Argument Analysis: Global Crossing v. Metrophones on 10/10/06

The following analysis is by Tobias Zimmerman of Akin Gump [Disclosure: Tobias was co-counsel to the defendant in a case presenting the same question before the D.C. Circuit.]. Tobias also wrote about this case in advance of its oral argument here.

In Tuesday’s oral argument [transcript here], the Justices focused in on two questions relating to Section 201 of the Communications Act of 1934 (47 U.S.C. 201). The first is whether the FCC is entitled to Chevron deference in its determination that failure to pay the fees mandated by the payphone compensation plan amounts to an “unjust and unreasonable practice” within the meaning of Section 201. The second question is whether the FCC has “anything to say about whether that means there is a private right of action in federal court” — a result that seems to flow automatically from its determination that something is an “unjust practice” under Section 201.

During initial argument by Jeffrey Fisher on behalf of petitioner Global Crossing, the Court first explored whether failure to pay the regulation-mandated payphone fees amounted to an “unjust and unreasonable practice” within the meaning of Section 201. Justice Breyer appeared unconvinced by Global Crossing’s position that the obligation to pay certain amounts under Section 276 is materially different from a long-distance carrier’s obligation not to overcharge under the ratemaking sections of the Act. Justice Breyer pointed out that, when the FCC sets a rate that a carrier may charge its customers, those customers would have a right to go into federal court and seek damages for any overcharges. In his view, the difference between charging too much and paying too little is immaterial. Thus, according to Justice Breyer, holding that failure to pay the mandated fees is not an “unjust and unreasonable practice” under Section 201 would “overturn . . . about a hundred years of rate making law.” However, as elicited by Justice Scalia, ratemaking regulations are issued directly under Section 201, so it is inherent that rate gouging is a “practice” within the meaning of that section. Since the payphone fees are established under the Section 276 implementing regulations, failure to pay them is only an “unjust practice” within the meaning of Section 201 because the FCC says so.

Global Crossing also distinguished a typical ratemaking case from the payphone fees at issue here by pointing out that the PSPs are not “customers” of the long-distance carriers (the IXCs). According to Mr. Fisher, the FCC has never had authority over the relationship between a carrier and its suppliers. This characterization of the PSP-IXC relationship neatly dovetailed into an area that was first raised by Justice Souter: just what is the actual benefit conferred on the IXCs by a caller’s use of a PSP’s phone? Justice Souter appeared predisposed to consider the IXC a direct beneficiary of the PSPs provision of payphone service to a caller. From this point, Justice Souter appeared inclined to support the PSPs’ position that it is inherently “unjust” for the IXCs to enjoy the benefit provided by the PSPs without paying for it.

Global Crossing argued, however, that it is the caller that is benefiting from the PSP’s payphone — and that when the FCC engaged in its rulemaking under Section 276, it primarily focused on the mechanism by which payment would be funneled from callers to the PSPs in light of the Congressional prohibition on requiring callers to deposit a coin when making a dial-around call. The FCC ultimately choose the IXCs as the party responsible for collecting and passing on the fee, but the $0.24 per call fee established by the FCC (and upheld by the D.C. Circuit) was calculated based on the economic benefit conferred on the caller — not the IXCs. Thus, reasons Global Crossing, it is not inherently “unjust” for the IXCs to fail to pay what they would not “owe” absent the FCC’s regulatory decision to make them the collecting party. According to Global Crossing, had the FCC set out to compute the economic benefit conferred directly on the IXCs by the PSPs, the fee would have been much lower, if not zero; and, Mr. Fisher noted, the rulemaking process would also have been “very different” from what actually occurred. Only in that context, in which the fee captures a benefit conveyed upon the IXC itself, would failure to pay become inherently “unjust.” Because the IXCs’ obligation to the PSPs is solely a creature of regulatory convenience, Global Crossing contends that the only remedy available to the PSPs should be an administrative action brought before the FCC.

Roy Englert, arguing on behalf of Metrophones, sought to bolster the argument that a failure to pay a regulation-mandated fee is the same as overcharging in the face of a regulation-limited fee. Justice Scalia, however, seemed less than convinced, returning again to the point made by Global Crossing that the IXCs do not actually furnish any service directly to the PSPs. Justice Scalia (and, to some extent, the Chief Justice), evinced doubts as to whether Section 276 and the implementing regulations are the type of regulations that relate to “justness and reasonableness.”

The second, related, question that the Court — and the Chief Justice in particular — seemed interested in exploring is whether an agency can create a private right of action in federal court merely by declaring something an “unjust and unreasonable practice.” Chief Justice Roberts appeared very skeptical about whether the FCC was owed any deference on a decision that has little practical effect beyond giving the PSPs the right to go to federal court. Responding to Metrophones’ contention that the FCC’s determination that a failure to pay is “unjust” within the meaning of Section 201, and therefore allows a cause of action under Sections 206 and 207, the Chief Justice remarked, “I don’t regard it as particularly helpful that the FCC opines on what the consequences of its determination that something is unjust or unreasonable under the statute are, with respect to a private right of action.” When Mr. Englert started to respond, he was cut off by Justice Scalia, who stated more succinctly that “it is none of [the FCC’s] business” whether a party has a cause of action in federal court.

This second question dominated the questioning of James Feldman, arguing for the United States as amicus on behalf of the PSPs. Mr. Feldman argued that the FCC has been granted deference “for a hundred years [on] its determination[s] of what is an unjust and unreasonable practice.” “But,” Chief Justice Roberts rejoined, “it’s never gotten deference, at least I guess from this Court, on whether or not there is or is not a . . . [private] right [of action in federal court] to enforce its regulations.” Agreeing, the United States asserted that the FCC is not claiming, here, to have made any determination as to whether such a right of action exists — that it has only declared what is “unjust” within the meaning of Section 201. Justice Stevens then clarified the United States’ position that the private right of action may be an automatic consequence of the FCC’s determination that the failure to pay is an “unjust and unreasonable practice,” but that does not change the Chevron calculus with respect to the agency’s determination.

Mr. Feldman also sought to justify why the FCC was entitled to deference on the first question, pointing out that by going through the entire rulemaking process to determine how the PSPs might receive the “fair compensation” mandated by Congress, it is a natural extension of that process, and only a small additional step, to determine that it is “unfair” to fail to pay what the agency has already determined to be “fair.”

In rebuttal, Mr. Fisher returned to the point that these questions should be examined in the context of the original rulemaking that established the fees. The IXCs, Mr. Fisher said, have no dispute with the amount that the FCC determined the PSPs are entitled to as “fair compensation.” Rather, Mr. Fisher said, the IXCs depart only from the FCC’s determination that it is an unfair and unjust practice by the IXCs to pay that rate when, in the context of the rulemaking that occurred, it is ultimately the caller that owes the money.