CallerID4u, Inc. v. MCI Communications Services Inc.
Opinion
OPINION
Under the Communications Act of 1934 and Federal Communications Commission (FCC) rules, CallerID4u was required to either file' a valid tariff setting- rates for local telecommunications services or enter into a negotiated agreement regarding compensation for. services, rendered.
See
I
In order to provide the context necessary to address CallerID4u’s arguments, we begin by reviewing the relevant regulatory history and legal framework.
A
The Communications Act of 1934 (the Communications Act),
The wire communications provisions of the Communications Act “authorized the [FCC] to regulate the rates charged for communication services to ensure that they were reasonable and nondiscriminatory.”
MCI Telecomms. Corp. v. Am. Tel. & Tel. Co.,
Section 203 of the Communications Act requires most common carriers engaged in the provision of telecommunications services to set the rates and terms of their interstate telecommunications services by filing schedules or “tariffs” with the FCC.
See
B
It has long been established that the tariff requirement of § 203 preempts state law. Because § 203 was modeled after similar provisions 1 of the Interstate Commerce Act (ICA), “and share[s] its goal of preventing unreasonable and discriminatory charges,” the Supreme Court concluded that “the century-old ‘filed rate doctrine’ associated with the ICA tariff provisions applies to the Communications Act as well.’’
Am. Tel. & Tel. Co. v. Cent. Office Tel., Inc.,
When the filed rate doctrine applies, it generally precludes a regulated party from obtaining any compensation under other principles of federal or state law that is different than the filed rate.
See Keogh v. Chicago & N.W. Ry. Co.,
The Supreme Court later applied the doctrine to preclude state courts from awarding damages under state law, where doing so would interfere with the exclusive rate-setting authority of federal adminis
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trative agencies. “In this application, the doctrine is not a rule of administrative law designed to ensure that federal- courts respect the decisions of federal administrative agencies, but a matter of enforcing the Supremacy Clause.”
Nantahala Power & Light Co. v. Thornburg,
The Supreme Court has consistently applied the filed rate doctrine to preclude the award of any rate other than the filed rate, everi where doing so has resulted in harsh consequences. In
Maislin Industries, U.S., Inc. v. Primary Steel, Inc.,
for example, the Supreme Court considered whether the bankruptcy trustee for a motor common carrier could collect undercharges for the difference between the rate the motor common carrier had negotiated with a shipper and the higher rate the motor common carrier had filed with the ICC.
In short, § 203 and the accompanying filed rate doctrine preempts state law claims that conflict with the rate-setting authority of the FCC. Courts have applied the filed rate doctrine strictly in order to ensure that Congress’s goal of uniformity and reasonableness in rates, ‘'which lies at ‘the heart of the common-carrier section of the Communications Act,”’ is not undermined.
Cent. Office Tel.,
C
We now turn to the history of the regulation of common carriers engaged in the provision of telecommunications services. Until the 1970s, AT&T and its subsidiaries maintained a virtual monopoly over interstate wire telephone services, including both long distance and local wire telephone services.
See MCI Telecomms. Corp.,
The LECs provide what is referred to as “switched access service[s]” to IXCs.
AT&T Corp. v. Alpine Commc’ns, LLC,
27 FCC Red. 11511, 11512 (2012). When a caller makes a long-distance call on-a land-line, the call is initiated on the local telephone lines of the LEC that provides local telephone services to the caller.
Beginning in the 1970s, new IXCs began entering the long-distance-market to compete with AT&T. But .because AT&T controlled the Bell Operating Companies, AT&T could freeze out competition by having its LECs charge higher prices to competing IXCs. See Access Charge Reform Price Cap Order, 12 FCC Red. at 15991. The federal government challenged these activities in an antitrust lawsuit against AT&T, which resulted in AT&T agreeing to divest itself of all twenty-two Bell Operating’ Companies. Id. The, former Bell LECs are known as Incumbent LECs, or ILECs. Id.
Although the divestiture ended AT&T’s anticompetitive control over the ILECs, the ILECs themselves had few competitors, and could use their local monopoly power to charge the IXCs unreasonable and discriminatory rates.
