United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 12, 2004 Decided January 14, 2005

No. 03-1431

AT&T CORPORATION,

PETITIONER

V.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

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. Bendernagel,

Jr., C. John Buresh, and Michael J. Hunseder.

Laurence N. Bourne, Counsel, Federal Communications

Commission, argued the cause for respondents. With him on the

briefs were Robert B. Nicholson and Steven J. Mintz, Attorneys,

U.S. Department of Justice, John A. Rogovin, General Counsel,

Richard K. Welch, Associate General Counsel, John E. Ingle,

Deputy Associate General Counsel, and Rodger D. Citron,

Counsel. Laurel R. Bergold, Counsel, entered an appearance.
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Before: GINSBURG, Chief Judge, and TATEL and ROBERTS,

Circuit Judges.

Opinion for the Court by Circuit Judge ROBERTS.

ROBERTS, Circuit Judge: AT&T Corporation petitions for

review of a Federal Communications Commission order

interpreting AT&T’s tariff on resales of 800 telephone service.

A provision of that tariff allows resellers to transfer their

business, so long as the recipient assumes all of the transferor’s

obligations. Based on this provision, AT&T denied one reseller’s request to move the “traffic” under its 800 plans to

another reseller without a transfer of the corresponding obligations. The Commission interpreted the tariff transfer provision

as not addressing the movement of traffic, and ultimately held

that AT&T could not refuse the transfer. We conclude that

traffic is a type of service covered by the transfer provision, and

that the Commission’s contrary interpretation would render the

provision meaningless. We grant the petition for review.

I.

This case concerns the transfer of toll-free 800 telephone

service. At the time 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 Communications Act of

1934, as amended, and the “filed rate doctrine” incorporated

therein, neither the carrier nor its customers could 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 (1998);

Orloff v. FCC, 352 F.3d 415, 418 (D.C. Cir. 2003).

The tariff at issue here — AT&T Tariff FCC No. 2 —

allowed companies to purchase and resell 800 service to small

businesses around the country. The tariff refers to this resale

business, as well as the underlying service itself, as Wide Area

Telecommunications Service (WATS). Any company could
3

qualify as a reseller so long as it met the requirements of one of

several plans described in the tariff. Companies qualified by

aggregating the WATS usage of multiple small businesses into

a single plan, and, under the tariff, the companies obtained

AT&T’s service for these “end-user” businesses at a discounted

rate. In return, the reseller or “aggregator” company agreed to

meet certain obligations set forth by the carrier, including

commitments to purchase a certain volume of use.

In the early 1990s, as other carriers began to acquire a share

of the 800 market, 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 generic plans set forth in

Tariff No. 2. Instead, the FCC gave AT&T the option of

individually negotiating “contract tariffs” with particular resale

companies. As contract tariffs could be drawn to offer discounts

greater than those available under Tariff No. 2, many resellers

naturally sought to obtain them.

Alfonse Inga, a New Jersey businessmanwho owned several

aggregator companies, was one such reseller. In 1994, Mr. Inga

undertook a series of transactions designed to move his business

from Tariff No. 2 to a more lucrative contract tariff. First, his

companies — each of which operated under CSTP II, a type of

plan offered under Tariff No. 2 — transferred all nine of their

plans to a new entity, Combined Companies,Incorporated(CCI).

As required by Section 2.1.8 of Tariff No. 2, CCI expressly

agreed to assume all obligations of the transferor companies.

The transfer also stipulated that CCI would pass 80 percent of its

profits on to the transferor companies. Second, CCI attempted

to negotiate a contract tariff with AT&T. Third, as temporary

cover until this envisioned contract tariff became a reality, or as

a permanent alternative in case it never did, Mr. Inga planned

another transfer — one between CCI and Public Services

Enterprises of Pennsylvania (PSE). PSE already had a contract
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tariff with AT&T at a substantially larger discount on AT&T’s

800 service than that available to CCI under Tariff No. 2.

