Appealed from: United States Court of Appeals, Ninth Circuit (Sept. 8, 2005)
Oral argument: Oct. 10, 2006
DEFERENCE, PAYPHONE SERVICE PROVIDERS, FEDERAL COMMUNICATIONS COMMISSION, COMMUNICATIONS ACT
Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around” numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these “dial-around” calls. Metrophones Telecommunications, Inc., a payphone service provider, argues that Global Crossing Telecommunications, Inc., a long distance provider, has violated these regulations by failing to compensate Metrophones for such calls. Metrophones argues that under Section 201(b) of the Communications Act, Global Crossing Telecommunications’ violation of the Federal Communications Commission regulation constitutes an unjust and unreasonable practice, making it unlawful and actionable in federal court. Both the District Court and Ninth Circuit Court of Appeals held that a private cause of action does exist under Section 201(b). The Supreme Court’s decision in this case will define the scope of Section 201(b) of the Communications Act as well as give insight into the amount of deference to agency pronouncements that the court deems fit. It will also either provide a long awaited opportunity for payphone service providers to assert their rights in this area or leave them looking for another way to obtain compensation.
Whether 47 U.S.C. § 201(b) of the Communications Act of 1934 creates a private right of action for a provider of payphone services to sue a long distance carrier of alleged violations of the FCC’s regulations concerning compensation for coinless payphone calls.
Whether a payphone service provider can sue a long distance carrier in federal court when that carrier fails to pay compensation for dial-around calls made in violation of Federal Communications Commission regulations.
Metrophones Telecommunications, Inc. (“Metrophones”) is a payphone service provider (“PSP”). Global Crossing Telecommunications, Inc. (“Global Crossing”) is a long distance provider. The basis of the dispute is compensation Global Crossing is required by law to pay Metrophone for “dial around” calls from payphones.
When customers use a payphone, they must either insert money for a direct coin call or use a coinless method, often by dialing an access code or a subscriber 800 number such as those provided by major long distance companies. Sprint Corp. v. FCC, 315 F.3d 369, 371 (D.C. Cir. 2003). These coinless calls are often routed through multiple carriers and completed on the network of the carrier providing the access code or 800 number. Id. They are often called “dial-around” calls because the associated charges are paid directly to the third party provider of the access code or 800 number rather than to the owner of the payphone (in this case Metrophones) or its contracted long distance carrier. Id.
In 1990, Congress passed the Telephone Consumer Services Improvement Act (relevant portion codified at 47 U.S.C. § 226(c)) which prevented PSPs from blocking these dial-around calls but did not require that compensation be paid to the PSP. Metrophones Telecomm., Inc. v. Global Crossing Telecomm., Inc., 423 F.3d 1056, 1062 (9th Cir. 2005). Congress, in the Telecommunications Act of 1996, instructed the Federal Communications Commission (“FCC”) to promulgate rules requiring PSPs to be compensated for dial-around calls. Id. (Relevant portion codified at 47 U.S.C. § 276(b)). The FCC subsequently issued regulations requiring that the PSP be compensated by the carrier whose network completed the call. Id. Compensation is to be paid at a rate agreed upon by the parties or, in the absence of such an agreement, at a rate fixed by regulation. 47 C.F.R. § 64.1300 (2006).
Metrophones alleged that Global Crossing failed to provide compensation for approximately 130,000 calls that had been made from Metrophone payphones and completed on the Global Crossing network. Brief of Appellee Metrophones Telecomm., Inc. at 1, Metrophones Telecomm., Inc. v. Global Crossing Telecomm., Inc., 423 F.3d 1056 (9th 2005) (No. 04-35287). They argue that this constitutes a violation of 47 U.S.C. § 201, which requires a telecommunications common carrier to use “just and reasonable” practices, and that therefore they have a private right of action under 47 U.S.C. §§ 206-207, which creates liability to an injured party for such violations. See Brief for Respondent at 11. Global Crossing contends that no private right of action exists for a violation of § 201, arguing the court should apply Greene v. Sprint, in which the Ninth Circuit held that 47 U.S.C. § 276 did not create a private right of action.
