# United States Court of Appeals

FOR T HE D ISTRICT OF CO LUM BIA CIR CUIT

Argued November 12, 2004 Decided January 14, 2005

No. 03-1431

AT&T C ORPORATI ON , P ETITIONER

V

.
F EDERA L C OMM UNICAT IONS C OMMIS SI ON AND U NITED S TAT ES OF A MERICA , R ESP ONDENT S

On Petition for Review of an Order of the Federal Communications Commission

David W. Carpenter

argued the cause for petitioner. With him on the briefs were Peter H. Jacoby , James F. Bendern agel, Jr. , C. John Bu resh , and Michael J. Hunseder

. Laurence N. Bourne , Counsel, Federal Communications Commission, argued the cause for r espondents. With him on the briefs were Robert B. Nicholson and Steven J. Mintz , Attorne ys, U.S. Department of Justice, John A. Rogovi n , Gener al Counsel, Richard K. Welch , Associate General Counsel, John E. I ngle , Deputy Associate Genera

l C ounsel, and Rodger D. Citron , Counsel. Laurel R. B ergold, Counsel, entered an appearance

.2
Before: G INSBURG , Chief Judge , and T ATEL and R OBER TS , Circuit Judges

. Op in io n f or th e C ou rt by Circuit Judge R OBER TS

. R OBER TS , Circu it Judge : AT&T Corporation petitions for
r evi ew of a Federal Communications Commission order interpreting AT&T’s tariff on resales of 800 telephone service. A provision

of that ta

riff all ows rese

llers to tr

ansfer their business, so long as the recipient assumes all of the transferor’s obligat ions. Base d on t his provision, AT&T denied one rese ller’s r equest to

move the “traffic ” under i ts 800 plan s to another reseller without a transfer ofthe corresponding obligations. The Commission interpreted the tariff transfer provision
as not addressing the movement of traffic, a nd ul timately

held that AT&T could not refuse t he t ransfer. We conclude that traffic is a type of

service covered by

the transfer provision, and that the Commission’ s contra ry interpre tation would render the provision meaningless. We grant the petition for review. I. This case co ncerns t

he trans fer of to ll- f

ree 800 telephone service. At the ti me of the events in question, AT&T was the dominant carrier of such

service, which it provided pursuant to tariffs filed with the FCC. Under the C o mmunications Act of 1934, as amended, and the “filed rate do ctrine” incorporated therein, neither

the car rier nor its custome

rs coul d depart from the terms set forth in AT&T’s tariffs. See 47 U.S.C. § 203(c ) ; AT &T v. Cent. Office Tel., Inc. , 524 U.S. 214, 221–24 (1 99 8); Orloff v. F

CC , 352 F.3d 415, 418 (D.C. Cir. 2003). The tar if f at issue here — AT&T Tariff F CC No. 2 — allowedcompanie s to purch ase and r esell 8 00 service

to small businesses around the country . The tariff refer s to this re sale business, as well as the underly ing service

itself, as Wide Area T el ecommunications Service (WATS). An

y c ompany

could3 qualify as a reseller so long as it met the requirements of one of several plans described in the tariff. Companies qual i fied by aggrega ting the WATS usage

of multiple

small businesses into
a single plan, and, under t he tariff, the companies obtained AT&T’s service for these “end-user” businesses at a discounted rate. In return, the rese

ller or “aggreg ator” company agr eed to meet certain o bligat ions set forth by the ca rrier, including commitments to purchase a certain volume of use.
In the ear ly 1 990s, as other carriers bega n to acquire a share of the 800 mark et, the FCC began to loosen its regulation of AT&T. Starting in 1991, the Commission no longer forced the carrier to offer WATS only

through the gen eric pla ns set for th in Tariff No. 2. Instea

d, the FCC gave AT&T the option of individua lly negotia ting “c ontract

tariffs ” with particular

resale companie s. As contra

ct tarif fs could be drawnto offer

discounts greater than those availa

ble under Tariff No. 2, many resellers naturally s ought to o

btain the m. Alfonse Inga, a N ew Jersey busines sman who owned sever al aggrega tor companies, was one such reseller. I n 1994, Mr. Inga undertook

a serie s of tran sactions designed to move hi s business from Tariff No. 2 to a more lucrative contract tariff. Fir st, his companies — eachof which operated under CSTP II , a type of plan offered under Tar

iff N o. 2 — tran sferre d all nine of their plans to a new e

ntity , Combined

Companie s, Incorporated (C CI). As required b y Se ction 2.1. 8 of Tariff No. 2, CCI expr essly agr eedto assume all obligations of the transferor companies

