Starnet Inc v. Global Naps Inc ( 2004 )


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  •                             In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________
    No. 03-2990
    In the matter of:
    STARNET, INC.,
    Debtor-Appellee
    Appeal of: GLOBAL NAPS, INC.; GLOBAL NAPS REALTY,
    INC.; and GLOBAL NAPS NETWORKS, INC.,
    Appellants
    ____________
    Appeal from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    No. 03 C 4835—Milton I. Shadur, Judge.
    ____________
    ARGUED DECEMBER 1, 2003—DECIDED JANUARY 9, 2004
    ____________
    Before POSNER, EASTERBROOK, and ROVNER, Circuit
    Judges.
    EASTERBROOK, Circuit Judge. StarNet is an intermediary
    between local telephone networks and the Internet. It
    contracts with Internet Service Providers (ISPs) such as
    Earthlink and AOL to maintain a network—including a
    pool of modems—that will accept local calls and transfer the
    data to the ISPs over high-speed lines that StarNet owns or
    maintains. ISPs then publish local access numbers at which
    their customers may connect without incurring
    long-distance charges. StarNet must in turn contract with
    local exchange carriers for phone lines and numbers at
    2                                               No. 03-2990
    which the calls may be received and transferred to the
    high-speed network. Instead of buying local service from
    SBC, Verizon, and other Baby Bells spun off from AT&T
    in the 1982 divestiture, StarNet prefers to acquire ser-
    vice from new carriers (called competitive local exchange
    carriers or CLECs) that have flourished since the
    Telecommunications Act of 1996. For reasons we need not
    relate, these CLECs have been able to enter into advan-
    tageous financial arrangements with the Baby Bells that
    make it less costly for them to operate a service that termi-
    nates many calls while originating few—a good description
    of calls that are bound for an ISP’s local-access numbers.
    See Illinois Bell Telephone Co. v. WorldCom Technologies,
    Inc., 
    179 F.3d 566
    (7th Cir. 1999). So StarNet has con-
    tracted with these specialized CLECs for local-access
    service. To reduce costs still further, StarNet enters into
    co-location (or “collocation”) agreements with these CLECs
    under which StarNet’s modems are placed at the CLEC’s
    premises, and the handover to StarNet’s high-speed net-
    work occurs there.
    Today StarNet is in bankruptcy. It has sought to escape
    what are, at least in retrospect, high-price contracts with
    Global NAPs for local-access service in three east-coast
    markets: New England; Washington, D.C.; and Miami.
    Bankruptcy law allows debtors to reject the executory por-
    tions of their contracts, see 11 U.S.C. §365(a), and StarNet
    exercised this option in order to obtain service from other
    CLECs at lower prices. But there was a catch: new CLECs
    would assign StarNet new local-access numbers. The ISPs
    have publicized numbers for their customers to use. A cus-
    tomer who dials such a number and finds it dead (because
    it was one of the numbers that Global had furnished) will
    choose another from the ISP’s list—and the replacement
    may route service to some other network, for major ISPs
    contract with multiple intermediaries in large markets.
    StarNet does not want to lose business, so it asked Global
    to port the existing numbers to other CLECs.
    No. 03-2990                                                 3
    “Porting” in telecom parlance entails changing the entries
    in local or national routing tables so that a number invokes
    the services of a different carrier. The recent changes in the
    FCC’s rules that have required cellular carriers to port
    numbers to their rivals, and land-line carriers to port
    numbers to local wireless carriers, have drawn public
    attention to number portability. See Cellular Telecommuni-
    cations & Internet Association v. FCC, 
    330 F.3d 502
    (D.C.
    Cir. 2003); In re Telephone Number Portability, First Report
    and Order and Further Notice of Proposed Rulemaking, 11
    F.C.C.R. 8352 (1996) (“First Report and Order”); and the
    agency’s many follow-up decisions, most recently In re
    Telephone Number Portability, FCC 03-284 (Nov. 10, 2003).
    Global refused to port its numbers, observing that the
    contracts (which anyway StarNet had rejected) imposed no
    such obligation. Global insisted that federal statutes and
    rules likewise do not oblige it to accommodate StarNet’s
    demand. It contended that opening these number blocs to
    porting would require costly changes to its network (costs
    that StarNet did not agree to cover) and permit erosion of
    business in the future by making it easier for other custom-
    ers to jump ship.
