In re Starnet, Inc.

• Decision Date: 09 January 2004
• Docket Number: No. 03-2990.,03-2990.
• Citation: 355 F.3d 634
• Parties: In the matter of: STARNET, INC., Debtor-Appellee Appeal of: Global NAPS, Inc.; Global NAPs Realty, Inc.; and Global NAPs Networks, Inc., Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

355 F.3d 634

In the matter of: STARNET, INC., Debtor-Appellee Appeal of: Global NAPS, Inc.; Global NAPs Realty, Inc.; and Global NAPs Networks, Inc., Appellants

No. 03-2990.

United States Court of Appeals, Seventh Circuit.

Argued December 1, 2003.

Decided January 9, 2004.

Rehearing and Rehearing En Banc Denied February 3, 2004.

George J. Spathis (argued), Shaw, Gussis, Fishman, Glantz, Wolfson & Towbin, Chicago, IL, for Defendants-Appellants.

John Collen (argued), Duane Morris, Chicago, IL, for Debtor-Appellee.

Before POSNER, EASTERBROOK, and ROVNER, Circuit Judges.

EASTERBROOK, Circuit Judge.

StarNet is an intermediary between local telephone networks and the Internet. It contracts with Internet Service Providers (ISPs) such as Earthlink and AOL to maintain a network — including a pool of modems — that will accept local calls and transfer the data to the ISPs over high-speed lines that StarNet owns or maintains. ISPs then publish local access numbers at which their customers may connect without incurring long-distance charges. StarNet must in turn contract with local exchange carriers for phone lines and numbers at which the calls may be received and transferred to the high-speed network. Instead of buying local service from SBC, Verizon, and other Baby Bells spun off from AT & T in the 1982 divestiture, StarNet prefers to acquire service from new carriers (called competitive local exchange carriers or CLECs) that have flourished since the Telecommunications Act of 1996. For reasons we need not relate, these CLECs have been able to enter into advantageous financial arrangements with the Baby Bells that make it less costly for them to operate a service that terminates many calls while originating few — a good description of calls that are bound for an ISP's local-access numbers. See Illinois Bell Telephone Co. v. Worldcom Technologies, Inc., 179 F.3d 566 (7th Cir.1999). So StarNet has contracted with these specialized CLECs for local-access service. To reduce costs still further, StarNet enters into co-location (or "collocation") agreements with these CLECs under which StarNet's modems are placed at the CLEC's premises, and the handover to StarNet's high-speed network occurs there.

Today StarNet is in bankruptcy. It has sought to escape what are, at least in retrospect, high-price contracts with Global NAPs for local-access service in three east-coast markets: New England; Washington, D.C.; and Miami. Bankruptcy law allows debtors to reject the executory portions of their contracts, see 11 U.S.C. § 365(a), and StarNet exercised this option in order to obtain service from other CLECs at lower prices. But there was a catch: new CLECs would assign StarNet new local-access numbers. The ISPs have publicized numbers for their customers to use. A customer who dials such a number and finds it dead (because it was one of the numbers that Global had furnished) will choose another from the ISP's list — and the replacement may route service to some other network, for major ISPs contract with multiple intermediaries in large markets. StarNet does not want to lose business, so it asked Global to port the existing numbers to other CLECs.

"Porting" in telecom parlance entails changing the entries in local or national routing tables so that a number invokes the services of a different carrier. The recent changes in the FCC's rules that have required cellular carriers to port numbers to their rivals, and land-line carriers to port numbers to local wireless carriers, have drawn public attention to number portability. See Cellular Telecommunications & Internet Association v. FCC, 330 F.3d 502 (D.C.Cir.2003); In re Telephone Number Portability, 11 F.C.C.R. 8352 (1996) ("First Report and Order"); and the agency's many follow-up decisions, most recently In re Telephone Number Portability, FCC 03-284 (Nov. 10, 2003). Global refused to port its numbers, observing that the contracts (which anyway StarNet had rejected) imposed no such obligation. Global insisted that federal statutes and rules likewise do not oblige it to accommodate StarNet's demand. It contended that opening these number blocs to porting would require costly changes to its network (costs that StarNet did not agree to cover) and permit erosion of business in the future by making it easier for other customers to jump ship.

