Source: http://ks.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180607_0000847.DKS.htm/qx
Timestamp: 2019-04-20 06:44:48+00:00

Document:
PAT APPLE, ET AL., Defendants.
Plaintiff Virgin Mobile, USA, L.P. (“Virgin Mobile”) filed this action against the Commissioners of the Kansas Corporation Commission to prevent them from enforcing an order that requires Virgin Mobile to report as retail revenue the subsidies that it received from the Federal Universal Service Fund's Lifeline Program. Before the Court is Defendants' Motion to Dismiss (Doc. 22). The motion is fully briefed and the Court is prepared to rule. For the reasons stated below, the Court denies the motion.
Congress enacted the Federal Communications Act of 1934 (“FCA”) to “regulat[e] interstate and foreign commerce in communication by wire and radio so as to make available . . . to all the people of the United States, . . . a rapid, efficient . . . communication service with adequate facilities at reasonable charges.” The Federal Communications Commission (“FCC”) was created to execute and enforce the FCA. The FCA empowers the FCC to create programs to advance universal telecommunications services in the United States. One such program is the Lifeline Assistance Program, which subsidizes eligible telecommunications carriers that provide low-income households with access to discounted or free telephone services.
the [FCC], with respect to interstate services, and the States, with respect to intrastate services, shall establish any necessary cost allocation rules, accounting safeguards, and guidelines to ensure that services included in the definition of universal service bear no more than a reasonable share of the joint and common costs of facilities used to provide those services.
The Kansas legislature passed the Kansas Telecommunications Act (“KTA”) in 1996, with the goal of ensuring that every Kansan had access to first class telecommunications service at an affordable price while at the same time promoting consumer access in all areas of the state.
Kansas has its own corporation commission (“KCC”) and universal service fund (“KUSF”).
The Court summarizes the facts alleged in the Complaint as follows and assumes them to be true for purposes of deciding this motion.
Virgin Mobile is a Delaware, limited partnership with a principal place of business in Overland Park, Kansas. Virgin Mobile provides telecommunications services. It participates in the Federal Lifeline Program by providing qualified low-income consumers in Kansas with wireless communications at no charge. Virgin Mobile receives $9.25 per month for each eligible subscriber from the Federal Universal Service Fund (“FUSF”).
Virgin Mobile reports top-up revenue, but does not report a monthly recurring service charge (MRC) to the KUSF. Virgin Mobile receives $9.25 per month from the Federal Lifeline program for each eligible Kansas Lifeline subscriber in lieu of collecting it from its end-user subscribers. The company has chosen not to report this revenue to the KUSF, claiming that it does not collect an MRC from subscribers and Federal Lifeline support is exempt from the KUSF.
KUSF Lifeline subscriber-related revenue reporting requirements support reporting gross intrastate retail revenue that would be charged to the subscriber if the charge were not recovered from the state or federal lifeline program. This requirement applies to all carriers that offer Lifeline services. The $9.25 Federal Lifeline reimbursement is provided in lieu of the customer paying the MRC and should be reported for KUSF purposes. For the period January 2012 through February 2017, Virgin Mobile owes an estimated $227, 000 in additional KUSF assessments to the KUSF.
On July 11, 2017, the KCC adopted GVNW's recommendations and issued an order directing Virgin Mobile to: 1) include all Lifeline-related revenue, including revenue that would be collected directly from the end-user, absent the customer's Lifeline eligibility (including the $9.25 Federal Lifeline reimbursement), to the KUSF; and 2) submit True-ups for the period January 2012 through the period when Virgin Mobile ceases its present reporting practice and pay the additional assessments owed within sixty (60) days from the date of the order (the “Order”). Virgin Mobile petitioned the KCC to reconsider the Order. The KCC denied the petition for reconsideration on August 15, 2017.
Virgin Mobile filed this action, praying for: 1) a declaration that the Order violates federal law and is invalid to the extent that it requires it to contribute to the KUSF portions of its disbursements from the FUSF; 2) injunctive relief enjoining Defendants from enforcing the Order; and 3) all other relief as the Court may deem just and proper.
Defendants seek dismissal of the entire Complaint pursuant to Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” “Under this standard, ‘the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.'” Although the Court assumes the complaint's factual allegations are true, it need not accept mere legal conclusions as true.
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ” are not enough to state a claim for relief.
The Complaint contains a single count entitled “Preemption of State Regulation in Violation of the Communications Act of 1934, as Amended.” Within that count, Virgin Mobile asserts five claims: 1) the Order relies on and burdens a mechanism of the FUSF in violation of 47 U.S.C. § 254(f) (the “Relies-On-Or-Burdens-the-FUSF Claim”); 2) the Order discriminates against Virgin Mobile by requiring it to contribute a greater rate to the KUSF than providers that do not serve qualifying low-income Kansas consumers in violation of 47 U.S.C. § 254(f) (the “Discrimination Claim”); 3) the Order is inconsistent with the FCC's rules to preserve and advance universal service (the “Consistency Claim”); 4) the Order is not a predictable state regulation because it employs a different methodology than the FCC in determining contributions to the universal service fund in violation of 47 U.S.C. § 254(f) and K.S.A. § 66-2008(a) (the “Non-predictable Claim”); and 5) the Order taxes federal subsidy as revenue, which discourages providers from serving low-income consumers in Kansas and thereby acts as a barrier for intrastate service in violation of 47 U.S.C. § 253(a) (the “§ 253 Claim”).
