Metropcs California, LLC v. Michael Picker ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
METROPCS CALIFORNIA, LLC, No. 18-17382
Plaintiff-Appellee,
D.C. No.
v. 3:17-cv-05959-
SI
MICHAEL PICKER; MARTHA GUZMAN
ACEVES; CARLA PETERMAN; LIANE
RANDOLPH; CLIFFORD OPINION
RECHTSCHAFFEN,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding
Argued and Submitted February 5, 2020
San Francisco, California
Filed August 14, 2020
Before: Richard A. Paez, Carlos T. Bea, and
Michelle T. Friedland, Circuit Judges.
Opinion by Judge Friedland
2 METROPCS CALIFORNIA V. PICKER
SUMMARY *
Telecommunications
Reversing the district court’s summary judgment and
remanding, the panel held that federal law did not facially
preempt California law governing universal service
contributions from prepaid wireless providers.
The panel explained that federal law requires
telecommunications providers to contribute to the federal
Universal Service Fund from revenues the providers derive
from their customers’ interstate telecommunications. The
Federal Communications Commission has authorized three
methods that wireless providers can use to distinguish
between interstate and intrastate revenues. Federal law also
permits states to require telecommunications providers to
contribute to state universal service programs based on the
providers’ intrastate revenues. California requires its own
universal service contributions. In 2014, California adopted
the Prepaid Mobile Telephony Services Surcharge
Collection Act, which governed the collection of surcharges
from prepaid wireless customers. The California Public
Utilities Commission issued resolutions implementing the
Prepaid Act that required providers of prepaid services to use
a method other than the three FCC-recognized methods to
determine the revenues generated by intrastate traffic that
were subject to surcharge. The district court held that the
CPUC resolutions were facially preempted by federal law,
and the CPUC appealed.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
METROPCS CALIFORNIA V. PICKER 3
As a threshold matter, the panel held that the expiration
of the Prepaid Act while this appeal was pending did not
cause this case to become moot. Plaintiff MetroPCS, a
prepaid wireless provider, sought declaratory and injunctive
relief on its claim that federal law preempts the CPUC’s
resolutions that required that prepaid providers use a uniform
intrastate allocation factor, and not their chosen FCC-
recognized method, to determine intrastate revenues subject
to surcharge. The panel held that the case was not moot
because MetroPCS had not complied with the CPUC’s 2017
and 2018 Resolutions, and the CPUC still plans to enforce
them.
On the merits of the preemption claim, the panel held
that the CPUC resolutions were not facially preempted by
the Telecommunications Act and related FCC
decisions. The panel concluded that preemption was
disfavored because there was a dual federal-state regulatory
scheme and a history of state regulation in the area of
intrastate telecommunications. The panel rejected
MetroPCS’s theories in support of its claim that the CPUC
resolutions were facially preempted: (1) that the resolutions
conflicted with the requirement of competitive neutrality by
depriving prepaid providers (but not their competitors) of the
“right” to calculate intrastate revenues in a way that avoided
assessing the same revenues as federal contribution
requirements; or (2) that because prepaid providers were
deprived of that “right,” the resolutions were preempted
regardless of the treatment of competing providers. The
panel reversed the district court’s summary judgment and
remanded to the district court to consider in the first instance
MetroPCS’s other challenges to the resolutions, including
MetroPCS’s as-applied preemption challenge.
4 METROPCS CALIFORNIA V. PICKER
COUNSEL
Enrique Gallardo (argued), Arocles Aguilar, and Helen M.
Mickiewicz, California Public Utilities Commission, San
Francisco, California, for Defendants-Appellants.
Peter Karanjia (argued) and Joy G. Kim, DLA Piper LLP
(US), Washington, D.C.; Martin L. Fineman and Geoffrey
S. Brounell, Davis Wright Tremaine LLP, San Francisco,
California; for Plaintiff-Appellee.
Niyati Shah, Asian Americans Advancing Justice | AAJC,
Washington, D.C.; Jeffrey S. Raskin and Pejman Moshfegh,
Morgan Lewis & Bockius LLP, San Francisco, California;
for Amici Curiae Asian Americans Advancing Justice |
AAJC, and Multicultural Media, Telecom and Internet
Council.
OPINION
FRIEDLAND, Circuit Judge:
MetroPCS California, LLC (“MetroPCS”), a wholly
owned subsidiary of T-Mobile USA, Inc. (“T-Mobile”), sells
prepaid cell phone plans in California and other states. Like
other telecommunications providers, MetroPCS remits a
portion of its revenue to federal and state governments to
fund universal service programs. This appeal raises the
question whether federal law preempts California law
governing universal service contributions from MetroPCS
and other prepaid wireless providers.
Federal law requires telecommunications providers,
including wireless providers such as MetroPCS, to
METROPCS CALIFORNIA V. PICKER 5
contribute to the federal Universal Service Fund, which
helps provide affordable telecommunications access. These
contribution requirements are imposed on revenues the
providers derive from their customers’ interstate
telecommunications. See 47 U.S.C. § 254(d). The Federal
Communications Commission (“FCC”) has authorized three
methods that wireless providers can use to distinguish
between interstate and intrastate revenues. Federal law also
permits states to require telecommunications providers to
contribute to state universal service programs based on the
providers’ intrastate revenues. See id. § 254(f).
California requires its own universal service
contributions. It imposes surcharges on consumers’ use of
intrastate telecommunications services and relies on
providers to collect those surcharges from their customers.
In 2014, California adopted the Prepaid Mobile Telephony
Services Surcharge Collection Act (“Prepaid Act”), which
(prior to its recent expiration) governed the collection of
surcharges from prepaid wireless customers. The California
Public Utilities Commission (“CPUC”) issued resolutions
implementing the Prepaid Act that required providers of
prepaid services to use a method other than the three FCC-
recognized methods to determine the revenues generated by
intrastate traffic that were subject to surcharge. Specifically,
the CPUC resolutions required all prepaid providers to apply
a uniform, flat-rate “intrastate allocation factor” to determine
their intrastate revenues. Providers of postpaid services, by
contrast, were not governed by the resolutions and were free
to use any of the three FCC-recognized methods to
determine their intrastate revenues for purposes of
calculating surcharges owed to the CPUC.
MetroPCS filed this lawsuit alleging that the CPUC
resolutions were preempted by federal law. Among other
6 METROPCS CALIFORNIA V. PICKER
things, MetroPCS contended that the resolutions’
requirement of an intrastate allocation factor increased
surcharges on prepaid services—but not on competing
postpaid services—and thereby placed MetroPCS at a
disadvantage in the wireless telecommunications market, in
conflict with the federal Telecommunications Act of 1996
(“Telecommunications Act”) and FCC decisions
implementing it. The district court ruled for MetroPCS, and
the CPUC appealed. While this appeal was pending, the
Prepaid Act expired.
As a threshold matter, we hold that the expiration of the
Prepaid Act did not cause this case to become moot and that
we therefore have jurisdiction to reach the merits of
MetroPCS’s preemption claim. With respect to that claim,
we hold that the CPUC resolutions are not facially
preempted by the Telecommunications Act and related FCC
decisions, and we therefore reverse the district court’s ruling
in favor of MetroPCS. We remand to the district court to
consider in the first instance MetroPCS’s other challenges to
the resolutions.
I.
A.
The universal availability of critical telecommunications
services is “a fundamental goal of federal
telecommunications regulation.” Rural Cellular Ass’n v.
FCC, 588 F.3d 1095, 1098 (D.C. Cir. 2009). From its
inception, the FCC has been charged with “mak[ing]
available, so far as possible, to all the people of the United
States a rapid, efficient, Nation-wide, and world-wide . . .
communication service with adequate facilities at reasonable
charges.” Communications Act of 1934, Pub. L. No. 73-
416, § 1, 48 Stat. 1064, 1064. States have also historically
METROPCS CALIFORNIA V. PICKER 7
“exercised their jurisdictional authority to ensure the
availability of universal service.” In re Federal-State Joint
Board on Universal Service, 13 FCC Rcd. 24744, 24747
(1998) (“1998 Universal Service Decision”).
