Budget Prepay Inc v. At&t Corp.

• Decision Date: 03 May 2010
• Docket Number: 09-11188.,No. 09-11099,09-11099
• Citation: 605 F.3d 273
• Parties: BUDGET PREPAY, INC.; Global Connection Inc. of America; Nexus Communications, Inc.; Terracom, Inc.; Mextel Corporation, LLC, doing business as Lifftel, Plaintiffs-Appellees,v.AT&T CORPORATION, formerly known as SBC Communications, Inc./AT&T, Inc.; Illinois Bell Telephone Company, doing business as SBC Illinois; Indiana Bell Telephone Company, Inc., doing business as SBC Indiana; Michigan Bell Telephone Company, doing business as SBC Michigan; Southwestern Bell Telephone L.P., doing business as SBC Arkansas, doing business as SBC Kansas, doing business as SBC Missouri, doing business as SBC Oklahoma, doing business as SBC Texas; Wisconsin Bell, Inc., doing business as SBC Wisconsin; SBC Operations, Inc.; Bell South Telecommunications, Inc.; Unknown Entities 1-10; AT&T, Inc., also known as SBC Communications, Inc.; AT&T Operations, Inc., formerly known as SBC Operations, Inc.; AT&T Southeast, Inc., formerly known as BellSouth Telecommunications, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

605 F.3d 273

BUDGET PREPAY, INC.; Global Connection Inc. of America; Nexus Communications, Inc.; Terracom, Inc.; Mextel Corporation, LLC, doing business as Lifftel, Plaintiffs-Appellees,v.AT&T CORPORATION, formerly known as SBC Communications, Inc./AT&T, Inc.; Illinois Bell Telephone Company, doing business as SBC Illinois; Indiana Bell Telephone Company, Inc., doing business as SBC Indiana; Michigan Bell Telephone Company, doing business as SBC Michigan; Southwestern Bell Telephone L.P., doing business as SBC Arkansas, doing business as SBC Kansas, doing business as SBC Missouri, doing business as SBC Oklahoma, doing business as SBC Texas; Wisconsin Bell, Inc., doing business as SBC Wisconsin; SBC Operations, Inc.; Bell South Telecommunications, Inc.; Unknown Entities 1-10; AT&T, Inc., also known as SBC Communications, Inc.; AT&T Operations, Inc., formerly known as SBC Operations, Inc.; AT&T Southeast, Inc., formerly known as BellSouth Telecommunications, Inc., Defendants-Appellants.

Nos. 09-11099, 09-11188.

United States Court of Appeals, Fifth Circuit.

May 3, 2010.

Anton Christopher Malish (argued), Malish & Cowan, P.L.L.C., Austin, TX, for Plaintiffs-Appellees.

William Frank Carroll, Thomas Butler Alleman, Amy Marie Stewart, Cox Smith Matthews, Inc., Javier Aguilar, Gen. Atty., Richard M. Parr, ATTServices, Inc., Dallas, TX, Dennis G. Friedman, Theodore A. Livingston (argued), Mayer Brown, L.L.P., Chicago, IL, for Defendants-Appellants.

Appeals from the United States District Court for the Northern District of Texas.

Before SMITH, CLEMENT and OWEN, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

Appellees filed suit in federal district court, alleging that Appellants initiated a scheme of predatory pricing for wholesale telecommunications services in violation of the Telecommunications Act of 1996, federal antitrust law, and Texas law. Appellees sought a temporary restraining order and a preliminary injunction enjoining implementation of the scheme, as well as a declaratory judgment that the scheme was unlawful. Appellants argued that Appellees had failed to exhaust their administrative remedies and failed to show irreparable harm. The district court granted the temporary restraining order and extended it twice. It later granted a preliminary injunction and denied Appellees' motion to dismiss for lack of subject matter jurisdiction, for lack of personal jurisdiction, and for failure to state a claim upon which relief could be granted. We hold that Appellees' claim does not arise from a question of federal law. Accordingly, we vacate the preliminary injunction and remand to the district court for further proceedings consistent with this opinion.

FACTS AND PROCEEDINGS

A. Background of the Telecommunications Act

Before turning to the facts of this case, the court finds it useful to review the provisions and structure of the Telecommunications Act. The Telecommunications Act of 1996 (“the Act”) was enacted “to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.” Telecommunications Act of 1996, Preamble, Pub.L. No. 104-404, 110 Stat. 56 (1996). The Act creates “a procompetitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition.” H.R.Rep. No. 104-458, at 113 (1996) (Conf.Rep.) as reprinted in 1996 U.S.C.C.A.N. 10. To achieve these goals, the Act divides various responsibilities between states and the federal government, “enlist[ing] the aid of state public utility commissions to ensure that local competition was implemented fairly and with due regard to the local conditions and the particular historical circumstances of local regulation under the prior regime.” Global Naps, Inc. v. Mass. Dep't of Telecomms. & Energy, 427 F.3d 34, 46 (1st Cir.2005) (quoting Peter W. Huber et al., Federal Telecommunications Law § 3.3.4, at 227 (2d ed.1999)) (internal quotation marks omitted). The “intended effect” of such a regime was to “leav[e] state commissions free, where warranted, to reflect the policy choices made by their states.” Id.

