Court Opinion

ID: 9486967
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:05:03.42116+00
Date Added: 2024-06-11T17:52:02.046161
License: Public Domain

Opinion for the Court filed by Chief Judge MIKVA.
Dissenting opinion filed by Circuit Judge WILLIAMS.
MIKVA, Chief Judge:
Capital Network System, Inc. (“Capital”) filed an Interstate Common Carrier Transfer Service tariff with the Federal Communications Commission (“FCC” or “Commission”) to recover the costs of rerouting long-distance calls that parties charged to “proprietary” calling cards. The Commission rejected Capital’s proposed tariff without a hearing, deeming the tariff patently unreasonable in violation of the Communications Act and unclear and ambiguous in violation of Commission rules. We deny the petition for review.
I. Background
Capital Network System, Inc. is a small, interexchange communications carrier (“carrier”) providing long-distance telecommunications services to businesses and payphone providers. Typically, a business or payphone provider contracts with a single carrier to transmit its long-distance calls, so that when such a call is placed, it is routed automatically to the presubseribed carrier. If a caller wants to charge a long-distance call to a carrier other than the one to which a line is presubseribed, she must either “dial around” the presubscribed carrier by dialing the desired carrier’s access code, or dial “0 +” to request assistance from the presubseribed carrier’s operators. Upon receiving a “0 + ” call, the presubseribed carrier will validate the calling party’s billing instructions (typically, a calling card number) and then route the call to the called party. The billing validation process screens out calls that parties may try to charge to fraudulent or otherwise invalid numbers. The presubscribed carrier bears the risk of non-collection when placing an unvalidated call.
To validate a party’s calling card number, a presubseribed carrier must access a database of valid card numbers maintained by the entity that issued the card. Most major carriers, such as AT & T, MCI, and Sprint, deny this access to smaller carriers; as such, their cards are termed “proprietary.” All of the major carriers, except AT & T, have successfully instructed their cardholders to “dial around” a presubscribed carrier. But, as of the time Capital filed this petition, AT & T had not effectively done so. Consequently, Capital received a disproportionate number of “0 + ” calls from cardholders using AT & T’s Card Issuer Identification formatted (“CIID”) cards. (In the first phase of a separate rulemaking proceeding that overlapped with the tariff filings at issue in this case, the Commission directed AT & T to “provide clear and accurate access code dialing instructions on every proprietary card issued,” and to “educate its cardholders” about when to use 0 + dialing. In the Matter of Billed Party Preference for 0 + InterLATA Calls, 7 F.C.C.R. 7714 (November 6, 1992). We do not know the upshot of these directives.)
Because Capital’s operators cannot access AT & T’s validation database, Capital reroutes “0 + ” calls billed to CIID cards to the originating local exchange carrier for connection to AT & T. Capital estimates that processing CIID calls in this manner cost the company an average of $100,000 to $200,000 per month in 1992. Capital contends that, as a practical matter, it cannot refuse to transfer CIID calls without risking callers’ ire and the consequent erosion of its customer base. We accept this contention as true for purposes of this case. Furthermore, FCC rules prohibit carriers from passing transfer costs on to CIID cardholders. See 47 C.F.R. § 64.705(b). Therefore, AT & T’s refusal to provide smaller carriers access to its validation database saddles those carriers with substantial costs.
On June 13,1991, Capital filed the tariff at issue in this ease to recoup the costs associated with its transfer of CIID calls back to the originating local exchange carrier for connection with AT & T. Under its proposed “Interstate Common Carrier Transfer Service,” Capital would charge any interexchange carrier that denied Capital access to its data*204base a $1.50 per call service fee whenever Capital transfers to the local exchange carrier a call billed to a proprietary calling card. Neither AT & T nor any member of the public filed petitions or protests against Capital’s proposed tariff.
The Commission’s Common Carrier Bureau rejected Capital’s proposed tariff as “patently unlawful” in violation of § 201 of the Communications Act and “unclear and ambiguous” in violation of FCC rules. In the Matter of Capital Network Systems, Inc., 6 F.C.C.R. 5609 (1991). On appeal, the FCC affirmed the Common Carrier Bureau’s decision and rejected Capital’s application for review. In the Matter of Capital Network Systems, Inc., 7 F.C.C.R. 8092 (1992). While acknowledging that “tariff filings by non-dominant carriers [such as Capital] enjoy a presumption of lawfulness,” the Commission concluded that, under section 201(b) of the Communications Act, it was “patently an unreasonable practice for Capital to automatically charge an entity for a service it did not order and may not have received.” Id. at 8092-93. The Commission also affirmed the Bureau’s finding that the tariff was “unclear and ambiguous” in violation of 47 C.F.R. §§ 61.2, 61.54. Id. Capital seeks review of these determinations.
II. Discussion
Capital challenges the Commission’s rejection of its proposed Interstate Common Carrier Transfer Service on three grounds. First, it contends that the FCC exceeded the scope of its authority under the Communications Act by rejecting the proposed tariff without a hearing. Second, Capital argues that the FCC failed to apply the presumption of lawfulness that Commission rules accord non-dominant carrier-initiated tariffs. Third, Capital argues that the Commission’s actions were arbitrary and capricious because they were “wholly unprecedented” and inconsistent with the treatment accorded dominant carrier tariffs when challenged on vagueness grounds.
A Communications Act
Power to Reject