The Telecommunications Act solidified the commitment
by the FCC and states to “ensuring the preservation and
advancement of universal service.” Id. at 24747–48; see
also Pub. L. No. 104-104, § 101, 110 Stat. 56, 71–75 (1996).
Under the Telecommunications Act, “[e]very
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
[FCC] to preserve and advance universal service.”
47 U.S.C. § 254(d). The Act further provides that states
“may adopt regulations not inconsistent with the [FCC]’s
rules [that] preserve and advance universal service.” Id.§ 254(f). In states adopting universal service regulations,
“[e]very 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.” Id.
The FCC has exercised its authority to establish guiding
principles “for the preservation and advancement of
universal service,” id. § 254(b), by requiring that federal and
state contributions be imposed on a competitively neutral
basis. In re Federal-State Joint Board on Universal Service,
12 FCC Rcd. 8776, 8801 (1997) (“1997 Universal Service
Order”). The competitive neutrality policy is related to the
statutory requirement that federal and state universal service
contributions be “equitable and nondiscriminatory.” Id.; see
also 47 U.S.C. § 254(d), (f). It requires that universal service
8 METROPCS CALIFORNIA V. PICKER
“rules neither unfairly advantage nor disadvantage one
provider over another, and neither unfairly favor nor
disfavor one technology over another.” 1997 Universal
Service Order, 12 FCC Rcd. at 8801.
B.
To implement the Telecommunications Act’s dual
regulatory scheme, the FCC funds federal universal service
programs by imposing a contribution requirement on the
portion of telecommunications providers’ revenues that is
generated by interstate traffic, while states such as California
support their own universal service programs through
surcharges on the portion of revenues generated by intrastate
traffic. 1
The federal Universal Service Fund supports, among
other things, the extension of high-speed internet to rural
areas and the provision of discounted phone services to low-
income consumers. See Universal Service, FCC,
https://www.fcc.gov/general/universal-service (last visited
Aug. 4, 2020). Telecommunications providers’
contributions to the Universal Service Fund “are calculated
by applying a quarterly ‘contribution factor’” to the portion
1
We adopt the following terminology for ease of reference
throughout the remainder of this opinion. We use the term “interstate”
as encompassing interstate and international telecommunications, both
of which the FCC regulates. In addition, consistent with the terminology
used by the FCC and the CPUC, we refer to federal contribution
requirements as “contributions” or “contribution requirements,” and we
refer to California’s contribution requirements as “surcharges.”
METROPCS CALIFORNIA V. PICKER 9
of their surchargeable 2 telecommunications revenues that is
interstate. See Rural Cellular Ass’n, 588 F.3d at 1099.
“For companies connecting landline customers,
determining the percentage of interstate . . . calls is relatively
simple.” Vonage Holdings Corp. v. FCC, 489 F.3d 1232,
1236–37 (D.C. Cir. 2007). But for providers of wireless and
interconnected Voice over Internet Protocol (“VoIP”)
services 3—“whose customers may use their services from
many locations and often have area codes that do not
correspond to their true location[s]”—it can be more difficult
to determine the percentage of interstate traffic. Id. at 1237.
The FCC has therefore authorized three options for wireless
and interconnected VoIP providers to separate the revenues
they generate from interstate traffic from the revenues they
generate from intrastate traffic.
2
Not all revenue is necessarily subject to federal contribution
requirements or state surcharge requirements. We use the term
“surchargeable” to refer to the portion of revenue that is. For example,
both the FCC and the CPUC consider mobile wireless voice revenues to
be surchargeable revenues, so the FCC’s contribution requirements
apply to interstate mobile wireless voice revenues, and the CPUC’s
surcharge requirements apply to intrastate mobile wireless voice
revenues. But neither the FCC nor the CPUC consider text messaging
revenues to be surchargeable. See In re Petitions for Declaratory Ruling
on Regulatory Status of Wireless Messaging Service, 33 FCC Rcd.
12075, 12100 n.162 (2018); CPUC, Decision 19-01-029, Decision
Determining that Public Purpose Program Surcharges and User Fees
Will Not be Assessed on Text Messaging Services Revenue 21 (2019),
https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M265/K391/2
65391963.PDF.
3
Interconnected VoIP service “allows a caller using a broadband
Internet connection to place calls to and receive calls from other callers
using either VoIP or traditional telephone service.” Nuvio Corp. v. FCC,
473 F.3d 302, 303 (D.C. Cir. 2006).
10 METROPCS CALIFORNIA V. PICKER
First, if wireless and interconnected VoIP providers have
“actual revenue data” showing the portion derived from
interstate telecommunications, they may rely on that data. In
re Universal Service Contribution Methodology, 21 FCC
Rcd. 7518, 7535, 7544 (2006) (“2006 Universal Service
Order”). Second, providers may conduct a traffic study in
which they take a sample of traffic on their network to
estimate the percentage of all traffic that is interstate. See id.Finally, providers may rely on the FCC’s “safe harbor,” a
percentage that is intended to “reasonably approximate the
percentage of interstate . . . telecommunications revenues.”
See In re Federal-State Joint Board on Universal Service,
13 FCC Rcd. 21252, 21253 (1998); see also 2006 Universal
Service Order, 21 FCC Rcd. at 7532, 7544. Under the
wireless safe harbor of 37.1% that has been in effect since
2006, for instance, a wireless provider can report that 37.1%
of its surchargeable revenue is interstate without looking at
an actual breakdown of its revenue or using a traffic study to
approximate the breakdown. See 2006 Universal Service
Order, 21 FCC Rcd. at 7532–33.
Although federal universal service contributions are
imposed on telecommunications providers, it is common for
providers to recover the amounts of their contributions from
their customers, typically by putting a line item on monthly
bills. See Vt. Pub. Serv. Bd. v. FCC, 661 F.3d 54, 57
(D.C. Cir. 2011). As a result, “nearly every purchaser of
telephone services in America helps support the [federal
Universal Service Fund].” Id.In California, the CPUC similarly imposes universal
service surcharges on consumers’ use of intrastate
telecommunications services, which are collected by
providers and then remitted to the state. The CPUC uses
these funds to provide, among other things,
METROPCS CALIFORNIA V. PICKER 11
telecommunications devices to people with hearing loss and
discounted telecommunications services to schools,
libraries, hospitals, and other nonprofits.
For years, the CPUC did not mandate any particular
methodology for wireless and VoIP providers to determine
their intrastate revenues. Those providers could therefore
use the three options recognized by the FCC—actual
revenue, a traffic study, or the inverse of the FCC safe
harbor. 4
C.
In 2014, California adopted the Prepaid Act, which
addressed the collection of surcharges from consumers of
prepaid wireless services. See 2014 Cal. Legis. Serv. ch.
885, § 8 (A.B. 1717) (West) (repealed 2020). 5 Prepaid
wireless consumers pay in advance for services such as voice
and data, while postpaid wireless consumers are billed
monthly after the services have been provided. Prepaid
service is increasingly popular, see Cal. Rev. & Tax. Code
§ 42002(d), including among “subscribers [who] lack the
credit background or income [required] to qualify for
postpaid service,” see In re Implementation of
Section 6002(b) of the Omnibus Budget Reconciliation Act
4
The inverse of the FCC safe harbor is the portion of revenues not
captured by the FCC safe harbor—that is, the portion of revenues
attributed to intrastate traffic. For instance, the inverse of the FCC’s
current 37.1% safe harbor for wireless providers is 62.9%.
