Ton Services, Inc. v. Qwest Corp.

• Citation: 493 F.3d 1225
• Decision Date: 23 July 2007
• Docket Number: No. 06-4052.,06-4052.
• Parties: TON SERVICES, INC., a Utah corporation, Plaintiff-Appellant, v. QWEST CORPORATION, a Colorado corporation, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

493 F.3d 1225

TON SERVICES, INC., a Utah corporation, Plaintiff-Appellant, v. QWEST CORPORATION, a Colorado corporation, Defendant-Appellee.

No. 06-4052.

United States Court of Appeals, Tenth Circuit.

July 23, 2007.

Floyd A. Jensen, Floyd Andrew Jensen PLLC, Salt Lake City, Utah, for Plaintiff-Appellant.

David A. Vogel (Douglas P. Lobel with him on the brief), Cooley Godward LLP, Reston, Virginia, for Defendant-Appellee.

Before LUCERO and MURPHY, Circuit Judges, and ROBINSON,^* District Judge.

MURPHY, Circuit Judge.

I. INTRODUCTION

The current action is one of a number of pending judicial and administrative actions raising the question whether incumbent local exchange carriers ("LECs") generally, and the former Bell Operating Companies ("BOCs") in particular, are required to provide refunds to independent payphone service providers ("PSPs") for noncompliance with the anti-discrimination and anti-subsidization requirements in 47 U.S.C. § 276(a) and Federal Communication Commission ("FCC" or "Commission") orders implementing § 276.¹

Plaintiff TON Services, Inc. ("TON") is a Utah-based PSP which owns and operates payphones in more than thirteen states. TON filed suit against Qwest Corporation ("Qwest") for violations of the Telecommunications Act of 1996 ("Act").² Qwest provides public access line ("PAL") services to TON in Qwest's role as an LEC.³ Qwest also operates its own payphones in the same region as TON, making TON both a customer of Qwest and one of its competitors.

In the district court, TON alleged Qwest's failure to file tariffs and supporting cost data for the PAL services Qwest provided to TON, and the PAL rates Qwest charged TON from April 1997 through April 2002, violated the anti-discrimination and anti-subsidization provisions of 47 U.S.C. § 276(a). TON further alleged Qwest's actions violated not only § 276(a), but also § 201(b), which declares unlawful a common carrier's unreasonable and unjust practices, and § 416(c), which creates an obligation to obey FCC orders. Qwest moved under Rule 12(b)(6) to dismiss TON's complaint and, pursuant to the doctrine of primary jurisdiction, asked the district court to refer TON's claims to state regulatory agencies. The district court concluded that, absent an initial administrative ruling that Qwest's filed rates from 1997 to 2002 were unlawful, the filed rate doctrine barred the relief TON sought. The court invoked the primary jurisdiction doctrine and dismissed TON's complaint without prejudice. TON moved the court to reconsider or to alter or amend the judgment. It specifically asked the court to stay its claims pending a primary jurisdiction referral to the FCC rather than dismissing its complaint. The court denied TON's motion.

This court takes jurisdiction of TON's appeal pursuant to 28 U.S.C. § 1291.⁴ We conclude the district court misconstrued the nature of TON's claims and that, although a primary jurisdiction referral is appropriate, the district court's dismissal of TON's action was an abuse of the court's discretion. This court, therefore, vacates the district court's dismissal of TON's complaint and remands TON's action to the district court for further proceedings consistent with this opinion.

II. BACKGROUND

A. Statutory and Regulatory Background

An understanding of the applicable federal statutes and regulations and their background is required to properly assess TON's claims and the district court's disposition of TON's action.⁵

1. The 1996 Telecommunications Act and the FCC's Payphone Orders

The telecommunications industry is regulated by Chapter 5 of the Federal Communications Act of 1934, as amended by the Telecommunications Act of 1996, codified at 47 U.S.C. § 151 et seq. Prior to 1996, LECs, which owned payphone lines used by all PSPs, routinely subsidized and discriminated in favor of their own payphone services. See New Eng. Pub. Commc'ns Council, Inc. v. FCC, 334 F.3d 69, 71 (D.C.Cir.2003). In 1996, in an effort to increase competition in the payphone industry and ensure widespread access to payphones, Congress prohibited BOCs from subsidizing their own payphone services with revenues from their other operations and from discriminating in favor of their own payphone services. See 47 U.S.C. § 276(b), (a).⁶ Section 276(a) reflects congressional intent to "replace a state-regulated monopoly system with a federally facilitated, competitive market." New Eng. Pub. Commc'ns Council, 334 F.3d at 77. In § 276(b)(1)(C), Congress directed the FCC to adopt nonstructural safeguards to implement § 276(a) by preventing BOCs from cross-subsidization of their payphone services. "In essence, a BOC must place its own payphones on equal footing with those that PSPs operate, and it must not obtain a profit from PSP payphones." Nw. Pub. Commc'ns Council v. Pub. Util. Comm'n, 196 Or.App 94, 100 P.3d 776, 779 (Or.Ct.App.2004) (Wolheim, J., concurring). The instrument the FCC chose to implement § 276(b)(1)(C) is the so-called "New Services Test" ("NST"), which mandates that tariff rates should be based solely on a carrier's overhead costs. See 47 C.F.R. § 61.49(g)(2).⁷

