Worldcom, Inc. v. Graphnet, Inc. on Appeal From the United States District Court for the District of…

PRECEDENTIAL
Filed September 12, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-4256
WORLDCOM, INC.,
Appellant
v.
GRAPHNET, INC.
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF NEW JERSEY
(District Court Civil No. 00-cv-05255)
District Court Judge: Hon. William H. Walls
Argued and Submitted
June 16, 2003
Before: ALITO, ROTH, and HALL,* Circuit Judges.
(Opinion Filed: September 12, 2003)
Patrick C. Dunican, Jr., Esq.
(Argued)
One Riverfront Plaza
Gibbons, Del Deo, Dolan, Griffinger
& Vecchione, P.C.
Newark, New Jersey 07102
Counsel for Appellant
* The Hon. Cynthia Holcomb Hall, Circuit Judge for the United States
Court of Appeals for the Ninth Circuit, sitting by designation.

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Francis L. Young, Esq. (Argued)
Law Offices of Francis L. Young,
Esq.
126 C. Street, N.W.
Washington, DC 20001
Marc J. Gross, Esq.
Gina M. Pontorieo, Esq.
Greenbaum, Rowe, Smith, Ravin,
Davis & Himmel, LLP
6 Becker Farm Road
Roseland, New Jersey 07068
Counsel for Appellee
OPINION OF THE COURT
CYNTHIA HOLCOMB HALL, Circuit Judge:
Worldcom, Inc. appeals an order of the district court
dismissing its complaint against Graphnet, Inc. Worldcom
claims Graphnet owes it approximately 3.4 million dollars
for telecommunications services and equipment. The
district court held that since the contracts at issue in this
controversy were not filed with the Federal
Communications Commission (FCC), Worldcom is
precluded from recovering anything for services or
equipment provided to Graphnet. It therefore dismissed
Worldcom’s complaint for failing to state a claim upon
which relief can be granted. See Fed. R. Civ. P. 12(b)(6).
We have jurisdiction pursuant to 28 U.S.C. § 1291.
Because the district court erred by concluding that
Worldcom cannot recover as a matter of law, we REVERSE
and REMAND for further proceedings.
FACTS AND PROCEDURAL HISTORY
Worldcom is a global telecommunications company
providing a variety of diverse communications services in
local, national and international markets.1 Graphnet
1. Worldcom filed for chapter 11 bankruptcy protection in the Southern
District of New York, after this action commenced. Subsequent to its
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provides communications services and network products
for customers in national and international markets.
On June 2, 2000, Worldcom commenced an action under
the Federal Communications Act, 47 U.S.C. § 151 et seq.,
against Graphnet for breach of contract and unjust
enrichment in federal district court in the Eastern District
of Virginia. The complaint was thereafter amended on
August 28, 2000. Graphnet moved to transfer venue to the
District of New Jersey. In its complaint, Worldcom claims
that, in November 1991, it entered into a contract with
Graphnet to provide two-way telex transmissions between
their respective networks for telex traffic originating on
each other’s networks. Graphnet has not paid for over three
million dollars in telex services provided to it by Worldcom.
It has also failed to pay for over three hundred thousand
dollars for additional telecommunications equipment and
services provided pursuant to another contract. Neither
contract was filed with the FCC. The extent to which
Graphnet disputes these allegations is unclear since
Graphnet never filed a responsive pleading admitting or
denying these allegations.
In October 2000, the district court in Virginia transferred
the action to the District of New Jersey. Upon transfer,
Graphnet moved to dismiss the complaint under Fed. R.