5
The Prepaid Act expired as of January 1, 2020. See Cal. Rev. &
Tax. Code § 42024 (providing that the Act “shall remain in effect only
until January 1, 2020, and as of that date is repealed, unless a later
enacted statute . . . deletes or extends that date”). For ease of reference,
we do not note the Prepaid Act’s expiration when citing provisions of
the Act which are no longer in effect in the remainder of this opinion.
12 METROPCS CALIFORNIA V. PICKER
of 1993, 31 FCC Rcd. 10534, 10597 (2016). The CPUC
estimates that prepaid services constitute about a third of the
wireless services market in California.
Although postpaid providers can recover surcharges on
intrastate traffic by placing charges on customers’ monthly
bills, prepaid service does not involve a monthly billing
process. Prior to 2014, prepaid providers “essentially built”
surcharges “into the purchase price” of prepaid services, and
then remitted surcharges from their overall profits. Against
this backdrop, the Prepaid Act was intended to “ensure
equitable contributions from end-use consumers of postpaid
and prepaid mobile telephony services in [California]” by
“standardiz[ing] . . . the method used to collect
communications taxes, fees, and surcharges from end-use
consumers of prepaid mobile telephony services.” Cal. Rev.
& Tax. Code § 42002(e).
Under the Prepaid Act, a single surcharge rate, which
included a component funding state universal service
programs, had to be “imposed on each prepaid consumer.”
See id. § 42010(a)(1), (b)(2). Both direct sellers (prepaid
wireless providers themselves) and indirect sellers (third-
party retailers such as big box stores) were required to collect
surcharges from consumers “at the time of each retail
transaction.” See id. §§ 42004(b)(1), (p), 42010(a)(1), (d)–
(e). The surcharge was required to “be imposed as a
percentage of the sales price” of each purchase of prepaid
services, id. § 42010(a)(1); see also id. § 42018(a), 6 using a
6
If prepaid services were sold in combination with other services or
products for a single bundled price, the surcharge generally applied to
that entire price. See Cal. Rev. & Tax Code § 42018(a); see also id.§ 42018(b) (creating an exception by providing that, if prepaid services
were sold with a mobile phone for a single bundled price, and the seller
METROPCS CALIFORNIA V. PICKER 13
rate the CPUC would establish each year, id. § 42010(b)(2);
see also Cal. Pub. Util. Code § 319(b)–(c). The Prepaid Act
took effect on January 1, 2016. See Cal. Rev. & Tax. Code
§ 42010(a)(1).
The CPUC issued a series of resolutions implementing
the Prepaid Act. The first resolution (the “2016 Resolution”)
set a surcharge rate of 8.51%, which it stated applied only to
“intrastate revenues subject to surcharge.” But the 2016
Resolution did not specify how that amount of intrastate
revenue was to be determined. In particular, nothing in the
2016 Resolution prevented prepaid providers from using any
of the three FCC-recognized methods to do so. To take a
hypothetical (and simplified) example of how the 2016
Resolution worked: suppose a provider selling a $40 voice-
only prepaid plan had decided to use the traffic study
method, and that its study showed that 60% of its traffic was
intrastate. The provider would have applied the 8.51%
surcharge to the portion of the sales price representing
intrastate revenue ($24, or 60% of $40), producing a
surcharge amount of $2.04 (8.51% of $24).
The CPUC changed course in its next resolution (the
“2017 Resolution”). The CPUC explained that, on further
study, it had determined that the 2016 Resolution did not
comply with the Prepaid Act. The CPUC now believed that
the Prepaid Act required that the surcharge rate “be applied
to the total sales price” of prepaid services instead of only to
“the intrastate portion” of the sales price.
disclosed on a receipt the portion of that price attributable to the phone,
the seller could then apply the surcharge only to the remaining portion
of the price attributable to prepaid services—rather than the full bundled
price).
14 METROPCS CALIFORNIA V. PICKER
The 2017 Resolution began by setting an initial
surcharge rate of 7.0854% using the methods the CPUC had
relied on in 2016. Then, because the CPUC had concluded
that any surcharge rate had to apply to the “total” prepaid
sales price, the CPUC took the further step of adjusting that
initial rate by what it called an “intrastate allocation factor.”
The CPUC calculated an intrastate allocation factor of
72.75% based on the percentages of intrastate revenue
reported by prepaid providers. The result was a 5.15%
adjusted surcharge rate (7.0854% multiplied by the intrastate
allocation factor of 72.75%), which the 2017 Resolution
specified applied to the entire sales price.
Although the 2017 Resolution required applying that
adjusted surcharge rate to the entire sales price, it achieved
the same mathematical result as applying the unadjusted
surcharge rate to the intrastate portion of the sales price, as
determined by applying the CPUC’s intrastate allocation
factor. To illustrate using a hypothetical $40 plan, applying
the adjusted surcharge rate of 5.15% to the entire price of
that plan would have produced a surcharge of $2.06. The
same surcharge amount would result from using the 72.75%
intrastate allocation factor to determine that $29.10 of that
$40 plan was intrastate revenue, and then applying the
unadjusted surcharge rate of 7.0854% only to that revenue.
This aspect of the 2017 Resolution—the requirement
that providers use the 72.75% intrastate allocation factor to
determine intrastate revenue subject to surcharge—was
challenged by MetroPCS and T-Mobile. Their application
to modify the 2017 Resolution argued that they and other
direct sellers should be allowed to rely on the FCC methods
to determine intrastate revenue, rather than being required to
use the intrastate allocation factor to do so. The CPUC
METROPCS CALIFORNIA V. PICKER 15
denied the application and issued a resolution affirming the
2017 Resolution.
The next CPUC resolution (the “2018 Resolution”) took
the same approach as the 2017 Resolution, but with updated
rates. As relevant here, it adopted a new intrastate allocation
factor of 69.45% for determining prepaid intrastate revenue
subject to surcharge.
In contrast to prepaid services, postpaid services were
not governed by the Prepaid Act or the CPUC resolutions.
Providers of postpaid services were therefore allowed to
continue using the three FCC-recognized methods to
determine their intrastate revenues subject to CPUC
surcharge.
D.
MetroPCS filed a lawsuit in 2017 against the members
of the CPUC in their official capacities, challenging the
CPUC’s intrastate allocation factor methodology.
MetroPCS explained in the operative Complaint that it has
“been offering prepaid wireless service in California since
2002” and that it sells a variety of plans, “including voice,
data, and text plans ranging from $30 to $60 per month.” All
MetroPCS plans are prepaid.
MetroPCS claimed that the CPUC’s adoption of a
“mandatory one-size-fits-all” intrastate allocation factor
conflicted with federal law and was therefore preempted. As
relevant here, the Complaint alleged that the CPUC’s
requirement that prepaid providers use the intrastate
allocation factor to determine intrastate revenues subject to
surcharge conflicted with an FCC order recognizing the
three methods described above for separating interstate
revenues from intrastate revenues for purposes of imposing
16 METROPCS CALIFORNIA V. PICKER
federal contribution requirements. The Complaint further
alleged that the CPUC resolutions resulted in “state
Universal Service surcharges [being assessed] on the same
revenues that [were] already subject to federal Universal
Service” contributions and thus unfairly burdened prepaid
providers by subjecting them to “double assessment” of their
revenues. The Complaint claimed that the 2017 Resolution,
the resolution affirming the 2017 Resolution, and the 2018
Resolution were each “preempted both facially and as
applied to MetroPCS.” MetroPCS sought a declaration that
the resolutions were preempted and an injunction barring the
CPUC from enforcing them.
As to the Prepaid Act that the resolutions were issued to
implement, MetroPCS contended that the Act itself could be
construed to avoid a conflict with federal law. To the extent
a saving construction was not possible, the Complaint sought
a declaration that any provision of the Prepaid Act
conflicting with federal law was preempted and an
injunction barring enforcement of any such provision.