The district court held in favor of Metrophones on this issue, and Global Crossing took an interlocutory appeal. In its decision, the Ninth Circuit cited FCC findings that a failure to compensate for dial-around calls constituted an unjust and unreasonable practice and created a private right of action. See Metrophones Telecomm., Inc. v. Global Crossing Telecomm., Inc., 423 F.3d 1056, 1064-65 (9th Cir. 2005). The Court of Appeals held that this finding was entitled to deference and therefore denied Global Crossing’s appeal. See id. at 1071. The issue of whether 47 U.S.C. § 201(b) creates a private right of action for a PSP to sue a long distance service provider for violations of FCC regulations concerning compensation for dial-around calls is now before the U.S. Supreme Court.
Relevant Sections of the Communications Act
The Communications Act, which encompasses the Telecommunications Act of 1996, contains several sections outlining rules for telecommunications companies to abide by and steps to be taken when such rules are broken. See Communications Act of 1934, 47 U.S.C. §§ 151–615(b) (2006). Section 201(b) requires common carriers to furnish service, stating that “all charges, practices, classifications, and regulations for and in connection with such service, shall be just and reasonable, and any such charge, practice, classification, or regulation that is unjust or unreasonable is declared to be unlawful.” 47 U.S.C. § 201 (2006). Section 206 of the Communications Act states that when a common carrier does, or permits to be done, any act, matter, or thing prohibited or declared to be unlawful it shall be liable to the person injured for the full amount of damages sustained. 47 U.S.C. § 206 (2006). Furthermore, Section 207 gives aggrieved parties the choice of filing a complaint with the FCC or bringing a private cause of action in district court. 47 U.S.C. § 207 (2006). Finally, a recent pronouncement by the FCC stated that “failure to pay [dial-around compensation] in accordance with the Commission’s payphone rules...constitutes...an unjust and unreasonable practice in violation of section 201(b) of the Act.” Metrophones Telecomm., Inc. v. Global Crossing Telecomm., Inc., 423 F.3d 1056, 1064–65 (9th Cir. 2005).
Metrophones contends that Global Crossing’s failure to pay long distance fees was an unjust and unreasonable practice falling under the province of Section 201(b). See Brief for Respondent at 11. They further argue that a violation of Section 201(b) is an act declared to be unlawful under Section 206, thus giving rise to a private cause of action. Id. Therefore, Metrophones contends that the violation of this provision provides them with a private cause of action in district court. Id. Global Crossing, however, argues that a long distance carrier’s failure to compensate a PSP violates the FCC regulation related to terms of compensation only, and does not violate Section 201(b) of the Communications Act. See Brief for Petitioner at 19–20.
Implications of Potential Outcomes
A regulation alone cannot give rise to a private cause of action. See Brief for Petitioner at 11–13. Instead, such a cause of action exists only where Congress expressly authorizes. See Id. If the Court finds in favor of Metrophones and holds that Section 201(b) encompasses a violation of an FCC regulation, the Court would be side stepping this rule and greatly expanding the scope Section 201(b). By defining “unjust and unreasonable” in terms of a violation of the FCC regulation concerning compensation to PSPs, other courts would then be free to define “unjust and unreasonable” in terms of violations of other FCC regulations. Thus, Courts will imply a private cause of action for regulations where Congress may not have intended.
In addition, a decision in Metrophones’ favor could have magnified consequences depending on the deference given to the FCC’s pronouncement. The Court, in Chevron U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984), stated that an agency has the authority to clarify ambiguities in a statute when Congress has given the agency jurisdiction to promulgate rules to carry out that statute. See Metrophones Telecomm. Inc., 423 F.3d at 1065–66. However, there is dispute as to when Chevron deference should be given to an agency’s pronouncement. Specifically, there is conflicting case law as to whether deference can be afforded when an agency’s pronouncement concerns remedies to, rather than the substance of, a statute, and there are also questions regarding the amount of evidence of an agency’s deliberations that is necessary. See Brief for Petitioner at 31–33; Brief for Respondent at 30–40. Future litigants will surely await clarification regarding when Chevron deference will be afforded.
Specifically, the Court’s classification of the FCC’s pronouncement as either a substantive definition or, as Global Crossing suggests, a “manufacture[d] cause of action,” will have significant impact. Brief for Petitioner at 32. If the FCC’s pronouncement is seen as a mere substantive clarification, agencies could then expect to be given the same deference in their own pronouncements related to causes of action. Or, if it is seen as a more independent creation and still given deference, agencies could likewise expect increased authority to clarify and expand upon statutes within their jurisdiction. Either way, affording Chevron deference to the FCC’s recent pronouncement could give agencies the ability to not only clarify the interpretation of a statute, but add to its definition as well.
