All American Telephone Company, Inc. v. FCC.
In All American Telephone Company, Inc. v. FCC, (50) the Court of Appeals for the District of Columbia Circuit granted in part and denied in part petitions for review of the FCC's order awarding damages and treading on the merits of the companies' state law claims. (51)
The FCC regulates common-carrier providers of wired telephone services, including the fees for "exchange access services" rendered for long distance telephone calls. (52) Those fees are often referred to as "access charges." (53) When a person places a long-distance call, a local exchange carrier operating in the caller's geographic area will route the call to an interexchange carrier. (54) That exchange carrier will connect the call to the recipient's local exchange carrier and pay an access charge to the local carrier for the connection service. (55)
Some local exchange carriers sought to artificially inflate the number of local calls they could connect, thereby increasing both the call volume and the rates that they could charge; this scheme is known as "traffic pumping." (56) Specifically, a local exchange carrier would enter into a relationship with a company that generates a high volume of telephone calls. (57) The local carrier would forgo charging its partner for the phone calls that came in, and would even pay the partner share of long-distance access rates it charged the interexchange carriers. (58) Though the local carrier and its phone-call-generating partner benefited from traffic pumping, the public and the interchange carriers bore the loss by paying significant amounts to the local exchange carriers in the form of artificially inflated access charges to complete the long-distance calls. (59) In 2010, the FCC issued a series of orders concluding that such traffic-pumping schemes were unlawful under Section 201(b) and 203(c) of the Communications Act, 47 U.S.C. [section][section] 201(b), 203(c). (60) The Commission ruled in particular that carriers could not charge interexchange carriers to connect long-distance calls to a non-paying end user. (61)
In the early 2000s, Beehive Telephone Company, Inc. (Beehive) created competitive local exchanges--All American Telephone Co., e-Pinnacle Communications, Inc. and Chasecom (collectively, "the Companies"). (62) then had the Companies engage in a traffic-pumping scheme. (63) The Companies have only served conference-calling companies, and have never charged them for their services. (64) Beehive not only was paid by the Companies, but also could charge interexchange carriers other types of fees associated with the inflated traffic. (65)
In 2007, the Companies filed a civil suit against AT&T Corporation, seeking recovery of those access fees under a tariff collection action and a state-law quantum meruit claim. (66) In response, AT&T filed a counterclaim alleging that the Companies existed for the sole purpose of executing traffic-pumping schemes, which was a violation of Section 201 and Section 203 of the Communications Act. (67) The district court referred AT&T's counterclaims arising under the Communications Act to the FCC. (68)
To effectuate the referral, AT&T filed a complaint with the FCC, alleging the Companies engaged in traffic-pumping as sham entities designed to unlawfully inflate the rate of access charges billed to AT&T. (69) The FCC ruled that the Companies violated Section 201(b) of the Communications Act and had no authority to charge AT&T for services. (70) The FCC further ordered the Companies to refund the $252,496.37 that AT&T had previously paid them in access charges. (71) The Companies filed a petition for review. (72)
The Companies first contended that, because FCC found them to be sham entities rather than genuine common carriers, the Commission's jurisdiction over them evaporated, leaving it powerless to award damages. (73) The Court found that FCC has jurisdiction over complaints alleging anything done or omitted to be done by any common carrier in contravention of the provisions of the Communications Act. (74) A "common carrier" includes entities providing services pursuant to an agreement filed with FCC, even if the agreements are subsequently determined to be invalid. (75) In addition, the Court recognized that one may be a common carrier under common law by holding oneself out as such. (76) Having held themselves out as common carriers and having charged AT&T for services under a common-carrier tariff, the Companies were engaged as a common carrier for hire, and thus were subject to the Commission's jurisdiction. (77)
Next, the Companies argued that the proper measure of damages should have been AT&T's actual pecuniary loss, not the rate they paid. (78) The Companies contended specifically that AT&T failed to prove that it suffered an actual pecuniary loss. (79) The Court held that AT&T met the burden of proof. (80) AT&T presented expert declarations evidencing the amount of money it paid for no actual access services authorized by the Communications Act. (81) AT&T also causally linked its damages to the Companies' traffic-pumping scheme, showing that they were sham entities that rendered no chargeable access services to AT&T. (82) The Court held that the FCC permissibly held the Companies financially responsible for the payments they received as a result of their own conduct. (83)
After determining the measure of damages, the Court assessed its ability to decide whether the Commission's analysis of the Companies' state-law quantum meruit claims was proper. (84) The Commission argued that the Companies lacked standing to raise authority arguments, because the Commission's statements did not injure them. (85) To establish standing, the Companies must demonstrate a substantial risk that the district court will credit the Commission's determinations in resolving their common law claims. (86) Since the Hobbs Act (87) vests exclusive jurisdiction to review final decisions of FCC in the federal court of appeals, not the district courts, the district court would be without authority to review the merits of FCC's decision. (88) Therefore, a substantial risk of injury to the companies existed because, once the referral was completed, the Companies would have been powerless to challenge the merits of FCC's decision before the district court. (89)
The FCC further argued that the Companies' argument was foreclosed because they failed to file a petition for review raising their objection to the FCC addressing their common law claims. (90) The Court stated that a judicial review is permitted as long as the issue is "necessarily implicated by the argument made" to the FCC. (91) In the instant case, the Companies repeatedly argued to the FCC that it "lacked the authority to address the state-law claims." (92) Therefore, the Court held that it had the ability to decide the merits of the Companies' challenge to the FCC's decision. (93)
The Court then ruled that the FCC lacked the legal authority to discuss the merits of the Companies' state-law claims. (94) Congress vested the FCC only with the authority to address allegations of actions taken in contravention of the Communications Act. (95) A state common law claim did not arise under a violation of the Communications Act, and thus fell outside the scope of the FCC's jurisdiction. (96) Moreover, for over fifty years, the FCC has held that it lacks jurisdiction to determine "the carrier's rights against a subscriber." (97) Accordingly, FCC's decision that the Companies "did not provide any service to AT&T" was improper. (98)
In sum, the Court affirmed the Commission's jurisdiction over the Companies and its award of damages. The Court also vacated the Commission's decision of the Companies state-law quantum meruit claims. (99)
(50.) All Am. Tel. Co., Inc. v. FCC, 867 F.3d 81 (D.C. Cir. 2017).
(51.) Id. at 84.
(56.) Id. at 85.
(62.) Id. at 86.
(65.) Id. at 86-87.
(66.) Id. at 87.
(69.) Id. at 88.
(70.) Id. at 88-89.
(71.) Id. at 89.
(74.) Id. at 90.
(77.) Id. at 91.
(80.) Id. at 92.
(84.) Id. at 92-93.
(85.) Id. at 93.
(87.) 28 U.S.C. [section] 2342(1) (2018).
(88.) All Am. Tel. Co., Inc, 867 F.3d at 93.
(91.) Id. (quoting EchoStar Satellite LLC v. FCC, 704 F.3d 992, 996 (D.C. Cir. 2013)).
(92.) Id. at 94.
(93.) See id.
(97.) Id. (quoting Thornell Barnes Co. v. Illinois Bell Tel. Co., 1 FCC.2d 1247, 1275 (1965)).
(98.) Id. at 95 (quoting 30 FCC Rcd at 8966 cd.).