Mr. MarlinW. Johnston Commissioner Department of~Euman Services P. 0. Box 2960 Austin,Texas 78769 OpinionNo. JM-618

Re: Authority of theDepartment of Human Services to select a long-distance telephone carrier for all of its offices with a single letter of agency without violatingFCC regulations

DearMr. Johnston:

As Commissioner of the Texas Department of Human Services. you inquire about the effect of certain Federal CommunicationsCommission (hereinafter FCC) orders regarding the divestiture of American Telephone and Telegraph Company (hereinafterAT&T) on the purchase of long distance telephone servicesby your agency. A brief history of theAT&T divestituredecreesmust precede discussion of your specific questions.

Until recently, AT&T dominated the telecommunications industry. See generallyUnited States v. American Telephone and Telegraph Com- 

### ~-, 552F. Supp. 

### 131,160-65(D.D.c. 1982) ohdificati0n of ~i-1 Judgment). aff'd, sub nom. Maryland v. United States, 460 U.S. 1001 (1983) (hereinafter U.S. v. AT&T). Through its Bell Operating Companies,AT&Tprovidedmost of the country'slocal telephoneservice and virtually all intrastate long distance service. Through its Long Lines Division, AT&T also provided most of the country's interstate long distance service. The physical connections between AT&T and local companiesare ofhigh qualitybecause the.systemwas designed to afford accsss to only one carrier - AT&T. Soon after the FCC authorized other long distance carriers to compete with AThT in providing long distance service, these competing carriers began demanding that local companiesprovide them with the same quality of
accessgiven toAT&T. The refusal of the local companies to provide this accesswas one of the factorswhich lead ultimately to antltru$t actions in federalcourt. SeeU.S.v. AThT. 552 - F. Supp~. at 162-63.'

1. Actually, antitrust litigation against rather curioushistorywhich datesback to 1949. ATbT has a long and SeeUnited Statesv. American Telephone and Telegraph, 552 F. Supp. 131, 135-40 (D.D.C. 1982) (Modificationof Final Judgment), aff'd. sub nom. Maryland v.

- United States, 460U.S. 1001 (1983).

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The main antitrust litigation againstAT&T resulted in a Consent Decree. See Modification of Final Judgment, Civil Action No. 82-0192 in the United States District Court for the District of Columbia (hereinafterMFJ or Decree); see also U.S. v. ATM, 552 F. Supp. 131 (interpretingthedecree). This Decreewas intended to accomplish two basic goals: (1)structural changes removing AT&T as the dominant supplierof local telephone serviceby requiringAT&T to divest Itself of its Bell Operating Companies, and (2)restrictions to prevent cross-subsidization and to p~revent discrimination against AT&T's competitors. SeeU.S. v. AThT., 552 F. Supp. at 141-42. With regard to restrictionTto prevent discrimination, the Decree contains a clause requiring local exchange carriers to provide access that is "equal in type. quality, and price to that provided to AThT and its affiliates." See MJ, III; U.S. v. ATST, 552 F. Supp. at 171-72. Although the Decree does not establish specific requirements guaranteeingAThT's competitors access to AT&T's high quality interexchange network, FCC decisions and regulations set forth specific equal access requirements. U.S. v. AThT, 552 F. Supp. at 173. The FCC procedure for obtaining equalaccess gave rise to the current controversy.

In geographic areas where equal access orders are technically feasible, customers have been given the opportunity to choose a long distance carrier. The Decree allowed AT&T to keep customerswho did not choosea different longdistance carrier.United Statesv. Western Electric Company, 578 F. Supp. 668.'676 (D.D.C. 1983). At first, the FCC also allowed AT&T to keep "default" customers. Ultimately, however, the FCC reversed itsposition and requireda pro rata allocation of default cust&rs to various long distance carriers according to the percentage each carrier received of choosing customers. See Investigation of Access and Divestiture Related Tarrifs, CC Docket 83-1145.Phase I. FCC 85-69, 50 Fed. Reg. 9,462 (Mar. 8. 1985) (tobe codified in 47 C.F.R. Ch. 1); Investigation,CC Docket 83-1145,Phase I. FCC 85-293, 50 Fed. Reg. 25, 982 (June24, 1985) (tobe codified in 47 C.F.R. Part 61); Investigation, CC Docket 83-1145, Phase I, FCC 85-293. 50 Fed. Reg. 38,200 (Sept.20, 1985).

