|4th Circuit Addresses Filed Rate Doctrine
and Consumer Protection Statutes
7/28. The U.S. Court of Appeals
(4thCir) issued its split
pages in PDF] in Bryan v. BellSouth, a case regarding federal
question jurisdiction in which the Appeals Court addressed the filed rate
doctrine and universal service taxes.
Bryan filed a complaint in state court against BellSouth alleging, among
other things, violation of a state consumer protection law in connection with
BellSouth's line item billing of FCC universal services charges. The District
Court, and the dissenting Judge on appeal, argued that this case arose under
state law, and that there is therefore no federal question jurisdiction. The
majority on appeal held that pursuant to the filed rate doctrine federal
question jurisdiction exists. It reversed and sent the case back to the U.S.
Coincidentally, on July 27, 2004, the
U.S. Court of Appeals (9thCir) issued its
opinion [22 pages in PDF] in
Verizon v. Covad, another case regarding the filed rate doctrine. See, story
titled "9th Circuit Rules in Verizon v. Covad" in TLJ Daily E-Mail Alert No.
947, July 28, 2004.
Filed Rate Doctrine. The filed rate doctrine requires that common
carriers and their customers adhere to tariffs filed and approved by appropriate
regulatory agencies. It is a 19th Century
principle that was developed to address the practices of railroad monopolies, such
as price discrimination. It was based upon the assumption the market competition
and the law of contract failed to operate effectively in this context. In 1934,
principles for regulating railroad common carriers, including the filed rate doctrine,
were transplanted into the Communications Act for the purpose of regulating
telecommunications common carriers.
The 4th Circuit majority opinion, and the 9th Circuit opinion,
offered different descriptions of the filed rate doctrine. The 4th Circuit
opinion states that "The doctrine's purpose is twofold: to prevent discrimination
among consumers and to preserve the rate-making authority of federal agencies."
The Court continued that "authorizing a court to award damages that would
effectively impose a rate different from that dictated by the tariff would usurp
the FCC's authority to determine what rate is reasonable."
In contrast, Judge Noonan, writing for a unanimous panel of the 9th Circuit, wrote
that "the filed rate doctrine now functions in the telecommunications
field as an anomaly. It is a relict, open to repudiation by the FCC."
Judge Noonan regretted that there remains a statute that prevents the Court
from ignoring the doctrine.
Universal Service. Pursuant to Federal
Communications Commission (FCC) rules, which implement
§ 254, BellSouth collects universal service fund
revenues from its customers by placing a line item charge on monthly bills.
Universal service includes a number of FCC administered subsidy programs
that are funded by taxes collected by interstate telecommunications carriers.
One of these programs is known as the schools and libraries program, and as the
There was substantial debate in the House and Senate, mostly in 1998,
regarding legislation that would have required phone companies to provide
further information about the e-rate charges on monthly bills. Proposed
legislation would have required phone companies to disclose that customers were
being billed to subsidize a federal program. Some of the supporters were likely
motivated by a desire to undermine public support for the e-rate program, while
some of the opponents were likely motivated by a desire to prevent an
undermining of support for the program. See for example, TLJ
titled "S 1618, S 771, HR 3888, and HR 4018: Anti-Slamming, Anti-Spamming, and
Truth in Billing Bills". However, in the end, neither the Congress, nor the FCC,
required phone companies to disclose information about the e-rate charges.
District Court. In the 4th Circuit case, the plaintiff (Tomi Bryan)
filed a complaint in state court in North Carolina alleging that the defendant
(BellSouth) violated a state consumer protection
statute in its billing, collection and disposal of universal service charges. She sought
class action status.
BellSouth removed the case to the U.S.
District Court (MDNC). At issue before the Appeals Court was whether this case
arose under federal law (filed tariff), or state law (state unfair trade practices
Nominally, this case is about subject matter jurisdiction of federal courts,
based upon claims arising under federal law. However, in order to analyze the
jurisdictional issue, the District Court, as well as the Court of Appeals, delved deeply
into the nature of, and relationship between, the filed rate doctrine, and state consumer
Bryan alleged that the amounts that
BellSouth billed customers exceeded the amounts that BellSouth transferred to
the FCC, that BellSouth failed to disclose certain information pertaining to the
line item charges required by the North Carolina's unfair trade practices law,
and that the BellSouth's line item charges were misleading. She plead violation
of the North Carolina unfair trade practices law (based upon BellSouth's failure
to disclose that the charges were excessive, how the charges were calculated,
and that the charges also covered administrative expenses, costs, and profits),
unjust enrichment (based upon excessive charges), and breach of covenant of good
faith and fair dealing (for excessive charges). These are all state law claims.
