[00:00:02] Speaker 00:
Case number 15-1461 at L. Global Tell Link Petitioner versus Federal Communications Commission at L. Mr. Meg Singhani for Petitioner, State of Oklahoma.

[00:00:13] Speaker 00:
Mr. Kellogg for Petitioner, Global Tell Link.

[00:00:15] Speaker 00:
Mr. Gossett for the Respondent, and Mr. Schwartzman for the Intervener.

[00:00:24] Speaker 02:
Good morning, Mr. Montanari.

[00:00:25] Speaker 02:
You may proceed.

[00:00:26] Speaker 01:
Thank you, Your Honor, and may it please the court.

[00:00:29] Speaker 01:
States and local governments, as a matter of correctional policy, have decided to provide inmate calling services as a privilege to inmate.

[00:00:36] Speaker 01:
But with that privilege comes real public policy risks, not only monetary costs to jails, but also threats to public safety, both inside and outside the prison, because calling services are used for nefarious purposes, such as smuggling drugs, planning murders, and intimidating witnesses and judges.

[00:00:54] Speaker 01:
The states have chosen to balance those risks with certain public policy benefits, such as funding security measures and inmate welfare programs through inmate calling services.

[00:01:04] Speaker 01:
It is a matter of state and local correctional and budgetary policy.

[00:01:08] Speaker 01:
The Commission has never shown that it has the unambiguous authority to upset that policy balance.

[00:01:13] Speaker 01:
by attempting to limit the revenue states receive from inmate calling services.

[00:01:18] Speaker 01:
But it's clear from the record and the briefs that the core purpose of this regulation is to limit the funds states and sheriffs receive through ICS and their effects on inmate rates.

[00:01:29] Speaker 01:
Because in the Commission's view, the policy balance that was struck by local and state officials is illegitimate.

[00:01:35] Speaker 01:
The Commission purports to make that judgment based on Section 276 of the Telecommunications Act.

[00:01:40] Speaker 01:
But Section 276 gives the Commission only the power to ensure that all payphone providers are fairly compensated for each and every call.

[00:01:48] Speaker 06:
It gives no authority to regulate- Counsel, I'm a little puzzled.

[00:01:52] Speaker 06:
You're arguing this as if the letter from the Deputy General Counsel never appeared.

[00:01:59] Speaker 06:
Your Honor, while we absolutely agree with the letter, that the... Well, isn't the interesting question before us, is what is the legal effect of the government's refusal, not only refusal to argue, but an abandonment of a position whereby 276 can be interpreted to include states?

[00:02:23] Speaker 01:
As much as I would like to say that that moots the litigation and that the court should strike down this rule altogether, unfortunately, I don't think the case law supports the idea that the commission's legal positions taken in litigation undoes the effect of a regulation.

[00:02:40] Speaker 01:
So I think what the court instead should probably do is hold the case in abeyance and let the commission act to revise the regulation based on their new legal position.

[00:02:50] Speaker 01:
Because I can't imagine.

[00:02:51] Speaker 01:
that the Commission would want unknowingly illegal regulations still on their books.

[00:02:58] Speaker 02:
Can you point us, you mentioned costs of the state security, I guess security was the main one that you emphasized, and there is in the record some evidence that in fact that the ICS providers take care of the security, and where should we look in the record for information about the scope of the cost that the states incur?

[00:03:23] Speaker 02:
Because I couldn't find,

[00:03:25] Speaker 02:
I don't know about that.

[00:03:26] Speaker 01:
I could point you broadly to specific pages.

[00:03:30] Speaker 01:
But let me tell you just broadly, pages 988 to 1149 in the Joint Appendix are a series of comments from both state and local officials that talk about the nature of the tasks that facilities perform that impose costs, but also the specific costs, including JA 1047, JA 1068 to 70,

[00:03:54] Speaker 01:
J.A.

[00:03:54] Speaker 01:
1089, J.A.

[00:03:56] Speaker 01:
1148, and 1102-07, those detail monetarily dollar and cents figures, those costs.

[00:04:04] Speaker 01:
But we should also remember that the costs are not just monetary costs for improving the security – for mitigating security risks.

[00:04:14] Speaker 01:
caused by ICS are also public policy costs in the sense of increased dangers to the community inside and outside the prison, because as much as we try to mitigate the security risks imposed by ICS, those risks cannot be completely eliminated.

[00:04:29] Speaker 02:
How would those, though, affect the price?

[00:04:34] Speaker 01:
They affect the price because we've decided to balance those risks with other public policy benefits, such as funding other inmate welfare programs that reduce recidivism and substance abuse programs.

[00:04:47] Speaker 01:
You can't take a green-eye shade accountant view to how the state makes those policy judgments, which is exactly why what the FCC has done here is completely wrong.

[00:04:56] Speaker 02:
I don't even understand that.

[00:04:57] Speaker 02:
I mean, are you suggesting that the prices are set at a level to suppress the amount of calling?

[00:05:05] Speaker 02:
No, not—

[00:05:06] Speaker 02:
decrease potential security risks?

[00:05:09] Speaker 02:
I don't even know.

[00:05:10] Speaker 01:
No, that's not at all what I'm saying.

[00:05:11] Speaker 01:
What I'm saying is that if the state is going to take risks by providing inmate calling services to inmates, the state also has the right to balance those risks in another area.

[00:05:23] Speaker 01:
by saying, well, we're going to use those revenues in addition to paying for security measures to pay for other things like substance abuse programs, vocational programs, educational programs, and things like that.

[00:05:33] Speaker 01:
And it's that public policy balance that the commission is completely out of its ken and out of its stash authority to question.

[00:05:42] Speaker 01:
They can't just say, well,

[00:05:44] Speaker 01:
What are the monetary costs you impose?

[00:05:46] Speaker 01:
And then we're going to try to factor those into rates.

[00:05:49] Speaker 01:
Because that ignores the other public policy weighing that the states and local governments have to engage in.

[00:05:56] Speaker 06:
Council, let me go back to my initial question.

[00:05:58] Speaker 01:
Certainly.

[00:05:59] Speaker 06:
I realize that a regulation on the books cannot be dealt with finally, except through a notice in common that revokes the regulation.

[00:06:14] Speaker 06:
I'm not at all sure, however, that the letter that Mr. Gossett provided us doesn't have legal significance.

[00:06:24] Speaker 06:
And I'm a little surprised that it hasn't occurred to you.

[00:06:30] Speaker 01:
I think it has legal significance to the extent that this Court should say that the case is potentially mooted, assuming that this Court desires that the interveners not be able to make arguments on behalf of the Commission.

[00:06:46] Speaker 06:
If we're at the point where there is no case... Actually, the interveners never even made the arguments.

[00:06:52] Speaker 06:
that the Commission has abandoned.

[00:06:57] Speaker 01:
That's absolutely correct, Your Honor.

[00:06:58] Speaker 01:
The intervener's arguments were about ancillary fees.

[00:07:01] Speaker 01:
So to the extent that this Court deems that there is actually no case of controversy anymore because you don't have two sides with opposite legal positions, then I suppose at that point the case is moot.

[00:07:13] Speaker 06:
No, no, no.

[00:07:13] Speaker 06:
You still have issues.

[00:07:14] Speaker 06:
There's no question.

[00:07:15] Speaker 06:
There are a number of questions in the case that even assuming the most dramatic change, you still have some issues.

[00:07:26] Speaker 01:
I think that's right.

[00:07:27] Speaker 06:
Your issue is the intrastate issue.

[00:07:31] Speaker 01:
That's absolutely correct.

[00:07:33] Speaker 01:
And so maybe those issues are mooted and not the whole case.

[00:07:37] Speaker 06:
I'm not sure that's either true.

[00:07:40] Speaker 06:
Let's take a surprise.

[00:07:44] Speaker 05:
If the petitioners prevail in their argument on the site commissions, the exclusion of site commissions, if they prevail, then what other issue are you pressing?

[00:07:57] Speaker 01:
Well, it's not just the inclusion of site commissions.

[00:08:00] Speaker 01:
Is there authority to impose interstate rate caps at all, regardless of whether they include site commissions or not?

[00:08:09] Speaker 05:
That hasn't been conceded in your view?

[00:08:12] Speaker 01:
We think it has been conceded by the Commission.

[00:08:14] Speaker 05:
And if that is... Well, if it's been conceded, and for argument's sake, if they prevail on the exclusion of site commissions, then what do you have that you need to argue about?

[00:08:25] Speaker 01:
Oh, I see.

[00:08:26] Speaker 01:
If the respondents prevail on the inclusion of petitions.

[00:08:29] Speaker 01:
That would fully satisfy us if this court decides, because they have conceded that they cannot improve those interstate rate caps, that the order is therefore vacated with respect to the interstate rate caps.

[00:08:44] Speaker 05:
Tell me again, I guess you've been trying to answer Judge Sillman and I'm not getting it, why is it you think they may not have conceded it?

[00:08:50] Speaker 01:
No, we think they have conceded it.

[00:08:52] Speaker 01:
I conceded what?

[00:08:54] Speaker 01:
That the intrastate rate caps, which the state and local government petitioners, that's our primary and only challenge, are unlawful.

[00:09:01] Speaker 06:
So you don't even get to the side commission?

[00:09:04] Speaker 01:
We don't even get to the side commission because they don't have the authority to calculate the cost to begin with, yes.

[00:09:10] Speaker 05:
Because they don't have what, said it again?

[00:09:11] Speaker 01:
They don't have the authority to impose intrastate rate caps, so the manner in which they calculated those costs is a moot issue if they don't have authority to impose their rate caps to begin with.

[00:09:20] Speaker 05:
Well, that doesn't deal with the site commission issue fully.

[00:09:23] Speaker 01:
Well, we think it does, because if they cannot impose intrastate rate caps, then it doesn't matter how they decide to calculate the intrastate rate caps, because they don't have the authority to do it.

[00:09:36] Speaker 01:
Now, unless you're talking about their interstate rate caps.

[00:09:39] Speaker 01:
Right.

[00:09:40] Speaker 01:
Oh, in that case, yes, you're right, that we continue to believe that that is arbitrary and capricious.

[00:09:45] Speaker 01:
OK.

[00:09:46] Speaker 06:
But do you even have an interest in that?

[00:09:48] Speaker 01:
We do, but we obviously think our interest is slightly lessened because we have less authority and the FCC has greater authority with respect to interstate practices.

[00:10:00] Speaker 01:
The commission concedes, even before the letter, that it has no authority to regulate facilities.

[00:10:05] Speaker 02:
So are you effectively conceding that with respect to interstate rates that the exclusion of site commissions was within the FCC's power?

[00:10:14] Speaker 01:
No, Your Honor.

[00:10:14] Speaker 01:
I'm conceding that they have the authority to impose interstate rate caps.

[00:10:18] Speaker 01:
But we still believe that the exclusion of site commissions in totality, which they've now walked back even before the... I see my time has expired.

[00:10:27] Speaker 01:
Go ahead.

[00:10:28] Speaker 01:
Even before the letter, they walked back in the reconsideration order saying, oh no, we were wrong in completely excluding site commissions.

