DocketNumber: Case No. 17-cv-05959-SI
Citation Numbers: 348 F. Supp. 3d 948
Judges: Illston
Filed Date: 11/5/2018
Status: Precedential
Modified Date: 7/25/2022
On August 3, 2018, the Court held a hearing on the parties' cross-motions for summary judgment. After the hearing the Court ordered supplemental briefing, which has been completed. For the reasons set forth below, the Court GRANTS plaintiff's motion and DENIES defendants' motion. No later than November 15, 2018 , the parties shall: (1) meet and confer and file a proposed order regarding appropriate injunctive relief; (2) file a joint letter stating the parties' views on what further proceedings, if any, are necessary in this case; and (3) file a proposed judgment if appropriate.
INTRODUCTION
Plaintiff MetroPCS brings this action for declaratory and injunctive relief seeking to *951declare unlawful, and enjoin enforcement of, three resolutions passed by the California Public Utilities Commission ("CPUC"), Resolution T-17542, Resolution T-17568 and Resolution T-17579 ("the Contested Resolutions"). The Contested Resolutions implement California's Prepaid Mobile Telephony Service Surcharge Collection Act (the "Prepaid Collection Act" or "the Act") and require that end consumers of prepaid wireless telephony service packages pay a surcharge (the "prepaid MTS surcharge") that is a percentage of the sales price of each retail transaction that occurs in California. The surcharge is used to fund, inter alia , California's universal service fund and certain CPUC fees. MetroPCS contends that the CPUC's portion of the surcharge impermissibly assesses interstate revenues, including revenues attributable to interstate voice service and broadband data service, and that the imposition of a surcharge on these interstate services directly conflicts with federal law, including the Communications Act of 1934, various orders of the Federal Communications Commission ("FCC"), the Mobile Telecommunications Sourcing Act of 2000, and the United States Constitution's dormant Commerce Clause.
Defendants are the Commissioners of the CPUC. Defendants contend that the CPUC's portion of the surcharge does not conflict with federal law because in calculating the amount of the surcharge, the CPUC adopted an "intrastate allocation factor" that has the effect of removing interstate and international charges from the surcharge base. The CPUC also contends that the methodology it has imposed is required by the plain language of the Prepaid Collection Act, which requires that "if prepaid mobile telephony services are sold in combination with mobile data services or any other services or products for a single price, then the prepaid MTS surcharge and local charges shall apply to the entire price."
BACKGROUND
The Federal Communications Act requires every telecommunications carrier that provides interstate telecommunications services to contribute to the federal universal service fund ("USF").
The Federal Communications Act also affords states the discretion to establish their own universal service rules, subject to some guidelines. See
The prepaid wireless industry lobbied in favor of California Assembly Bill 1717, which eventually became the Prepaid Collection Act. See Letter from Jamie Hastings, Vice President, External & State Affairs, CTIA-The Wireless Association, to the Hon. Henry T. Perea, California State Assembly (Apr. 14, 2014), Koltz Decl., Ex. 6 (Dkt. No. 73-7). In a letter dated April 14, 2014 to Assemblyman Henry Perea, a group representing the wireless industry wrote,
The state's current system for collecting taxes and fees is based on carriers having a contractual relationship with customers and collecting those taxes and fees on a monthly bill. These consumers pay 911 fees that help fund the network costs associated with the delivery of wireless 911 services. They also pay state-imposed fees to fund telephone service for low-income households, broadband for underserved areas and more, and local government services such as police, fire, parks and libraries through local utility user taxes.
However, today a growing number of customers choose to purchase wireless minutes on prepaid cards. While this provides benefits and flexibility to the consumer, it has created a problem with collection of existing taxes and fees on wireless services. Most prepaid wireless cards are purchased in third party retail outlets and are paid for in full before the consumer uses the service. Wireless carriers do not generally have an ongoing billing relationship with prepaid customers and are, therefore, unable to collect the same taxes and fees from prepaid customers that they collect from other customers on monthly bills.
AB 1717 would modernize California's system of collecting existing taxes and fees to reflect new technologies, new business models and consumer choices. The bill establishes a statewide retail point-of-sale mechanism for collecting taxes and fees from prepaid wireless consumers. It would be administered by the Board of Equalization and be completely neutral, uniformly-administered, and transparent to consumers....