Civ. P. 12(b). Graphnet argued that the district court lacked
subject matter jurisdiction and that Worldcom failed to
state a claim upon which relief could be granted. Graphnet
also raised two affirmative defenses in its motion to
dismiss, claiming that Worldcom’s actions were barred both
by the applicable statute of limitations and by an earlier
settlement agreement. In its reply brief in support of its
motion to dismiss, Graphnet argued for the first time that
Worldcom’s claims were precluded by the so-called “filed
rate doctrine.” Worldcom objected to the issue being raised
for the first time in Graphnet’s reply brief and the district
court properly allowed Worldcom to file a sur-reply brief to
respond to Graphnet’s arguments.
filing for bankruptcy protection, Worldcom informed the district court
that it would continue pursuing this action as an attempt to recover
funds owed to the debtor’s estate.
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The district court filed an opinion and order granting
Graphnet’s motion to dismiss. The district court held that
it had subject matter jurisdiction but concluded that
Worldcom could not recover under any of the contracts at
issue because they were never filed with the FCC. The
district court did not reach any of the other issues raised
by Graphnet in its motion to dismiss. Worldcom appealed.
STANDARD OF REVIEW
A motion to dismiss for failure to state a claim is
reviewed de novo. We accept all well pleaded factual
allegations as true and draw all reasonable inferences from
such allegations in favor of the complainant. Weston v.
Pennsylvania, 251 F.3d 420, 425 (3d Cir. 2001). Dismissal
for failure to state a claim is appropriate only if it “appears
beyond doubt that plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.”
Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
DISCUSSION
A. Jurisdiction
After Graphnet moved to dismiss the action for lack of
subject matter jurisdiction, the district court held that it
had jurisdiction over the controversy. While Graphnet does
not dispute this finding, we are nevertheless obligated to
raise and decide the issue sua sponte. See MCI Telecomm.
Corp. v. Teleconcepts, Inc. 71 F.3d 1086, 1093 (3d Cir.
1995).
After examining the record, we have no doubt that the
district court correctly found that it had diversity
jurisdiction under 28 U.S.C. § 1332. The parties are
completely diverse and the matter in controversy exceeds
$75,000. We also note that there is federal question
jurisdiction under 28 U.S.C. § 1331. Because this issue is
related to the merits of this controversy, we will discuss it
briefly. In MCI Telecomm., we held that a contract action for
unpaid services under the terms and conditions set forth in
a filed tariff “arises under” the laws of the United States.
MCI Telecomm., 71 F.3d at 1094. In MCI Telecomm., we
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relied heavily on the Second Circuit’s decision in Ivy
Broadcasting Co., Inc. v. AT & T, 391 F.2d 486 (2d Cir.
1968). In Ivy Broadcasting, the court noted that “the
establishment of [a] broad scheme for the regulation of
interstate service by communications carriers indicates an
intent on the part of Congress to occupy the field to the
exclusion of state law.” Id. at 490. Since Congress intended
to occupy the field, “questions concerning the duties,
charges and liabilities of telegraph or telephone companies
with respect to interstate communications service are to be
governed solely by federal law[.]” Id. at 491. Since this
controversy involves questions concerning the duties,
charges and liabilities with respect to interstate and
international communications services, it “arises under”
federal law. 28 U.S.C. § 1331. Since no specific portion of
the Act creates an action for breach of a communications
contract, the district court must apply federal common law.
B. Whether Worldcom Was Required to File the
Contracts at Issue
The district court erred by concluding that Worldcom was
required to file the contracts at issue. This complex issue
could not be resolved at this stage in the litigation. The fact
that there was no filed tariff does not itself violate the FCA.
Under the FCA, a carrier may conduct its business either
by tariff or by contract. Bell Tel. Co. of Pa. v. FCC, 503 F.2d
1250, 1277 (3d Cir. 1974). When a carrier chooses to
conduct business by contract, section 211(a) of the FCA
states that every common carrier “shall” file with the FCC
“copies of all contracts, agreements or arrangements with
other common carriers.” 47 U.S.C. § 211(a) (emphasis
added). The district court held that since the contracts at
issue were not filed with the FCC, Worldcom had violated
the FCA. The district court, however, ignored section 211(b)
which states, in relevant part, that the FCC “shall have the
authority to require the filing of any other contracts of any
carrier, and shall also have authority to exempt any carrier
from submitting copies of such minor contracts as the
Commission may determine.” 47 U.S.C. § 211(b) (emphasis
added). The plain language of the statute gives the FCC the
power to exempt certain contracts from the filing
requirement of section 211(a).
