Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-06-01364/USCOURTS-caDC-06-01364-0/pdf.json

Parties Involved:
APCC Services, Inc.
Intervenor
Federal Communications Commission
Respondent
Network Enhanced Telecom, LLP
Petitioner
NetworkIP, LLC
Petitioner
United States of America
Respondent
Verizon
Amicus Curiae

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 9, 2008 Decided November 7, 2008 

No. 06-1364 

NETWORKIP, LLC AND NETWORK ENHANCED TELECOM, LLP, 

PETITIONERS

v. 

FEDERAL COMMUNICATIONS COMMISSION AND UNITED 

STATES OF AMERICA, 

RESPONDENTS

APCC SERVICES, INC., 

INTERVENOR

Consolidated with 07-1092 

On Petitions for Review of Orders 

of the Federal Communications Commission 

Michael H. Pryor argued the cause for petitioner. With 

him on the briefs was Kemal Hawa. 

Nandan M. Joshi, Counsel, Federal Communications 

Commission, argued the cause for respondents. On the brief 

were Thomas O. Barnett, Assistant Attorney General, Robert 

B. Nicholson and Robert J. Wiggers, Attorneys, Matthew B. 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 1 of 26
2 

Berry, Acting General Counsel, Federal Communications 

Commission, Joseph R. Palmore, Deputy General Counsel, 

Richard K. Welch, Acting Deputy Associate General Counsel, 

and James M. Carr, Counsel. Daniel M. Armstrong, 

Associate General Counsel, and Joel Marcus, Counsel, 

entered appearances. 

Albert H. Kramer, Robert F. Aldrich, and Allan C. 

Hubbard were on the brief for intervenor APCC Services, Inc. 

in support of the respondents. Ira R. Mitzner entered an 

appearance. 

Michael E. Glover, Karen Zacharia, and Aaron M. 

Panner were on the brief for amicus curiae Verizon in 

support of neither party. Joshua E. Swift entered an 

appearance. 

Before: SENTELLE, Chief Judge, and BROWN and 

KAVANAUGH, Circuit Judges. 

Opinion for the court filed by Circuit Judge BROWN. 

Concurring opinion filed by Chief Judge SENTELLE. 

BROWN, Circuit Judge: Petitioners NetworkIP, LLC, and 

Network Enhanced Telecom, LLP, (collectively “NET”) seek 

review of a pair of final orders of the Federal 

Communications Commission (“FCC”)—one finding 

liability, APCC Servs. Inc., 21 F.C.C.R. 10488 (2006) (Order 

on Review) (“Liability Order”), and the other imposing 

damages, APCC Servs., Inc., 22 F.C.C.R. 4286 (2007) 

(Memorandum Opinion and Order) (“Damages Order”). 

Because the FCC reasonably interpreted its own prior orders, 

we deny the petition as to liability. We grant in part NET’s 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 2 of 26
3 

petition as to damages, however, because the FCC’s failure to 

enforce its filing deadline was arbitrary and capricious. 

I. 

In a terabyte generation in which even three-year olds 

carry GPS-equipped wireless phones,1

 the payphone industry 

may seem like a Technicolor afterthought. Nonetheless 

payphones still fill an important, though decreasing, role in 

communications, and Congress has sought to keep them 

around. 

“Two types of calls may be placed from a payphone. The 

first and most common type is the ‘coin call,’ in which the 

caller inserts a coin directly into the payphone before making 

the call; the rates for coin calls are set by State commissions.” 

Sprint Corp. v. FCC, 315 F.3d 369, 371 (D.C. Cir. 2003). 

Increasingly common, however, is “the second type of call—

‘coinless calls’—which a caller places by using a service such 

as directory assistance, operator service, an access code, or a 

subscriber 800 number.” Id. The rules governing this second 

category of calls are at issue here. 

To ensure payphone service providers (“PSPs”) are 

compensated for these dial-around “calls to 800 numbers or 

10XXX numbers that the caller uses to reach the longdistance carrier of his choice,” and thus to encourage the 

availability of payphones, “Congress enacted § 276 of the 

Telecommunications Act of 1996.” Ill. Pub. Telecomm. Ass’n 

v. FCC, 117 F.3d 555, 559 (D.C. Cir. 1997) (citing 47 U.S.C. 

§ 276). The FCC must “establish a per call compensation 

 

1 See, e.g., Jacque Wilson, What to Know Before Buying Your Kid a 

Cell Phone, CNN.COM, Aug. 11, 2008, http://www.cnn.com/ 

2008/TECH/ptech/08/11/cellphones.kids/index.html. 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 3 of 26
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plan to ensure that all payphone service providers are fairly 

compensated for each and every completed intrastate and 

interstate call using their payphone . . . .” 47 U.S.C. 

§ 276(b)(1)(A). 

The concept is simple: Telecommunications carriers must 

compensate PSPs for calls made from payphones with calling 

cards. Application, alas, is complicated, because longdistance calls often involve multiple carriers. For instance, a 

local exchange carrier (“LEC”) initially might receive a call, 

and then route it to a non-LEC—“typically an interexchange 

carrier (‘IXC’)[] . . . such as Sprint, AT&T, and 

Worldcom”—that then transmits the call to yet another 

carrier. Sprint Corp, 315 F.3d at 371. “If the recipient of the 

call is a customer of the IXC, the IXC will simply transmit the 

call to the LEC that serves the customer,” but “[i]f the call 

recipient is not a customer of the IXC, . . . the IXC transfers 

the call to a ‘reseller’ of the IXC’s services.” Id. 

