AT&T Corp. v. Public Utility of TX ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED AUGUST 3, 2004
June 30, 2004
UNITED STATES COURT OF APPEALS
For the Fifth Circuit Charles R. Fulbruge III
Clerk
No. 03-50454
AT&T CORP. and AT&T COMMUNICATIONS OF TEXAS LP,
Plaintiffs-Appellees,
VERSUS
PUBLIC UTILITY COMMISSION OF TEXAS, ET AL.,
Defendants,
REBECCA KLEIN, in her official capacity as Chairman of the Public
Utility Commission of Texas; PAUL HUDSON, in his official capacity
as Commissioner of the Public Utility Commission of Texas; JULIE
PARSLEY, in her official capacity as Commissioner of the Public
Utility Commission of Texas,
Defendants-Appellants.
Appeal from the United States District Court
For the Western District of Texas
Before REAVLEY, DAVIS and DeMOSS, Circuit Judges,
W. EUGENE DAVIS, Circuit Judge:
Defendants, the Commissioners of the Texas Public Utilities
Commission (“Commissioners”) challenge the district court’s order
granting plaintiffs’, AT&T Corp. and AT&T Communications of Texas,
LP’s (“AT&T”), motion for summary judgment. The district court
determined that the Telecommunications Act of 1996 (“TA96")1
preempted the Texas statute which imposed a regulatory fee on
intrastate, interstate, and international calls originating in
Texas. We agree with the district court that the Texas assessment
on multijurisdictional carriers burdens those carriers more than
purely interstate carriers. The assessment is discriminatory, in
conflict with § 254(f) of the TA96, and preempted. We therefore
AFFIRM.
I
The TA96 amended the Telecommunications Act of 1934 to
encourage widespread competition among telecommunications providers
and at the same time provide universal telecommunications service
to all Americans. The new act empowered both States and the
Federal Communications Commission (“FCC”) to define universal
service and create universal service support programs. Both the
FCC and the States were given the power to collect assessments from
telecommunications carriers in order to subsidize these programs,
particularly services to rural, high cost, and low income users.
Under the TA96, the Federal Universal Service Fund specifically
subsidizes telecommunications providers who provide interstate
1
Pub. L. No. 104-104, 110 Stat. 56 (codified in scattered sections of title
47 U.S.C.).
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service to users in high cost and rural areas, low income users,
schools, and libraries, 911 service to rural areas, and relay
service to the hearing impaired. Similarly, Texas’s Public
Utilities Commission, through Texas Universal Service Support
Mechanisms, subsidizes intrastate telecommunications carriers who
provide these types of services intrastate.
Congress explicitly authorized the collection of funds to
support these universal service programs under TA96. The Federal
Universal Service Fund is supported by an equitable and
nondiscriminatory fee on all interstate telecommunications service
providers:
(d) Telecommunications carrier contribution
Every telecommunications carrier that provides interstate
telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, to the specific,
predictable, and sufficient mechanisms established by the
Commission to preserve and advance universal service.
47 U.S.C. § 254(d) (emphasis added).
Congress empowered States to collect funds from carriers
providing intrastate telecommunications services. As with the
federal universal service scheme, the assessment must be equitable
and nondiscriminatory. Furthermore the state universal service
mechanisms cannot burden or rely upon the federal universal service
system:
(f) State authority
A State may adopt regulations not inconsistent with the
Commission's rules to preserve and advance universal
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service. Every telecommunications carrier that provides
intrastate telecommunications services shall contribute,
on an equitable and nondiscriminatory basis, in a manner
determined by the State to the preservation and
advancement of universal service in that State. A State
may adopt regulations to provide for additional definitions and
standards to preserve and advance universal service within that
State only to the extent that such regulations adopt additional
specific, predictable, and sufficient mechanisms to support such
definitions or standards that do not rely on or burden Federal
universal service support mechanisms.
47 U.S.C. § 254(f) (emphasis added).
This dual universal service scheme allows the FCC to assess
interstate service providers to fund federal universal service
programs and allows the States to assess intrastate providers to
fund the state universal service programs. The statute, however,
has no provision for treatment of multijurisdictional carriers,
i.e., carriers that provide both intrastate and interstate service.
Congress’s omission on that issue is the source of the conflict in
this case.2
In 1997 the Texas Public Utilities Commission instituted its
state universal service program funded by the Texas Universal
Service Fund (“TUSF”). The Commission imposed a 3.6% fee to
provide revenue for the TUSF. The fee was imposed on all
telecommunications carriers who provide any intrastate service. As
2
We have previously dealt with the complications associated with
multijurisdictional carriers in determining that the FCC was not permitted to
assess intrastate revenues of multijurisdictional carriers. See Texas Office of
Public Utility Counsel v. FCC, 183 F.3d 393 (5th Cir. 1999). This is the first
time, however, that we have addressed the issue of whether States can assess the
interstate revenues of multijurisdictional carriers.
