Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Global Tel*Link v. Federal Communications Commission

United States Court of Appeals, District of Columbia Circuit

June 13, 2017

Global Tel*Link, Petitioner
v.
Federal Communications Commission and United States of America, Respondents Centurylink Public Communications, Inc., et al., Intervenors

          Argued February 6, 2017

         On Petitions for Review of an Order of the Federal Communications Commission

          Mithun Mansinghani, Deputy Solicitor General, Office of the Attorney General for the State of Oklahoma, argued the cause for State and Local Government Petitioners. With him on the briefs were E. Scott Pruitt, Attorney General, Patrick R. Wyrick, Solicitor General, Nathan B. Hall, Assistant Solicitor General, James Bradford Ramsay, Jennifer Murphy, Christopher J. Collins, Mark Brnovich, Attorney General, Office of the Attorney General for the State of Arizona, Dominic E. Draye, Deputy Solicitor General, Leslie Rutledge, Attorney General, Office of the Attorney General for the State of Arkansas, Lee Rudofsky, Solicitor General, Nicholas Bronni, Deputy Solicitor General, Danny Honeycutt, Karla L. Palmer, Tonya J. Bond, Joanne T. Rouse, Derek Schmidt, Attorney General, Office of the Attorney General for the State of Kansas, Jeffrey A. Chanay, Chief Deputy Attorney General, Chris Koster, Attorney General, Office of the Attorney General for the State of Missouri, J. Andrew Hirth, Deputy General Counsel, Brad D. Schimel, Attorney General, Office of the Attorney General for the State of Wisconsin, Misha Tseytlin, Solicitor General, Daniel P. Lennington, Deputy Solicitor General, Gregory F. Zoeller, Attorney General, Office of the Attorney General for the State of Indiana, Thomas M. Fisher, Solicitor General, Jeff Landry, Attorney General, Office of the Attorney General for the State of Louisiana, Patricia H. Wilton, Assistant Attorney General, Adam Paul Laxalt, Attorney General, Office of the Attorney General for the State of Nevada, and Lawrence VanDyke, Solicitor General. Jared Haines, Assistant Solicitor General, Office of the Attorney General for the State of Oklahoma, David G. Sanders, Assistant Attorney General, Office of the Attorney General for the State of Louisiana, and Dean J. Sauer, Attorney, Office of the Attorney General for the State of Missouri, entered appearances.

          Michael K. Kellogg argued the cause for ICS Carrier Petitioners. With him on the briefs were Aaron M. Panner, Benjamin S. Softness, Stephanie A. Joyce, Andrew D. Lipman, Brita D. Strandberg, Jared P. Marx, John R. Grimm, Robert A. Long, Jr., Kevin F. King, Marcus W. Trathen, Julia C. Ambrose, and Timothy G. Nelson.

          Andrew D. Lipman and Stephanie A. Joyce were on the brief for petitioner Securus Technologies, Inc.

          David M. Gossett, Attorney, Federal Communications Commission, argued the cause for respondent. On the brief were Howard J. Symons at the time the brief was filed, General Counsel, Jacob M. Lewis, Associate General Counsel, Sarah E. Citrin, Counsel, and Robert B. Nicholson and Daniel E. Haar, Attorneys, U.S. Department of Justice. Mary H. Wimberly, Attorney, U.S. Department of Justice, Brendan T. Carr, Acting General Counsel, Federal Communications Commission, and Richard K. Welch, Deputy Associate General Counsel, entered appearances.

          Lori Swanson, Attorney General, Office of the Attorney General for the State of Minnesota, Kathryn Fodness and Andrew Tweeten, Assistant Attorneys General, Eric T. Schneiderman, Attorney General, Office of the Attorney General for the State of New York, Robert W. Ferguson, Attorney General, Office of the Attorney General for the State of Washington, Karl A. Racine, Attorney General, Office of the Attorney General for the District of Columbia, Lisa Madigan, Attorney General, Office of the Attorney General for the State of Illinois, Maura Healey, Attorney General, Office of the Attorney General for the Commonwealth of Massachusetts, and Hector Balderas, Attorney General, Office of the Attorney General for the State of New Mexico were on the brief for amici curiae State of Minnesota, et al. in support of respondents.