On September 30, 2014, the California Legislature enacted the Prepaid Collection Act, with an effective date of January 1, 2016. See Karanjia Decl., Ex. 7 (Dkt. No. 63-8).
(a) Maintaining effective and efficient communications services, 911 emergency systems, communications-related public policy programs to promote universal service, and various local programs across the state benefits all persons with access to the telecommunications system.
(b) Providers of end-use communications services, including providers of mobile voice telecommunications services, which the Federal Communications Commission terms mobile telephony service, are required to collect and remit *953communications taxes, fees, and surcharges on various types of communication service revenues, as provided by existing state or local law.
(c) Consumers purchase prepaid mobile telephony services at a wide variety of retail locations and other distribution channels, as well as through service providers.
(d) Prepaid mobile telephony services are an important and growing segment of the communications industry. Prepaid mobile telephony services are often the only means by which persons with low incomes can obtain limited access to the telecommunications system.
(e) To ensure equitable contributions from end-use consumers of postpaid and prepaid mobile telephony services in this state, there should be standardization with respect to the method used to collect communications taxes, fees, and surcharges from end-use consumers of prepaid mobile telephony services.
(f) Prepaid mobile telephony services are frequently sold by a third-party retailer that is not the provider of mobile telephony services, and collecting taxes, fees, and surcharges from prepaid consumers of mobile telephony services at the time of the retail transaction is necessary and the most efficient and competitively neutral means of collection.
(g) An equitable distribution mechanism is necessary to ensure that utility user taxes and other telecommunication charges are collected on behalf of cities and counties and are properly distributed to those jurisdictions.
The Prepaid Collection Act created a new point-of-sale mechanism for the collection and remittance of the taxes, fees, and surcharges imposed on prepaid wireless consumers through a newly-defined surcharge: the Prepaid MTS Surcharge.
*954To come up with the prepaid MTS surcharge, the CPUC first calculates the California universal service surcharges and a CPUC reimbursement fee "as a percentage of the sales price for prepaid wireless service," and it reports those amounts to the California Department of Tax and Fee Administration ("CDTFA").
The CPUC has calculated and implemented its portion of the Prepaid MTS Surcharge (i.e., the universal service surcharges and the reimbursement fee) through a series of Resolutions.
I. CPUC's 2016 Resolution, Resolution T-17504
On November 23, 2015, the CPUC issued Resolution T-17504 (the "2016 Resolution"), in which the CPUC first implemented the Prepaid Collection Act. See Karanjia Decl., Ex. 1 (Dkt. No. 63-2). The 2016 Resolution was in effect from January 1, 2016 to December 31, 2016. The 2016 Resolution required prepaid wireless carriers to assess the Prepaid MTS Surcharge "on prepaid wireless telephone service intrastate revenues subject to surcharge and collected from end-users in California."
*955In October 2015, prior to the issuance of the 2016 Resolution, MetroPCS and other carriers
The new law requires the Commission to aggregate its Public Policy Program surcharges and its reimbursement/user fee into a single rate so that it can be incorporated by the BOE with the Emergency Telephone Users surcharge and local taxes into a single surcharge to be assessed on prepaid wireless consumers. As noted above, the Commission-related charges are only to be assessed on the intrastate revenue associated with these consumers. The Proposed Resolution currently appears to rely on the carriers to adjust their collections and remittances to account for intrastate revenue, which is how wireless revenues are currently adjusted with respect to mandatory surcharges and fees. The Joint Wireless Carriers suggest an alternate approach for the prepaid MTS Surcharge.
In particular, the Joint Wireless Carriers recommend that the Commission, through the Resolution, adjust its portion of the MTS Surcharge to account for the fact that it applies only to intrastate revenue. In order words, take the rate of the aggregated Commission surcharges and fees (e.g., 8.07%), multiply it by a reasonable estimate of the intrastate portion of prepaid revenues (e.g., a weighted average of the major carriers' intrastate traffic factors), and then post that adjusted rate with the [Board of Equalization]. This adjustment would have the effect of removing interstate and international charges from the surcharge base. This alternative approach provides a number of advantages for all the stakeholders including, but not limited to, the following:
• Consumer clarity - consumers will be able to more easily identify the amount of surcharges and fees they are required to pay for the Commission programs.
