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December 17, 2008, Alert No. 1,875.
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4th Circuit Rejects AT&T's Effort to Remove Class Action

12/17. The U.S. Court of Appeals (4thCir) issued its divided opinion [44 pages in PDF] in Palisades v. Shorts, a class action alleging that AT&T Mobility's billing practices violate a West Virginia consumer protection statute.

The Court of Appeals held that the District Court does not have removal jurisdiction under the general removal statutes or the Class Action Fairness Act (CAFA) because ATTM is a counterclaim defendant rather than a defendant.

This limitation on removals does not affect many areas of class action litigation. However, it does impact class action consumer protection litigation involving phone companies, cable companies, satellite companies, and broadband service providers. Since these companies, or their assignees, initiate many legal actions against their customers, plaintiffs class action lawyers will have little difficulty pursuing class action claims as third party counterclaims that lie outside the scope of traditional or CAFA removal jurisdiction.

Introduction. Charlene Shorts wants to maintain a class action in West Virginia state court against AT&T Mobility. She alleges violation of the West Virginia Consumer Credit & Protection Act (WVCCPA). ATTM wants the case removed to the U.S. District Court (NDWV).

Had Shorts, as a plaintiff, filed an original complaint in state court against ATTM alleging violation of the WVCCPA, and sought class certification, then ATTM could have removed the action under the CAFA to the federal court.

However, this case has a different genesis. ATTM's assignee, Palisades, filed first. Shorts then brought a counterclaim against ATTM as a counter-defendant. The District Court, and Court of Appeals, both held that this makes all the difference. There is no removal jurisdiction under these circumstances.

Shorts entered into a cell phone service contract with ATTM's predecessor, Cingular Wireless. The contract included a $150 early termination fee. ATTM terminated her service, and charged her this $150 fee. It alleged that she owed money for service, and for early termination, and assigned its claims to Palisades Collection LLC, which filed a complaint against Shorts in state court. Shorts denied the claim, and counterclaimed against ATTM, alleging violation of the WVCCPA, and seeking class certification.

Statutes. The Constitution provides that federal courts have jurisdiction in cases arising under federal law or when there is diversity of citizenship of the parties. 28 U.S.C. § 1441 provides for removal of cases from state to federal court if there is federal jurisdiction.

It provides in part that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending".

28 U.S.C. § 1453 provides procedure for removal, and uses the term "any defendant".

In 2005, President Bush signed into law S 5 (109th Congress), the "Class Action Fairness Act of 2005". It is now Public Law No. 109-2. See, stories titled "Bush Signs Class Action Reform Bill" in TLJ Daily E-Mail Alert No. 1,080, February 18, 2005; "Senate Approves Class Action Reform Bill" in TLJ Daily E-Mail Alert No. 1,075, February 11, 2005; and "Senate Judiciary Committee to Mark Up Class Action Fairness Act" in TLJ Daily E-Mail Alert No. 1,068, February 2, 2005.

28 U.S.C. § 1332(d)(2), which was added by the CAFA, provides in part that "The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which ... any member of a class of plaintiffs is a citizen of a State different from any defendant ..."

Court of Appeals. The District Court held that ATTM is not a defendant within the meaning of 28 U.S.C. § 1441, and that the CAFA does not create independent removal authority. It remanded the case back to the state court.

ATTM brought the present interlocutory appeal. The Court of Appeals affirmed.

First, it concluded that counter-defendants, such as ATTM, are not "defendants" within the meaning of § 1441(a).

The Court of Appeals wrote the Supreme Court held in its 1941 opinion in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, third party defendants do not have  removal power under § 1441(a).

The Court of Appeals added that "Counterclaims, cross-claims, and third-party claims cannot be the basis for removal" under § 1441(a).

Moreover, § 1453 does not expand removal authority beyond defendants. The Court wrote that "there is no indication in the language of § 1453(b) (or in the limited legislative history) that Congress intended to alter the traditional rule that only an original defendant may remove and to somehow transform an additional counter-defendant like ATTM into a ``defendant´´ with the power to remove." (Parentheses in original.)

The Court of Appeals also rejected ATTM's argument that the court should realign the parties to make ATTM a defendant.

The Court added, "Congress is presumed to know the current legal landscape against which it legislates, and we are merely applying those pre-existing established legal rules. If Congress wants to overturn such precedent, it should do so expressly."

However, it should be noted that support for the CAFA was partisan, and that it was enacted by a Republican House and Senate, and signed by a Republican President. If the 111th Congress were to enact legislation affecting litigation and arbitration of disputes between communications companies and their customers, it is highly unlikely that it would make the litigation landscape more favorable to the communications companies. Rather, it would likely move in the opposite direction.

