Schumacher v. Johanns, S-05-375.

CourtSupreme Court of Nebraska
Citation272 Neb. 346,722 N.W.2d 37
Docket NumberNo. S-05-375.,S-05-375.
PartiesPaul SCHUMACHER and Linda Aerni, Appellants and Cross-Appellees, v. Michael JOHANNS, Governor of the State of Nebraska, et al., Appellees and Cross-Appellants, and Frank E. Landis, Jr., in his capacity as commissioner (District 1, Nebraska Public Service Commission), et al., Appellees, and Nebraska Telecommunications Association et al., Intervenors-Appellees and Cross-Appellants.
Decision Date29 September 2006

David A. Domina and Claudia L. Stringfield-Johnson, of Domina Law, P.C., Omaha, for appellants.

Jon Bruning, Attorney General, and L. Jay Bartel, for appellees Michael Johanns et al.

Paul M. Schudel and James A. Overcash, of Woods & Aitken, L.L.P., Lincoln, for appellees Alltel Communications of the Midwest, Inc., et al.

Jack L. Shultz and Gregory D. Barton, of Harding, Shultz & Downs, Lincoln, for appellees Stanton Telecom, Inc., and Three River Telco, and intervenor-appellee Nebraska Telecommunications Association.

Deonne L. Bruning, Lincoln, for appellee Cox Nebraska Telecom, L.L.C.

Daniel E. Klaus, Timothy F. Clare, and Mark A. Fahleson, of Rembolt, Ludtke & Berger, L.L.P., Lincoln, for appellee Nebraska Technology and Telecommunications, Inc., and intervenors-appellees Wauneta Telephone Company et al.

Steven G. Seglin, of Crosby Guenzel, L.L.P., Lincoln, for appellee GCC License Corporation.

Eric B. Eisenhart, of Eisenhart Law Office, Cambridge, for appellees Cambridge Telephone Company and Pinpoint Communications, Inc.

Jill Vinjamuri Gettman, of Gettman & Miller, L.L.P., for appellee Quest Communications International, Inc.



Three individuals who subscribe to telecommunications services in the State of Nebraska brought this action against various state officials seeking a declaratory judgment that the Nebraska Telecommunications Universal Service Fund Act (NTUSFA), now codified at Neb.Rev.Stat. §§ 86-316 to 86-329 (Cum. Supp. 2004), is unconstitutional and further seeking an injunction against the continued implementation and enforcement of the NTUSFA. Various entities which provide telecommunications services in Nebraska intervened in opposition. Following a trial on stipulated facts, the district court for Lancaster County upheld the constitutionality of the NTUSFA and denied the declaratory and injunctive relief requested. We affirm.


Terrell R. Cannon, one of the plaintiffs below, died on August 16, 2006, after submission of this appeal. The remaining appellants, Paul Schumacher and Linda Aerni, have formally notified the court of Cannon's death and stated their intention to proceed with the appeal in their names. Schumacher and Aerni are citizens and residents of Nebraska who subscribe to and receive telecommunications services from various telecommunications service providers in Nebraska. Since July 1, 1999, these telecommunications service providers have included on appellants' telephone bills a surcharge of 6.95 percent of appellants' intrastate telephone service revenues. This surcharge was implemented by the Nebraska Public Service Commission (PSC) pursuant to the NTUSFA. Appellants have remitted the surcharge to these telecommunications service providers as part of their payment of their bills for telecommunications services. Effective October 1, 2005, the PSC apparently reduced the surcharge from 6.95 percent to 5.75 percent of intrastate telephone service revenues.

At the time the action was filed, appellee Michael Johanns was the duly elected and qualified Governor of the State of Nebraska. He has been succeeded in office by current Governor David Heineman. Appellees Frank E. Landis, Jr.; Anne C. Boyle; Lowell C. Johnson; Rod Johnson; and Gerald L. Vap are the duly elected and qualified commissioners of the PSC. Appellee Andy Pollock is the duly appointed and qualified executive director of the PSC.

