Vonage Holdings Corp. v. Nebraska Public Service

• Decision Date: 01 May 2009
• Docket Number: No. 08-1764.,08-1764.
• Citation: 564 F.3d 900
• Parties: VONAGE HOLDINGS CORP.; Vonage Network, Inc., Plaintiffs-Appellees, v. NEBRASKA PUBLIC SERVICE COMMISSION; Rod Johnson, in his official capacity as Commissioner of the Nebraska Public Service Commission; Frank E. Landis, Jr., in his official capacity as Commissioner of the Nebraska Public Service Commission; Anne C. Boyle, in her official capacity as Commissioner of the Nebraska Public Service Commission; Tim Schram, in his official capacity as Commissioner of the Nebraska Public Service Commission; Gerald L. Vap, in his official capacity as Commissioner of the Nebraska Public Service Commission; Jeffrey L. Pursley, in his official capacity as Director of the Nebraska Telecommunications Infrastructure and Public Safety Department of the Public Service Commission, Defendants-Appellants. National Association of Regulatory Utility Commissioners; Federal Communications Commission; United States of America, Amici on behalf of Appellant, Computer & Communications Industry Association; Telecommunications Industry Association; Information Technology Industry Council; Information Technology Association of America; Fiber-To-The-Home Council; Verizon; Voice on the Net Coalition, Inc., Amici on Behalf of Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

564 F.3d 900

VONAGE HOLDINGS CORP.; Vonage Network, Inc., Plaintiffs-Appellees, v. NEBRASKA PUBLIC SERVICE COMMISSION; Rod Johnson, in his official capacity as Commissioner of the Nebraska Public Service Commission; Frank E. Landis, Jr., in his official capacity as Commissioner of the Nebraska Public Service Commission; Anne C. Boyle, in her official capacity as Commissioner of the Nebraska Public Service Commission; Tim Schram, in his official capacity as Commissioner of the Nebraska Public Service Commission; Gerald L. Vap, in his official capacity as Commissioner of the Nebraska Public Service Commission; Jeffrey L. Pursley, in his official capacity as Director of the Nebraska Telecommunications Infrastructure and Public Safety Department of the Public Service Commission, Defendants-Appellants.

National Association of Regulatory Utility Commissioners; Federal Communications Commission; United States of America, Amici on behalf of Appellant,

Computer & Communications Industry Association; Telecommunications Industry Association; Information Technology Industry Council; Information Technology Association of America; Fiber-To-The-Home Council; Verizon; Voice on the Net Coalition, Inc., Amici on Behalf of Appellee.

No. 08-1764.

United States Court of Appeals, Eighth Circuit.

Submitted: December 12, 2008.

Filed: May 1, 2009.

Leonard Jay Bartel, AAG, argued, Lincoln, NE, for appellant.

Mark Andrew Grannis, argued, Washington, DC, Thomas G. Connolly, and Justin Dillon, on the brief, for appellee.

Joseph R. Palmore, FFC, argued, Washington, DC, Robert Nicholson, DOJ, James J. O'Connell, Jr., Deputy AAG, DOJ; Thomas O. Barnett, AAG, DOJ, Washington, DC, Nandan M. Joshi, FCC; Richard K. Welch, FCC; and Mathew B. Berry, FCC, Washington, DC, on the brief, for amicus on behalf of appellant.

Before WOLLMAN, BYE, and RILEY, Circuit Judges.

BYE, Circuit Judge.

The members of the Nebraska Public Service Commission,¹ and the Director of the Telecommunications Infrastructure and Public Safety Department² (collectively NPSC),³ appeal the district court's⁴ order enjoining the NPSC's enforcement of the Nebraska Telecommunication Universal Service Fund Act (NUSF), Neb.Rev. Stat. §§ 86-316 to 86-329, requiring nomadic interconnected voice over internet protocol (VoIP) service providers to collect and remit a surcharge for the NUSF. We affirm.

I

Vonage Holdings Corp. and Vonage Network, Inc. (Vonage) provide, among other services, nomadic interconnected VoIP service. VoIP is an internet application used to transmit voice communication over a broadband internet connection. With traditional circuit-switched telephone communications, the end-to-end geographic locations of landline-to-landline telephone communications are known, and the interstate or intrastate nature of the calls is readily determinable. VoIP-to-VoIP communications originate and terminate at IP addresses and are tied to no identifiable geographic location. In VoIP-to-landline or landline-to-VoIP communications, known as "interconnected VoIP service," the geographic location of the landline part of the call can be determined, but the geographic location of the VoIP part of the call can be anywhere the VoIP customer obtains broadband access to the Internet. Thus, the interstate or intrastate nature of VoIP-to-VoIP and interconnected VoIP service cannot be determined by reference to the customer's billing address. Similarly, determining the interstate or intrastate nature of VoIP service cannot be accomplished by reference to the VoIP user's telephone number, because a customer living in one area code may be assigned a telephone number from a different area code.