• Equitable charges - consumers will be subject to the same MTS surcharge regardless of whether they purchase prepaid wireless services directly from a wireless provider or from a third party retailer.[ ]
• Simpler audits - the Commission will be able to more readily audit the collection and remittance of these charges since the MTS surcharge amounts collected from consumers will match the adjusted rates. Carriers would not adjust their reported intrastate revenue figures under this approach, as the rate adjustment already removes the portion of the revenue which is attributable to interstate and international traffic.
Wireless Industry Comments on Draft Resolution T-17504, Oct. 26, 2015, at 3-4 (internal footnotes omitted), Karanjia Decl., Ex. 31 (Dkt. No. 63-32).
The CPUC responded to those comments and provided the following explanation *956of why it was not adopting the Joint Wireless Carriers' proposal:
The Commission finds the methodology proposed in the Resolution to be more reasonable and more consistent with the operating statutes than the Joint Wireless Carriers' alternate approach. The Joint Wireless Carriers' alternate approach is unnecessarily complex and may inappropriately assess surcharges and fees on interstate, international and other revenues and services not subject to the Commission's or other State surcharges.
Currently, carriers assess surcharges only on those intrastate revenues subject to surcharge, regardless of whether the revenues derive from prepaid, postpaid, wireline, or wireless service. Consistent with this practice, the Act directs the Commission to do so for the "reimbursement fee or universal service surcharge ... on both postpaid and prepaid intrastate service." We therefore calculated the MTS surcharge to be applied only to intrastate service revenues. The Act further supports the adoption of a rate that is only applied to intrastate services in it requiring that, "a prepaid MTS provider or direct seller shall report the intrastate revenue portion subject to the reimbursement fee and the telecommunications universal surcharges." We therefore do not find it consistent with the Act to calculate a prepaid MTS surcharge rate that would not be limited to intrastate prepaid wireless service revenue.
Karanjia Decl. Ex. 1 at 13-14 (internal footnote omitted) (Dkt. No. 63-2).
The CPUC now states that this initial resolution was a "false start" and "wrong" because the CPUC contends that the plain language of the Prepaid Collection Act requires that the surcharge be assessed on the entire price of a prepaid sale, and not just on the intrastate revenues.
MetroPCS does not challenge Resolution T-17504.
II. CPUC's 2017 Resolution, Resolution T-17542
The CPUC issued its Resolution for the 2017 calendar year on November 16, 2016. Karanjia Decl. Ex. 2 (Dkt. No. 63-3). In this Resolution, the CPUC adopted the intrastate allocation factor that is challenged in this lawsuit. The CPUC stated,
In an effort to ensure that all customers purchasing prepaid wireless telephone services are assessed the MTS surcharge in an equitable manner, the Commission has modified the MTS rates for 2017. For 2017, the MTS surcharge is to be assessed on the total sales price rather than only the intrastate portion, as the rate has now been pre-adjusted by an intrastate allocation factor. Therefore, regardless of the purchase method, location, or seller type, the customer will pay one universal rate.
Because our goal is to ensure all prepaid wireless customers are treated equally and assessed the MTS surcharge in the same manner, we do not authorize the use of the intrastate factor as an optional "safe harbor" only for direct sellers. The intrastate factor has been applied to assure that all prepaid wireless customers are assessed the MTS surcharge equally regardless of where they purchase their prepaid wireless service(s). As the Act requires, the MTS Surcharge is to be calculated and adjusted so that it can be applied to the total sales price. Indeed, Joint Carriers agree that the adoption of an intrastate factor in calculating the MTS Surcharge rate is consistent with the Act, in that "adjusting the surcharge rate by an intrastate factor *957promotes the equitable treatment of wireless consumers regardless of whether they purchase prepaid services from direct or indirect sellers and regardless of whether they are prepaid or postpaid consumers." Allowing carriers the option to potentially assess an amount for the MTS surcharge that is greater than or less than the amount being assessed on all other customers of indirect sellers would be inconsistent with the Act.