[00:10:34] Speaker 02:
Exactly.

[00:10:34] Speaker 02:
So I'm wondering why you're pressing that, because they have...

[00:10:38] Speaker 01:
Taking account of that of the cost that you mentioned in the reconsideration order have they not they've attempted to but their method of taking account by doing the averaging Methodology like they try to do with the provider costs.

[00:10:50] Speaker 01:
We still believe is arbitrary and capricious because of the variation Yeah

[00:11:00] Speaker 01:
You're correct, Your Honor.

[00:11:01] Speaker 01:
They have abandoned that averaging methodology.

[00:11:03] Speaker 01:
And again, to the extent that that ends the issue, and this Court says, well, if they've abandoned it, then it must be arbitrary and capricious, then we agree, yes.

[00:11:17] Speaker 05:
Are you still, do you still mean to argue that with respect to interstate

[00:11:23] Speaker 05:
regulation, site commissions, if they're allowed to exclude as they presently propose to do, that would have an adverse effect on state interest.

[00:11:34] Speaker 01:
Yes.

[00:11:35] Speaker 01:
And explain?

[00:11:37] Speaker 01:
Because those site commissions obviously give us revenue.

[00:11:41] Speaker 01:
And that revenue is used, among other things.

[00:11:45] Speaker 05:
You're saying de facto, even though they are not barring site commissions, it would have the effect

[00:11:53] Speaker 05:
of borrowing some.

[00:11:54] Speaker 05:
Is that what you're saying?

[00:11:55] Speaker 01:
Exactly, because not all, some.

[00:11:57] Speaker 01:
Right, because the level of the rate caps they set were too low for both intrastate and interstate.

[00:12:02] Speaker 01:
And I guess I want to clarify, they have abandoned the averaging methodology with respect to the provider costs.

[00:12:12] Speaker 06:
Price caps.

[00:12:13] Speaker 01:
Both, right.

[00:12:14] Speaker 06:
Well, I mean, once you

[00:12:18] Speaker 06:
then you abandon price gaps.

[00:12:20] Speaker 06:
Doesn't that follow us night and day, apathetically?

[00:12:24] Speaker 01:
I think it's actually the other way around.

[00:12:25] Speaker 01:
Once they've abandoned price gaps, they've reprended the methodology by which they calculated those price gaps.

[00:12:30] Speaker 06:
That's not exactly the way they did it.

[00:12:32] Speaker 06:
They abandoned, they didn't specifically say they abandoned price gaps, did they?

[00:12:36] Speaker 06:
They said they abandoned averaging of cost.

[00:12:39] Speaker 01:
Well, they had two concessions.

[00:12:41] Speaker 01:
One was they abandoned interstate price caps.

[00:12:43] Speaker 01:
Right.

[00:12:44] Speaker 01:
Right.

[00:12:44] Speaker 06:
And then they abandoned interstate jurisdiction.

[00:12:46] Speaker 01:
Right.

[00:12:48] Speaker 06:
And they also abandoned average in cost.

[00:12:50] Speaker 01:
Right.

[00:12:51] Speaker 06:
Now, if they abandoned average in cost, it seems to me the price caps must fall, because that's what... These particular price caps must fall, yes.

[00:12:59] Speaker 06:
What do you mean, these particular price caps?

[00:13:00] Speaker 01:
Well, in theory, they could have another methodology which wasn't arbitrary and capricious for interstate price caps.

[00:13:05] Speaker 06:
Yeah, if one had wheels, it should be a trolley car.

[00:13:09] Speaker 01:
But what I wanted to clarify was that abandonment of the averaging methodology for the provider costs doesn't necessarily, what we think as a matter of reason it does, also abandon that the averaging methodology they use on the order and reconsideration, which is not currently before this court, but has been staked.

[00:13:28] Speaker 01:
That's why I wanted to clarify there's a slight difference between the averaging methodology for the provider costs and for the facility costs, which they considered in the order on reconsideration.

[00:13:38] Speaker 01:
But we think that the reasoning of both is the same.

[00:13:41] Speaker 01:
And so effectively, their concession this time around for the provider costs also concedes that.

[00:13:47] Speaker 06:
As I read it, I'm also not authorized to defend.

[00:13:53] Speaker 06:
And we are also abandoning.

[00:13:57] Speaker 06:
The commission lawfully considered industry-wide averages and setting the rate caps in the order.

[00:14:04] Speaker 06:
That's interstate, interest date, all any kind.

[00:14:07] Speaker 01:
That's correct, Your Honor.

[00:14:08] Speaker 06:
OK.

[00:14:09] Speaker 01:
So yeah, and all I'm saying is that the averaging methodology for facility costs, they didn't actually do in this order.

[00:14:16] Speaker 01:
They only did it in the order on reconsideration when they decided that they were going to include.

[00:14:20] Speaker 06:
Is that before us now?

[00:14:21] Speaker 01:
No, it's not.

[00:14:22] Speaker 01:
That's what I'm saying, Your Honor.

[00:14:24] Speaker 06:
Please, it's confusing enough.

[00:14:30] Speaker 01:
Again, I see my time has expired.

[00:14:31] Speaker 01:
If there are no further questions.

[00:14:33] Speaker 02:
Thank you, counsel.

[00:14:34] Speaker 02:
Thank you.

[00:14:46] Speaker 08:
Thank you, Judge Pillard, and may it please the Court.

[00:14:48] Speaker 08:
I want to begin by clarifying the scope and consequences of the FCC's concession, because it really kills the entire order in this case.

[00:14:56] Speaker 08:
They've essentially admitted the 276 itself is not 201 for pay funds.

[00:15:02] Speaker 08:
It doesn't give them plenary authority.

[00:15:05] Speaker 08:
Now 201 does give the FCC plenary authority over interstate calls.

[00:15:11] Speaker 06:
I don't think that's fair.

[00:15:12] Speaker 06:
I didn't take the concession to go that far.

[00:15:15] Speaker 06:
I thought the concession was that 276 does not provide authority to cap intrastate rates.

[00:15:24] Speaker 08:
Correct.

[00:15:25] Speaker 08:
And does not allow the methodology used in this case.

[00:15:30] Speaker 06:
And also that the averaging doesn't work, so therefore the price caps don't work.

[00:15:37] Speaker 08:
But the consequence of saying that 276 does

[00:15:43] Speaker 08:
for intrastate payphone calls, it means they have to fall back on 201 for their rate-making authority.

[00:15:51] Speaker 08:
For intrastate?

[00:15:53] Speaker 06:
No, they can't.

[00:15:54] Speaker 06:
You mean for two?

[00:15:55] Speaker 06:
For interstate.

[00:15:57] Speaker 06:
Why?

[00:15:57] Speaker 06:
Are you saying 276 has no authority for interstate?

[00:16:02] Speaker 06:
The point about 276 is that it does not provide a full... Are you saying 276 has no authority

[00:16:10] Speaker 06:
or interstate?

[00:16:11] Speaker 08:
I'm saying it has the same level of authority for interstate that it has for intrastate.

[00:16:18] Speaker 06:
No, it has no authority under intrastate according to the Commission's position.

[00:16:24] Speaker 08:
No, they said they do not think they can set price caps on intrastate calls.

[00:16:32] Speaker 08:
But of course, this court has a whole series of decisions dealing with interest aid calls under 276 in the context of ensuring fair compensation.

[00:16:45] Speaker 08:
What 276 is is a no free calls statute, as this court and the Supreme Court have specifically said on multiple occasions.

[00:16:55] Speaker 08:
It was designed to allow payphone competition by eliminating subsidies for Bell companies and preempting state regulation that prevented collection of compensation on dial around and 800 calls.

[00:17:12] Speaker 08:
And that's still in place.

[00:17:14] Speaker 08:
What the FCC is saying, and correctly saying, is that it's not a rate-making provision.

[00:17:21] Speaker 06:
Oh, okay.

[00:17:21] Speaker 06:
I see your point.

[00:17:22] Speaker 06:
Now, this goes back to your basic point, which is the proper interpretation of 276 is to protect the providers, not to restrict them.

[00:17:33] Speaker 06:
And of consciousness.

[00:17:36] Speaker 06:
Correct.

[00:17:37] Speaker 06:
Is that the point you were trying to make?

[00:17:40] Speaker 08:
Yes, that is the point I was trying to make.

[00:17:43] Speaker 08:
And one of the consequences of that is that they have to fall back on 201 in dealing with interstate calls.

[00:17:51] Speaker 08:
And 201 has inherent limitations because it only applies to telecommunications services.

[00:17:56] Speaker 08:
So it does not cover things like

[00:17:59] Speaker 08:
video visitation or VoIP calls or other enhanced services which the FCC is purporting to regulate now.

[00:18:07] Speaker 08:
It also does not apply to caps on ancillary fees for things like financial transactions which the FCC itself has said under 201 are not covered in its cramming order and other places.

[00:18:22] Speaker 06:
I'm confused about that.

[00:18:23] Speaker 06:
I thought on the ancillary services the FCC relied

[00:18:26] Speaker 06:
on both 201 and 276.

[00:18:29] Speaker 06:
And 201, after all, has language in connection with, which could be interpreted, perhaps, to deal with ancillary services.

[00:18:37] Speaker 08:
The FCC did rely on both.

[00:18:38] Speaker 08:
And I'm saying the consequence of their concession about the nature of 276, that it is not a price cap provision, would also apply to ancillary services.

[00:18:49] Speaker 06:
I understand their concession on 276 to be that it doesn't apply to the states.

[00:18:56] Speaker 06:
And the separate concession, whether it's under $276 or $201, is you can't use averaging at all.

[00:19:04] Speaker 06:
So therefore, price caps don't work.

[00:19:06] Speaker 06:
I don't know what you're doing.

[00:19:07] Speaker 06:
You're doing something else with it that I don't quite understand.

[00:19:09] Speaker 08:
Well, I think the concession is actually more subtle than that.

[00:19:14] Speaker 08:
Oh, boy.

[00:19:16] Speaker 08:
I hate to add complications, but 276 does apply to intrastate calls, but it does not give plenary rate-making authority.

[00:19:25] Speaker 08:
It does not allow the FCC to turn it into a Section 2 award.

[00:19:30] Speaker 08:
I understand.

[00:19:31] Speaker 08:
I understood that already.

[00:19:32] Speaker 08:
OK.

[00:19:32] Speaker 08:
I'm just trying to explore the consequences of that.

[00:19:35] Speaker 08:
If it's not a rate-making and rate-tapping statute, then there are ancillary fees.

[00:19:40] Speaker 06:
But what about the administrative law problem?

[00:19:43] Speaker ?:
OK.

[00:19:44] Speaker 06:
As a matter of classic administrative law, in this case it's really strange, classic administrative law, an agency must revoke a rule unless there's a determination under certain circumstances that the rule is illegal and you could revoke by setting good cause to avoid notice and comment.

[00:20:05] Speaker 06:
But typically you'd have to go through notice and comment.

[00:20:08] Speaker 06:
So that's essentially what counsel for the states may point out.