We have noted that “[t]wo types of resellers exist. The 

first, known as switchless resellers, do not possess their own 

switching facilities and must rely on an IXC to perform the 

switching and transmission functions that are required to 

complete a call.” Id. “By contrast, the second type, switchbased resellers (‘SBRs’), possess their own switching 

capacities . . . .” Id. “[I]n some instances the SBR transfers 

the call to another SBR, which in turn routes the call to yet 

another SBR, and so on.” Id. 

In its First Payphone Order, the FCC said “facilitiesbased carriers [‘FBCs’] should pay the per-call compensation 

for the calls received by their reseller customers.” 

Implementation of the Pay Telephone Reclassification and 

Compensation Provisions of the Telecommunications Act of 

1996, 11 F.C.C.R. 20541, 20586, ¶ 86 (1996) (Report and 

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Order). Later that year, in its First Payphone Reconsideration 

Order, the FCC said an FBC “maintains its own switching 

capability, regardless if the switching equipment is owned or 

leased by the carrier.” Implementation of the Pay Telephone 

Reclassification and Compensation Provisions of the 

Telecommunications Act of 1996, 11 F.C.C.R. 21233, 21277, 

¶ 92 (1996) (Order on Reconsideration). After two 

unsuccessful attempts to set a per call dial-around rate, see Ill. 

Pub. Telecomm. Ass’n, 117 F.3d 555, 564 (remanding $.35 

rate); MCI Telecomms. Corp. v. FCC, 143 F.3d 606, 608 

(D.C. Cir. 1998) (remanding $.284 rate), the FCC established 

$.24 per call as the applicable rate, Implementation of the Pay 

Telephone Reclassification and Compensation Provisions of 

the Telecommunications Act of 1996, 14 F.C.C.R. 2545, 2632, 

¶ 191 (1999) (Third Report and Order), which we upheld on 

review, Am. Pub. Commc’ns Council v. FCC, 215 F.3d 51, 58 

(D.C. Cir. 2000). 

NET, headquartered in Texas, is a telecommunications 

carrier that owns switches. Using an innovative web 

interface, NET empowered various other carriers to develop 

prepaid calling cards. Traditionally, carriers were obligated to 

purchase or lease their own switches in order to fully control 

calling-card functions. NET developed a new technology that 

(it says) allowed its customers to control switches as if they 

possessed them, thus severing the technologically out-dated 

link between switching and physical possession of switches. 

NET’s customers could “modify, in real time, the key 

economic parameters vital to the prepaid business,” such as 

“how to set up accounts, how much to charge, which domestic 

or foreign destinations could be reached with the cards, and 

by which methods.” Pet’r’s Br. 6. NET likewise instructed 

its customers that they alone were responsible for 

compensating PSPs, and often language to that effect was 

included in its contracts. Between October 1999 and 

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November 2001, the relevant period for our purposes, 

upwards of eleven million calls were placed with calling cards 

distributed by NET’s customers, using NET’s switches. 

In 2002, a group of PSPs including APCC Services, Inc. 

(“APCC”), a billing clearinghouse for PSPs, filed an informal 

complaint with the FCC against NET; a formal complaint 

followed in 2003. There were two proceedings, one for 

liability, and the other for damages. Ultimately, the FCC 

ordered NET to pay $2,789,505.84, plus interest at 11.25%. 

NET has petitioned for review of both the Liability and 

Damages Orders, and our review has been consolidated. 

APCC intervened, filing a motion to dismiss because of an 

alleged jurisdictional defect in NET’s petition for review of 

the Damages Order; this motion has since been withdrawn.2

 

II. 

 

2

 The question of APCC’s standing has been resolved by Sprint 

Communications Co. v. APCC Services, Inc., 128 S. Ct. 2531, 

2545–46 (2008). NET, however, also challenges “APCC’s sudden 

reversal of its position that all of the funds from payphone litigation 

flow through to its payphone owner clients,” as “APCC revealed 

for the first time that in fact it does keep some, perhaps a substantial 

portion, of funds awarded for payphone compensation.” Letter 

from Michael H. Pryor, Counsel to NET, to Mark J. Langer, Clerk, 

United States Court of Appeals for the District of Columbia Circuit 

(Aug. 7, 2008) (on file with the United States Court of Appeals). 

Though NET is frustrated by what it perceives as APPC’s 

chameleonic posturing, a remand is not in order, even if NET’s 

characterization is accurate. APCC represents a group of PSPs; 

how the damages due those PSPs are to be divvied up is not our 

concern. We see no indication in the record that any decision by 

the FCC turned in any way on whether APCC is entirely a passthrough entity. 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 6 of 26
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We first consider jurisdiction, though it is no longer 

contested. “It is axiomatic that subject matter jurisdiction 

may not be waived, and that courts may raise the issue sua 

sponte.” Athens Cmty. Hosp., Inc. v. Schweiker, 686 F.2d 

989, 992 (D.C. Cir. 1982). Indeed, we must raise it, because 

while arguments in favor of subject matter jurisdiction can be 

waived by inattention or deliberate choice, we are 

forbidden—as a court of limited jurisdiction—from acting 

beyond our authority, and “no action of the parties can confer 

subject-matter jurisdiction upon a federal court.” Akinseye v. 

District of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003); see 

also Wilks v. U.S. Marshals Serv., No. 92-5287, 1993 WL 

118285, at *1 (D.C. Cir. 1993) (per curiam). 

