[00:00:01] Speaker 00: Case number 18-1007 et al. [00:00:04] Speaker 00: AT&T Corp. [00:00:05] Speaker 00: Petitioner versus Federal Communications Commission and United States of America. [00:00:11] Speaker 00: Mr. Troop for Petitioner, Iowa Network Services, Inc. [00:00:15] Speaker 00: Mr. Garrett for Petitioner, AT&T Corp. [00:00:18] Speaker 00: Mr. Sherr for the respondent. [00:00:22] Speaker 07: Good morning, gentlemen. [00:00:23] Speaker 07: Mr. Troop, you may proceed. [00:00:26] Speaker 02: Thank you, Your Honor. [00:00:27] Speaker 02: May it please the court? [00:00:29] Speaker 02: My name is James Troop. [00:00:31] Speaker 02: I represent Petitioner Iowa Network Services, doing business as Orion. [00:00:37] Speaker 02: Orion is a small rural telephone company that more than 30 years ago, and over that 30 years period, constructed 2,700 miles of five-wrap cable to concentrate the traffic of 200 rural telephone companies at a single location in Des Moines, Iowa, where long-distance carriers like AT&T and Sprint can connect in order to efficiently and economically [00:01:01] Speaker 02: serve customers located in thousands of rural areas. [00:01:06] Speaker 02: This is a filed rate doctrine case and tariff enforcement action seeking ATP's payment of the SEC tariff rate that was filed, effective, and deemed lawful between 2013 and 2018. [00:01:20] Speaker 02: This case will also impact how Orion's tariff rates are regulated in the future, whether it be rule 61.38 [00:01:30] Speaker 02: us-based regulation that is applied to Orion for more than 30 years or the new dual incumbent carrier competitive carrier rule that the FCC has never applied to anybody until this order under review and those incumbent carrier rules and the competitive carrier rules have always been treated mutually exclusive by the FCC and the industry and according to the text and the headings those rules are mutually exclusive [00:02:00] Speaker 02: and differ between dominant carriers and non-dominant carriers. [00:02:04] Speaker 02: The key to this case is the lack of forbearance. [00:02:09] Speaker 02: Congress in Section 10 of the Communications Act provided a three-part test for the FCC to forbear from the tariff requirements if it met that test. [00:02:17] Speaker 02: The FCC has never applied that test to Orion's rates, and forbearance from the statute has never been applied to Orion's rates. [00:02:25] Speaker 02: The FCC continues to apply all of its tariff rates [00:02:28] Speaker 02: and cost-based rate rules to Orion. [00:02:34] Speaker 02: The FCC relies heavily on the Connect America Order, also known as the Transformation Order, 26 SEC records 17663. [00:02:45] Speaker 02: However, instead of forbearance, paragraph 687 of that order explicitly prohibited rule of 61.38 carriers like Orion from using rate ceilings to calculate its tariff rates. [00:02:58] Speaker 02: That paragraph states that the EFCC declines the proposal that a, quote, Section 61.38 carrier be allowed to benchmark through the BOC rate, end quote. [00:03:10] Speaker 02: Yet, the order under review required Orion to benchmark to century-length rates, even though Orion is a rural 61.38 carrier. [00:03:21] Speaker 02: Orion's tariff rates are now more highly regulated than even AT&T's rates for switchbacks of service [00:03:28] Speaker 02: Given the lack of forbearance, the FCC must comply fully with the governing statute, the Communications Act, without the exceptions the FCC imposed in this case. [00:03:42] Speaker 02: Notably, the FCC's decisions and briefs do not rely on forbearance, but instead argue that ORION's filed and effective 2013 tariff rate was not legal. [00:03:52] Speaker 02: In Arizona grocery, the Supreme Court identified only two requirements for a rate to be legal. [00:03:59] Speaker 02: The rate is filed. [00:04:00] Speaker 07: Mr. Troop, this is Judge Sadel. [00:04:02] Speaker 07: Let me just interrupt you and ask you an antecedent question here about Section 51.903. [00:04:12] Speaker 