Judge Niemeyer wrote a long dissent. He seized upon § 1453's reference to "any defendant".

This case is Palisades Collections, LLC v. Charlene Shorts v. AT&T Mobility LLC and AT&T Mobility Corporation, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 08-2188, an appeal from the U.S. District Court for the Northern District of Wet Virginia.

Judge Karen Williams wrote the opinion of the Court of Appeals, in which Judge Robert King joined. Judge Paul Niemeyer wrote a dissent.

Judge Williams was appointed by the first President Bush, and confirmed by a Democratic Senate. Judge King was appointed by former President Clinton, and confirmed by a Republican Senate. Judge Niemeyer was appointed by former President Reagan, and confirmed by a Democratic Senate.

9th Circuit Rejects Challenge to Backdated FCC Forbearance Denial

12/16. The U.S. Court of Appeals (9thCir) issued its opinion [19 pages in PDF] in Fones4All v. FCC, denying a petition for review of a Federal Communications Commission (FCC) order denying Fones4All's petition for forbearance from the application of FCC regulations that removed requirements that incumbent local exchange carriers (ILECs) provide unbundled services to competitive local exchange carriers (CLECs), such as Fones4All.

This opinion does pertain to unbundling requirements. However, it also lets stand the FCC's practice of adopting, but not releasing orders, even when there is a statute that imposes a deadline, and a consequence for failure to meet that deadline. This FCC procedure is also know as "backdating".

Fones4All filed a petition for forbearance pursuant to Section 10(c) of the Communications Act, which is codified at 47 U.S.C. § 160(c).

It provides, in part, that "Any telecommunications carrier, or class of telecommunications carriers, may submit a petition to the Commission requesting that the Commission exercise the authority granted under this section with respect to that carrier or those carriers, or any service offered by that carrier or carriers. Any such petition shall be deemed granted if the Commission does not deny the petition for failure to meet the requirements for forbearance under subsection (a) of this section within one year after the Commission receives it, unless the one-year period is extended by the Commission. The Commission may extend the initial one-year period by an additional 90 days if the Commission finds that an extension is necessary to meet the requirements of subsection (a) of this section. The Commission may grant or deny a petition in whole or in part and shall explain its decision in writing."

Section 160(a) identifies the circumstances under which the FCC shall forbear.

That is, the FCC has a one year plus 90 days deadline to act on petitions for forbearance, after which they are deemed granted.

Fones4All argues that its petition must be deemed granted. The FCC's statutory deadline for denying the petition was September 28, 2008. It announced on September 28 that it had adopted an order denying the petition. And, it issued a news release on September 28. Then, on September 29, the FCC released its Memorandum Opinion and Order [11 pages in PDF] that denied the petition. This item is FCC 06-145 in WC Docket No. 05-261.

The Court of Appeals wrote that "the FCC maintains that FCC orders have, for more than 30 years, routinely reflected two dates in their captions: the adoption date, when the Commission voted, and the release date, when the Commission released its written order."

The Court also noted that Fones4All did not make its backdating argument to the FCC, and therefore the FCC did not have an opportunity to pass on it.

It held that Fones4All did not exhaust it administrative remedies, as required by 47 U.S.C. § 405. As a consequence, the issue is "not properly before us".

It should be noted that the U.S. Court of Appeals (DCCir) has twice rejected similar petitions for review of backdated orders on the grounds of failure to exhaust administrative remedies. See, June 30, 2007, opinion [PDF] in In re Core Communications, 455 F.3d 267, and March 23, 2007, opinion [PDF] in Qwest v. FCC, 482 F.3d 471.

This still leaves open the possibility that a petitioner will exhaust its administrative remedies and successfully challenge a backdated FCC order denying a petition for forbearance.

Also, it should be noted that while in this case the backdating involved only a single day, the FCC often backdates items by months. Indeed, sometimes when the FCC adopts an item, it has not yet written the item, and continues to collect information for, and consider the contents of, that item.

The FCC's order adopting the rules from which Fones4All sought forbearance provides an example of such practices.

The FCC adopted its 2003 triennial review order regarding unbundling by ILECs on February 20, 2003. It did not release the order [576 pages in PDF] until August 21, 2003. That is, it delayed for six months and one day. See, story titled "FCC Announces UNE Report and Order" and related stories in TLJ Daily E-Mail Alert No. 609, February 21, 2003, and story titled "Summary of FCC Triennial Review Order" in TLJ Daily E-Mail Alert No. 725, August 25, 2003.

The Court of Appeals also rejected Fones4All's arguments on the merits of the denial of the petition for forbearance.