At first blush, jurisdiction seems euclidean. By statute, 

federal appellate courts have “exclusive jurisdiction to enjoin, 

set aside, suspend (in whole or in part), or to determine the 

validity of” final FCC orders. 28 U.S.C. § 2342(1). We are 

called upon to “determine the validity of” a pair of FCC final 

orders, so we have jurisdiction. QED. But the existence of 

parallel provisions—one to challenge final agency action and 

the other to enforce compliance—complicates this otherwise 

straightforward equation, particularly in light of a Supreme 

Court precedent attempting to “harmonize” a superficially 

similar statutory scheme. ICC v. Atlantic Coast Line R.R., 

383 U.S. 576, 586 (1966). 

APCC initially complained that this court’s jurisdiction to 

hear NET’s challenge to the orders should not trump APCC’s 

right to seek enforcement under 47 U.S.C. § 407. The 

language of the enforcement statute at issue in Atlantic Coast, 

49 U.S.C. § 16(2) (1964), was for all relevant purposes 

identical to § 407. Like § 407 does, § 16(2) allowed “any 

person for whose benefit [an agency’s] order was made” (an 

“adjudged-injured party”) to file a suit against a party who 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 7 of 26
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“d[id] not comply with an order for the repayment of money” 

(an “adjudged-injuring party”). In a situation somewhat 

similar to that here, the Atlantic Coast Court construed this 

language to mean that “a[n adjudged-injuring party] may 

obtain review of the Commission’s order only in the court 

where the [adjudged-injured party] commences its 

enforcement action—or where the [adjudged-injured party] 

seeks review of the Commission’s order.” 383 U.S. at 579. 

The similarities between this case and Atlantic Coast are 

obvious, but we decline to extend Atlantic Coast, even 

assuming that case was jurisdictional and not merely venuerelated. Unlike the review provision in Atlantic Coast, 49 

U.S.C. § 17(9) (1964), § 2342(1) places jurisdiction 

“exclusive[ly]” in the courts of appeal; in Atlantic Coast, both 

were district courts. There are institutional differences 

between trial and appellate courts, and when Congress has 

spoken so explicitly as to the particular type of court it wants 

to review agency action, as it has in § 2342(1), that explicit 

statement should not be set aside lightly. Likewise, the Court 

in Atlantic Coast put weight on the possibility of a § 17(9) 

cross-proceeding in a § 16(2) action. 383 U.S. at 601–02. 

But in the FCC context, a § 2342(1) cross-proceeding in a 

district court is impossible. 

Although there is some potential for vitiating 

congressional policy enhancing the injured party’s ability to 

choose its forum and encouraging prompt payment of 

reparation awards, we think the FCC context is distinct 

enough to justify the exercise of jurisdiction here. What 

finally tips the scale in favor of our having jurisdiction is a 

statute enacted in 1988, 47 U.S.C. § 208(b). As happened 

here, agencies can bifurcate a single grievance into separate 

proceedings for liability and damages. Under § 208(b), an 

adjudged-injuring party can in some instances seek federal 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 8 of 26
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appellate review of an FCC liability order even before a 

damages order has been issued. See Verizon Tel. Co. v. FCC, 

269 F.3d 1098, 1103–06 (D.C. Cir. 2001). Thus, in our 

“harmonizing” of competing statutes, we have a new input: 

§ 208(b). Consequently, an adjudged-injured party already 

may have to forego its favorite forum; if it wants to defend a 

liability order, it may have to intervene in the § 2342(1) 

action. This scenario undercuts much of the reasoning in 

Atlantic Coast. We therefore conclude we have jurisdiction.3

III. 

We now address the Liability Order. NET appears to 

concede the FCC’s interpretation of the First Payphone 

Reconsideration Order, including its emphasis on some kind 

of possessory interest, is reasonable. Pet’r’s Br. 28 (“For 

these reasons, NET’s interpretation certainly is as reasonable 

as the FCC’s . . . .”). This is no act of charity. Final agency 

orders are upheld unless “arbitrary, capricious, an abuse of 

 

3

 To be clear, § 2342(1) does not read § 407 out of the federal code. 

“In construing a statute we are obliged to give effect, if possible, to 

every word Congress used,” Reiter v. Sonotone Corp., 442 U.S. 

330, 339 (1979), and this rule applies a fortiori to entire statutory 

provisions, as “it is well settled that repeal by implication is 

disfavored,” Comm. for Nuclear Responsibility, Inc. v. Seaborg, 

463 F.2d 783, 785 (D.C. Cir. 1971). Under our reading, § 407 

primarily provides an enforcement remedy for a party injured by a 

carrier’s non-compliance with an FCC damages order. However, if 

the legal reasoning of an FCC order is not in dispute (either because 

we have reviewed it, or because no review is sought), but a party 

believes as a purely factual matter the FCC’s otherwise valid rule 

should not apply, such a discrete factual issue may be presented to 

the district court, though “the findings and order of the Commission 

shall be prima facie evidence of the facts therein stated . . . .” 47 

U.S.C. § 407. 

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discretion, or otherwise not in accordance with law,” or not 

supported by “substantial evidence.” 5 U.S.C. § 706(2). The 

FCC’s “interpretation of its own orders and rules is entitled to 

substantial deference,” AT&T Corp. v. FCC, 448 F.3d 426, 

431 (D.C. Cir. 2006), just as “an agency’s interpretation of 

one of its own regulations commands substantial judicial 

deference.” Drake v. FAA, 291 F.3d 59, 68 (D.C. Cir. 2002). 

In this case, even without substantial deference, the 

FCC’s interpretation of its earlier payphone orders was 

appropriate.4

 Because a challenge to the appropriateness of 

the Liability Order itself is unavailing, NET’s stronger 

argument does not go to the reasonableness of the FCC’s 

construction of the First Payphone Reconsideration Order, 

but instead to whether NET was fairly warned and thus should 

not have to pay damages. 