          Glenn S. Richards was on the brief for intervenors Network Communications International Corp. in support of respondents.

          Andrew Jay Schwartzman argued the cause for intervenors The Wright Petitioners. With him on the brief was Drew T. Simshaw.

          Danny Y. Chou was on the brief for amicus curiae The County of Santa Clara and the County of San Francisco in support of respondent.

          Before: Pillard, Circuit Judge, and Edwards and Silberman, Senior Circuit Judges.

          OPINION

          EDWARDS SENIOR CIRCUIT JUDGE.

         The Communications Act of 1934 ("1934 Act") authorized the Federal Communications Commission ("Commission" or "FCC") to ensure that interstate telephone rates are "just and reasonable, " 47 U.S.C. § 201(b), but left regulation of intrastate rates primarily to the states. In the Telecommunications Act of 1996 ("1996 Act"), Congress amended the 1934 Act to change the Commission's limited regulatory authority over intrastate telecommunication so as to promote competition in the payphone industry.

         Before the passage of the 1996 Act, Bell Operating Companies ("BOCs") had dominated the payphone industry to the detriment of other providers. Congress sought to remedy this situation by authorizing the Commission to adopt regulations ensuring that all payphone providers are "fairly compensated for each and every" interstate and intrastate call. 47 U.S.C. § 276(b)(1)(A). "[P]ayphone service" expressly includes "the provision of inmate telephone service in correctional institutions, and any ancillary services." Id. § 276(d). The issues in this case focus on inmate calling services ("ICS") and the rates and fees charged for these calls.

         Following the passage of the 1996 Act, the Commission avoided intrusive regulatory measures for ICS. And prior to the Order under review in this case, the Commission had never sought to impose rate caps on intrastate calls. Rather, the FCC consistently construed its authority over intrastate payphone rates as limited to addressing the problem of undercompensation for ICS providers.

         Due to a variety of market failures in the prison and jail payphone industry, however, inmates in correctional facilities, or those to whom they placed calls, incurred prohibitive per-minute charges and ancillary fees for payphone calls. In the face of this problem, the Commission decided to change its approach to the regulation of ICS providers. In 2015, in the Order under review, the Commission set permanent rate caps and ancillary fee caps for interstate ICS calls and, for the first time, imposed those caps on intrastate ICS calls. Rates for Interstate Inmate Calling Services ("Order"), 30 FCC Rcd. 12763, 12775-76, 12838-62 (Nov. 5, 2015), 80 Fed. Reg. 79136-01 (Dec. 18, 2015). The Commission also proposed to expand the reach of its ICS regulations by banning or limiting fees for billing and collection services - so-called "ancillary fees" - and by regulating video services and other advanced services in addition to traditional calling services.

         Five inmate payphone providers, joined by state and local authorities, now challenge the Order's design to expand the FCC's regulatory authority. In particular, the Petitioners challenge the Order's proposed caps on intrastate rates, the exclusion of "site commissions" as costs in the agency's ratemaking methodology, the use of industry-averaged cost data in the FCC's calculation of rate caps, the imposition of ancillary fee caps, and reporting requirements. And one ICS provider separately challenges the Commission's failure to preempt inconsistent state rates and raises a due process challenge.

         Following the presidential inauguration in January 2017, counsel for the FCC advised the court that, due to a change in the composition of the Commission, "a majority of the current Commission does not believe that the agency has the authority to cap intrastate rates under section 276 of the Act." Counsel thus informed the court that the agency was "abandoning . . . the contention . . . that the Commission has the authority to cap intrastate rates" for ICS providers. Counsel also informed the court that the FCC was abandoning its contention "that the Commission lawfully considered industry-wide averages in setting the rate caps." However, the Commission has not revoked, withdrawn, or suspended the Order. And one of the Intervenors on behalf of the Commission, the "Wright Petitioners, " continues to press the points that have been abandoned by the Commission.