    Bankruptcy Judge Squires issued an injunction compel-
    ling Global to port the local numbers to other CLECs that
    had agreed to furnish StarNet with service. The injunction
    rests on 47 U.S.C. §251(b)(2), part of the 1996 Act. This sec-
    tion requires carriers “to provide . . . number portability in
    accordance with requirements prescribed by the [Federal
    Communications] Commission.” Another provision of that
    Act defines “number portability” as “the ability of users of
    telecommunications service to retain, at the same location,
    existing telecommunications numbers without impairment
    of quality, reliability, or convenience when switching from
    one telecommunications carrier to another.” 47 U.S.C.
    §153(30). The FCC’s First Report and Order implemented
    this statute without elaboration, requiring carriers to port
    4                                                No. 03-2990
    numbers to their rivals only “at the same location”. The
    agency broached the possibility that in the future it might
    require porting to new locations and made it clear that
    carriers are free to furnish this service if they want (or
    agree by contract to do so), but that location portability is
    not now required. 11 F.C.C.R. at 8383 ¶58; see also 47
    C.F.R. §52.21(q). Subsequent reports have stated that the
    Commission has “no current plans to address location
    portability at this time.” In the Matter of Telephone Number
    Portability—Second Memorandum Opinion and Order on
    Reconsideration, 13 F.C.C.R. 21204, 21219-20 ¶¶29-30 (Oct.
    20, 1998). The third and fourth reports (the latter in June
    2003) leave matters unchanged.
    The bankruptcy court concluded that StarNet had re-
    quested porting in order to “retain, at the same location,
    existing telecommunications numbers”. Location is unal-
    tered, the bankruptcy court stated, because StarNet’s cor-
    porate headquarters count as the customer’s location, and
    these are not moving. Although the modem pools would be
    moved from Global’s premises, and incoming local calls thus
    would be terminated at a different place, the bankruptcy
    court concluded that this would not change the “location” to
    which the statute and regulation referred. The district court
    declined to stay this injunction and, when the judge made
    it clear that it would be some time before the court could act
    on Global’s request for plenary review, Global filed an
    appeal to this court and requested a stay. We initially
    denied that motion but expedited the appeal. The day after
    oral argument, we entered a stay permitting Global to
    reclaim the numbers it had previously ported in order to
    comply with the injunction. Our stay was conditioned on
    Global’s willingness (expressed in the bankruptcy court and
    reiterated here) to match the price and terms offered by the
    CLECs through which StarNet now prefers to obtain
    service. This opinion explains why we entered that stay and
    No. 03-2990                                                 5
    what happens next: referral to the FCC so that the agency
    can clear up an ambiguity in its rules.
    No one has a property interest in a phone number. 47
    C.F.R. §52.107(a); see also Jahn v. 1-800-FLOWERS.com,
    Inc., 
    284 F.3d 807
    (7th Cir. 2002). The subscriber has at
    most a right to use a given number, and whether that num-
    ber tags along when the customer switches carriers depends
    on contracts plus rules to be found in statutes and regula-
    tions. StarNet has no contractual right to portability—not
    only because StarNet has repudiated its contracts with
    Global but also because they would not require portability
    even if they remained in force. Lack of an obligation to port
    the numbers gives Global some holdup power—it can
    demand compensation for porting, or charge a higher price
    while service continues, but StarNet knew this when it got
    into the deals. Terms negotiated ex ante (not only price but
    also Global’s willingness to house the modems, without
    extra charge, under a collocation agreement) may have
    compensated StarNet for the risk that it would be discom-
    fited ex post by the need to pay Global for portability, or to
    abandon the numbers in order to switch carriers. Whether
    or not StarNet received compensation ex ante, however, the
    fact remains that neither §365(a) nor anything else in
    bankruptcy law entitles debtors to more or different
    services, at lower prices, than their contracts provide.
    Section 365(a) gives debtors a right to walk away before the
    contract’s end (with the creditor’s entitlement converted to
    a claim for damages, see NLRB v. Bildisco & Bildisco, 
    465 U.S. 513
    (1984)), not a right to obtain extra benefits without
    paying for them. In the main, and here, bankruptcy law
    follows non-bankruptcy entitlements. See, e.g., Raleigh v.
    Illinois Department of Revenue, 
    530 U.S. 15
    , 20 (2000);
    Butner v. United States, 
    440 U.S. 48
    (1979).