[00:20:15] Speaker 06:
However, there may well be other legal significance to the FCC's letter.

[00:20:23] Speaker 06:
Do you see any others?

[00:20:26] Speaker 08:
I agree.

[00:20:27] Speaker 08:
There is additional legal significance that it's an added reason why this court should vacate the order, because the FCC is no longer defending it.

[00:20:37] Speaker 08:
And not only no longer defending it, but it's told the court that they consider it unlawful in critical respects.

[00:20:44] Speaker 06:
But vacate the order.

[00:20:46] Speaker 06:
The rule still remains in effect until the FCC goes through a notice and comment to revoke it?

[00:20:54] Speaker 06:
Correct, until this court vacates the rule.

[00:20:58] Speaker 06:
No, no, wait a minute.

[00:20:59] Speaker 06:
That doesn't make sense.

[00:21:02] Speaker 06:
Why would we vacate the rule?

[00:21:04] Speaker 08:
We would vacate the rule for the reasons given in our brief, that it's unlawful.

[00:21:08] Speaker 08:
Well, I'm asking about the letter.

[00:21:10] Speaker 08:
What does the letter add to it?

[00:21:12] Speaker 08:
The letter says that the FCC now agrees with us and with the states that the intrastate price caps are unlawful and that the cost methodology used in the order is also unlawful because it puts half of all pay phones underwater.

[00:21:29] Speaker 06:
So your point of administrative law is if an agency concedes that its position with respect to a regulation is illegal, joining the petitioner

[00:21:43] Speaker 06:
then the court should vacate that portion of the rule on which there is an agreement without having the agency go through notice and comment to revoke?

[00:21:56] Speaker 08:
The court can and should.

[00:21:58] Speaker 08:
The court has declined to hold this case in abeyance.

[00:22:01] Speaker 08:
It's before the court.

[00:22:02] Speaker 08:
The validity of the order is before the court.

[00:22:04] Speaker 08:
The FCC no longer defends it.

[00:22:07] Speaker 08:
We have laid out in our briefs the reasons we consider the order to be invalid.

[00:22:11] Speaker 08:
And therefore, unless the FCC stands up and says, now, please hold it in advance because we want to pull it back, the court should vacate and remand.

[00:22:20] Speaker 02:
What if we thought the order and the rule were valid, notwithstanding the FCC's position?

[00:22:26] Speaker 08:
Well, that's why I'm here, to convince you otherwise.

[00:22:28] Speaker 08:
Right, but we have legal authority to say, fine, we don't care.

[00:22:32] Speaker 08:
You have legal authority to do that, but certainly at the very least, the agency's failure to defend it, it would be quite extraordinary for the court to then say, well, even though the agency thinks the order's unlawful, we're going to go ahead and affirm that order.

[00:22:47] Speaker 05:
I mean, another way of looking at it, you're saying it's an attempted, it looks something like voluntary secession, except they can't meet that.

[00:22:55] Speaker 05:
standard because they haven't eradicated all the effects.

[00:22:58] Speaker 05:
I can go back and do it again.

[00:22:59] Speaker 05:
And so you still want to pursue the fight that you first brought.

[00:23:02] Speaker 05:
Absolutely.

[00:23:03] Speaker 05:
These are unlawful.

[00:23:05] Speaker 05:
Exactly.

[00:23:06] Speaker 05:
We believe the order's there.

[00:23:07] Speaker 05:
It's of some interest.

[00:23:08] Speaker 05:
Maybe it looks like a voluntary secession, except it can't possibly satisfy the requirements of voluntary secession.

[00:23:15] Speaker 05:
So your argument is it's here.

[00:23:17] Speaker 05:
It's unlawful.

[00:23:18] Speaker 05:
It's interesting that they won't defend it.

[00:23:19] Speaker 05:
We're happy to have that.

[00:23:20] Speaker 05:
We still can convince you it's unlawful.

[00:23:22] Speaker 05:
That's correct.

[00:23:24] Speaker 08:
All right.

[00:23:25] Speaker 08:
Pursuant to that, I'd like to turn to your question about the squeezing out of site commissions.

[00:23:30] Speaker 06:
Well, let me pursue another bit.

[00:23:35] Speaker 06:
I'm surprised you haven't made it.

[00:23:37] Speaker 06:
One of the fundamental arguments that the SEC makes to defend New York, which they never really do, with respect to the extension to the interstate, is Chevron.

[00:23:51] Speaker 06:
Right?

[00:23:53] Speaker 06:
Because they interpret 276 to give them authority to cap rates.

[00:23:59] Speaker 06:
Your view and the state's view is, no, no, 276 is only designed to enhance the prospect of the providers as against Bell Telephone.

[00:24:11] Speaker 06:
That is correct.

[00:24:12] Speaker 06:
Correct.

[00:24:13] Speaker 06:
So there's a fundamental difference as to its purpose.

[00:24:17] Speaker 06:
The key argument, as I see the FCC making, is, well, it's ambiguous.

[00:24:24] Speaker 06:
And therefore, we're entitled to shove around deference.

[00:24:27] Speaker 06:
Now the interesting question comes, well, wait a minute.

[00:24:30] Speaker 06:
Does the agency get shove around deference after it abandons its position based on the ascension of two members of the

[00:24:41] Speaker 06:
FCC, who are now the majority chairman, who descended on this very ground.

[00:24:48] Speaker 06:
So therefore, isn't it correct that there would be no Chevron deference given to the old?

[00:24:55] Speaker 08:
I think that is correct for two reasons.

[00:24:58] Speaker 08:
One, because they're not defending the order.

[00:25:00] Speaker 08:
But second, because as this court noted in the Illinois payphone case and the New England payphone case, that 152B's presumption

[00:25:10] Speaker 08:
negates, is a finger on the scale in terms of how 276 should be interpreted.

[00:25:17] Speaker 08:
And our whole argument before the court today is 276.

[00:25:20] Speaker 08:
It's an unreasonable reading to allow them to use it as a rate-making statute.

[00:25:28] Speaker 08:
But also, even more important, the exclusion of site commissions, which is a legitimate cost that we are forced to incur, cannot be ignored in setting rates.

[00:25:41] Speaker 02:
They're not exactly excluding site commissions per se.

[00:25:44] Speaker 02:
They're saying, tell us what your costs are, and that you had every opportunity to fill the record with evidence of cost, and they've taken them into account.

[00:25:52] Speaker 08:
We filled the record with evidence of our costs and the cost of commissions, for example.

[00:25:59] Speaker 08:
What we showed is that oftentimes, say the rate's 22 cents a minute, and we pay a 50% commission, so we net 11 cents a minute, which may be in certain locations an accurate reflection of our costs.

[00:26:14] Speaker 08:
But if we're reduced to collecting 11 cents a minute and have to pay a 50% commission, then we're going to be underwater.

[00:26:22] Speaker 08:
And the FCC admits that.

[00:26:24] Speaker 08:
It admits that once you take commissions into account,

[00:26:27] Speaker 08:
We are underwater.

[00:26:28] Speaker 02:
And so what it does is... Looking at this as any economist would, in a dynamic way, and saying once that market failure is, you know, pressure is put on that by controlling the rates, the facilities won't be able to extract site commissions.

[00:26:46] Speaker 02:
And so you'll get more of what you get.

[00:26:49] Speaker 08:
This is a very critical point, yes.

[00:26:52] Speaker 08:
Yes, it is.

[00:26:54] Speaker 08:
The squeezing out of commissions is something that maybe the FCC could do under 201 for interstate calls, but it would have to do so directly by preempting the costs imposed by the states.

[00:27:10] Speaker 06:
Why?

[00:27:10] Speaker 08:
Why do you say that?

[00:27:11] Speaker 08:
Well, the FCC has never found market failure

[00:27:14] Speaker 06:
in terms of... No, you know, why do you say they can't do it the way they did?

[00:27:19] Speaker 06:
Why do you say they have to... Because, for two reasons.

[00:27:23] Speaker 08:
First of all, it's ignoring the legitimate cost, which is built into our existing contracts, and they can't ignore the existing contracts and say, well... Why can't they say it's an illegitimate cost?

[00:27:36] Speaker 06:
Which is essentially what they've said.

[00:27:38] Speaker 08:
Because it clearly is a cost that we pay, just like a franchise fee.

[00:27:44] Speaker 06:
For their argument, it's a market failure.

[00:27:46] Speaker 06:
It's an illegitimate cost.

[00:27:48] Speaker 05:
But they've never declared these site commissions unlawful.

[00:27:51] Speaker 05:
They have not helped the site commissions.

[00:27:54] Speaker 05:
The thrust of your argument is they want to have their cake and eat it, too.

[00:27:57] Speaker 05:
And you're saying, look, you want to go after site commissions and go ahead and do it.

[00:28:00] Speaker 05:
But you haven't done that, so it's bogus for you to now argue, well, you'll somehow get squeezed by the market.

[00:28:07] Speaker 05:
Even though you have it lawfully in the contract, they don't say it's unlawful to have it in the contract.

[00:28:12] Speaker 05:
They don't say the state laws requiring it are preempted.

[00:28:16] Speaker 05:
They're just saying, we'll see if we can squeeze you.

[00:28:19] Speaker 05:
taking this on.

[00:28:20] Speaker 05:
Is that your argument?

[00:28:21] Speaker 05:
Correct.

[00:28:22] Speaker 08:
Correct.

[00:28:22] Speaker 08:
They're trying to squeeze them out and make them impossible to collect without preempting.

[00:28:29] Speaker 08:
And if they want to preempt, fine.

[00:28:31] Speaker 08:
We actually don't care about the site commission.

[00:28:34] Speaker 08:
We just don't want to have to pay them but not be able to collect them.

[00:28:37] Speaker 02:
But the states do, and they're also participating in the case.

[00:28:40] Speaker 02:
They're saying, well, we have some costs in some cases, and we need to collect them.

[00:28:45] Speaker 02:
And so the FCC is trying to do less and be less

[00:28:48] Speaker 02:
you know, interfere less and say, you guys work it out, but we're gonna deal with this market failure if we've seen you demonstrate certain costs, we're gonna raise the rates a little bit to compensate for that, but we also have seen a lot of gravy coming out of the highs of these rates, and that's not...

[00:29:07] Speaker 02:
Fair rates.

[00:29:08] Speaker 08:
Well, the gravy is going to the prisons and jails, not some cases because the SEC has never found that we are not vigorously competitive with one another.

[00:29:21] Speaker 06:
He was going to the mayor's office.

[00:29:27] Speaker 08:
You know, Ben, I think that is irrelevant in terms of whether it's a cost to us.

[00:29:33] Speaker 06:
In other words, the way in which the states want to use the money, as far as you're concerned, is irrelevant.

[00:29:40] Speaker 06:
If they want to use the money to buy jet planes to run the governor around the country, that's fine.

[00:29:48] Speaker 08:
If the FCC... Does that crack?

[00:29:50] Speaker 08:
Well, yes and no.

[00:29:52] Speaker 08:
Yes and no.