On January 24, 2017, MetroPCS and T-Mobile asked the CPUC to modify Resolution T-17542, again requesting that the intrastate allocation factor be optional for direct sellers rather than mandatory. Karanjia Decl., Ex. 3 at 5-6 (Dkt. No. 63-4). The CPUC denied the request through Resolution T-17568, stating that "nothing in the [Prepaid Collection] Act permits sellers the discretion to assess the prepaid MTS surcharge in the manner of their choosing, as MetroPCS/T-Mobile request," and that "[t]o the contrary, the Act mandates the same application of the prepaid MTS surcharge by direct and indirect sellers."
III. CPUC's 2018 Resolution, Resolution T-17579
On November 16, 2017, the CPUC issued Resolution T-17579, which adjusted the intrastate allocation factor downward for calendar year 2018. Karanjia Decl., Ex. 4 (Dkt. No. 63-5). The CPUC stated that it calculated the factor by taking "the average of five categories of information provided by carriers."
On September 7, 2018, the CPUC issued draft Resolution T-17632 (the "Draft 2019 Resolution"). Dkt. No. 85-1. The Draft 2019 Resolution proposes to continue using the mandatory intrastate allocation factor, and to use the same methodology from the 2018 Resolution.
LEGAL STANDARD
Summary judgment is proper if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett ,
Once the moving party has met its burden, the burden shifts to the non-moving party to "designate 'specific facts showing that there is a genuine issue for trial.' "
In deciding a summary judgment motion, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.
DISCUSSION
I. Judicial Estoppel
The CPUC contends that MetroPCS is judicially estopped from challenging the intrastate allocation factor because MetroPCS proposed that the CPUC adopt that very same methodology. The CPUC cites MetroPCS's October 2015 comments on the draft resolution T-17504, in which MetroPCS, along with other prepaid carriers, urged the CPUC to implement the Prepaid Collection Act through the use of an intrastate allocation factor. See Karanjia Decl. Ex. 31 (Dkt. No. 63-32). The CPUC also notes that in 2016, the year that the CPUC adopted the Surcharge, MetroPCS stated in its comments to draft resolution T-17542 that it "welcome[d] the adoption of an intrastate factor in calculating the MTS Surcharge rate and believe[d] that the use of such a factor is consistent with the Act." Karanjia Decl., Ex. 32 at 4 (Dkt. No. 63-33). The CPUC contends that MetroPCS's October 2015 and 2016 comments are directly contrary to its current arguments that the use of an intrastate allocation factor violates numerous federal laws and regulations.
Judicial estoppel is an equitable doctrine invoked by a court at its discretion to prevent improper use of judicial machinery. New Hampshire v. Maine ,
First, a party's later position must be "clearly inconsistent" with its earlier position.
Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception "that either the first or the second court was misled." Absent success in a prior proceeding, a party's later inconsistent position introduces no "risk of inconsistent court determinations," and thus poses little threat to judicial integrity.
*959A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
MetroPCS contends that the CPUC cannot establish the elements of judicial estoppel. MetroPCS argues, inter alia , that its positions are not clearly inconsistent because it previously advocated the use of a "reasonable" estimate of the intrastate portion of prepaid revenues, including for example a "weighted average of the major carriers' intrastate traffic factors." Karanjia Decl. Ex. 31 at 3 (Dkt. No. 63-4). MetroPCS argues that the CPUC did not use a reasonable estimate, nor did it use a weighted average. MetroPCS also argues that the CPUC neither relied on nor accepted the October 2015 advocacy because the CPUC did not adopt the Prepaid MTS Surcharge in response to that advocacy; instead, the CPUC rejected the carriers' arguments and did not adopt the Prepaid MTS Surcharge until the following year. MetroPCS also emphasizes that it argued in 2016 and 2017 that the intrastate allocation factor should be an optional safe harbor for direct sellers, and not a "one-size-fits-all" charge applied to both direct and indirect sales.
