Peerless Network, Inc. v. McI Communications Services, Inc ., Verizon Services Corp .

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18-2747
PEERLESS NETWORK, I NC., et al.,
Plaintiffs-Appellees,
v.
MCI C OMMUNICATIONS S ERVICES, I NC .,
VERIZON S ERVICES C ORP ., and
VERIZON S ELECT S ERVICES, I NC .,
Defendants-Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:14-cv-07417 — Thomas M. Durkin, Judge.
____________________
A RGUED J ANUARY 14, 2019 — DECIDED F EBRUARY 20, 2019
____________________
Before WOOD, Chief Judge, and BRENNAN and S T. EVE, Cir-
cuit Judges.
S T. EVE, Circuit Judge. This case takes us into the complex
world of telecommunications, but the question we confront is
simple: Was the district court correct to grant partial final
judgment under Federal Rule of Civil Procedure 54(b) on
some claims, despite their significant factual overlap with

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2 No. 18-2747
pending claims? We conclude that it was not. We also con-
clude that a genuine issue of fact persists with respect to cer-
tain breach-of-contract claims. We therefore vacate the Rule
54(b) judgment on certain counts, dismiss in part for lack of
jurisdiction, and otherwise reverse and remand.
I. Background
Local Exchange Carriers (“LECs”) and Interexchange Car-
riers (“IXCs”) are types of telecommunications service pro-
viders. They work together to enable phone users to make
long-distance calls. LECs operate in a limited geographical
area, IXCs transport calls across LECs to allow customers to
make calls to geographic areas outside their own. As the dis-
trict court succinctly described:
A common example of this would be a long-distance
call from Chicago to St. Louis. In that example,
AT&T Illinois (the incumbent LEC in Chicago) per-
forms transport and switching functions and origi-
nates the call on its network, and hands the call over
to an IXC, such as Sprint Long-Distance, which car-
ries the call to St. Louis. Sprint then hands the call
off to AT&T Missouri (the incumbent LEC in St.
Louis), which performs switching functions and de-
livers the call to the called party. While the process
sounds cumbersome, in practice it happens in frac-
tions of seconds.
Peerless Network, Inc. v. MCI Commc’ns Servs., Inc., No. 14 C
7417, 2018 WL 1378347, at *2 (N.D. Ill. Mar. 16, 2018). Switch-
ing functions include tandem switching, which connects
LECs to IXCs, and end-office switching, which connects LECs
to end-users.

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No. 18-2747 3
IXCs pay a fee in exchange for access to an LEC’s network,
known as an “access service charge.” The rates are set forth
either in tariffs the LEC has filed with regulatory agencies or
in negotiated agreements between the IXC and LEC.
In February 2009, Peerless, an LEC, and Verizon, an IXC,1
entered into a “Tandem Service Agreement,” a contract that
provided for lowered rates for certain switching services. If a
contractually provided rate did not apply, Peerless billed Ver-
izon its tariff rates, which Peerless filed with the Federal Com-
munications Commission and state public utility commis-
sions.
In 2013, the relationship between the parties broke down.
Verizon disputed and withheld payment for certain charges
on Peerless’s bills. In September 2013, the parties entered into
a standstill agreement in an attempt to avoid litigation. The
agreement, however, did not have its intended effect. Verizon
continued to withhold payment, and in July 2014, Peerless no-
tified Verizon that it was replacing certain rates in the Tan-
dem Service Agreement with the tariff rates. Verizon still
withheld payment, and in September 2014, Peerless sued Ver-
izon.
1 The Peerless plaintiffs-appellees are a parent company and several
subsidiary competitive LECs, meaning that they are LECs that entered the
market after the Telecommunications Act of 1996. See Indiana Bell Tel. Co.
v. McCarty, 362 F.3d 378, 382 & n.5 (7th Cir. 2004). Two subsidiaries are
not competitive LECs, but that is irrelevant to this appeal. The Verizon
defendants-appellants consist of an IXC, a telecommunications carrier,
and a management company.