[00:29:52] Speaker 08:
Yes for purposes of this case, because the FCC has not taken any steps to say, we're going to impose restrictions on how they can use this money.

[00:30:03] Speaker 08:
All they're saying, and maybe they can do that.

[00:30:05] Speaker 08:
The states would, I assume, disagree with that.

[00:30:08] Speaker 08:
I'm not sure we take a position on that.

[00:30:10] Speaker 08:
The key point is they haven't taken any steps to preempt these commissions.

[00:30:15] Speaker 08:
or to limit their commissions or to restrict how they can be spent.

[00:30:20] Speaker 08:
And if they want to do that, let them go ahead and provide an APA justification of their authority and their reasoning for do so.

[00:30:29] Speaker 08:
But as Judge Edwards pointed out, the current state of the record

[00:30:32] Speaker 08:
It's a contradiction.

[00:30:34] Speaker 08:
They say, well, these are interfering with our federal policy, but we're not going to preempt them, but we're going to try to make them impossible, which is the essence of preemption.

[00:30:46] Speaker 08:
So they want to have their cake and eat it too, and that's something they can't do.

[00:30:51] Speaker 08:
And that's why the whole order should be thrown out at this point.

[00:30:56] Speaker 05:
Tell me where you think the record is, assuming

[00:31:00] Speaker 05:
I'm assuming there's an issue on the site commission.

[00:31:05] Speaker 05:
And how should I think about it now with the reconsideration order?

[00:31:11] Speaker 05:
What's your position now?

[00:31:12] Speaker 05:
With the reconsideration order and their claim that they've addressed it?

[00:31:16] Speaker 08:
Well, of course, the reconsideration order is not before the court.

[00:31:18] Speaker 05:
I understand.

[00:31:20] Speaker 08:
On the other hand, it doesn't actually matter because all the reasoning, all the pillars of the reconsideration order are in the 2015 order, specifically the assertion of jurisdiction over interstate rates.

[00:31:35] Speaker 08:
to cap the ancillary fees, the decision to exclude site commissions, and the industry average rate-setting methodology.

[00:31:43] Speaker 05:
So wait, are you trying to put site commissions in simply a simple category as a legal proposition you cannot exclude?

[00:31:51] Speaker 05:
We think you've simply taken a position we will exclude site commissions, and that's impermissible, or what?

[00:31:58] Speaker 08:
What is... Our position is if they want to preempt

[00:32:03] Speaker 08:
state statutes, regulations, and policies requiring site commissions, they need to do so directly and openly and provide an APA justification.

[00:32:16] Speaker 08:
What they cannot do is say, we're not touching it, we're not interfering with correctional... Why do you gather the commission to not do the straightforward preemption?

[00:32:26] Speaker 08:
You know, I think, A, they were concerned about their authority, and B... Concerned about whether they had legal authority to preempt?

[00:32:35] Speaker 08:
Whether they had legal authority to preempt.

[00:32:37] Speaker 06:
Why?

[00:32:37] Speaker 06:
You told me before that they have specific authority to preempt.

[00:32:41] Speaker 08:
They do to the extent of Section 276.

[00:32:46] Speaker 08:
But Section 276 is actually a narrow statute with a specific purpose that assigns very specific tasks to the FCC and a nine-month deadline for doing them.

[00:32:59] Speaker 02:
I'm not sure I follow.

[00:33:00] Speaker 02:
So you're saying they should have preempted, but if they had done that, and if that harmed your client, you would be here arguing that they don't have authority to do that.

[00:33:09] Speaker 02:
You can argue that here because you're not representing a state.

[00:33:11] Speaker 08:
What I'm saying is exactly the inverse of that.

[00:33:14] Speaker 08:
I'm saying what they can't do is sub rosa preempt without actually asserting the authority to do so.

[00:33:22] Speaker 02:
It seems like what they're doing is using the same authority that they would have to preempt, assuming that they have that authority for the moment, but just for the purpose of the question.

[00:33:32] Speaker 02:
And they're trying to do it in a way that leaves a little more flexibility to the states.

[00:33:37] Speaker 02:
They're trying to respect the state's sovereign authority and the state's prerogatives in charging legitimate portions of their costs in providing self-loan access to prisoners.

[00:33:49] Speaker 08:
Because that's not exactly what they say if you look at paragraph 140 of the order.

[00:33:53] Speaker 08:
They say, we are not preempting.

[00:33:56] Speaker 08:
We are not interfering with the collection of site commissions.

[00:33:59] Speaker 08:
We are not telling states how they can spend this money.

[00:34:05] Speaker 08:
But we're going to make them unlawful, effectively unlawful, without regard to- We think we take an effect of eliminating site commissions.

[00:34:15] Speaker 08:
I mean, that's the effect of what they're trying to do, right?

[00:34:18] Speaker 08:
What they, in effect, are doing is eliminating site commissions.

[00:34:23] Speaker 05:
But the answer, let me make sure I'm on this, at least I understand it, with respect to preemption.

[00:34:29] Speaker 05:
I think implicit in your argument is, in doing the way they're doing it, there may be some legitimate problems that they will have, depending upon the reason for preempting.

[00:34:40] Speaker 05:
And they avoid that by doing it this way.

[00:34:42] Speaker 05:
Correct.

[00:34:43] Speaker 05:
That some reasons might be totally legitimate.

[00:34:46] Speaker 05:
depending upon what the state's doing with the money, some reasons might be absurd, and the commission would have no ground to stand on.

[00:34:53] Speaker 05:
They avoid all of those questions by doing it this way and claiming it's just the market.

[00:34:57] Speaker 05:
And they know they're trying to kill site commissions, right?

[00:34:59] Speaker 05:
Am I understanding your position?

[00:35:01] Speaker 08:
They do, yes.

[00:35:03] Speaker 08:
They've admitted that in their brief.

[00:35:05] Speaker 08:
They did not in the order itself.

[00:35:06] Speaker 08:
In the brief, they said the whole purpose is to squeeze out and make site commissions impossible.

[00:35:12] Speaker 08:
And that leaves us in an untenable position, particularly with regard to existing contracts, which under this Court's decision, the Associated Distributors... I want to ask you a question, though, that I want you to listen very carefully.

[00:35:27] Speaker 06:
Are you taking the position that the FCC had legal authority to preempt the site commissions?

[00:35:35] Speaker 06:
No.

[00:35:36] Speaker 06:
So, your argument is

[00:35:40] Speaker 06:
What they did is illegal because they didn't do X. But after all, X is illegal too.

[00:35:45] Speaker 06:
So there is no way they can affect site commissions.

[00:35:51] Speaker 08:
No, I'm not saying that.

[00:35:52] Speaker 08:
I'm saying that the path that they took in this order

[00:35:56] Speaker 08:
which was to make it impossible to recover site commissions is doubly illegal.

[00:36:02] Speaker 08:
It's illegal because it's inconsistent with our existing contracts and will put us under water as they admit.

[00:36:09] Speaker 08:
And it's also illegal because if they want to take that path, they have to preempt and they claim not to be preempting.

[00:36:15] Speaker 06:
Wait a minute, but you also said they don't have legal authority to preempt.

[00:36:20] Speaker 06:
Or are you arguing now, are you conceding they really had legal authority to preempt?

[00:36:25] Speaker 06:
They just hit the wrong button.

[00:36:27] Speaker 08:
I think if they wanted to preempt, it would be a very complicated impossibility argument under 1201 before they could get to intrastate calls at all.

[00:36:38] Speaker 08:
Whether they can do that or not.

[00:36:40] Speaker 08:
What do you mean by a complicated impossibility argument?

[00:36:42] Speaker 08:
Excuse me.

[00:36:43] Speaker 06:
All right.

[00:36:44] Speaker 06:
Are you saying it would be illegal to preempt site commissions?

[00:36:50] Speaker 08:
I'm saying, I'm not saying that.

[00:36:55] Speaker 08:
I'm not taking a position on whether ultimately the FCC will have the authority to preempt or not preempt site commissions.

[00:37:04] Speaker 05:
Might not depend on what the site commission is set up to do.

[00:37:10] Speaker 05:
Could that affect it?

[00:37:11] Speaker 08:
That could affect it.

[00:37:13] Speaker 08:
And there are other factors that could affect it as well because

[00:37:19] Speaker 08:
276 is not a roving mandate to rate set for colds, which means they have to rely on 201.

[00:37:28] Speaker 08:
And 201, Judge Pillard, the impossibility exception is if you have to affect interstate in order to regulate properly interstate.

[00:37:39] Speaker 08:
And they haven't tried to make any such finding.

[00:37:42] Speaker 08:
So let them do so on remand, and if they can do so, and they can defend it in this court.

[00:37:50] Speaker 08:
That's fine, because I'm not up here to make a brief for site commissions.

[00:37:54] Speaker 08:
I'm up here to make a brief for adequate cost recovery for clients who are providing a valuable service in a very competitive market.

[00:38:06] Speaker 05:
Thank you.

[00:38:07] Speaker 05:
Thank you, Mr. Todd.

[00:38:07] Speaker 05:
There's one other thing I want to ask.

[00:38:08] Speaker 05:
Oh, wait.

[00:38:08] Speaker 05:
You had a separate preemption argument.

[00:38:12] Speaker 05:
If they've lost on the intrastate

[00:38:16] Speaker 05:
Yes.

[00:38:19] Speaker 05:
Is that preemption argument still before us?

[00:38:23] Speaker 08:
If they lose on the interest date issue because 276 doesn't allow them to do general rate making or preempt site commissions, then they would have to rely on 201B for their authority.

[00:38:37] Speaker 08:
And as I said, they couldn't get to interest date unless they use the impossibility.

[00:38:43] Speaker 08:
They could use interest date.

[00:38:44] Speaker 08:
They could do it for interstate, but then they end up with a huge mess because the costs are so variable in each institution, given whatever equipment demands they have, whatever service demands they have.

[00:38:59] Speaker 06:
And so just sort of setting rates.

[00:39:02] Speaker 06:
That is a question that occurred to me.

[00:39:04] Speaker 06:
Is it possible, even with respect to the ancillary services, assuming 276 cannot be used as a basis to cap intrastate rates,

[00:39:16] Speaker 06:
Is it possible to divide up the ancillary services?

[00:39:20] Speaker 06:
At least some can, and it seems some would be difficult.

[00:39:24] Speaker 06:
Have you looked at that?

[00:39:25] Speaker 08:
No, I think the ancillary services caps would have to fall in their entirety.

[00:39:29] Speaker 08:
Why?

[00:39:30] Speaker 08:
Because they haven't attempted to split them out.

[00:39:34] Speaker 06:
You mean they have to be remanded?

[00:39:35] Speaker 06:
They wouldn't have to be remanded?

[00:39:37] Speaker 06:
They would have to be remanded.

[00:39:39] Speaker 06:
Because if there was no authority to use 276 to reach the states,

[00:39:44] Speaker 06:
then there'd have to be an allocation, which would be very difficult for the court to do, with respect to what is allocated to interstate and what is allocated to intrastate.

[00:39:55] Speaker 06:
Absolutely right.

[00:39:56] Speaker 06:
I see your point.

[00:39:57] Speaker 02:
Let me just circle back in your basic position on the rates.

[00:39:59] Speaker 02:
You are not arguing that the SEC lacks authority to set rates for intrastate calls.

[00:40:06] Speaker 02:
You're just saying that they had to be set at a level that's high enough to cover the highest existing, the most expensive call under the existing

[00:40:19] Speaker 02:
state of affairs, is that right?

[00:40:20] Speaker 08:
They wouldn't have to set the rate at the very highest call and then use that rate across the country.

[00:40:26] Speaker 08:
Wait, what are we talking about, inter or intra?

[00:40:27] Speaker 08:
We're talking about interstate rates.

[00:40:30] Speaker 02:
Intra.

[00:40:30] Speaker 02:
She said intra.

[00:40:31] Speaker 02:
Oh, you said intra?

[00:40:33] Speaker 02:
Yeah, intra, because you said that they're free to doubt generally applicable rates.

[00:40:38] Speaker 02:
Well, they're able to set rates for, in your view, adequate compensation or fair compensation.

[00:40:45] Speaker 08:
They were charged in the 1996 act and in section 276 with ensuring payphone competition by essentially it's a no free calls provision.

[00:40:58] Speaker 02:
No, I understand.

[00:40:59] Speaker 02:
I thought your position was they're free.

[00:41:01] Speaker 02:
This is from your reply brief.

[00:41:04] Speaker 02:
The FCC is free to adopt generally applicable rates or rate categories so long as those rates ensure fair compensation for each and every call.

[00:41:11] Speaker 02:
Each and every call, that's language from 276.

[00:41:12] Speaker 02:
So I took that to be referring to intrastate rates.

[00:41:17] Speaker 02:
And I'm trying to understand that aspect of your position because you're saying the FCC would need to determine the maximum possible cost of a call under the existing state of affairs and take that as the fair rate so that everybody has to get

[00:41:32] Speaker 02:
top dollar for every call under the existing state of affairs.

[00:41:35] Speaker 08:
No, that's not what I'm arguing.

[00:41:37] Speaker 08:
It's consequences of the FCC taking the language of 276 out of its context, if I can provide a little history.

[00:41:45] Speaker 08:
What the FCC has always said is if there's competition,

[00:41:49] Speaker 08:
or a market-based rate, then we don't need to do anything, because that ensures adequate compensation.

[00:41:55] Speaker 08:
In the inmate pay phone, we have a contract with the prison that sets the rates.

[00:42:00] Speaker 08:
So we're not going to enter into that contract unless they're compensated.

[00:42:03] Speaker 08:
So there's really nothing for the FCC

[00:42:06] Speaker 08:
to do with the consequence of those rates.

[00:42:09] Speaker 08:
The problem is they've read 276 as a general rate-making provision, and that leads them into terrible problems because the costs are so variable within institutions and their aggregate cost methodology, average cost methodology, leaves half of all payphone calls and half of all payphone providers

[00:42:31] Speaker 08:
underwater, which can't be consistent with the language of 276, even as they read it, giving them expansive authority.

[00:42:39] Speaker 05:
Let me make sure I'm clear on this, because I was shocked by the initial question in your answer initially, but I think you've clarified it.

[00:42:46] Speaker 05:
Your position is clear.

[00:42:47] Speaker 05:
276 is not a rate-making provision.

[00:42:50] Speaker 05:
Correct.

[00:42:50] Speaker 05:
Pursuant to which the Commission goes in and sets rates.

[00:42:53] Speaker 05:
Is that right?

[00:42:54] Speaker 05:
I want to make sure.

[00:42:54] Speaker 05:
That is correct.

[00:42:59] Speaker 02:
Thank you, Mr. Kelly.

[00:43:04] Speaker 02:
Mr. Gossett.

[00:43:08] Speaker 04:
Thank you, Your Honor.

[00:43:09] Speaker 04:
It's David Gossett for the FCC.

[00:43:11] Speaker 04:
As this Court is aware, I'm not authorized to defend or otherwise address the Commission's assertion of jurisdiction to cap interstate immigrant rates.

[00:43:19] Speaker 04:
But given the Court's questions of Petitioners' Council, there are two main issues that I would like to address, ancillary charges and site commissions.

[00:43:27] Speaker 06:
Wait a minute, Counsel.

[00:43:28] Speaker 06:
I didn't read the letter saying you're not authorized to address.

[00:43:33] Speaker 06:
You said you're not authorized to defend, and you are abandoned.

[00:43:42] Speaker 06:
It seems to me implicitly that you're authorized to address the significance of what you have done.

[00:43:50] Speaker 06:
And as you can see, I have various questions as to the significance.

[00:43:56] Speaker 06:
For instance, one question is, why did you have delegated half your time to an intervener

[00:44:02] Speaker 06:
who did not raise the issues as you were abandoned.

[00:44:06] Speaker 06:
He only raised the ancillary issues.

[00:44:09] Speaker 04:
I will leave to him to defend whether he's raised or has jurisdiction to defend any other of the issues.

[00:44:14] Speaker 06:
No, I'm asking why you delegated your time to somebody who did not raise the issues you were abandoned.

[00:44:20] Speaker 04:
We have given Mr. Schwarzman time to defend any aspect of the order that he sees fit to defend and that this court will listen to him to defend.

[00:44:29] Speaker 04:
The question whether that's adequate is one for the court to decide.

[00:44:33] Speaker 04:
I'm sorry.

[00:44:34] Speaker 06:
What about your view as to the significance of the commission, the new commission abandoning both the 276th reach to the states and the average

[00:44:48] Speaker 06:
One of the things that I find difficult to understand is what you are remaining.

[00:44:54] Speaker 06:
What's left for you to argue?

[00:44:56] Speaker 04:
The primary thing that I think this Court should address, and the reason to address one of your previous questions that the Commission did not seek to put this case into abeyance, is the Commission's reforms with respect to ancillary charges, which we think are properly presented in this case and which the Commission wants to defend.

[00:45:16] Speaker 06:
Particularly the ancillary charges.

[00:45:18] Speaker 04:
Particularly the ancillary charges.

[00:45:19] Speaker 04:
That ties into the fact that, essentially, all the other main arguments are ones that we already had argued this court shouldn't be addressing because they're tightly tied to the actual rate caps and the methodology for setting those rate caps.

[00:45:34] Speaker 04:
And that all changed in the order of reconsideration, which is not before this panel.

[00:45:37] Speaker 04:
So it's the ancillary charges that we believe this court has jurisdiction to address and should address.

[00:45:45] Speaker 06:
What about the site commission?

[00:45:46] Speaker 04:
On site commissions, we do not think this court should address it because in the order of reconsideration, the commission significantly changed its treatment of them and allowed that there were reasonable...

[00:46:06] Speaker 04:
previous rates did not afford adequate compensation for reasonable costs actually incurred by facilities, but if the court disagrees... Wait a minute, under the reconsideration order, site conditions could be taken into account, at least partially?

[00:46:24] Speaker 04:
That we, in the order of reconsideration, the commission determined that facilities do have real costs of inmate calling services that were not adequately addressed by the rate caps in this order.

[00:46:36] Speaker 04:
And that could be site commissions.

[00:46:38] Speaker 06:
I see in other words they could be charges the site charge the provider, whether they're public site commissions or not.

[00:46:46] Speaker 04:
The rates were raised significantly in the order on reconsideration based on evidence that facilities had real costs that were related to site commissions.

[00:46:56] Speaker 04:
The commission continued to believe in that order, and this court theoretically could reach the general question whether charges unrelated to the reasonable cost of facilities are appropriately included in the rates.

[00:47:11] Speaker 04:
And the commission held that charges unrelated to a facility's reasonable costs are not compensated.

[00:47:17] Speaker 06:
Well, that's in the 2016 reconsideration order.

[00:47:20] Speaker 04:
It is that was decided in in this order and affirmed in the 2016 reconsideration order.

[00:47:25] Speaker 04:
So I would suggest that the court should defer all questions about that to the 2016 order.

[00:47:30] Speaker 06:
But that second all questions about site commissions.

[00:47:32] Speaker 06:
Okay, I got that.

[00:47:34] Speaker 06:
So I think I'm getting making progress.

[00:47:37] Speaker 06:
But you say then we do have before us the the ancillary rates.

[00:47:45] Speaker 06:
Now, what bothered me

[00:47:47] Speaker 06:
is how the devil do you distinguish between ancillary rates that are attributable to interstate and ancillary rates that are attributable to intrastate?

[00:47:57] Speaker 06:
Isn't that a remand question too?

[00:48:00] Speaker 04:
Respectfully, I don't think one needs to remand on that.

[00:48:02] Speaker 04:
In the court, asserted jurisdiction over side commission, over ancillary charges based on Section 201 in addition to Section 276

[00:48:11] Speaker 04:
And the reality is that the vast majority of these charges that we're calling ancillary charges are mixed-use charges that are not specific to a specific call.

[00:48:18] Speaker 04:
So, for example, an account setup fee or the credit card processing fees and such are not about a specific call and therefore fall within the commission's jurisdiction to regulate as in connection with the interstate rate caps.

[00:48:33] Speaker 06:
Even if they're used primarily for intrastate calls?

[00:48:36] Speaker 04:
because they are related to the interstate calls, the commission has jurisdiction to regulate them.

[00:48:42] Speaker 06:
Has the FCC focused on that question?

[00:48:46] Speaker 04:
In paragraphs 193 to 196, the commission addressed inter and intrastate jurisdiction.

[00:48:54] Speaker 06:
We did not... Yeah, but as I read it, the commission did not say that these charges, which we think are excessive,

[00:49:05] Speaker 06:
are we think we have authority under 201 to strike them down, even if the majority of the charges are for interstate calling.

[00:49:17] Speaker 06:
The commission did not address that because at the time the order was because that there was no reason to address it.

[00:49:23] Speaker 04:
There was no reason.

[00:49:24] Speaker 06:
That leaves open a question because some of the charges look to me ones you can allocate.

[00:49:29] Speaker 06:
You can divide and others.

[00:49:31] Speaker 06:
It looks like it's harder.

[00:49:33] Speaker 04:
to the extent the court determines that we haven't addressed that, that might be an appropriate opportunity for a remand without vacant or under-generate.

[00:49:40] Speaker 04:
But on the specifics, I think the way I look at this, with the exception, with the possible exception that I'll get to them, of these, what they call single-use charges, all of the rest of these are charges about, they're about setting up an account, they're about getting billing statements, they're about

[00:50:01] Speaker 04:
Also putting money into the account and

[00:50:04] Speaker 04:
Take a step back.

[00:50:05] Speaker 04:
The reason the commission regulated ancillary fees in this order is because these were probably even before the 2013 order.

[00:50:12] Speaker 04:
The providers created an alphabet soup of these.

[00:50:15] Speaker 04:
But then there was specific evidence in the record that after the commission capped interstate rates in 2013, companies attempted to circumvent those rates by creating these caps.

[00:50:26] Speaker 04:
So these are directly related to our interstate rate caps that were set in 2013.

[00:50:33] Speaker 04:
And therefore, our regulation of them falls firmly within Section 201 because it's that.

[00:50:40] Speaker 04:
And so that's the general reason why we did what we did here.

[00:50:43] Speaker 02:
And why isn't that enough to avoid, as you said, a remit without bakehead or undergenerate?

[00:50:48] Speaker 02:
I mean, that logic is clear in the record, that the fat you pulled out of the interstate rates in 2013 led to it being packed back in by the providers

[00:51:03] Speaker 04:
I don't think the court needs to remand on that.

[00:51:05] Speaker 04:
I was just saying, if the court disagrees on that, it is a situation where certainly no more than remand without vacator would be appropriate.

[00:51:12] Speaker 04:
But I think that since it was directly tied to the- We could remand without vacator.

[00:51:18] Speaker 04:
That's what I said.

[00:51:18] Speaker 04:
Sorry, I thought I was- I'm sorry.

[00:51:20] Speaker 04:
I'm fighting a little bit of a cold.

[00:51:22] Speaker 04:
So if I wasn't clear, I meant to say remand without vacator on that issue, certainly.

[00:51:29] Speaker 04:
On the single call services charges, I think that's a question that the court just shouldn't address in this case because, of course, the rates for the single call services court ancillary charges

[00:51:42] Speaker 04:
directly refer to and incorporate the overall rate caps, and the rate caps aren't before this court.

[00:51:49] Speaker 04:
So I think you don't need to remit on that because it has to do with the rate caps and the rate caps aren't here.

[00:51:55] Speaker 04:
But as to the other ancillary charges, I think the jurisdiction seems straightforward under 201.

[00:52:02] Speaker 04:
On the specific challenges to ancillary charges briefly, as Judge Pillard points out, the reason we created this regulation of ancillary charges was because they were sprouting up like bunnies, and so the only way to regulate that was to set a specific

[00:52:20] Speaker 04:
schedule of which ones were allowed and to authorize those.

[00:52:25] Speaker 04:
The challenge that this is stifling innovation I think fails because both we had that reason for doing this and second because as the Commission points out, providers could always come to the Commission through waiver or rulemaking if they had a new ancillary fee that was actually a valid one.

[00:52:43] Speaker 04:
challenges to the credit and debit processing fees also, I think, fail because numerous commenters in the record said that the rates that we set for these were adequate.

[00:52:56] Speaker 04:
Securis is the only provider that challenged it, but the commission reasonably determined that its asserted costs were an outlier and therefore were incredible.

[00:53:05] Speaker 04:
That's the way this process generally works.

[00:53:12] Speaker 05:
Let me go back to the site commission.

[00:53:15] Speaker 05:
You're resting on a reconsideration which distinguishes between the commission says they're making some accommodation for facilities costs, but not site commissions.

[00:53:28] Speaker 04:
I think that's a semantic question, your honor.

[00:53:31] Speaker 04:
Excuse me?

[00:53:33] Speaker 04:
There's a semantic ambiguity in the term site commission, whether it includes those facilities costs.

[00:53:39] Speaker 04:
The defense of site commissions here.

[00:53:42] Speaker 05:
Well, I'm just going based on what the reconsideration on.

[00:53:44] Speaker 05:
I'm entitled to look ahead.

[00:53:46] Speaker 04:
You certainly are, your honor.

[00:53:47] Speaker 04:
I'm not disputing that.

[00:53:48] Speaker 05:
Because I assumed you were going to make the argument we tried to take account of that.

[00:53:51] Speaker 05:
Well, it doesn't appear that you, the commission, actually did.

[00:53:56] Speaker 05:
take account of site commissions unless somewhere in that order it says the facility costs really are site commission costs.

[00:54:07] Speaker 05:
I thought they distinguished between them.

[00:54:09] Speaker 04:
What the commission did in that order was say, and it's also in this order, it says

[00:54:17] Speaker 04:
Providers make payments to facilities.

[00:54:19] Speaker 04:
They're contractual.

[00:54:20] Speaker 04:
They're not otherwise obligated.

[00:54:22] Speaker 04:
We can get to that.

[00:54:23] Speaker 04:
But providers make payments to facilities.

[00:54:25] Speaker 04:
But under our rate-making authority under Section 201, our charge is to see if that rate is just and reasonable, and we look at the costs.

[00:54:33] Speaker 04:
In this order, we said there's no real evidence that there are real costs of facilities that need to be built into this rate.

[00:54:41] Speaker 04:
In the order on reconsideration, the court reevaluated the record and said,

[00:54:46] Speaker 04:
I'm sorry, Your Honor, I'm very sorry.

[00:54:49] Speaker 04:
The Commission reevaluated the evidence and the record and...

[00:54:53] Speaker 04:
determined that there were, in fact, real costs of facilities associated with the provision of inmate calling services, and that the rates set were inadequate to allow the compensation for that.

[00:55:07] Speaker 04:
So the rates went up by between 20 and 40 percent as a result of that.

[00:55:10] Speaker 06:
The bottom line is some of the costs that have been included in the bundle site commissions were legitimate as far as you're concerned.

[00:55:19] Speaker 06:
And some were not.

[00:55:20] Speaker 04:
Yes, but questions about whether that line was drawn appropriately can't be addressed here because it's not here.

[00:55:26] Speaker 04:
But the bottom line position that the commission took was that providers and facilities cannot be right that anything goes.

[00:55:34] Speaker 04:
And the sky's the limit on what costs can be passed on.

[00:55:37] Speaker 04:
The line drawn in the order of reconsideration was based on real costs.

[00:55:41] Speaker 06:
I like the governor's plan.

[00:55:45] Speaker 04:
Your Honor, the commission

[00:55:48] Speaker 04:
under section 201 looks is.

[00:55:52] Speaker 04:
authorized to set rates at a reasonable level.

[00:55:54] Speaker 04:
And for that, we can look at the cost to provide the consumers to.

[00:55:58] Speaker 04:
And the expenses for a county road or even for the basketball court of the facility just aren't reasonably related to the provision of inmate calling services.

[00:56:09] Speaker 04:
There might be other expenses that are reasonably related, but those aren't.

[00:56:13] Speaker 04:
This order doesn't get into the drawing of those lines, and so it doesn't seem appropriate to do so.

[00:56:19] Speaker 04:
Tell me about the reporting requirements.

[00:56:21] Speaker 04:
Sure, Your Honor.

[00:56:24] Speaker 04:
The challenges to that we don't think are right because they're not – have not yet been published in the Federal Register, though OMB has, I understand, now approved them.

[00:56:32] Speaker 04:
But beyond that, these arguments – Is there some case law for that that I missed?

[00:56:37] Speaker 04:
We cited a case in our brief for the fact that OMB – the D.C.

[00:56:41] Speaker 05:
Circuit case – The final agency order?

[00:56:44] Speaker 05:
The final order?

[00:56:48] Speaker 02:
And they've now been approved.

[00:56:49] Speaker 04:
They have been approved, but they have not been published in the Federal Register.

[00:56:52] Speaker 04:
But in terms of the merits of the challenges.

[00:56:55] Speaker 04:
I mean, is that your best shot that it wasn't published in the Federal Register?

[00:56:58] Speaker 04:
I'd rather defend it on the merits, Your Honor.

[00:57:03] Speaker 04:
The challenge to video visitation, reporting requiring about video visitation.

[00:57:08] Speaker 02:
So do you know when they'll be published, just before we move off that one?

[00:57:11] Speaker 04:
I do not know, Your Honor.

[00:57:12] Speaker 04:
My understanding is they have not been sent to the Federal Register.

[00:57:18] Speaker 04:
The requirements about video visitation have to do with... Wait a minute, I'm confused.

[00:57:23] Speaker 06:
We're talking about part of the regulations that haven't been sent to the federal registry?

[00:57:30] Speaker 04:
The reporting requirements are subject to the Paperwork Reduction Act and therefore do not become final regulations absent OMB approval.

[00:57:39] Speaker 04:
So with the independent agencies, the rest of the regulation becomes, is the final regulation that can be challenged.

[00:57:43] Speaker 04:
That part is not actually final until published in the Federal Register.

[00:57:47] Speaker 04:
It's a weirdness of sort of Paperwork Reduction Act.

[00:57:52] Speaker 06:
Mr. Cassidy, this is before us.

[00:57:55] Speaker 04:
What the cases have suggested is that the courts hold challenges to those aspects of orders and abeyance.

[00:58:02] Speaker 04:
The cases.

[00:58:03] Speaker 04:
The case.

[00:58:05] Speaker 05:
Yeah, the case.

[00:58:07] Speaker 04:
The case.

[00:58:07] Speaker 04:
Sorry, I don't have the site.

[00:58:08] Speaker 06:
Probably Judge Edwards.

[00:58:11] Speaker 04:
I think it is, in fact, Judge Edwards.

[00:58:14] Speaker 06:
How did I guess that?

[00:58:16] Speaker 04:
Yes.

[00:58:18] Speaker 04:
But on the merits of that, of the challenge, I mean- Well, why don't you go to the merits if it's not before us?

[00:58:25] Speaker 04:
Because I believe Judge Edwards was asking me to get to the merits.

[00:58:28] Speaker 05:
Judge Edwards was just trying- I just want to understand.

[00:58:30] Speaker 05:
You're saying it is not a final order.

[00:58:31] Speaker 05:
It has not been published in the Federal Register.

[00:58:33] Speaker 05:
Well, it hasn't gotten OMB approval.

[00:58:35] Speaker 05:
Would you be relying on OMB approval?

[00:58:38] Speaker 04:
It has gotten OMB approval, but it has not been published in the Federal Register.

[00:58:43] Speaker 06:
I don't believe the case law... Do you have a problem that the OMB that approved it is no longer in existence?

[00:58:52] Speaker 04:
I won't speculate on that, Your Honor.

[00:58:54] Speaker 06:
No, is that the fact?

[00:58:55] Speaker 06:
And the fact was true.

[00:58:57] Speaker 04:
I believe that the OMB website reflects that it was approved by OMB before the change in administration.

[00:59:04] Speaker 06:
Which may be why it's not published yet.

[00:59:07] Speaker 04:
I can't speculate on that, Your Honor.

[00:59:08] Speaker 04:
I see.

[00:59:11] Speaker 06:
I don't think you have to speculate on that.

[00:59:15] Speaker 04:
Judge Edwards, did you just want to address the questions of the jurisdiction to address that, or you actually won't?

[00:59:21] Speaker 02:
No, it's OK.

[00:59:23] Speaker 02:
It sounds like under CTIA, which is the case that you cite, that the critical fact is the OMB approval, not the publication, because it's about contingency or not.

[00:59:33] Speaker 04:
I don't think that the case addressed specifically the situation, but if there are no further questions, I'd ask the court to affirm the commission's order insofar as it addresses the ancillary charges and hold the rest in advance.

[00:59:54] Speaker 02:
Thank you, Mr. Gassett.

[00:59:57] Speaker 02:
Mr. Schwartzman?