The Court concludes that it is not appropriate to apply the doctrine of judicial estoppel as a bar to MetroPCS's claims. The Court agrees with MetroPCS that its current and prior positions are not clearly inconsistent because MetroPCS previously advocated that the CPUC adopt a "reasonable" intrastate allocation factor and MetroPCS now contends that the CPUC's methodology is not reasonable, and MetroPCS did previously (although not consistently) argue for an optional safe harbor in addition to the usage of an intrastate allocation factor. The Court also notes that both the CPUC and MetroPCS have asserted positions that have evolved over time, and that these changing views are not surprising given the complexities of regulating a rapidly changing telecommunications industry and the fact that the usage of an intrastate allocation factor is an apparently novel approach to making jurisdictional assignments of prepaid revenues.
II. FCC's Interim Contribution Methodology Order , Bundling Order , and Universal Service Declaratory Ruling
MetroPCS contends that the CPUC's adoption of a mandatory intrastate *960allocation factor conflicts with federal law because the FCC has expressly permitted wireless carriers to rely on traffic studies and individualized revenue allocations for purposes of determining their contributions to the federal USF. MetroPCS argues that because the FCC has established allocation methodologies governing federal USF contributions for interstate telecommunications services, state commissions may not adopt conflicting allocation methodologies, and that the Contested Resolutions are preempted under the Supremacy Clause of the United States Constitution.
MetroPCS argues that two FCC orders - the Universal Service Contribution Methodology Order ,
In the Interim Contribution Methodology Order , the FCC addressed how wireless carriers could allocate their revenues between intrastate and interstate jurisdictions for purposes of reporting interstate telecommunications service revenues subject to federal USF assessments. The FCC made these changes pursuant to Section 254(b) and (d) of the Communications Act.
Universal service is a key component in communications policy for ensuring that charges are reasonable. Section 254(b) of the 1996 Act instructs the Commission to establish universal support mechanisms with the goal of ensuring the delivery of affordable telecommunications services to all Americans. Section 254(b) also provides that Commission policy on universal service shall be based, in part, on principles that contributions should be equitable and nondiscriminatory, and support mechanisms should be specific, predictable, and sufficient. Section 254(d) of the 1996 Act mandates that "[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 Commission to preserve and advance universal service."
In the Bundling Order , the FCC adopted additional "safe harbors" that allow carriers to "elect to report revenues" from telecommunications services that are "bundled" with, inter alia , "enhanced service offerings," such as mobile broadband services.
Citing another FCC order, In the Matter of Universal Service Contribution Methodology ("Universal Service Declaratory Ruling "),
We further conclude that state universal service contribution requirements do not conflict with federal rules to the extent that states calculate the amount of their universal service assessments in a manner that is consistent with the rules adopted in the Interim Contribution Methodology Order . Under the Commission's rules, an interconnected VoIP provider contributes to the federal fund on the basis of its revenues from interstate and international traffic; revenues from intrastate traffic are excluded. As described above, the Commission's rules give providers three options by which they can establish their federal universal service revenue base: (1) use a safe harbor under which 64.9 percent of their revenues are deemed to be jurisdictionally interstate (and therefore not intrastate); (2) conduct a traffic study to allocate revenues by jurisdiction; or (3) develop a means of accurately classifying interconnected VoIP9 communications between federal and state jurisdictions. Therefore, to avoid a conflict with the Commission's 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 at intrastate under the Commission's universal service contribution rules. This will ensure that state contribution requirements will not be imposed on the same revenue on which an interconnected VoIP provider *962is basing its calculation of federal contributions. To the extent a state fails to comply with this limitation in the future, it may be subject to preemption consistent with the prospective Declaratory Ruling we issue today.
MetroPCS notes that prior to the Contested Resolutions, the CPUC allowed carriers to choose which of the FCC-approved methodologies they would use for purposes of allocating revenues for the assessment of CPUC surcharges. MetroPCS asserts that when it reports its surchargeable wireless revenues to the CPUC, it has long relied on its federal right under the Contribution Methodology Order and the Bundling Order to use the same allocation methodologies that it uses for federal Universal Service assessment purposes. MetroPCS asserts that it uses a rigorous methodology, based on objective and auditable data and applying GAAP and FASB guidance, to determine the revenue allocations for the "voice," "data" (mobile broadband), and "text" elements of its prepaid wireless service bundles. MetroPCS argues that the mandatory intrastate allocation factor conflicts with the FCC's rules which expressly grant carriers the flexibility to choose among methodologies for allocations of interstate and intrastate revenues, inevitably resulting in a double assessment of interstate revenues.