MetroPCS and the CPUC filed cross-motions for
summary judgment, and the district court granted summary
judgment for MetroPCS. MetroPCS Cal., LLC v. Picker,
348 F. Supp. 3d 948, 950 (N.D. Cal. 2018). The district court
first observed that orders issued by the FCC “stand for the
proposition that wireless carriers have several options when
allocating their interstate and intrastate revenues” to
determine federal universal service contributions. Id. at
962–63. Explaining that the CPUC resolutions required that
“the intrastate allocation factor [be] the sole method” for
determining intrastate revenue subject to surcharge, the court
reasoned that the resolutions “deprived [prepaid] carriers of
the ability to rely on [the] alternative allocation
methodologies” recognized by the FCC. Id. at 963. The
METROPCS CALIFORNIA V. PICKER 17
court held that the CPUC resolutions were facially
preempted because the “mandatory intrastate allocation
factor” conflicted with federal law by preventing providers
from choosing among the FCC-recognized methods. Id.The court explained that this conclusion made it
“unnecessary to address MetroPCS’s other [preemption]
challenges to the Contested Resolutions.” Id. With respect
to the Prepaid Act, the court held that “the language and
structure of the Act require[d] the usage of an intrastate
allocation factor” and that the Act was therefore also
preempted. Id. at 965. The court granted declaratory and
injunctive relief with respect to both the resolutions and the
Act.
Before the district court issued its ruling, the CPUC had
adopted another resolution (the “2019 Resolution”)
patterned on the 2017 and 2018 Resolutions. Following the
district court’s decision, the CPUC rescinded the 2019
Resolution. Instead, the CPUC reverted to using “the
surcharge . . . collection and remittance framework that
existed prior to” the Prepaid Act.
MetroPCS did not comply with the 2017 and 2018
Resolutions’ requirement that it use the intrastate allocation
factor to determine the intrastate portion of the sales price
subject to CPUC surcharge. Instead, MetroPCS remitted
surcharges using the FCC-recognized traffic study
method—an option permitted under the 2016 Resolution.
There is no indication in the record that the CPUC has ever
attempted to enforce its resolutions against MetroPCS, other
than through its defense in this litigation.
The CPUC appealed the district court’s ruling that the
required intrastate allocation factor method for determining
intrastate revenue is facially preempted. The Prepaid Act
18 METROPCS CALIFORNIA V. PICKER
subsequently expired by its own terms on January 1, 2020.
See Cal. Rev. & Tax. Code § 42024.
II.
The Prepaid Act’s expiration prompts us to consider, as
a preliminary matter, whether this case has become moot.
“Mootness is a jurisdictional issue, and ‘federal courts have
no jurisdiction to hear a case that is moot, that is, where no
actual or live controversy exists.’” Foster v. Carson,
347 F.3d 742, 745 (9th Cir. 2003) (quoting Cook Inlet Treaty
Tribes v. Shalala, 166 F.3d 986, 989 (9th Cir. 1999)). When
“there is no longer a possibility that [a party] can obtain relief
for [its] claim, that claim is moot.” Id. (quoting Ruvalcaba
v. City of Los Angeles, 167 F.3d 514, 521 (9th Cir. 1999)).
MetroPCS seeks only forward-looking declaratory and
injunctive relief on its claim that federal law preempts the
CPUC’s requirement that prepaid providers use a uniform
intrastate allocation factor, and not their chosen FCC-
recognized method, to determine intrastate revenues subject
to surcharge. But the Prepaid Act, which the CPUC
interpreted as requiring use of an intrastate allocation factor,
and which motivated the challenged resolutions, has expired.
See Cal. Rev. & Tax. Code § 42024. Because the Prepaid
Act’s expiration may have already “accomplished all that a
judgment could accomplish,” and may thereby have
deprived us of the ability to give any meaningful prospective
relief to MetroPCS, we requested supplemental briefing
from the parties on whether this case had become moot. See
Smith v. Univ. of Wash. Law Sch., 233 F.3d 1188, 1193
(9th Cir. 2000), overruled on other grounds by Bd. of Trs. of
the Glazing Health & Welfare Tr. v. Chambers, 941 F.3d
1195 (9th Cir. 2019) (en banc).
METROPCS CALIFORNIA V. PICKER 19
Generally, the “expiration of challenged legislation . . .
render[s] a case moot.” Glazing Health, 941 F.3d at 1198.
But a case challenging expired legislation remains
justiciable when the litigant still “need[s] . . . the judicial
protection that it sought.” See Jacobus v. Alaska, 338 F.3d
1095, 1102–03 (9th Cir. 2003) (quoting Adarand
Constructors, Inc. v. Slater, 528 U.S. 216, 224 (2000) (per
curiam)), overruled on other grounds by Glazing Health,
941 F.3d 1195. In Jacobus, we held that we had jurisdiction
because the plaintiffs who had challenged a since-repealed
law would “likely experience prosecution and civil penalties
for their past violations” of the law. Id. at 1104. We
explained that their claims were not moot “[i]n light of the
ongoing civil and criminal ramifications of [their] past
violations.” Id. To avoid mootness, liability need not be
certain; it is enough that the “possibility” of liability “for a
proven past violation is real and not remote.” Decker v. Nw.
Envtl. Def. Ctr., 568 U.S. 597, 610 (2013).
Applying these principles here, we hold that this case is
not moot. MetroPCS has not complied with the 2017 and
2018 Resolutions. Even though there is no indication that
the CPUC has yet attempted to enforce those resolutions
against MetroPCS, the CPUC asserts in its briefing that the
California Constitution requires it to enforce the resolutions
implementing the Prepaid Act. See Cal. Const. art. III, § 3.5
(providing that “[a]n administrative agency . . . has no power
. . . to refuse to enforce a statute [based on federal law]
unless an appellate court [makes] a determination that the
enforcement of such statute is prohibited by federal law or
federal regulations”). If we were to reverse the district court
and uphold those resolutions, the CPUC represents that it
would seek to hold MetroPCS liable for remitting surcharges
based on the relevant intrastate allocation factor for at least
20 METROPCS CALIFORNIA V. PICKER
the years 2017 and 2018. 7 Both parties’ supplemental briefs
take the position that the CPUC’s intent to pursue
enforcement prevents this case from being moot.
Even though the parties both contend that we have
jurisdiction, we have an obligation to make that
determination for ourselves. See Sherman v. U.S. Parole
Comm’n, 502 F.3d 869, 871–72 (9th Cir. 2007). We
conclude we do have jurisdiction. The CPUC has announced
its intent to enforce the resolutions, and we are not aware of
any basis for concluding that the CPUC can no longer bring
an enforcement action. For example, the Prepaid Act itself
contains no statute of limitations. See Cal. Rev. & Tax. Code
§ 42001 et seq. If the California catchall statute of
limitations were to apply, it appears it would not have lapsed
before an enforcement action could be brought. See Cal.
Civ. Proc. Code § 343 (four-year statute of limitations). And
even assuming the CPUC is subject to principles of equitable
estoppel, the CPUC could only be estopped from
enforcement if MetroPCS showed “detrimental reliance on
[the CPUC’s] misrepresentations.” See Lyng v. Payne,
476 U.S. 926, 935 (1986). It does not appear that the CPUC
has ever misrepresented to MetroPCS that it would refrain
from enforcing the 2017 and 2018 Resolutions.
7
The parties dispute whether MetroPCS could be liable for
underpaying surcharges in 2019—the year for which the CPUC initially
issued a resolution requiring use of an intrastate allocation factor but later
rescinded that resolution in response to the district court’s ruling.
Regardless of MetroPCS’s liability for 2019, the CPUC’s representation
that it will seek to hold MetroPCS liable for 2017 and 2018 prevents this
case from being moot for the reasons we explain below. Because our
jurisdiction does not depend on MetroPCS’s 2019 liability, we decline
to address in the first instance the parties’ disagreements about that year.