This case is Fones4All v. FCC, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 06-75388, a petition for review of a final order of the FCC.

In This Issue

This issue contains the following items:
 • 4th Circuit Rejects AT&T's Effort to Remove Class Action
 • 9th Circuit Rejects Challenge to Backdated FCC Forbearance Denial
 • FCC OIG Reports Find E-Rate and USF Low Income Fund Fail Federal Standards for At Risk Programs
 • FCC Issues Another ARMIS Forbearance Order
 • People and Appointments (including changes at the Copyright Office, FTC, and SEC)

Washington Tech Calendar
New items are highlighted in red.
Thursday, December 18

The House will not meet.

The Senate will not meet.

9:30 AM. Michael Chertoff, the outgoing Secretary of Homeland Security, will give a speech on "the state of homeland security going into the administration transition". Location: Georgetown University, Riggs Library, 3800 Reservoir Road, NW.

CANCELLED. 10:00 AM. The Federal Communications Commission (FCC) may hold a meeting. See, possible agenda [PDF]. See also, stories titled "Martin Wants FCC to Adopt Free Wireless Broadband Order" and "Martin Discusses FCC Agenda" in TLJ Daily E-Mail Alert No. 1,867, December 4, 2008, and story titled "FCC Releases December 18 Meeting Agenda" in TLJ Daily E-Mail Alert No. 1,872, December 12, 2008. Location: FCC, Commission Meeting Room, 445 12th St., SW. See, notice [PDF] of cancellation.

11:00 AM. Rep. Bart Gordon (D-TN), the Chairman of the House Science Committee (HSC) will hold a news conference to discuss the HSC agenda for the 111th Congress. This event will also be telecast. Contact Alex Snider at 202-225-6375 or alex dot derysnider at mail dot house dot gov for more information, to RSVP, to request call-in information. Location: Speaker’s Dining Room, H-122, Capitol Building.

11:30 AM. Michael Chertoff, the outgoing Secretary of Homeland Security, will speak on cybersecurity at the Cyber Strategic Inquiry 2008. Location: Ronald Reagan Building and International Trade Center, 1300 Pennsylvania Ave., NW.

2:00 - 3:30 PM. The Information Technology Association of America (ITAA) will host a panel discussion titled "ITAA Capitol Hill Briefing on Information Security Issues". The speakers will be Jacob Olcott (Director and Counsel, House Homeland Security Committee's Subcommittee on Cybersecurity), John Sabo (CA, Inc.), Bill Nelson (Financial Services Information Sharing and Analysis Center), Mischel Kwon (Director, DHS's US-CERT), and Liesyl Franz (ITAA). For more information, contact Charlie Greenwald at cgreenwald at itaa dot org or 703-284-5305. Location: Room HC-8, Capitol Building.

5:00 PM. Deadline to submit to the National Telecommunications and Information Administration (NTIA) certain applications for planning and construction grants for public telecommunications facilities under the Public Telecommunications Facilities Program (PTFP). See, original notice in the Federal Register, October 20, 2008, Vol. 73, No. 203, at Pages 62258-62259; further notice in the Federal Register, December 9, 2008, Vol. 73, No. 237, at Page 74709; and the FCC's DTS Report and Order [56 pages in PDF], adopted on November 3, 2008, and released on November 7, 2008, FCC 08-256 in MB Docket No. 05-312.

Friday, December 19

The House will not meet.

The Senate will meet in pro forma session.

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding draft SP 800-102 [30 pages in PDF] titled "Recommendation for Digital Signature Timeliness".

Extended deadline to submit nominations to the Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB) for six different positions on the Board of Directors of the Universal Service Administrative Company (USAC). See, original FCC notice [PDF] and FCC notice of extension. These items are DA 08-2487 and DA 08-2651 in CC Docket Nos. 96-45 and 97-21.

Sunday, December 21

Hanukhah begins at sundown.

Monday, December 22

Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) in response to its request for comments regarding information collection associated with its use of Public Key Infrastructure (PKI) technology to protect the integrity and confidentiality of information submitted to the USPTO. See, notice in the Federal Register, October 23, 2008, Vol. 73, No. 206, at Pages 63134-63135.