See id.
To avoid
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this problem, the FCC began regulating LECs’ switched access service rates and required all LECs to file tariffs setting their rates.
3
See, e.g., MTS & WATS Mkt. Structure,
In the early 1980s, in light of increased competition, the FCC began experimenting with deregulation of those IXCs and LECs deemed to be nondominant.
See MCI Telecomms. Corp.,
In 1994, the Supreme Court struck down the FCC’s experiments in detariff-ing, concluding that § 203 of the Communications Act “establishes a rate-regulation, filed-tariff system for common-carrier communications, and the [FCC’s] desire ‘to “increase competition” cannot provide [it] authority to alter the well-established statutory filed rate requirements.’ ”
MCI Telecomms. Corp.,
In response to the Supreme Court’s ruling, Congress passed the Telecommunications Act of 1996 (the 1996 Act), Pub. L. No. 104-104,
D
After the 1996 Act took effect, the FCC promptly began exercising its new forbearance authority. As a first step, it imposed mandatory detariffing on all non-dominant IXCs (i.e., IXCs other than AT&T) and prohibited them from filing tariffs.
See Policy and Rules Concerning the Interstate, Interexchange Marketplace,
11 FCC Red. 20730, 20732-33 (1996)
(“IXC Detariffing
Order”). In other words, the FCC “chose to replace the rate filing mechanism with a market-based mechanism,” for all nondominant IXCs, creating a “deregulated and competitive marketplace.”
Ting,
We subsequently agreed with the FCC’s analysis.
See Ting,
E
The FCC next considered whether and how to deregulate the CLECs. Although CLECs were required to file tariffs setting the-rates of their interstate switched access services, the FCC had decided that it did not need to modify or regulate the rates the CLECs were charging at the time, though the FCC “would be sensitive to indications that the terminating access rates of CLECs are unreasonable, and would revisit the issue if necessary.”
Hperion Telecomms., Inc. Petition Requesting Forbearance,
The FCC declined to impose mandatory detariffing on CLECs. Instead, it instituted a permissive detariffing regime for CLECs, making CLECs subject to the tariff-filing requirement in § 203 unless they entered into negotiated agreements with IXCs.
See
After several years of experience with this new permissive detariffing policy, the FCC determined that some CLECs were taking advantage of the system by filing tariffs setting unreasonably high switched access rates that were “subject neither to negotiation nor to regulation designed to ensure their reasonableness.”
Access Reform Order,
16 FCC Rcd. at 9924-25. Because callers and call recipients were able to choose their own LECs to initiate and terminate their calls, the IXCs had to pay whatever rate was set by the CLECs in their tariffs in order to provide phone service to their customers. The CLECs could therefore impose rates far higher than the ILECs’ rates (which were regulated by the FCC) with no risk that these high rates would drive away their individual customers.
See Developing a Unified Intercarrier Comp. Regime,
In response to this regulatory arbitrage opportunity, the FCC issued the Access Reform Order in 2001, revising its CLEC tariffing system and conducting a new for
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bearance analysis.
Second, the FCC revised its decision in the Hyperion Order. Rather than give CLECs free rein to choose whether to file tariffs, the FCC decided to exercise its forbearance authority “only for those CLEC interstate access services for which the aggregate charges exceed our benchmark” by requiring CLECs that sought to charge rates above the benchmark to negotiate agreements with IXCs. Id. at 9957. As a result of the Access Reform Order, there are “two means by which a CLEC can provide an IXC with, and charge for, interstate access services.” AT&T Servs. Inc. v. Great Lakes Comnet. Inc., 30 FCC Red. 2586, 2588 (2015). “First, a CLEC may tariff interstate access charges if its rates are no higher than the rates charged for such services by the competing ILEC.” Id. “Second, as an alternative to tariffing, a CLEC may negotiate and enter into an agreement with an IXC to charge rates higher than those permitted under the benchmark rule.” Id. at 2589. Under this new regime, CLECs could charge rates exceeding the benchmark only if the market conditions so allowed.