You indicate that the Texas Department of Ruman Services designated AT&T Communications as its long distance carrier with an "Appointment of Agent" letter. You indicate that Southwestern Bell Telephone Company requires independent election by each department locationdespite this letter of agency. Accordingly,you ask:

1. Do the provisions of the AThT divestiture order require Southwestern Bell Telephone Company to obtain an electiondocument for each department location?

2. If the answer to the first question is no, does the department legally need to execute any additional document to advise Southwestern Bell

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Telephone Company and AT6T of its election to continuewith AT&T?

3. Does theDepartment of Human Services have any legalresponsibilityfor longdistance service fromunregulatedcarriers selectedby Southwestern Bell TelephoneCompanyor Its contractorsto serve the department (a)before the date and (b)after the date of the department's formal election for AT&T toprovide long distanceservice?

You also indicatethat thedepartmentchoseAT&T. a regulatedcompany, in the belief that no competitivebidding was necessary to continue long distance service with AT&T. You suggest that an automatic allocationby SouthwesternBell would violate the state's competitive bidding requirements.

As indicatedin the foregoingdiscussion,FCC regulations,rather than the court's divestiture decree, govern the equal access selection process through presubscriptian ballots and the allocation of customerswho fail to select a long distance company. Customersmay return ballots directly to local exchange carriers. The FCC also authorizes a "Letter of Agency Procedure" which gives customers the option of independently contacting a long distance company~to make arrangements for long distance service. See Investigation of Access and Divestiture Related Tariffs, (Append- - Allocation Plan), 50 Fed. Reg. 25,982, 25,989 (para. 9). Paragraph 12 of the Allocation Plan requires local exchange carriers to accept fram each long distance carrier a list of customers that have made individual arrangementswith that long distance carrier. Id. at 25,989 (para. 12). The present controversy arose because theDepartment of Buman Services is a multi-locationandmulti-line customer of long distance service. Apparently, Southwestern Bell expects each department locationto independentlychoosea longdistancecarrier.

Your question depends onwhether the FCC regulationsauthorize a multi-line customer to designate its primary long distance carrier with a single letter of agency. Paragraph 9 of the Allocation Plan states that "[slinceballots contain all of the customer's lines, the [long distance carrier] should encourage its customers to mail the [carrier]the ballots ormail them to the [localoperating company].” Appendix B, at 25,989 (para.9) (emphasisadded). This suggestion is not couched in mandatory language. Moreover, paragraph 10.4 states that "[tlhe specific telephone number[s] for which the primary [long distancecarrier] Isbeing designatedmust be listed" in the letterof agency. Appendix B, at 25,989 (para. 10.4). Thus, the letter of agency procedure is intended as an alternative to the individual ballot procedure. The FCC has not interpreted the letter of agency procedure to require that multi-line customers submit an election ballot in addition to a letter of agency - much less to require the submissionofmultipleballots.

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The FCC addressed the subject of your first question when it considered AT&T's petition for an interpretation of the Letter of Agency Procedure:

AT&T states that customers presently place presubscription orders on a billed telephone number (BTW) basis. AT&T states that a BTW may have associated with it one or more additional lines or numbers and thus say represent hundreds
or even thousands of lines

. . .AT&T argues that it is cumbersome and unnecessary for customers to provide individual line detail.
Investigation, 50 Fed. Reg. **at** 38.202 (para. 10). The FCC agreedwith AT&T's assertion:

The Commission did not intend to impose unreasonable burdens on multi-line customers in their selection of an interexchange carrier. We conclude that the requirements set out [at paragraph] 10.4 of Appendix B may be fulfilled either by provision of BTWs or by other unambiguous customer description indicating the scope of the customer'sdesignationof aprimary [longdistance carrier].

