Opinion ID: 699532
Heading Depth: 2
Heading Rank: 2

Heading: The IXCs' Claims

Text: 48 Recall that the IXCs ask us to vacate only the Commission's limited offset rule, that is, its policy of allowing a LEC to offset against any overcharge that an IXC paid for one type of access the amount that the same IXC underpaid the LEC (i.e., insofar as it paid a rate that yielded a return less than the prescribed maximum) for any other type of access during the same monitoring period. The IXCs advance three primary contentions: They claim that allowing limited offsets (1) violates both FCC and related ICC precedent, and (2) the filed rate doctrine; and (3) was inadequately explained (and thus arbitrary and capricious) under the standards of the Administrative Procedure Act. Because we agree with the IXCs' first contention and upon that basis vacate the limited offsets, we do not reach the latter two claims. (Nor do we consider Allnet's alternative claim that the Commission improperly set the interest rate it is due on its award of damages.) 49 In Laning-Harris Coal & Grain Co. v. St. Louis & San Francisco Ry. Co., 15 I.C.C. 37 (1909), a customer complained before the ICC that the defendant railroad had overcharged it by $42 on shipments made during the period 1906-07. In answer to the complaint defendant admitted that it is indebted to complainant in said sum, but shows that in 1902 and 1903 it undercharged the complainant in the sum of $109.50 [and] therefore claims set-off and asks dismissal of the complaint. Id. at 38. The Commission denied the set-off, explaining that: 50 It is clear that the Commission ... is not authorized to adjudicate the claim of a railroad company against a shipper, but only the claim of a shipper against a railroad company.... To award set-off amounts to the same thing as adjudicating the claim of the railroad company against the shipper, and entry of an order based upon a set-off could occur only after such adjudication. Plainly, if the Commission is without authority to determine the rights of the parties, it is also powerless to enter an order based upon a determination of those rights. 51 Because the Congress borrowed heavily from the Interstate Commerce Act when it drafted the Communications Act of 1934--indeed the damage sections upon which the IXCs base their claims are derived from the ICA--both this court and the Commission often turn to decisions under the ICA for guidance in interpreting the Communications Act. See, e.g., American Broadcasting Cos. v. F.C.C., 643 F.2d 818, 820-21 (D.C.Cir.1980); MCI Telecommunications Corp. v. AT & T, 85 F.C.C.2d 994, 998 (1981). It is not surprising, therefore, that the Commission has expressly adopted the rule of Laning-Harris. See Thornell Barnes Co. v. Illinois Bell Telephone Co., Decision, Docket No. 14645, 1 F.C.C.2d 1247 (1965). 52 The customer in Thornell Barnes was seeking damages upon the ground that Illinois Bell had improperly charged him for misdirected calls. After calculating the customer's damages, the Commission stated: 53 We do not believe ... that it would be proper to set off against this amount the amount that Barnes was undercharged on certain calls at the station-to-station rate because this would involve a determination of the carrier's rights against a subscriber, over which this Commission has no jurisdiction. See Laning-Harris Coal & Grain Co. v. St. L. & S.F. R.R. Co., 15 ICC 37 (1908). 54 Id. at 1275. The IXCs argue that both the ICC's decision in Laning-Harris and the FCC's decision in Thornell Barnes preclude the Commission from awarding the LECs limited offsets in the present cases. That, they contend, would involve a determination of the carrier's rights against a [customer], over which this Commission has no jurisdiction. 55 The Commission attempts to distinguish Thornell Barnes on the ground that it involved a claim for set-off while the instant cases involve claims for offsets. Truly; it explains that a set-off involves the adjudication of a claim separate from the one advanced by the plaintiff and argues that it did not adjudicate, through the use of offsets or otherwise, any claims of any LEC against any customer. Rather, the Commission argues, it considered the offsets only in the course of determining the damages that the complainants actually incurred. That is appropriate, according to the Commission, because the focus of [the IXCs'] complaints is not [the LECs'] individual interstate access rates per se, but the excessive earnings produced by these rates and their effect on [the IXCs]. MCI Damages Order, 8 F.C.C.R. at 1527. We are not persuaded by the Commission's attempted distinction. 