Preliminarily, we confront the FCC’s contention that the 

fair notice issue was not presented to the agency. We cannot 

review “questions of fact or law upon which the Commission, 

or designated authority within the Commission, has been 

afforded no opportunity to pass.” 47 U.S.C. § 405(a). If a 

petitioner could have called a question of law or fact to the 

agency’s attention, but did not, the issue is waived. Freeman 

Eng’g Assocs. v. FCC, 103 F.3d 169, 182–83 (D.C. Cir. 

1997). However, an issue need not be raised explicitly; it is 

sufficient if the issue was “necessarily implicated” in agency 

proceedings. Time Warner Entm’t Co. v. FCC, 144 F.3d 75, 

79–80 (D.C. Cir. 1998). 

 

4

 We thus do not reach the FCC’s alternate basis for its Liability 

Order, that even if a possessory interest is not required, NET’s 

customers still did not maintain a switching capability. 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 10 of 26
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Here, NET adequately raised the fair notice issue. Before 

the FCC, NET argued “the Enforcement Bureau disregarded 

the plain language of the Commission’s payphone 

compensation rules, and ignored NET’s business, which NET 

structured in reliance on the rules.” Application for Review at 

2, APCC Services Inc., et al. v. NetworkIP, LLC, et al. (FCC, 

2006) (No. EB-03-MD-011). NET also averred “the 

Enforcement Bureau’s determination is in conflict with the 

Commission’s regulations, decisions, and established policy,” 

and that it “brushed aside” the FCC’s prior statements. Id. at 

3, 11. NET even quoted one of our cases for the proposition 

that “‘there is a need for a clear and definitive interpretation 

of all agency rules so that the parties upon whom the rules 

will have an impact will have adequate and proper notice 

concerning the agency intentions.’” Id. at 13 (quoting FTC v. 

Atlantic Richfield Co., 567 F.2d 96, 103 (D.C. Cir. 1977)). 

The Enforcement Bureau addressed NET’s contention, APCC 

Services Inc., 20 F.C.C.R. 2073, 2081, ¶ 19 n.43 (2005) 

(Memorandum Opinion and Order) (“Bureau Liability 

Order”), and the Commission “affirm[ed] the Bureau 

Liability Order . . . .” Liability Order, 21 F.C.C.R. at 10488–

49, ¶ 1. This is sufficient to preserve the issue. 

Though agencies are entitled to deference, they may not 

retroactively change the rules at will. Indeed, that 

“[e]lementary considerations of fairness dictate that 

individuals should have an opportunity to know what the law 

is and to conform their conduct accordingly” has been wellestablished for “centuries.” Landgraf v. USI Film Products, 

Inc., 511 U.S 244, 265 (1994). Anything less ought not to be 

dignified with the title of law.5

 These “[t]raditional concepts 

 

5

 The contrary notion of unknowable law is literally Orwellian. 

See, e.g., GEORGE ORWELL, ANIMAL FARM 102–03 (1946) 

(describing Squealer’s ex post efforts to repaint the Seven 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 11 of 26
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of due process incorporated into administrative law preclude 

an agency from penalizing a private party for violating a rule 

without first providing adequate notice of the substance of the 

rule.” Satellite Broad. Co. v. FCC, 824 F.2d 1, 3 (D.C. Cir. 

1987). 

At the same time, however, agencies are authorized to 

make policy choices through adjudication, and giving a 

decision retroactive effect is “not necessarily fatal to its 

validity.” SEC v. Chenery Corp., 332 U.S. 194, 203 (1947). 

After all, “[e]very case of first impression has a retroactive 

effect, whether the new principle is announced by a court or 

by an administrative agency.” Id. And, as is common with 

comprehensive regulatory schemes, often “every loss that 

retroactive application . . . would inflict on [one party] is 

matched by an equal and opposite loss that non-retroactivity 

would inflict on [another].” Qwest Servs. Corp. v. FCC, 509 

F.3d 531, 540 (D.C. Cir. 2007). This case potentially stands 

at the pivot point between these competing principles. 

 There are “two conflicting modes of judicial review to 

agency interpretations,” with “[o]ne longstanding line of [our] 

cases allow[ing] agencies to apply new interpretations of 

regulations retroactively,” while another requires “revers[ing] 

agency action where regulated parties do not have fair 

warning of the agency’s interpretation of its regulations.” 

Kieran Ringgenberg, Comment, United States v. Chrysler: 

The Conflict Between Fair Warning and Adjudicative 

 

Commandments to the pigs’ whisky-bibbing benefit); see also

Antonin Scalia, The Rule of Law as a Law of Rules, 56 U. CHI. L.

REV. 1175, 1179 (1989) (“Rudimentary justice requires that those 

subject to the law must have the means of knowing what it 

prescribes. It is said that one of emperor Nero’s nasty practices was 

to post his edicts high on the columns so that they would be harder 

to read and easier to transgress.”). 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 12 of 26
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Retroactivity in D.C. Circuit Administrative Law, 74 N.Y.U.

L. REV. 914, 916 (1999). NET attacks with fair notice cases 

like United States v. Chrysler Corp., 158 F.3d 1350 (D.C. Cir. 

1998); the FCC parries with retroactivity cases like Qwest. 

