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A federal judge has dismissed a fraud suit against MCI WorldCom Communications Inc. after finding that the Federal Communications Commission should have the first crack at deciding whether MCI violated its federal tariff. In his 15-page opinion in Audiotext International Ltd. v. MCI WorldCom Communications Inc., U.S. District Judge Jay C. Waldman found that the suit, brought by a company that says its DSL lines to the United Kingdom were illegally blocked, is pre-empted under the doctrine of “primary jurisdiction,” which allows courts to defer to a federal agency whenever a case presents a question that is within the agency’s expertise. In the suit, Audiotext claims it contracted with MCI in March 2000 to buy access to international phone lines. The one-year, renewable contract said Audiotext would pay 6.7 cents per minute for calls to the UK if it met a volume commitment of $60,000 or 900,000 minutes. The suit says MCI assured that calls would be completed “with no technical or other problems.” MCI suggested that Audiotext get DSL or “dedicated service lines” and two such lines were installed in April 2000, the suit says. But soon after the lines were activated, the suit says, MCI observed a high volume of call traffic over the lines, which it deemed fraudulent, and blocked the DSL lines. When Audiotext complained, MCI lifted the block for a single day, but reinstated it when the high volume of calls resumed. Audiotext’s lawyers, Andrew S. Kasmen and Stephen G. Burns of Burns & Kasmen of Jenkintown, Pa., argued that MCI knew or should have known that its assurances were false. But MCI’s lawyers, Ronald P. Schiller and Daniel J. Layden of Piper, Marbury, Rudnick & Wolfe in Philadelphia, argued that the contract expressly incorporates MCI’s federal tariff, which grants it the right to block any customer’s traffic without notice whenever MCI “deems it necessary to take such action to prevent unlawful use of or nonpayment for its services … or when the customer’s volume or calling pattern results or may result in the blockage of MCI WorldCom’s network or in the degradation of MCI WorldCom’s service.” The defense lawyers said the tariff also states that MCI “may discontinue the furnishing of any and/or all service(s) to a customer or cancel his account, without incurring any liability: Immediately and without notice if MCI WorldCom deems that such action is necessary to prevent or protect against fraud or to otherwise protect its personnel, agents, facilities or services.” In court papers, MCI said its monitors detected “massive amounts of fraud and arbitrage” on Audiotext’s lines. Judge Waldman found despite the monitor’s testimony, there was “no claim of first-hand knowledge of fraud or unlawful use and no further elaboration.” Audiotext submitted testimony from a communications industry expert who said there was no fraud going on. Instead, the expert said, fraud is defined as traffic generated by person or entity that has no intention of paying. Such a claim, the expert said, can’t be confirmed until a customer has refused to pay. The plaintiff’s expert also said that carriers often shut down on claims of fraud when they discover that service they contracted to provide is not going to be profitable. Judge Waldman found that the case was not yet ready for the courts since it entails issues that ought to be decided first by the FCC. “To determine conscientiously whether plaintiff’s claims are inconsistent with the tariff and pre-empted, the court would have to construe the tariff in view of common industry practice and the understanding of the agency in approving it,” Waldman wrote. If “fraud” is a “term of art,” Waldman said, “then it should be uniformly so applied.” Likewise, Waldman found that if the term “deems” is meant to “confer absolute unfettered discretion,” Audiotext’s claim against MCI would likely be preempted by the tariff. But Audiotext would be allowed to proceed with its suit, Waldman said, if the term “deems” instead “imports some factual basis or exercise of considered judgment.” As a result, Waldman found that the case should first be submitted to the FCC to allow the agency to issue a ruling on the meaning of the two terms. Waldman dismissed the suit without prejudice, but said the FCC’s decision may resolve the entire dispute. In doing so, Waldman said he was employing the doctrine of primary jurisdiction, which “creates a working relationship between the courts and administrative agencies.” The doctrine, Waldman said, “is applicable to any claim which, however framed, calls into question the fairness or reasonableness of a practice referenced in a tariff or that requires interpretation of a tariff.” While there is “no fixed formula” for applying the doctrine, Waldman found that courts routinely consider factors such as “whether the question presented is within the conventional experience of judges or involves technical or policy considerations within the agency’s particular field of expertise” and “whether the question is particularly within the agency’s discretion.” Anther factor, he said, is whether there would be “substantial risk of inconsistent rulings” if the issue were decided by the courts. All of those factors, he said, pointed toward referring Audiotext’s case to the FCC. Waldman found that the question of whether there is a “commonly understood meaning of fraud in connection with telephone traffic” is “particularly within the discretion and expertise of the FCC.” Likewise, he found that the FCC should go first in announcing an interpretation of the term “deems” in the tariff. “Whether the right of a carrier to block any line it ‘deems’ to be used fraudulently or unlawfully is unbridled or implies some limiting standard, and if so what standards, requires a construction and application of the tariff in a manner fairly requiring consistency. This is something particularly within the discretion of the FCC and there is substantial risk of inconsistent rulings if each of numerous courts were to determine the meaning and application of the term as used in the same tariffs,” Waldman wrote.

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