At&T Corp. v. Public Utility Com'n of Texas

• Decision Date: 30 June 2004
• Docket Number: No. 03-50454.,03-50454.
• Citation: 373 F.3d 641
• Parties: AT&T CORP. and AT&T Communications of Texas LP, Plaintiffs-Appellees, v. PUBLIC UTILITY COMMISSION OF TEXAS; et al., Defendants, Rebecca Klein, in her official capacity as Chairman of the Public Utility Commission of Texas; Paul Hudson, in his official capacity as Commissioner of the Public Utility Commission of Texas; Julie Parsley, in her official capacity as Commissioner of the Public Utility Commission of Texas, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

373 F.3d 641

AT&T CORP. and AT&T Communications of Texas LP, Plaintiffs-Appellees, v. PUBLIC UTILITY COMMISSION OF TEXAS; et al., Defendants Rebecca Klein, in her official capacity as Chairman of the Public Utility Commission of Texas; Paul Hudson, in his official capacity as Commissioner of the Public Utility Commission of Texas; Julie Parsley, in her official capacity as Commissioner of the Public Utility Commission of Texas, Defendants-Appellants.

No. 03-50454.

United States Court of Appeals, Fifth Circuit.

June 30, 2004.

Thomas K. Anson (argued), Strasburger & Price, Austin, TX, for Plaintiffs-Appellees.

Kristen L. Worman (argued) and Steven R. Baron, Asst. Attys. Gen., Austin, TX, for Defendants-Appellants.

Fred David Butler, Pub. Serv. Com'n of SC, Columbia, SC, for South Carolina Pub. Serv. Com'n, Amicus Curiae.

James Bradford Ramsay, Nat. Ass'n of Regulatory, Washington, DC, for National

Ass'n of Regulatory Utility Com'rs, Amicus Curiae.

Peter Michael Bluhm, Vermont Pub. Serv. Bd., Montpelier, VT, for State of VT, Amicus Curiae.

Appeal from the United States District Court for the Western District of Texas.

Before REAVLEY, DAVIS and DeMOSS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Defendants, the commissioners of the Texas Public Utilities Commission ("Commissioners") challenge the district court's order granting plaintiffs', AT&T Corp. and AT&T Communications of Texas, LP's ("AT&T"), motion for summary judgment. The district court determined that the Telecommunications Act of 1996 ("TA96")¹ preempted the Texas statute which imposed a regulatory fee on intrastate, interstate, and international calls originating in Texas. We agree with the district court that the Texas assessment on multijurisdictional carriers burdens those carriers more than purely interstate carriers. The assessment is discriminatory, in conflict with § 254(f) of the TA96, and preempted. We therefore AFFIRM.

I

The TA96 amended the Telecommunications Act of 1934 to encourage widespread competition among telecommunications providers and at the same time provide universal telecommunications service to all Americans. The new act empowered both States and the Federal Communications Commission ("FCC") to define universal service and create universal service support programs. Both the FCC and the States were given the power to collect assessments from telecommunications carriers in order to subsidize these programs, particularly services to rural, high cost, and low income users. Under the TA96, the Federal Universal Service Fund specifically subsidizes telecommunications providers who provide interstate service to users in high cost and rural areas, low income users, schools, and libraries, 911 service to rural areas, and relay service to the hearing impaired. Similarly, Texas's Public Utilities Commission, through Texas Universal Service Support Mechanisms, subsidizes intrastate telecommunications carriers who provide these types of services intrastate.

Congress explicitly authorized the collection of funds to support these universal service programs under TA96. The Federal Universal Service Fund is supported by an equitable and nondiscriminatory fee on all interstate telecommunications service providers:

(d) Telecommunications carrier contribution

Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service.

47 U.S.C. § 254(d) (emphasis added).

Congress empowered States to collect funds from carriers providing intrastate telecommunications services. As with the federal universal service scheme, the assessment must be equitable and nondiscriminatory. Furthermore the state universal service mechanisms cannot burden or rely upon the federal universal service system:

(f) State authority

A State may adopt regulations not inconsistent with the Commission's rules to preserve and advance universal service. Every telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State. A State may adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that State only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms.

