RCA Global Communications v. Western U. Tel. Co., 80 Civ. 6387 (MEL).

• Decision Date: 10 September 1981
• Docket Number: No. 80 Civ. 6387 (MEL).,80 Civ. 6387 (MEL).
• Citation: 521 F. Supp. 998
• Parties: RCA GLOBAL COMMUNICATIONS, INC., Plaintiff, v. The WESTERN UNION TELEGRAPH COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

521 F. Supp. 998

RCA GLOBAL COMMUNICATIONS, INC., Plaintiff, v. The WESTERN UNION TELEGRAPH COMPANY, Defendant.

No. 80 Civ. 6387 (MEL).

United States District Court, S. D. New York.

September 10, 1981.

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Cahill, Gordon & Reindel, New York City, for plaintiff; H. Richard Schumacher, Stacy J. Haigney, John C. Koutsos, Andrew L. Deutsch, Francis J. De Rosa, Rodger M. Sanders, New York City, of counsel.

Wald, Harkrader & Ross, Washington, D. C., for defendant; Wm. Warfield Ross, Steven K. Yablonski, Mark Schattner, A. Richard Metzger, Jr., Jane Seigler, Ernest Walton, New York City, John D. Appel, Vice President-Gen. Counsel, Upper Saddle River, N. J., Joel Yohalem, Gen. Sol., Milton J. Grossman, Washington, D. C., of counsel.

LASKER, District Judge.

RCA Global Communications, Inc. ("Globcom") sues pursuant to the Communications Act of 1934, 47 U.S.C. §§ 206 and 207, to recover compensatory and exemplary damages on account of Western Union's provision of international telecommunications service in violation of the Communications Act, 47 U.S.C. §§ 203, 222(c)(2) and 222(e). Western Union ("WU") moves to dismiss the complaint on the grounds that it fails to state a claim upon which relief can be granted, that the Federal Communications Commission ("FCC") has exclusive jurisdiction over the claims and that the issues should be referred to the FCC. Alternatively, WU moves for a stay until the completion of pending administrative proceedings.

I.

The history preceding this suit is set forth in detail in the opinion of the Court of Appeals in ITT World Communications, Inc. v. Federal Communications Commission, 635 F.2d 32 (2d Cir. 1980). Briefly stated, Globcom and WU are in the business of providing telecommunications service. As a condition to Congress' enactment of § 222 of the Communications Act in 1943, which allowed WU to merge with Postal Telegraph, WU is prohibited from engaging in "international telegraph operations" and is obligated to distribute its outbound overseas traffic among "international telegraph carriers" (now commonly known as "international records carriers" or "IRCs"). 47 U.S.C. §§ 222(e) and 222(c)(2). Globcom is an IRC.

In September, 1979, WU inaugurated a new overseas telecommunications service, utilizing a Mexican and a Canadian carrier to transmit and receive communications between the continental United States and most foreign countries. This service, known as Western Union International Teletype Service ("WUITS") which WU designates as "Low Cost Routing" ("LCR"), allowed WU to bypass the IRCs and to retain control over the outgoing international business it generated. ITT World Communications v. F.C.C., 635 F.2d at 38-39. Shortly thereafter several IRCs, including Globcom, complained to the FCC that WUITS violated the Communications Act because it constituted international telegraph operations in violation of § 222(c)(2), because it breached the obligation to distribute its international traffic among IRCs under § 222(e), and because WU had failed to obtain prior FCC authorization or to file a tariff for the service.

On December 12, 1979, the FCC adopted an order which found that WUITS would not violate the Communications Act so long as WU filed a tariff for the service. The FCC decided that WUITS constituted only "domestic telegraph operations" under § 222(a) and (b) because the Canadian and Mexican carriers, rather than WU, were performing the actual overseas transmission. The FCC further held that § 222 did not prohibit WU from engaging in international telecommunications in futuro provided that authority were granted by the FCC, despite the earlier unmistakeable statements of the Court of Appeals in Western Union International, Inc. v. Federal Communications Commission, 544 F.2d 87, 92 (2d Cir. 1976), cert. denied, Western Union Tel. Co. v. Western Union Intern. Inc., 434 U.S. 903, 98 S.Ct. 299, 54 L.Ed.2d 189 (1977) ("Mailgram"), that § 222 operates "as a continuing bar to Western Union's involvement in international communications" and that "because it was Congress that enacted the statute and imposed this ban ... it is only Congress that, under the circumstances of this case, can change it."

On review of the FCC order, the Court of Appeals rejected the FCC's analysis and held that WU's overseas service violated both the prohibition of § 222(c)(2) on WU engaging in "international telegraph operations" and the obligation under § 222(e) to distribute its overseas bound traffic among IRCs. ITT World Communications v. F.C.C., supra. In its strongly worded opinion, the court rebuked the FCC for "the Commission's defiance of Mailgram" and stated that WU's "conduct of international telegraph operations ... clearly violates § 222 of the Act and cannot lawfully be authorized by the FCC ..." 635 F.2d at 43. In a proceeding shortly thereafter, the Court of Appeals held that WU's offer of WUITS service even after the Court's decision constituted "contemptuous conduct." ITT World Communications, Inc. v. Federal Communications Commission, 635 F.2d 43 (1980).

II.

A. WU first contends that until the Court of Appeals declared that WUITS violated the Communications Act, its international telecommunications service had not been "prohibited or declared unlawful" and therefore was not actionable under § 206 of the Act. According to WU, its international service had been lawful because it had been approved by the FCC and, under the provisions of § 408 of the Communications Act, FCC orders "shall continue in force ... unless ... suspended or modified or set aside by the Commission or ... by a court of competent jurisdiction." 47 U.S.C. § 408. WU argues that a private damage action based on conduct approved by the FCC is inconsistent with the scheme of the Act and would undermine the FCC's exercise of its regulatory authority by burdening compliance with its orders with the threat of a later damage suit.

Globcom answers that the FCC's unauthorized approval of WU's conduct cannot serve to immunize WU from liability. According to Globcom, the statutory language of § 222 and the definitive construction accorded the statute by the Court of Appeals in Mailgram, prior to WU's entry into the international telecommunications market, clearly forbade WU's conduct, and thus WU acted at its own risk. Globcom argues further that WUITS was unlawful under the provisions of § 222 itself and its unlawfulness did not depend upon FCC construction of the statute. It is irrelevant to WU's liability, Globcom contends, that it was necessary for the Court of Appeals to render the judgment banning WUITS that the FCC should have rendered in the first instance. In addition, Globcom emphasizes that this is not a case in which liability is premised upon conduct which a private party was ordered to undertake by a government agency, since the FCC did not order WU to undertake overseas service but merely construed the Communications Act not to forbid it.

B. WU further contends that equitable principles dictate that the Court of Appeals' decision in ITT World Communications not be applied retroactively to impose liability for conduct taken in accordance with an FCC order. Otherwise, it argues, regulated parties will be paralyzed from relying on agency decisions in determining their course of business. Relying heavily on Lemon v. Kurtzman, 411 U.S. 192, 93 S.Ct. 1463, 36 L.Ed.2d 151 (1973) (Lemon II), WU claims that, despite the facts that the FCC order at issue was subject to judicial review and that a challenge to its validity could be expected, its reliance on the order was reasonable.

Globcom replies that the principle of nonretroactivity upon which WU relies is not applicable to this case. First, Globcom contends that its allegations of bad faith on the part of WU prevent the application of equitable principles at this stage of the case, and that in any event good faith is not a defense to a § 222 damage action. Second, Globcom maintains that no issue of reasonable reliance is present because WU did not rely on the FCC's approval in instituting its overseas service but began its service without seeking FCC authorization and before the FCC ruled on the issue. Third, Globcom argues that it has never been held that a party's reliance on a decision of an administrative decision serves to immunize the party from liability in a legal action for damages. Fourth, Globcom contends that WU's analysis of retroactivity cases mistakes the applicability of equitable considerations in cases where a long-standing precedent has been overruled to cases, like the present one, where there has been no overruling but rather a simple reversal of an erroneous agency decision. According to Globcom, WU's position rests on the novel proposition that a defendant is not liable for the continuing damages suffered during the pendency of a successful appeal. Finally, Globcom next asserts that even if the retroactivity cases cited by WU did apply, the criteria delineated by the Supreme Court in Chevron Oil v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), support application of the Court of Appeals' ITT World Communications decision to WU's conduct because that decision neither overruled settled precedent nor was an unforeshadowed case of first impression, it will foster the purposes of § 222 to permit the suit to continue, and no inequitable result will follow.

C. Relying on § 207 of the Act, which provides that an aggrieved party may seek damages for a Communications Act violation either through the FCC or a court, but not in both fora, WU next argues that the FCC has exclusive jurisdiction over Globcom's claims. According to WU, Globcom elected to pursue its administrative remedies by complaining to the FCC and seeking administrative sanctions when WU initiated its international service and by seeking monetary damages for WU's allegedly unlawful diversion of overseas telecommunications traffic in formal...