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4 No. 18-2747
Peerless’s complaint alleged twelve counts, but only a sub-
set of those are relevant to this appeal.2 Counts I and II alleged
a breach of the Tandem Service Agreement. Counts III
through V and XI alleged a breach of federal and state tariffs
and a related declaratory-judgment claim.
In defense, Verizon alleged that, for multiple reasons,
Peerless was not entitled to collect on the outstanding
amounts it had billed Verizon. First, Verizon asserted that
Peerless qualifies as an access stimulator, which is an LEC
with high rates that “enters into an arrangement with a pro-
vider of high call volume operations such as chat lines, adult
entertainment calls, and ‘free’ conference calls.” In re Connect
Am. Fund, 26 F.C.C. Rcd. 17663, ¶ 656 (2011). “The arrange-
ment inflates or stimulates the access minutes terminated to
the LEC, and the LEC then shares a portion of the increased
access revenues resulting from the increased demand with
the ‘free’ service provider, or offers some other benefit to the
‘free’ service provider.” Id. Verizon asserted that, despite en-
gaging in access stimulation since 2012, Peerless failed to re-
duce its tariff rates until 2015, as the FCC requires access stim-
ulators to do. See 47 C.F.R. § 61.26(g). Even then, Verizon ar-
gues, the reduced rates did not comply with FCC rules.
Second, Verizon alleged that Peerless was billing certain
services at higher rates that did not apply to those services.
Specifically, Verizon alleged that Peerless (1) billed end-office
rates for routing Voice over Internet Protocol (“VoIP”) calls
2 The district court dismissed Counts VI through IX at the motion to
dismiss stage, and the district court granted summary judgment for Veri-
zon on Count X. Peerless stated in the proceedings below that it would
withdraw Count XII “[a]t the appropriate time.”

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No. 18-2747 5
even though routing such calls does not meet the definition of
end-office switching; and (2) billed terminating switched-ac-
cess rates for routing calls to two-stage calling providers, such
as prepaid calling-card services, even though Peerless was not
actually terminating the calls. Verizon alleged that billing at
these higher rates violated telecommunications law and the
terms of Peerless’s tariffs.
Verizon also asserted four counterclaims for breach of fed-
eral and state tariffs and related declaratory judgments. These
counterclaims relied on the same access stimulation, VoIP,
and two-stage calling arguments. In its breach-of-tariff coun-
terclaims, however, Verizon sought to recover amounts it had
already paid Peerless for the charges allegedly made in viola-
tion of Peerless’s tariffs and telecommunications law.
The parties cross-moved for partial summary judgment.
The district court referred the access stimulation, VoIP, and
two-stage calling issues, as alleged in the counterclaims, to the
FCC under the primary-jurisdiction doctrine because they in-
volved complicated issues of telecommunications law that
depended on “the resolution of numerous interpretive ques-
tions.” See United States ex rel. Sheet Metal Workers Int’l Ass’n,
Local Union 20 v. Horning Invs., LLC, 828 F.3d 587, 592 (7th Cir.
2016) (“Primary jurisdiction is a permissive doctrine that ap-
plies when resolving a claim requires the resolution of issues
which, under a regulatory scheme, have been placed within
the special competence of an administrative body.”) (internal
quotation marks omitted). The district court accordingly
stayed Verizon’s counterclaims.3
3 In its summary judgment order, the district court expressly stayed
only Counterclaims I and III. In its Rule 54(b) order, however, the district