EXTENDED TO FEBRUARY 20, 2009. Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding the Rural Cellular Association's (RCA) May 20, 2008, petition for rulemaking [25 pages in PDF] regarding "the widespread use and anticompetitive effects of exclusivity arrangements between commercial wireless carriers and handset manufacturers" and "rules that prohibit such arrangements". See, notice in the Federal Register, October 23, 2008, Vol. 73, No. 206, at Pages 63127-63128. This proceeding is RM No. 11497. See, FCC notice of extension [PDF], and notice of extension in the Federal Register, December 12, 2008, Vol. 73, No. 240, at Pages 75629-75630.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding the Rural Telecommunications Group's (RTG) July 16, 2008, petition for rulemaking [22 pages in PDF] regarding imposing a spectrum cap for commercial terrestrial spectrum. The RTG requests that the FCC write rules that provide that no licensee of commercial terrestrial wireless spectrum below 2.3 GHz, including all parties under common control, should be permitted to have an attributable interest in more than 110 megahertz of licensed spectrum with any significant overlap in any county. See, notice in the Federal Register, October 23, 2008, Vol. 73, No. 206, at Pages 63128-63129. This proceeding is RM No. 11498.

Tuesday, December 23
No events.
Wednesday, December 24
No events.
Thursday, December 25

Christmas. See, Office of Personnel Management's (OPM) list of 2008 federal holidays.

FCC OIG Reports Find E-Rate and USF Low Income Fund Fail Federal Standards for At Risk Programs

12/12. The Federal Communications Commission's (FCC) Office of the Inspector General (OIG) released a report [35 pages in PDF] titled "The Schools and Libraries Program: Initial Statistical Analysis of Data from the 2007/2008 Compliance Attestation Examinations".

This program, which is also known as the e-rate, is the FCC's waste, fraud and abuse plagued program that is intended to subsidize telecommunications services, internet access, and internal wiring at participating schools and libraries.

The OIG applied the Office of Management and Budget's (OMB) Improper Payments Information Act of 2002 (IPIA) standards to determine whether the e-rate subsidy program is at risk. Under IPIA standards a program is at risk if erroneous payments are estimated at over 2.5% and erroneous payments exceed $10 Million.

This OIG report states that "the erroneous payment rate was estimated at 13.8%", and that this equates to $232,700,000 is erroneous payments.

It also found that "the rate of improper overpayments is also 13.8%".

Also on December 12, 2008, the FCC's OIG released a report [7 pages in PDF] titled "Assessment of Payments Made Under the Universal Service Fund's Low Income Program". It found that program at risk also under OMB IPIA standards.

FCC Issues Another ARMIS Forbearance Order

12/12. The Federal Communications Commission (FCC) adopted and released a Memorandum Opinion and Order (MOO) [14 pages in PDF] that grants conditional forbearance from the obligations of Qwest, AT&T, and Verizon to file Automated Reporting Management Information System (ARMIS) Reports 43-01, 43-02, and 43-03. This MOO is FCC 08-271 in WC Docket Nos. 07-204 and 07-273.

Commissioners Michael Copps and Jonathan Adelstein complained in their joint dissent [PDF] that this is "another step in the dismantling of its financial reporting requirements for incumbent telecommunications providers".

This follows the FCC's September 6, 2008, ARMIS forbearance order. See, Memorandum Opinion and Order and Notice of Proposed Rulemaking [57 pages in PDF].

See also, story titled "FCC Grants Carriers Forbearance From ARMIS Reporting Rules" in TLJ Daily E-Mail Alert No. 1,822, September 8, 2008. That order is FCC 08-203 in WC Docket No. 08-190, WC Docket No. 07-139, WC Docket No. 07-204, WC Docket No. 07-273, and WC Docket No. 07-21.

People and Appointments

12/17. The Copyright Office (CO) announced personnel changes, effective December 21, 2008. Maria Pallante, who is currently Deputy General Counsel, will become Associate Register for Policy and International Affairs. She has been handling the orphan works issue. David Carson, who has been Associate Register for Policy and International Affairs for two years, will return to the position of General Counsel. Tanya Sandros, who has been General Counsel for two years, will become Deputy General Counsel. Marybeth Peters remains the Register of Copyrights.

12/15. President elect Obama's transition office office announced that Steven Chu will be nominated to be Secretary of Energy. See, release. The Department of Energy (DOE) includes the Argonne National Laboratory (ANL). It has nearly 3,000 employees and a half billion dollar budget. It conducts research on computer science and high performance computing, among other things. Chu is currently Director of the DOE's Lawrence Berkeley National Laboratory. He worked for AT&T Labs from 1978 through 1987.

12/16. Maureen Ohlhausen, Director of the Federal Trade Commission's Office of Policy Planning, will leave the agency. James Cooper, who has been the Deputy Director, was named acting Director. Oldhausen has worked at the FTC since 1998, when she was an attorney advisor for former Commissioner Orson Swindle. See, FTC release.

12/15. Elizabeth Murphy was named Secretary of the Securities and Exchange Commission (SEC). She replaces Nancy Morris, who has left the SEC. See, SEC release.

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