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VERIZON DELAWARE, INC. v. COVAD COMMUNICATIONS CO.

November 13, 2002

VERIZON DELAWARE, INC., ET AL., PLAINTIFFS,
V.
COVAD COMMUNICATIONS CO., ET AL., DEFENDANTS, AND RELATED COUNTERCLAIMS.



The opinion of the court was delivered by: Jeremy Fogel, United States District Judge.

ORDER (1) GRANTING COVAD'S MOTION FOR SUMMARY JUDGMENT WITH RESPECT TO VERIZON'S CLAIMS AND (2) DEEMING MOOT VERIZON'S MOTION TO DISMISS COVAD'S COUNTERCLAIMS

On August 12, 2002, the Court heard argument with respect to (1) the motion for summary judgment brought by Covad Communications Company and Dieca Communications, Inc. (collectively "Covad") and (2) the motion to dismiss brought by Verizon Delaware, Inc., Verizon New England, Inc., Verizon Maryland, Inc., Verizon New Jersey, Inc., Verizon New York, Inc., Verizon Pennsylvania, Inc. and Verizon Washington, Inc. (collectively, "Verizon"). The Court has considered the briefing and evidence submitted by the parties as well as the arguments of counsel presented at the hearing. For the reasons discussed below, the Court will grant Covad's motion for summary judgment and deem moot Verizon' s motion to dismiss.

Verizon is one of the former Bell Operating Companies spun off from AT&T in 1983. It controls the local telecommunications networks in its regions. Verizon also offers a high speed internet access service known as "digital subscriber line" ("DSL"). Covad is both Verizon' s competitor in the DSL market and Verizon's customer, in that Covad buys access to Verizon's telephone infrastructure in order to provide DSL service to Covad customers.

The relationship between Verizon and Covad has become increasingly contentious. The parties have sued each other in multiple fora and have complained about each other's alleged conduct before various regulatory bodies. Verizon filed suit in this Court on June 11, 2001. The Court dismissed Verizon's original complaint with leave to amend for failure to state a claim upon which relief could be granted. On December 18, 2001, Verizon filed the operative first amended complaint, alleging California state law claims for intentional misrepresentation, negligent misrepresentation, and unfair competition in violation of Cal. Bus. & Prof. Code § 17200. Covad sought dismissal of that pleading on several grounds, including the filed rate doctrine.*fn1 The Court denied Covad's motion to dismiss without prejudice to a motion for summary judgment based upon the filed rate doctrine. Covad answered the first amended complaint and asserted three state law counterclaims for fraud, negligent misrepresentation and violation of state unfair competition statutes. Covad now seeks summary judgment on Verizon's claims based upon the filed rate doctrine. Verizon moves to dismiss Covad's claims on a number of grounds.

Verizon claims that in the first quarter of 2000, Covad issued more than 23, 000 false "trouble tickets, " causing Verizon to send repair trucks to the site of alleged problems when in fact the only problem was with Covad's own equipment. According to Verizon, the false trouble tickets were part of a deliberate course of conduct, described as follows: Although Covad was not making a profit as of 2000, it nonetheless claimed success in the industry by touting the growth of its customer base. (First Amended Complaint, "FAC, " at 49) However, early in 2000 Covad management realized that Covad would not meet its quarterly projections for new customers. (Id. at 51) Management therefore conceived of a scheme to shift all technicians and resources toward new installations. (Id. at 53) Because Covad lacked the resources to pursue this scheme while offering repair service to existing customers, Covad's technicians were instructed to open trouble tickets on all complaints without making any attempt to determine whether the problem was with Covad's equipment or Verizon's loops. (Id. at 53-55) Covad's technicians also were instructed to close new orders regardless of whether the DSL was working; problems with such new service were referred to Verizon via trouble tickets. (Id. at 55) The push to close orders was referred to internally as "March Madness" because employees who closed the most orders were promised tickets to the NCAA basketball Final Four tournament. (Id.) Verizon attaches to its first amended complaint the sworn declarations of thirty-seven former Covad employees who confirm and describe in detail the scheme alleged by Verizon. (FAC, Exh. F)

According to Verizon, Covad received significant benefits from opening the false trouble tickets. Verizon technicians often found that Covad had not connected the inside wiring of the end-user's home to the Verizon loop or otherwise had failed to complete the installation. (FAC at ¶ 66) Verizon technicians likely as not would simply complete the job, thus saving Covad the expense of doing so. (Id.) Covad also saved on troubleshooting costs, since Covad did not attempt to determine the source of problems before opening trouble tickets. (Id. at 72) Finally, Covad could deflect blame for any unresolved problems onto Verizon by stating that trouble tickets had been opened and that Verizon was working on the problems. (Id. at 87)

Verizon alleges that Covad's massive use of trouble tickets resulted in significant loss of money for labor, processing costs and material. (FAC at ¶ 93) Verizon also alleges that Covad's conduct resulted in lost business opportunities, in that Verizon could have been devoting the resources it used responding to trouble tickets to other, legitimate endeavors. (Id.) Moreover, if Verizon's performance fell below certain levels, Covad was entitled to substantial payments or price reductions. (Id. at 94) Covad received millions of dollars in such concessions as a result of the above-described scheme. (Id. at 95) Finally, Verizon asserts that Covad's conduct resulted in suppressed demand for Verizon's services. (Id. at 97)

II. COVAD'S MOTION FOR SUMMARY JUDGMENT

A. Legal Standard

A motion for summary judgment should be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of informing the Court of the basis for the motion and identifying the portions of the pleadings. depositions, answers to interrogatories, admissions, or affidavits which demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

If the moving party meets this initial burden, the burden shifts to the non-moving party to present specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324. A genuine issue for trial exists if the non-moving party presents evidence from which a reasonable jury, viewing the evidence in the light most favorable to that party, could resolve the material issue in his or her favor. Anderson, 477 U.S. 242, 248-49; Barlow v. Ground, 943 F.2d 1132, 1134-36 (9th Cir. 1991).

B. Law of The Case Argument

Verizon argues that Covad is recycling arguments made in connection with its prior motion to dismiss and that the instant motion therefore should be denied as an improper motion for reconsideration or under the doctrine of law of the case. Verizon acknowledges that the Court's ruling with respect to Covad's earlier motion was expressly without prejudice to a motion for summary judgment based upon the filed rate doctrine. It argues, however, that the Court's ruling contemplated that the parties would engage in discovery regarding the filed rate doctrine and asserts that the parties have not done so. In fact, this Court's prior ruling was not based upon an assumption that further discovery was necessary but rather upon the Court's view that the facts and arguments relevant to the filed rate doctrine had not been developed adequately in Covad's motion to dismiss. The parties' current briefs address the filed rate doctrine with extreme thoroughness. Moreover, the record now contains the requisite proof that the

Interconnection Agreements ("IA's" that govern the parties' relationship are filed with the appropriate regulatory body in each state in which Verizon and Covad do business with each other. Accordingly, the ...


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