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Case number 12-1482, Global Crossing Telecommunications Inc.

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Petitioner versus Federal Communications Commission at L. Mr. Blau for the petitioner, Ms.

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Flood for the respondents.

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Good morning, Your Honors.

[00:00:59] Speaker 02:
Good morning.

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Russell Blau for Global Crossing Telecommunications.

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May it please the Court.

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I'd like to reserve three minutes for rebuttal.

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Sure.

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In this case, the Federal Communications Commission interpreted its universal service contribution rules in a way that was both contrary to the plain language of the rules and applied retrospectively.

[00:01:19] Speaker 05:
Counsel, I have a question that can help set.

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If on, as the case went down to the, what would you call it, the administrator?

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The administrator, yes.

[00:01:29] Speaker 05:
The administrator had concluded you had zero liability.

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Will you follow with me?

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If that had been true, would you have standing?

[00:01:39] Speaker 02:
I think the case would be moot.

[00:01:41] Speaker 05:
No, would you have standing?

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I think we would have standing.

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How would you have standing if you had no injury?

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Because there were still other years outstanding that could have been audited under this new retroactive standard.

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with respect to the 2004 audit, correct.

[00:02:07] Speaker 05:
So doesn't that dispose of your case?

[00:02:10] Speaker 05:
Because that suggests you didn't have a final order to appeal.

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Well, Your Honor, I think that the procedural context here is more complicated than that.

[00:02:21] Speaker 05:
Well, I know the procedural context, but I'm cutting through it.

[00:02:25] Speaker 05:
I'm trying anyway.

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I understand.

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I'm trying to cut through the procedural context.

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So if you wouldn't have had

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Well, I hate to answer... How do you have final judgment?

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I hate to answer our hypothetical with another hypothetical.

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Go ahead.

[00:02:49] Speaker 05:
But let's take another carrier, not global crossing, who's participated in this same proceeding and the FCC has issued this ruling that says that here's the standard we're now going to... Well, you should mention that because we had that case last year and we concluded no standing on the second part because it's an adjudication and you cannot assert standing based on a law.

[00:03:13] Speaker 05:
It's interesting that you would use that hyper-critical.

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This was not a pure adjudication between global crossing and... Ah, you mean it was a cross between an adjudication and a rulemaking?

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In fact, yes.

[00:03:24] Speaker 05:
There ain't no such thing.

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Well, it was a cross between an adjudication and a declaratory ruling, which I suppose is a species of informal adjudication.

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You have, of course, a rulemaking going on right now, don't you?

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they'll switch the rule, right?

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If what we were talking about was a new rule that was being applied prospectively, then Global Crossing wouldn't even be here.

[00:04:05] Speaker 01:
So you, in the, I'm sorry.

[00:04:08] Speaker 03:
Oh, you go ahead.

[00:04:10] Speaker 01:
In the filings that led to abeyance, holding the case in abeyance,

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I think you all suggested that you might withdraw the appeal depending on what happens in the proceedings.

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So isn't that a pretty good signal that what was left to be done was pretty significant?

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So it wasn't just a ministerial remand, there was actually some significant stuff going on in which event?

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It wouldn't have been considered a final decision.

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It was significant to the outcome, certainly.

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It was ministerial in the sense that the administrator was very limited in what they could do on this remand.

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They could only mechanically apply the instructions that the FCC give them.

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They're not really an independent decision maker.

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But in terms of significance to the outcome, yes.

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Right.

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What?

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Are you done?

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No, go ahead.

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No, you finish your comments.

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And the outcome was that the liability was reduced by over a million?

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Yes.

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Yeah.

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Which is my question.

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You could have appealed that decision to the Bureau, correct?

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And then from the Bureau to the Commission?

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There was a three-step process.

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And had you done that, gone to the Bureau and then to the FCC and then here, you wouldn't have a final order problem, correct?

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That's true.

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So why didn't you do that?

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My client made that decision, Your Honor, based on the outcome, and I'm not privy to that.

[00:05:38] Speaker 05:
It's a horrible response, and a little truthful.

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That leads me to a separate question, which is, if you had your client, or you had litigated up through the administrative procedure, there was no reason for you to pay, right?

[00:06:00] Speaker 02:
There was no reason to pay?

[00:06:01] Speaker 05:
Yes, you didn't have to pay prior to a final FCC judgment.

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The FCC rule is you're supposed to pay and then dispute.

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That's the position.

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That's not a rule.

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That's true.

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But if you don't pay, then you're subject to a penalty level of interest.

[00:06:18] Speaker 05:
Sure.