Congress entrusted administration of the Communications Act, 47 U.S.C. 201 et seq., to the FCC. Section 201(b) of the Act mandates that any interstate communications charge, practice, classification, or regulation must be “just and reasonable” and declares unlawful any that are “unjust or unreasonable.” 47 U.S.C. § 201(b). Because “just,” “unjust,” “reasonable,” and “unreasonable” are ambiguous statutory terms, this court owes substantial deference to the interpretation the Commission accords them. See Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).
Although the Communications Act does not expressly authorize the Commission to reject tariff filings summarily, courts have inferred that the Commission has the general power to do so under § 201 of the Act. Municipal Light Boards v. FPC, 450 F.2d 1341, 1346 (D.C.Cir.1971); see also American Broadcasting Cos. v. FCC, 663 F.2d 133, 138 (D.C.Cir.1980). The Commission’s authority to reject filings extends to those that are “patent nullit[ies] as a matter of substantive law” as well as those with technical or procedural flaws. Municipal Light Boards, 450 F.2d at 1346.
Because the Commission equates tariff filings with contract offers, contract law provides the analytical framework by which the Commission assesses a tariffs “justness” and “reasonableness.” Capital does not dispute that, under general principles of contract and tariff law, a tariff implies the formation of a carrier-customer relationship. Moreover, Capital concedes that it sought to charge interexchange carriers for transfer services that they did not affirmatively order. The Commission claims that its then-prevailing definition of “customer”—a party that affirmatively requests and receives a tariffed service—renders Capital’s proposed transfer tariff patently null. In the Matter of Capital Network Systems, Inc., 7 F.C.C.R. 8092, 8093 (1992); see also In the Matter of AT & T’s Private Payphone Commission Plan, 7 F.C.C.R. 7135 (1992) (recognizing the “caller” to be the “customer” of “0 + ” service); cf. In the Matter of the Bell Atlantic Telephone Companies, 4 F.C.C.R. 455 (1988) (approving *205transfer service tariff when interexchange carriers affirmatively subscribe to the transfer service).
Capital argues that its proposed tariff contains the requisite carrier-customer relationship upon which “just and reasonable” tariffs are predicated. According to Capital, AT & T “constructively ordered” Capital’s transfer service by denying Capital and other small carriers access to its validation database. However, Capital cites no case decided before the FCC rejected the proposed transfer tariff in which the Commission construed “customer” to encompass parties beyond those who affirmatively requested services from a carrier. We accept the Commission’s representation of its then-prevailing interpretation of “customer” and find that under that standard, Capital’s proposed tariff is patently null.
The Commission’s subsequent reinterpretation of “customer” to include parties that “constructively order” a carrier’s services in no way alters our analysis. See In the Matter of United Artists Payphone Corp., 8 F.C.C.R. 5562 (1993). In United Artists, the Commission embraced “constructive ordering” in the context of fraudulently placed calls—completed calls for which carriers bear the costs despite having validated the calling party’s billing instructions. The Commission’s reasoning in United Artists neither excuses carriers from validating the calling party’s billing instructions nor authorizes them to recoup costs for calls that they failed to complete. That is precisely what Capital’s proposed transfer tariff seeks to accomplish.
Moreover, agencies “must be given ample latitude to ‘adapt their rules and policies to the demands of changing circumstances.’ ” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983) (quoting Permian Basin Area Rate Case, 390 U.S. 747, 784, 88 S.Ct. 1344, 1368, 20 L.Ed.2d 312 (1968)). We recognize that “[i]n some sense ... review of an agency’s construction of an ambiguous statute is review of the agency’s policy judgment.” Health Insurance Ass’n of America, Inc. v. Shalala, 23 F.3d 412, 416 (D.C.Cir.1994). Capital does not argue that the Commission made an unreasonable policy choice when it restricted “customers” to those parties that affirmatively ordered services from a carrier. Rather, Capital claims that the Commission’s subsequent policy choice—construing “customer” to encompass parties that “constructively order” services—renders unreasonable the Commission’s prior policy judgment. Because this argument collapses into a retro-activity claim, we find it untenable. See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988).
The Commission also rejected Capital’s proposed tariff because the Company sought to charge AT & T for services that the latter would not necessarily receive. Although Capital labels its service as a “transfer” service, Capital cannot actually transfer calls directly to AT & T; no direct connection exists between the two facilities. As such, when a caller on a Capital presubscribed line wants to use her proprietary AT & T calling card, Capital can only transfer the call back to the originating local exchange carrier who will then presumably reroute the call to AT & T. Thus, nothing guarantees that a call “transferred” by Capital will ever reach AT 6 T; the caller might get frustrated and give up or the local exchange carrier might complete the call on its own facilities. Yet, Capital’s proposed tariff provides that “an End User telephone call is deemed transferred when [Capital] activates the switch to transfer the call.” Capital Network Systems, Inc., Tariff F.C.C. No. 2, Transmittal No. 1, proposed section 3.1, filed June 13, 1991. The Commission concluded that imposing charges for uncompleted transfers is per se unreasonable and warrants rejection of the tariff. In the Matter of Capital Network Systems, Inc., 7 F.C.C.R. 8092, 8093 (1992).
Capital agrees that AT & T should not be charged for transfers that it never receives. Although petitioner’s brief indicates that Capital will maintain computer tapes of the calls it transfers to AT & T so that the latter can verify assessed transfer costs, the tariff application failed to mention this. Capital Network Systems, Inc., Tariff F.C.C. No. 2, Transmittal No. 1, filed June 13, 1991. Moreover, the Commission rightly notes that *206placing the verification burden on the “customer” is an “undue burden.”

