691 F. App'x 466
9th Cir.2017Background
- NCC and Sprint disputed rights under their 2002 Settlement and Switched Access Service Agreement governing switched access/local exchange service.
- The Agreement incorporated the Communications Act/FCC definitions but also specified that California law governs substantive interpretation and enforcement.
- NCC terminated calls only to HFT; the district court found HFT was not a bona fide local exchange subscriber and that NCC and HFT staged a sham carrier-customer relationship.
- The district court found NCC produced false documents and discovery responses to create the appearance it provided local exchange service.
- District court held NCC breached the Agreement; Sprint’s counterclaim succeeded on the merits but the court concluded Sprint had no recoverable damages within the applicable statute of limitations.
- On appeal, the Ninth Circuit affirmed the merits finding (NCC did not provide local exchange service) but reversed the statute-of-limitations ruling and remanded to apply California’s limitations period measured from the filing of the complaint.
Issues
| Issue | Plaintiff's Argument (NCC) | Defendant's Argument (Sprint) | Held |
|---|---|---|---|
| Did NCC provide "local exchange service" under the Agreement? | NCC claimed its arrangement with HFT satisfied the Agreement’s local exchange requirement. | Sprint argued HFT was not a bona fide subscriber and NCC’s arrangement was a sham. | Held for Sprint: factual findings that HFT was not a bona fide subscriber and that NCC fabricated documents were not clearly erroneous; NCC did not provide local exchange service. |
| How should the Agreement be interpreted—federal Communications Act definitions or state law? | NCC relied on Agreement language incorporating the Communications Act. | Sprint relied on the same but parties also specified California law for substantive enforcement. | Held: Court may use Communications Act/FCC definitions to define terms, but state law governs substantive interpretation/enforcement per contract. |
| Which statute of limitations applies to Sprint’s counterclaim: federal two-year or California four-year? | NCC argued for the Communications Act’s two-year period (as the district court applied). | Sprint argued California’s four-year limitations period applies because the Agreement designates California law for enforcement and claims arose under state law. | Held for Sprint: apply California four-year statute of limitations. |
| When does the limitations period for a compulsory counterclaim run: from complaint filing or defendant’s answer? | (NCC did not contest) implied district court measured from Sprint’s answer. | Sprint argued the filing of the complaint by NCC tolls/suspends the period for compulsory counterclaims; limitations should be measured from complaint filing. | Held for Sprint: limitations period should be calculated from the date the complaint was filed; remanded to recalculate. |
Key Cases Cited
- United States v. 1.377 Acres of Land, 352 F.3d 1259 (9th Cir. 2003) (standard of review for contract interpretation and when extrinsic evidence invokes different review standards)
- In re Tamen, 22 F.3d 199 (9th Cir. 1994) (review standard for factual findings underlying contract interpretation)
- Burlington Indus. v. Milliken & Co., 690 F.2d 380 (4th Cir. 1982) (support for tolling/suspension of statute of limitations for compulsory counterclaims upon plaintiff’s filing)
- Clem v. Lomeli, 566 F.3d 1177 (9th Cir. 2009) (procedural principle respecting appellate correction of district court error when not contested)
- Trindade v. Superior Court, 106 Cal. Rptr. 48 (Ct. App. 1973) (California authority recognizing tolling of limitations for compulsory counterclaims upon commencement of plaintiff’s action)