AT&T resisted this series of transactions. Fearing that CCI

would not have the assets to meet its obligations under the

transferred plans, AT&T initially refused to implement the first

transfer (from the Inga companies to CCI) unless CCI paid a

deposit — a requirement not found in Section 2.1.8 of Tariff

No. 2. In 1995, the Inga companies and CCI brought suit against

AT&T in federal district court in New Jersey, and 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 contract tariff

failed and CCI entered into the second transfer, moving substantially all the 800 service in its CSTP II plans to PSE. As with the

first transfer, the CCI-PSE agreement called for PSE to pass

much of the realized profit back to CCI. The second transfer,

however, differed from the first in an important respect. The

parties attempted to structure the transaction to avoid Section

2.1.8 of Tariff No. 2, so that PSE would not have to assume

CCI’s obligations on the transferred service. To do this, the

parties asked AT&T to move just the service to particular

end-user businesses — the “traffic” under CCI’s plans — and to

leave the plans themselves otherwise intact. The parties hoped

that, as a result, 800 service would be billed under PSE’s

substantially lower contract tariff rates, while CCI would remain

responsible for the obligations to the carrier under Tariff No. 2.

AT&T balked at this second transfer as well. AT&T

maintained that Section 2.1.8 applied to the transaction, and that

PSE thus had to assume CCI’s obligations in order for the

transfer to go through. In addition, AT&T argued that the

proposed transfer violated the tariff’s “fraudulent use” provisions, as CCI almost certainly would fall short of its volume
5

commitments once the traffic was moved to PSE’s account, and

AT&T had reason to believe that CCI would not have sufficient

assets to pay the resulting penalties.

The same district court that 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 matter to the agency, however, the district court

went ahead and issued its own decision interpreting the tariff.

See Combined Companies, Inc. v. AT&T, No. 95–908 (D.N.J.

Mar. 5, 1996) (unpublished opinion). The Third Circuit vacated

this ruling as inconsistent with the primary jurisdiction referral,

and ordered the sides to bring the matter to the FCC’s attention.

Combined Companies, Inc. v. AT&T, No. 96–5185 (3d Cir. May

31, 1996) (unpublished opinion).

The specific question referred to the FCC was “whether

section 2.1.8 permits an aggregator to transfer traffic under a

plan without transferring the plan itself in the same transaction.”

Id. at *3. While the case was pending before the Commission,

AT&T entered into a settlement with CCI, extinguishing its

WATS plans and releasing all claims between the two parties.

Apparently as a result of this settlement, the Commission took

no action on the case for seven years. The Inga companies,

however, continued to claim damages stemming from AT&T’s

denial of the CCI-PSE transfer, and in 2003 the Commission

finally addressed the Third Circuit referral.

The Commission held that Section 2.1.8 did not govern, and

therefore did not preclude, the movement of traffic without

attendant obligations. FCC Memorandum Opinion and Order at

6–8. In particular, the Commission reasoned that Section 2.1.8

applied only to the transfer of entire tariffed plans, and not to the

transfer of just the traffic component of such plans. Id. at 7. The

Commission also held that, even assuming the transaction
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constituted fraud under the tariff, the tariff did not allow AT&T

to remedy such fraud by denying the transfer. Id. at 8–10. In

light of these holdings, the Commission ruled that AT&T could

not refuse the CCI-PSE transfer. Id. at 14. The Inga companies,

whose involvement in the federal district court action in New

Jersey is still ongoing, view the Commission’s ruling as entitling

them to millions of dollars in damages.

AT&T now petitions for review of the FCC order.

II.

Our inquiry is governed by the Administrative Procedure

Act, which requires us to uphold an FCC order unless it is

“arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706(2)(A). To clear this

threshold, the FCC’s tariff interpretations must be “reasonable

[and] based upon factors within the Commission’s expertise.”

Global NAPS, Inc. v. FCC, 247 F.3d 252, 258 (D.C. Cir. 2001)

(citation omitted and alteration in original). Thus, we will

reverse the FCC only if its interpretations are “not supported by

substantial evidence, or the [Commission] has made a clear error

in judgment.” Id. (same).