BellSouth argued that all of the claims are barred by the
filed-rate doctrine because they challenged BellSouth's filed tariff or, in the
alternative, that they should be heard first by the FCC under the doctrine of
The District Court dismissed the unjust enrichment and breach of covenant
of good faith and fair dealing counts. The District Court also remanded to the state
court the state unfair trade practices count, based upon its conclusion that the
District Court lacked federal question jurisdiction. BellSouth appealed this remand.
Appeals Court. The Court of Appeals vacated and remanded the case to
the District Court. Judge Robert King wrote the opinion of the Court, in which
Judge Roger Gregory joined. Judge Michael Luttig wrote a thrashing dissent.
The Appeals Court majority held that the North Carolina unfair trade practices
claim actually arises under federal law. The federal law is this case is the
While Bryan did not appeal the dismissals of the unjust enrichment and breach of
covenant of good faith and fair dealing counts, the Appeals Court wrote, in dicta, that
"Because only the FCC may decide what charge is lawful, it is beyond dispute that
the court was correct to exercise jurisdiction and dismiss Bryan’s claims complaining
that the FUSC was excessive."
The Appeals Court then addressed the main issue, which it
summarized as whether the unfair trade
practices count "of the Complaint would
require the court to determine a reasonable rate for the" federal universal
service charge "thereby
presenting a substantial question of federal law and contravening the filed-rate
It also stated the test as follows: whether the state count
"effectively challenges the reasonableness of BellSouth's filed rate, giving
rise to federal question jurisdiction and requiring dismissal pursuant to the
The Court reasoned that the complaint "nowhere purports to seek any form
of damages other than a refund of some portion of the" line item universal services
charge. Hence, "the only plausible reading of the Complaint is that" it
"seeks a refund of a portion of the" line item universal service charge.
The Court concluded that because the
amount of the line item charge is determinatively set forth in BellSouth's filed
tariff, and because this tariff carries the force of federal law, "an action
seeking to alter that rate presents a federal question". It held that the
District Court erred in remanding the claim to the state court, and that the
"claim must be dismissed pursuant to the filed-rate doctrine".
Luttig Dissent. Judge Luttig clashed sharply with the majority on jurisdiction.
Luttig gave a lengthy analysis and application of the Supreme Court precedent
on arising under jurisdiction. In the end, he concluded that "the majority's
analysis ... fails to heed even the most basic tenets of the Supreme Court's or
this court's direction on the subject, adopting a standard drawn from a possible
federal defense to plaintiff's claim" rather than from the plaintiff's right to
He wrote that it a claim arising under federal law in only two circumstances.
First, a claim arises under federal law where there is complete preemption,
which exists when federal law so completely sweeps away state law that any
action brought under state law is transformed into a federal action. Second, a
claim arises under federal law where a well-pleaded complaint establishes that
the plaintiff's right to relief under state law necessarily depends on
resolution of a substantial question of federal law.
Luttig concluded that neither of these two circumstances is present in this case.
Rather, he wrote that the majority opinion "adopts instead the different standard
of whether a complaint ``effectively challenges´´ a filed rate".
Judge Luttig continued that "It is one thing to provide that
``arising under´´ jurisdiction exists in that narrow class of cases where the
plaintiff's right to relief necessarily depends on the resolution of a
substantial federal question or Congress has preempted state court jurisdiction.
It is quite another to provide that jurisdiction is present so long as the
plaintiff’s request for relief constitutes an ``effective challenge´´ to the
rate set by federal law. Indeed, as this case demonstrates, a claim can easily
be characterized as an ``effective challenge" to rates set in a tariff filed
with a federal agency, even though the adjudication of the claim itself would
require the court to decide no federal issues whatsoever."
Luttig added that BellSouth can raise the filed rate doctrine as
a defense in a state court action. Of course, this is a class action lawsuit. It
was likely brought in state court because the plaintiff's counsel anticipated
that the state court would provide a forum more favorable for the plaintiffs.