METROPCS CALIFORNIA V. PICKER 21
The possibility that the CPUC will bring an enforcement
action against MetroPCS if the resolutions are upheld means
there is still a live controversy, so we proceed to the merits
of MetroPCS’s preemption claim.
III.
Preemption is “a question of law reviewed de novo.”
Toumajian v. Frailey, 135 F.3d 648, 652 (9th Cir. 1998).
We first conclude that preemption is disfavored in the
circumstances of this case, and we then turn to MetroPCS’s
specific preemption arguments.
A.
The Supremacy Clause provides that the “Constitution,
and the Laws of the United States which shall be made in
Pursuance thereof . . . shall be the supreme Law of the
Land.” U.S. Const. art. VI, cl. 2. “When a state law, ‘in [its]
application to [a particular] case, come[s] into collision with
an act of Congress,’ the state law ‘must yield to the law of
Congress.’” Close v. Sotheby’s, Inc., 909 F.3d 1204, 1209
(9th Cir. 2018) (alterations in original) (quoting Gibbons v.
Ogden, 22 U.S. (9 Wheat.) 1, 210 (1824)), cert. denied,
139 S. Ct. 1469 (2019) (mem.). State law can be preempted
by constitutional text, by federal statute, or by a federal
regulation. P.R. Dep’t of Consumer Affs. v. Isla Petroleum
Corp., 485 U.S. 495, 503 (1988); Fid. Fed. Sav. & Loan
Ass’n v. de la Cuesta, 458 U.S. 141, 153 (1982). Where, as
here, we consider whether a federal agency has preempted
state regulation, we do not focus on Congress’s “intent to
supersede state law” but instead ask “whether [the federal
agency] meant to pre-empt [the state law].” Barrientos v.
1801–1825 Morton LLC, 583 F.3d 1197, 1208 (9th Cir.
2009) (alterations in original) (quoting de la Cuesta,
458 U.S. at 154).
22 METROPCS CALIFORNIA V. PICKER
Conflict preemption occurs when “it is impossible to
comply with both state and federal requirements,” or when
“state law stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.”
Williamson v. Gen. Dynamics Corp., 208 F.3d 1144, 1149
(9th Cir. 2000) (quoting Indus. Truck Ass’n v. Henry,
125 F.3d 1305, 1309 (9th Cir. 1997)). 8 MetroPCS does not
contend that it is impossible to comply both with federal law
and with the CPUC resolutions but instead argues that the
resolutions are an obstacle to the FCC’s accomplishing its
purposes. To evaluate whether a state law poses an obstacle
to the implementation of a federal program, “the Supreme
Court has stated that the ‘pertinent question []’ is whether
the state law ‘sufficiently injure[s] the objectives of the
federal program to require nonrecognition.’” See Topa
Equities, Ltd. v. City of Los Angeles, 342 F.3d 1065, 1071
(9th Cir. 2003) (alterations in original) (quoting Hisquierdo
v. Hisquierdo, 439 U.S. 572, 583 (1979)). The mere “fact
that there is ‘[t]ension between federal and state law is not
enough to establish conflict preemption.’” Shroyer v. New
Cingular Wireless Servs., Inc., 498 F.3d 976, 988 (9th Cir.
2007) (alteration in original) (quoting Incalza v. Fendi N.
Am., Inc., 479 F.3d 1005, 1010 (9th Cir. 2007)).
“[T]he case for federal pre-emption” is “less persuasive”
when “coordinate state and federal efforts exist within a
complementary administrative framework[] and in the
pursuit of common purposes.” N.Y. State Dep’t of Soc.
8
The other two categories of preemption—express preemption
(“where Congress explicitly defines the extent to which its enactments
preempt state law”), and field preemption (“where state law attempts to
regulate conduct in a field that Congress intended the federal law
exclusively to occupy”)—are not at issue in this case. See Williamson,
208 F.3d at 1149 (quoting Indus. Truck Ass’n, 125 F.3d at 1309).
METROPCS CALIFORNIA V. PICKER 23
Servs. v. Dublino, 413 U.S. 405, 421 (1973); see also In re
Volkswagen “Clean Diesel” Mktg., Sales Practices, &
Prods. Liab. Litig., 959 F.3d 1201, 1225 (9th Cir. 2020)
(citing the existence of a “cooperative federalism scheme,”
among other factors, as “rais[ing] the strong inference that
Congress did not intend to” preempt state and local
enforcement). Moreover, when Congress has legislated in a
field in which there is a “historic presence of state law,” a
presumption against preemption applies. See Wyeth v.
Levine, 555 U.S. 555, 565 & n.3 (2009). What matters for
application of this presumption is whether “Congress has set
foot in a ‘field which the States have traditionally
occupied,’” McDaniel v. Wells Fargo Invs., LLC, 717 F.3d
668, 675 (9th Cir. 2013) (quoting Wyeth, 555 U.S. at 565);
if it has, there is a presumption against preemption regardless
of whether “Congress has regulated [in that field]
comprehensively for fifty years or only interstitially for
five,” see id.Here, there is a “dual regulatory scheme” requiring that
our “conflict-pre-emption analysis . . . be applied sensitively
. . . so as to prevent the diminution of the role Congress
reserved to the States.” See Nw. Cent. Pipeline Corp. v. State
Corp. Comm’n, 489 U.S. 493, 514–15 (1989). The
Telecommunications Act is premised on a “system of
‘cooperative federalism,’” in which participating states are
key partners to the federal government in regulating the
telecommunications industry. See T-Mobile S., LLC v. City
of Roswell, 574 U.S. 293, 303 (2015) (quoting City of
Rancho Palos Verdes v. Abrams, 544 U.S. 113, 128 (2005)
(Breyer, J., concurring)). Under this scheme, states are,
“subject to the boundaries set by Congress and federal
regulators, . . . called upon to apply their expertise and
judgment and have the freedom to do so.” BellSouth
Telecomms., Inc. v. Sanford, 494 F.3d 439, 449 (4th Cir.
24 METROPCS CALIFORNIA V. PICKER
2007). Because the CPUC resolutions regulate an aspect of
this scheme in which the Telecommunications Act
recognizes state authority—imposing surcharges on
intrastate revenue to support state universal service
programs—there is a higher threshold for showing that those
resolutions are preempted. See id. at 448–49 (citing
universal service as an example of the Telecommunication
Act’s cooperative federalism scheme).
Further, the history of state regulation in this area
requires us to apply the presumption against preemption.
See McDaniel, 717 F.3d at 675. States traditionally
“exercised broad power to regulate telecommunications
markets within their borders in ways that were designed to
promote . . . universal service.” In re Public Utility
Commission of Texas, 13 FCC Rcd. 3460, 3463 (1997); see
also, e.g., In re Federal-State Joint Board on Universal
Service, 14 FCC Rcd. 8078, 8100–01 (1999) (referring to
states’ historical efforts to “ensure[] universal service
principally through implicit support mechanisms, such as
geographic rate averaging”); 1998 Universal Service
Decision, 13 FCC Rcd. at 24747 (acknowledging that,
“[h]istorically, . . . state . . . regulators have exercised their
jurisdictional authority to ensure the availability of universal
service”).
MetroPCS contends that our decisions in Qwest Corp. v.
