Tel*link v. Fed. Commc'ns Comm'n, 15-1461

• Decision Date: 13 June 2017
• Docket Number: 16-1057,16-1046,16-1029,16-1012,C/w 15-1498,No. 15-1461,16-1038,15-1461
• Citation: 866 F.3d 397
• Parties: GLOBAL TEL*LINK, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents Centurylink Public Communications, Inc., et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

866 F.3d 397

GLOBAL TEL*LINK, Petitioner

v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, RespondentsCenturylink Public Communications, Inc., et al., Intervenors

No. 15-1461

C/w 15-1498

16-1012

16-1029

16-1038

16-1046

16-1057

United States Court of Appeals, District of Columbia Circuit.

Argued February 6, 2017

Decided June 13, 2017

Amended August 4, 2017

Mithun Mansinghani, Deputy Solicitor General, Office of the Attorney General for the State of Oklahoma, argued the cause for State and Local Government Petitioners. With him on the briefs were E. Scott Pruitt, Attorney General, Patrick R. Wyrick, Solicitor General, Nathan B. Hall, Assistant Solicitor General, James Bradford Ramsay, Jennifer Murphy, Christopher J. Collins, Mark Brnovich, Attorney General, Office of the Attorney General for the State of Arizona, Dominic E. Draye, Deputy Solicitor General, Leslie Rutledge, Attorney General, Office of the Attorney General for the State of Arkansas, Lee Rudofsky, Solicitor General, Nicholas Bronni, Deputy Solicitor General, Danny Honeycutt, Karla L. Palmer, Tonya J. Bond, Joanne T. Rouse, Derek Schmidt, Attorney General, Office of the Attorney General for the State of Kansas, Jeffrey A. Chanay, Chief Deputy Attorney Gen eral, Chris Koster, Attorney General, Office of the At torney General for the State of Missou ri, J. Andrew Hirth, Deputy General Coun sel, Brad D. Schimel, Attorney General, Office of the Attorney General for the State of Wisc onsin, Misha Tseytlin, Solicitor General, Daniel P. Lennington, Dep uty Solicitor Gene ral, Gregory F. Zoeller, Attorney General, Office of the Attorney General for the State of Indiana, Thomas M. Fisher, Solicitor General, Jeff Landry, Attorney General, Office of the Attorney Ge neral for the State of Lou isiana, Patricia H. Wilton, A ssistant Attorne y General, Adam Paul Laxalt, Attorney General, Office of the Attorn ey General for the State of Nevada, and Lawrence VanDyke, So licitor General. Jared Haines , Assistant Solicitor Genera l , Office of the Attorney Gene ral for the State of Oklahoma,David G. Sanders, Assistant A ttorney General, Office of the Attorney General for the State of Louisiana, and Dean J. Sauer, Attorney, Office of the Attorney General for the State of Missouri, entered appearances.

Michael K. Kellogg argued the cause for ICS Carrier Petitioners. With him on the briefs were Aaron M. Panner, Benjamin S. Softness, Stephanie A. Joyce, Andrew D. Lipman, Brita D. Strandberg, Jared P. Marx, John R. Grimm, Robert A. Long, Jr., Kevin F. King, Marcus W. Trathen, Julia C. Ambrose, and Timothy G. Nelson.

Andrew D. Lipman and Stephanie A. Joyce were on the brief for petitioner Securus Technologies, Inc.

David M. Gossett, Attorney, Federal Communications Commission, argued the cause for respondent. On the brief were Howard J. Symons at the time the brief was filed, General Counsel, Jacob M. Lewis, Associate General Counsel, Sarah E. Citrin, Counsel, and Robert B. Nicholson and Daniel E. Haar, Attorneys, U.S. Department of Justice. Mary H. Wimberly, Attorney, U.S. Department of Justice, Brendan T. Carr, Acting General Counsel, Federal Communications Commission, and Richard K. Welch, Deputy Associate General Counsel, entered appearances.

Lori Swanson, Attorney General, Office of the Attorney General for the State of Minnesota, Kathryn Fodness and Andrew Tweeten, Assistant Attorneys General, Eric T. Schneiderman, Attorney General, Office of the Attorney General for the State of New York, Robert W. Ferguson, Attorney General, Office of the Attorney General for the State of Washington, Karl A. Racine, Attorney General, Office of the Attorney General for the District of Columbia, Lisa Madigan, Attorney General, Office of the Attorney General for the State of Illinois, Maura Healey, Attorney General, Office of the Attorney General for the Commonwealth of Massachusetts, and Hector Balderas, Attorney General, Office of the Attorney General for the State of New Mexico were on the brief for amici curiae State of Minnesota, et al. in support of respondents.

Glenn S. Richards was on the brief for intervenors Network Communications International Corp. in support of respondents.

Andrew Jay Schwartzman argued the cause for intervenors The Wright Petitioners. With him on the brief was Drew T. Simshaw.

