1st Circuit Upholds Verizon Victory over Global Naps

Competitive local exchange carrier Global Naps owes Verizon nearly $58 million in access charges under a 2002 order by Massachusetts, the 1st U.S. Circuit Court of Appeals in Boston ruled Thursday. It upheld a decision by a Massachusetts U.S. District Court. The sum is for services provided between 2003 and 2006. Verizon also had prevailed in the lower court on counterclaims for the debt against Global Naps President Frank Gangi and affiliates of the company. The appeals court also affirmed that decision.

In 2002 the Massachusetts Department of Telecommunications and Energy ruled that Global Naps had to pay Verizon long-distance access charges whenever ISP traffic actually was routed outside a caller’s local area, regardless of the phone number the Internet user dialed. Global Naps fought that ruling, then boycotted the charges. Verizon ended service to Global in 2006.

Thursday’s ruling answered Global Naps’ fourth try at fighting the state order, the three-judge panel noted. “Global Naps has appealed here again on a number of arguments, which challenge federal jurisdiction, the liability finding, and the amount of the damages assessed,” the court said in its decision. The judges rejected Global Naps’ argument that it can’t be liable for any charges under the state order because a 2008 FCC order preempts the 2002 state decision. “The 2008 order is not materially different on this preemption issue from an earlier order, which we held did not preempt the DTE,” the judges wrote. The court also rejected Global Naps’ challenges to judgments against it on two of Verizon’s counterclaims.

Verizon’s counterclaims against Gangi and his company’s affiliates -- Global Naps Networks, Global Naps Realty, Global Naps New Hampshire and holding company Ferrous Miner Holdings -- “are sufficiently related to the underlying litigation” to merit federal jurisdiction, the judges said. They also rejected Global Naps’ argument that Verizon should have asked the Massachusetts agency to enforce its order before suing in federal court because Global waived this exhaustion argument.

The appeals court said the district court properly calculated the damages Global Naps owes Verizon for failing to pay access charges under the state order. The district court did not abuse its discretion by granting default judgment on the claim to pierce Global Naps’ corporate veil as a discovery sanction against Global, Gangi and three of the affiliates, the judges said. “Evidence these defendants committed misconduct and spoliation was compelling.”