When to apply which line of cases has not been resolved 

definitively by our precedents. We too leave for another day 

the question of how these two lines interplay, because under 

either one, NET loses. That NET has an unwinnable case 

under the retroactivity line is obvious; the correctness of 

NET’s interpretation was anything but “settled”, and many 

PSPs will be harmed if NET escapes liability. Qwest, 509 

F.3d at 540–41. NET, however, also loses under the fair 

notice line, because its interpretation of the First Payphone 

Reconsideration Order is less plausible than the FCC’s. The 

FCC’s, in fact, is the most reasonable interpretation. We have 

never applied the fair notice doctrine in a case where the 

agency’s interpretation is the most natural one.6

 

 

6 See, e.g., Trinity Broad of Fla., Inc. v. FCC, 211 F.3d 618, 629 

(D.C. Cir. 2000) (emphasizing the party’s interpretation was 

reasonable, and “the Commission never clearly articulate[d] its 

theory”); Chrysler, 158 F.3d at 1355, 1356 (finding retroactive 

liability inappropriate “if [the party] had no reason to know, in 

exercising reasonable care, that the vehicle did not comply with the 

applicable safety standards,” and “an agency is hard pressed to 

show fair notice when the agency itself has taken action in the past 

that conflicts with its current interpretation of a regulation”); Gen. 

Elec. Co. v. EPA, 53 F.3d 1324, 1330–31 (D.C. Cir. 1995) 

(observing the agency’s “interpretation [was] so far from a 

reasonable person’s understanding of the regulations that they could 

not have fairly informed GE of the agency’s perspective,” and “the 

agency itself . . . recognized that its interpretation . . . [was] not 

apparent”); Satellite Broad. Co., 824 F.2d at 2 (confronting 

“baffling and inconsistent” FCC rules); Gates & Fox Co. v. 

OSHRC, 790 F.2d 154, 156–57 (D.C. Cir. 1986) (noting the 

petitioner’s construction of the rule was the more apparent one). 

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Consider the language of the First Payphone 

Reconsideration Order. The operative phrase reads, “We 

clarify that a carrier is required to pay compensation and 

provide per-call tracking for the calls originated by payphones 

if the carrier maintains its own switching capability, 

regardless if the switching equipment is owned or leased by 

the carrier.” 11 F.C.C.R. at 21277, ¶ 92. NET focuses on the 

words “maintain” and “capability.” Quoting Webster’s 

Dictionary, NET defines “maintain” as “‘to provide for,’ ‘to 

continue,’ ‘to keep in existence: to sustain,’ and ‘to preserve 

or keep in a given existing condition, as of efficiency or good 

repair,’” and “capability” is defined as “‘the quality or state of 

being capable,’ or the ‘capacity to be used, treated or 

developed for a particular purpose . . . .’” Pet’r’s Br. 17 

(quoting WEBSTER’S II NEW COLLEGE DICTIONARY 661, 164 

(1999)). NET argues these words are satisfied provided a 

carrier has the ability to control switches, which its customers 

did. It then interprets the words “regardless if the equipment 

is owned or leased” as “it does not matter whether a switching 

capability is maintained via an ownership or lease or some 

other means.” Id. 

NET’s is not an impossible interpretation, but it is not the 

most natural one. When the words “maintains its own 

switching capability” are read in light of the phrase 

“regardless if the switching equipment is owned or leased by 

the carrier,” then “maintains its own switching capability” is 

best understood as shorthand for either owning or leasing, but 

nothing else. Indeed, even NET’s proffered definitions 

suggest the need for a physical connection or possession of 

some sort; one usually “keep[s] in existence” or “preserve[s]” 

something in “good repair” by means of physical access. 

Thus, though the language can be read the way NET does, we 

agree with the FCC’s Enforcement Bureau that “rather than 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 14 of 26
15 

rejecting a possessory interest requirement, the sentence 

simply clarifies the kinds of possessory interests that will 

suffice.” Bureau Liability Order, 20 F.C.C.R. at 2081, ¶ 18. 

NET also turns to other sources of potential ambiguity. 

For instance, it points to additional language from the First 

Order on Reconsideration that arguably permits a carrier to 

“maintain its own switching capability” by contract. From 

this, NET asserts the FCC’s insistence on a possessory 

interest in switches is oceans apart from what NET reasonably 

perceived as the earlier, more flexible rule. Again, we are 

unpersuaded. 

The critical language reads: “If a carrier with a switching 

capability has technical difficulty in tracking calls from 

origination to termination, it may fulfill its tracking and 

payment obligations by contracting out this duty to another 

entity . . . .” First Order on Reconsideration, 11 F.C.C.R. at 

21277, ¶ 92. If tracking is synonymous with switching 

capability, the sentence borders on incoherence—a carrier 

with the capability to track calls is technically unable to track 

calls? Thus, defining “switching capability” as the mere 

technical ability to track calls is not the most reasonable 

approach. Instead switching capability and tracking 

capability are separate, and a “tracking and payment 

obligation” does not lodge until after a carrier is already an 

FBC. A carrier can have the ability to track without being an 

FBC, and a carrier can be an FBC without having the ability 

to track. But if a carrier is an FBC, it has a legal duty to track, 

either directly or by means of contract. 

As NET suggests, the FCC has not always insisted a 

possessory interest is a necessary attribute of the phrase 

“facilities based.” In the narrow context of “unbundled 

network elements,” the FCC has taken a loosey-goosey 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 15 of 26
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approach to ownership. See Federal-State Joint Bd. on 

Universal Serv., 12 F.C.C.R. 8776, 8862–70 (1997). The 

FCC reasonably responds, however, that “facilities-based”—

as the plain words suggest—typically connotes some sort of 

possessory interest, and “the commonly understood meaning 

of the term ‘facilities-based’” among those regulated requires 

a possessory interest of some sort. Liability Order, 21 

F.C.C.R. at 10490, ¶ 6.7

 The interpretation of the phrase 

“facilities based” in the “unbundled network elements” 

context is noteworthy, but it was unreasonable for NET to 

assume that an idiosyncratic exception should define the rule. 