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Pursuant to this authority, the FCC promulgated 47
C.F.R. § 43.51 which stated in relevant part, at the time of
contracting:
(a) Any communications common carrier engaged in
domestic or foreign communication, or both, which has
not been classified as non-dominant pursuant to
Section 61.12(e) of the Commission’s Rules, 47 C.F.R.
§ 61.12(e), is not treated under the regulatory
forbearance policies established by the Commission,
and which enters into a contract with another carrier
must file with the Commission, within thirty (30) days
of execution, a copy of each contract, agreement,
concession, license, authorization or other arrangement
to which it is a party . . .
47 C.F.R. § 43.51(a) (1986) (available in 1 FCC Rcd 933).
Worldcom argues that this language exempts non-dominant
carriers from the filing requirement. Graphnet argues that
this regulation merely lists a few examples of contracts that
must be filed with the FCC. The FCC’s report and order
regarding the amendment to 47 C.F.R. § 43.51 clearly
supports Worldcom’s position. In that order, the FCC
specifically stated that because it no longer found such
documents “useful,” it desired to eliminate “the requirement
that non-dominant carriers treated with forbearance file
certain reports and contracts.” 1 FCC Rcd 933, ¶ 3 (1986).
Furthermore, the language in the regulation would be
superfluous were it not read to exempt non-dominant
carriers from the filing requirement. We therefore agree
with Worldcom that this regulation exempts “non-
dominant” carriers from the filing requirement.
Worldcom specifically claims that it was classified as
non-dominant and subject to regulatory forbearance with
respect to its domestic long-distance operations at the time
the contract was signed. It therefore cannot be resolved at
this point in the litigation whether the contracts at issue
were required to be filed with the FCC. The court must first
determine whether Worldcom was, in fact, non-dominant in
the national long distance field at the time and that the
contracts at issue involved national long distance services.
Graphnet’s claim that 47 C.F.R. § 43.51 does not apply to
this case because the relevant language of the regulation
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was not adopted until October 12, 2000, is simply false.
This specific regulation has exempted non-dominant
carriers since 1986. 1 FCC Rcd 933, ¶ 3 (1986). Not only
would proper legal research have revealed this, but a
declaration attached to Worldcom’s sur-reply brief in
district court quoted the 1986 language and clearly
explained that the relevant language was adopted in 1986.
We conclude that the district court erred by finding that
Worldcom was required to file the contracts at issue. At this
stage in the litigation, it cannot be determined that
Worldcom was so required.
C. Whether Worldcom Could Recover Even if It Were
Required to File
Graphnet argues that a violation of the filing requirement
precludes Worldcom from recovering anything for services it
rendered and equipment it delivered to Graphnet. The
district court adopted Graphnet’s position holding that
Worldcom could neither recover under the contract nor for
the value of services rendered under a theory of unjust
enrichment or quantum meruit. Essentially, the district
court held that if a party fails to file a contract under
section 211, it will suffer a complete and total forfeiture. It
erroneously relied on the inapposite “filed rate doctrine” in
reaching this conclusion. We find nothing in either the
FCA, the decisions of the Common Carrier Bureau or in the
caselaw from the federal courts that would support such an
extreme penalty for failing to file a contract. In fact, relevant
authority is to the contrary.
As an initial matter, section 211 says nothing about any
penalty for failing to file a contract. Other sections of the
FCA, however, specifically lay out penalties for violation of
their provisions. See, e.g., 47 U.S.C. § § 202(c), 203(e) and
205(b). Yet the district court and Graphnet assume that the
penalty for failing to file a contract under that section is a
total forfeiture. If Congress intended the extraordinary
penalty that Graphnet advocates, we would expect it to say
so explicitly. “Forfeitures are not favored; they should be
enforced only when within both letter and spirit of the law.”