The Commission’s order in this case is entirely predicated

on its determination that Section 2.1.8 of Tariff No. 2 does not

apply to the movement of traffic. At the time of the proposed

transfer to PSE, that Section read as follows:

Transfer or Assignment — WATS [Wide AreaTelecommunications Service] . . . may be transferred or assigned to a

new Customer, provided that:

. . .

B. The new Customer notifies [AT&T] in writing that it

agrees to assume all obligations of the former Customer at

the time of the transfer or assignment.
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The Section on its face does not differentiate between transfers

of entire plans and transfers of traffic, but rather speaks only in

terms of WATS — the telephone service itself. The new and

former Customers referred to are the aggregators, in this case

PSE and CCI. Accordingly, any transfer of WATS required PSE

to assume CCI’s obligations.

AT&T’s basic argument before this court is that “traffic,”

even if it is not the same thing as a tariffed plan, is a type of

Wide Area Telecommunications Service covered by Section

2.1.8. In transferring traffic, the parties sought to reassign

particular end-user businesses from CCI to PSE, so that calls to

these businesses would be billed under PSE’s lower rates. Thus,

CCI asked AT&T to transfer the billed telephone numbers

(corresponding to individual end-userlocations)included in each

CSTP II plan. See Transfer of Service Agreement Forms. It

must be — AT&T argues — that what the parties sought to

transfer is a type of service covered by the tariff; that is why they

used the Transfer of Service forms. See AT&T Tariff FCC

No. 2, Section 3.1.1 (defining “800 Service and WATS” as

“telecommunications services which permit inward and outward

calling respectively between a station associated with an access

line in one location and stations in diverse geographical service

areas specified by the Customer”).

The Commission does not respond directly to AT&T’s

argument. Instead, both in its brief before this court and in its

order below, the FCC relies on a statement made by AT&T in

comments submitted in the administrative proceeding. There,

AT&T noted in passing that “in this case the relevant WATS

services are the CSTP II Plans.” Comments of AT&T Corp. in

Opposition to Joint Petition for Declaratory Ruling and Joint

Motion for Expedited Consideration at 10. The Commission

interprets this statement as conceding that Section 2.1.8 can only

be triggered by the wholesale transfer of tariffed plans, and not
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by the transfer of component parts such as individual billed

telephone numbers. See FCC Order at 6–7; FCC Br. at 16–18.

AT&T, however, argues persuasively that the FCC misinterpreted its comment. Immediately following the alleged concession, AT&T’s submission noted that:

[Section 2.1.8], by its terms, allows a transfer of CCI’s

service to PSE only 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 effectuate a transfer of all

obligations under the plans to PSE . . . the proposed 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 clear, then, that AT&T did not

concede the inapplicability of Section 2.1.8 to transfers of traffic

only. Indeed, had AT&T been willing to make such a concession, it presumably would not have contested the meaning of this

provision before the Commission. Accordingly, the FCC’s

reliance on AT&T’s comment is plainly misplaced.

Absent such reliance, the Commission provides us with

little reason why the plain language of Section 2.1.8 fails to

encompass transfers of trafficalone. The Commission maintains

that “[r]ather than a single transfer request, here CCI and PSE

effectively made two requests: one by CCI to AT&T to decrease

its traffic, and another by PSE to increase its traffic.” FCC

Order at 7; see FCC Br. at 17. But this hardly sheds light on the

meaning of the transfer provision. First, AT&T contends that a

simultaneous decrease and increase 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 transfer provision,

Section 2.1.8, was included precisely because there are practical

benefits to a transfer that would be lost through a transaction of

the sort hypothesized by the Commission. These include
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guarantees against service interruptions and the loss of particular

800 numbers, as well as exemption from a requirement that

resellers obtain their end-users’ written consent prior to the

transaction. See AT&T Br. at 21–23.

