United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 08-1764

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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 * Appeal from the United States 

Commissioner of the Nebraska Public * District Court for the District of 

Service Commission; Anne C. Boyle, * Nebraska.

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 *
1

Rod Johnson, Frank E. Landis, Jr., Anne C. Boyle, Tim Schram, and Gerald

L. Vap. 

2

Jeffrey L. Pursley.

-2-

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. *

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Submitted: December 12, 2008

Filed: May 1, 2009

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Before WOLLMAN, BYE, and RILEY, Circuit Judges.

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BYE, Circuit Judge.

The members of the Nebraska Public Service Commission,1

 and the Director

of the Telecommunications Infrastructure and Public Safety Department2

 (collectively
3

The Nebraska Public Service Commission has been voluntarily dismissed and

is no longer a party to this action. For ease of reference, we refer collectively to the

remaining defendants as the NPSC. 

4

The Honorable Laurie Smith Camp, United States District Judge for the

District of Nebraska.

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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.
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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
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grounds, Vonage Holding 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.
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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 on other parties litigant; (3) the probability that movant will

succeed on the merits; and (4) the public interest.

Dataphase Sys., Inc. v. C L Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981). 

A. Probability of Success on the Merits

Taking the factors out of order, the primary issue in this appeal is the district

court's application of the third Dataphase factor, i.e., probability of success on the

merits. The district court concluded the FCC had preempted all state regulation of

nomadic interconnected VoIP service providers under § 152(b)'s impossibility

exception. Under the impossibility exception, the FCC may preempt all state

regulation of services which would otherwise be subject to dual control if it is

impossible or impractical to separate the service's interstate and intrastate components,

and the state regulation interferes with valid federal rules or policies. See Minn. Pub.

Utils. Comm'n, 483 F.3d at 576. The district court found no evidence showing
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Vonage's nomadic interconnected VoIP services could be separated into interstate and

intrastate components. Further, relying on Minn. Pub. Utils. Comm'n, the district

court concluded the Vonage Preemption Order categorically preempted all state

attempts to impose regulations on nomadic interconnected VoIP services.

The NPSC argues the Vonage Preemption Order only preempts "traditional

telephone company" regulations, and in applying it to the NUSF the district court

interpreted it too broadly. It contends the scope of the order must be limited to the

type of regulation Minnesota was seeking to impose, i.e., provision of 911 services.

According to the NPSC, the type of regulation at issue in Minn. Pub. Utils. Comm'n,

acted as a barrier to entry into the market and clearly conflicted with federal

regulations prohibiting states from imposing entry conditions. Conversely, it contends

the NUSF is the state counterpart to a complimentary federal regulation – Nebraska

seeks to collect a fee on intrastate service while the FCC regulation only reaches

interstate service.

Vonage contends the language of the Vonage Preemption Order clearly states

the FCC intended to preempt all state regulation of nomadic interconnected VoIP

service providers. It concedes the FCC could implement a universal service fund

surcharge on both interstate and intrastate VoIP traffic, but argues only the FCC has

the authority to impose such an obligation. Further, it contends the potential for

conflict and overlap between various states attempting to implement similar

regulations will thwart federal objectives.

The Vonage Preemption Order provides:

In this [Order], we preempt an order of the Minnesota Public Utilities

Commission . . . applying its traditional "telephone company"

regulations to Vonage's DigitalVoice service, which provides voice over

Internet protocol (VoIP) service and other communications capabilities.

We conclude that DigitalVoice cannot be separated into interstate and
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intrastate communications for compliance with Minnesota's

requirements without negating valid federal policies and rules. In so

doing, we add to the regulatory certainty we began building with other

orders adopted this year regarding VoIP . . . by making clear that this

Commission, not the state commissions, has the responsibility and

obligation to decide whether certain regulations apply to DigitalVoice

and other IP-enabled services having the same capabilities. For such

services, comparable regulations of other states must likewise yield to

important federal objectives.

19 FCC Rcd at 22404-05 (emphasis added).

In Minn. Pub. Utils. Comm'n, we interpreted the Vonage Preemption order,

holding: "The impossibility exception, if applicable, is dispositive of . . . whether the

FCC has authority to preempt state regulation of VoIP services." 483 F.3d at 578.

We concluded, as did the FCC, that VoIP services cannot be separated into interstate

and intrastate usage. Id. at 578-79. We find nothing in the NPSC's arguments here

to alter our earlier conclusion. Because Vonage's nomadic interconnected VoIP

service cannot be separated into interstate and intrastate usage, the impossibility

exception is determinative.

The impossibility exception further requires a finding the state regulation

interferes with valid federal rules or policies. The NPSC argues the NUSF does not

interfere with the USF because it only applies to the percentage of usage not

encompassed within the FCC's safe harbor provision, i.e., 35.1 percent. Thus,

according to the NPSC, the NUSF is consonant with federal regulations.

The district court's rejection of the NPSC's argument was not an abuse of

discretion. The Preemption Order states:

In [preempting Minnesota's regulation] . . ., we add to the regulatory

certainty we began building with other orders adopted this year regarding

VoIP . . . by making clear that this Commission, not the state
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commissions, has the responsibility and obligation to decide whether

certain regulations apply to DigitalVoice and other IP-enabled services

having the same capabilities.

(Emphasis added).

A reasonable interpretation of this language is the FCC has determined, given

the impossibility of distinguishing between interstate and intrastate nomadic

interconnected VoIP usage, it must have sole regulatory control. Thus, while a

universal service fund surcharge could be assessed for intrastate VoIP services, the

FCC has made clear it, and not state commissions, has the responsibility to decide if

such regulations will be applied.

Additionally, the NPSC's arguments fail to address the conflict which would

arise if states adopted conflicting methods or proxies for determining which VoIP

customers are subject to their respective universal service fund surcharges. As noted,

a customer's billing address need not correspond to the area code affixed to the

customer's telephone number. For example, a customer with a Nebraska billing

address may be issued a telephone number with a Missouri area code. Under the

NUSF, 35.1 percent of the customer's nomadic interconnected VoIP usage will be

subject to a surcharge because Nebraska has chosen billing address as a proxy for

where the usage occurred. Assume Missouri also adopts a universal service fund

surcharge but chooses area code as its proxy for where usage occurs. The customer

will be subject to duplicative surcharges in Nebraska and Missouri. This potential for

conflict between state regulations militates in favor of finding preemption.

B. Remaining Dataphase Factors

The district court analyzed the remaining Dataphase factors and concluded they

carried less importance. It concluded the threat of irreparable harm and public interest

factors weighed in favor of issuing the injunction, while the balance of harm factor did
5

Because the district court correctly concluded the FCC has preempted state

regulation of nomadic interconnected VoIP service, we do not decide if VoIP is an

information service or a telecommunications service. 

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not favor either party. We agree these factors are less important, and affirm the

district court's analysis of them. See 8th Cir. R. 47B. 

III

The judgment of the district court is affirmed.5

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