Networkip, LLC v. F.C.C.

• Decision Date: 07 November 2008
• Docket Number: No. 07-1092.,No. 06-1364.,06-1364.,07-1092.
• Citation: 548 F.3d 116
• Parties: NETWORKIP, LLC and Network Enhanced Telecom, LLP, Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States Of America, Respondents APCC Services, Inc., Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

548 F.3d 116

NETWORKIP, LLC and Network Enhanced Telecom, LLP, Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States Of America, Respondents APCC Services, Inc., Intervenor.

No. 06-1364.

No. 07-1092.

United States Court of Appeals, District of Columbia Circuit.

Argued September 9, 2008.

Decided November 7, 2008.

Michael H. Pryor argued the cause for petitioner. With him on the briefs was Kemal Hawa.

Nandan M. Joshi, Counsel, Federal Communications Commission, argued the cause for respondents. On the brief were Thomas O. Barnett, Assistant Attorney General, Robert B. Nicholson and Robert J. Wiggers, Attorneys, Matthew B. Berry, Acting General Counsel, Federal Communications Commission, Joseph R. Palmore, Deputy General Counsel, Richard K. Welch, Acting Deputy Associate General Counsel, and James M. Carr, Counsel. Daniel M. Armstrong, Associate General Counsel, and Joel Marcus, Counsel, entered appearances.

Albert H. Kramer, Robert F. Aldrich, and Allan C. Hubbard were on the brief for intervenor APCC Services, Inc. in support

of the respondents. Ira R. Mitzner entered an appearance.

Michael E. Glover, Karen Zacharia, and Aaron M. Panner were on the brief for amicus curiae Verizon in support of neither party. Joshua E. Swift entered an appearance.

Before: SENTELLE, Chief Judge, and BROWN and KAVANAUGH, Circuit Judges.

Opinion for the court filed by Circuit Judge BROWN.

Concurring opinion filed by Chief Judge SENTELLE.

BROWN, Circuit Judge:

Petitioners NetworkIP, LLC, and Network Enhanced Telecom, LLP, (collectively "NET") seek review of a pair of final orders of the Federal Communications Commission ("FCC")—one finding liability, APCC Servs. Inc., 21 F.C.C.R. 10488 (2006) (Order on Review) ("Liability Order"), and the other imposing damages, APCC Servs., Inc., 22 F.C.C.R. 4286 (2007) (Memorandum Opinion and Order) ("Damages Order"). Because the FCC reasonably interpreted its own prior orders, we deny the petition as to liability. We grant in part NET's petition as to damages, however, because the FCC's failure to enforce its filing deadline was arbitrary and capricious.

I.

In a terabyte generation in which even three-year olds carry GPS-equipped wireless phones,¹ the payphone industry may seem like a Technicolor afterthought. Nonetheless payphones still fill an important, though decreasing, role in communications, and Congress has sought to keep them around.

"Two types of calls may be placed from a payphone. The first and most common type is the `coin call,' in which the caller inserts a coin directly into the payphone before making the call; the rates for coin calls are set by State commissions." Sprint Corp. v. FCC, 315 F.3d 369, 371 (D.C.Cir.2003). Increasingly common, however, is "the second type of call—`coinless calls'—which a caller places by using a service such as directory assistance, operator service, an access code, or a subscriber 800 number." Id. The rules governing this second category of calls are at issue here.

To ensure payphone service providers ("PSPs") are compensated for these dialaround "calls to 800 numbers or 10XXX numbers that the caller uses to reach the long-distance carrier of his choice," and thus to encourage the availability of payphones, "Congress enacted § 276 of the Telecommunications Act of 1996." Ill. Pub. Telecomm. Ass'n v. FCC, 117 F.3d 555, 559 (D.C.Cir.1997) (citing 47 U.S.C. § 276). The FCC must "establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone. ..." 47 U.S.C. § 276(b)(1)(A).

The concept is simple: Telecommunications carriers must compensate PSPs for calls made from payphones with calling cards. Application, alas, is complicated, because long-distance calls often involve multiple carriers. For instance, a local exchange carrier ("LEC") initially might receive a call, and then route it to a non-LEC—"typically an interexchange carrier (`IXC')[] ... such as Sprint, AT & T, and Worldcom"—that then transmits the call to yet another carrier. Sprint Corp., 315 F.3d at 371. "If the recipient of the call is a customer of the IXC, the IXC will simply transmit the call to the LEC that serves the customer," but "[i]f the call recipient is not a customer of the IXC, ... the IXC transfers the call to a `reseller' of the IXC's services." Id.