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6 No. 18-2747
Despite the referral and stay, the district court granted
summary judgment to Peerless on its breach-of-tariff claims.
The district court concluded that Verizon’s access stimulation
defense could be adjudicated separately from Peerless’s col-
lection action, reasoning that Verizon was required to pay dis-
puted charges before challenging them. The district court did
not independently resolve the VoIP and two-stage calling de-
fenses, instead stating summarily in a footnote that the same
reasoning applied to those challenges.
The district court entered a partial final judgment on Peer-
less’s breach-of-tariff claims pursuant to Federal Rule of Civil
Procedure 54(b). It determined that it would be “unjust” to
make Peerless wait to collect on the unpaid bills until the FCC
resolved Verizon’s claims, and that the risk that Verizon
might be entitled to a refund is outweighed by the potential
damage to Peerless in further delay.
The district court also granted summary judgment and
Rule 54(b) partial final judgment on Peerless’s claims regard-
ing the breach of the Tandem Service Agreement. The district
court concluded that Verizon had not disputed the alleged
breach, only the amount owed. Verizon appeals.
II. Discussion
Neither party disputes that Verizon’s counterclaims were
properly referred to the FCC. But Verizon argues that the dis-
trict court erred in granting partial final judgment on Peer-
less’s breach-of-tariff claims. Because Peerless’s entitlement to
collect under its tariffs substantially overlaps with the claims
court referred generally to staying “Verizon’s counterclaims.” We inter-
pret this to mean that all four of Verizon’s counterclaims are currently
stayed in the district court.

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No. 18-2747 7
that are pending in the district court and before the FCC, we
agree. We therefore do not reach the underlying merits of
these claims.
Peerless’s claims that Verizon breached the Tandem Ser-
vice Agreement, however, are properly before us. Verizon
contests that it breached the agreement and argues that Peer-
less has not presented sufficient evidence to show a breach.
We conclude that a genuine dispute of material fact remains
on those claims and summary judgment was improper.
A. The Tariff Claims
When a case involves more than one claim, Rule 54(b) al-
lows a federal court to direct entry of a final judgment on “one
or more, but fewer than all, claims,” provided there is no just
reason for delay. Fed. R. Civ. P. 54(b). A final judgment en-
tered under Rule 54(b) is immediately appealable though the
rest of the case remains pending in the district court. VDF Fu-
tureCeuticals, Inc. v. Stiefel Labs., Inc., 792 F.3d 842, 845 (7th Cir.
2015).
We conduct a two-step analysis of a Rule 54(b) partial final
judgment. First, we make sure that the order was truly a final
judgment—a review we undertake de novo. Gen. Ins. Co. of Am.
v. Clark Mall Corp., 644 F.3d 375, 379 (7th Cir. 2011). Second,
we ask whether the district court abused its discretion in find-
ing no just reason to delay the appeal of the claim that was
finally decided. The goal of our analysis is to prevent “piece-
meal appeals” involving the same facts. Id. (quoting Curtiss-
Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 10 (1980)).
Our inquiry starts and stops at the first step. The Rule
54(b) order was improper as to the breach-of-tariff claims be-
cause it did not constitute a final judgment. When it comes to

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8 No. 18-2747
determining if a judgment is truly final, we consider whether
there is too much factual overlap with claims remaining in the
district court. VDF FutureCeuticals, 792 F.3d at 845. Even if
multiple claims arise from the same set of facts, we consider
whether they are based on “entirely different legal entitle-
ments yielding separate recoveries” or “different legal theo-
ries aimed at the same recovery”—the latter of which makes
Rule 54(b) partial final judgment improper. Marseilles Hydro
Power, LLC v. Marseilles Land & Water Co., 518 F.3d 459, 464
(7th Cir. 2008). Where, as here, “final” claims may yet be un-
dercut by a claim still pending before the district court, there
may be unacceptable overlap. VDF FutureCeuticals, 792 F.3d
at 845.
The breach-of-tariff claims before us now and those stayed
in the district court are factually and legally intertwined.
Reaching the merits of this appeal would require, in part, ad-
dressing the lawfulness of Peerless’s tariffs and the interpre-
tation of both the tariff and unsettled areas of federal telecom-
munications law. Verizon asks us to determine whether a tar-
iff that does not meet requirements for access stimulators can
ever be enforceable. It also asks us to determine whether Peer-
less’s VoIP and two-stage calling billing practices comply
with thorny areas of FCC and D.C. Circuit precedent. These
are the exact same issues that form the basis of Verizon’s
counterclaims, which have been referred to and are pending
resolution before the FCC. If the FCC decides those issues in
favor of Verizon, then Peerless may not have been entitled to
collect on its invoices. If Peerless was not entitled to collect,
then the district court’s entry of judgment was for naught.
And, regardless of how the FCC decides, the unsuccessful
parties could appeal the district court’s application of that de-
cision to the currently stayed counterclaims. It is therefore