B. Presumption of Lawfulness

By its plain language, section 1.773(a)(l)(ii) of the Commission’s rules specifies the criteria by which the FCC determines whether to grant a petition to suspend a tariff filed by a non-dominant carrier. See 47 C.F.R. § 1.77S(a)(l)(ii). In such proceedings, “tariff filings by nondominant carriers will be considered prima facie lawful” by the Commission. 47 C.F.R. § 1.77S(a)(l)(ii). Presumably, the Commission also applies this presumption of lawfulness when considering whether to reject a tariff filing—hence the requirement that the tariff be patently unlawful. Capital contends that, because the FCC failed to accord Capital’s proposed transfer tariff the presumption of lawfulness to which it was entitled under the Commission’s rules, the Commission impermissibly rejected the tariff. We disagree.
Reviewing courts accord even greater deference to agency interpretations of agency rules than they do to agency interpretations of ambiguous statutory terms. See Udall v. Tollman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). “[I]n construing administrative regulations, ‘the ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.’ ” United States v. Larionoff, 431 U.S. 864, 872, 97 S.Ct. 2150, 2155, 53 L.Ed.2d 48 (1977) (internal quotation omitted). The FCC claims that, throughout the Competitive Carrier proceedings (in which it adopted rule 1.773(a)), it emphasized that the substantive standards of sections 201 and 202 of the Communications Act continued to apply to non-dominant carriers. See Second Report and Order, 91 FCC2d 59, 70-71 (1982). The presumption of lawfulness that the FCC decided to accord nondominant carrier filings in no way excused such filings from the substantive requirements of the Communications Act. Accordingly, the FCC contends that rejecting a tariff that patently violates the requirement that tariffs be just and reasonable is entirely consistent with both the letter and spirit of its Competitive Carrier Report. Because the Commission’s interpretation of the scope and meaning of the presumption of lawfulness articulated in section 1.773(a)(l)(ii) is neither “plainly erroneous” nor internally “inconsistent,” we reject Capital’s claim.

C. Arbitrary and Capricious

Capital argues that the FCC’s rejection of its proposed tariff marked an unexplained reversal of established agency policy in violation of the Administrative Procedure Act. 5 U.S.C. § 706(2)(A). See Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983). According to Capital, never before had the FCC rejected a non-dominant carrier-initiated tariff filing. Moreover, Capital claims that the FCC treated its uncontested tariff filing more harshly than it typically treats dominant carriers’ contested tariffs filings. The FCC disavows any change or discrepancy in Commission policy or practice. Because Capital has cited no precedent in which the Commission knowingly accepted any tariff of any carrier that attempted to impose charges for services a customer had not affirmatively requested and may never have received, we do not deem the FCC’s rejection of Capital’s proposed tariff to be arbitrary and capricious.
III. Conclusion
We are not unmindful that AT & T’s failure to instruct its proprietary calling card users effectively imposed financial hardships on Capital. Capital knew that it could avail itself of the Communication Act’s complaint procedures, 47 U.S.C. §§ 206-208, to recover any damages it incurred as a consequence of AT & T’s allegedly unreasonable business practices. Instead, Capital chose to file the proposed tariff at issue in this case. Because Capital’s Interstate Common Carrier Transfer Service proposed to charge entities issuing proprietary calling cards for services that they did not affirmatively order and would not necessarily receive, the FCC properly rejected Capital’s proposed tariff as patently unlawful under the Communications Act. The petition for review is

Denied.