Mr. Marlin W. Johnston 

Commissioner 

Department of~Euman Services 

P. 0. Box 2960 

Austin, Texas 78769 

Opinion No. JM-618 

Re: Authority of the Department 

of Human Services to select a 

long-distance telephone carrier 

for all of its offices with a 

single letter of agency without 

violating FCC regulations 

Dear Mr. Johnston: 

As Commissioner of the Texas Department of Human Services. you 

inquire about the effect of certain Federal Communications Commission 

(hereinafter FCC) orders regarding the divestiture of American 

Telephone and Telegraph Company (hereinafter AT&T) on the purchase of 

long distance telephone services by your agency. A brief history of 

the AT&T divestiture decrees must precede discussion of your specific 

questions. 

Until recently, AT&T dominated the telecommunications industry. 

See generally United States v. American Telephone and Telegraph Com- 

~-, 552 F. 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&T provided most of the country's local telephone service 

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 companies are of high quality because the. system was 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 companies provide them with the same quality of 

access given to AT&T. The refusal of the local companies to provide 

this access was one of the factors which lead ultimately to antltru$t 

actions in federal court. See U.S. v. AThT. 552 - F. Supp~. at 162-63.' 

1. Actually, antitrust litigation against 

rather curious history which dates back to 1949. 

ATbT has a long and 

See United States v. 

American Telephone and Telegraph, 552 F. Supp. 131, 135-40 (D.D.C. 

1982) (Modification of Final Judgment), aff'd. sub nom. Maryland v. 

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

p. 2782 
Mr. Marlin W. Johnston - Page 2 (JM-618) 

The main antitrust litigation against AT&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 

(hereinafter MFJ or Decree); see also U.S. v. ATM, 552 F. Supp. 131 

(interpreting the decree). This Decree was intended to accomplish two 

basic goals: (1) structural changes removing AT&T as the dominant 

supplier of local telephone service by requiring AT&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. See U.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 guaranteeing AThT'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 equal access 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 customers who did 

not choose a different long distance carrier. United States v. 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 its position and required a 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) (to be 

codified in 47 C.F.R. Ch. 1); Investigation, CC Docket 83-1145, Phase 

I. FCC 85-293, 50 Fed. Reg. 25, 982 (June 24, 1985) (to be 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 

location despite this letter of agency. Accordingly, you ask: 

1. Do the provisions of the AThT divestiture 

order require Southwestern Bell Telephone Company 

to obtain an election document 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 

p. 2783 
Mr. Marlin W. Johnston - Page 3 (JM-618) 

Telephone Company and AT6T of its election to 

continue with AT&T? 

3. Does the Department of Human Services have 

any legal responsibility for long distance service 

from unregulated carriers selected by Southwestern 

Bell Telephone Company or Its contractors to serve 

the department (a) before the date and (b) after 

the date of the department's formal election for 

AT&T to provide long distance service? 

You also indicate that the department chose AT&T. a regulated company, 

in the belief that no competitive bidding was necessary to continue 

long distance service with AT&T. You suggest that an automatic 

allocation by Southwestern Bell would violate the state's competitive 

bidding requirements. 

As indicated in the foregoing discussion, FCC regulations, rather 

than the court's divestiture decree, govern the equal access selection process through presubscriptian ballots and the allocation of 

customers who fail to select a long distance company. Customers may 

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 

arrangements with that long distance carrier. Id. at 25,989 (para. 

12). The present controversy arose because theDepartment of Buman 

Services is a multi-location and multi-line customer of long distance 

service. Apparently, Southwestern Bell expects each department 

location to independently choose a long distance carrier. 

Your question depends on whether the FCC regulations authorize 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 "[slince ballots contain all of the customer's lines, the 

[long distance carrier] should encourage its customers to mail the 

[carrier] the ballots or mail them to the [local operating company].” 