         For the reasons set forth below, we grant in part and deny in part the petitions for review, and remand for further proceedings with respect to certain matters. We also dismiss two claims as moot.

. We hold that the Order's proposed caps on intrastate rates exceed the FCC's statutory authority under the 1996 Act. We therefore vacate this provision.
. We further hold that the use of industry-averaged cost data as proposed in the Order is arbitrary and capricious because it lacks justification in the record and is not supported by reasoned decisionmaking. We therefore vacate this provision.
. We additionally hold that the Order's imposition of video visitation reporting requirements is beyond the statutory authority of the Commission. We therefore vacate this provision.
. We find that the Order's proposed wholesale exclusion of site commission payments from the FCC's cost calculus is devoid of reasoned decisionmaking and thus arbitrary and capricious. This provision cannot stand as presently proposed in the Order under review; we therefore vacate this provision and remand for further proceedings on the matter.
. We deny the petitions for review of the Order's site commission reporting requirements.
. We remand the challenge to the Order's imposition of ancillary fee caps to allow the Commission to determine whether it can segregate proposed caps on interstate calls (which are permissible) and the proposed caps on intrastate calls (which are impermissible).
. Finally, we dismiss the preemption and due process claims as moot.

         I. BACKGROUND

         A. Statutory Background

         The 1934 Act, 47 U.S.C. § 151, et seq., established a system of regulatory authority that divides power between individual states and the FCC over inter- and intrastate telephone communication services. New England Pub. Commc' ns Council, Inc. v. FCC, 334 F.3d 69, 75 (D.C. Cir. 2003). Under this statutory scheme, the Commission regulates interstate telephone communication. See id; 47 U.S.C. § 151. This regulatory authority includes ensuring that all charges "in connection with" interstate calls are "just and reasonable." 47 U.S.C. § 201(b). "The Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out" these provisions. Id.

         The FCC, however, "is generally forbidden from entering the field of intrastate communication service, which remains the province of the states." New England Pub., 334 F.3d at 75 (citing 47 U.S.C. § 152(b)). Section 152(b) of the 1934 Act erects a presumption against the Commission's assertion of regulatory authority over intrastate communications. This is "not only a substantive jurisdictional limitation on the FCC's power, but also a rule of statutory construction" in interpreting the Act's provisions. La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 373 (1986).

         The 1996 Act "fundamentally restructured the local telephone industry, " New England Pub., 334 F.3d at 71, by changing the FCC's authority with respect to some intrastate activities and "remov[ing] a significant area from the States' exclusive control, " AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 382 n.8 (1999). Nevertheless, the states still primarily "reign supreme over intrastate rates." New England Pub., 334 F.3d at 75 (quoting City of Brookings Mun. Tel. Co. v. FCC, 822 F.2d 1153, 1155 (D.C. Cir. 1987)). "Insofar as Congress has remained silent . . . § 152(b) continues to function. The Commission could not, for example, regulate any aspect of intrastate communication not governed by the 1996 Act on the theory that it had an ancillary effect on matters within the Commission's primary jurisdiction." AT&T Corp., 525 U.S. at 382 n.8.

         Although the strictures of § 152 remain in force, the changes imposed by the 1996 Act were significant. Evidence of this is seen in the "Special Provisions Concerning Bell Operating Companies." 47 U.S.C. §§ 271-76. Section 276 was "specifically aimed at promoting competition in the payphone service industry." New England Pub., 334 F.3d at 71. While local phone services were once thought to be natural monopolies, "[t]echnological advances . . . made competition among multiple providers of local service seem possible, and Congress [in the 1996 Act] ended the longstanding regime of state-sanctioned monopolies." AT&T Corp., 525 U.S. at 371; see also Glob. Crossing Telecomms., Inc. v. Metrophones Telecomms., Inc., 550 U.S. 45, 50 (2007).