The FCC applied its 2001 Access Reform Order in two adjudicatory decisions which further clarified the scope of the FCC’s order.
See AT&T Corp. v. All Am. Tel. Co.,
The FCC repeated this rule at the damages phase of the
All American II
pro
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ceedings. The CLECs argued that AT&T had received “in excess of $11 million worth of terminating switched access” services and therefore would be unjustly enriched if it could also collect damages from the CLECs.
All American II Damages,
In sum, under the current FCC orders, CLECs are subject to § 203 of the Communications Act’s tariff-filing requirements and must file tariffs with rates at or below the benchmark, unless they negotiate an agreement with an IXC.
See Access Reform Order,
II
We now turn to the facts of this case. CallerID4u is a CLEC that provided specialized local telephone services to telemarketing companies. 7 When individuals phoned in long-distance “do not call” requests 8 to CallerID4u’s telemarketing customers, CallerID4u picked up the calls from the individuals’ IXCs and delivered the calls to the telemarketing companies. Beginning in April 2012, CallerID4u provided this switched access service for multiple long-distance “do not call” requests that were carried by AT&T and Verizon. CallerID4u did not negotiate an agreement with these IXCs and did not have a filed tariff in effect until September 28, 2012.
In April 2014, CallerID4u filed complaints against AT&T and Verizon in Washington state court, alleging that it was entitled to compensation at the rate set in its federal tariff for the periods both before and after its tariff went into effect
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on September 28, 2012. In the alternative, CallerID4u claimed that it was entitled to quantum meruit and unjust enrichment damages pursuant to Washington law, as well as to damages for unfair and deceptive practices in violation of the Washington Consumer Protection Act (WCPA),
After removing the cases to federal court, AT&T and Verizon filed separate motions to dismiss.
See
Fed. R. Civ. Proc. 12(b)(6). In November 2014, the district court dismissed with prejudice CallerID4u’s federal tariff claims for the period before CallerID4u’s tariff went into effect. It also dismissed with prejudice all of Cal-lerID4u’s alternative state law claims as barred by § 203 of the Communications Act and the filed rate doctrine. The district court dismissed CallerID4u’s WCPA claims on the additional ground that they were barred by an express statutory exemption.
See
The district court thereafter entered judgment in favor of AT&T and Verizon. CallerID4u timely filed this consolidated appeal, challenging only the dismissal of its alternative state law claims.
III
We have jurisdiction pursuant to
When considering whether a federal statute preempts state law, we may look to the pronouncements of the federal agency that administers the statute for guidance.
See Wyeth v. Levine,
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We are limited in evaluating the FOC’s construction of the Communications Act by the Hobbs Act,
IV
On appeal, CallerID4u argues that the district court erred in dismissing its state law claims of quantum meruit and unjust enrichment. According to Caller-ID4u, it provided detariffed services to AT&T ahd Verizon and therefore can obtain compensation under state law principles even in the absence of a valid tariff or negotiated agreement.
A
We first consider CallerID4u’s contention that it is permissively detariffed under the Hyperion Order, and therefore not subject to the requirement in the Access Reform Order that it negotiate an agreement or file a tariff under § 203. Caller-ID4u’s arguments proceeds in several-steps. First, CallerID4u contends that the Access Reform Order did not overrule the Hyperion Order, and that a CLEC therefore need not negotiate an agreement or file a tariff under § 203, so long as it does not charge rates above the benchmark rate because it is permissively detariffed. Next, CallerID4u argues that it complied with the Hyperion Order, because it did not charge rates above the benchmark rate, but rather intended to charge rates at or below the benchmark (as demonstrated by its September 28, 2012 tariff). Finally, Cal-lerID4u contends that because it was' permissively detariffed under the Hyperion Order, it can bring claims of quantum me-ruit and unjust enrichment against its customers, despite its failure to negotiate an agreement or file a tariff.
This argument errs at the threshold, because the FCC’s Access Reform Order revised the Hyperion‘Order by'requiring CLECs to file tariffs at or below the benchmark rate unless they entered into a negotiated agreement with an IXC.