United States v. One 1936 Model Ford V-8 De Luxe Coach,
307 U.S. 219, 226 (1939). See also Farmers’ & Mechanics’
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Nat’l Bank v. Dearing, 91 U.S. 29, 35 (1875) (“When either
of two constructions can be given to a statute, and one of
them involves a forfeiture, the other is to be preferred.”)
(internal citations omitted). Absent an express statutory
statement to the contrary, we conclude that a violation of
section 211’s filing requirement does not require that
Worldcom forfeit any right to be compensated for services
and equipment provided to Graphnet pursuant to an
unfiled contract.
Moreover, the filed rate doctrine is inapposite. Section
203 of the FCA states that all common carriers “shall” file
“schedules,” i.e. tariffs, “showing all charges” and “showing
the classifications, practices, and regulations affecting such
charges” with the FCC. 47 U.S.C. § 203(a). Deviation from
these rates “is not permitted upon any pretext.” Id. These
provisions are modeled after similar provisions in the
Interstate Commerce Act and embody “the century old ‘filed
rate doctrine.’ ” AT&T Co. v. Central Office Telephone, Inc.,
524 U.S. 214, 222 (1998). The filed rate doctrine forbids
charging or collecting rates for services that vary with the
rates scheduled for those services in a filed tariff. Even if a
carrier intentionally misrepresents its rates and contracts
with a customer who relies on those rates, the carrier
cannot be held to the contracted rate if it conflicts with the
filed tariff. Id. at 222.
Here, however, no filed tariff appears to have covered the
services provided pursuant to the contracts at issue. The
doctrine is therefore inapposite because there is no filed
tariff with which the contracts conflict.2 See id. at 229
(Rehnquist, C.J., concurring) (“In order for the filed rate
doctrine to serve its purpose . . . it need pre-empt only
those suits that seek to alter the terms and conditions
provided for in the tariff.”) (emphasis added). “While the
filed rate doctrine may seem harsh in some circumstances,”
2. We assume for purposes of this appeal that there is no filed tariff
because there is no indication to the contrary. Nothing in this decision
should be read to preclude Graphnet from later offering evidence that
some or all services provided to it were pursuant to a filed tariff. The
contracts would be unenforceable to the extent they conflicted with a
filed tariff.
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id. at 223, it does not result in the extraordinarily harsh
result that Graphnet advocates. It may serve to give a
carrier or customer an unjustified windfall but it rarely
results in a total forfeiture of a party’s rights to either be
compensated or provided with services. The carrier is still
compensated, even if it is at a rate lower than the rate for
which the carrier thought it bargained. The customer is still
provided with services even if it has to pay a higher rate for
those services than it expected.
We find support for our conclusion in the decisions of the
FCC and the Common Carrier Bureau. In New Valley Corp.
v. Pacific Bell, 15 FCC Rcd 5128 (FCC 2000), the FCC
addressed and squarely rejected an argument similar to the
one made by Graphnet here. New Valley argued that it was
under no obligation to pay for services rendered by Pacific
Bell because there was no filed tariff covering the services
it had received from Pacific Bell. Id. at ¶¶ 9-10. The FCC
rejected this argument outright and upheld the finding of
the Common Carrier Bureau that there was “no basis” in
the filed rate doctrine “that a customer may be exempt from
paying for services provided by a carrier if those services
were not properly encompassed by the carrier’s tariff.” In
the Matter of New Valley Corp. v. Pacific Bell, 8 FCC Rcd
8126, ¶ 8 (Com. Car. Bur. 1993). See also In the Matter of
America’s Choice, Inc. v. LCI Internat’l Telecom Corp., 11
FCC Rcd 22,494, ¶ 24 (Com. Car. Bur. 1996) (“[A]
purchaser of telecommunications services is not absolved
from paying for services rendered solely because the
services furnished were not properly tariffed.”).
