DFW Metro Line Services v. Southwestern Bell Telephone, Corp. , 988 F.2d 601 ( 1993 )

United States Court of Appeals,
Fifth Circuit.
No. 91-1364.
DFW METRO LINE SERVICES, A Texas Partnership, now known as U.S. Metro Line
Services, Inc., Plaintiff-Appellant,
v.
SOUTHWESTERN BELL TELEPHONE, CORPORATION, A Missouri Corporation,
Defendant-Appellee.
April 19, 1993.
Appeal from the United States District Court for the Northern District of Texas.
Before REAVELY, KING, and WIENER, Circuit Judges.
WIENER, Circuit Judge.
In this anti-trust case, Plaintiff-Appellant DFW Metro Line Services, now known as U.S.
Metro Line Services, Inc. (Metro), appeals the dismissal of its suit against Defendant-Appellee
Southwestern Bell Telephone Corporation (Bell), claiming that the district court erred in its
determination that Bell was protected from anti-trust liability under the state action doctrine. Our
plenary review of the record convinces us to agree with the district court's conclusion that the nature
of the Texas regulatory scheme is such that Bell is immunized from suit under the state action
doctrine. We therefore affirm that court's dismissal of Metro's complaint.
I
FACTS
Metro offers a flat rate telephone service between Dallas and Fort Worth called metro service
or EMS. To provide this service, Metro must use Bell's telephone lines. At the time the dispute
originated in 1982, Bell was leasing the lines to Metro, a licensed radio common carrier, at Radio
Common Carrier-Direct Inward Dialing (RCC-DID) rates for the express purpose of providing
one-way paging services. Without advising Bell, Metro later expanded its use of Bell's phone lines
by instituting EMS service, thereby competing directly with Bell. When Bell discovered that Metro
had expanded its services but was still paying the lower RCC-DID rates, Bell informed Metro that
it would have to pay the substantially higher, appropriate rate or the lease would be terminated.
According to Bell, the higher rates were required by the Public Utility Commission (PUC)—which
determines the rates to be charged based in part on the use to be made of the phone lines—under
authority of the Public Utility Regulatory Act (PURA).1
II
PROCEEDINGS
Metro originally brought suit seeking a temporary restraining order (TRO) and preliminary
and permanent injunctions preventing Bell from terminating telephone service to Metro, and asserting
an anti-trust claim. The district court granted the TRO, and the parties submitted briefs on the issues.
Based on these briefs, the district court lifted the TRO and denied Metro's application for preliminary
injunction. In its decision, the district court concluded that Metro had little likelihood of success on
the merits because Bell had demonstrated that it was entitled to immunity from anti-trust liability by
meeting the requirements of the two-prong test set forth in California Retail Liquor Dealers
Association v. Midcal Aluminum Inc.2 (the Midcal test). The district court concluded that the active
supervision requirement of the Midcal test was satisfied by PURA, which vested the PUC with power
to ensure compliance with PURA, fixing and regulating rates, determining the classifications of
customers and services, and determining the applicability of rates.
We affirmed the district court in DFW Metro Line Services v. Southwestern Bell Tel. Co.
(Metro I ).3 In addition to affirming the denial of a permanent injunction, the panel opinion in Metro
I stated:
As an additional basis for our holding, we find that Southwestern Bell is immune from the
antitrust liability alleged in [Metro's] complaint under the "state action" doctrine enunciated
in Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943), as applied to private
1
TEX.REV.CIV.STAT.ANN. ART. 1446c (Vernon Supp.1989).
2
445 U.S. 97, 100 S. Ct. 937, 63 L. Ed. 2d 233 (1980). As is discussed in more detail below,
private conduct is immunized from anti-trust liability if the action meets the two-prong Midcal
test, which requires the party seeking immunity to show that (1) the conduct is regulated by the
state; and (2) the state actively supervises the regulated activity.
3
901 F.2d 1267 (5th Cir.), reh'g denied, 908 F.2d 971, cert. denied, 498 U.S. 985, 111 S. Ct.
519, 112 L. Ed. 2d 530 (1990).
state-regulated ratemaking in Southern Motor Carriers Rate Conference v. United States, 471
U.S. 48, 105 S. Ct. 1721, 85 L. Ed. 2d 36 (1985). Southwestern Bell clearly meets the
two-prong test set out in California Retail [Liquor] Dealers Assn. v. Midcal Aluminum, Inc.,
445 U.S. 97, 100 S. Ct. 937, 63 L. Ed. 2d 233 (1980). There is no, therefore, likelihood of
success on the merits in the instant case.4
Metro's petition for certiorari proved unsuccessful and the case was returned to the district court.