The Supreme Court has held that the FCC has the rulemaking authority to implement the federal Communications Act of 1934 and the Telecommunications Act of 1996. AT & T Corp. v. Iowa Util. Bd. ,
The Court agrees with MetroPCS that the usage of a mandatory intrastate allocation factor conflicts with federal law because it deprives carriers of the ability to treat as intrastate for universal service purposes the same revenues that they treat as intrastate for federal USF contributions. Taken together, the three FCC orders discussed above stand for the proposition *963that wireless carriers have several options when allocating their interstate and intrastate revenues for federal USF assessments, and that the states may not adopt methodologies that are inconsistent with the federal rules. By using the intrastate allocation factor as the sole method for assessing the CPUC fees, the CPUC has deprived carriers of the ability to rely on alternative allocation methodologies, such as their actual revenue data. As the FCC stated in the Universal Service Declaratory Ruling , "state universal service contribution requirements do not conflict with federal rules to the extent that states calculate the amount of their universal service assessments in a manner that is consistent with the rules adopted in the Interim Contribution Methodology Order. "
The CPUC also contends that neither the Contribution Methodology Order nor the Bundling Order clearly indicates that the FCC sought to preempt California law. The CPUC argues that both orders only discuss how carriers should contribute to the federal USF, and that neither order addresses how states should calculate state USF contributions. However, "the [Supreme] Court has never before required a specific, formal agency statement identifying conflict in order to conclude that such a conflict in fact exists." Geier ,
Because the Court concludes that the usage of a mandatory intrastate allocation factor conflicts with federal law and is therefore preempted, the Court finds it unnecessary to address MetroPCS's other challenges to the Contested Resolutions.
*964III. Remedy
The Court ordered the parties to file supplemental briefs regarding whether the Court could enjoin the Contested Resolutions because they impermissibly require a one-size-fits-all methodology that conflicts with FCC orders, without striking down the Prepaid Collection Act. MetroPCS contends that the Court need not find the Prepaid Collection Act unconstitutional, and that the Court should only enjoin the CPUC's Resolutions implementing the intrastate allocation factor. MetroPCS argues that the Court should not read Cal. Rev. & Tax. Code section 42018(a)
MetroPCS asserts that the CPUC could still impose a uniform Surcharge rate that is expressed as a percentage of the sales price (the base Surcharge rate) and carriers would then rely on their FCC-approved methodologies (effectively, an individualized intrastate allocation factor) to assess that uniform rate on only their intrastate telecommunications service revenues. See MetroPCS's Reply at 28 (Dkt. No. 77). MetroPCS argues, "the Court should read the Act to require prepaid wireless carriers (or 'direct sellers') to 'apply' the Surcharge to the 'entire price' of a prepaid bundle, thereby satisfying
Alternatively, MetroPCS argues that the Court can apply the statute's severability clause sever and strike section 42018(a) of the California Revenue and Taxation Code as well as the second sentence of section 42010(a)(1) (stating that the MTS surcharge "shall be imposed as a percentage of the sales price of each retail transaction"). MetroPCS argues that these provisions are "grammatically, functionally, and volitionally separable," because they can be removed without affecting the wording *965any of any provision, they are not necessary to the statute's purpose, and they are not of critical importance to the statute's enactment. MetroPCS's Motion at 41 (Dkt. No. 63), quoting Calfarm Ins. Co. v. Deukmejian ,
The CPUC contends that if the Court concludes that the intrastate allocation factor is preempted, the Court must declare the Prepaid Collection Act unconstitutional because the plain language of the Act requires a uniform surcharge, to be applied by all sellers on every sale of prepaid mobile telephony service in the state, as a percentage of the total sales price. The CPUC also argues that the legislative history of the Act supports its interpretation, and that as a matter of traditional notions of federalism and comity, this Court should defer to the CPUC's and the CDTFA's interpretation of the Act as requiring the usage of an intrastate allocation factor. See generally CPUC's Supp. Brief (Dkt. No. 84).