Danny Y. Chou was on the brief for amicus curiae The County of Santa Clara and the County of San Francisco in support of respondent.

Before: Pillard, Circuit Judge, and Edwards and Silberman, Senior Circuit Judges.

Edwards, Senior Circuit Judge:

The Communications Act of 1934 ("1934 Act") authorized the Federal Communications Commission ("Commission" or "FCC") to ensure that interstate telephone rates are "just and reasonable," 47 U.S.C. § 201(b), but left regulation of intrastate rates primarily to the states. In the Telecommunications Act of 1996 ("1996 Act"), Congress amended the 1934 Act to change the Commission's limited regulatory authority over intrastate telecommunication so as to promote competition in the payphone industry.

Before the passage of the 1996 Act, Bell Operating Companies ("BOCs") had dominated the payphone industry to the detriment of other providers. Congress sought to remedy this situation by authorizing the Commission to adopt regulations ensuring that all payphone providers are "fairly compensated for each and every" interstate and intrastate call. 47 U.S.C. § 276(b)(1)(A). "[P]ayphone service" expressly includes "the provision of inmate telephone service in correctional institutions, and any ancillary services." Id. § 276(d). The issues in this case focus on inmate calling services ("ICS") and the rates and fees charged for these calls.

Following the passage of the 1996 Act, the Commission avoided intrusive regulatory measures for ICS. And prior to the Order under review in this case, the Commission had never sought to impose rate caps on intrastate calls. Rather, the FCC consistently construed its authority over intrastate payphone rates as limited to addressing the problem of under-compensation for ICS providers.

Due to a variety of market failures in the prison and jail payphone industry, however, inmates in correctional facilities, or those to whom they placed calls, incurred prohibitive per-minute charges and ancillary fees for payphone calls. In the face of this problem, the Commission decided to change its approach to the regulation of ICS providers. In 2015, in the Order under review, the Commission set permanent rate caps and ancillary fee caps for interstate ICS calls and, for the first time, imposed those caps on intrastate ICS calls. Rates for Interstate Inmate Calling Services ("Order "), 30 FCC Rcd. 12763, 12775–76, 12838–62 (Nov. 5, 2015), 80 Fed. Reg. 79136-01 (Dec. 18, 2015). The Commission also proposed to expand the reach of its ICS regulations by banning or limiting fees for billing and collection services—so-called "ancillary fees"—and by regulating video services and other advanced services in addition to traditional calling services.

Five inmate payphone providers, joined by state and local authorities, now challenge the Order 's design to expand the FCC's regulatory authority. In particular, the Petitioners challenge the Order 's proposed caps on intrastate rates, the exclusion of "site commissions" as costs in the agency's ratemaking methodology, the use of industry-averaged cost data in the FCC's calculation of rate caps, the imposition of ancillary fee caps, and reporting requirements. And one ICS provider separately challenges the Commission's failure to preempt inconsistent state rates and raises a due process challenge.

Following the presidential inauguration in January 2017, counsel for the FCC advised the court that, due to a change in the composition of the Commission, "a majority of the current Commission does not believe that the agency has the authority to cap intrastate rates under section 276 of the Act." Counsel thus informed the court that the agency was "abandoning ... the contention ... that the Commission has the authority to cap intrastate rates" for ICS providers. Counsel also informed the court that the FCC was abandoning its contention "that the Commission lawfully considered industry-wide averages in setting the rate caps." However, the Commission has not revoked, withdrawn, or suspended the Order . And one of the Intervenors on behalf of the Commission, the "Wright Petitioners," continues to press the points that have been abandoned by the Commission.

For the reasons set forth below, we grant in part and deny in part the petitions for review, and remand for further proceedings with respect to certain matters. We also dismiss two claims as moot.

• We hold that the Order 's proposed caps on intrastate rates exceed the FCC's statutory authority under the 1996 Act. We therefore vacate this provision.

• We further hold that the use of industry-averaged cost data as proposed in the Order is arbitrary and capricious because it lacks justification in the record and is not supported by reasoned decisionmaking. We therefore vacate this provision.

• We additionally hold that the Order 's imposition of video visitation reporting requirements is beyond the statutory authority of the Commission. We therefore vacate this provision.

• We find that the Order 's proposed wholesale exclusion of site commission payments from the FCC's cost calculus is devoid of reasoned decisionmaking and thus arbitrary and capricious. This provision cannot stand as presently proposed in the Order under review; we therefore vacate this provision and remand for further proceedings on the matter.

• We deny the petitions for review of the Order 's site commission reporting requirements.

• We remand the challenge to the Order 's imposition of ancillary fee caps to allow the Commission to determine whether it can segregate proposed caps on interstate calls (which are permissible) and the proposed caps on intrastate calls (which are impermissible).

• Finally, w

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