Arizona Corp. Commission, 567 F.3d 1109 (9th Cir. 2009),
and Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003),
nevertheless prevent the presumption against preemption
from applying here. But Qwest Corp., relying on Ting,
stated that “the long history of federal presence in regulating
long-distance telecommunications” made the presumption
inapplicable. See Qwest Corp., 567 F.3d at 1118 (emphasis
added) (quoting Ting, 319 F.3d at 1136). As those cases
METROPCS CALIFORNIA V. PICKER 25
explained, the historic telecommunications regulatory
scheme granted authority to the FCC—not states—to
regulate interstate long-distance telecommunications. See
id. at 1112, 1117–18 (observing that “telephone service
regulatory issues [used to] mainly revolve[] around rates,
with the FCC setting interstate rates,” and that long-distance
telecommunications are “typically interstate” (quotation
marks omitted)); see also Ting, 319 F.3d at 1130–32
(describing the FCC’s historical regulation of rates for
interstate long-distance service). Qwest Corp. and Ting are
therefore distinguishable from this case because they
involved state laws covering a part of the regulatory scheme
that was traditionally dominated by the FCC. By contrast,
the CPUC resolutions here were focused on regulating
intrastate telecommunications to further state universal
service efforts. Because this is an area that has clearly been
“traditionally occupied” by the states, see Wyeth, 555 U.S.
at 565 (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 485
(1996)), the presumption against preemption applies.
B.
MetroPCS focuses on two theories in support of its claim
that the CPUC resolutions are facially preempted by the
Telecommunications Act and related FCC decisions: (1) that
the resolutions conflict with the requirement of competitive
neutrality by depriving prepaid providers (but not postpaid
providers) of the “right” to calculate intrastate revenues in a
way that avoids assessing the same revenues as federal
contribution requirements, and (2) that because prepaid
providers are deprived of that “right,” the resolutions are
preempted regardless of the treatment of competing
providers. Evaluating these theories in light of the foregoing
reasons to disfavor preemption, we reject each of them.
26 METROPCS CALIFORNIA V. PICKER
1.
MetroPCS argues that the CPUC resolutions facially
conflict with the FCC’s competitive neutrality policy, see
1997 Universal Service Order, 12 FCC Rcd. at 8801, which
is related to the Telecommunications Act’s “equitable and
nondiscriminatory” mandate, see 47 U.S.C. § 254(d), (f).
Specifically, MetroPCS points out that the CPUC’s
requirement that an intrastate allocation factor be used to
determine intrastate revenue applied “only to prepaid”
services and not to “similarly situated postpaid” services.
MetroPCS asserts that this differential treatment made it
harder for prepaid providers to compete with postpaid
providers.
a.
As relevant to MetroPCS’s argument, the
Telecommunications Act provides:
A State may adopt regulations not
inconsistent with the [FCC’s] rules to
preserve and 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(f). The FCC has determined that the
requirement that contributions be imposed “on an equitable
and nondiscriminatory basis” encompasses “[t]he principle
of competitive neutrality.” 1997 Universal Service Order,
12 FCC Rcd. at 8801 (explaining that the competitive
METROPCS CALIFORNIA V. PICKER 27
neutrality principle is “embodied in . . . section 254(f)’s
requirement that state universal service contributions be
equitable and nondiscriminatory”).
The FCC has defined competitive neutrality to “mean[]
that universal service support mechanisms and rules neither
unfairly advantage nor disadvantage one provider over
another, and neither unfairly favor nor disfavor one
technology over another.” Id.; see also AT&T Corp. v. Pub.
Util. Comm’n, 373 F.3d 641, 647 (5th Cir. 2004) (explaining
that competitive neutrality at least prohibits putting some
providers “at a distinct competitive disadvantage compared
with” other providers). Competitive neutrality prohibits
regulators “from treating competitors differently in unfair
ways,” see AT&T, Inc. v. FCC, 886 F.3d 1236, 1250
(D.C. Cir. 2018) (formatting altered) (quoting Rural
Cellular Ass’n v. FCC, 588 F.3d 1095, 1104 (D.C. Cir.
2009)), but does not prohibit regulators “from according
different treatment to competitors whose circumstances are
materially distinct,” id.One of our sister circuits has addressed the requirement
that states impose universal service contributions on a
competitively neutral basis. In AT&T Corp., the Fifth
Circuit considered Texas’s universal service fee, which the
state imposed “on all telecommunications carriers who
provide[d] any intrastate service.” 373 F.3d at 644. A 3.6%
state fee applied to such carriers’ intrastate revenue as well
as to any revenue they “derived from . . . interstate[] and
international calls originating in Texas.” Id. The result was
that “multijurisdictional carriers” providing both intrastate
and interstate service in Texas had two different fees
imposed on their interstate revenues: they paid the 3.6% state
fee on such revenues plus the 7.28% federal universal
service fee on the same revenues. See id. at 644, 646–47.
28 METROPCS CALIFORNIA V. PICKER
By contrast, “pure-interstate-provider[s]” were not subject to
the Texas fee and paid only the 7.28% federal fee on their
interstate revenues. Id. at 647. The Fifth Circuit determined
that this “double assessment” of multijurisdictional carriers’
interstate revenues put them “at a distinct competitive
disadvantage compared with the pure interstate carriers,”
who did not have their interstate revenues doubly assessed.
Id. It therefore held that the Texas fee was preempted by
federal law. Id.The FCC adopted a similar position in a ruling
addressing whether states could require universal service
contributions from certain interconnected VoIP providers.
See In re Universal Service Contribution Methodology,
25 FCC Rcd. 15651, 15656 (2010) (“2010 VoIP
Contribution Ruling”). Prior to that ruling, the FCC had
concluded (just as it had with wireless providers) that these
providers could use any of the three methods of actual
revenue, a traffic study, or the VoIP safe harbor (of 64.9%)
to determine interstate revenues subject to federal universal
service contribution requirements. See 2006 Universal
Service Order, 21 FCC Rcd. at 7544–45. In response to two
states’ request for a declaratory ruling on the permissibility
of imposing state universal service contribution
requirements on interconnected VoIP providers, the FCC
ruled that a state could impose such contribution
requirements on the intrastate revenues of those providers—
but specified that the state’s methodology must not result in
“double assessments” of providers’ revenues. See 2010
VoIP Contribution Ruling, 25 FCC Rcd. at 15655, 15659–
60.
The FCC explained that such double assessments might
occur if states had different ways of determining which
revenues fell within their respective jurisdictions and as a
METROPCS CALIFORNIA V. PICKER 29
result imposed their universal service contribution
requirements on the same revenue. See id. at 15659. The
FCC described a hypothetical example in which “all of an
interconnected VoIP provider’s customers have a billing
address in State A and service address in State B,” and “State
A and State B use billing addresses and service addresses,
respectively, to determine the state universal service revenue
base.” Id. If the provider used the FCC safe harbor and its
inverse to determine its interstate and intrastate revenue,
64.9% of its revenue would be assessed for federal
contributions, 35.1% of its revenue would be assessed by
State A, and 35.1% of its revenue would be assessed by
State B—resulting in double assessments on 35.1% of its
revenue. See id.
The FCC concluded that the double assessments it
described “would violate the principle of competitive
neutrality.” Id. at 15659–60. Interconnected VoIP providers
compete with “traditional telephone service” providers. See
2006 Universal Service Order, 21 FCC Rcd. at 7541.
Because “traditional telephony” providers “are generally not
subject to double assessments,” any double assessments on
interconnected VoIP providers’ revenues would place those
providers “at an artificial competitive disadvantage.” 2010
VoIP Contribution Ruling, 25 FCC Rcd. at 15659–60. The
FCC thus determined that any state contribution
requirements resulting in assessments by two states on the
same interconnected VoIP revenue would conflict with the
“important federal policy of competitive neutrality” and be
preempted on that ground. See id.
b.
We agree with the reasoning of our sister circuit and the
FCC. Cf. Dilts v. Penske Logistics, LLC, 769 F.3d 637, 649–
50 (9th Cir. 2014) (“find[ing] . . . persuasive” an agency’s
30 METROPCS CALIFORNIA V. PICKER
position that a federal statute does not preempt state laws).