We have noted that "[t]wo types of resellers exist. The first, known as switchless resellers, do not possess their own switching facilities and must rely on an IXC to perform the switching and transmission functions that are required to complete a call." Id. "By contrast, the second type, switch-based resellers (`SBRs'), possess their own switching capacities. ..." Id. "[I]n some instances the SBR transfers the call to another SBR, which in turn routes the call to yet another SBR, and so on." Id.

In its First Payphone Order, the FCC said "facilities-based carriers [`FBCs'] should pay the per-call compensation for the calls received by their reseller customers." Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 20541, 20586, ¶ 86 (1996) (Report and Order). Later that year, in its First Payphone Reconsideration Order, the FCC said an FBC "maintains its own switching capability, regardless if the switching equipment is owned or leased by the carrier." Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 21233, 21277, ¶ 92 (1996) (Order on Reconsideration). After two unsuccessful attempts to set a per call dial-around rate, see Ill. Pub. Telecomm. Ass'n, 117 F.3d 555, 564 (D.C.Cir.1997) (remanding $.35 rate); MCI Telecomms. Corp. v. FCC, 143 F.3d 606, 608 (D.C.Cir.1998) (remanding $.284 rate), the FCC established $.24 per call as the applicable rate, Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 14 F.C.C.R. 2545, 2632, ¶ 191 (1999) (Third Report and Order), which we upheld on review, Am. Pub. Commc'ns Council v. FCC, 215 F.3d 51, 58 (D.C.Cir.2000).

NET, headquartered in Texas, is a telecommunications carrier that owns switches. Using an innovative web interface, NET empowered various other carriers to develop prepaid calling cards. Traditionally, carriers were obligated to purchase or lease their own switches in order to fully control calling-card functions. NET developed a new technology that (it says) allowed its customers to control switches as if they possessed them, thus severing the technologically out-dated link between switching and physical possession of switches. NET's customers could "modify, in real time, the key economic parameters vital to the prepaid business," such as "how to set up accounts, how much to charge, which domestic or foreign destinations could be reached with the cards, and by which methods." Pet'r's Br. 6. NET likewise instructed its customers that they alone were responsible for compensating PSPs, and often language to that effect was included in its contracts. Between October 1999 and November 2001, the relevant period for our purposes, upwards of eleven million calls were placed with calling cards distributed by NET's customers, using NET's switches.

In 2002, a group of PSPs including APCC Services, Inc. ("APCC"), a billing clearinghouse for PSPs, filed an informal complaint with the FCC against NET; a formal complaint followed in 2003. There were two proceedings, one for liability, and the other for damages. Ultimately, the FCC ordered NET to pay $2,789,505.84, plus interest at 11.25%. NET has petitioned for review of both the Liability and Damages Orders, and our review has been consolidated. APCC intervened, filing a motion to dismiss because of an alleged jurisdictional defect in NET's petition for review of the Damages Order; this motion has since been withdrawn.²

II.

We first consider jurisdiction, though it is no longer contested. "It is axiomatic that subject matter jurisdiction may not be waived, and that courts may raise the issue sua sponte." Athens Cmty. Hosp., Inc. v. Schweiker, 686 F.2d 989, 992 (D.C.Cir.1982). Indeed, we must raise it, because while arguments in favor of subject matter jurisdiction can be waived by inattention or deliberate choice, we are forbidden—as a court of limited jurisdiction—from acting beyond our authority, and "no action of the parties can confer subject-matter jurisdiction upon a federal court." Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir.2003); see also Wilks v. U.S. Marshals Serv., No. 92-5287, 1993 WL 118285, at *1 (D.C.Cir.1993) (per curiam).

At first blush, jurisdiction seems euclidean. By statute, federal appellate courts have "exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of" final FCC orders. 28 U.S.C. § 2342(1). We are called upon to "determine the validity of" a pair of FCC final orders, so we have jurisdiction. QED. But the existence of parallel provisions—one to challenge final agency action and the other to enforce compliance—complicates this otherwise straightforward equation, particularly in light of a Supreme Court precedent attempting to "harmonize" a superficially similar statutory scheme. ICC v. Atlantic Coast Line R.R., 383 U.S. 576, 586, 86 S.Ct. 1000, 16 L.Ed.2d 109 (1966).

APCC initially complained that this court's jurisdiction to hear NET's challenge to the orders should not trump APCC's right to seek enforcement under 47 U.S.C. § 407. The language of the enforcement statute at issue in Atlantic Coast, 49 U.S.C. § 16(2) (1964), was for all relevant purposes identical to § 407. Like § 407 does, § 16(2) allowed "any person for whose benefit [an agency's] order was made" (an "adjudged-injured party") to file a suit against a party who "d[id] not comply with an order for...