. The transfer

also stipul ated tha

t CCI would pas s 80 perc ent of its profits on to the tr

ansfer or compa nies. Second, CCI attempted to negotiate a contract tariff with AT&T. Third, as temporary
cover until this envisione d contra ct tarif f becam e a reality, or

as a per manent alternative in case it never did, Mr. I nga plann e d another transfer — oneb etween CCI and Public Services Enterprises of Pennsy

lvania (PSE). PSE

already had a contract4
tariff with AT&T at a substantially larg er discount on AT&T’s 800 service than that available to CCI unde r Tariff No. 2. AT&T resisted this series of transactions. Fearing that CCI would not ha ve the assets to meet its obligations under the transferred

plans, AT&T initially ref used to implementthe first transfer (fr om the Inga compa

nies to CCI) unless CCI paid a deposit — a r equiremen t not found in Section 2.1.8 of Tariff No. 2. In 1995, the I

nga co mpanies a

nd CCI brough t suit agains t AT&T in fede r al district court in New Jersey, a nd the court ordered AT&T to drop the deposit requirement and implement the transfer. Combined Companies, Inc. v. AT &T , No. 95–908 (D.N.J. May 19, 1995) (unpublished opinion). Meanwhile, CCI’s negotiations for its own co ntract tariff failedand CCI

entere d into the second transfer, moving substantially all the 800 service in its CSTP II pla ns to PSE. As with the first transfer, the CCI-PSE ag reement called for PSE t o pass much of the realized

profit back to CCI. The second transf er, however, diffe red f

rom the first in an important respect. The parties attempted to structure the transaction to avoi d Sec tion 2.1.8 of Tari ff No. 2, so that PSE w ould not ha ve to assu

me C CI’s obligat

ions on the

transfe rred se rvice. T o do this, th e parties asked AT &T to mo ve just the service to particular end-user businesses — the “traffic” under CCI ’s plans — and to leave the plans themselve s otherwi se intac t. The parties hoped that, as a result, 800 service would be billed und er PSE’s substantia lly lower contract

tariff r ates, wh ile CCI would remain responsi ble for the obligations to the carrier under Tariff No. 2. AT&T balked a

t this seco nd transf

er as w ell. AT&T maintained that Sect

ion 2.1.8 a

pplied to the transaction, and that PSE thus had to assume CCI’s obligations in order for t h e trans fer t o go through. I

n addition, AT&T argued that the proposed tra nsfer vi olated the tariff ’s “fra udulent us e” provi

sions, as CCI

almost ce

rtainly woul d fall sho

rt of its vo lume5
commitmen

ts once the traffic was moved to PSE’s accoun t, and AT&T had reason to believethat CCI would not have sufficient assets to p ay

the resulting pe

nalties. The same district

court tha t compelled AT&T to

accept the first transfer declined

to rule on the second, holding that tariff interpretation issues were within the primary jurisdiction of

the FCC. Id. at *15. When none of the parties brought the primary jurisdiction ma t ter to the agency , however, the district court went ahead and issu ed its own decision interpreting the tariff. See Co mb in ed Co mp an ie s, In c. v. AT &T , N o. 9 5–9 08 ( D.N .J. Mar. 5, 1996) (unpublished opinion). The Third Circuit vacated this ruling as inconsistent with the pr

imary jurisdict ion refe rral, and ordere d the side s to bring the matter to the FCC’s attention. Combined