Be that as it may, proceeding by analogy does not change

the fact that CCI and PSE did request a transfer — a transaction

on its face at least potentially within the reach of Section 2.1.8,

which governs “Transfer or Assignment” — instead of dropping

and adding traffic in separate transactions. George Eliot has

written that “the world is full of hopeful analogies,”

MIDDLEMARCH 83 (Penguin Classics 1994) (1872), and this

must be one of them, but likening the transfer at issue to a

different arrangement, and then analyzing how that arrangement

would fare under Section 2.1.8, does not advance the FCC’s

position very far.

In addition, the Commission’s failure to grasp AT&T’s

comment reveals a more fundamental error in its approach. The

reason AT&T seemed to equate the transfers in this case with a

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

each of 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 all the services — all the benefits —

associated with its CSTP II plans. What was left behind were

CCI’s obligations — the burdens under the plans. Accordingly,

even if small scale transfers of traffic were outside the scope of

Section 2.1.8, allowing this transaction to go through would

create an obvious end-run around the unquestioned rule that new

Customers had to “assume all obligations” in transferring WATS

plans. Any reseller could circumvent Section 2.1.8 simply by

asking AT&T to move its business one billed telephone number

at a time. Using such a scheme, a reseller could move every

component of a plan, save its obligations to AT&T. The transfer
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1

 The FCC contends that this entire line of argument —

challenging the Commission’s interpretation as rendering Section

2.1.8 meaningless — is not properly before us, as AT&T did not first

present it to the Commission in a petition for reconsideration. FCC

Br. at 15 & 19. We disagree. The Communications Act precludes us

from addressing only those issues upon which the Commission “has

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

not prevent us from considering “whether the original question was

correctly decided,” MCI v. FCC, 10 F.3d 842, 845 (D.C. Cir. 1993),

or whether the FCC “relied on faulty logic.” Nat’l Ass’n for Better

Broadcasting v. FCC, 830 F.2d 270, 275 (D.C. Cir. 1987). The

analysis recounted above speaks to the soundness of the

Commission’s ruling on the question initially presented, and not to

any novel legal or factual claims.

provision would then have no effect except in those cases where

the transferor foolishly fell within its scope by phrasing its

request in terms of the tariffed plans themselves.

The FCC itself recognized that the “purpose” of Section

2.1.8 “was to maintain intact the balance of obligations and

benefits between parties under the tariff when one customer

stepped into the shoes of another.” FCC Order at 7. The

Commission’s interpretation eviscerates this very purpose,

allowing PSE to take up essentially all of CCI’s resale business

without assuming so much as one of CCI’s obligations to

AT&T.1

As the foregoing discussion indicates, we find the Commission’s interpretation implausible on its face. First, the plain

language of Section 2.1.8 encompasses all transfers of WATS,

and not just transfers of entire plans. In the absence of any

contrary evidence, we find that “traffic” is a type of service

covered by the tariff. Second, the FCC’s interpretation, permitting the movement of benefits without any assumption of

obligations, would render the transfer provision meaningless
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2

 At oral argument, AT&T’s counsel repeatedly stated that Tariff

No. 2 expressly required PSE to assume the volume commitments that

form the heart of AT&T’s concern in this case. See Transcript of Oral

Argument at 11, 13. In a motion submitted after the argument,

however, the Inga companies note that the only obligations

enumerated by Section 2.1.8 are “outstanding indebtedness for the

service” and “the unexpired portion of any applicable minimum

payment period.” Intervenors Motion to Clarify and Correct the Facts

of the Record at 4. How this enumeration affects the requirement that

new customers assume “all obligations of the former Customer”

(emphasis added) is beyond the scope of our opinion.

even in cases involving the transfer of entire plans, so long as the

parties asked the carrier 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 without concomitant obligations. It is utterly

untenable to contend that the provision does not apply when only

benefits are transferred.

In sum, the FCC clearly erred 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

not reach the remaining issues addressed by the Commission and

argued by the parties before us. We also do not decide precisely

which obligations should have been transferred in this case, as

this question was neither addressed by the Commission nor

adequately presented to us.2 All we decide is that Section 2.1.8

cannot be read to allow parties to transfer the benefits associated

with 800 service without assuming any obligations. The petition

for review is granted.