrity customers. See id. ¶ 51. Ntegrity contends that Verizon refused to supply such information between April 1998 until August 1999, and that it was required to comb through Verizon's tariff books before it could decode the bills it received. See id. Ntegrity claims an 84% error rate on its bills and a consequent customer loss. See id. ¶ 53.

Ntegrity also alleges that Verizon requires manual processing by resellers whenever a CLEC wins a new customer. See id. ¶ 54. Defendant maintains that this processing must occur before it can switch a customer from Verizon to Ntegrity, and that it drives up the costs to the reseller. See id. Ntegrity contends that it should not have to provide such detailed information before a customer can be switched because Verizon already has all the relevant information about its current customers. See id. ¶ 56. Ntegrity challenges that this process is cumbersome and creates numerous opportunities for human error. See id. ¶ 57. Slow provisioning or switching is another issue addressed by defendant. See id. ¶ 62. Ntegrity complains that it can take up to 30 days for Verizon to switch a customer over to Ntegrity and it only takes three days for them to add a new retail customer. See id.

Another complaint is that Verizon created illegal tie-ins between its Bell Atlantic Yellow Pages company and the provision of local telephone service. See id. ¶ 63. Ntegrity claims that Verizon would offer month-to-month payment plans to its retail customers, and would require up-front payment for Yellow Pages ads for any customers that switched to a CLEC such as Ntegrity. See id. ¶ 63. Ntegrity also contends that Verizon withheld voice mail services from Ntegrity customers, and that such services have since been required by legislation in New York, Delaware and Vermont. See id. ¶ 64. Ntegrity alleges that it can only purchase voice mail service in New Jersey, Pennsylvania and Maryland if it signs a volume and term agreement. See id. ¶ 65.

Ntegrity contends that its customers have been confronted with continuous attempts to win back their business. See id. ¶ 66. Ntegrity maintains that Verizon has attempted to win back its customers before it even switched those customers over to Ntegrity's service. See id. Related is Ntegrity's claim that Verizon made repeated material misrepresentations about Ntegrity to its existing and potential customers. See id. ¶ 67.

Ntegrity also sets forth complaints about the text and content of the contracts that the parties negotiated pursuant to the Act. See id. ¶¶ 69 - 79. Defendant claims that enforcement of the contracts "would permit the continuation of Third Party Defendants' anti-competitive conduct and violations of the Telecommunications Act under the protective umbrella of the contracts." Id. ¶ 70. Ntegrity complains that the contracts require it to use the allegedly discriminatory computer interface system described in the Amended Answer. See id. ¶ 71. Ntegrity also dislikes the requirement that it provide an irrevocable letter of credit guaranteeing payment of any disputed billing amounts. See id. ¶ 72. Ntegrity states that the contracts obligate Verizon to provide daily customer usage records which were not immediately provided. See id. ¶ 73. Ntegrity also maintains that the contracts allow Verizon to unilaterally determine what ancillary services, such as voice mail, could be provided "without unreasonable expense." Id. ¶ 74. Ntegrity contends that Paragraph 32 of the contract "purports to limit the services that Subsidiary Third Party Defendants will provide." Id. The contracts also specify that untimely and inaccurate bills are not considered breaches of the interconnection agreements. See id. ¶ 78.

Based on these allegations, Ntegrity asserts claims for abuse of monopoly power under Section 2 of the Sherman Act as well as under the New Jersey and Maryland antitrust statutes. See id. ¶¶ 84 - 102. Ntegrity also asserts claims alleging attempted monopolization under Section 2 of the Sherman Act as well as the Maryland and New Jersey antitrust statutes. See id. ¶¶ 102 - 121. In addition, Ntegrity alleges a price discrimination claim under Section 2(a) of the Clayton Act, commonly known as the Robinson-Patman Act, and a claim under Section 251(b) and (c) of the Telecommunications Act. *fn3 See id. ¶¶ 122-130. Finally, Ntegrity asserts claims under the state laws of New Jersey, Maryland and Pennsylvania for breach of contract; tortious interference with business relationships and breach of the implied duty of good faith and fair dealing. See id. ¶¶ 130 - 181.

3. Ntegrity's Application for a Preliminary Injunction

Subsequent to the decision on plaintiff's first motion to dismiss, Verizon notified Ntegrity that it intended to discontinue service to Ntegrity's customers after January 31, 2000 because of its failure to pay overdue bills. See Verizon Br. at 6. On January 31, 2000, Verizon stopped providing service to any new Ntegrity customers and informed the state commissions of its decision to stop offering new service. See id. Verizon, however, continued to provide service for Ntegrity's already existing customers. See id. On May 11, 2001, Ntegrity filed a motion for a preliminary injunction to prevent Verizon from terminating service to those existing customers. See id. at 8.

This Court rejected Ntegrity's application, as did the New Jersey Board of Public Utilities. See id. at 8-9. The Board required a letter of credit from Ntegrity in the amount of $500,000.00, which Ntegrity declined to prepare. See id. at 9. The Board authorized termination of service upon proper notice to Ntegrity's existing customers. See id. After the required notice was provided, the Board authorized termination of service. See ...


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