Defendants argue that because there is no general right of action to enforce the Supremacy Clause and none of the private rights of action conferred by the FCA apply here, the entire Complaint should be dismissed for lack of a private right of action, citing Armstrong v. Exceptional Child Center, Inc. Defendants contend that Armstrong precludes any Ex parte Young claim that Virgin Mobile asserts in this case. Alternatively, they argue Virgin Mobile failed to allege essential elements to plausibly state claims that the Order violated 47 U.S.C. §§ 253(a) and 254(f). Virgin Mobile argues that it brought a traditional Ex parte Young action, thus its claims may proceed even though there is no right of action in the Supremacy Clause and even if the FCA provided no statutory right of action for this suit. Virgin Mobile maintains that its claims may proceed in equity under the Ex parte Young doctrine.
Defendants argue Armstrong mandates dismissal of the Complaint because: 1) the FCA provides an express statutory remedy that requires Virgin Mobile to first obtain an FCC Order, and 2) the FCA's mandate to preserve and advance universal service is a broad and judgment-laden standard that is best left for the FCC to decide. Defendants contend both Armstrong factors are present, which warrants concluding that Congress intended to preclude private equitable enforcement of the FCA in the courts. The Court disagrees.
In Armstrong, the plaintiff brought suit against a state agency and its administrator seeking an injunction to force the agency to increase Medicaid reimbursement rates. After the Supreme Court held that there was no private right of action under the Supremacy Clause,  it considered whether the suit could proceed in equity. The Supreme Court answered no, concluding “the Medicaid Act implicitly precludes private enforcement of [42 U.S.C. § 1396a(a)(30)(A)]” because two aspects of that Act established Congress's intent to foreclose equitable relief. First, “the sole remedy Congress provided for a State's failure to comply with Medicaid's requirements . . . is the withholding of Medicaid funds by the Secretary of Health and Human Services.” Second, the Medicaid Act's mandate that state plans provide for payments that are ‘consistent with efficiency, economy, and quality of care, ' all the while ‘safeguard[ing] against unnecessary utilization of . . . care and services'” is so broad that it is “judicially unadministrable.” The Supreme Court stated, “[e]xplicitly conferring enforcement of this judgment-laden standard upon the Secretary alone establishes . . . that Congress wanted to make the agency remedy that it provided exclusive.” The Supreme Court clarified that both factors were necessary to conclude that Congress intended to preclude private enforcement of § 30(A) in the courts.
Fourth, Congress did not confer enforcement of the FCA to the FCC alone. The FCA contemplates a dual system of state and federal regulation over telecommunications services.The FCA grants the FCC the authority to regulate “interstate and foreign commerce in wire and radio communication, ” while expressly denying it jurisdiction with respect to intrastate communication service. The FCA provides that “[n]othing . . . shall . . . prohibit any State commission from enforcing regulations prescribed prior to February 8, 1996, or from prescribing regulations after February 8, 1996” or “from imposing requirements on a telecommunications carrier for intrastate services.” For the foregoing reasons, the Court finds Defendants' reliance upon Armstrong misplaced.
The lack of a sole remedy in the FCA renders discussion on whether §§ 254(f) and 253(a)'s mandates are judicially unadministrable moot because both Armstrong factors are necessary to conclude that Congress intended to preclude private enforcement in the courts.Without the presence of the first Armstrong factor, the Court cannot find that Congress intended to preclude private enforcement of the FCA as Defendants suggest. The Court concludes that Armstrong does not mandate dismissal of the Complaint.
The Ex parte Young doctrine provides that a plaintiff may bring a suit against a state officer to enjoin violations of rights protected by the Constitution or afforded by federal law.In Ex parte Young, the Supreme Court announced an exception to the Eleventh Amendment-a plaintiff may obtain prospective equitable relief against a state official in federal court. The Ex parte Young doctrine has several important limits: 1) it applies only to alleged violations of federal law; 2) it applies only to ongoing violations, not suits seeking retroactive or compensatory wrongs; and 3) it does not permit an award for relief that is the practical equivalent of money damages, even if it is characterized as equitable.
Several subsequent Supreme Court cases have narrowed Ex parte Young's scope- Seminole Tribe of Florida. v. Florida,  Idaho v. Coeur d'Alene Tribe of Idaho,  and Armstrong v. Exceptional Child Center, Inc. Defendants urge the Armstrong limitation applies, but for the reasons discussed above, the Court finds it does not. Despite these limitations, Ex parte Young remains available as a vehicle for a plaintiff to remedy a violation of rights conferred by the Constitution or federal law.
Applying the straightforward inquiry here, this is a suit alleging the two requirements the Supreme Court set out in Verizon Maryland. Virgin Mobile alleges an ongoing violation of federal law-the KCC order violates the FCA in several ways. Furthermore, Virgin Mobile seeks prospective relief in the form of an injunction halting enforcement of the KCC's order requiring it to report federal subsidies it received as revenue and pay an assessment on that revenue to the KUSF. The Complaint thus presents a traditional Ex parte Young action. The Court concludes it has equitable jurisdiction to hear Virgin Mobile's claims.
Alternatively, Defendants contend Virgin Mobile's claims are inadequately pled. Defendants argue each claim misses a necessary element or states a legally invalid claim. The Court will discuss the claims seriatim.
Virgin Mobile asserted four claims from these three sentences.

References: § 254
 § 254
 § 254
 § 66
 § 253
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 § 1396
 § 30
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