    Thus the bankruptcy judge was right to focus attention on
    the 1996 Act and the FCC’s regulations, which are the only
    6                                                No. 03-2990
    plausible source of an entitlement to portability. Section
    153(30) of the 1996 Act defines the minimum required
    portability as “the ability of users of telecommunications
    service to retain, at the same location, existing telecommu-
    nications numbers”. The bankruptcy court held that “loca-
    tion” for this purpose is the subscriber’s residence—or, in
    case of a corporation, its headquarters. This is possible, we
    suppose, but it is implausible. Like many other corpora-
    tions, StarNet does business nationwide. It would make
    little sense (and may pose technical difficulties) to say that
    StarNet could compel Global to port the numbers to any
    other carrier in the entire nation, so that local calls origi-
    nating on Global’s network in Miami could be terminated in
    Seattle. Either the user dialing into the ISP’s system would
    receive a shock when an apparently local call was billed as
    a long-distance call, or Global would be compelled to bear
    for the indefinite future the cost of long-distance service.
    Nothing in the 1996 Act, or the FCC’s implementing
    reports, suggests that either of these outcomes is required.
    So “location” cannot be the subscriber’s corporate headquar-
    ters. The word “location” must refer to the place where the
    call is terminated or handed off to another carrier. When
    the phone stays in the same place—when, for example, a
    residential customer switches home service from SBC to
    WorldCom, and nothing else changes—we have an unam-
    biguous example of porting at “the same location”. But if
    the residential customer says: “Please use my old number
    at my new house a block away,” things are more compli-
    cated. And StarNet’s decision to move its modems may be
    equivalent to a householder moving to the next block (or
    perhaps the next zip code): the local exchange carrier must
    arrange to terminate the call at a different physical loca-
    tion.
    One way to read “location” is as the end of the wire, the
    physical location where the call (and the phone service)
    terminates. If this is right, then moving the modem pool
    No. 03-2990                                                 7
    moves the “location” and disentitles StarNet to portability.
    But there is another possible reading, less confined than the
    end of the wire yet more confined than “anywhere in the
    nation, as long as the corporate HQ does not move.” On this
    reading, the “location” is the telephone rate center— the
    area within which all calls are treated the same for billing
    purposes. Usually a rate center corresponds to the group of
    customers (a subset of an area code) served by a given
    complement of telephone switching equipment. On this
    understanding, the local exchange carrier defines its own
    “location” by choosing where to put its switches and how to
    bill its customers. One termination point within the area
    covered by the switch then would be treated the same as
    any other.
    Language in the regulations links “location portability” to
    movement “from one physical location to another”, 47 C.F.R.
    §52.21(j), but does not distinguish among the customer’s
    physical location, the end of the wire’s physical location, or
    the rate center’s physical location. A Q&A drafted by the
    Commission’s staff, and posted on its web site, may assume
    that the “end of the wire” reading is correct, for it answers
    no to the question: “Does long-term telephone number
    portability mean that I can keep the same telephone
    number if I move across town or to another state?” See
    . But another state certainly, and
    across town probably, also would mean a new rate center,
    so this answer does not clearly distinguish the possibilities,
    and is in any event the view of the staff rather than the
    Commissioners. Just last November, after the parties had
    filed their briefs, the Commission made a new portability
    directive that seems more consistent with the rate-center
    reading. It required wireline carriers to port numbers to
    wireless carriers, when “the requesting wireless carrier’s
    ‘coverage area’ overlaps the geographic location of the rate
    center in which the customer’s wireline number is
    8                                                No. 03-2990
    provisioned, provided that the porting-in carrier maintains
    the number’s original rate center designation following the
    port”. In re Telephone Number Portability, FCC 03-284 at
    ¶22 (Nov. 10, 2003). This order did not explain the relation
    between the wireline-to-wireless porting and the “same
    location” restriction on wireline-to-wireline porting. But it
    assuredly requires wireline carriers to port numbers to
    destinations other than the original terminus of the physi-
    cal wire that served the customer whose number will be
    ported. This implies, though it does not quite say, that the
    FCC thinks of the rate center as the “location” that matters.
    At oral argument counsel for Global insisted that porting
    to wireless carriers is distinct, because a cell phone may
    roam anywhere. Yet the question at hand is not the relation
    between the wireless carrier and its customer, but the
    relation between the wireline carrier and a customer who
    wants to port a number to a new carrier. If Global is
    required to port a number to a T-Mobile or Cingular switch
    at a location different from the existing customer’s physical
    address (provided that the wireless carrier’s coverage area
    overlaps Global’s rate center), what difference does it make
    how the wireless carrier will get the call to its own cus-
    tomer? Yet in some respects the FCC has treated wireless
    carriers differently; there is a general wireless-to- wireless
    portability rule, unaffected by any location or
    rate-center-overlap requirement. 47 C.F.R. §52.31. It is not
    out of the question, therefore, that the FCC would see
    things Global’s way.