Because the FCC’s interpretation of its First Order on 

Reconsideration is the most natural, we hold the fair notice 

doctrine has been satisfied.8

 

7 See, e.g., 47 C.F.R. § 63.09(a) (“Facilities-based carrier means a 

carrier that holds an ownership, indefeasible-right-of-user, or 

leasehold interest . . . .”); Verizon Commc’ns Inc. v. FCC, 535 U.S. 

467, 491 (2002) (“First, a competitor entering the market . . . may 

decide to engage in pure facilities-based competition, that is, to 

build its own network to replace or supplement the network of the 

incumbent.”). 

8

 NET also argues the FCC impermissibly interpreted its rule as 

imposing liability on the last FBC that physically routes a call, as 

opposed to the first, and the FCC’s order was not supported by 

substantial evidence that NET was the last FBC; it likewise claims 

the FCC has not been internally consistent on this issue. NET’s 

arguments are waived. “The parties stipulated [the rule from the 

First Payphone Reconsideration Order’s ¶ 92] would govern,” 

Pet’r’s Br. 13, but the rule is silent as to the first-versus-last 

distinction. Likewise, in imposing liability, the Enforcement 

Bureau explicitly called NET the last FBC, Bureau Liability Order, 

20 F.C.C.R. at 2079, ¶ 14 (“For the following reasons, we conclude 

that [NET], and not a Debit Card Provider, is the last ‘facilitiesbased’ carrier, and thus is the entity responsible for paying 

payphone compensation to Complainants.”), but NET never 

challenged that characterization to the Commission, and, as we 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 16 of 26
17 

IV. 

 Congress has set a two-year statute of limitations for 

“[a]ll complaints against carriers for the recovery of damages 

not based on overcharges . . . .” 47 U.S.C. § 415(b). The 

FCC recognizes both formal and informal complaints. 47 

C.F.R. § 1.711. Informal complaints are forwarded “to the 

appropriate carrier for investigation,” and the carrier must, 

“within such time as may be prescribed, advise the 

Commission in writing, with a copy to the complainant, of its 

satisfaction of the complaint or of its refusal or inability to do 

so.” Id. § 1.717. If the informal-complaint process proves 

ineffective, “the complainant may file a formal complaint,” 

and “[s]uch filing will be deemed to relate back to the filing 

date of the informal complaint” if, inter alia, it “[i]s filed 

within 6 months from the date of the carrier’s report”; but 

“[i]f no formal complaint is filed within the 6-month period, 

the complainant will be deemed to have abandoned the 

unsatisfied informal complaint.” Id. § 1.718. However, 

“[a]ny provision of the [FCC’s] rules may be waived by the 

Commission on its own motion or on petition if good cause 

therefor is shown.” Id. § 1.3. 

 

review the record, we cannot conclude it was raised by necessary 

implication. Unlike MCI Telecommunications Corp. v. FCC, 10 

F.3d 842 (D.C. Cir. 1993), cited by NET, where the FCC relied on 

an on-point but legally invalid rule in addressing the regulated 

party’s argument (thus throwing the validity of that inadequate rule 

into question), id. at 845, NET’s argument to the Commission did 

not relate to the first-versus-last distinction. Finally, “[i]f a party to 

an FCC proceeding believes that the Commission has failed to 

address certain record evidence, § 405 requires that the party bring 

the matter to the attention of the agency before proceeding to 

court.” Freeman Eng’g, 103 F.3d at 182. 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 17 of 26
18 

In the fall of 2002, APCC filed an informal complaint 

with the FCC against NET. On the absolutely last day it 

could be timely, May 19, 2003, APCC unsuccessfully 

attempted to file a formal complaint. The filing was deficient 

in two respects: APCC submitted a single check (rather than 

a check for each of the two defendants in the formal 

complaint), and the filing fee proffered for each defendant 

was $5.00 short. APCC explained to the Enforcement Bureau 

“it submitted the wrong filing fee (and missed the six-month 

deadline under rule 1.718) because its counsel consulted only 

the hard-copy version of the Code of Federal Regulations 

(‘CFR’), dated October 1, 2002, which contained a filing fee 

amount—$165 per defendant—that had been superseded by 

the time APCC filed its formal complaint in May 2003.” 

APCC Services Inc., 20 F.C.C.R. 16727, 16729, ¶ 6 (2005) 

(“Bureau Waiver Order”). 

About two weeks later, on June 3, 2003, APCC finally 

filed its formal complaint. The Enforcement Bureau accepted 

it, pursuant to the “good cause” exception to its rules, 

notwithstanding “the errors by APCC’s counsel [were] 

difficult to excuse, given that they were easily avoidable, and 

APCC’s law firm is highly experienced, resourceful, and 

knowledgeable in communications law . . . .” Id. at 16732, ¶ 

12. If the FCC had enforced the deadline, much of the 

Damages Order would be invalid.9

 

In affirming the Enforcement Bureau, the Commission 

considered it inappropriate to permit “a $5.00 fee error by 

APCC’s counsel—as negligent as it may have been—” to 

 

9 See Bureau Waiver Order, 20 F.C.C.R. at 16730, ¶ 8 n.23 (“With 

the waiver, the relevant period for damages is April 1, 2000 to 

November 23, 2001; without the waiver, it is January 3, 2001 to 

November 23, 2001.”). 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 18 of 26
19 

stand in the way of fair compensation for PSPs, especially 

when the “formal complaint was otherwise submitted and 

served on time and in good faith, with advance notice to 

[NET].” Damages Order, 22 F.C.C.R. at 4297, ¶ 23. Thus, 

“under these specific circumstances, strict enforcement of 

[the] six-month relation-back deadline would unduly conflict 

with the public interest in ensuring the payment of 

compensation necessary to ‘promote the widespread 

deployment of payphone services to the benefit of the general 

public . . . .’” Id. (quoting 47 U.S.C. § 276(b)(1)). 