Again, competitive neutrality attempts to create an even
playing field between competitors by prohibiting rules that
“unfairly advantage [or] disadvantage one provider over
another.” See 1997 Universal Service Order, 12 FCC Rcd.
at 8801. To the extent a state regulation violates that
competitive neutrality requirement, the regulation is
preempted—and one way in which a regulation can
impermissibly create an “unfair[] . . . disadvantage,” see id.,is by causing the double assessment of one provider’s
revenue but not a competing provider’s revenue. See AT&T
Corp., 373 F.3d at 647; 2010 VoIP Contribution Ruling,
25 FCC Rcd. at 15659–60.
In evaluating whether the CPUC resolutions at issue here
are facially preempted, we use “the rules that apply to facial
challenges” to statutes. See Puente Ariz. v. Arpaio, 821 F.3d
1098, 1104 (9th Cir. 2016). To succeed on its facial
preemption claim under those rules, MetroPCS “must show
that ‘no set of circumstances exist[ed] under which the
[resolutions] [were] valid.’” See id. (quoting United States
v. Salerno, 481 U.S. 739, 745 (1987)); see also Salerno,
481 U.S. at 745 (explaining that a facial challenge is “the
most difficult challenge to mount successfully”).
Specifically, MetroPCS must demonstrate that every
application of the CPUC resolutions caused an unfair
disadvantage for prepaid services, which MetroPCS could
accomplish by showing that the resolutions always resulted
in uneven double assessments.
Under the CPUC resolutions, providers of prepaid
services were still able to use any of the FCC-recognized
methods to determine the portion of interstate revenue
subject to federal contribution requirements (and a
corresponding portion of intrastate revenue not subject to
METROPCS CALIFORNIA V. PICKER 31
federal contribution requirements). But those providers
could not rely on the FCC methods to determine the portion
of intrastate revenue subject to state surcharge. Instead, the
resolutions required use of an intrastate allocation factor to
capture the portion of revenues that were intrastate. As the
CPUC has explained, that intrastate allocation factor served
the function of “determining” providers’ “intrastate revenue
subject to the state’s universal service surcharges.” 9
For example, take a provider that operated exclusively in
California and sold a $100 voice-only prepaid plan, all of the
revenue from which was surchargeable. To determine its
interstate revenue for federal universal service purposes,
suppose that the provider used the federal safe harbor of
37.1% interstate revenue, which would have resulted in the
FCC’s assessing $37.10 of the plan—but not the $62.90
treated as intrastate revenue under the safe harbor. By
contrast, under the CPUC’s 2017 Resolution, the provider
would have been required to use the intrastate allocation
factor of 72.75% to determine that $72.75 of the plan was
intrastate revenue for state universal service purposes. The
unadjusted CPUC surcharge rate would have been applied to
that $72.75. The end result would have been the FCC’s
assessing $37.10 and the CPUC’s assessing $72.75 (a total
of $109.85). Thus, as a consequence of the provider’s using
the FCC safe harbor to derive interstate revenue subject to
federal contributions, but using the CPUC-mandated
intrastate allocation factor to derive intrastate revenue
9
As explained above, even though the CPUC resolutions nominally
required applying the relevant adjusted surcharge rate to the entire
purchase price, that was mathematically equivalent to requiring use of
the intrastate allocation factor to determine the intrastate portion of the
purchase price to which the unadjusted surcharge rate applied. See supra
Part I.C.
32 METROPCS CALIFORNIA V. PICKER
subject to state surcharge, there would have been a double
assessment on $9.85 of the $100 plan.
By contrast, consider a competing provider that sold a
similar $100 voice-only postpaid plan in California. The
provider of postpaid services, unlike the provider of prepaid
services, would have been permitted to use any of the three
FCC methods to determine both its interstate and intrastate
revenues. Suppose the provider used the federal safe harbor
and its inverse. Using the federal safe harbor of 37.1% for
federal universal service contributions, the provider would
have had $37.10 in interstate revenue subject to such
contributions. And using the inverse of that safe harbor,
62.9%, the provider would have had $62.90 in intrastate
revenue subject to CPUC surcharge—for a total assessment
on $100, and no double assessment at all.
The double assessment on prepaid services would, at
least if the surcharge rates applicable to prepaid services
were similar to the rates applicable to postpaid services,
create a disadvantage for the provider of prepaid services
compared to the provider of postpaid services. See AT&T
Corp., 373 F.3d at 647 (explaining that there was a
“competitive disadvantage” because one subset of carriers
was “burden[ed] . . . more severely” than other carriers). On
their $100 plans, both providers would have paid the same
federal contribution amount. But the CPUC surcharge
amount would have been higher for the provider of prepaid
services if, as was true here, the surcharge rates for prepaid
services essentially the same rates applicable to postpaid
services. If the state surcharge rate for both were 10%, for
example, the provider of prepaid services would have had an
additional $9.85 in revenue subject to that rate—and
therefore paid an additional surcharge amount of $0.985.
METROPCS CALIFORNIA V. PICKER 33
That disadvantage for the provider of prepaid services
would have been an “unfair[]” one. See 1997 Universal
Service Order, 12 FCC Rcd. at 8801. We see no meaningful
distinction between prepaid and postpaid services that could
justify imposing the higher surcharge only on prepaid
services. Cf. AT&T, Inc., 886 F.3d at 1250 (explaining that
competitive neutrality does not prohibit a regulator “from
according different treatment to competitors whose
circumstances are materially distinct”). Prepaid and
postpaid services offer the same telecommunications options
of voice, text messaging, and data. See, e.g., In re
Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993, 26 FCC Rcd. 9664, 9725 (2011).
And counsel for the CPUC acknowledged at oral argument
that prepaid and postpaid providers are equally capable, if
permitted to do so, of using the three FCC-recognized
methods to determine their intrastate revenues. See Oral
Argument at 9:39–10:40. 10 Thus, under the CPUC
resolutions, a provider of prepaid services that was subject
to the same surcharge rate as a provider of postpaid services,
10
The CPUC contends that its resolutions do not conflict with the
principle of competitive neutrality because they treated direct sellers
(providers such as MetroPCS) the same as indirect sellers (such as big
box stores). See Oral Argument at 7:45–9:28. Both direct sellers and
indirect sellers were required to use the intrastate allocation factor. Thus,
as the CPUC explains in its briefing, “[a] California consumer who
[bought] $100 worth of prepaid service would [have paid] the exact same
surcharge whether she [bought] that service . . . directly from the carrier
or from an indirect seller.” But the fact that direct sellers and indirect
sellers were treated equally by the CPUC does not change the fact that
providers of prepaid services were potentially treated inequitably
compared to providers of postpaid services. Cf. In re Silver Star
Telephone Company, Inc., 13 FCC Rcd. 16356, 16360–61 (1998)
(explaining that competitive neutrality requires such neutrality “among
the entire universe of participants . . . in a market”).
34 METROPCS CALIFORNIA V. PICKER
but on a higher portion of its surchargeable revenues, would
have found itself at an unfair competitive disadvantage.
Importantly, however, the CPUC’s adoption of an
intrastate allocation factor would not necessarily have
resulted in an unfair disadvantage for every prepaid
provider. Take, for instance, a provider that sold a $100
voice-only prepaid plan in California and relied on a traffic
study showing 25% interstate traffic and 75% intrastate
traffic for its federal universal service contributions. The
FCC would have applied its contribution factor to $25, while
the CPUC, using its 2017 intrastate allocation factor of
72.75%, would have applied its surcharge rate to another
$72.75. No disadvantageous double assessment would have
occurred. 11
Thus, the adoption of an intrastate allocation factor in
and of itself would not have invariably resulted in double
assessments conflicting with the principle of competitive
neutrality. Nor has MetroPCS even attempted to argue that
it is possible to discern from the specific intrastate allocation
factors adopted by the CPUC (72.75% for 2017 and 69.45%
for 2018) that double assessments unfairly disadvantaging
every provider of prepaid services would have occurred. See
generally Faria v. M/V Louise, 945 F.2d 1142, 1143
(9th Cir. 1991) (explaining that “one of the most basic
propositions of law” is “that the plaintiff bears the burden of
proving [its] case”). MetroPCS’s facial preemption
11
To the extent the CPUC resolutions resulted in providers of
prepaid services having less than 100% of their revenues assessed, other
competing providers could potentially claim their own competitive
disadvantage if they had all 100% of revenues assessed. But this case
does not involve any such claim, so we have no occasion to address any
implications of prepaid providers’ potentially being competitively
advantaged.