Also, federal judges are more likely to to give more weight to the federal filed
rate doctrine than state court judges, and North Carolina state court judges are
likely to give more weight to North Carolina consumer protection laws than
Luttig's argument, if it were law, would weaken the impact of the filed rate doctrine, by
slightly limiting the ability of phone companies to hide behind the filed rate
doctrine to avoid liability for state fraud, breach of contract or violation of
consumer protection laws. Nevertheless, he did not question the merits of the
filed rate doctrine in an age when competitive markets and consumer protection
laws are increasingly replacing price regulation by government agencies.
In contrast, in the 9th Circuit's opinion in roundly condemned the filed rate
Judge Noonan would like to see the Congress to pound a wooden stake through
the heart of the filed rate doctrine, while Judge Luttig merely wants the
judiciary to give trial lawyers the ability to wield the cross of state
jurisdiction to ward off some of the filed rate doctrine maneuvers of phone company
lawyers in consumer protection cases.
Related Cases. On January 17, 2002, the
U.S. Court of Appeals (9thCir) issued its
opinion [12 pages in PDF] in Brown v. MCI WorldCom. William Brown filed a class action
complaint in the
U.S. District Court (CDCal) against MCI
WorldCom alleging overcharging for phone services. The District Court dismissed
his complaint, holding that his suit was barred by the filed rate doctrine. The Appeals
Court reversed, on the grounds that Brown's complaint only sought to enforce an existing
tariff approved by the FCC. This case is William Brown v. MCI WorldCom Network Services,
Inc., No. 00-56171, an appeal from the U.S. District Court for the Central District
of California, Judge Gary Feess presiding, D.C. No. CV-99-11522-GAF. This case is also
reported at 277 F.3d 1166.
See also, California Court of Appeal opinion in Lovejoy v. AT&T, and story
titled "California Court Rejects Filed Rate Doctrine Defense in Slamming Case"
in TLJ Daily E-Mail Alert
No. 262, September 6, 2001
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|3rd Circuit Rules in First Amendment Case
7/29. The U.S. Court of Appeals (3rdCir) issued its
opinion [17 pages
in PDF] in The Pitt News v. Pappert, a First Amendment challenge
brought by a newspaper to a state statute that restrained certain speech -- paid
advertising of alcoholic beverages. The Appeals Court held that statute is
unconstitutional, but on narrow grounds specific to this restraint.
The plaintiff in this case is The Pitt News,
a newspaper created by the University Board of Trustees of the University of
Pittsburgh and operated as a student organization. All of its revenue is derived
from payments for advertisements published in The Pitt News. The defendants are
Gerald Pappert, who was sued in his capacity as the Attorney General of the
state of Pennsylvania, and other state officials.
The statute, enacted by the state of Pennsylvania, applied to speech by
newspapers and a broad range of communications media that are affiliated with
educational institutions. It banned speech that constituted "any advertising of
The statute applied to any "publication published by, for or in behalf of any
educational institution". It broadly covered publication "through the medium
of radio broadcast, television broadcast,
newspapers, periodicals or other publication, outdoor advertisement, any form of
electronic transmission or any other printed or graphic matter, including
booklets, flyers or cards, or on the product label or attachment itself."
As a consequence, The Pitt News lost advertising revenue, not only from ads
for alcoholic beverages, but from restaurants that held alcoholic beverage
licenses, including restaurants whose ads that did not reference the sale of alcohol. Revenues
decreased, and the newspaper was reduced in size. Competing newspapers and
broadcast media that targeted the University of Pittsburgh community, but that
were not affiliated with the University, were not affected by the statute.
The Pitt News filed a complaint in
U.S. District Court (WDPenn) against Pappert and others alleging that the
statute violates the First Amendment of the U.S. Constitution. The District
Court upheld the statute.
The Court of Appeals held that the statute is unconstitutional because it is
an impermissible restriction on commercial speech, and also because the law is
presumptively unconstitutional because it targets a narrow segment of the media.
Pennsylvania argued that the statute does not restrain speech. That is, The
Pitt News is free to publish information and advertisements for alcoholic
beverages. The statute merely prohibits The Pitt News from receiving payment for
The Appeals Court rejected this argument. It wrote that "If
government were free to suppress disfavored speech by preventing potential
speakers from being paid, there would not be much left of the First Amendment.
Imposing a financial burden on a speaker based on the content of the speaker’s
expression is a content-based restriction of expression and must be analyzed as
such." The Court cited,
Simon & Schuster, Inc. v. Members of the New York State Crime Victims Bd.,
502 U.S. 105 (1991), which held unconstitutional New York's Son of Sam law.
Impermissible Restriction on Commercial Speech. The
Appeals Court's first of two reasons for overturning the statute is that it is
an impermissible restriction on commercial speech. The Appeals Court concluded at
the outset, without discussion, that this is a case involving "commercial
speech", and therefore must be reviewed under court created standards for
analyzing the constitutionality of restraints on commercial speech.
Hence, the Appeals Court applied the four prong test created by
the Supreme Court in Central
Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557
The Court summarized this test, quoting from Central Hudson: "First,
``we must determine whether the expression is protected by the First Amendment,´´ and
this means that “it at least must concern lawful activity and not be misleading.´´ ...
Second, ``we ask whether the asserted governmental interest is substantial.´´ ...
If the first and second ``inquiries yield positive answers, we must determine whether
the regulation directly advances the governmental interest asserted, and whether it is
not more extensive than is necessary to serve that interest.´´"
The Court held that under the first prong, the expression is protected by the
First Amendment. Second, it wrote that "preventing underage drinking and alcohol
abuse" are substantial governmental interests under the second prong. However,
the Court held, in applying the third prong, that the state has not shown that
its statute alleviates the harm.
The Court explained that "We do not dispute the proposition that
alcoholic beverage advertising in general tends to encourage consumption". But,
it continued that the prohibition "applies only to advertising in a very narrow
sector of the media (i.e., media associated with educational institutions), and
the Commonwealth has not pointed to any evidence that eliminating ads in this
narrow sector will do any good."
The Court also held that the statute fails to meet the fourth
prong of the Central Hudson test. There is not a reasonable fit between
the legislature's ends and the means chosen to accomplish those ends. The Court
noted that 75% of the University of Pittsburgh community is above the legal
Targeting a Narrow Segment of the Media. The Appeals
Court's second of two reasons for overturning the statute is that it targets a
narrow segment of the media. The Court discussed this concept at length. It
outlined the concerns raised by statutes that target some but not all media, and
suggested that "courts must be wary". In the end, it held that this particular
Pennsylvania statute impermissibly targets a narrow segment of the media.
However, there is no precise black letter statement of law in this opinion.
Perhaps, the reason for the Court's reluctance to articulate a specific
principle is that the law abounds with disparate treatments of different segments
of the information and communications media. The Communications Act and
Federal Communications Commission (FCC)
rules contain many such disparate treatments, as for example, in the different
regulatory regimes for broadband access services provided over DSL and broadband
access services provided by cable modem. Indeed, the FCC's existence, and
communications law, are both premised on the notion that certain communications
media (such as radio, television, cable, and satellite) should be subject to
regulatory regimes that are not applied to certain other communications media
(such as books, magazines, newspapers, pulpits, and lecterns). State and local
governments also impose different tax and regulatory regimes on newspaper,
telephone, cable and other types of companies.
Nevertheless, the Court did write that "laws that impose special
financial burdens on the media or a narrow sector of the media present a threat
to the First Amendment."
It added that "laws that impose financial burdens on a broad
class of entities, including the media, do not violate the First Amendment",
but, that "A business in the communications field cannot escape its obligation
to comply with generally applicable laws on the ground that the cost of
compliance would be prohibitive."
Finally, it wrote in vague terms that "courts must be wary that
taxes, regulatory laws, and other laws that impose financial burdens are not
used to undermine freedom of the press and freedom of speech. Government can
attempt to cow the media in general by singling it out for special financial
burdens. Government can also seek to control, weaken, or destroy a disfavored
segment of the media by targeting that segment."
Commercial Speech. The Court did reject Pennsylvania's argument that
there was no limitation on speech about alcoholic beverages. Pennsylvania had argued that
merely banned accepting payments from advertisers, which is not speech. The
Court also rejected Pennsylvania's argument that it imposed no financial burden
on a segment of the media. Pennsylvania had argued that it imposed no tax. The
Court reasoned that
banning payment for speech is like banning the speech, and that
banning a type of advertising revenue, while not a tax, has the effect of
imposing a financial burden.
The Court did not extend this type of analysis further. That is, newspapers
do not publish alcoholic beverage ads in isolation. They publish them as part of
a larger collection of content that includes current events, politics, social
commentary, and other categories of speech that the Courts do no relegate to the
less protected status of commercial speech. Moreover, limiting a newspaper's
ability to derive revenue from one type of speech, can have the effect of
limiting, or precluding, it from engaging in other, and more protected, types of
speech. Thus, the Court might have viewed the statute as a restraint of more highly
protected speech, and therefore, applied a strict scrutiny standard. But, it did
The Court also did not address whether or not
legislative and regulatory processes are used to attack the revenue streams of
publications, for the purpose of limiting political speech. For example,
Katherine Graham argued that this happened when her newspaper, The Washington
Post, published stories related to the Watergate scandal. She wrote in her
Personal History [Amazon], that friends of former President Richard Nixon
challenged the Washington Post's FCC television broadcast licenses for its
profitable stations in the state of Florida. Graham wrote that the filing of the
FCC license challenges cut the Post's market capitalization by half.
|Washington Tech Calendar
New items are highlighted in red.
|Friday, July 30
The House and Senate will not meet from July 26 through September 6.
The Democratic National Convention will be held in Boston, Massachusetts
on July 26 through July 30.
9:30 AM - 1:00 PM. The Federal
Communications Commission's (FCC)
Internet Policy Working Group (IPWG) will host an event that it describes
as "a roundtable discussion to address international issues associated with
the migration of communications services and applications to IP-based
technologies". See, FCC
notice [PDF]. Location: FCC, 445 12th Street, SW, Commission Meeting Room.
Extended deadline to submit reply comments to the
Federal Communications Commission (FCC) in
response to its Public Notice (DA 04-1454) regarding a la carte and themed
programming and pricing options for programming distribution on cable TV
and direct broadcast satellite systems. This is MB Docket No. 04-207. See,
notice of extension [PDF].
|Monday, August 2
Deadline to submit applications to the
Department of Commerce's (DOC) Technology
Administration (TA) to join the TA's business development mission to
Northern Ireland and the Republic of Ireland. This delegation will include
U.S. based senior executives representing the information and communications
technology sector. See,
notice in the Federal Register, May 26, 2004, Vol. 69, No. 102, at Pages
29928 - 29930.
|Wednesday, August 4
9:30 AM. The Federal Communications
Commission (FCC) will hold a meeting. The event will be webcast. Location:
FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).
|Friday, August 6
EXTENDED TO OCTOBER 8.
Deadline to submit reply comments to the
Federal Communications Commission
(FCC) in response to its public notice (DA 04-1690) requesting public comments
on constitutionally permissible ways for the FCC to identify and eliminate
market entry barriers for small telecommunications businesses and to further
opportunities in the allocation of spectrum-based services for small
businesses and businesses owned by women and minorities. See,
notice in the Federal Register, June 22, 2004, Vol. 69, No. 119, at Pages
34672 - 34673. See also,
notice of extension [PDF].
Deadline to submit comments to the
Federal Communications Commission (FCC) in
response to its notice of proposed rulemaking (NPRM) regarding the process for
designation of eligible telecommunications carriers (ETCs) and the FCC's rules
regarding high-cost universal service support. This NPRM is FCC 04-127 in
Docket No. 96-45. See,
notice in the Federal Register, July 7, 2004, Vol. 69, No. 129, at Pages
40839 - 40843.
Deadline to submit comments to the
Federal Communications Commission (FCC) in
response to its notice of proposed rulemaking (NPRM) regarding the
rechannelization of portions of the 17.7-19.7 GHz band. This NPRM is FCC 04-77
in WT Docket No. 04-143. See, notice in the Federal Register, July 7, 2004,
Vol. 69, No. 129, at Pages 40843 - 40850.
Deadline to submit comments to the
Office of the U.S. Trade Representative (USTR)
regarding its Special 301 out of cycle review of Israel and other nations.
Section 182 of the Trade Act of 1974, which is codified at
19 U.S.C. § 2242,
requires the USTR to identify countries that deny adequate and effective
protection of intellectual property rights or deny fair and equitable market
access to U.S. persons who rely on intellectual property protection. This is
also referred to as the Special 301 provision. See,
notice in the Federal Register, July 13, 2004, Vol. 69, No. 133, at Pages