Starnet Inc v. Global Naps Inc

In the
United States Court of Appeals
For the Seventh Circuit
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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
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Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 03 C 4835—Milton I. Shadur, Judge.
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ARGUED DECEMBER 1, 2003—DECIDED JANUARY 9, 2004
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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