METROPCS CALIFORNIA V. PICKER 35
challenge based on a conflict with competitive neutrality
therefore fails. See Puente Ariz., 821 F.3d at 1104.
2.
MetroPCS additionally contends that providers of
prepaid services have a freestanding “right to use the same
FCC-authorized methodologies . . . for purposes of
calculating their intrastate telecommunications service
revenues subject to CPUC surcharges” to avoid having the
same revenue subject to both federal and state contribution
requirements. MetroPCS argues that the CPUC resolutions
deprived providers of this “right” and are therefore facially
preempted regardless of how other providers were treated.
In making this argument, MetroPCS relies on a different
part of the FCC’s declaratory ruling permitting states to
impose universal service contribution requirements on
intrastate interconnected VoIP revenue. See 2010 VoIP
Contribution Ruling, 25 FCC Rcd. at 15658. The FCC
observed in that ruling that interconnected VoIP providers
have “three options by which they can establish their federal
universal service revenue base.” Id. The FCC stated that,
“to avoid a conflict” with its rules, “a state imposing
universal service contribution obligations on interconnected
VoIP providers must allow those providers to treat as
intrastate for state universal service purposes the same
revenues that they treat as intrastate under the [FCC’s]
universal service contribution rules.” Id. By allowing for
consistent treatment of revenues, a state would “ensure that
[its] contribution requirements [were] not . . . imposed on the
same revenue on which an interconnected VoIP provider
[was] basing its calculation of federal contributions.” Id.
Suppose, for example, that an interconnected VoIP
provider operating exclusively in one state used the federal
36 METROPCS CALIFORNIA V. PICKER
safe harbor of 64.9% to determine interstate revenue subject
to federal contribution requirements. If the provider were
also required by that state to treat 50% of revenue as
intrastate, the provider would be subject to assessments on
114.9% of its revenue (that is, double assessments on 14.9%
of its revenue). The FCC suggested that a state regulation
resulting in such double assessment “may be subject to
preemption.” Id.
For two reasons, we conclude that this part of the FCC’s
ruling does not provide a basis for resolving this appeal in
MetroPCS’s favor. First, the FCC’s position is unclear. It
does not seem that the FCC has even reached a definitive
conclusion about preemption; instead, the FCC used the
tentative language “may.” See id. Nor does the FCC’s
sparsely reasoned ruling provide a clue as to how we could
discern whether any double assessment sufficiently injured
a federal objective so as to trigger preemption. See Topa
Equities, Ltd., 342 F.3d at 1071; see also Wyeth, 555 U.S.
at 576–77 (explaining that we can consider “an agency’s
explanation of how state law affects the regulatory scheme”
in deciding whether a state law conflicts with a federal
regulation, although we do “not defer[] to an agency’s
conclusion that state law is pre-empted” and must undertake
our “own conflict determination”).
Second, in the circumstances present in this case, the
question whether federal law enshrines a freestanding right
to avoid double assessment of revenue is ultimately beside
the point. To prevail on a facial challenge premised on the
existence of such a right, MetroPCS would need to show that
every application of the CPUC resolutions would have
resulted in double assessment of prepaid revenue—but, as
explained above, MetroPCS has failed to make such a
showing. See supra Part III.B.1.b. Also, at least as far as we
METROPCS CALIFORNIA V. PICKER 37
can tell, any double assessment on prepaid revenue would
necessarily have created an “unfair[] . . . disadvantage” for
the prepaid provider compared to competing postpaid
providers. See 1997 Universal Service Order, 12 FCC Rcd.
at 8801. As explained above, only the prepaid provider, and
not postpaid providers, would have been subject to double
assessment, and yet the surcharge rates were similar for
prepaid and postpaid services. See supra Part III.B.1.b. The
result would have been higher surcharges for prepaid
services but not postpaid services, despite there being no
meaningful difference between the two. See supra Part
III.B.1.b. Any double assessment on prepaid revenue would
therefore conflict with the competitive neutrality
requirement that the FCC has prescribed. And because the
double assessment would be invalid for that reason, it would
make no difference whether it was invalid for the additional
reason of violating a freestanding right against double
assessments.
As a final matter, we reject one further argument by
MetroPCS that an even more expansive right is guaranteed
by federal law: the right to use the FCC-recognized methods
to determine intrastate revenue, regardless of whether any
inconsistency between those methods and state-permitted
methods results in double assessments. Specifically,
MetroPCS argues that the FCC “deliberately sought” to
make available three options for determining revenue, and
that the CPUC resolutions are preempted solely because they
deprived prepaid providers of that flexibility. See Geier v.
Am. Honda Motor Co., 529 U.S. 861, 878, 881 (2000); de la
Cuesta, 458 U.S. at 155–56. But the CPUC resolutions did
not prevent prepaid providers from using the FCC-
recognized options to determine interstate revenue subject
to federal contributions; they only prevented prepaid
providers from using those options to determine intrastate
38 METROPCS CALIFORNIA V. PICKER
revenue subject to state surcharge. Cf. In re Volkswagen,
959 F.3d at 1221 (holding that the EPA’s enforcement of
federal law would not be impeded by local “parallel rules,
and so there is no basis to infer a congressional intent to
preempt them”). And MetroPCS has pointed to little
evidence that flexibility—in federal contribution
calculations, let alone in state ones—was an overriding
purpose of the relevant FCC orders. Cf. Barrientos, 583 F.3d
at 1210 (rejecting preemption claim when the asserted
federal goal was “an important means to the ultimate end of
providing housing, but not [actually] a goal in itself”).
IV.
MetroPCS advances several other challenges to the
CPUC resolutions. These challenges were not reached by
the district court, and we therefore decline to address them
in the first instance. See Davis v. Nordstrom, Inc., 755 F.3d
1089, 1094 (9th Cir. 2014) (“Typically, ‘a federal appellate
court does not consider an issue not passed upon below.’”
(quoting Quinn v. Robinson, 783 F.2d 776, 814 (9th Cir.
1986))).
First, MetroPCS argues that the CPUC resolutions are
preempted as applied to MetroPCS. Our analysis above
makes clear that the resolutions would be preempted if
applying them to MetroPCS resulted in double assessments
on MetroPCS’s revenue, which would unfairly disadvantage
MetroPCS relative to its competitors—and thereby conflict
with the competitive neutrality requirement. Resolving that
METROPCS CALIFORNIA V. PICKER 39
as-applied claim requires a largely factual inquiry that is best
left to the district court. 12
Second, MetroPCS advances two alternative grounds for
wholly invalidating the CPUC resolutions. MetroPCS
argues that the intrastate allocation factor conflicts with the
federal Mobile Telecommunications Sourcing Act. And
MetroPCS contends that the 2017 and 2018 intrastate
allocation factors were “based on a fundamentally flawed
methodology” and impermissibly “require[d] a substantial
assessment” of non-surchargeable revenue. The district
court did not reach these arguments, and we decline to do so
in the first instance.
REVERSED and REMANDED.
12
At this juncture, we see no reason for the district court to consider
an as-applied challenge premised on a standalone federal right to be free
from double assessments. As explained above, on the facts of this case,
it seems that any double assessments on MetroPCS’s revenue would
necessarily conflict with the competitive neutrality principle, so the
CPUC resolutions would be preempted on that ground.