Co mp an ie s, In c. v. AT &T , No. 96–5185 (3d Cir. May 31, 1996) (unpublished opinion). The specific question re ferre d to the FCC was “whether section 2.1.8 permits an aggreg ator to transfer traffic under a plan withouttransfe

rring t he plan it self in the

sametransaction.” Id. at *3. While the case was pending before the Commission, AT&T ent ere d i nt o a s ett lem ent wit h C CI, extin guishing its WATS plans and releasing all claims between th e two par ties. Appare ntly as a res ult of this s ettlemen t, the Commi ssion to ok
no action on the cas e for seven years. Th e In ga comp anies, however, continued to claim damages stemming from AT&T’ s denial of the CCI

-PSE trans fer, and in 2003 the Co mm ission finally address ed the Th

ird Circu it refer ral. The Commission held that Section 2.1.8 did not govern, and thereforedi d not preclude, the movement of traffic without attendant obligat ions. FCC Memorandum Opinion and Order at 6–8. In particular, the Commission reasoned that Section 2.1.8 applied only to the

transfe r of entir e tariff ed plans, and not to

the transfer of just the traffic component of such plans. Id. at 7. The Commission also hel d that, even assuming the transaction6
constituted fraud under the tariff, the tariff did not al low AT&T to remedy

such fraud by deny

ing the transfer. Id. at 8 –10 . In light of these hold ings, the Co mmissio n ruled that AT&T could notrefuse the CCI-PSE transfer

. Id. at 14. The I nga co mpanies, whose involvement in the f

edera l district court action in New Jersey is still ongoing, view the Commission’s ruling as entitling them to milli ons of doll ars in da mages. AT&T now petitions for review of the FCC order. II. Our i nqu iry is gove

rned by the Administrative Proc edure Act, which re

quires us t o uphold a

n FCC orde

r unless it

is “a rb it ra ry, capricious, an abuse of discretion, or other wisenot in accordance

w ith law.” 5 U .S.C. § 706( 2)(A). T o clear this threshold, the FCC’s tariff int erpret ations must

be “rea sonable [and] based upon factors within the Commission’s expert i se.” GlobalNAPS, Inc . v. FCC , 247 F.3d 252, 258 ( D.C. Cir. 2001) (citation omitted and altera tion in orig

inal). Th

us, we will
revers e the FCC only if its interpretations are “not supportedby substantial evidence, or the [Commission] has made a clear error in judgment.” Id. (same). The Commission’s order

in this case is entirely pre dicated
on its determination that Section 2.1.8 of Tariff No. 2 does not apply to the move

ment of tr

affic. At th e time of

the proposed transfe r to PSE, tha

t Section r

ead as f ollows:
Tr ansfer or Assignment — WATS [Wide Are a Telecom mu

nications Service] . . . may be transfer red or assigned to a new Custom

er, prov ided that :

. . . B. The new Custom e r notifie s [AT&T] in w riting th at it agrees to assume

all obligations of the former Customer at the time of

the tran sfer or

assignm ent.7
The Section on its face does not differentiate between transfers of entire plans and transfers of traff ic, but rathe

r speaksonly

in term s of WA TS — the telephone service itself. The new and former Customers referred to are the ag gre gator s, in this ca se PSE an d C CI. Ac co rd in gl y, any transfe r of WATS require d PSE to assume CCI’sobligat

ions. AT&T’s basic arg ument before this court is that “traffic,”
even if it is not th

e same th ing as a tariffed plan , is a type of Wide Area Te

lecommun

ications Service covered by Section 2.1. 8. In trans ferrin g traffi c, the parti es sou ght to reassi gn particular end-use r busines ses from C CI to

PSE, so that

calls to these businesses would be billed und er PSE’s lo wer rat

es. Thus, CCI asked AT&T to tra

nsfer the billed telephone numbers (corresponding to individu al end-user location s) include d in each CSTP II plan