 NET insists the FCC’s decision to allow the formal 

complaint to relate back was erroneous for two reasons. First, 

it claims the FCC unlawfully extended the two-year statute of 

limitations under Section 415(b) of the Act. In response, the 

FCC avers that it reasonably found that an informal complaint 

“constitutes a ‘complaint’ within the meaning of section 415 

. . . .” Id. at 4294, ¶ 16. We need not resolve this specific 

issue because, as discussed below, we find NET’s alternate 

argument persuasive. 

NET also argues that even if the FCC did not violate 

§ 415(b), it nonetheless acted arbitrarily and capriciously in 

excusing APCC’s sloppiness, because under the adamantine 

standard set forth in the FCC’s Meredith/New Heritage 

Strategic Partners, L.P., 9 F.C.C.R. 6841, 6842–43, ¶¶ 6–9 

(1994), deadlines can only be waived under “unusual or 

compelling circumstances” involving “a calamity of a 

widespread nature that even the best of planning could not 

have avoided, such as an earthquake or a city-wide power 

outage which brings transportation to a halt,” id. at 6842, ¶ 6. 

APCC cannot even begin to meet that standard. The FCC 

rejoins that Meredith only applies to “filing deadlines for 

pleadings that ‘initiate adjudicatory proceedings,’” which 

does not include formal complaints when an informal 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 19 of 26
20 

complaint has already been filed, and Meredith likewise only 

applies to late filings, not to pleadings that are timely offered 

but technically defective. Damages Order, 22 F.C.C.R. at 

4298–99, ¶¶ 26–27 (quoting Meredith, 9 F.C.C.R. at 6843, ¶ 

10). 

Whether Meredith applies is not essential to our analysis; 

in any event, “the Commission has implied that the Meredith

standard might not materially differ from the [FCC’s] general 

waiver standard.” Id. at 4299, ¶ 26 n.84. We have repeatedly 

“discourage[d] the Commission from entertaining late-filed 

pleadings ‘in the absence of extremely unusual 

circumstances.’” BDPCS, Inc. v. FCC, 351 F.3d 1177, 1184 

(D.C. Cir. 2003) (quoting 21st Century Telesis Joint Venture 

v. FCC, 318 F.3d 192, 200 (D.C. Cir. 2003)). Consistent with 

this warning—which applies to any FCC decision to accept 

late pleadings, even in non-Meredith contexts—we hold the 

FCC’s failure to apply its six-month filing deadline was 

arbitrary and capricious. We do so reluctantly; given the 

deference we afford to an agency’s decision whether to waive 

one of its own procedural rules. See AT&T Corp. v. FCC, 448 

F.3d 426, 431 (D.C. Cir. 2006). But even deference has 

limits. 

As we explained in Northeast Cellular Telephone Co. v. 

FCC, 897 F.2d 1164 (D.C. Cir. 1990), before the FCC can 

invoke its good cause exception, it both “must explain why 

deviation better serves the public interest, and articulate the 

nature of the special circumstances to prevent discriminatory 

application and to put future parties on notice as to its 

operation,” id. at 1166. The reason for this two-part test flows 

from the principle “that an agency must adhere to its own 

rules and regulations,” and “[a]d hoc departures from those 

rules, even to achieve laudable aims, cannot be sanctioned, for 

therein lie the seeds of destruction of the orderliness and 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 20 of 26
21 

predictability which are the hallmarks of lawful 

administrative action.” Reuters Ltd. v. FCC, 781 F.2d 946, 

950–51 (D.C. Cir. 1986). This basic tenet is especially 

appropriate in the context of filings. When an agency 

imposes a strict deadline for filings, as the FCC has done, 

many meritorious claims are not considered; that is the nature 

of a strict deadline. The power to waive that strict deadline is 

substantial, because it allows an agency to decide which 

meritorious claims get considered. The inverse is true too—

the power to waive allows an agency to decide which 

otherwise liable parties are off the hook. 

The criteria used to make waiver determinations are 

essential. If they are opaque, the danger of arbitrariness (or 

worse) is increased. Complainants the agency “likes” can be 

excused, while “difficult” defendants can find themselves 

drawing the short straw. If discretion is not restrained by a 

test more stringent than “whatever is consistent with the 

public interest (by the way, as best determined by the 

agency),” then how to effectively ensure power is not abused? 

The “special circumstances” requirement is that additional 

restraint. Otherwise, we are left with “nothing more than a 

‘we-know-it-when-we-see-it’ standard,” and “future 

[parties]—and this court—have no ability to evaluate the 

applicability and reasonableness of the Commission’s waiver 

policy.” Northeast Cellular, 897 F.2d at 1167. 

We accept that the public interest is well-served by 

NET’s compensating PSPs, but that is not enough. There 

must also be a sufficiently “unique . . . situation.” Id. at 1166. 

In Keller Communications, Inc. v. FCC, 130 F.3d 1073 (D.C. 

Cir. 1997), waiver was permissible because there was a threat 

to public safety and the regulated party “expend[ed] 

thousands of dollars of public funds in reliance on the 

agency’s mistaken grant of its license,” id. at 1076–77. We 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 21 of 26
22 

appreciate why that is a special circumstance. But 

procrastination plus the universal tendency for things to go 

wrong (Murphy’s Law)—at the worst possible moment 

(Finagle’s Corollary)—is not a “special circumstance,” as any 

junior high teacher can attest. 

We likewise are not convinced waiver was appropriate 

because NET received notice of the formal complaint prior to 

the deadline. After the informal complaint process has broken 

down, many defendants—probably most—are aware of the 

specific substance of a complainant’s grievance and whether a 

formal complaint will follow. Very few are that prejudiced 

when a filing occurs a day after a deadline (or a week, or a 

month, or maybe even a year), as opposed to the day of. 