56 First, while one may be able to construct a distinction between set-offs and offsets, but see Steinmeyer v. Warner Consolidated Corp., 42 Cal.App.3d 515, 116 Cal.Rptr. 57, 59-60 (1974) (using the two terms interchangeably), the Commission itself blurred the line between the two (if two they be) in Thornell Barnes. Although the Commission there characterized the claim made by the carrier as a set-off, it considered the claim only as part of its damage calculation. The Commission thus appears to have considered, and rejected as ultra vires, the very manner of proceeding that it now repackages and embraces as an offset, viz., folding the carrier's undercharge for one service into its evaluation of the actual damage that the customer suffered by reason of being overcharged for another. The new approach is inconsistent not only with the Commission's own precedent but also with the course that the ICC took in the aftermath of Laning-Harris. In Breece Veneer Co. v. Chesapeake & Ohio Ry. Co., 182 I.C.C. 690 (1932), the ICC awarded a customer reparations in the amount it was overcharged on certain shipments even as it refused to consider that the customer had not paid the carrier at all for a different shipment of the same commodity. The ICC did not accept the contention (adopted by a lone dissenter) that the strictures of Laning-Harris could be avoided simply by reducing the damages that the customer receives upon its claim against the carrier by the amount of the carrier's claim against the customer. Id. at 692. In short, the Commission's attempt to justify its allowance of offsets here is contrary both to its own precedent and to the ICC's longstanding interpretation of the cognate provisions of the ICA. 57 But there is another problem with the Commission's approach: The award of an offset amounts to an implicit determination that the defendant LEC was entitled to earn more than the amount that it actually earned from the rates that it charged. Under the rate-of-return regime as the Commission promulgated it, however, a LEC enjoys no such entitlement, either for interstate access overall or for any individual type of access. Indeed in NETCO we noted with approval that the Commission had declined to set minimum guaranteed rates of return for carriers, 826 F.2d at 1108-09, and nothing of which we are aware in any subsequent rulemaking proceeding suggests that the Commission has since changed course. The Commission may not now, in adjudicating an individual damage complaint, simply manufacture out of whole cloth such a minimum guarantee--here a guarantee that the LEC will earn for the offsetting service a rate of return no lower than the rate of return actually obtained plus the additional amount (up to the maximum allowed) necessary to offset overearnings on the service for which the IXC has made the claim to be offset. 58 The Commission attempts to justify this departure from its own regulatory scheme by explaining that it is reasonable to inquire into [the IXC's] overall purchase of interstate access services because the focus of [each IXC's] complaints is not [the LECs'] individual interstate access rates per se, but the excessive earnings produced by these rates and their effect on [that IXC]. MCI Damages Order, 8 F.C.C.R. at 1527. That explanation begs the question whether excessive earnings from the provision of one service can be offset by earnings foregone in the provision of another service. Most of the IXCs' claims are category-specific; that is, they are not based upon the rate of return that the LEC earned overall from the provision of interstate access services but rather upon the rate of return that the LEC earned from the provision of a particular type of access service. The IXCs seek to recover money from the LECs for having done the very thing that the Commission, in setting category-specific rate-of-return prescriptions, sought to prohibit--namely, earning more than the maximum allowed from the provision of a particular service. The Commission cannot avoid the inconsistency between the regulatory scheme that it devised and its more recent implementation of that scheme by blaming the IXC for the manner in which it brought its claim, i.e., for focusing upon the LEC's excessive earnings rather than the specific rate that it charged. 59 Finally, the Commission's approach to offsets is inconsistent with the statutory and regulatory goal of preventing discrimination in the pricing of access services. See Prescription Reconsideration, 59 Rad.Reg.2d at 1603 justifying category-specific rate-of-return prescriptions on ground that Commission is bound by the Communications Act to ensure that rates ... do not produce unreasonable discrimination or undue preferences; 47 U.S.C. Sec. 202 (It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges). By awarding an offset in favor of a LEC the Commission effectively allows the complaining IXC alone to be charged for the offsetting category of service at a rate above what others paid for it, up to the rate that would yield the maximum rate of return for that type of service. An IXC that cannot or does not bring a refund claim in connection with its purchase of an overearning access service (X) will therefore pay less for the underearning category of service (Y) than will the IXC that does bring a successful refund claim. The Commission offers no convincing explanation of why an IXC that purchased little or none of the service (X) for which the LEC overearned (and hence did not bring an overcharge claim) should enjoy the low rate that the LEC charged for a service (such as Y) in which it underearned while an IXC that purchased more of the overpriced service should not. 60 In sum, by factoring into its damage calculation the complaining IXC's so-called underpayments for other categories of service, the Commission effectively adjudicates the defending LEC's claim for underearnings, in derogation of (1) FCC and related ICC precedent; (2) the Commission's rate-of-return regulatory regime, under which a LEC is not entitled to any minimum rate of return; and (3) the statutory and regulatory norms against rate discrimination. For all these reasons, we hold that the Commission's limited offset policy cannot stand.