. See T ran sfe r of

Ser vi ce A gre eme nt For ms . It must be — AT&T argues — that wha t the parties sough t to transfer is a type of ser

vice covered

by the tariff; that

is why they used the Transfer of Service fo rm s. See AT&T Ta riff FCC No. 2, Section 3.1.1 (defining “800 S ervi ce and WATS” as “telecommunications services which permit inward and o utward calling respec tively

betwee n a station

associa ted with an acce ss line in one location

and statio ns in diver se geographical servic e areas specified by

the Customer”). The Comm i ssion does not respond directly to AT& T’s argume nt. Inste ad, both in

its brief before this cour t and in its order be lo w, th e F CC re li es on a s ta te me nt ma de by A T&T i n comments submitted in the admini str ative proceeding. There, AT &T note d in pa ssing

that “in thi s cas e the

relevant WA T S services are the CSTP II Plans.” Comments of AT&T Corp. in Opposition to Joint Petition for Declaratory R uling and Joint Motion for Expedited Consideration at 10. The Commission interpre ts this statement as conceding that Sect ion 2.1.8 c an only be triggered by

the wholesale transfer of tariffed pla ns, and not8 by the transfer of compone nt p arts such as individual billed telephone numbers. See FCC Order at 6–7; FCC Br. at 16–18. AT&T, however, argue s persuasively that the FCC misinterpreted its comment. Immediately following the alleg ed conc ession, AT&T’s submis sion noted that: [Section 2.1.8 ], by i ts terms, allows a transfer of CCI’s service to PSEonly if PSE agreed to assume all obligations under those plans. Yet CCI explicitly amended the transfer of services form to read “Traffic Only.” By expressly declaring that it

did not intend to effe ctuate a transfe r of all obligations under

the plans to PSE . . . the propos ed transfer, on its face, violated the terms of Section 2.1.8. Comments of AT&T Corp. at 10–11 (emphasis added) (citation omitted). It appears quite c lear, the n, that AT&T did not concede the inapplicability of Section 2.1.8 to transfer s of traffic
on ly. Indee d, had AT&T be en willing to make su ch a concession, it presuma bly would not h ave con

tested the meaning of this provision before the Commission. Acc ordi ngly, the F CC’s reliance on AT&T’s comment is plainly misplaced. Absent suc h relianc e, the Comm ission pro vides us w ith littlereason why

the plain language of Section 2.1. 8 fails to encompa ss transfers of traffic alon e. The Commission maintains that “[r]ather than a sin gle tra

nsfer r equest, h ere CCI and PSE effec tively

made two r

equests: one by

CCI to AT&T to d

ecrea se its tr af fi c, an d a no th er by PSE to incre ase its tr affic. ” FCC Order at 7; see FCC Br. a

t 17. But th

is hardly sheds light on the meaning of the transfer provision. First, AT &T conte nds that a simultane ous decr

ease and increa se in

the respective service of CCI and PSE would in fact not

accomplish the same objectives
as a transfer

of service. AT&T argues that the transfe r provision, Section 2.1.8, was included precisely because there

are practical benefit s to a transfer that would be lost through a transaction of the sort hypothesized by the Com mission. These include9
guarantees against service interruptions and the loss of particular 80 0 numbers, as well as exemption from a requirement tha t resellers obtain their end-users’ written consen t prior to the transaction. See AT&T Br. at 21–23.
Be that a s it ma y, proceed ing by anal ogy does no t chan ge the fact tha

t CCI and PSE did request a transfer — a transaction
on its face at

least pote

ntially within the reach of Section 2.1.8, which governs “Transfer or Assignment” — instead of dropping and adding traffic in separate tra nsactions. George Eliot has written that “the world is full of hopeful analogies,” M IDDL EMARCH 83 (Peng uin Classic s 1994) (1 872), an d this must be one of them, but likening the transfer at issue to a different arrang ement, and then analyzing how that arrangement would fare under Section 2. 1.8, doe s not advance the FCC’s position very far.
In add ition, the Commission’s failure to grasp AT&T’s comment reveal s a more fun damenta

l error in its approach. The
reason AT&T se emed to e quate the tran sfers in t

his case witha transfer of plans is that

CCI sought to move virtually all of the billed telephone numbers in each of its CSTP II plans. Thus, for eachof the nine plans, CCI asked AT&T to move all but one, or all but two, of the telephone numbers included in that plan. See Transfer of Service Agreement

Forms. In so doing, CCI asked AT&T to move nearly a ll the s erv ices — all the bene fits —
ass ociated w ith its CSTP II plans. What was left behind wer e CCI’s obligations — the burdens u nder the plans. Ac co rd in gl y, even if small scale transfers of traffic were outside the

scope of Section 2.1.8 , allo wing this t ra nsaction to go thr

ough would create an obvious end-run ar

ound the unquestioned rule that new Cust omers had to “ass ume all obligations” in transferring WATS plans