Appendix B, at 25,989 (para. 9) (emphasis added). This suggestion is 

not couched in mandatory language. Moreover, paragraph 10.4 states 

that "[tlhe specific telephone number[s] for which the primary [long 

distance carrier] Is being designated must be listed" in the letter of 

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 

submission of multiple ballots. 

p. 2784 
Mr. Marlin W. Johnston - Page 4 UM-618) 

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 agreed with 

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's designation of a primary [long distance 

carrier]. 

Id. at 38,202 (para. 11). - 

Accordingly, as long as the Department of Human Services included 

a list of its BTWs or some other unambiguous description indicating 

the scope of its designation of a primary long distance carrier in its 

letter of agency to AT&T, the department need not submit an election 

ballot for each department location. This designation of AT&T as the 

department's long distance carrier does not violate Texas' competitive 

bidding requirements. The State Purchasing and General Services Act 

exempts the services of public utilities from its competitive procurement requirements. V.T.C.S. art. 601b, 53.01(c)(4). At the present 

time AT&T, as the dominant long distance carrier. is a public utility. 

See V.T.C.S. art. 1446~. 53(c)(2). 

topour first question, 

In light of the foregoing response 

a response to your second question. regarding 

additional notification, is unnecessary. 

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 service provided both before and after the department's 

formal election of AT&T as its primary long distance carrier through a 

letter of agency. You indicate, however, that the department elected 

AT&T within the final time limit prescribed by the FCC. Accordingly, 

it is not entirely clear how or why Southwestern Bell allocated 

various department locations to different long distance carriers prior 

p. 2785 
Mr. Marlin W. Johnston - Page 5 (JM-618) 

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 the allocation process 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 

request contend that the FCC's allocation process preempts the state's 

competitive bidding 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; State v. 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 

argument that the agent had apparent authority to bind the state: 

Since the powers of all State officers are fixed 

by law, all persons dealing with them are charged 

with notice of the limits of their authority and 

are bound at their peril to ascertain whether the 

contemplated contract is within the power conferred. There is no occasion or excuse in such a 

case for indulging in presumptions or in relying 

on appearances. (Citations omitted). 

IL; see also Fasekas v. University of Houston, 565 S.W.Zd 299, 304- 

306 (Tex. Civ. App. - Houston [lst Dist.] 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." 

Appendix B, at 25,989 (para. 11). 

p. 2786 
Mr. Marlin W. Johnston - Page 6 (JM-618) 

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 [lst Dist.] 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 Into by state employees. Although the Department of 

Human Services holds 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 

agreement with 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 

implied contract. 

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 

the holdover period. The court noted: 

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 is bound by its contract as a 

private citizen is bound by a like contract. 

(Citations omitted). 

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 contracts be authorized by preexisting law. See id. -- 

The court mentioned 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 

(emphasis added). Thus, although the Supreme Court held the commission liable, the court did not rely on the quantum meruit theory or on 

an implied contract theory. 

p. 2787 
Mr. Marlin W. Johnston - Page 7 (JM-618) 

The City National Bank case clearly differs from the case at hand. 

The Department of Human Services has not entered into contracts with 

the different long distance carriers to which Southwestern Bell allocated the various department locations. To hold the department liable 

directly to these carriers would require holding the state liable for 

a contract implied from the department's non-action in circumstances 

beyond the department's practical control. This situation is not the 

equivalent of a hold-over lessee's situation. 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 letter of agency with 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, 

express or implied. Accordingly, although the existence of an Implied 

contract depends upon factual determinations beyond the scope of the 

opinion process, an implied contract between the department and 

allocated long distance carriers cannot exist 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 

address whether the department may be liable to Southwestern Bell, it 

addresses only the department's liability to long distance carriers 

allocated to the department by Southwestern Bell. 

SUMMARY 

As long as the Texas Department of Human 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 department need not submit 

an election ballot for each department location. 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 

Communications Commission regulations. 

Attorney General of Texas 

p. 2788 
Mr. Marlin W. Johnston - Page 8 (JM-618) 

JACK HIGHTOWER 

First Assistant Attorney General 

MARY KELLER 

Executive Assistant Attorney General 

RICK GILPIN 

Chairman. Opinion Committee 

Prepared by Jennifer Riggs 

Assistant Attorney General 

p. 2789