Finally, interconnected VoIP service may be "nomadic" or "fixed." Nomadic service allows a customer to use the service by connecting to the Internet wherever a broadband connection is available, making the geographic originating point difficult or impossible to determine. Fixed VoIP service, however, originates from a fixed geographic location. For example, cable television companies offer interconnected VoIP service, and the transmissions use the cable running to and from the customer's residence. As a result, the geographic originating point of the communications can be determined and the interstate and intrastate portions of the service are more easily distinguished. This case involves nomadic interconnected VoIP services. The specific issue in the current litigation is whether nomadic interconnected VoIP service providers may be subjected to a state regulation requiring them to collect a universal service fund surcharge.

In 1997, Nebraska enacted the NUSF, authorizing the NPSC to establish a fund to subsidize telecommunication services in high cost and remote areas throughout Nebraska. In 2006, the Federal Communications Commission (FCC) issued an order directing interconnected VoIP service providers to collect a federal universal service fund (USF) surcharge. In 2007, the NPSC followed suit and ordered nomadic interconnected VoIP service providers to collect a NUSF surcharge. Thus, VoIP service providers operating in Nebraska were required to collect a fee on interstate services for the USF, and a fee on intrastate service for the NUSF.

As part of its 2006 order, the FCC recognized the difficulties associated with attempting to divine the interstate and intrastate nature of interconnected VoIP communications. Thus, it established a "safe harbor" provision denoting 64.9 as the percentage of a customer's interconnected VoIP communications determined to be interstate, and to which the USF surcharge applied. See In the Matter of Universal Service Contribution Methodology, 21 F.C.C.R. 7518, 7545 (2006) (extending 47 U.S.C. § 254(d) permissive authority to require interconnected VoIP providers to contribute to the USF), petition for review denied, and vacated in part on other grounds, Vonage Holdings Corp. v. FCC, 489 F.3d 1232 (D.C.Cir. 2007). VoIP providers, unless they could determine actual interstate versus intrastate traffic, collected and paid into the USF based on the safe harbor provision. In determining intrastate usage for purposes of applying the NUSF, the NPSC simply adopted the remaining 35.1 percent as necessarily reflecting the amount of intrastate nomadic interconnected VoIP usage. Additionally, the NPSC used the customer's billing address as a proxy for where nomadic interconnected VoIP services occurred. In other words, even though there was no way to determine the geographic origin of the communication, 35.1 percent of nomadic interconnected VoIP usage by customers having Nebraska billing addresses was deemed intrastate.

Vonage refused to collect the NUSF surcharge and Director Pursely filed a complaint with the NPSC to enforce the NUSF order. Vonage filed this action seeking 1) a declaration the NUSF was preempted by federal law, and 2) a preliminary injunction prohibiting Nebraska from enforcing the NUSF. Vonage argued, among other things, the NUSF was preempted by 47 U.S.C. § 152(b)'s impossibility exception, which the FCC had relied on to make regulation of VoIP service providers subject only to federal oversight.

The district court held the NUSF was preempted and enjoined its enforcement. Specifically, the court concluded the FCC, in an order resolving a dispute between Vonage and the Minnesota Public Utilities Commission, had concluded nomadic interconnected VoIP services were only subject to regulation by the FCC. See Vonage Preemption Order, 19 FCC Rcd 22404 (Nov. 12, 2004), aff'd sub nom., Minn. Pub. Utils. Comm'n v. FCC, 483 F.3d 570 (8th Cir.2007) (Vonage Preemption Order). The NPSC now appeals the district court's grant of a preliminary injunction, arguing the court erred in concluding the Vonage Preemption Order preempted all state regulation of nomadic interconnected VoIP service providers. The NPSC argues the NUSF is consistent with and does not conflict with the FCC's imposition of the USF.

II

We review the district court's grant of a preliminary injunction for abuse of discretion, giving deference to the discretion of the district court. Doe v. South Iron R-1 School Dist., 498 F.3d 878, 880 (8th Cir.2007). An abuse of discretion occurs if the district court rests its conclusion on clearly erroneous factual findings or if its decision relies on erroneous legal conclusions. In re SDDS, Inc., 97 F.3d 1030, 1040 (8th Cir.1996). We will not disturb a district court's discretionary decision if it remains within the range of choices available, accounts for all relevant factors, does not rely on any irrelevant factors, and does not constitute a clear error of judgment. Walser v. Toyota Motor Sales, U.S.A., Inc., 43 F.3d 396, 401 (8th Cir. 1994).

[W]hether a preliminary injunction should issue involves consideration of (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict...