DFW Metro Line Services v. Southwestern Bell Telephone, Corp.

• Decision Date: 19 April 1993
• Docket Number: No. 91-1364,91-1364
• Citation: 988 F.2d 601
• Parties: 1993-1 Trade Cases P 70,208 DFW METRO LINE SERVICES, A Texas Partnership, now known as U.S. Metro Line Services, Inc., Plaintiff-Appellant, v. SOUTHWESTERN BELL TELEPHONE, CORPORATION, A Missouri Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 601

988 F.2d 601

1993-1 Trade Cases P 70,208

DFW METRO LINE SERVICES, A Texas Partnership, now known as U.S. Metro Line Services, Inc., Plaintiff-Appellant, v. SOUTHWESTERN BELL TELEPHONE, CORPORATION, A Missouri Corporation, Defendant-Appellee.

No. 91-1364.

United States Court of Appeals Fifth Circuit.

April 19, 1993.

Ray G. Besing, Ray G. Besing & Assoc., Dallas, TX, for plaintiff-appellant.

Carol L. Tacker, Barbara R. Hunt, Southwest Bell Telephone Co., Curtis L. Frisbie, Jr., Gardered & Wynne, Dallas, TX, for defendant-appellee.

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

Before REAVLEY, KING, and WIENER, Circuit Judges.

WIENER, Circuit Judge.

In this anti-trust case, Plaintiff-Appellant DFW Metro Line Services, now known as U.S. Metro Line Services, Inc. (Metro), appeals the dismissal of its suit against Defendant-Appellee Southwestern Bell Telephone Corporation (Bell), claiming that the district court erred in its determination that Bell was protected from anti-trust liability under the state action doctrine. Our plenary review of the record convinces us to agree with the district court's conclusion that the nature of the Texas regulatory scheme is such that Bell is immunized from suit under the state action doctrine. We therefore affirm that court's dismissal of Metro's complaint.

I FACTS

Metro offers a flat rate telephone service between Dallas and Fort Worth called metro service or EMS. To provide this service, Metro must use Bell's telephone lines. At the time the dispute originated in 1982, Bell was leasing the lines to Metro, a licensed radio common carrier, at Radio Common Carrier-Direct Inward Dialing (RCC-DID) rates for the express purpose of providing one-way paging services. Without advising Bell, Metro later expanded its use of Bell's phone lines by instituting EMS service, thereby competing directly with Bell. When Bell discovered that Metro had expanded its services but was still paying the lower RCC-DID rates, Bell informed Metro that it would have to pay the substantially higher, appropriate rate or the lease would be terminated. According to Bell, the higher rates were required by the Public Utility Commission (PUC)--which determines the rates to be charged based in part on the use to be made of the phone lines--under authority of the Public Utility Regulatory Act (PURA). ¹

II PROCEEDINGS

Metro originally brought suit seeking a temporary restraining order (TRO) and preliminary and permanent injunctions preventing Bell from terminating telephone service to Metro, and asserting an anti-trust claim. The district court granted the TRO, and the parties submitted briefs on the issues. Based on these briefs, the district court lifted the TRO and denied Metro's application for preliminary injunction. In its decision, the district court concluded that Metro had little likelihood of success on the merits because Bell had demonstrated that it was entitled to immunity from anti-trust liability by meeting the requirements of the two-prong test set forth in California Retail Liquor Dealers Association v. Midcal Aluminum Inc. ² (the Midcal test). The district court concluded that the active supervision requirement of the Midcal test was satisfied by PURA, which vested the PUC with power to ensure compliance with PURA, fixing and regulating rates, determining the classifications of customers and services, and determining the applicability of rates.

We affirmed the district court in DFW Metro Line Services v. Southwestern Bell Tel. Co. (Metro I ). ³ In addition to affirming the denial of a permanent injunction, the panel opinion in Metro I stated:

As an additional basis for our holding, we find that Southwestern Bell is immune from the antitrust liability alleged in [Metro's] complaint under the "state action" doctrine enunciated in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), as applied to private state-regulated ratemaking in Southern Motor Carriers Rate Conference v. United States, 471 U.S. 48, 105 S.Ct. 1721, 85 L.Ed.2d 36 (1985). Southwestern Bell clearly meets the two-prong test set out in California Retail [Liquor] Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). There is no, therefore, likelihood of success on the merits in the instant case. ⁴

Metro's petition for certiorari proved unsuccessful and the case was returned to the district court.

At that point in the proceedings, the district court addressed the merits of the case, and dismissed Metro's anti-trust action under Rule 12(b)(6). Metro appealed, and we affirmed the dismissal based on Metro I and the law of the case doctrine. ⁵ On writ of certiorari, the Supreme Court, --- U.S. ----, 112 S.Ct. 2987, 120 L.Ed.2d 865 (1992), vacated and remanded Metro II for further consideration in light of Federal Trade Commission v. Ticor Title Insurance Co. ⁶ It is that case which we consider on the Court's remand today.

III ANALYSIS

A. Standard of Review

Although the district court dismissed Metro's claim for failure to state a cause of action under Rule 12(b)(6), it comes to us on appeal with an extensive record, developed in detail during the proceedings for injunctive relief. Given the status of the record and the extensive procedural history of this case, both parties stipulated at oral argument to this court that, in effect, we review the case as though it were before us on appeal from the grant or denial of a summary judgment motion.

Accordingly, we review the record "under the same standards which guided the district court." ⁷ These standards, set forth in the Supreme Court trilogy of Anderson v. Liberty Lobby Inc., ⁸ Celotex Corp. v. Catrett, ⁹ and Matsushita Electrical Industrial Co. v. Zenith, ¹⁰ provide that summary judgment is appropriate when no issue of material fact exists and the movant is entitled to judgment as a matter of law. ¹¹ In determining whether summary judgment was proper, all fact questions are viewed in the light most favorable to the nonmovant. Questions of law, however, are reviewed de novo. ¹² A movant such as Bell is entitled to judgment as a matter of law if it demonstrates that it is entitled to claim immunization from liability on the grounds alleged.

Given the procedural history of this case, our de novo review is limited somewhat by the law of the case doctrine, which provides:

The decision of a legal issue by an appellate court establishes the "law of the case" and must be followed in all subsequent proceedings in the same case at both the trial and appellate levels unless the evidence at a subsequent trial was substantially different, the controlling authority has since made a contrary decision of law applicable to such issues, or the decision was clearly erroneous and would work a manifest injustice. ¹³

As the Supreme Court's order of remand directed us to consider this case in light of Ticor, and a fair reading of that case discloses that the Court considered only the second prong of the Midcal test, it follows that the prior decision of this court regarding the first prong remains undisturbed. As such, the law of the case doctrine requires that we follow the prior panel's determination that Bell has met the first prong of the Midcal test, i.e., that Texas has expressly authorized the regulation. That leaves as the only issue for our review today whether Bell has satisfied the second prong of the Midcal test, as clarified in Ticor, which requires that the state actively supervise the regulated activity.

B. Anti-Trust Law

The Sherman Anti-Trust Act (the Act) ¹⁴ makes unlawful "[e]very contract, combination ... or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations...." ¹⁵ The act also makes it unlawful to "monopolize, or attempt to monopolize, or combine to conspire with any other person or persons to monopolize any part of the trade or commerce among the several States or with foreign nations...." ¹⁶ In the seminal case of Parker v. Brown, ¹⁷ the Supreme Court, addressing whether a state marketing program violated the Act, held that "in a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress." Therefore, "in view of the [Act's] words and history, it must be taken to be a prohibition of individual and not state action." ¹⁸

Thus, from Parker originated the "state action doctrine," which confers anti-trust immunity for state regulatory programs. The Court subsequently made clear in Midcal ¹⁹ that private party conduct pursuant to a regulatory program shares this immunity only if the conduct meets both prongs of a two-prong test, thenceforth called the "Midcal test." This test requires that: (1) the challenged restraint be clearly articulated and affirmatively expressed as state policy; and (2) the state actively supervise any anticompetitive conduct. ²⁰

1. Clearly Articulated State Policy

The district court held, and Bell agrees, that this prong is satisfied by PURA, which provides:

This Act is enacted to protect the public interest inherent in the rates and services of public utilities. The legislature finds that public utilities are by definition monopolies in the areas they serve; that therefore the normal forces of competition which operate to regulate prices in the free enterprise society do not operate; and that therefore utility rates, operations and services are regulated by public agencies with the objective that such regulation shall operate as a substitute for such competition. The purpose of this Act is to establish a comprehensive regulatory system which is adequate to the task of regulating public utilities as defined by this Act, to assure rates, operations, and services which are just and...