Bankruptcy Judge Squires issued an injunction compelling Global to port the local numbers to other CLECs that had agreed to furnish StarNet with service. The injunction rests on 47 U.S.C. § 251(b)(2), part of the 1996 Act. This section requires carriers "to provide ... number portability in accordance with requirements prescribed by the [Federal Communications] Commission." Another provision of that Act defines "number portability" as "the ability of users of telecommunications service to retain, at the same location, existing telecommunications numbers without impairment of quality, reliability, or convenience when switching from one telecommunications carrier to another." 47 U.S.C. § 153(30). The FCC's First Report and Order implemented this statute without elaboration, requiring carriers to port numbers to their rivals only "at the same location". The agency broached the possibility that in the future it might require porting to new locations and made it clear that carriers are free to furnish this service if they want (or agree by contract to do so), but that location portability is not now required. 11 F.C.C.R. at 8383 ¶ 58; see also 47 C.F.R. § 52.21(q). Subsequent reports have stated that the Commission has "no current plans to address location portability at this time." In the Matter of Telephone Number Portability — Second Memorandum Opinion and Order on Reconsideration, 13 F.C.C.R. 21204, 21219-20 ¶¶ 29-30 (Oct. 20, 1998). The third and fourth reports (the latter in June 2003) leave matters unchanged.

The bankruptcy court concluded that StarNet had requested porting in order to "retain, at the same location, existing telecommunications numbers". Location is unaltered, the bankruptcy court stated, because StarNet's corporate headquarters count as the customer's location, and these are not moving. Although the modem pools would be moved from Global's premises, and incoming local calls thus would be terminated at a different place, the bankruptcy court concluded that this would not change the "location" to which the statute and regulation referred. The district court declined to stay this injunction and, when the judge made it clear that it would be some time before the court could act on Global's request for plenary review, Global filed an appeal to this court and requested a stay. We initially denied that motion but expedited the appeal. The day after oral argument, we entered a stay permitting Global to reclaim the numbers it had previously ported in order to comply with the injunction. Our stay was conditioned on Global's willingness (expressed in the bankruptcy court and reiterated here) to match the price and terms offered by the CLECs through which StarNet now prefers to obtain service. This opinion explains why we entered that stay and what happens next: referral to the FCC so that the agency can clear up an ambiguity in its rules.

No one has a property interest in a phone number. 47 C.F.R. § 52.107(a); see also Jahn v. 1-800-FLOWERS.com, Inc., 284 F.3d 807 (7th Cir.2002). The subscriber has at most a right to use a given number, and whether that number tags along when the customer switches carriers depends on contracts plus rules to be found in statutes and regulations. StarNet has no contractual right to portability — not only because StarNet has repudiated its contracts with Global but also because they would not require portability even if they remained in force. Lack of an obligation to port the numbers gives Global some holdup power — it can demand compensation for porting, or charge a higher price while service continues, but StarNet knew this when it got into the deals. Terms negotiated ex ante (not only price but also Global's willingness to house the modems, without extra charge, under a collocation agreement) may have compensated StarNet for the risk that it would be discomfited ex post by the need to pay Global for portability, or to abandon the numbers in order to switch carriers. Whether or not StarNet received compensation ex ante, however, the fact remains that neither § 365(a) nor anything else in bankruptcy law entitles debtors to more or different services, at lower prices, than their contracts provide. Section 365(a) gives debtors a right to walk away before the contract's end (with the creditor's entitlement converted to a claim for damages, see NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984)), not a right to obtain extra benefits without paying for them. In the main, and here, bankruptcy law follows non-bankruptcy entitlements. See, e.g., Raleigh v. Illinois Department of Revenue, 530 U.S. 15, 20, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000); Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

Thus the bankruptcy judge was right...