4
to these carriers, however, the fee applied to all revenue they
derived from intrastate, interstate, and international calls
originating in Texas. Thus multijurisdictional carriers were
forced to pay both the federal universal service fee and the state
universal service fee on interstate calls originating in Texas.3
AT&T objected to paying both federal and state fee on its
revenue from interstate calls and brought this suit in the district
court to challenge the state fee. Plaintiff complains that the
Texas Universal Service funding mechanism is preempted by federal
law because the state fee on revenue derived from interstate calls
conflicts with 47 U.S.C. § 254(f). More particularly, AT&T argues
that the PUC universal service funding mechanism violates § 254(f)
because it creates an inequitable and discriminatory assessment on
interstate calls and “relies on or burdens” the federal support
mechanisms. AT&T moved for summary judgment on this preemption
issue. The district court granted the motion and struck down the
Texas Public Utility Commission’s funding mechanism finding that it
was preempted because it conflicted with § 254(f).
The Commissioners now challenge the district court judgment.
They argue, as they did before the district court, that 1) the
“rely on or burden” prong of 254(f) does not apply to state
universal service support mechanisms, like the Texas mechanisms in
this case, because the State has not provided standards for
3
The FCC funds the Federal Universal Service programs by assessing all
interstate calls at a rate of 7.2805%.
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universal service that differ from the federal standards; 2) the
regulation funding scheme does not “rely upon or burden” federal
mechanisms; 3) AT&T has not demonstrated that the Texas universal
service support mechanisms are discriminatory or inequitable; and
4) the Texas regulatory funding scheme does not violate the dormant
commerce clause. We agree with the district court’s decision to
grant summary judgment in favor of AT&T based upon the
discriminatory and inequitable nature of the state assessment and
do not reach the State’s remaining arguments.
II
This Court reviews a district court's grant of summary
judgment de novo, applying the same legal standards as the district
court in determining whether summary judgment was appropriate.
United States v. Lawrence, 276 F.3d 193, 195 (5th Cir. 2001) We must
therefore find any disputed facts in favor of the non-moving party
and determine whether a genuine issue of material fact exists in
the case. Walker v. Thompson, 214 F.3d 615, 624 (5th Cir. 2000).
All questions of law are reviewed de novo. Id. The material facts
in this case are not in dispute, therefore we review de novo the
district court's preemption decision and the interpretation of the
TA96.
Preemption of state law occurs in three circumstances:
Federal law will override state law under the Supremacy
Clause when (1) Congress expressly preempts state law;
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(2) Congressional intent to preempt may be inferred from
the existence of a pervasive federal regulatory scheme;
or (3) state law conflicts with federal law or its
purposes.
Frank v. Delta Airlines Inc., 314 F.3d 195, 197 (5th Cir. 2002)
(citing English v. Gen. Elec. Co., 496 U.S. 72, 78-79, (1990)).
The burden of persuasion in preemption cases lies with the
party seeking annulment of the state statute. Green v. Fund Asset
Mgmt., L.P., 245 F.3d 214, 230 (3d Cir. 2001) (“Finally, we note
that the party claiming preemption bears the burden of
demonstrating that federal law preempts state law.” (citing
Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 255 (1984))).
AT&T claims that the Texas universal service assessment is
preempted through conflict preemption. Conflict preemption “arises
when ‘compliance with both federal and state regulations is a
physical impossibility,’ . . . where state law ‘stands as an
obstacle to the accomplishment and execution of the full purposes
and objectives of Congress[,]’” Pacific Gas & Elec. Co. v. State
Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190, 204 (1983),
where “the state law mandates or places irresistible pressure on
the subject of the regulation to violate federal law, . . . or
where the federal scheme expressly authorizes an activity which the
state scheme disallows.” Wells Fargo Bank of Texas NA v. James,
321 F.3d 488, 491 n.3 (5th Cir. 2003) (citations omitted). In this
case, if preemption exists at all it is because the state
regulation frustrates the purposes of Congress in passing § 254(f).
7
We now turn to the critical issue in this case: whether the
Texas universal service assessment conflicts with § 254(f) of the
TA96.
III
AT&T argued, and the district court agreed, that the Public
Utility Commission’s assessment of revenues derived from both
interstate and intrastate calls was inequitable and discriminatory
because it burdened multijurisdictional carriers more harshly than
their pure interstate competitors.