Access Reform Order,
16 FCC Red. at 9925. The FCC has repeatedly reaffirmed that under the Access Reform Order, a CLEC must file a tariff pursuant to § 203 to collect switched access services unless it has a negotiated agreement with its customer.
See, e.g., Great Lakes;
B
We next consider CallerID4u’s argument that it is entitled to recover state common law remedies because it is operating in a detariffed regime in which the
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filed rate doctrine is no longer applicable. In making this argument, CallerID4u relies on our decision in
Ting,
in which we held that § 203 and the filed rate doctrine did not preempt state law claims made by the completely detariffed IXCs.
Ting,
We reject this argument because Caller-ID4u misunderstands the nature of the environment in which it. is operating pursuant to the FCC’s Access Reform Order. As explained above, a CLEC remains subject to § 203 and the filed rate doctrine unless it negotiates an agreement.
See Great Lakes,
CallerID4u argues that because the FCC has established a-permissive de-tariffing environment, it should not be precluded from bringing a state law action against the IXCs in cases where it neglected to file a tariff. We disagree. Allowing carriers to seek compensation through state law equitable principles would interfere with Congress’s goals whether or not the carrier neglected to file a tariff. First, CLECs that do not negotiate contracts are subject to § 203 and the FCC’s requirement that they file tariffs charging no more than the benchmark rate. If CLECs that failed to negotiate a contract could bring legal actions under state law, CLECs could receive different rates either because different state equitable principles applied or because different courts weighed the equities differently, thus defeating Congress’s uniformity goals. As the Supreme Court reasoned in
Keogh,
in order to uphold Congress’s purpose to ensure uniform treatment of carriers, the legal rate should not be “varied or enlarged by eithér contract or tort of the. carrier,”
Keogh,
CallerID4u argues that awarding damages under state law would not interfere with the FCC’s exclusive rate-setting authority here because the FCC already concluded in the Access Reform Order that rates at or -below the benchmark will be presumed just 'and reasonable, and a state court could award that benchmark amount. CallerID4u’s argument is unavailing. The benchmark serves as a cap, but does not represent the reasonable rate in all circumstances. For CLECs engaged in access stimulation, for example, the FCC has deemed the benchmark rate to be unreasonably high, and has strictly limited the rates that these CLECs can charge.
See
In
Marcus v. AT&T Corp.,
the Second Circuit considered a similar argument. There, the appellants argued that allowing a court to award damages despite the filed rate doctrine “would not amount to judicial rate-making” because appellants sought damages in an amount that the FCC had already determined was reasonable in ap
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proving a competitor’s tariff.
Marcus v. AT&T Corp.,
In addition, allowing CallerID4u to bring state law claims would “discourage conduct that federal legislation specifically seeks to encourage” under the 1996 Act.
City of Morgan City v. S. La. Elec. Co-op. Ass’n,
The Tenth Circuit reached a similar conclusion in an analogous case.
See Union Tel. Co. v. Qwest Corp.,
We also find support for our conclusion in the FCC’s decisions in this area, where the FCC has expressed its view on the role that state law equitable claims can play under the current CLEC regulatory regime. Although the FCC lacks the authority to consider the merits of state law claims,
see All Am. Tel. Co.,
We agree with the reasoning of both the Tenth Circuit in Union Telephone and the FCC in All American II and conclude that the preemptive effect of the filed rate doctrine precludes CallerID4u from recovering damages under a theory of unjust enrichment or quantum meruit. 13
We likewise reject CallerID4u’s claims that it is entitled to state law remedies for the period after CallerID4u’s tariff went into effect on September 28, 2012 as barred by the filed rate doctrine. Caller-ID4u acknowledges that it filed a tariff with the FCC, but argues that it pleaded its state law claims as “alternative^” to its federal tariff claims in the event that a court were to conclude that its tariff is invalid (e.g., if it determined that Caller-ID4u was engaged in access stimulation) or that it provided switched access services not covered by the terms of its tariff. Because CallerID4u voluntarily dismissed its federal tariff claims, the validity of its tariff is not before us.
