American Telephone & Telegraph Co. v. Federal Communications Commission
Docket: No. 92-1053
Court: Court of Appeals for the D.C. Circuit; November 13, 1992; Federal Appellate Court
AT&T seeks judicial review of a Federal Communications Commission (FCC) order concluding an investigation into AT&T's 1989 complaint against MCI. AT&T alleged MCI was violating section 203 of the Communications Act by charging unfiled rates. The FCC partially denied and dismissed AT&T's complaint without addressing whether MCI violated the Act, nor did it consider the validity of its Fourth Report and Order, which MCI cited as justification for its actions. The court found the FCC's dismissal arbitrary and capricious, as it did not resolve the legal question posed by AT&T. The court noted that the FCC implicitly assumed the Fourth Report's validity, which contradicts section 203 according to precedent. The court remands the case for the FCC to reconsider the appropriate relief for AT&T.
Section 203(a) mandates that communications carriers file rates with the FCC. The case involves "permissive detariffing," where the FCC chose not to enforce rate filing requirements against non-dominant carriers like MCI. This policy originated from a 1979 FCC proceeding aimed at reducing regulatory burdens. In 1982, the FCC decided to forbear from enforcing these requirements against non-dominant carriers and extended this policy to specialized carriers, including MCI, in its 1983 Fourth Report. However, in 1985, the FCC made detariffing mandatory, which was later challenged by MCI. The court vacated this Sixth Report, stating it exceeded the FCC's authority, but did not rule on the Fourth Report's validity, assuming it was immune from review as an enforcement discretion exercise. The FCC, in later litigation, characterized the Fourth Report as an exercise of enforcement discretion while also claiming it exempted certain carriers from filing requirements.
In August 1989, AT&T filed a complaint against MCI under section 208 of the Communications Act, alleging that MCI had been violating section 203(a) by charging unfiled special negotiated rates since 1987, which disadvantaged AT&T competitively. AT&T sought damages and a cease and desist order, arguing that MCI's unfiled rates made it difficult for AT&T to compete and allowed MCI to complicate AT&T's regulatory processes. MCI did not dispute the factual allegations but claimed that the FCC's Fourth Report exempted nondominant carriers like itself from filing all rates. AT&T contended that the Fourth Report merely expressed enforcement policy and did not remove MCI's statutory obligation to file rates, arguing that if it did, such removal exceeded the FCC's authority and was therefore invalid.
Despite the statutory requirement for the FCC to resolve complaints within 12 months, AT&T's complaint remained unresolved for 25 months, during which the FCC reclassified it as a broad policy issue and postponed resolution pending further rulemaking. AT&T sought a writ of mandamus to compel the FCC to act. The FCC ultimately concluded its inquiry in January 1992 but did not address whether MCI had violated the Communications Act. Instead, it affirmed that MCI could rely on the Fourth Report as a substantive rule exempting it from filing obligations, dismissing AT&T's request for a cease and desist order without ruling on MCI's compliance. The FCC also rejected AT&T’s claim for damages, reasoning that even if the Fourth Report were later deemed invalid, that invalidity would not apply retroactively to MCI's past actions.
The Commission is attempting to avoid judicial scrutiny of the Fourth Report, which it fears may not withstand legal challenges, allowing it to continue governing carrier conduct for the foreseeable future. Citing SEC v. Chenery Corp., the Commission argues it has the discretion to choose between rule-making and adjudication. It dismissed AT&T's complaint without addressing its merits, opting instead to reconsider the Fourth Report through a new rulemaking process. However, this approach is criticized as a logical inconsistency because AT&T's complaint alleges illegal conduct by MCI, and AT&T has the right under the Communications Act to seek damages for violations, either through the Commission or federal court.
The Commission, as an adjudicator, was obligated to respond to AT&T's claims regarding MCI's alleged violations. If MCI was indeed violating the law, AT&T would be entitled to a cease and desist order, regardless of the potential for future rulemaking. The Commission's decision to defer action until a new rulemaking mirrors a judicial dismissal based on pending legislative changes, failing to fulfill its duty to apply current law. While agencies can choose between adjudication and rulemaking, they cannot evade adjudicative responsibilities by resorting to prospective rulemaking. The Commission also suggested that a two-party adjudication was inappropriate due to industry-wide interests, but it could have solicited input from other carriers, allowing broader participation without compromising its adjudicative role.
The FCC could have initiated a rulemaking process alongside AT&T's complaint, provided it concluded its inquiry within the 12 to 15-month period mandated by section 208 of the Communications Act. The FCC's assertion that section 208 granted it broad authority to investigate complaints does not justify its failure to address AT&T's specific challenge to MCI's past and present actions. A future rulemaking cannot retroactively determine the legality of past conduct, which was central to AT&T's complaint. While a cease and desist order can offer prospective relief, it must be grounded in a finding of past violations.
The FCC's argument that it could not adjudicate AT&T's challenge due to its own rules lacks merit, as agencies are not compelled to apply a rule if circumstances suggest it is unlawful. Historical case law supports the notion that agencies must entertain claims of rule invalidity, regardless of ongoing rulemaking processes. The FCC's reluctance to apply its own rule in this context appears to stem from a desire to maintain the existing legal framework, despite doubts about its validity. By dismissing AT&T's complaint while promising future consideration, the FCC acted arbitrarily and capriciously, misunderstanding its obligation as an adjudicator. Instead of postponing the decision, the FCC could have sought to repeal the contested rule through a Notice of Proposed Rulemaking.