The Court agrees with the CPUC that the language and structure of the Act require the usage of an intrastate allocation factor, and thus that the Court must declare both the Act and the Contested Resolutions as preempted by federal law. The Act provides that the "prepaid MTS surcharge shall be imposed as a percentage of the sales price of each retail transaction that occurs in this state."
The Act also states that "a prepaid MTS surcharge shall be imposed on each prepaid consumer and shall be collected by a seller from each prepaid consumer at the time of each retail transaction in this state."
Although the Court is mindful that if possible, courts should construe statutes to avoid constitutional issues, see INS v. St. Cyr ,
Further, the Court finds it significant that the California Legislature considered allowing direct sellers to continue assessing and remitting an individualized, carrier-specific surcharge, and the Legislature declined to do so. Finally, the Court notes that both the CPUC and the CDTFA, the state agencies charged with implementing and administering the Prepaid Collection Act, have taken the position that the Prepaid Collection Act requires the use of an intrastate allocation factor to be applied to all sales of prepaid telephony services in California.
Accordingly, the Court declares that the Prepaid Collection Act and the Contested Resolutions conflict with federal law and are therefore preempted and unconstitutional.
CONCLUSION
For the foregoing reasons and for good cause shown, the Court hereby GRANTS plaintiff's motion for summary judgment and DENIES defendants' motion for summary judgment.
No later than November 15, 2018, the parties are directed to meet and confer and submit a proposed order (or competing *967orders, if the parties cannot agree) regarding the appropriate injunctive relief. The parties shall also submit a joint letter informing the Court regarding whether any further proceedings are necessary in this case prior to the entry of judgment, and if no further proceedings are necessary, the parties shall file a proposed judgment.
IT IS SO ORDERED .
The Act is codified in both the California Public Utilities Code and the California Revenue & Taxation Code, and it remains in effect until January 1, 2020.
The Act defines "prepaid mobile telephony service[s]" as "the right to utilize a mobile device for mobile telecommunications services or information services ... that must be purchased in advance of usage in predetermined units or dollars."
The legislative history shows that the Legislature considered whether to have different assessment regimes for direct and indirect sellers. The California Assembly Committee on Utilities & Commerce recommended revising the bill to omit direct sellers: "As the bill moves forward, the author and sponsors may wish to consider requiring entities that currently remit state user fees and public purpose program fees to continue remitting to the CPUC on their own direct prepaid sales." Cal. Assembly Comm. on Util. & Commerce, Legislative Analysis of AB 1717, at 8 (Apr. 2, 2014), Karanjia Decl. Ex. 9 (Dkt. No. 63-10). The Assembly Committee on Revenue & Taxation questioned "whether this bill's proposed point-of-sale collection and remittance system should apply to cases where carriers sell prepaid MTS directly to customers (as opposed to third-party retail transactions)." Cal. Assembly Comm. on Rev. & Tax., Legislative Analysis of AB 1717, at 9 (May 12, 2014), Koltz Decl., Ex. 2 (Dkt. No. 73-3). Similarly, the Senate Governance & Finance Committee wrote,
AB 1717 is a great experiment in shifting the collection responsibility for end-user imposed fees to retailers [and the CDTFA].... Instead of shifting the entire amount of risk, AB 1717 could instead only apply MTS fee collection to so-called "indirect" retailers, who buy prepaid cards from prepaid wireless service providers, and keep "direct" sellers under the current construct. Because direct sellers complete the calls as wireless service providers, they have data that shows the intrastate versus interstate share. To the extent that the state is launching a risky venture to transfer the collections responsibilities from carriers to point-of-sale transactions, why should the bill exclude a large segment of the market that knows how to comply, and has the data to determine the intrastate share? The Committee may wish to consider requiring current direct sellers to pay 911, CPUC, and local fees, and limit the measure's MTS provisions to indirect sellers.
Cal. Senate Governance & Fin. Comm., Legislative Analysis of AB 1717, at 8 (May 28, 2014) (emphasis in original), Karanjia Decl., Ex. 11 (Dkt. No. 63-12).