At that point in the proceedings, the district court addressed the merits of the case, and
dismissed Metro's anti-trust action under Rule 12(b)(6). Metro appealed, and we affirmed the
dismissal based on Metro I and the law of the case doctrine.5 On writ of certiorari , the Supreme
Court --- U.S. ----, 112 S. Ct. 2987, 120 L. Ed. 2d 2987 (1992), vacated and remanded Metro II for
further consideration in light of Federal Trade Commission v. Ticor Title Insurance Co.6 It is that
case which we consider on the Court's remand today.
III
ANALYSIS
A. Standard of Review
Although the district court dismissed Metro's claim for failure to state a cause of action under
Rule 12(b)(6), it comes to us o n appeal with an extensive record, developed in detail during the
proceedings for injunctive relief. Given the status of the record and the extensive procedural history
of this case, both parties stipulated at oral argument to this court that, in effect, we review the case
as though it were before us on appeal from the grant or denial of a summary judgment motion.
Accordingly, we review the reco rd "under the same standards which guided the district
court."7 These standards, set forth in the Supreme Court trilogy of Anderson v. Liberty Lobby Inc.,8
4
Id. at 1269 n. 6.
5
DFW Metro Line Services v. Southwestern Bell Tel. Co., 947 F.2d 1486 (5th Cir.1991)
(unpublished per curiam opinion) (Metro II ).
6
504 U.S. ----, 112 S. Ct. 2169, 119 L. Ed. 2d 410 (1992).
7
Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.1988).
8
477 U.S. 242, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
Celotex Corp. v. Catrett,9 and Matsushita Electrical Industrial Co. v. Zenith,10 provide that summary
judgment is appropriate when no issue of material fact exists and the movant is entitled to judgment
as a matter of law.11 In determining whether summary judgment was proper, all fact questions are
viewed in the light most favorable to the nonmovant. Questions of law, however, are reviewed de
novo.12 A movant such as Bell is entitled to judgment as a matter of law if it demonstrates that it is
entitled to claim immunization from liability on the grounds alleged.
Given the procedural history of this case, our de novo review is limited somewhat by the law
of the case doctrine, which provides:
The decision of a legal issue by an appellate court establishes the "law of the case" and must
be followed in all subsequent proceedings in the same case at both the trial and appellate
levels unless the evidence at a subsequent trial was substantially different, the controlling
authority has since made a contrary decision of law applicable to such issues, or the decision
was clearly erroneous and would work a manifest injustice.13
As the Supreme Court's order of remand directed us to consider this case in light of Ticor, and a fair
reading of that case discloses that the Court considered only the second prong of the Midcal test, it
follows that the prior decision of this court regarding the first prong remains undisturbed. As such,
the law of the case doctrine requires that we follow the prior panel's determination that Bell has met
the first prong of the Midcal test, i.e., that Texas has expressly authorized the regulation. That leaves
as the only issue for our review today whether Bell has satisfied the second prong of the Midcal test,
as clarified in Ticor, which requires that the state actively supervise the regulated activity.
B. Anti-Trust Law
The Sherman Anti-Trust Act (the Act)14 makes unlawful "[e]very contract, combination ...
9
477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
10
475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).
11
Celotex, 477 U.S. at 323-25, 106 S.Ct. at 2552-54.
12
Walker, 853 F.2d at 358.
13
Reid v. Rolling Fork Pub. Util. Dist., 979 F.2d 1084, 1086 (5th Cir.1992) (quoting
Schexnider v. McDermott Int'l Inc., 868 F.2d 717, 718-19 (5th Cir.1989)).
14
15 U.S.C. §§ 1-7.
or conspiracy, in restraint of trade or commerce among the several States, or with foreign
nations...."15 The act also makes it unlawful to "monopolize, or attempt to monopolize, or combine
to conspire with any other person or persons to monopolize any part of the trade or commerce among
the several States or with foreign nations...."16 In the seminal case of Parker v. Brown,17 the Supreme
Court, addressing whether a state marketing program violated the Act, held that "in a dual system of
government in which, under the Constitution, the states are sovereign, save only as Congress may
constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over
its officers and agents is not lightly to be attributed to Congress." Therefore, "in view of the [Act's]
words and history, it must be taken to be a prohibition of individual and not state action."18
Thus, from Parker originated the "state action doctrine," which confers anti-trust immunity
for state regulatory programs. The Court subsequently made clear in Midcal19 that private party
conduct pursuant to a regulatory program shares this immunity only if the conduct meets both prongs
of a two-prong test, thenceforth called the "Midcal test." This test requires that: (1) the challenged
restraint be clearly articulated and affirmatively expressed as state policy; and (2) the state actively
supervise any anticompetitive conduct.20
1. Clearly Articulated State Policy
The district court held, and Bell agrees, that this prong is satisfied by PURA, which provides:
This Act is enacted to protect the public interest inherent in the rates and services of
public utilities. The legislature finds that public utilities are by definition monopolies in the
areas they serve; that therefore the normal forces of competition which operate to regulate
prices in the free enterprise society do not operate; and that therefore utility rates, operations
and services are regulated by public agencies with the objective that such regulation shall
operate as a subst itute for such competition. The purpose of this Act is to establish a
comprehensive regulatory system which is adequate to the task of regulating public utilities
15
Id. § 1.