[01:00:29] Speaker 03:
May I please the Court?

[01:00:32] Speaker 03:
This is obviously coming up in an unusual posture, and I've got a lot of things that may come up, but I do hope that I can devote a good bit of time to explaining why Section 276 supports the Commission's authority to set rates for both inter- and introstate, because among other things, it will solve a lot of the problems that the

[01:00:54] Speaker 06:
court has been raising this morning.

[01:01:01] Speaker 03:
Your Honor, we said in our brief that we asked the court to affirm the commission's order, and on page 23 of our brief, footnote 106,

[01:01:13] Speaker 03:
and page 123, we said that the commission properly ruled that the commission could hold that Section 276 allowed the commission to set ceilings as well as floors, and specifically cited to the discussion of site commissions.

[01:01:31] Speaker 03:
Under the circumstances here, I think that's more than adequate.

[01:01:34] Speaker 03:
I have sat through many presentations from members of this court at luncheons and judicial conference where we're told not to file repetitive briefs.

[01:01:44] Speaker 03:
So we focused on one issue as we've been told to do, but we did not abandon anything and I think our brief is clear on that.

[01:01:54] Speaker 03:
I'd like to briefly address site commissions, I hope briefly address site commissions in the context of the fact that I represent people who have been waiting since 2001 for Judge Kessler's primary jurisdiction referral

[01:02:11] Speaker 03:
and experiencing ongoing harm.

[01:02:14] Speaker 03:
There's no dispute that there's a failure in the marketplace, and the Commission issued a legal interpretation, not fact-based, unlike the discussion of the specific rates.

[01:02:25] Speaker 03:
which affects how all future commission rate-making in this area can proceed, and also answers Judge Kester's questions.

[01:02:34] Speaker 03:
And as a result, I think that that's right and squarely before the Court as to both inter- and intrastate authority.

[01:02:46] Speaker 03:
With respect to Section 276, the intrastate authority,

[01:02:52] Speaker 03:
Judge Edwards has endured a lot of payphone cases and I'd like to point... Endured?

[01:03:00] Speaker 06:
He loved every one of them.

[01:03:04] Speaker 03:
But I'd like to point to trilogy starting with the Illinois case Ipda where the commission said that the commission could set, that's the terms it used, set rates for local coin calls.

[01:03:20] Speaker 03:
and the commission set a rate of 35 cents.

[01:03:26] Speaker 03:
That went back to the commission.

[01:03:28] Speaker 03:
The commission said, okay, 28 cents.

[01:03:33] Speaker 03:
That went back to the court in the MCI case.

[01:03:35] Speaker 03:
The commission and the court, including Judge Edwards on the panel, said no, that's still too high.

[01:03:40] Speaker 03:
That went back to the FCC for a third time, 23 cents.

[01:03:44] Speaker 03:
And that went back to the court in the APCC case again.

[01:03:49] Speaker 03:
Judge Edwards has had the pleasure of that one.

[01:03:53] Speaker 03:
And what was going on there?

[01:03:55] Speaker 06:
Do you think this is a market failure that all these cases are going to Judge Edwards?

[01:04:01] Speaker 03:
I'm assured that selection of panels is random, and I know the clerk's office adheres to that.

[01:04:08] Speaker 02:
We're all competing equally for them, believe me.

[01:04:12] Speaker 03:
The point of these cases is that the Commission was finding that there was excess compensation, that payphone providers were being overcompensated, and that was unfair.

[01:04:26] Speaker 03:
They were not being fairly compensated within the meaning of Section 276.

[01:04:30] Speaker 03:
So that clearly describes Section 276 and the words fairly compensated as relating to setting rates and dealing with excessive competition.

[01:04:45] Speaker 03:
And the second party here

[01:04:48] Speaker 03:
In the special case of inmate calling services is the caller.

[01:04:54] Speaker 03:
Unlike some of the other pay phone cases where there's an ICX, a long distance company involved, the customer relationship and all of the compensation comes from the caller.

[01:05:10] Speaker 03:
And as such, the commission has talked about,

[01:05:16] Speaker 03:
and the Commissioner talked about Section 276 as requiring fairness to both sides.

[01:05:21] Speaker 05:
Let me, let me, I mean, might just as well raise the question now, because Mr. Kellogg, I'm sure, is going to come back.

[01:05:27] Speaker 05:
with a response of this sort, I thought that was a special zero plus category of cases where the providers were getting no compensation, the commission was setting a floor.

[01:05:37] Speaker 05:
It was at that early moment, and that's what the battle was.

[01:05:40] Speaker 05:
It was really not, it really did not mean to suggest that the commission had rate-making authority as a general proposition under 276.

[01:05:48] Speaker 05:
At least, I don't read those cases that way.

[01:05:51] Speaker 05:
Well, yes, I was on them and that's not the way I read them.

[01:05:59] Speaker 03:
Going back to an earlier statute, the Commission and Congress have always considered inmate calling to be different.

[01:06:08] Speaker 03:
It was exempted from the so-called taxia statute in 91, or the implementation of that.

[01:06:13] Speaker 03:
And the Commission dealt with payphone calls separately, precisely because they present different conditions.

[01:06:19] Speaker 03:
And the Commission's consideration of the inmate calling services included a request

[01:06:25] Speaker 03:
that the commission established a 90 cent per call surcharge for inmate calling services, and the commission said, no, that's excessive.

[01:06:33] Speaker 03:
That's overcompensation.

[01:06:35] Speaker 03:
That was not a dial around call.

[01:06:37] Speaker 03:
That was a direct call by the inmate.

[01:06:41] Speaker 03:
So there is history where the commission, specifically in the context of inmate calling services, did so.

[01:06:47] Speaker 03:
I believe that is

[01:06:49] Speaker 03:
and shows what's involved in this litigation, the 2002 Fifth Order on Remand and Reconsideration.

[01:06:57] Speaker 03:
So I do think that in the special case of inmate calling services that the Commission has been involved in setting rates, as the term is understood, and in particular focusing on the question about whether the inmate calling service providers are being fairly compensated or unfairly compensated.

[01:07:19] Speaker 03:
And so that's critical to our argument.

[01:07:28] Speaker 03:
The other thing that I'd like to talk about is the relationship of Section 201 and 206.

[01:07:41] Speaker 03:
Every single case since the 1996 act has considered inter and intrastate calls interchangeably under Section 276.

[01:07:56] Speaker 03:
None of the cases talk about them differently.

[01:08:00] Speaker 03:
And all of them are rooted in and discuss Section 276.

[01:08:05] Speaker 03:
We've all read a lot of FCC orders, and at the end, they put in a paragraph where they cite every single provision of the Communications Act they can possibly think of as justification for their decision in the concluding paragraph.

[01:08:20] Speaker 03:
But in this order, on review here before the Court, the Commission did indeed mention Section 201 on several occasions.

[01:08:30] Speaker 03:
all of its discussion, all of its analysis, all of its consideration of site commissions in particular, was in terms of Section 276, not in terms of Section 201.

[01:08:41] Speaker 03:
I just don't think you can separate them out.

[01:08:47] Speaker 03:
And what does that get you?

[01:08:49] Speaker 03:
What that gets me is interstate regulation of inmate calling.

[01:08:55] Speaker 03:
It also gets me what Mr. Keller alluded to, which is video visitation and so-called VOIP calls, a Voice Over Internet Protocol.

[01:09:05] Speaker 06:
Well, you get interstate regulation under 201.

[01:09:10] Speaker 06:
You don't need 276.

[01:09:12] Speaker 03:
Well, it's unclear whether Section 201 reaches all of the things that the Commission addressed under broader authority of Section 276.

[01:09:24] Speaker 03:
And in particular, as I said, the newer technologies are not necessarily

[01:09:35] Speaker 03:
ambiguous because the FCC has punted on this, not necessarily covered by Section 201 at all.

[01:09:43] Speaker 03:
And in any case, certainly some of those things will not be covered under Section 201, but they are covered under Section 276.

[01:09:50] Speaker 03:
And the technology that Petitioner Telmate raises, for example, Telmate's position is that because it is an

[01:09:59] Speaker 03:
interconnected VoIP provider is... Is this in the ancillary services category?

[01:10:06] Speaker 03:
No.

[01:10:07] Speaker 03:
Certainly, I'm scared to get down the rabbit hole of the technology, Your Honor, but I'll try to do this briefly.

[01:10:14] Speaker 03:
Some phone calls can be delivered by the Internet.

[01:10:17] Speaker 03:
Tell me it contains, I think, incorrectly

[01:10:20] Speaker 03:
that it thus qualifies as an interconnected VoIP operator and thus is outside the scope of Section 201 and, it argues, Section 276.

[01:10:32] Speaker 03:
I think that's wrong.

[01:10:34] Speaker 03:
I think the Commission properly said that they are really just using Internet to deliver the service to themselves

[01:10:41] Speaker 03:
and that they would come under Section 201 and Section 276 as a result of that.

[01:10:46] Speaker 03:
But the point is, there is at the least ambiguity and perhaps a lack of jurisdiction with respect to those services, which are increasing and represent a substantial portion of the calls.

[01:10:57] Speaker 03:
And of course, intrastate calls represent 80 percent of the call volume.

[01:11:03] Speaker 02:
the authority is asserted under 276, you're saying 276 is broader because?

[01:11:09] Speaker 03:
276 is broader because I think, at the very least, it's similar, but I think it is also different and broader.

[01:11:18] Speaker 03:
Fairly compensated can take into account things that would not necessarily be a traditional cost within the meaning of

[01:11:28] Speaker 06:
But you're quarreling with the petitioner's reading of that statute.

[01:11:35] Speaker 06:
Yes.

[01:11:36] Speaker 06:
You just take the words fairly compensated, and you don't look at what they would argue is the structure of the statute, which was designed, in their view, entirely to protect the provider against the bail, and to ensure it was determined that it had adequate compensation.

[01:11:53] Speaker 06:
Something like, you sure it had adequate?

[01:11:55] Speaker 06:
What's the exact phrase?

[01:11:57] Speaker 06:
You have it in your mind?

[01:12:00] Speaker 06:
Ensure that they're fairly compensated.

[01:12:04] Speaker 06:
Ensure that they're fairly compensated.

[01:12:06] Speaker 06:
So that's a protective notion, rather than language that suggests broad rate regulation authority.

[01:12:14] Speaker 03:
Well, the cases I've discussed said that fairly compensated does not mean unfairly overcompensated.

[01:12:20] Speaker 05:
Look at the cases you were pointing to.

[01:12:24] Speaker 05:
96 Commission order, once committed, market forces established compensation via contract between the telephone network and the pay phone provider.

[01:12:33] Speaker 05:
The amount paid pursuant to the contract on the operator services is beyond the scope of 276.

[01:12:40] Speaker 05:
And then in Illinois, we affirmed the agency's imposition of a local coin rate, which would only be the default rate from which the payphone providers and the carriers could negotiate a departure.

[01:12:54] Speaker 05:
You turned the cases around.

[01:12:57] Speaker 05:
I mean, we took them as floors, yes, to get this moving.