On the other hand, however, a ruling in Global Crossing’s favor will have the consequence of seemingly preserving the status quo. Courts have neglected to find instead that a private cause of action exists in similar cases agency-created regulations, holding fast to the distinction between statutory provisions and regulations while paying particular attention to specific legislative intent. See Brief for Petitioner at 5 (stating that in APPC Services, Inc. v. Sprint Commc’n Co., 418 F.3d 1238 (D.C. Cir. 2005), and Greene v. Sprint Commc’n Co., 340 F.3d 1047 (9th Cir. 2003), each court held that no private right of action existed under specific sections of the Communication which discussed private actions for statutory remedies, made no mention of the same for regulations). By conceding Global Crossing’s arguments, the Supreme Court would continue to require Congress’s express approval of a private right of action and give deference to Congress’s intent or inferences thereof, over statements of regulatory agencies.
More broadly, however, a ruling in Global Crossing’s favor would leave PSPs with limited redress for dial-around calls, seriously depleting their revenue and jeopardizing their businesses. The FCC explained that without a damage remedy, the FCC can impose a penalty when long distance carriers do not compensate PSPs. However those funds will go to the U.S. Treasury, thus giving no help to PSPs. See Metrophones Telecomm. Inc., 423 F.3d at 1070 (quoting Brief for Federal Communications Commission as Amicus Curiae Supporting Appellee, Metrophones Telecomm., Inc. v. Global Crossing Telecomm., Inc., 423 F.3d 1056 (9th 2005) (No. 04-35287). The Ninth Circuit stated that eliminating private causes of action for PSPs remaining uncompensated for dial-around calls may leave PSPs with no means of compensation. Metrophones Telecomm. Inc., 423 F.3d at 1070. Eliminating a private right of action in federal court, therefore, may leave this regulation unenforced, and PSPs with significant financial difficulties.
It is clear that the Supreme Court’s decision looks to have important procedural and practical consequences no matter what the outcome. In addition, such a decision risks generating additional issues to be decided in the courts. For example, because courts have already eliminated a private cause of action under some sections of the Communication Act, PSPs may continue to enforce this regulation by looking for a private cause of action under different sections of the Communication Act—spending time and resources in the process. A decision in the Metrophones’ favor, on the other hand, will surely bring under scrutiny the precise definition of “unjust and unreasonable” as used in Section 201(b), followed by the issue of how much deference the FCC should be given in answering such a question. The importance of a seemingly administrative decision, therefore, is sure to send parties looking for even more answers.
The provision in question, 47 U.S.C. § 201, states in part that any practices regarding interstate or foreign communication services provided by common carriers must be just and reasonable in order to be legal. In another section, 47 U.S.C. § 276, Congress states that the FCC must promulgate regulations to ensure that carriers are fairly compensated for dial-around calls from payphones. The regulations authorized by Section 276 are codified at 47 C.F.R. § 64.1300. Finally, Section 206 of the Act says that anyone who does something made unlawful by the Act shall be liable to those who are harmed by the unlawful action, and Section 207 specifies that a person claiming to be damaged by such an action shall have the right to sue in federal court to recover for the damages.
The merits of the underlying dispute are not before the Court. Instead, Global Crossing is directly challenging whether Metrophones even has the right to sue to recover money which should have been paid in compensation for dial-around calls.
Global Crossing’s legal position depends first on its argument that a failure to compensate for dial-around calls is a violation of the regulations, but not of the statute itself. It supports this argument by pointing to Greene v. Sprint, which interpreted Section 276. In that case the Ninth Circuit held that a failure to provide compensation violated the regulations, but technically did not violate the statute itself since Section 276 merely authorizes the FCC to promulgate rules regarding payphone compensation, but does not say what those rules are. Global Crossing argues that if a failure to compensate does not violate Section 276, then such a failure certainly cannot violate Section 201 which is much less explicit about the need for such compensation. See Brief for Respondent at 19-27.