Id. at 38,202 (para. 11). - Accordingly,as long as theDepartment ofHuman Services included
a list of its BTWs or some other unambiguous description indicating the scopeof itsdesignationof a primary long distance carrier in its letter of agency toAT&T, the department need not submit an election ballot for each department location. This designation of AT&T as the department's long distance carrierdoes not violate Texas' competitive bidding requirements. The State Purchasing and General Services Act exempts the servicesof publicutilities from its competitiveprocurement requirements. V.T.C.S. art. 601b, 53.01(c)(4). At the present timeAT&T, as the dominant long distance carrier. is a publicutility. SeeV.T.C.S. art. 1446~. 53(c)(2). topour first question, In light of the foregoingresponse a response to your second question. regarding additionalnotification, isunnecessary.

You also ask whether the department is liable to long distance carriers assigned to various department locations through the FCC allocation process. Your request letter expresses concern about liability for serviceprovided both before and after the department's formal election ofAT&T as itsprimary long distance carrier througha letter of agency. You indicate,however, that the department elected AT&T within the final time limitprescribedby the FCC. Accordingly, it is not entirely clear how or why Southwestern Bell allocated various department locations todifferent long distance carriersprior

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to the end of the time period allowed for the department's election.' Resolution of this issue involves the scope of the department's contract with Southwestern Bell. In contrast, your question requires a determination of whether an implied contract can be imposed directly against the state by the long distance carriers assigned to the state through theallocationprocess for long distance service. You suggest that the state's competitive bidding statutes preclude an allocation of department locations to different long distance carriers. Briefs submitted in response to your opinion requestcontend that the FCC'sallocationprocesspreempts the state's competitivebidding statutes.

As a preliminary matter, it is well-established that no state agency or state employee holds the authority to bind the state by contract unless authorized to do so expressly or by necessary implication in the Texas Constitution or statutes. Tex. Coast. art. III, 144; Statev. Ragland Clinic-Hospital, 159 S.W.2d 105, 106 (Tex. 1942); see also Director of the Department of Agriculture and Environment v. Printing Industries Association ,af.Texas,600 S.W.2d 264. 265-66 (Tax. 1980) (doctrine of sovereign lmmnity prevents suit to subject the state to liability 'without express legislative consent). Article III, section 44, of the Texas Constitution prohibits grants of public funds unless the grants are authorized by preexisting law. In Ragland. an agent of the Texas Liquor Control Board agreed expressly to pay for an injured prisoner's treatment. Rejecting the hospital's claim, the court held that the board's employees lacked the express.or implied authority to enter into the contract in question. 159 S.W.2d at 107. The court rejected the argumentthat theagenthad apparentauthority tobind the state:

Since the powers of all State officers are fixed by law, all persons dealingwith them are charged with notice of the limits of their authority and
are bound at theirperil to ascertainwhether the contemplated contract is within the power conferred. There is no occasionor excuse in such a case for indulging in presumptions or in relying
on appearances. (Citationsomitted).

IL; see also Fasekasv. University of Houston, 565 S.W.Zd 299, 304- 306 (Tex.Civ.App. - Houston [lstDist.] 1978, writ ref'd n.r.e.),

2. It should be noted that the FCC's Allocation Plan states that, in order to use the letter of agency procedure, "[tlhe [long distance carrier] must also agree to accept responsibility for any billing disputes arising from implementation of its customer list." AppendixB, at 25,989 (para.11).

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appeal dismissed, 440 U.S. 952 (1979); cf. Bathe Halsey Stuart Shields, Inc. v. University of Houston, 638 S.W.2d 920 (Tex. App. - Houston [lstDist.] 1982.writ ref'd n.r.e.).