07: Your position is that your client is not a COEC under that rule, right? [00:04:18] Speaker 07: Correct. [00:04:19] Speaker 07: But I'm not sure. [00:04:22] Speaker 07: I mean, because if you're right about that, that ends this case. [00:04:25] Speaker 07: So let's focus on that. [00:04:30] Speaker 07: Your client provides exchange service, right? [00:04:34] Speaker 07: Correct. [00:04:34] Speaker 07: And it's not an ILEC, right? [00:04:38] Speaker 07: So why isn't it a CLEC under the plain language of that rule? [00:04:45] Speaker 07: Well, for 30 years, the... I don't know. [00:04:50] Speaker 07: under the plain language of that rule. [00:04:54] Speaker 07: That's an operative rule now. [00:04:59] Speaker 02: The rule, the transformation order of the rule does not apply to rule 61.38 carriers that are dominant carriers. [00:05:09] Speaker 02: It has an exception, 51.905C says that nothing in this section shall be construed to require carrier [00:05:16] Speaker 02: to file or maintain a tariff or commend an existing tariff if it is not otherwise required to do so under applicable law. [00:05:24] Speaker 02: Applicable law for Orion has been 61.38 cost-based regulation since its inception. [00:05:33] Speaker 02: I'd like to reserve five minutes for rebuttal. [00:05:38] Speaker 04: How does 905C qualify the plain language [00:05:47] Speaker 04: of the definitional section Judge Tate will ask you about though, which says plain as day, any LEC that's not an ILEC is a CLEC. [00:06:06] Speaker 02: Because there are other carriers other than ILEC and CLEC [00:06:15] Speaker 02: The FCC has imposed ILEC rules on Orion for over 30 years. [00:06:23] Speaker 02: And they are mutually exclusive from the CLEC rules. [00:06:27] Speaker 02: And the CLEC rules, when you look at them, like 51.911 cross-reference 61.26, which is entitled Rules for Non-Dominant Carriers, and Orion has always been a dominant carrier. [00:06:41] Speaker 04: They have imposed on you [00:06:44] Speaker 04: whatever obligations flow from being a dominant carrier under whatever scheme governs dominant carriers, but this one is key to a distinction between competitive and incumbent. [00:07:02] Speaker 02: Well, 6138, which OAN has been regulated in under, is only applicable to incumbents. [00:07:09] Speaker 02: It's not just a distinction between dominant carriers and non-dominant carriers. [00:07:13] Speaker 02: 51.38 carriers are only incumbents. [00:07:17] Speaker 02: And the rules that have been applied, Part 32, cross-accounting, you have to ask for a waiver of that rule. [00:07:25] Speaker 02: It said if you're classifying as a competitive carrier, you should waive that rule. [00:07:29] Speaker 02: You have to be declined to waive that rule. [00:07:32] Speaker 02: That's a few months ago. [00:07:33] Speaker 02: They are applying, and the second tariff order, they've applied all of the incumbent rules, which do not apply if you're a competitive carrier. [00:07:45] Speaker 02: You can't be both. [00:07:45] Speaker 02: You can't be a subject to incumbent carrier rules and competitive carrier rules. [00:07:50] Speaker 07: But it classifies, but it, the rule classifies, um, classifies Oregon as a CLEC only, only for purposes of the transitional pricing rules. [00:08:03] Speaker 07: That's all. [00:08:05] Speaker 07: So you have to, what, what about those rules are mutually exclusive with other regulations about dominant carriers? [00:08:16] Speaker 07: That's the argument you have to prevail on, that argument to succeed here. [00:08:23] Speaker 02: If I understand, the incumbent rules and the competitive care rules are mutually exclusive. [00:08:28] Speaker 02: And in this case, the FCC is applying all of those rules to Orion. [00:08:32] Speaker 02: They have never done that ever in the history. [00:08:35] Speaker 02: They never explained this dual regulation. [00:08:37] Speaker 02: Parts 32, 36, 39, and 61 [00:08:42] Speaker 02: are all applicable to only incumbents. [00:08:45] Speaker 