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That's true in any case.

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But you were absolutely certain you were right.

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So they could go pound sand.

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And you wouldn't have to pay a dime.

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That's certainly true, if we had won in the end.

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As a matter of fact, I think you had a hell of a case, because it is a very strange interpretation of the rule.

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We agree with you on that, Judge Sulterman.

[00:06:42] Speaker 05:
Yeah.

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So I see no reason why you couldn't have gone through the process that Judge Taylor mentioned.

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You had no disincentive at all.

[00:06:53] Speaker 02:
We certainly had a financial disincentive if we had not succeeded in the end.

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There's always a risk.

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But you told them you'd win, or you didn't get a chance to give advice.

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If none on the panel has further questions about the finality issue, I'd take a couple of minutes on the merits.

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Sure, go ahead.

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The FCC's rules specifically said that the revenues that would be assessed for contributions were revenues from services to end users.

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Now, the FCC makes much of the fact in their brief that there were exceptions to this rule, specifically for what are called de minimis contributors.

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In fact, the fourth reconsideration order in 1997 created that specific exception, but also said that if you were subject to it, you had to notify your underlying carrier that you were a de minimis reseller so that the underlying carrier would know to treat you as an end user.

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In this case,

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the administrator did was turn that around and the FCC upheld it and said, even if your reseller customer doesn't notify you that you're subject to this exemption, you still don't have a reasonable expectation that that reseller is going to make contributions to the universal service fund.

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In addition, in the audit, originally there were 156 customers that the administrator looked at.

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In fact, only 34 of those customers turned out to be exempt under one of these exemptions, either the de minimis exemption or one of the others.

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And that left 122 customers who were resellers and

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for some reason that does not appear in the record, did not make contributions.

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It turned out on the remand that a small handful of them actually had made contributions, and the administrator reversed itself.

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But the point is that the vast majority of them were not subject to these exemptions, apparently were subject to the contribution obligation, and yet had not contributed.

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Your basic point is that the FCC's interpretation of any music is ridiculous.

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Yes, Your Honor.

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as an end user?

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In effect.

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And if they had done that in a rulemaking and said it's going to apply prospectively, we don't have a problem with that.

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They can define the terms.

[00:09:20] Speaker 05:
That's right.

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So you may have a problem going forward because you're in a rulemaking.

[00:09:26] Speaker 02:
As long as the company has notice of it and can apply it in future years when they're collecting the contributions, they can do that.

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That's not going to cause them injury.

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The problem in this case, where the FCC in effect issued a declaratory ruling about what its rules meant in the past, doesn't just affect the 2004... A declaratory ruling or adjudication, which was it?

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I think a declaratory ruling is a form of adjudication.

[00:09:59] Speaker 05:
It's one of the other things.

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Since this applied retrospectively, Your Honor, it must have been an adjudication.

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Exactly.

[00:10:04] Speaker 05:
That's your problem.

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But it wasn't just an adjudication of global crossing versus the administrator.

[00:10:09] Speaker 05:
That's always true of an adjudication.

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But in this case, the FCC... That it applies for professional purposes to other people.

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That doesn't convert it into a rulemaking.

[00:10:19] Speaker 02:
But in this case, the FCC expressly combined the proceeding along with several other proceedings, including a petition for reconsideration of a previous rulemaking order.

[00:10:30] Speaker 05:
Still, in your case, it was an adjudication.

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I admit the FCC is a little sloppy in dealing with the interrelationship of adjudications and rulemaking.

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You've seen that before.

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But this was an adjudication.

[00:10:44] Speaker 02:
Yes, Your Honor.

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As to global crossing, it was an adjudication.

[00:10:47] Speaker 01:
Thank you.

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There are no other questions?

[00:10:54] Speaker 01:
No.

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I'll reserve the balance of my time.

[00:10:56] Speaker 02:
Thank you.

[00:11:11] Speaker 00:
Good morning.

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May it please the Court, Maureen Flood, for the Federal Communications Commission.

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I think it's clear that this Court should dismiss Global Crossing's petition for review.

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While the order on review clarified the Commission's rules and policies, it did not ultimately reach the issue of Global Crossing's contribution liability, if any.

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Therefore, it's an interlocutory order that is not appealable.

[00:11:31] Speaker 00:
I'd like to start out with Global Crossing's own motions in this case.

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If you read, for example, Global Crossing's

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Sorry.

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Their December 12, 2013 motion in this case says, depending on the outcome of USAC's action on remand, petitioner may determine that it will withdraw this appeal or alternately may seek to challenge before the FCC and then this Court USAC's application of the requirements established in the order to global crossing.