    Instead of trying to divine how the FCC would resolve the
    ambiguity created by the word “location,” we think it best
    to send this matter to the Commission under the doctrine
    of primary jurisdiction. This is not to say that the agency
    has exclusive jurisdiction, the original and strongest
    meaning of “primary jurisdiction.” See United States v.
    Western Pacific R.R., 
    352 U.S. 59
    , 64 (1956). We use
    No. 03-2990                                                 9
    the phrase in its weaker sense, as a doctrine that allows a
    court to refer an issue to an agency that knows more about
    the issue. “The doctrine of primary jurisdiction allows a
    federal court to refer a matter extending beyond the ‘con-
    ventional experiences of judges’ or ‘falling within the realm
    of administrative discretion’ to an administrative agency
    with more specialized experience, expertise, and insight.”
    National Communications Association, Inc. v. AT&T Co., 
    46 F.3d 220
    , 222-23 (2d Cir. 1995). StarNet tells us that this is
    a no-no, because the FCC can’t meddle in bankruptcy law,
    indeed that the bankruptcy court itself has “exclusive
    jurisdiction”. Cf. Arsberry v. Illinois, 
    244 F.3d 558
    , 563-64
    (7th Cir. 2001) (referral to FCC under primary jurisdiction
    inappropriate where the agency could not authorize the
    activities challenged in the suit). It is a considerable
    overstatement to call the bankruptcy court’s jurisdiction
    exclusive; many subjects with effects outside the bank-
    ruptcy may be adjudicated outside as well. See, e.g., FCC v.
    NextWave Personal Communications Inc., 
    537 U.S. 293
    (2003), which allowed review outside bankruptcy of a
    license resale that affected a bankrupt estate. At all events,
    we would not ask the FCC any question about bankruptcy
    law; our need—and the subject on which the FCC can
    help—is to determine StarNet’s non-bankruptcy entitle-
    ment, if any, to compel Global to port the numbers. That
    turns on the 1996 Act and its implementing regulations, the
    bailiwick of the FCC rather than a bankruptcy court. Only
    the FCC can disambiguate the word “location”; all we could
    do would be to make an educated guess. And although the
    FCC’s position would be subject to review by the judiciary
    for reasonableness, the agency’s views are the logical place
    for the judiciary to start.
    We therefore refer this matter to the FCC with a re-
    quest that it inform us how the “same location” restriction
    applies to a local exchange carrier that hands off traffic to
    a modem pool at a collocation facility, when the customer
    10                                              No. 03-2990
    wants to change local exchange carriers and move the mo-
    dems. We issued the stay, restoring the parties to their
    original positions while the FCC ponders, because we are
    reasonably confident that the bankruptcy judge’s use of
    corporate headquarters as the “location” is incorrect,
    because the record does not reveal whether the local
    exchange carriers with which StarNet now prefers to do
    business are in the same rate centers as Global’s collocation
    facilities that housed StarNet’s modems, and because
    Global offered to match the other carriers’ prices and terms
    in the interim. Numbers are portable, or not, in
    10,000-number blocs. To port StarNet’s numbers to new
    carriers, Global had to open 100 or so 10,000-number blocs
    to porting. This created the risk of hard-to-calculate injury
    if some of Global’s other customers should use the opportu-
    nity to port numbers before the FCC resolves this dispute.
    StarNet has not offered to compensate Global for that loss.
    Indeed, the bankruptcy judge did not require StarNet to
    post an injunction bond, so it cannot be required to reim-
    burse Global for the costs of the original porting, and any
    business lost, even if Global prevails in the end. A stay
    pending a decision by the FCC curtails the losses to which
    Global is exposed without prospect of reimbursement, while
    protecting StarNet’s interest in receiving prices and terms
    offered by the current competitive market.
    This matter is referred to the FCC so that it may address
    the meaning of the word “location” for purposes of wire-
    line-to-wireline portability. The stay remains in effect
    pending further order of this court. Within 21 days after the
    FCC renders its decision, the parties may file memoranda
    advising the court about the significance of the agency’s
    action and what remains to be done to wrap up this litiga-
    tion.
    No. 03-2990                                        11
    A true Copy:
    Teste:
    ________________________________
    Clerk of the United States Court of
    Appeals for the Seventh Circuit
    USCA-02-C-0072—1-9-04