To hold the Department of Human Resources liable directly to the various long distance carriers assigned to different department locations by Southwestern Bell would require a finding that each department location has the independent authority to bind the state to a contract. Carried to its logical conclusion, this line of reasoning could result in potentially unlimited state liability for implied contracts entered Intoby state employees. Although theDepartment of Human Servicesholds the authority to purchase long distance service. the department has not delegated this authority to the department's various locations. The fact that the head of the agency executed an agreementwith AT&T for long distance service affirms that this power was not delegated. This fact also militates against the reasonableness of reliance on the silence of a regional office to constitute an impliedcontract.

In State v. City National Bank of Austin. 578 S.W.Zd 155 (Tex. Civ. App. - Tyler 1979).aff'd;603 S.W.2d 764 (Tex..1980).the court considered the liabilitv of the State Comisslon for the Blind for rent allegedly due for a period during which the commission occupied leased premises as a holdover lessee. The lessor sued for rent for theholdoverperiod. The courtnoted:

The Legislature authorized the Commission to contract for rental space and be the lessee. The written lease provides that the lessor shall have 'the remedies

. . .provided by law for recovery of rent.' The Commission is an agency of the State, and the State isboundby its contract as a private citizen is bound by a like contract. (Citationsomitted).

578 S.W.Zd at 159. Because the legislature authorized the lease and because the lease authorized suit against the state, the court found
no violation of the Texas Constitution article III, section 44, requirement that contractsbe authorizedby preexisting law. See id. -- The courtmentioned several cases dealing with the theory of quantum meruit in holding the state liable for the reasonable value of the benefits received. 578 S.W.Zd at 160-61. It is unclear. however, whether guantum meruit constituted the theory of recovery or merely the measure of damages. The Texas Supreme Court, in affirming the court's decision, held the "state liable under the terms of the written agreement for the damages occasioned by the default." State
v. City National Bank of Austin, 603 S.W.2d 764. 765 (Tex. 198or (emphasisadded). Thus, although the Supreme Court held the commission liable, the courtdid not rely on the quantummeruit theory or on an implied contract theory.

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The CityNationalBank case clearlydiffers from the case athand. The Department of Human Serviceshas not entered into contractswith the different long distance carriers to which SouthwesternBell allocated thevarious department locations. To hold the department liable directly to these carrierswould requireholding the state liable for
a contract implied from the department'snon-action in circumstances beyond the department'spractical control. This situation is not the equivalentof ahold-over lessee'ssituation. Although the department may have actually used long distance service from allocated long distance carriers, it took no action to indicate its desire to change existing service from AT&T to various other long distance carriers. In fact, department employees may have been totally unaware of the point at which long distance service was physically transferred. After executing a letterof agencywith AT&T. the department Indicated affirmatively that it did not want primary service from other long distance carriers. Additionally, as indicated above, the individual department locations lack the authority to enter into any contracts, expressor implied. Accordingly,although the existenceof an Implied contract depends upon factual determinationsbeyond the scope of the opinion process, an implied contract between the department and allocatedlong distancecarrierscannotexist in the instant case. Consequently, the department Is not legally liable directly to long distance carriers allocated to various department locations as "default" customers under FCC regulations. This opinion does not addresswhether the departmentmay be liable to SouthwesternBell, it addresses only the department's liability to long distance carriers allocatedto thedepartmentby SouthwesternBell.

SUMMARY

As long as theTexasDepartment ofHuman Services included a list of its billed telephone numbers or some other unambiguous description indicating the scope of its designation of a primary long distance carrier In its letter of agency to American Telephone and Telegraph Company. the departmentneed not submit
an electionballot for each departmentlocation. This designation does not violate Texas' competitive purchasing laws.

The department is not legally liable to long distance carriers allocated to various department locations as "default" customers under Federal CommunicationsCommissionregulations.

AttorneyGeneral ofTexas

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JACK HIGHTOWER FirstAssistantAttorney General

MARY KELLER ExecutiveAssistantAttorney General

RICK GILPIN Chairman.Opinion Committee
Preparedby JenniferRiggs AssistantAttorney General

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