. Any

reselle r could c ircumve

nt Se ction 2.1.8 simply by asking AT&T to m

ove its business one billed telephone number at a time. Us ing su ch a scheme, a reseller could move every component

of a plan, save its obligations to AT&T. The transfer10

1 The FCC

conten ds th at th is entire line of argum ent — challen gin g the Comm

ission’s interpretation as rendering Section 2.1.8 meaningless—is not properly b efore us, as AT&T did not first present it to the C omm ission in a petition fo r reconsidera tion. FCC Br. at 15 & 19. We disag ree. The Comm

unications Act precludes us from addressing

only those issues upon whichthe Comm ission “has been a fforde d no opportunity to pass.” 47 U. S.C. § 405(a). It does not preve nt us fr om co nsid ering “whether the orig inal question was correctly decided,” MCI

v. FCC , 10 F.3 d 842, 845 (D .C. C ir. 199 3),
orwhether the FCC “relied on faulty log ic.” Nat’l Ass’n for Better Broadcasting v. F CC , 830 F .2d 270, 275 (D .C. Cir. 1987). The analy sis recounted above speaks to the s oundn ess of the Comm ission’sruling

on the questio n initia

lly pr esented , and n ot to any novel legal or factual claim s. provision would then have no effect except in those cases where the transferor foolishly

fell within its scope by phra sing its request in terms of

the tarif fed plan s themselv es. The FCC itself recognized that the “purpose” of Section 2.1.8 “was to mai nt ain intact the balance of obligations and benefit s between parties under the tariff whe n one customer stepped into the shoes of another.” FCC Order at 7. The Commission’s in terp retation eviscerates this very purpose, allowing PSE to take up essentially all of CCI’sresale

business wi thoutassuming so much as one of CCI’s oblig ations t o AT&T. 1
As the foregoingdiscussion indicates, we findthe Commission’s interpretation implausible on its fa ce. Fir st, the pla in la nguage of Section 2.1.8 encompasses all transfers of WAT S , and not just transfers of entire pla ns. In the absence of any contrary evidence, we find

that “ traffic” is a ty

pe of service covered by the tariff. Sec ond, the FCC’s interpre tation, permitting the movement of benefits without any assumption of obligat ions, would render the transfer provision mea ningles s11

2 At oral argum ent, AT& T’s counsel repeate dly st

ated tha t Tariff No. 2 expressly required

PSEto assume the

volume commitm

ents that form the hea rt of AT&T’s conce

rn in this case. See Transcript of Oral Argument

at 11 , 13. In a moti on su bmi tted afte r the arg umen t, howev er, the I nga comp anies note that the only obligations enumerated

by Se ction 2. 1.8 are

“out standing indebtedness for the service” and “the unexpired p or tion of any applicable minimum payment period.” Inte

rveno rs Motion to Clar ify an d Corre ct the F acts of the Re cord

at 4. How

this enumeration affects the requirement that
new customers assum

e “ all obli gati ons o f the forme r Cus tomer ” (emphasis added) is beyond the sco pe of our opinion. even in cases involving the transfer of entire plans, so long a s the parties asked the carrie

r to move all the beneficial plan components rather than the plan itself. The whole purpose of

the tariff provision in question was to ensure that benefits could not be transferred with out conco mitant obli gations . It is utterly untenabl e to contend that the provision does not apply when only benefits are transferred.
In sum, the F

CC clearly e

rred in ruling that Section 2.1.8 of AT&T Tariff

FCC No. 2 does not apply to a transfer of “traffic.” As this was a

threshold determination in the FCC’s order, we do notreach the remaining

issues addressed

by the Commission and argued by t he parti es befor

e us. We al so do not de cide precisely which obligations should have been transfer r ed in this case, as this question was neither addressed by the C ommi ssion nor adequa tely present ed to us. 2 All we decide is that Section 2.1.8 cannot be read to allow parties to transfer the benefits associated with800 service without assuming any obligations. The petition for review is granted.