47 U.S.C. § 254(f) (emphasis added).

This dual universal service scheme allows the FCC to assess interstate service providers to fund federal universal service programs and allows the States to assess intrastate providers to fund the state universal service programs. The statute, however, has no provision for treatment of multijurisdictional carriers, i.e., carriers that provide both intrastate and interstate service. Congress's omission on that issue is the source of the conflict in this case.²

In 1997 the Texas Public Utilities Commission instituted its state universal service program funded by the Texas Universal Service Fund ("TUSF"). The Commission imposed a 3.6% fee to provide revenue for the TUSF. The fee was imposed on all telecommunications carriers who provide any intrastate service. As to these carriers, however, the fee applied to all revenue they derived from intrastate, interstate, and international calls originating in Texas. Thus multijurisdictional carriers were forced to pay both the federal universal service fee and the state universal service fee on interstate calls originating in Texas.³

AT&T objected to paying both federal and state fee on its revenue from interstate calls and brought this suit in the district court to challenge the state fee. Plaintiff complains that the Texas Universal Service funding mechanism is preempted by federal law because the state fee on revenue derived from interstate calls conflicts with 47 U.S.C. § 254(f). More particularly, AT&T argues that the PUC universal service funding mechanism violates § 254(f) because it creates an inequitable and discriminatory assessment on interstate calls and "relies on or burdens" the federal support mechanisms. AT&T moved for summary judgment on this preemption issue. The district court granted the motion and struck down the Texas Public Utility Commission's funding mechanism finding that it was preempted because it conflicted with § 254(f).

The Commissioners now challenge the district court judgment. They argue, as they did before the district court, that 1) the "rely on or burden" prong of 254(f) does not apply to state universal service support mechanisms, like the Texas mechanisms in this case, because the State has not provided standards for universal service that differ from the federal standards; 2) the regulatory funding scheme does not "rely upon or burden" federal mechanisms 3) AT&T has not demonstrated that the Texas universal service support mechanisms are discriminatory or inequitable; and 4) the Texas regulatory funding scheme does not violate the dormant commerce clause. We agree with the district court's decision to grant summary judgment in favor of AT&T based upon the discriminatory and inequitable nature of the state assessment and do not reach the State's remaining arguments.

II

This Court reviews a district court's grant of summary judgment de novo, applying the same legal standards as the district court in determining whether summary judgment was appropriate. United States v. Lawrence, 276 F.3d 193, 195 (5th Cir.2001). We must therefore find any disputed facts in favor of the non-moving party and determine whether a genuine issue of material fact exists in the case. Walker v. Thompson, 214 F.3d 615, 624 (5th Cir.2000). All questions of law are reviewed de novo. Id. The material facts in this case are not in dispute, therefore we review de novo the district court's preemption decision and the interpretation of the TA96.

Preemption of state law occurs in three circumstances:

Federal law will override state law under the Supremacy Clause when (1) Congress expressly preempts state law; (2) Congressional intent to preempt may be inferred from the existence of a pervasive federal regulatory scheme; or (3) state law conflicts with federal law or its purposes.

Frank v. Delta Airlines Inc., 314 F.3d 195, 197 (5th Cir.2002) (citing English v. Gen. Elec. Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 110 L.Ed.2d 65, (1990)).

The burden of persuasion in preemption cases lies with the party seeking annulment of the state statute. Green v. Fund Asset Mgmt., L.P., 245 F.3d 214, 230 (3d Cir.2001) ("Finally, we note that the party claiming preemption bears the burden of demonstrating that federal law preempts state law." (citing Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 255, 104 S.Ct. 615, 78 L.Ed.2d 443 (1984))).

AT&T claims that the Texas universal service assessment is preempted through conflict preemption. Conflict preemption "arises when `compliance with both federal and state regulations is a physical impossibility,' ... where state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress[,]'" Pacific Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190, 204, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983), where "the state law mandates or places irresistible pressure on the subject of the regulation to violate federal law, ... or where the federal scheme expressly authorizes an activity which the state scheme disallows." Wells Fargo Bank of Texas NA v. James, 321 F.3d 488, 491 n. 3 (5th Cir.2003) (citations omitted). In this case, if preemption exists at all it is because the state regulation frustrates the purposes...