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No. 18-2747 9
possible, indeed likely, that the very same facts and issues will
arise before us again once the district court resolves Verizon’s
counterclaims. This scenario is exactly the type of judicial in-
efficiency that makes Rule 54(b) partial final judgment im-
proper here. Gen. Ins., 644 F.3d at 379.
True, an argument that a tariff is unreasonable or unlawful
must be brought as a counterclaim and can be adjudicated
separately from a collection action, including for Rule 54(b)
purposes.4 See Reiter v. Cooper, 507 U.S. 258, 266 (1993); Balti-
more & Ohio Chicago Terminal R. Co. v. Wisconsin Cent. Ltd., 154
F.3d 404, 407 (7th Cir. 1998). And as Peerless asserts, Verizon’s
challenge to the tariff rates on the grounds that Peerless is an
access stimulator is an unreasonable-rate challenge which
may, in certain circumstances, be stayed while the remainder
of the collection action goes forward.
But the rest of Verizon’s challenges are to Peerless’s com-
pliance with its own tariff rates and with federal communica-
tions law—not challenges to the tariffs themselves. Verizon
argues that Peerless billed end-office switching rates for rout-
ing VoIP calls despite the fact that routing such calls does not
meet the definition of end-office switching as defined in the
tariff or by law.5 Verizon also argues that, in violation of the
4 This is a function of the filed-rate doctrine, the details of which we
need not go into in this opinion.
5 Whether routing VoIP calls is the “functional equivalent” of end-of-
fice switching is an area of uncertainty in federal telecommunications law,
hence the district court’s referral of this issue to the FCC. See AT&T Corp.
v. Fed. Commc’ns Comm’n, 841 F.3d 1047, 1049 (D.C. Cir. 2016) (vacating an
FCC declaratory ruling that VoIP providers and LECs partner to provide
the functional equivalent of end-office switching).

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10 No. 18-2747
tariff and telecommunications law, Peerless billed terminat-
ing switched-access rates for routing calls to two-stage calling
providers, such as calling card services, even though those
calls continue and are terminated somewhere else, for exam-
ple, internationally. These complicated concepts can be dis-
tilled into a simple allegation: Peerless is billing Verizon for
services it is not providing. And, unlike a pure unreasonable-
rate challenge, such an allegation can serve as a defense, not
just a counterclaim.
Yet, the district court conflated Verizon’s defenses and
counterclaims. It overlooked that the VoIP and two-stage ar-
guments serve not only as a basis to recover past-paid
amounts under Verizon’s counterclaims; they also serve as
defenses to the allegations that Verizon owes outstanding
amounts to Peerless—defenses that would undercut any
amount that Verizon purportedly owes Peerless. The district
court must resolve any defenses in order to fully adjudicate
Peerless’s breach-of-tariff claims and determine what Peerless
is legally entitled to bill Verizon for. But here, it cannot—like
Verizon’s counterclaims, the resolution of Verizon’s defenses
turns on the issues pending before the FCC. That these de-
fenses cannot yet be resolved shows again that Rule 54(b) par-
tial final judgment is inappropriate here.
Because the district court erred in granting partial final
judgment on Peerless’s breach-of-tariff claims, we vacate the
Rule 54(b) judgment on Counts III through V and XI. Under
28 U.S.C. § 1291, this court has jurisdiction only over “final
decisions,” therefore, the appeal as to these counts must be
dismissed for want of jurisdiction.

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No. 18-2747 11
B. The Contract Claims
Verizon does not contend, and we do not conclude, that
the district court erred in ordering Rule 54(b) partial final
judgment for Counts I and II, which alleged a breach of the
Tandem Service Agreement. The amounts Verizon allegedly
owes under the agreement are not tied to Peerless’s tariffs,
they are based on discounted, contractually agreed-upon
rates. Thus, unlike the tariff claims, these breach-of-contract
claims “rely on entirely different legal entitlements” than the
tariff-related counterclaims still pending in the district court.
Marseilles, 518 F.3d at 464. Judgment on Counts I and II is
properly considered final.
The district court did not specifically address the breach-
of-contract claims in concluding that there was no just reason
to delay final judgment. Understandably so—the tariff claims
made up the vast majority of this nearly $50 million complex
lawsuit. But the district court’s determination that Peerless’s
interest in prompt payment outweighed the risk that Verizon
may be entitled to a refund presumably applied to the con-
tract claims as well as the tariff claims. That was not an abuse
of discretion. It is unclear how long the remaining issues will
be pending before the FCC, delaying the resolution of these
entirely separate breach-of-contract counts. Therefore, Rule
54(b) partial final judgment was appropriate on Counts I and
II, and we have jurisdiction to address the merits of Verizon’s
appeal as to these counts.
Verizon argues that the district court erred in granting
summary judgment for Peerless on these counts. We review
grants of summary judgment de novo. “Summary judgment is
appropriate when there is no genuine dispute as to a material
fact.” Estate of Jones v. Children’s Hosp. & Health Sys. Inc.

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12 No. 18-2747
Pension Plan, 892 F.3d 919, 923 (7th Cir. 2018). When both par-
ties have moved for summary judgment, “we construe all in-
ferences in favor of the party against whom the motion under
consideration is made.” Schlaf v. Safeguard Prop., LLC, 899 F.3d
459, 465 (7th Cir. 2018) (quoting Hendricks-Robinson v. Excel
Corp., 154 F.3d 685, 692 (7th Cir. 1998)).
The district court concluded that summary judgment for
Peerless was appropriate because, supposedly, Verizon did
not dispute that it had failed to pay charges owed under the
Tandem Service Agreement—Verizon disputed only the
amount of damages. The record says otherwise. In the pro-
ceedings below, Verizon acknowledged Peerless’s allegations
that it owed outstanding amounts under the Tandem Service
Agreement. Verizon responded, however, that Peerless had
failed to specifically identify any unpaid invoices. Verizon
also submitted an affidavit from a Senior Manager of Invoice
Validation attesting that she was unaware of which invoices
purportedly reflected any outstanding amount. Viewing the
facts in the light most favorable to Verizon, as we must, the
conflicting evidence creates a genuine dispute as to whether
Verizon owes any unpaid amount under the Tandem Service
Agreement.
Peerless argues that because Verizon and Peerless jointly
stipulated to a damages amount for the breach-of-contract
claims, Verizon cannot now challenge the district court’s de-
termination of liability on these counts. Peerless is incorrect,
the stipulation is irrelevant. By that point, the district court
had already found against Verizon on the issue of liability,
and we allow parties to challenge a determination of liability
even if they later stipulate to damages. See, e.g., Pitcher v. Prin-
cipal Mut. Life Ins. Co., 93 F.3d 407, 411 (7th Cir. 1996). We

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No. 18-2747 13
conclude that the district court erred in its liability determina-
tion and improperly granted summary judgment for Peerless
on Counts I and II, alleging a breach of the Tandem Service
Agreement.
III. Conclusion
The district court erred in entering partial final judgment
under Rule 54(b) on Counts III through V and XI. We
VACATE the Rule 54(b) judgment on those counts and
DISMISS the appeal of those counts for want of jurisdiction.
We also conclude that the district court erred in granting sum-
mary judgment on Counts I and II, and we REVERSE and
REMAND for further proceedings on those counts consistent
with this opinion.

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