The Commission argues that even if the dismissal of AT&T’s complaint is deemed unlawful, the validity of the Fourth Report should not be addressed, asserting that the prior order did not consider its validity or MCI’s conduct. The court expresses concern that accepting this reasoning would enable the FCC’s delays, noting that the FCC took 25 months to respond to AT&T’s complaint only after the court intervened. A remand for the FCC to assess the Fourth Report's validity is considered unnecessary, especially given a previous court ruling that effectively resolves the matter.
The court clarifies that a rule can be reviewed based on its application in an adjudication, without the agency needing to reassess its validity. It concludes that the Commission did rely on the Fourth Report when dismissing AT&T’s complaint, as evidenced by its justification that the complaint challenged an existing forbearance rule and its denial of retrospective relief based on the Fourth Report’s classification. The Commission's dismissal sanctioned MCI's conduct and indicated reliance on the Fourth Report’s interpretation of the law. The court rejects the Commission's assertion that it did not apply the Fourth Report or evaluate MCI's alleged violations, arguing that the dismissal definitively resolved the issue in favor of MCI. Consequently, the court sees no need for a remand to seek an agency interpretation of the statute.
The Commission articulated its statutory interpretation when it established the rule in question. Courts assess the validity of a challenged rule based on the rationale provided during its original promulgation. In prior cases, such as National Ass’n of Greeting Card Publishers v. United States Postal Serv. and Network Project v. FCC, courts have set this precedent. The Commission's statutory interpretation, particularly as it pertains to the Fourth Report, has been previously defended but found unsuccessful in MCI v. FCC. The Fourth Report is classified as a substantive rule that influences not just enforcement policies but also the rights and relationships of carriers, specifically AT&T as the dominant carrier.
The validity of the Fourth Report relies on the interpretation of section 203 of the Communications Act, which mandates all carriers to file tariffs. The Commission argues that section 203(b) allows modification of these requirements under specific circumstances. However, past rulings, particularly in MCI Telecommunications Corp. v. FCC, indicated that the statutory language does not support the Commission's broad interpretation allowing for the removal of tariff filing obligations for certain carriers.
The court previously struck down a similar mandatory detariffing rule, emphasizing that section 203(b) allows only limited modifications, not wholesale eliminations of requirements. Thus, both mandatory and permissive detariffing result in carriers being relieved of filing tariffs, which exceeds the authority granted to the Commission. While the court acknowledges the Commission's policy goals, it concludes that the statute does not permit the Commission’s interpretations and that any desired changes would require congressional approval.
AT&T's claim for damages was addressed by the Commission, which determined that even if the Fourth Report were found to be unlawful, AT&T would not be entitled to damages due to the principle of non-retroactivity. The Commission held that MCI could rely on its interpretation of the statute as stated in the Fourth Report. Employing a five-factor test from precedent cases, the Commission concluded that the law should not be applied retroactively in this context. AT&T contended that a recognition of the Fourth Report as ultra vires does not constitute a substantive change in the law. The Commission refrained from resolving this dispute due to uncertainty regarding its interpretation of the law's retroactive application. It noted that any potential change in regulation should be clearly defined before considering retroactivity.
The case has been remanded to the Commission for reconsideration of AT&T's claim for relief, including a cease and desist order against MCI. The Commission is instructed to reassess AT&T's damages claim and clarify its stance on retroactivity. If retroactivity is deemed a barrier to damages, the Commission must articulate the applicable law and the reasons it constitutes a change warranting retroactive considerations. Relevant statutory provisions under 47 U.S.C. 203(a) and (b)(2) concerning common carriers and the Commission’s authority were highlighted, alongside past findings that identified AT&T as the dominant interexchange carrier.
47 U.S.C. § 208(a) allows any individual or organization to file a complaint with the Commission against common carriers for actions that violate the statute. Upon receiving a petition, the Commission must forward the complaint to the carrier, which must respond within a specified timeframe. If there are reasonable grounds for investigation, the Commission is obligated to investigate the complaint. Under 47 U.S.C. § 206, common carriers that violate the statute are liable for damages to affected individuals.
The potential for the FCC to dismiss AT&T's complaint without ruling on the underlying claim is questioned, with the view that such dismissal could imply sanctioning MCI's conduct. AT&T seeks a cease and desist order, which the statute does not explicitly empower district courts to issue, yet it is assumed that the Commission could grant such relief. The FCC's assertion that AT&T's challenge to the Fourth Report was untimely is deemed meritless because the substantive nature of the Fourth Report was only clear after the FCC's order under review was issued.
The argument that AT&T's claim could be dismissed for being untimely or barred by laches does not hold since these reasons were not cited in the original order. The Commission attempted to dismiss AT&T's request for prospective relief on the grounds that it effectively challenges the Commission's forbearance rule. However, the core issue remains whether MCI is violating the law, regardless of the type of relief sought. The Fourth Report proposes removing regulatory requirements for non-dominant carriers and allows them to cancel existing tariffs, establishing a basis for the Commission's interpretation of the statute.
The opinion referenced, while not citing the Chevron case, is informed by its principles and postdates it. The Second Circuit's interpretation of section 203(b) aligns with the restrictive approach discussed in the case of MCI Telecommunications Corp. v. FCC. AT&T emphasizes that the MCI opinion is supported by the Supreme Court's ruling in Maislin Industries v. Primary Steel, which rejected the ICC’s deregulatory interpretation of rate-filing provisions similar to those in the Communications Act. This connection arises from the shared historical context of the statutes. In Maislin, a carrier attempted to collect a higher filed rate than what had been negotiated with a shipper; the ICC dismissed the carrier's claim based on its Negotiated Rate Policy. The Supreme Court disapproved this ICC interpretation, asserting that it undermined the fundamental structure of the Interstate Commerce Act by allowing adherence to unfiled rates. The Court highlighted that compliance with filing requirements is crucial for the Act's administration and that charging only filed rates is essential to prevent price discrimination.