The distinction between a violation of a regulation and the violation of a statute is important because Global Crossing argues that under Sections 206–207 a private party can only sue for violations of the statute itself, not for violating regulations implementing the statute. See Brief for Respondent at 12–19. Since a failure to provide compensation is a violation of the regulations but not Section 201 in their view, Metrophones does not have the right to sue them. See Id. at 9. Global Crossing cites Supreme Court jurisprudence holding that when Congress makes something unlawful, private parties do not have a right of action—the right to sue—unless Congress intends to create such a remedy. It argues that Congress did not intend for Section 206–207 to authorize a private right of action for violations of regulations. See Id. at 11–12. It supports this position by citing other areas of the Act, such as Section 226, where Congress expressly included a private right of action for violations of both regulations and statutory provisions. See Id.at 13. Under customary rules of statutory interpretation, the omission of a phrase in one provision which is included in another provision indicates a deliberate decision on the part of Congress. See Id.
In response, Metrophones directly challenges the Greene decision and requests that the Court decline to endorse its reasoning. See Brief for Respondent at 27. It also argues that the failure to compensate for dial-around calls is a direct violation of Section 201 as interpreted by the FCC. They point to the rules promulgated by the FCC’s stating that a failure to provide such compensation constitutes an unjust practice under Section 201 and thus is an unlawful action. See Id. at 15. Since under Section 206–207 anyone who does anything made unlawful by the Act is liable to those hurt by such unlawful action and can be sued in federal court, Metrophones has the right to sue Global Crossing for their failure to provide compensation for dial-around calls as a violation of Section 201. See Id. at 16.
Metrophones further argues that the FCC’s interpretation is entitled to deference under Chevron. It argues that the statutory language of Section 201 is broad and ambiguous as to the meaning of “unjust”, “unreasonable”, and “practice” and thus, as the agency responsible for the subject matter to which the statute relates, the FCC is authorized to interpret those phrases. See Brief for Petitioner at 17–27. Finally, Metrophones argues that it is reasonable to consider a failure to provide compensation for dial-around calls an unfair practice. See Id. at 38. According to this argument, since the FCC’s statement is a reasonable interpretation of an ambiguous statutory provision regarding matter which the FCC is authorized to regulate, the 2003 Payphone Order thus fulfills the Chevron requirements and is entitled to deference.
Global Crossing disagrees that the FCC interpretation gives definition to the statute. They cite two reasons why the agency pronouncement is not entitled to deference. First, they argue that it allows the agency to determine whether a statute gives rise to a right of action, which under Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990) is a decision for the courts and thus outside the scope of an agency’s powers. Id. at 31. Therefore the FCC decision is not entitled to deference because it goes beyond what the agency is authorized to determine. Secondly, Global Crossing argues that the interpretation is not supported by sufficient explanation and reasoning, and therefore is not entitled to deference under the requirements set forth in SEC v. Chenery Corp., 318 U.S. 80 (1943). Id. at 33.
In response to the first argument, that the FCC is going beyond the scope of their authority in creating a private right of action, Metrophones points out that Sections 206–207 explicitly create a right of action. The question is not whether or not a private party can sue another for violations of Section 201 but whether or not failure to compensate for dial-around calls is such a violation. See Id. at 11. They argue that under the Chevron standard, which requires deference to an authorized agency’s reasonable interpretation of an ambiguous statute, the FCC’s interpretation should apply.
In response to the second argument, Metrophones first responds that the Chenery standard applies to direct review of agency determinations, not to litigation between private parties, and therefore should not be applied. See Brief for Respondent at 35. Even if the Chenery test does apply, Metrophones argues that the brevity of the FCC’s statement does not make it fail the reasonableness test. They argue that the principle on which the 2003 Payphone Order was based was so well established by the time of that statement that no additional support was needed. See Id. at 33–34. Finally, if the Court does require more extensive reasoning, they point to the amicus briefs that the FCC has filed in support of their case, which more fully elaborate the FCC position. See Id. at 35–37.
Global Crossing Telecommunications, Inc. v. Metrophones Telecommunications, Inc. is an important case to PSPs that are losing revenue due to the widespread use of dial-around calls. To decide this case, the Supreme Court must decide whether a violation of an FCC regulation is encompassed in the definition of Section 201(b). Many entities beyond PSPs will await this decision, as it could turn Section 201(b) into a “catch-all” provision, and expanding the availability of private causes of action. Regardless of the outcome, this case will surely add some clarity to the relationship between Congressional statutes and agency regulations.