Ting v. At&T

• Decision Date: 11 February 2003
• Docket Number: No. 02-15416.,02-15416.
• Parties: Darcy TING, individually and on behalf of all others similarly situated; Consumer Action, a non profit membership organization, both as private attorneys general, Plaintiffs-Appellees, v. AT&T, a New York corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1126

319 F.3d 1126

Darcy TING, individually and on behalf of all others similarly situated; Consumer Action, a non profit membership organization, both as private attorneys general, Plaintiffs-Appellees, v. AT&T, a New York corporation, Defendant-Appellant.

No. 02-15416.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 7, 2002.

Filed February 11, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David W. Carpenter, Chicago, IL, for the defendant-appellant.

F. Paul Bland, Jr., Washington, DC, James C. Sturdevant, Karen L. Hindin, The Sturdevant Law Firm P.C., San Francisco, California, for the plaintiffs-appellees.

Michelle R. Van Glederen, Deputy Attorney General (California), Los Angeles, CA, for amicus curiae Attorney General of the State of California; V. Scott Bailey, Assistant Attorney General (Maryland), Baltimore, MD, for amici curiae States and Commonwealths of Maryland, Alaska, Arizona, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Michigan, Minnesota, Missouri, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Puerto Rico, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, and Wisconsin; Deborah M. Zuckerman, Washington, DC, for amicus curiae American Association of Retired Persons, all urging affirmance.

Christopher R. Lipsett, Eric J. Mogilnicki, and Kirk D. Jensen, Wilmer, Cutler & Pickering, Washington, DC, for amici curiae American Financial Services Association and California Bankers Association, urging reversal.

Appeal from the United States District Court for the Northern District of California; Bernard Zimmerman, Magistrate Judge, Presiding. D.C. No. CV-01-2969-BZ.

Before: TASHIMA, THOMAS, and PAEZ, Circuit Judges.

OPINION

TASHIMA, Circuit Judge:

Darcy Ting, individually and on behalf of all others similarly situated, and Consumer Action, a non-profit membership organization, both as private attorneys general, brought suit against AT&T, alleging that AT&T's Consumer Services Agreement ("CSA") violates California's Consumer Legal Remedies Act and that state's Unfair Practices Act by barring customers from, among other things, pursuing claims against AT&T on a classwide basis. Finding the CSA unconscionable and in violation of California public policy, the district court¹ issued a permanent injunction against enforcement of sections 4 and 7 of the CSA. See Ting v. AT&T, 182 F.Supp.2d 902 (N.D.Cal.2002). AT&T appeals on the ground that the application of California's consumer protection laws is preempted by the Federal Communications Act and the Federal Arbitration Act. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm in part and reverse in part.

BACKGROUND

Congress enacted the Federal Communications Act ("Communications Act" or "1934 Act") in 1934. 48 Stat. 1064 (codified, as amended, at 47 U.S.C. § 151, et seq.). At the time, AT&T enjoyed a virtual monopoly over the nation's telephone service industry. The 1934 Act was intended to address the unique problems inherent in a monopolistic environment. It required telecommunications carriers to file with the Federal Communications Commission ("FCC" or "Commission") a list of tariffs, or "schedules," showing "all charges ... and ... the classifications, practices, and regulations affecting such charges." 47 U.S.C. § 203(a). The Communications Act prohibited carriers from "extend[ing] 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 a carrier's filed tariffs. 47 U.S.C. § 203(c). "The goal of these provisions [was] to ensure that all purchasers of communications services receive[d] the same federally regulated rates." ICOM Holding, Inc. v. MCI Worldcom, Inc., 238 F.3d 219, 221 (2d Cir.2001) (citing MCI Telecomms. Corp. v. AT&T Corp., 512 U.S. 218, 229-30, 114 S.Ct. 2223, 129 L.Ed.2d 182 (1994)).

To ensure that all service providers and their customers complied with the tariff, courts developed the "filed rate doctrine," which prohibited a regulated entity from charging rates for its services other than those specified in its duly filed tariff. AT&T v. Cent. Office Tel., Inc., 524 U.S. 214, 222, 118 S.Ct. 1956, 141 L.Ed.2d 222 (1998). Under this rule, rates filed with the FCC bound both "carriers and [customers] with the force of law." Lowden v. Simonds-Shields Lonsdale Grain Co., 306 U.S. 516, 520, 59 S.Ct. 612, 83 L.Ed. 953 (1939); Brown v. MCI WorldCom Network Servs., Inc., 277 F.3d 1166, 1170 (9th Cir. 2002). The rights and liabilities defined by the tariff could not be "varied or enlarged by either contract or tort of the carrier." Cent. Office, 524 U.S. at 227, 118 S.Ct. 1956 (quoting Keogh v. Chicago & Nw. Ry., 260 U.S. 156, 163, 43 S.Ct. 47, 67 L.Ed. 183 (1922)). Therefore, federal law preempted any state-law claim seeking to enforce a contractual provision that differed from a filed rate. ICOM Holding, 238 F.3d at 221.²

