Opinion ID: 802443
Heading Depth: 2
Heading Rank: 2

Heading: The State’s Police and Regulatory Power

Text: Halo next argues that the various PUC proceedings are private contract actions brought by the telephone company Appellees in their own pecuniary interest, so they do not meet the second statutory requirement that an excepted action be intended “to enforce such governmental unit’s or organization’s police and regulatory power.” § 362(b)(4). In both its briefs and at oral argument, Halo also stated that many of the Appellees’ claims are federal questions. For instance, according to Halo, Transcom’s status as either an enhanced service provider or an end user “is a federal question that several federal courts have decided without prior regulatory input.” Halo also argues that whether or not it provides CMRS is a question that is not within the state commissions’ jurisdiction, and but rather must be resolved by the FCC. According to the Appellees, the bankruptcy court’s order does effectuate the policies of the Bankruptcy Code because it prevents Halo from using bankruptcy to frustrate governmental functions and to avoid the states’ police and regulatory powers. The telephone companies argue that the order protects important state regulatory powers, as well as public policies underlying telecommunications statutes, regulations, and tariffs, including maintaining the 17 Case: 12-40122 Document: 00511889658 Page: 18 Date Filed: 06/18/2012 No. 12-40122 proper balance of federal and state authority in telecommunications law. In addition, the Appellees note that since ICAs must be approved by the state commissions, they are not merely private contract disputes, but rather are an aspect of the states’ regulation and enforcement of intra-state telecommunications. Finally, the Appellees state that the fact that the PUCs may determine whether Halo owes the Appellee companies fees or enter money judgments does not preclude application of § 362(b)(4), because the bankruptcy court’s order requires that the parties return to that court before the enforcement of any money judgment can occur. Halo may be correct that some of the claims made by the Appellees in the PUCs will ultimately need to be decided by a federal court. However, as this Court has noted before, the FTA envisions a “carefully crafted federal-state balance” that “erects a scheme of ‘cooperative federalism.’” Budget Prepay, Inc. v. AT&T Corp., 605 F.3d 273, 281 (5th Cir. 2010) (quoting Core Commc’ns, Inc. v. Verizon Pa., Inc., 493 F.3d 333, 335 (3d Cir. 2007)). Under this arrangement, “responsibility for complex regulatory schemes [is divided] between states and the federal government, with the federal government setting general standards and ensuring overall compliance, while state agencies are given latitude to proceed in any number of fashions, provided that they are not inconsistent with the Act and FCC regulations.” Id. (internal quotation marks and citation omitted). The Appellees have brought claims under both federal and state telecommunications laws, and further, interpretation and enforcement of ICAs is entrusted in the first instance to state commissions. See 47 U.S.C. § 252; Budget Prepay, 605 F.3d at 279 (stating that “interpretation of the terms of an ICA, even if the ICA terms are intertwined with federal law, is a claim governed by and arising under state law” (citing Sw. Bell Tel. Co. v. Pub. Utility Comm’n of Tex., 208 F.3d 475 (5th Cir. 2000)). 18 Case: 12-40122 Document: 00511889658 Page: 19 Date Filed: 06/18/2012 No. 12-40122 Furthermore, state PUC rulings are subject to federal court review. See 47 U.S.C. §§ 251, 252; Sw. Bell, 208 F.3d at 480 (“We also hold that the district courts have jurisdiction to review such interpretation and enforcement decisions of the state commissions.”). We have held that this federal review encompasses not only commission decisions regarding compliance with the requirements of the FTA, but also permits courts to review “the PUC’s state law determinations . . . under the . . . arbitrary-and-capricious standard.” Sw. Bell, 208 F.3d at 482. Thus, Halo is not being denied a federal forum by the requirement that it first submit to the jurisdiction of the state PUCs. While Halo may feel that it would be more expedient and efficient to have all of these actions heard in one court,10 we responded to a similar argument in Budget Prepay by noting that “the potential for inconsistent results” that arises from litigating in multiple state commissions “[is] part and parcel of cooperative federalism,” and this result is consistent with congressional intent. 605 F.3d at 281. By choosing to conduct business in a number of different states, Halo has consented to such a system. We also find that the PUC actions at issue here pass both the pecuniary purpose and public policy tests outlined above, and are thus in furtherance of the states’ regulatory and police powers. Through these proceedings, the states do not “primarily see[k] to protect a pecuniary governmental interest in the debtor’s property, as opposed to protecting the public safety and health.” Nortel, 669 F.3d at 139-40. None of the PUC proceedings would give the states access to Halo’s property. In addition, the bankruptcy court’s order ensures that if a PUC rules that Halo owes fees to one of the Appellees, no enforcement of any money judgment may take place without first going back to the bankruptcy court. Thus, the suits are not strictly in the pecuniary interest of the Appellees, either. 