16
Id. § 2.
17
317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943).
18
Id. at 352, 63 S.Ct. at 314.
19
445 U.S. at 97, 100 S.Ct. at 937.
20
Id. at 105, 100 S.Ct. at 943.
as defined by this Act, to assure rates, operations, and services which are just and reasonable
to the consumers and to the utilities.21
Again, we have previously held in Metro I22 that Bell meets the first prong of the Midcal Test. As
neither Ticor nor any other Supreme Court decision or subsequent legislation has changed the legal
foundation of that holding, we are bound by the law of the case doctrine to follow our finding in
Metro I that the Texas system satisfies the first Midcal prong.
2. State Supervision
The real issue in this appeal, then, is the second prong of the Midcal Test—whether the state
of Texas actively supervises the regulatory conduct in question within the contemplation of Ticor.
The challenged conduct in Ticor was a horizontal price-fixing scheme within the title insurance
industry. In the instant case, the identity of the challenged conduct is the focus of dispute between
the parties. On one hand, Metro insists that the challenged conduct is Bell's threat to cut-off Metro's
access to Bell's phone lines, thereby forcing Metro out of business. On the other hand, Bell contends
that the challenged conduct is the application of the appropriate rate. According to Bell, the rate is
set by the PUC and Bell has no discretion in its application. Bell also explains that the "threat" to
cut-off Metro's line access was merely the explained consequences that would follow if—but only
if—Metro refused to pay the appropriate line charges.
Despit e Metro's protestations, the conduct which it challenges is the application of the
established rates. Metro's attempt to finesse the language of PURA and to manipulate the facts is
mere obfuscation. Although the ultimate effect of Bell's application of the higher rates may well be
the death knell of Metro's business, that does not alter the character of Bell's initial conduct. In other
words, the possible future consequences of the action are irrelevant to our inquiry. Neither is it of
consequence that Bell may have harbored some secret desire to rid itself of a competitor. The state
action doctrine " "does not depend on the subjective motivation of the individual actors, but rather
on the satisfaction of the objective standards set forth in Parker ... and authorities which interpret it.'
21
PURA § 2.
22
Metro I, 901 F.2d at 1267.
"23 The only question for our review is whether the state sufficiently supervises the challenged
conduct—here, the ratemaking and rate application process.
Having identified the challenged conduct, we now examine the requirements of Midcal's
active supervision prong, as newly restated in Ticor. In that case, the Supreme Court held that " "the
mere presence of some state involvement or monitoring does not suffice.' "24 Rather, the state
supervisio n must be active; state officials must be vested with the power to review particular
anti-competitive acts and to disapprove those actions that do not comply with state policy.25 "[T]he
purpose of the active supervision inquiry is not to det ermine whether the State has met some
normative standard, such as efficiency, in its regulatory practices. Its purpose is to determine whether
the State has exercised sufficient independent judgment and control so that the details of the rates or
prices have been established as a product of deliberate state intervention, not simply by agreement
among private parties."26
The Texas regulatory structure under PURA provides for an active role for the PUC. The
PUC is authorized to establish rates, which are defined as "every compensation ... and any rules,
regulations, practices or contracts affecting any such compensation, tariff ... or classification."27 The
PUC's authority, therefore, is not limited to reviewing the fee charged for a particular service, but in
fact extends to reviewing rules, regulations, and practices of a utility. In addition, PURA provides
a forum for complaints from any affected person or from the PUC "whenever the regulatory authority
... finds that the existing rates of any public utility for any service are unreasonable or in any way in
violation of any provision of the law."28
23
Nugget Hydroelectric, L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429, 434 (9th Cir.1992)
(quoting Llewellyn v. Crothers, 765 F.2d 769, 774 (9th Cir.1985)).
24
Ticor, 504 U.S. at ----, 112 S. Ct. at 2177, 119 L.Ed.2d at 422 (quoting Patrick v. Burget,
486 U.S. 94, 100-101, 108 S. Ct. 1658, 1662-63, 100 L. Ed. 2d 83 (1988)).
25
Id. 504 U.S. at ---- - ----, 112 S. Ct. at 2177, 119 L.Ed.2d at 422-23.
26
Id.
27
PURA § 3(d).
28
PURA § 42.
Alone, however, this potential for supervision does not satisfy the second prong of the Midcal
test. The PUC must actually fulfill the active role granted to it under the statute.