         The market history is illuminating. After AT&T had divested its local exchange carriers into individual BOCs in 1982, BOCs continued to discriminate against non-BOC payphone providers and effectively foreclosed competition. The BOCs accomplished this by generally making sure that other providers were not compensated for calls using BOC-owned payphone lines. See New England Pub., 334 F.3d at 71. Thus, because technology constraints forced many non-BOC providers to use BOC-owned payphone lines, those providers were often left uncompensated for payphone calls. The 1996 Act changed these market practices.

         In § 276, Congress clearly aimed to "promote competition among payphone service providers and promote the widespread deployment of payphone services to the benefit of the general public." 47 U.S.C. § 276(b)(1). Covered payphone services include "inmate telephone service in correctional institutions, and any ancillary services." Id. § 276(d). Section 276 of the 1996 Act authorizes the Commission "to prescribe regulations consistent with the goal of promoting competition, requiring that the Commission take five specific steps toward that goal." New England Pub., 334 F.3d at 71. One such step is to "establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone, " and to prescribe regulations to establish this compensation plan by November 1996. 47 U.S.C. § 276(b)(1), (b)(1)(A). The remaining four steps further encourage or force competition between BOC and non-BOC providers. Id. § 276(b)(1)(B)-(E). Any state requirements that are inconsistent with FCC's regulations adopted pursuant to § 276 are preempted. Id. § 276(c).

         B. Factual and Procedural Background

         Over the years, payphone providers have sought to provide inmate calling services to inmates in prisons and jails nationwide. ICS providers now compete with one another to win bids for long-term ICS contracts with correctional facilities. In awarding contracts to providers, correctional facilities usually give considerable weight to which provider offers the highest site commission, which is typically a portion of the provider's revenue or profits. See Implementation of Pay Tel. Reclassification & Comp. Provisions of Telecomms. Act of 1996, 17 FCC Rcd. 3248, 3252-53 (2002). Site commissions apparently range between 20% and 63% of the providers' profits, but can exceed that amount. Id. at 3253 n.34. And ICS providers pay over $460 million in site commissions annually. Order, 30 FCC Rcd. at 12821.

         Once a long-term, exclusive contract bid is awarded to an ICS provider, competition ceases for the duration of the contract and subsequent contract renewals. Winning ICS providers thus operate locational monopolies with a captive consumer base of inmates and the need to pay high site commissions. See 17 FCC Rcd. at 3253. After a decade of industry consolidation, three specialized ICS firms now control 85% of the market. Order, 30 FCC Rcd. at 12801. And ICS per-minute rates and ancillary fees together are extraordinarily high, with some rates as high as $56.00 for a four-minute call. Id. at 12765 n.4.

         In reviewing this market situation, the FCC found that inmate calling services are "a prime example of market failure." Id. at 12765. In its brief to this court, FCC counsel aptly explains the seriousness of the situation:

Inmates and their families cannot choose for themselves the inmate calling provider on whose services they rely to communicate. Instead, correctional facilities each have a single provider of inmate calling services. And very often, correctional authorities award that monopoly franchise based principally on what portion of inmate calling revenues a provider will share with the facility-i.e., on the payment of "site commissions." Accordingly, inmate calling providers compete to offer the highest site commission payments, which they recover through correspondingly higher end-user rates. See [Order, 30 FCC Rcd. at 12818-21]. If inmates and their families wish to speak by telephone, they have no choice but to pay the resulting rates.

Br. for FCC at 4.

         In February 2000, Intervenor Martha Wright filed a putative class action against ICS providers on behalf of her grandson, other inmates, and their loved ones to challenge ICS rates and fees. Complaint, Wright, et al. v. Corr. Corp. of Am., No. 1:00-CV-00293 (D.D.C. Feb. 16, 2000). In 2001, the District Court stayed the case to afford the FCC the opportunity to consider the reasonableness of ICS rates in the first instance through rulemaking. Thereafter, in 2003 and in 2007, Martha Wright and others petitioned the Commission for rulemaking to regulate ICS rates and fees. Petition for Rulemaking, FCC No. 96-128 (Nov. 3, 2003); Petitioners' Alternative Rulemaking Proposal, FCC No. 96-128 (Mar. 1, 2007).