The remaining appellees are various entities generally engaged in the business of providing telecommunications services in Nebraska, and many of them intervened in this action. Each of these appellees has collected and remitted the NTUSFA surcharge on intrastate telecommunications services revenues. Most of the appellees are eligible to receive financial assistance from the fund created by the surcharge moneys.


In 1996, Congress enacted the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (codified as amended at scattered sections in title 47 of the U.S.Code). The express purposes of the Telecommunications Act are 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." Pub.L. No. 104-104, 110 Stat. 56 (1996). Prior to the passage of the Telecommunications Act, local telephone service was generally provided by carriers that provided such service as a regulated monopoly. Under the act, these carriers, known as "incumbent local exchange carriers," are, either through negotiated or arbitrated agreements, required to provide interconnection and access to their facilities to requesting telecommunications carriers, known as "competitive local exchange carriers." 47 U.S.C. §§ 251 and 252 (2000). The Telecommunications Act also seeks to foster competition by removing barriers to entry by an entity seeking to provide interstate or intrastate telecommunications service. 47 U.S.C. § 253 (2000).

While seeking to promote competitive markets for the provision of telecommunications services, Congress also sought to preserve the goal of "universal service" as defined in the Telecommunications Act. 47 U.S.C. § 254(c) (2000). Congress directed the Federal Communications Commission (FCC) to establish a federal-state joint board to assist in implementing the universal service principles found in the Telecommunications Act. 47 U.S.C. § 254(a). These principles include the following: (1) "Quality services should be available at just, reasonable, and affordable rates"; (2) "[a]ccess to advanced telecommunications and information services should be provided in all regions of the Nation"; (3) "[c]onsumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services ... that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas"; (4) "[a]ll providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service"; and (5) "[t]here should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service." 47 U.S.C. § 254(b). The Telecommunications Act mandates that "only an eligible telecommunications carrier designated under section 214(e) of this title shall be eligible to receive specific Federal universal service support" and that "[a]ny such support should be explicit.... " 47 U.S.C. § 254(e). An "eligible telecommunications carrier" (ETC) should be designated by the "State commission." 47 U.S.C. § 214(e) (2000). "State commission" is defined as "the commission, board, or official (by whatever name designated) which under the laws of any State has regulatory jurisdiction with respect to intrastate operation of carriers." 47 U.S.C. § 153(41) (2000). In Nebraska, that entry is the PSC. See Neb. Const. art. IV, § 20; Neb.Rev.Stat. §§ 86-101 to 86-124, 86-126, and 86-128 to 86-163 (Cum. Supp. 2004). Section § 254(f) permits states to "adopt regulations not inconsistent with the [FCC's] rules to preserve and advance universal service." This subsection further provides that "[e]very telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State." Id. The FCC has implemented the Telecommunications Act through the adoption of rules, including parts 51 and 54 in title 47 of the Code of Federal Regulations, and the issuance of various orders.


The primary FCC orders implementing the Telecommunications Act are a trilogy of orders commonly known as the Local Competition Order, the Universal Service Order, and the Access Charge Reform Order. The Universal Service Order is particularly relevant to this case because it establishes rules to implement the universal service provisions of 47 U.S.C. § 254 of the Telecommunications Act. In the Matter of Federal-State Joint Board on Universal Service, 12 F.C.C.R. 8776 (F.C.C.1997). In this order, the FCC explained that it and state commissions had historically provided for affordable telephone service to all individuals through a combination of implicit and explicit subsidies. These subsidies were designed to benefit persons in "high cost" areas, primarily rural, where it was expensive for carriers to provide telephone service. Id. at 8784. The subsidies also were designed to benefit those with low incomes who otherwise might not be able to afford telephone service. According to the Universal Service Order, "[s]tates traditionally have promoted universal service by, among other things, assuring affordable residential access by explicitly and implicitly subsidizing and pricing basic telephone service at levels associated with very high telephone subscribership rates . . . ." Id. at 8783. To accomplish the goal of universal service, "[s]tates have maintained low residential basic service rates through, among other things, a combination of: geographic rate averaging,...

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