A review of the record demonstrates to our comfortable satisfaction that the PUC does in fact
actively supervise ratemaking and enforcement as defined by PURA to include the rules, regulations,
and practices of utilities. The record reflects numerous references to the PUC's inquiry into the
reasonableness of Bell's rates, in Docket 8585 filed January 4, 1989.29 In addition to this specific
inquiry into Bell's rates, published decisions reflect that the PUC has conducted other broad-based
ratemaking proceedings.30 In like manner, the record and published opinions together demonstrate
that PURA provides a forum for complaints regarding the application of tariffs.31
Most importantly, Metro and Bell filed a joint pleading recognizing that, while this suit was
pending, the PUC was adjudicating the very same issues presented in the instant case. In fact, the
very same attorneys participated in these state proceedings in January 1992. It is ludicrous, almost
to the point of frivolity, for Metro to contend that the PUC does not actively supervise the conduct
in question given the fact that Metro and Bell are awaiting a PUC decision on Bell's actions "as we
speak."
29
Docket 8585, Inquiry of the General Counsel Into the Reasonableness of the Rates and
Services of Southwestern Bell Tel. Co., 17 PUC BULL. 1045 (Nov. 29, 1990, on rehearing Jan.
10, 1991).
30
Docket 6200, Petition of Southwestern Bell Tel. Co. for Authority to Change Rates, 14 PUC
BULL. 490 (June 26, 1986); Docket No. 5220, Petition of Southwestern Bell Tel. Co. for
Authority to Change Rates, 10 PUC BULL. 255 (May 14, 1984); Docket No. 5113, Phase I:
Petition of the Pub. Util. Comm'n for an Inquiry Concerning the Effects of the Modified Final
Judgment and the Access Charge Order Upon Southwestern Bell Tel. Co. and the Independent
Tel. Cos. of Texas, 13 PUC BULL. 493 (July 2, 1984) (motion for reh'g denied, Aug. 6, 1984);
Docket No. 4545, Petition of Southwestern Bell Tel. Co. for Authority to Change Rates, 8 PUC
BULL. 173 (Jan. 3, 1983); Docket No. 3920, Application of Southwestern Bell Tel. Co. for
Authority to Increase Rates, 6 PUC BULL. 719 (Dec. 11, 1981); Docket No. 3340, Application
of Southwestern Bell Tel. Co. for Authority to Increase Rates, 6 PUC BULL. 627 (Jan. 29, 1981);
Docket No. 2672, Application of Southwestern Bell Tel. Co. for Authority to Change Rates, 5
PUC BULL. 163 (Nov. 9, 1979); Docket No. 1704, Re: The Application of Southwestern Bell
Tel. Co. For Authority to Change Rules, 3 PUC BULL. 1758 (Aug. 2, 1978); Docket No. 78, Re:
The Application of Southwestern Bell Tel. Co. for Rate Increase, 2 PUC BULL. 432 (Jan. 10,
1977).
31
See, e.g., Docket 7952, Complaint of Metro-Link Telecom, Inc. Against Southwestern Bell
Tel. Co., (Examiner's Report & Recommendation) (Dec. 18, 1990); Docket 7438, Complaint of
Metro-Net Against Southwestern Bell Tel. Co., 14 PUC BULL. 334 (May 20, 1988).
These indisputable public records make it abundantly clear that the Texas regulatory scheme
is a far cry from the passive regulatory schemes at issue in Ticor which failed the Midcal test. The
systems contested in Ticor provided virtually no actual state supervision, allowing rates to come into
effect with only minimal review of some of the rates for mathematical accuracy.32 Instead of featuring
independent state ratemaking, the title insurance rates at issue were set by the title insurance industry
itself, with no input from or control by the states. Obviously, under such schemes, the absence of any
state involvement prevents the private conduct at issue from qualifying for anti-trust immunity under
the state action doctrine.
The Texas public utilities regulatory scheme, by contrast, does not suffer from this flaw. The
Texas system authorizes the state, through the Commission, to control the initial establishment of
rates, rules and regulations of the utilities, and allows a complaining party to challenge the application
of a particular rate through the PUC. And, more importantly, the record before us confirms that the
PUC acts under that grant of authority with sufficient involvement to satisfy Ticor's interpretation of
the second prong of the Midcal test.
IV
CONCLUSION
That the Texas system meets the first prong of the Midcal test is a given in this latest chapter
of the Metro litigation by virtue of the law of the case doctrine. And, when we view the "summary
judgment evidence" in the record of the instant case as a whole, we conclude beyond serious question
that the Texas regulatory scheme also satisfies the second or active supervision prong of the Midcal
test as contemplated by Ticor. Bell is therefore entitled to anti-trust immunity. Consequently, Metro
cannot state and has not stated a claim on which relief may be granted, so that the district court's
dismissal of Metro's claim is in all respects proper.
AFFIRMED.
32
Ticor, 504 U.S. at ----, 112 S. Ct. at 2179, 119 L.Ed.2d at 425.