         The record compiled by the Commission fairly clearly supports its determination that ICS charges raise serious concerns. As noted in the FCC's brief to the court:

Excessive rates for inmate calling deter communication between inmates and their families, with substantial and damaging social consequences. Inmates' families may be forced to choose between putting food on the table or paying hundreds of dollars each month to keep in touch. See [Order, 30 FCC Rcd. at 12766-67]. When incarcerated parents lack regular contact with their children, those children-2.7 million of them nationwide-have higher rates of truancy, depression, and poor school performance. See [id. at 12766-67 & 12767 n.18]. Barriers to communication from high inmate calling rates interfere with inmates' ability to consult their attorneys, see [id. at 12765], impede family contact that can "make[] prisons and jails safer spaces, " [id. at 12767], and foster recidivism, see [id. at 12766-67].

         Br. for FCC at 4-5. Petitioners do not seriously contest these facts. See Joint Br. for Pet'rs at 7 (acknowledging that "calling rates often exceed, sometimes substantially, rates for ordinary toll calls").

         In 2013, the Commission issued an interim order imposing a per-minute rate cap for interstate ICS calls, citing its plenary authority over interstate calls under § 201(b) and its mandate to ensure that providers are "fairly compensated" under § 276. Rates for Interstate Inmate Calling Services ("Interim Order"), 28 FCC Rcd. 14107, 14114-15 (2013). ICS providers petitioned for this court's review of the Interim Order. The court stayed application of certain portions of the Interim Order but allowed its interstate rate caps to remain in effect. Order, Securus Techs. v. FCC, No. 13-1280 ("Securus I") (D.C. Cir. Jan. 13, 2014), ECF No. 1474764 (staying only 47 C.F.R. §§ 64.6010, 64.6020, and 64.6060). In December 2014, the court held the petitions in abeyance while the Commission proceeded to set permanent rates. Order, Securus I (D.C. Cir. Dec. 16, 2014), ECF No. 1527663.

         In 2015, the Commission set permanent rate caps and ancillary fee caps for interstate ICS calls, and for the first time the agency imposed caps on intrastate ICS calls. Order, 30 FCC Rcd. at 12775-76, 12838-62. The rate caps were set for four categories - "all prisons" and three tiers of jails based on size - and the rate caps varied by category. Id. at 12770. The rate caps, which were made effective immediately, ranged from $.14 to $.49 per minute, but were to decrease as of July 1, 2018, to $.11 to $.22 per minute. Id. In setting the rate caps, the Commission used a ratemaking methodology based on industry-average cost data that excluded site commissions as a cost. Id. at 12790, 12818-38. The Order also imposed reporting requirements on ICS providers, including for video visitation services and site commissions. Id. at 12890-93.

         ICS providers Global Tel*Link; Securus Technologies, Inc.; CenturyLink Public Communications, Inc.; Telmate, LLC; and Pay Tel Communications ("Pay Tel") (collectively "Petitioners") separately petitioned for review. Various state and local correctional authorities, governments, and correctional facility organizations petitioned and/or intervened on behalf of Petitioners. Martha Wright's putative class and various inmate-related legal organizations ("Intervenors") intervened on behalf of the Commission.

         In early 2016, the court consolidated the petitions for review. On March 7, 2016, the court stayed the application of the Order's rate caps and ancillary fee caps as to single-call services while this case was pending. Order, Global Tel*Link, et al. v. FCC, No. 15-1461 ("Global Tel*Link") (D.C. Cir. Mar. 7, 2016), ECF No. 1602581. Subsequently, on March 23, 2016, the court stayed the application of ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.