[01:13:02] Speaker 05:
It was not a rate-making provision.

[01:13:04] Speaker 03:
Judge Edwards, the key element of that was that the Commission was relying on marketplace forces because there were marketplace forces.

[01:13:16] Speaker 03:
Section 276A1 has two purposes.

[01:13:20] Speaker 03:
One is to ensure that payphone operators, I should probably look at it, that there's to promote competition among payphone providers and the Commission

[01:13:35] Speaker 03:
does address that in its order and talks about how rate caps can promote that, but also to promote the widespread availability of payphone services for the general public.

[01:13:49] Speaker 06:
And in this context, there's a market failure.

[01:13:51] Speaker 06:
Excuse me, Council, let me interrupt for a second.

[01:13:54] Speaker 06:
What about, and I haven't addressed it all.

[01:13:57] Speaker 06:
the letter from the FCC, which abandoned the position, as you argue.

[01:14:03] Speaker 03:
You used some phrase which I didn't quite catch about.

[01:14:07] Speaker 03:
If somebody was a what, she'd be a trolley.

[01:14:11] Speaker 06:
That's an old expression.

[01:14:13] Speaker 06:
My aunt had wheels, she'd be a trolley.

[01:14:15] Speaker 06:
That had to do with the if.

[01:14:17] Speaker 06:
I didn't realize I was making a point that we

[01:14:24] Speaker 03:
Well, Judge Silverman, it will not come as a surprise to you that you're known as very colorful and, you know, one is interested in the kinds of phrases you turn.

[01:14:35] Speaker 03:
This is a trolley.

[01:14:36] Speaker 03:
The Commission, where a majority of the present Commission has advised you

[01:14:43] Speaker 03:
or you can see from the orders that the majority of the present commission did not dissent on the authority to regulate site commissions, did not dissent.

[01:14:52] Speaker 03:
None of the commissioners have disputed that there's a market failure, and there are two tools to deal with overcharges.

[01:15:02] Speaker 03:
One is competition.

[01:15:04] Speaker 03:
And that's what the Commission tried to rely on in the cases Judge Edwards was talking about.

[01:15:09] Speaker 03:
But the second is if there's a market failure, then the only other tool available is rate caps.

[01:15:15] Speaker 03:
And as I've been saying, I think that Section 276 does give the Commission authority to fulfill those purposes to do that.

[01:15:22] Speaker 06:
And with respect to your question... Yeah, well, what is the significance of the fact that you have a new Commission?

[01:15:28] Speaker 03:
As I said, there's no dispute that there's a market failure, so maybe the new commission will want to adopt different rate caps, but they're dealing with market failure.

[01:15:37] Speaker 06:
Wait a minute.

[01:15:39] Speaker 06:
The problem is the new commission doesn't think it has authority to reach intrastate rates regulation.

[01:15:49] Speaker 03:
With respect, Your Honor, this is your trolley.

[01:15:52] Speaker 03:
The commission may, in some future time,

[01:15:57] Speaker 03:
after conducting some future rulemaking, decide, after hearing all of the arguments and evidence that would come into that proceeding, to do something that it may do.

[01:16:06] Speaker 03:
But you have an order before you that's final, that's been briefed, that's ripe, that's been contested and defended, and which answers Judge Kessler's referral, to which my clients are entitled to an answer and have been waiting since 2001.

[01:16:25] Speaker 02:
Mr. Schwartzman, you don't point, I don't think, to the language in 276B1A that says, that gives the Commission authority to establish a per call compensation plan.

[01:16:39] Speaker 02:
And that seems to me like that comes quite close to saying that there can be rate caps established in order to assure that each and every call is fairly compensated.

[01:16:51] Speaker 02:
Do you think that that tends that way?

[01:16:54] Speaker 03:
Yes, yes, yes, I do.

[01:16:56] Speaker 03:
And I would also point out that when

[01:17:00] Speaker 03:
when in the remand of one of Judge Edwards' cases, the Commission then had to deal with the question which was left open about refunds.

[01:17:12] Speaker 03:
And there, too, the Commission, using equitable principles that probably could not be used under Section 201, dealt with the question about whether or not to order refunds,

[01:17:25] Speaker 03:
and found that if it ordered refunds, it was going to unfairly compensate the payphone providers, and did so using equitable principles for both inter- and intrastate calls that would not be available under Section 201.

[01:17:39] Speaker 02:
What exactly is still before us?

[01:17:42] Speaker 02:
We have all these different issues, and the commission has said that it considers a bunch of them moot in their current configuration because of the reconsideration order.

[01:17:52] Speaker 02:
Is that also your position?

[01:17:53] Speaker 02:
You're trying to defend the authority under 276, but because the site commission payments issue has been shifted, given the 2016 order,

[01:18:04] Speaker 03:
The issue on site commissions that's before this court is the specific legal question, not tied into the facts of how the commission assesses site commissions in the process of calculating rates.

[01:18:17] Speaker 03:
The legal decision, which really is consonant with longstanding commission precedent, that site commissions come out of the profit, they're not a cost.

[01:18:25] Speaker 03:
They've never been a cost, they're not a cost.

[01:18:27] Speaker 03:
That is a clear legal determination, completely free of any kind of factual issues that is

[01:18:33] Speaker 06:
Council for the FCC pointed out in the reconsideration order, the Commission considered your point and divided certain costs that had been in the umbrella of site commissions and

[01:18:52] Speaker 06:
out as legitimate charges.

[01:19:10] Speaker 06:
legitimate cost and illegitimate cost, then it's improper to refer to site commissions as a whole.

[01:19:15] Speaker 06:
That's what the commission points out.

[01:19:17] Speaker 03:
But I believe the pure legal question about whether site commissions are costs, if they want to break down... But it's a word, site commissions.

[01:19:25] Speaker 06:
If you say there's good site commissions, bad site commissions, he doesn't like the term site commissions because he says in the reconsideration order the FCC looked at part of the charges that went into the term site commissions.

[01:19:38] Speaker 06:
and said there was legitimate and part did not.

[01:19:40] Speaker 03:
I would say that site commissions not related to costs are not compensable, and that's a legal determination.

[01:19:49] Speaker 03:
If the commission adjusted it on reconsideration and said, well, this part could be a cost, that doesn't change the core legal determination that site commissions unrelated to costs.

[01:20:00] Speaker 06:
Well, the first end of the question turns on what is a cost.

[01:20:03] Speaker 03:
Right, and that's clear, that's long-standing, going all the way back to the pay phones in the 7-Elevens where the commission said that rents paid to the storekeeper were not a cost, they were part of a share of the profit.

[01:20:16] Speaker 02:
So you're saying any aspect of, say, commissions that aren't supported by evidence of particular costs that are incurred by a facility.

[01:20:24] Speaker 03:
And the decision before this court doesn't delve into that.

[01:20:30] Speaker 03:
I've got a red light on.

[01:20:31] Speaker 03:
Yeah.

[01:20:32] Speaker 02:
I think we will.

[01:20:33] Speaker 02:
The case is submitted.

[01:20:34] Speaker 02:
Oh, wait.

[01:20:35] Speaker 02:
We have a reply.

[01:20:37] Speaker 02:
We have a reply.

[01:20:38] Speaker 02:
Darn.

[01:20:39] Speaker 02:
I'm just signaling that we will take a break after this case so that people can file it out of the court.

[01:20:45] Speaker 02:
But I don't want to cut off the rebuttal by Mr. Kellogg.

[01:20:54] Speaker 08:
I promise to be brief, Your Honor.

[01:20:55] Speaker 08:
I really only want to address one question, which is why the Court should vacate this series of orders rather than simply remand.

[01:21:02] Speaker 08:
I mean, I think what today has shown is that the FCC has created something of a mess.

[01:21:06] Speaker 08:
They started with a 2013 order.

[01:21:09] Speaker 08:
We got most of that, or a significant portion stayed.

[01:21:16] Speaker 08:
that they were going to reconsider it and go to a market-based system and eliminate site commissions.

[01:21:24] Speaker 08:
They then didn't do that after the case was held in abeyance for a considerable amount of time.

[01:21:29] Speaker 08:
They issued the 2015 order, which we got stayed.

[01:21:32] Speaker 08:
And then they tried to clarify that, in fact, they didn't do that.

[01:21:37] Speaker 08:
The rates from the 2013 order now applied to intrastate as well as intrastate because that got stayed.

[01:21:44] Speaker 08:
So then they issued the reconsideration order and that got stayed.

[01:21:48] Speaker 06:
You actually suggested that we hold the case in abeyance with a requirement that the FCC respond within I think I remember 68.

[01:22:01] Speaker 08:
Well, that was... That was if the FCC was going to indicate that they were prepared to issue a new NPRM and reconsider the existing orders.

[01:22:13] Speaker 08:
I haven't heard that today.

[01:22:14] Speaker 08:
The case is right for decision.

[01:22:17] Speaker 06:
We've been... Uncertainty is... Yeah, but can't we assume that with a new commission with majority descended from... I think the proper way to...

[01:22:30] Speaker 08:
propel that to occur is by vacating.

[01:22:33] Speaker 06:
Well, yeah, but if we had done exactly what you wanted to do, we would have... Correct.

[01:22:38] Speaker 06:
We would have... And we would not be here today.

[01:22:40] Speaker 06:
We would have said, oh, if we had done exactly what you wanted to do, we would have essentially remanded without vacating.

[01:22:47] Speaker 06:
Well, you would have held in abeyance.

[01:22:49] Speaker 08:
Same thing.

[01:22:50] Speaker 06:
But the FCC, of course... Same thing, right?

[01:22:55] Speaker 06:
It's not... In the meantime, the rule would have been in effect.

[01:23:00] Speaker 08:
I would suggest that whatever the court does, we need pretty strict deadlines.

[01:23:04] Speaker 08:
Uncertainty is very harmful to our business, and we think that this is a classic case for Vacater so that the FCC can come back with an order that it's prepared to actually defend.

[01:23:17] Speaker 02:
Mr. Cowell, you mentioned more competition.

[01:23:19] Speaker 02:
Is there an entirely different approach that the FCC could have taken to actually support competitive provision of services where people in these facilities could choose among different services?

[01:23:31] Speaker 08:
They have considered that it's very complicated in a prison environment because they very much want to strictly control the access and use of pay phones.

[01:23:42] Speaker 08:
They considered that.

[01:23:43] Speaker 08:
Our solution to that was, and we told them, to get rid of commissions and have people compete with bids on cost and service.

[01:23:53] Speaker 08:
And therefore, that will drive rates to cost and make sure that they're getting the services and services

[01:24:01] Speaker 06:
an advocate of site commissions.

[01:24:02] Speaker 06:
You just don't want to be squeezed if you have to pay them.

[01:24:06] Speaker 08:
I come not to praise site commissions.

[01:24:08] Speaker 02:
See if we have the authority to bury them.

[01:24:14] Speaker 02:
All right.

[01:24:15] Speaker 02:
Thank you very much.

[01:24:15] Speaker 02:
Case is submitted.

[01:24:17] Speaker 02:
We will now take a brief recess.