In the Matter Of: Starnet, Inc., Debtor-Appellee Appeal Of: Global Naps, Inc. Global Naps Realty, Inc. And Global Naps Networks, Inc.
Docket: 03-2990
Court: Court of Appeals for the Seventh Circuit; February 3, 2004; Federal Appellate Court
StarNet, Inc., a telecommunications intermediary, is currently in bankruptcy and has sought to reject high-price contracts with Global NAPs for local-access service in East Coast markets, including New England, Washington, D.C., and Miami. Under bankruptcy law (11 U.S.C. § 365(a)), StarNet aims to replace these contracts with agreements from other competitive local exchange carriers (CLECs) that offer lower rates. However, this transition requires StarNet to change local-access numbers, which could lead to business loss if customers find these numbers inactive. To mitigate this risk, StarNet requested that Global port existing numbers to the new CLECs. Global NAPs declined this request, arguing that the rejected contracts did not obligate them to port the numbers. The case highlights issues of contract rejection in bankruptcy and the complexities surrounding telecommunications number portability following recent FCC rule changes.
Global argued that federal statutes do not require it to accommodate StarNet's request for number porting, claiming that doing so would incur significant costs that StarNet would not cover and could lead to future business losses. Bankruptcy Judge Squires issued an injunction mandating Global to port local numbers to other Competitive Local Exchange Carriers (CLECs) that would provide service to StarNet, citing 47 U.S.C. § 251(b)(2) from the 1996 Telecommunications Act. This statute mandates carriers to offer number portability as defined by the Federal Communications Commission (FCC), which allows users to retain their numbers without quality loss when switching carriers. The FCC has clarified that while it may consider location portability in the future, it is not currently required, and its previous reports indicate no plans to change this position.
The bankruptcy court determined that StarNet's request for porting was valid as it aimed to retain numbers at the same location, which was defined as StarNet's corporate headquarters, despite the relocation of modem pools. The district court did not stay the injunction, prompting Global to appeal and seek a stay, which was initially denied but later granted, allowing Global to reclaim the ported numbers under the condition that it match the pricing and terms offered by the CLECs preferred by StarNet. The opinion outlines the rationale for this stay and indicates that the FCC will be referred to for clarification on regulatory ambiguities. It also emphasizes that no one possesses a property interest in a phone number; users only have rights contingent upon the terms of contracts and relevant regulations, and StarNet lacks a contractual right to portability due to its repudiation of contracts with Global.
Global retains leverage over StarNet due to the absence of an obligation to port telephone numbers, allowing Global to demand compensation for porting or charge higher prices while services continue. StarNet was aware of this dynamic when entering their agreements. The negotiated terms, including Global's offer to house modems under a collocation agreement at no extra cost, may have provided compensation to StarNet for the potential future costs of portability or switching carriers. Bankruptcy law, specifically § 365(a), does not grant debtors the right to enhanced services or lower prices beyond what their contracts stipulate; it permits them to exit contracts and convert creditor entitlements into damage claims, as established in NLRB v. Bildisco.
The bankruptcy judge correctly referenced the 1996 Telecommunications Act and FCC regulations as the sources of potential portability rights. Section 153(30) defines portability as the ability for users to retain their telecommunications numbers at the same location. However, the interpretation of "location" poses challenges, particularly for corporations like StarNet that operate nationwide. The court’s view that "location" refers to the subscriber's residence or corporate headquarters is questioned, as it would create impracticalities in call routing and billing. The analysis suggests that "location" should refer to where calls are terminated or handed off to another carrier, complicating matters when a company changes its modem pool's physical location.
Two interpretations of "location" are proposed: one as the endpoint of the wire, which would mean relocating the modem pool disentitles StarNet from portability, and another as the telephone rate center, where calls are treated uniformly for billing. The latter interpretation allows for some flexibility within defined geographical boundaries, indicating that "location" is determined by the local exchange carrier's choices regarding switch placement and customer billing configurations.
Regulations link "location portability" to physical movement but do not differentiate among the customer's location, the wire's endpoint, or the rate center's location. A Commission staff Q&A suggests that customers cannot retain their phone numbers when moving across town or to another state, as this likely involves a new rate center. Recently, the FCC issued a directive requiring wireline carriers to port numbers to wireless carriers if their coverage area overlaps the rate center of the customer's wireline number, although it did not clarify how this relates to wireline-to-wireline porting restrictions. This directive implies that the FCC considers the rate center as the significant "location."
At oral argument, Global's counsel argued that porting to wireless carriers is different due to roaming capabilities. However, the primary issue is the relationship between the wireline carrier and the customer wishing to port their number. If porting is required to a different location within the wireless carrier's coverage area, the method of call delivery by the carrier becomes irrelevant. The FCC has established a general portability rule for wireless-to-wireless transitions that is not subject to location or rate-center restrictions, leaving room for the FCC to potentially align with Global’s interpretation.
Given the ambiguity surrounding the term "location," it is recommended to refer this issue to the FCC under the doctrine of primary jurisdiction. This doctrine allows courts to defer to an agency with specialized knowledge on issues beyond the typical judicial experience, as established in relevant case law.
StarNet argues that the FCC has no authority over bankruptcy law, which is under the exclusive jurisdiction of bankruptcy courts, referencing Arsberry v. Illinois. However, it is noted that the bankruptcy court's jurisdiction is not entirely exclusive, as certain matters can be adjudicated outside of bankruptcy, as demonstrated in FCC v. NextWave Personal Communications Inc. The central issue pertains to whether StarNet can compel Global to port numbers, which relies on the interpretation of the 1996 Act and its regulations, areas where the FCC has jurisdiction. The court seeks clarification from the FCC regarding the "same location" requirement for a local exchange carrier when a customer wishes to switch carriers and relocate their modems. A stay has been issued to maintain the status quo while the FCC considers the matter, as there are concerns about potential losses for Global if customers port numbers prematurely without compensation from StarNet. The bankruptcy judge did not mandate that StarNet post an injunction bond, limiting its financial liability for the costs associated with the original porting. The stay aims to protect Global from unreimbursed losses while ensuring StarNet can access competitive pricing. The case is referred to the FCC for guidance on the term "location" as it pertains to wireline-to-wireline number portability, with further actions to follow based on the FCC's decision. The parties are to submit memoranda to the court within 21 days after the FCC's ruling.