If Worldcom was required to file the contracts at issue, its
failure to do so would not by itself preclude Worldcom from
recovering under those contracts. If the contracts are not
enforceable for some other reason, Worldcom could still
recover the value of its services under a theory of unjust
enrichment. The district court erred by concluding
otherwise. If Graphnet has been damaged by the failure to
file the contracts at issue or by any other possible breaches
of duty by Worldcom, it may file a counterclaim under 47
U.S.C. § 207 and seek appropriate relief from the district
court.
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D. Graphnet’s Remaining Claims in Its Motion to
Dismiss
We decline Worldcom’s invitation to instruct the district
court to rule against Graphnet on the remainder of the
issues raised in its motion to dismiss. It is the district
court’s duty to decide the outstanding issues in the first
instance.
To the extent that Graphnet requests that we affirm the
district court’s dismissal of this action with prejudice on
alternative grounds, we see nothing in the record that
would give us a basis for doing so. See Fairview Township
v. EPA, 773 F.2d 517, 525 n.15 (3d Cir. 1985) (this court
may affirm the district court on any basis finding support
in the record). Graphnet does not dispute that Worldcom
has adequately pleaded its claims regarding the first
contract. It does argue, however, that the claims regarding
the second contract were not adequately pleaded. We leave
it to the district court to decide this issue. Even if the
district court does conclude that the claims were not
adequately pleaded, Worldcom may still be able to amend
its complaint to adequately plead the claims. Graphnet’s
argument in district court for why these claims should be
dismissed with prejudice is without merit. Graphnet
claimed in district court that Worldcom has failed to plead
the claims regarding this contract three times and has
therefore had “three bites at the apple” and should not be
given another.3 Graphnet does not correctly represent the
record. Worldcom has unsuccessfully pleaded claims
regarding the second agreement only once. The district
court in Virginia dismissed the claim without prejudice.
Worldcom thereafter amended its complaint. The action was
then transferred to New Jersey. The district court in New
Jersey has never ruled on the issue.
3. The fact that a complainant has had “three bites at the apple” is not
itself a justification for dismissing a complaint with prejudice. See Fed.
R. Civ. P. 15(a); see also Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d
1048, 1053 (9th Cir. 2003) (Reinhardt, J., concurring separately) (“the
undeservedly common ‘three bites at the apple’ cliche . . . too often
provide[s] a substitute for reasoned analysis”).
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Graphnet’s motion to dismiss also raised two affirmative
defenses. Graphnet asserted that Worldcom’s action was
barred both by an earlier settlement agreement and by the
applicable statute of limitations. The facts necessary to
establish an affirmative defense must generally come from
matters outside of the complaint. Thus, with some
exceptions, affirmative defenses should be raised in
responsive pleadings, not in pre-answer motions brought
under Rule 12(b). See Robinson v. Johnson, 313 F.3d 128,
135 (3rd Cir. 2003) (limitations defense may be raised on a
motion under Rule 12(b)(6) “only if the time alleged in the
statement of a claim shows that the cause of action has not
been brought within the statute of limitations”) (emphasis
added) (internal citations and quotations omitted); Nemitz v.
Norfolk & W. R. Co., 287 F. Supp. 221, 231 (N.D. Ohio),
aff ’d by 404 U.S. 37 (1971) (defense of accord and
satisfaction because of settlement agreement may not be
raised in a motion to dismiss). Neither of these affirmative
defenses can be resolved without further development of
the record.
CONCLUSION
It cannot be determined at this stage in the litigation
whether Worldcom was required to file the contracts.
Moreover, even if the contracts at issue were required to be
filed, this fact does not preclude Worldcom from any
recovery. Worldcom may be able to prove facts in support
of its claims which would entitle it to relief. Conley, 355
U.S. at 45-46.
We REVERSE the district court’s order dismissing
Worldcom’s complaint. We REMAND for further
proceedings consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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