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That demonstrates that the final order in this case was the Administrator's

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remand order fixing Global Crossing's liability and that the order on review was interlocutory.

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Basically the interlocutory order or the order on review set the standard, but ultimately it was the administrator's remand order that was the final order.

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And Global Crossing's mistake in this case, which I think the panel recognizes, is that it should have challenged the final order on review.

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Now I want to touch on the conference group case which Judge Silverman brought up.

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In the conference group, this court made two relevant points.

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As you pointed out, Judge Silverman, first of all, whenever the commission in the context of an adjudication clarifies a rule, the effect of that clarification will have a prospective effect on similarly situated parties, but that does not transform the adjudication into a rulemaking.

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Second, as you pointed out, Judge Silverman,

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Even though the effect of the rulemaking may affect similarly situated parties, those parties do not have Article III standing to challenge that clarification until the clarification is applied to them in the context of their own adjudication.

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So Mr. Blau is incorrect when he says that similarly situated parties could have challenged this order.

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That's not in fact the case, and that's the teaching of the conference group.

[00:13:16] Speaker 05:
I have a feeling he realized that.

[00:13:17] Speaker 00:
Okay, and then one other point that I wanted to make, you know, the crux of global crossings argument here is that the order on review changed or revised our rules outside the rulemaking process.

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That issue was addressed in the CSX case, which we cite in our brief for the proposition that this is an interlocutory order, and the court in that case held

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that a party that wants to bring that type of challenge, a party that wants to challenge an interlocutory order on the ground, that the interlocutory order established a new rule outside the rule-making process, you can only bring that challenge and the challenge to the final order.

[00:13:53] Speaker 00:
That's exactly what global crossing is here.

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The substance of their argument is that we changed our rules outside the rule-making process.

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So again, global crossing's fundamental mistake was not challenging the Sacramento order.

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was unreasonable.

[00:14:12] Speaker 05:
It seems to me you're awful lucky we don't have that case.

[00:14:20] Speaker 00:
I'll withhold judgment on that.

[00:14:21] Speaker 00:
You know, I think the Commission's view is that we're strong on merits, but I think the Court agrees with us that this is an interlocutory order and the Court lacks jurisdiction to consider it.

[00:14:30] Speaker 00:
So if the Court doesn't have any further questions, I'm happy to sit down.

[00:14:32] Speaker 03:
Thank you.

[00:14:35] Speaker 03:
Thank you.

[00:14:37] Speaker 03:
How much time did Mr. Blal have left?

[00:14:40] Speaker 03:
Go ahead, if you'd like to use it.

[00:14:54] Speaker 02:
Your Honors, I'd just like to point out that we had a colloquy with Judge Silberman earlier about why didn't the company just stop, not pay, and wait for the process of multiple steps to run out over how many years it might take, bearing in mind that there are no time limits for the FCC to act on any of this.

[00:15:13] Speaker 02:
As I pointed out, the company would have been subject to financial penalties if it had been unsuccessful.

[00:15:19] Speaker 02:
In addition... Which financial penalties?

[00:15:21] Speaker 02:
the additional interest.

[00:15:23] Speaker 05:
But you had the money all that time, so it has a large sale.

[00:15:27] Speaker 02:
It's an above market rate.

[00:15:28] Speaker 02:
It's a penalty rate.

[00:15:29] Speaker 05:
How much?

[00:15:30] Speaker 02:
I don't know off the top of my head, Your Honor.

[00:15:33] Speaker 05:
But your case was so strong.

[00:15:36] Speaker 02:
But in addition, Your Honor, the FCC or the Administrator has... You're being mean to you.

[00:15:40] Speaker 04:
The FCC would be mean to you if you litigated?

[00:15:43] Speaker 02:
No, Your Honor.

[00:15:44] Speaker 02:
The FCC and the Administrator have the ability to offset against other monies due to the company for the debt that they claim as owing, so they can, in effect, take the money.

[00:15:53] Speaker 05:
Well, in the long run, if you're in one, you came out ahead.

[00:15:57] Speaker 05:
In the long run, if you're in one... You would have $5 million or $4 million more than you otherwise have.

[00:16:02] Speaker 02:
I take your point, Your Honor.

[00:16:05] Speaker 02:
If there are any other questions, I'd be happy to address them otherwise.

[00:16:08] Speaker 02:
Thank you.

[00:16:09] Speaker 03:
Thank you.

[00:16:10] Speaker 03:
Case submitted.