V
As a secondary state law claim, CallerID4u argues that even if it is subject to the tariff-filing requirements of § 203(c), and therefore cannot raise state quasi-contract or equitable theories, it is nevertheless entitled to recover under the WCPA’s prohibition of “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”
In raising this argument, CallerID4u relies on our decision in
In re NOS Communications,
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NOS
does not help CallerID4u, however, because CallerID4u does not allege any unfair or deceptive act's. In order to prove “an unfair or deceptive act or practice” for purposes of the WCPA, a plaintiff must show “that the alleged act had the capacity to deceive a substantial portion of the public.”
Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.,
AFFIRMED.
. Section 203 applies to "common carriers, except connecting carriers.”
.
No carrier, unless otherwise provided by or under authority of this chapter, shall engage or participate in [interstate or foreign wire or radio communication] unless schedules have been filed and published in accordance with the provisions of this chapter and with the regulations made thereunder; and no carrier shall (1) charge, demand, collect, or receive a greater or less or different compensation for such communication, or for any service in connection therewith, between the points named in any such schedule than the charges specified in the schedule then in effect, or (2) refund or remit by any means or device any portion of the charges so specified, or (3) extend to any person any privileges or facilities in such communication, or employ or enforce any classifications, regulations, or practices affecting such charges, except as specified in such schedule.
. The source of the FCC’s authority to require LECs to file tariffs is not entirely clear.
See Access Reform Order,
16 FCC Red. at 9956 n.160. In
Lincoln Telephone & Telegraph Co. v. FCC,
.
Notwithstanding section 332(c)(1)(A) of this title, the Commission shall forbear from applying any regulation or any provision of this chapter to a telecommunications carrier or telecommunications service, or class of telecommunications carriers or telecommunications services, in any or some of its or their geographic markets, if the Commission determines that—
(1)enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;
(2) enforcement of such regulation or provision is not necessary for the protection of consumers; and
(3) forbearance from applying such provision or regulation is consistent with the public interest.
. There is a circuit split on the question whether the Communications Act preempts state law claims in a completely detariffed environment.
See, e.g., Dreamscape Design, Inc. v. Affinity Network, Inc.,
. "Access stimulation” is a practice in which CLECs enter into agreements with providers of high call volume operations, such as chat line operators, to increase the volume of switched access services that they provide to IXCs.
See All American II,
28 FCC Red. at 3480-84;
see also
. While this appeal was pending, CallerID4u ceased operations as a CLEC and no longer provides switched access services.
.
See
. The WCPA provides: "Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”
. CallerID4u also claimed conversion, breach of contract, and constructive trust, but waived these claims on appeal,
. Section 19.86.170 of the Revised Code of Washington states in pertinent part that:
Nothing in this chapter shall apply to actions or transactions otherwise permitted, prohibited or regulated under laws administered by the insurance commissioner of this state, the Washington utilities and transportation commission, the federal power commission or actions or transactions permitted by any other regulatory body or officer acting under statutory authority of this state or the United States.
, In light of the FCC’s clear statement in
All American II
that state law equitable claims would interfere with the CLEC regulatory scheme,
All American II Damages,
. Although the Eighth Circuit concluded that a carrier could be paid the contract rate for its fully completed services, even after a new judicial ruling clarified that the carrier was subject to the filed rate doctrine,
see Ets-Hokin & Galvan, Inc. v. Maas Transp., Inc.,
. We do not reach the district court's alternative holding that the WCPA’s statutory exemption codified at § 19.86.170 of the Revised Code of Washington barred Caller-ID4u’s WCPA claims against AT&T and Verizon.
Reference
- Full Case Name
- CALLERID4U, INC., Plaintiff-Appellant, v. MCI COMMUNICATIONS SERVICES INC., Dba Verizon Business Services, Defendant-Appellee; CallerID4u, Inc., Plaintiff-Appellant, v. Bellsouth Long Distance, Inc., Dba AT&T Long Distance Service, Defendant, and AT&T Corp., Defendant-Appellee
- Cited By
- 12 cases
- Status
- Published