The heart of the Act's deregulatory scheme is a system of “interconnection agreements,” or ICAs, which are negotiated under the auspices of state utility commissions. Under an ICA, a legacy monopoly carrier such as appellant AT&T, also known as an incumbent local exchange carrier (“ILEC”), agrees to sell telecommunications services to a new competitor such as appellee Budget Prepay, also known as a competitive local exchange carrier (“CLEC”). The process begins when an ILEC receives a “request for interconnection” from another telecommunications company. 47 U.S.C. § 252(a)(1). The Act then requires the ILEC to “negotiate in good faith ... the particular terms and conditions of agreements to fulfill” its duty to sell telecommunications services to the CLEC. Id. § 251(c)(1). If the parties are unable to agree on all terms, either party may petition the relevant state commission to arbitrate “open issues.” Id. § 252(b)(1). A requesting CLEC may also choose to adopt all of the terms and conditions of an existing state commission-approved ICA that the ILEC has with another CLEC. Id. § 252(i). As a final procedural safeguard, all ICAs must be submitted to the state commission for approval. Id. § 252(e)(1).

Under the Act, an ILEC has a general duty to resell to an interconnected CLEC, at a wholesale rate, any service it offers to retail consumers. Id. §§ 251(c)(4)(A), 251(c)(4)(B). It also cannot “impose unreasonable or discriminatory conditions or limitations on” such resale. Id. § 251(b)(1). Pursuant to subsections (b) and (c) of § 251, the FCC has promulgated regulations providing that an ILEC “shall offer to any requesting telecommunications carrier any telecommunications service that the incumbent LEC offers on a retail basis to subscribers that are not telecommunications carriers for resale at wholesale rates.” 47 C.F.R. § 51.605. The FCC regulations permit state commissions to make two exceptions to this resale requirement. First, any service that is limited to a certain class of subscribers- e.g., a service offered only to commercial customers-need not be resold to a CLEC that plans to offer that service to a different class of subscribers. Id. § 51.613(a)(i). Second, an ILEC must pass along the promotional rate of services to the CLEC unless the promotion is short-term, defined as lasting less than ninety days. Id. § 51.613(a)(ii). With respect to these two exceptions, an ILEC “may impose a restriction [on resale] only if it proves to the state commission that the restriction is reasonable and nondiscriminatory.” Id. § 51.613(b). However, the parties are specifically permitted by the Act to negotiate an ICA “without regard to the standards set forth in subsections (b) and (c) of section 251”-that is, to negotiate around the substantive requirements of the resale and interconnection provisions in the Act. 47 U.S.C. § 252(a)(i); see also Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 103 (2d Cir.2002) rev'd on other grounds sub nom. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004) ( “[I]nterconnection agreements do not necessarily reiterate the duties enumerated in section 251. Instead, the ILEC and requesting carrier have the option of contracting around the obligations set forth in subsections (b) and (c) of section 251.”).

“In any case in which a State commission makes a determination [regarding an ICA], any party aggrieved by such determination may bring an action in an appropriate Federal district court to determine whether the agreement or statement meets the requirements of” the Act. 47 U.S.C. § 252(e)(6). In Southwestern Bell Telephone Co. v. Public Utility Commission of Texas, we interpreted this provision broadly, holding that state commissions had power both to approve ICAs and to interpret and enforce their clauses. 208 F.3d 475, 480 (5th Cir.2000). District courts review the orders of a state commission to determine whether an ICA comports with federal law and can review the state commission's interpretation and enforcement of the ICA. Id. at 482. In such an appellate posture, a district court reviews de novo a state commission's determination of whether an ICA comports with the requirements of the Act, and reviews “all other issues” determined by the state commission under an arbitrary and capricious standard. Id.

B. The Parties' Dispute and Proceedings in the District Court

Budget Prepay and the other Appellees (collectively, “Budget Prepay”) are small telecommunications companies. These CLECs purchase wholesale telecommunications services from the Appellants (AT&T Corp. and various subsidiaries or successors-in-interest to it, collectively “AT&T”), who are the ILECs in eighteen different states. The CLECs then resell those services to consumers. Each Appellee has an ICA with the relevant ILEC, though it is unclear how many separate ICAs were negotiated and how many were adopted.

During the relevant time period, AT&T offered a “Win-back Cash Back” promotion to retail customers in several states, including those served by Appellees, that waived connection fees and gave a $50 rebate to any customer who switched from another landline or wireless provider to AT&T. AT&T's practice was to offer all such promotions to Budget Prepay, applying a wholesale discount pursuant to the Act.

However, in July 2009, AT&T notified Budget Prepay that as of September 1, 2009, it would no longer pass along the full $50 promotional rebate to CLECs. Rather, AT&T planned to apply a complicated pricing model to determine the “economic value” of...