The FCC explained the process by which LECs should demonstrate NST compliance in a series of orders known collectively as the "Payphone Orders," issued under Common Carrier Bureau Docket Number 96-128, entitled "In the Matter of Implementation of Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996." See Davel Commc'ns, Inc. v. Qwest Corp., 460 F.3d 1075, 1081 (9th Cir. 2006); New Eng. Pub. Commc'ns Council, 334 F.3d at 71-72. Although the FCC's initial order directed all PAL tariffs to be filed with the FCC itself, Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 20541, 20614-16 ¶¶ 146-48, 1996 WL 547458 (1996) ("Initial Payphone Order"), its Order on Reconsideration directed LECs to file their intrastate payphone tariffs with state utility commissions. Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 21233, 21307-08 ¶¶ 162-163, 1996 WL 658824 (1996) ("Order on Reconsideration").

In the Order on Reconsideration, the Commission explained more thoroughly the application of the NST. It indicated states should evaluate LECs' PAL tariffs to ensure they were "(1) cost-based; (2) consistent with the requirements of Section 276 with regard, for example, to the removal of subsidies from exchange and exchange access services; and (3) nondiscriminatory." Id. at 21308 ¶ 163. All tariffs were required to be filed by January 15, 1997, and effective by April 15, 1997. Id. The FCC clarified that the tariff filings were to be accompanied by supporting cost data as provided for in 47 C.F.R. § 61.49(g)(2). See id. at 21308 ¶ 163 & n. 492. The Commission further provided that, where LECs had already filed intrastate tariffs for PAL rates and other unbundled services, the states were permitted, "after considering the requirements of this order, [to] conclude: 1) that existing tariffs are consistent with the [Initial Payphone] report and order as revised herein; and 2) that in such case no further filings are required." Id. at 21308.⁸ Finally, the Commission explicitly retained jurisdiction over intrastate tariffs in the event a state was "unable" to review intrastate tariffs for NST compliance. Id. at 21308 ¶ 163.

In a separate section of the Order on Reconsideration, the FCC addressed the special requirements an LEC must satisfy to recover costs for connecting calls from its payphones to long distance service providers.⁹ Id. at 21293 ¶ 131. To promote compliance with the requirements of paragraph 163, the Commission ordered that an LEC which itself owns and operates payphones would not be permitted to recover "per-call compensation" (also frequently referred to as "dial-around compensation") for allowing calls from its payphones to be connected to long distance carriers until the LEC was able to certify it had completed paragraph 163's requirements for implementing the § 276 regulatory scheme. Id. at 21293 ¶ 131. As part of its certification obligation, an LEC would have to certify its tariff rates were NST compliant, i.e., that they "reflect[ed] the removal of charges that recover the costs of payphones and any intrastate subsidies." Id. A further order issued by the Common Carrier Bureau of the FCC eleven days prior to the April 15, 1997, effective date for NST-compliant tariffs again emphasized the link between NST compliance and an LEC's qualification to recover per-call compensation. See Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 12 F.C.C.R. 20997, 21011 ¶¶ 29-30, 1997 WL 159904 (1997) ("Bureau Waiver Order") (emphasizing that BOCs must meet the Order on Reconsideration's state tariffing requirements before being eligible to receive per-call payphone compensation).

2. BOC Waiver Request and the FCC's Waiver/Refund Order

On April 10, 1997, five days before NST-compliant intrastate PAL tariff rates were to be effective, the coalition of Regional Bell Operating Companies ("RBOC Coalition") asked the FCC to delay the effective date for NST-compliant intrastate tariffs for forty-five days. The RBOC Coalition's letter stated the BOCs had not previously understood the Payphone Orders to require that rates for existing, previously tariffed intrastate payphone services had to comply with the NST. The RBOC Coalition requested an extension until May 19, 1997, to file new, NST-compliant tariffs in states where existing tariffs were not NST compliant, but asked to be allowed to begin collecting per-call compensation as scheduled on April 15. In exchange for the ability to receive per-call compensation as scheduled, the BOCs volunteered to reimburse or credit PSPs in states where...