In 2017, the California Legislature split the State Board of Equalization ("BOE") into three successor agencies. See Cal. Legislative Analyst's Office, California's New Tax Departments (Apr. 4, 2018), available at http://www.lao.ca.gov/Publications/Report/3796. The CDTFA shares with the CPUC the authority to implement the Prepaid Collection Act. However, the legislative history and the statute only refer to the BOE.
The other carriers included CTIA, T-Mobile, AT & T, Verizon, Sprint, and TracFone. Karanjia Decl. Ex. 31; Dkt. No. 63-32.
The CPUC has objected to some of the deposition testimony of Eric Van Wambeke, a CPUC employee, on the ground that the questions asked called for a legal conclusion. The Court does not rely on any of the testimony that is at issue.
The amicus curiae brief filed by Sprint Corporation states that "Sprint has been subject to regulation by state utility commissions across the country for decades and there has never been a single instance in any state - as confirmed by the CPUC itself - in which a state utility commission has sought to require the application of such an arbitrary mechanism." Dkt. No. 72-1 at 4. Both Sprint and MetroPCS cite the deposition testimony of Eric Van Wambeke, the CPUC Supervisor who drafted the 2016 Resolution and devised the CPUC's intrastate allocation factors. Mr. Van Wambeke testified that the usage of an intrastate allocation factor was "new" and something that the CPUC had never tried before. Van Wambeke Depo. at 68:1-15, Karanjia Decl., Ex. 12 (Dkt. No. 63-13). The CPUC does not dispute that the intrastate allocation factor is a novel methodology for making jurisdictional assignments of prepaid revenues.
In a series of orders the FCC has declared that broadband Internet access service is jurisdictionally interstate for regulatory purposes, decided to forbear from imposing federal USF contributions on broadband revenues, and preempted states from imposing their own universal service assessments on broadband revenues. See Protecting and Promoting the Open Internet ,
"VoIP" stands for Voice over Internet Protocol. The FCC has defined "interconnected VoIP service" as "a service that (1) enables real-time, two-way voice communications; (2) requires a broadband connection from the user's location; (3) requires Internet protocol-compatible customer premises equipment; and (4) permits users generally to receive calls that originate on the public switched telephone network (PSTN) and to terminate calls to the PSTN.6 Interconnected VoIP services may be fixed or nomadic. A fixed interconnected VoIP service can be used at only one location, whereas a nomadic interconnected service may be used at multiple locations."
The parties dispute what standard the Court should use when analyzing plaintiff's claims. Quoting Wyeth v. Levine ,
To the extent the CPUC argues that a "clear indication" of preemptive intent is needed to find preemption, the Court disagrees. See Geier ,
MetroPCS argues, inter alia , that the intrastate allocation factor impermissibly assesses broadband data and other interstate revenues, and that the methodology that the CPUC used to come up with the intrastate allocation factor percentage is arbitrary and flawed. The CPUC counters that its approach was and is reasonable, and that the percentage it arrived at in fact does not generally assess broadband or other interstate revenues. While the Court finds that the usage of a single "one-size-fits-all" methodology does, by its very nature, mean that there will be a double assessment on interstate revenue for at least some carriers because the FCC methodologies differ from the CPUC's jurisdictional allocation, the Court does not find it necessary to resolve the distinct questions of whether the intrastate allocation factor impermissibly assesses particular interstate revenues or whether the CPUC's methodology was flawed.
That subsection reads, "if prepaid mobile telephony services are sold in combination with mobile data services or any other mobile data services or any other services or products for a single price, then the prepaid MTS surcharge and local charges shall apply to the entire price."
MetroPCS asserts that the CPUC requested the CDTFA letter "with the candid purpose of using it in the summary judgment briefing," and that the request "consisted of leading questions ... accompanied ... with selective citations apparently designed to guide the CDTFA toward the CPUC's preferred answers." MetroPCS's Reply at 27 n.13 (Dkt. No. 77). Even if MetroPCS's characterization is correct, however, the letter represents the agency's interpretation of the statute it is charged with administering. The CPUC and the CDTFA are the agencies responsible for administering the Prepaid Collection Act, and the Court "afford[s] considerable deference to an agency's interpretation of the statute it administers." Clallam Cty. v. Wash. Dep't of Transp. ,