This Court has previously found a similar universal service
regulatory funding scheme to be inequitable and discriminatory. In
Texas Office of Public Utility Counsel v. FCC, 183 F.3d 393 (5th
Cir. 1999) (“TOPUC”) this Court determined that the FCC could not
collect on both interstate and international calls because such a
regulation was inequitable and discriminatory in violation of §
254(d). Plaintiff COMSTAT, a small, telecommunications carrier
carrying both interstate and international calls, had sued the FCC
for recovery of federal fees imposed by the FCC on its
international revenues. COMSTAT derived so little revenue from
interstate calls that its Federal Universal Service Fund tax
obligations exceeded its interstate revenues. COMSTAT argued that
the FCC assessment of the revenue it derived from both interstate
and international calls and the consequent unfairness violated the
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“equitable and nondiscriminatory” restriction placed upon any
Federal universal service funding mechanism scheme by § 254(d).
The Court agreed with COMSTAT’s reasoning:
Therefore, the agency’s interpretation of “equitable and
nondiscriminatory,” allowing it to impose prohibitive
costs on carriers such as COMSTAT, is “arbitrary and
capricious and manifestly contrary to the statute [§
254(d)].” COMSTAT and carriers like it will contribute
more in universal service payments than they will
generate from interstate service. Additionally, the
FCC’s interpretation is “discriminatory,” because the
agency concedes that its rule damages some international
carriers like COMSTAT more than it harms others. The
agency has offered no reasonable explanation of how this
outcome, which will require companies such as COMSTAT to
incur a loss to participate in interstate service,
satisfies the statute’s “equitable and nondiscriminatory”
language. We therefore reverse and remand this portion
of the Order for further consideration.
TOPUC, 183 F.3d at 434-35 (citations omitted).
Although TOPUC’s holding is based upon the “equitable and
nondiscriminatory” language in § 254(d), § 254(d) and (f) are
companion sections and § 254(d)’s “equitable and nondiscriminatory”
limitation on the federal funding mechanism is identical to the
language in § 254(f) limiting the State’s authority to fund
universal service:
(d) Telecommunications carrier contribution. Every
telecommunications carrier that provides interstate
telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, to the specific,
predictable, and sufficient mechanisms established by the
Commission . . . .
* * *
(f) State authority. A State may adopt regulations not
inconsistent with the Commission’s rules to preserve and
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advance universal service. Every telecommunications
carrier that provides intrastate telecommunications
services shall contribute, on an equitable and
nondiscriminatory basis, in a manner determined by the
State to the preservation and advancement of universal
service in that State.
47 U.S.C. § 254 (emphasis added).
Given the symmetry of §§ 254(d) and (f), TOPUC dictates the
result in this case. The assessment of interstate and intrastate
telecommunications revenues has the same inequitable and
discriminatory effect as the FCC’s assessment of interstate and
international revenues in TOPUC.4 Given the state regulation
scheme multijurisdictional carriers will be forced to pay an
approximate 11% fee on their revenue derived from interstate
telecommunications calls, while their pure-interstate-provider
competitors pay only the 7.28% federal fee on interstate revenues.
The result is a regulation that is clearly unfair and discriminates
between telecommunication service providers based solely upon their
presence in the intrastate market.
In TOPUC there was clear evidence that COMSTAT carried so few
interstate calls that it was forced to pay more in universal
service fees than it realized in interstate revenues, the revenues
that triggered the federal fee. AT&T has not, and admittedly
cannot, present evidence that its universal service fee obligation
outweighs its intrastate revenues. Nevertheless, the absence of
4
All of the reasoning in this opinion applies equally to the PUC’s assessment
of AT&T’s international revenue originating in Texas.
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such evidence does not defeat its assertion that the state
regulation is discriminatory.
Regardless of the amount of intrastate revenues a carrier
earns, the double assessment of interstate revenue puts
multijurisdictional carriers at a distinct competitive disadvantage
compared with the pure interstate carriers. The funding mechanism,
therefore, burdens multijurisdictional carriers more severely than
pure interstate or intrastate carriers. As this Court recognized
in TOPUC, a regulation scheme “is ‘discriminatory,’ because . .
.[it] damages some international carriers . . . more than it harms
others.” TOPUC, 183 F.3d at 434. AT&T is damaged more than its
non-multijurisdictional competitors thus making the PUC regulation
discriminatory and in violation of § 254(f).
IV.
For the reasons stated above the PUC’s assessment on both
interstate and intrastate calls creates an inequitable,
discriminatory, and anti-competitive regulatory scheme. Given the
parallel language used in §§ 254(d) and (f), we conclude,
consistent with our decision in TOPUC, that the PUC assesment of
interstate and international calls is discriminatory, conflicts
with § 254(f), and thus is preempted by federal law. We therefore
affirm the district court’s judgment.
AFFIRMED.
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