Because courts applying the filed rate doctrine presumed customers had knowledge of filed rates and, in turn, prohibited customers from relying on promises of any other charge, the filed rate doctrine, in practice, led to "quite unjust" results. Fax Telecommunicaciones, Inc. v. AT&T, 138 F.3d 479, 491 (2d Cir.1998); see also Maislin Indus., U.S., Inc., v. Primary Steel, Inc., 497 U.S. 116, 127, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990). "`[T]his rule is undeniably strict and it obviously may work hardship in some cases' but ... [strict liability] `embodies the policy which has been adopted by Congress in the regulation of interstate commerce in order to prevent unjust discrimination.'" Milne Truck Lines, Inc. v. Makita, Inc., 970 F.2d 564, 569 (9th Cir.1992) (quoting Louisville & Nashville R.R. v. Maxwell, 237 U.S. 94, 97, 35 S.Ct. 494, 59 L.Ed. 853 (1915)). Consequently, in applying the filed rate doctrine, courts universally precluded the application of equitable doctrines to vary the terms of the filed rate. See Cent. Office, 524 U.S. at 222, 118 S.Ct. 1956; Ill. Cent. Gulf R.R. v. Golden Triangle Wholesale Gas Co., 586 F.2d 588, 592 (5th Cir. 1978).

By the late 1970's, technological advances and increased competition had reduced the entry costs for AT&T's competitors in the telecommunications market, and some began to argue that the continuation of extensive tariff filing only imposed unnecessary costs on new entrants and facilitated collusive pricing. MCI, 512 U.S. at 220-21, 114 S.Ct. 2223. Starting in the early 1980's, the FCC tried to prohibit tariff-filing by non-dominant carriers (i.e., those other than AT&T) on the ground that "market forces and the administration of the complaint process" could guarantee reasonable rates without the lure of collusive pricing incentives inherent in the filed rate mechanism. Sixth Report and Order, Policy and Rules Concerning Rates for Competitive Common Carrier Services, 99 F.C.C.2d 1020, 1029 (1985). But the courts rejected "mandatory detariffing" as inconsistent with the terms of the Communications Act. See MCI Telecomms. Corp. v. FCC, 765 F.2d 1186, 1193 (D.C.Cir.1985) (holding that the Commission lacked statutory authority to prohibit the filing of tariffs). Then, in 1994, the Supreme Court held that because of the "enormous importance to the statutory scheme of the tariff-filing provision," the FCC's policy of "permissive detariffing" was not a valid "modification" under 47 U.S.C. § 203. MCI, 512 U.S. at 231, 114 S.Ct. 2223. As a result, following a 15 year effort to suspend the tariff-filing obligations for telecommunication carriers, the Commission was forced to wait for Congress to act.

The Telecommunications Act of 1996, Pub.L. No. 104-104, 100 Stat. 5, (codified as interspersed amendments to the Communications Act) ("1996 Act"), fundamentally altered the Communications Act's regulatory scheme. The 1996 Act effectively adopted the FCC's detariffing rationale. The purpose of the 1996 Act was "to provide for a pro-competitive, deregulatory national policy framework ... by opening all telecommunications markets to competition." H.R. Conf. Rep. No. 104-458, at 113 (1996), reprinted in 1996 U.S.C.C.A.N. (100 Stat. 5) 124. The 1996 Act directed the FCC to:

forbear from applying any regulation or any provision of this chapter 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.

47 U.S.C. § 160(a).

Finally armed with the requisite congressional authorization, the FCC promptly issued a Notice of Proposed Rulemaking on March 25, 1996, to "forbear from applying" the tariffing requirements of § 203 of the 1934 Act. Notice of Proposed Rulemaking, 11 F.C.C.R. 7,141 (1996). In the Notice, the Commission tentatively concluded that tariffs were no longer necessary because market forces were sufficient to protect consumers from unjust and unreasonable rates, terms, and conditions. Id. at ¶¶ 30, 31 (concluding that removing filing requirement will promote competition and prevent collusive pricing). Following a comment period, the FCC issued an order of mandatory detariffing on October 29, 1996, see Second Report and Order, 11 F.C.C.R. 20,730 (1996), thus confirming that "enforcement of the tariffing provision is neither necessary to ensure just and reasonable, non-discriminatory rates, nor necessary for the protection of consumers." MCI WorldCom, Inc., v. FCC, 209 F.3d 760, 763 (D.C.Cir.2000) (citing Second Report and...