10 While we need not delve further into this issue here, we note that even if it were appropriate to consolidate all of these actions in one federal forum, we do not agree with Halo that it necessarily follows that a federal bankruptcy court is the most fitting choice. 19 Case: 12-40122 Document: 00511889658 Page: 20 Date Filed: 06/18/2012 No. 12-40122 Instead, they will aid in determining what kind of telecommunications provider Halo is, how it should interact with the local telephone companies with which it deals, and whether its interactions with them thus far have followed the applicable rules and regulations. The fact that Halo must expend money in defending these multiple actions does not mean that the exception should not apply. As this Circuit has recognized, “in contemporary times, almost everything costs something.” Commonwealth Oil, 805 F.2d at 1186 (quoting Penn Terra, 733 F.2d at 278). Even if a PUC enters a money judgment against Halo, as long as it does not seek to enforce that judgment, the action still falls under the exception to the automatic stay. Brennan, 230 F.3d at 71. This fact seriously weakens Halo’s argument that the bankruptcy court’s ruling will undermine “the ordered administration or re-organization of [its] estate or business.” Moreover, the FTA indicates that regulation of telecommunications carriers serves the public interest. The Act was passed in part to ensure that “all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, [have available] a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.” 47 U.S.C. § 151. This demonstrates a clear public purpose to federal regulation of telecommunications. The Act requires that “[a]ny interconnection agreement adopted by negotiation or arbitration shall be submitted for approval to the State commission. ” 47 U.S.C. § 252(e)(1). Thus, the Act contemplates a public purpose to state regulation of telecommunications, as well. Furthermore, even ICAs between two private companies, such as those in dispute between AT&T and Halo (what Halo calls “private contracts”), have a public nature, as they must be approved by the applicable State commission. 20 Case: 12-40122 Document: 00511889658 Page: 21 Date Filed: 06/18/2012 No. 12-40122 Halo argues that “[t]he facts underlying the parties’ disputes involve commercial competition and compensation–not government enforcement in the public interest.” However, state case law and statutes regarding PUCs demonstrate their public purpose. For instance, the Missouri Public Service Commission Act “was the result of growing feeling that such competition, as existed in this field, was inadequate to protect the public.” May Dep’t Stores Co. v. Union Elec. Light & Power Co., 341 Mo. 299, 316 (1937). The Missouri Act uses the “police power of the state,” id. at 316, in order “to secure equality in service and in rates for all who needed or desired these services and who were similarly situated,” id. at 317. In Georgia, the Public Service Commission “clearly has enforcement and regulatory powers. It not only has the power to conduct hearings and render decisions, it also has the power to act on those decisions, such as granting or denying licenses and rate increases.” Campaign for a Prosperous Ga. v. Ga. Power Co., 174 Ga. App. 263, 264 (Ct. App. 1985). It is the policy of Texas “to protect the public interest in having adequate and efficient telecommunications service available to each resident of this state at just, fair, and reasonable rates.” V.T.C.A., Util. Code § 52.001(a). This policy is effected through the Texas PUC, which “has the general power to regulate and supervise the business of each public utility within its jurisdiction and to do anything specifically designated or implied by this title that is necessary and convenient to the exercise of that power and jurisdiction.” Id. § 14.001. When resolving disputes, the Texas PUC is directed to consider the effect on “(1) consumers, (2) competitors; and (3) the incumbent local exchange company.” Id. § 60.003(c). These cases and statutes provide examples of state PUCs’ mandate to protect the public interest, and show that they utilize the police and regulatory powers of the states in doing so. Under the pecuniary purpose and public policy tests, a bankruptcy court must “determine whether the particular regulatory proceeding at issue is 21 Case: 12-40122 Document: 00511889658 Page: 22 Date Filed: 06/18/2012 No. 12-40122 designed primarily to protect the public safety and welfare[.]” McMullen, 386 F.3d at 325. The bankruptcy court here recognized that “the actions of the Public Utilities Commission . . . are aimed at effectuating public policies[.] [T]he Public Utility Commissions are seeking to enforce regulatory statutes, including their tariffs and rules.” The bankruptcy judge’s order limiting the effect of any monetary judgments issued by the PUCs ensures that the actions at issue pass the pecuniary purpose test; federal and state regulations and case law demonstrate that telecommunications regulation is intended to serve the public interest. Consequently, we find that the PUC proceedings meet the requirement of § 362(b)(4) that the governmental unit be enforcing its police or regulatory powers, and they were properly excepted from the automatic bankruptcy stay.