Nonetheless, there is no indication the FCC’s practice is to 

accept those complaints; indeed, if it were, the six-month 

requirement would devolve into mere suggestion. The 

analytic difference between that common situation and this 

case is insufficient to satisfy the special circumstance 

requirement. 

In so ruling, we of course do not cast doubt on the FCC’s 

ability to craft and apply exceptions to its procedural rules and 

filing deadlines; we merely hold that, under the applicable 

precedents and facts and circumstances of this case, the 

FCC’s decision to waive its filing deadline was arbitrary and 

capricious. 

V. 

We last address whether the FCC improperly ordered 

NET to pay interest at an annual rate of 11.25%. The FCC 

has previously determined that “11.25% is the appropriate 

cost of capital for payphone providers” because most 

payphones “are owned by large [LECs]” and the “authorized 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 22 of 26
23 

interstate rate of return” for LECs—11.25%—appropriately 

reflects “a weighted average of debt and equity costs,” 

Implementation of the Pay Telephone Reclassification and 

Compensation Provisions of the Telecommunications Act of 

1996, 13 F.C.C.R. 1778, 1806 ¶ 60 (1997) (Second Report 

and Order), even if a particular PSP is not an LEC. 

NET contends, however, it only should have to pay the 

lower “IRS rate,” as the FCC recognized in a pair of 2002 

payphone reconsideration orders. See Implementation of the 

Pay Telephone Reclassification and Compensation Provisions 

of the Telecommunications Act of 1996, 17 F.C.C.R. 2020, 

2032, ¶ 33 (2002) (Fourth Order on Reconsideration), 

(“Fourth Payphone Reconsideration Order”); Implementation 

of the Pay Telephone Reclassification and Compensation 

Provisions of the Telecommunications Act of 1996, 17 

F.C.C.R. 21274, 21307–08, ¶¶ 99–101 (2002) (Fifth Order on 

Reconsideration). The FCC counters that the use of the IRS 

rate in those orders was justified by unusual circumstances. 

Because the FCC’s early attempts at setting a dial-around rate 

had been vacated by this court, “the Commission determined 

that PSPs had been under-compensated during one time 

period and over-compensated during another.” Resp’t’s Br. 

41. Thus, the higher rate of 11.25% was deemed 

inappropriate in that narrow context, because it would not 

have accounted for the periods when PSPs were 

overcompensated. 

Under the deferential arbitrary-and-capricious standard, 

the FCC adequately explained why it imposed the 11.25% 

interest rate instead of the IRS rate. There is a marked 

difference between “one-time . . . ‘true up[]’” payments, 

Fourth Payphone Reconsideration Order, 17 F.C.C.R. at 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 23 of 26
24 

2033, ¶ 33, where obligations were owed both ways, and the 

situation here with a financial duty owed only to the PSPs.10 

 

VI. 

 The FCC permissibly found liability and ordered interest 

at the rate of 11.25%. But its decision to waive for good 

cause APCC’s late filing was arbitrary and capricious. We 

therefore deny the petition as to the Liability Order, but grant 

in part the petition as to the Damages Order. 

So ordered. 

 

10 By failing to argue them in its opening briefs, NET has waived 

any other argument as to the 11.25% rate, such as why the cost of 

capital for (likely large) LECs should be used for (possibly small) 

PSPs. See, e.g., Corson & Gruman Co. v. NLRB, 899 F.2d 47, 50 

n.4 (D.C. Cir. 1990) (arguments not raised in opening brief are 

waived); see also FED. R. APP. P. 28(a)(9). 

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 24 of 26
SENTELLE, Chief Judge, concurring: I fully join in the

resolution and reasoning of the opinion of the court. I write

separately only to express my dismay at the events referenced in

footnote 2 of that opinion. As NET has brought to the attention

of the court, APCC, at the current stage of this litigation, has

taken a “sudden reversal of its position that all of the funds from

payphone litigation flow through to its payphone owner clients.”

As the record in this litigation will sustain, NET is absolutely

correct. APCC adhered to that position sufficiently strongly to

occasion the considerable allocation of resources of this court to

a divided opinion in APCC Servs., Inc. v. Sprint Commc’ns Co.,

L.P., 418 F.3d 1238 (D.C. Cir. 2005). While the court divided

on other questions as well, my entire dissent was devoted to the

basic question: whether an aggregator has standing to sue when

the assignment for purposes of collection results in complete

remititur to its principles with no retention by the aggregator.

Id. at 1250-53. This was the position taken by APCC before us

in that litigation and one which occasioned considerable

devotion of the resources and time of the court.

More shockingly still, APCC defended that position through

the rare grant of a petition for certiorari to its opponent on that

very issue in Sprint Commc’ns Co., L.P. v. APCC Servs., Inc.,

128 S. Ct. 2531 (2008). It is difficult to imagine the cost in

terms of the Supreme Court’s scarce resources occasioned by

litigating what apparently was a false position on behalf of the

winning litigant. What makes APCC’s bizarre conduct even

more difficult to understand is that their litigation position in

that case would have been stronger had they not taken the nowrenounced position that they had no retainage in the assigned

recovery. Their standing then would have been clear, and they

not only would have prevailed anyway, they would have

prevailed more quickly. Whether this strange litigation strategy

constituted an apparently successful attempt to gain an advisory

opinion for some other cause, I cannot know. However, I share

USCA Case #06-1364 Document #1148145 Filed: 11/07/2008 Page 25 of 26
2

the dismay of the litigant NET, mixed with a bewilderment as to

why this came about.

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