The following entry is by Tobias Zimmerman, an attorney at Akin Gump who handles a variety of Telecom-related litigation. When the case was argued, he previewed it for us here and then analyzed the argument here.
On Tuesday the Court held, 7-2, that payphone operators have a private right of action under Sections 206 and 207 of the Communications Act of 1934 (the Act) against a long distance carrier that has violated substantive regulations because the FCC has expressly declared a violation of those regulations to be an “unjust and unreasonable†practice within the meaning of Section 201(b). The majority opinion was authored by Justice Breyer; Justices Scalia and Thomas each filed dissenting opinions.
The background facts in Global Crossing Telecomms. v. Metrophones Telecomms., No. 05-705, are described in our pre- and post-argument summaries here and here. Briefly, as part of the sweeping Telecommunications Act of 1996, Congress enacted Section 276 of the Act, which directed the FCC to establish a mechanism that would ensure that payphone operators are compensated for 1-800 calling card, collect, and other non-coin calls (so-called “dial around†calls). Congress was silent as to who should actually be responsible for paying the payphone operator – it was the FCC that determined in the subsequent regulation that it the long distance carriers should collect fees from callers on behalf of the payphone operator.
Payphone operators like Respondent Metrophones brought actions in district courts around the country seeking to recover fees the carriers allegedly failed to pay. Initially, payphone operators alleged causes of action directly under Section 276, but several courts held that no private right of action exists under that statute. In 2003, the FCC declared, without significant discussion, that a carrier’s failure to pay dial around compensation is an “unjust and unreasonable practice†within the meaning of Section 201(b) of the Act. Under that section, “practices that are unjust and unreasonable†are declared to also be “unlawfulâ€; Section 206 establishes liability of a carrier for damages caused by an “unlawful†act, and Section 207 allows aggrieved parties to seek those damages in federal court. The district court held that a private cause of action existed based on the FCC’s determination, and the Ninth Circuit agreed. The Supreme Court affirmed.
The majority focuses on the history of the Communications Act, and its direct predecessor, the Interstate Commerce Act. According to the majority, administrative agencies have long had the power under those acts to declare rate-related actions by carriers to be unjust and unreasonable. Thus, according to the majority, the only question was whether the FCC’s determination (that a failure to pay is “unreasonableâ€) was, itself, “reasonable.†By judging the FCC’s determination without consideration of the actual effect – i.e., creating a private right of action for violations of the payphone compensation regulations – the majority did not discuss the implications of allowing the FCC to essentially create federal court jurisdiction by regulatory fiat.
Nearly a quarter of the majority’s opinion is dedicated to directly refuting the dissenting opinions. In the longer of the two dissents, Justice Scalia argues that the majority errs in equating past treatment of interpretative regulations with the substantive regulation at issue (the payphone compensation plan promulgated under Section 276). According to Scalia, a violation of an interpretative decision by the Commission is tantamount to a violation of the Act itself, and therefore allows for a private right of action directly under Section 206 and 207, without resort to Section 201(b). According to Scalia, substantive regulations have never been enforced through private actions absent an express grant by Congress. Scalia considers, but quickly dismisses as “utterly implausible,†the proposition that failure to pay a debt created by regulatory fiat is inherently unjust and unreasonable. The correct question, he posits, is “whether a practice that is not in and of itself unjust and unreasonable can be rendered such (and thus rendered in violation of the Act itself) because it violates a substantive regulation of the Commission.†According to Scalia, answering this question in the affirmative will lead down a slippery slope until, ultimately, anyone aggrieved by a violation of an FCC regulation will be allowed to sue in district court.
In his separate dissent, Justice Thomas parses the language of Section 201 closely, questioning whether a failure to pay payphone compensation is even a “practice†within the meaning of that section. Thomas concludes that Section 201(b) is meant to apply only to relationships between carriers and their customers – not between carriers and upstream providers seeking to share rates. Thus, according to Thomas, whether or not they were “unjust and unreasonable,†the actions of the long distance carriers still do not come within Section 201(b), and therefore do not lead to a cause of action under Sections 206 and 207.
However, whether the payphone providers have a private cause of action under Sections 206 and 207 is only the first of many hurdles that will have to be overcome in order for them to collect. One of the significant issues that is likely to arise is whether there is any liability on the part of the local exchange carriers (i.e., the Bell companies). The mechanism for tracking dial around calls is complex, and requires cooperation by not only the payphone operator and the long distance company, but also by the local exchange carriers at both ends of the call. Thus, there are a number of ways in which a dial around call might not have been tracked for compensation, or that compensation may have been paid in error – and only some of the factors are within the direct control of the long distance carriers. It will therefore be no easy burden for the payphone operators to prove that certain calls, out of literally billions and billions of calls during the relevant time periods, went unpaid. The payphone operators will also have to establish that any failure to pay can fairly be blamed on the specific long distance carrier(s) made party to a suit, and that the tracking problems have not also led to overpayments by the long distance carriers – overpayments that would offset any missed dial around compensation that can actually be established. Thus, while the preliminary subject matter jurisdiction issue has now been resolved, the ultimate outcome of these suits remains undecided.
CLICK HERE FOR FULL VERSION OF THIS STORY