02: OIN is fully owned by an incumbent. [00:08:47] Speaker 02: The industry has always thought that if OIN would be regulated, it would be more regulated as an incumbent than under rate ceilings because the competitive carrier rate ceiling, the purpose of them is to replace cost-based rate regulation, and OIN is still required to file tariff rates based on costs. [00:09:05] Speaker 02: So it can't be a competitive carrier because competitive carriers' rate ceilings are intended to replace cost-based regulation. [00:09:12] Speaker 07: I just want to quickly change subjects on you and ask you about the interest rate issue. [00:09:18] Speaker 07: If we don't agree with you and we think that the transitional rules do apply to your client, do I read your brief correctly that you're not challenging the commission's conclusion that the interest rate violated the regulations? [00:09:35] Speaker 07: You're not challenging those, are you? [00:09:37] Speaker 02: Assuming the transitional rules apply. [00:09:41] Speaker 02: Assuming the transitional rules apply and they qualify as a proper rate prescription under section 205. [00:09:50] Speaker 02: Under 205, the FCC would have to find that the rates that ORAM had in 2013 were not just and reasonable, but they imposed a rate ceiling in 2011 before that rate was filed. [00:10:01] Speaker 02: And the rate ceilings themselves would have to be just and reasonable, and the FCC is not allowed ORAM to build a rate ceiling. [00:10:07] Speaker 02: Twice we've been required to file rates below. [00:10:10] Speaker 02: the rate ceiling. [00:10:11] Speaker 02: So those rate ceilings cannot be just and reasonable. [00:10:13] Speaker 07: If they're not just and reasonable for interstate, yes, you can't have the power to... Could you just tell me, where do you make that argument in your brief? [00:10:22] Speaker 07: I thought your argument about the interstate rates was basically you weren't subject to the transitional rules, but where did you make that argument? [00:10:29] Speaker 02: Just a minute. [00:10:29] Speaker 07: Where did you challenge the interstate rates? [00:10:32] Speaker 07: That the Commission's decisions at the interstate rates were unlawful. [00:10:38] Speaker 07: You may ask, I just don't... [00:10:40] Speaker 02: call. [00:10:41] Speaker 02: There wasn't. [00:10:45] Speaker 02: In the reply on reconsideration of the referral order, now under review, Orion indicated that if a rate ceiling is just and reasonable under 201... You're referring to before the commission, right? [00:10:56] Speaker 02: Yeah, JA-49. [00:10:57] Speaker 07: I'm talking about in this court, in your brief in this court. [00:11:03] Speaker 02: Oh, in this court? [00:11:04] Speaker 02: Yeah. [00:11:09] Speaker 02: Well, in the [00:11:10] Speaker 02: I don't have the spikes right in front of me, but we've argued over and over again that the rate ceilings are not recovered costs. [00:11:17] Speaker 02: Okay. [00:11:18] Speaker 07: Maybe when you stand up for rebuttal, you'll just give me the site in the brief. [00:11:21] Speaker 02: I will. [00:11:22] Speaker 02: Okay. [00:11:23] Speaker 07: Thank you. [00:11:24] Speaker 07: Do Judge Katz, Judge Griffith, do you have any other questions before we move on? [00:11:30] Speaker 03: I do not. [00:11:31] Speaker 07: Okay. [00:11:31] Speaker 03: No. [00:11:33] Speaker 07: Mr. Garrah? [00:11:35] Speaker 03: Good morning, Your Honor. [00:11:36] Speaker 03: May it please the court, Joe Guerra for AT&T. [00:11:38] Speaker 03: I'd like to focus primarily on two issues this morning, the FCC's conclusion that AT&T waived its right to collect full damages, and also the proper interpretation of the deemed lawful provision. [00:11:49] Speaker 03: The commission's waiver ruling essentially violated AT&T's right to bifurcate liability and damages issues. [00:11:56] Speaker 03: Having made that election, AT&T's only burden in this case, in the liability phase of this case, was to establish that Orient's 2013 rate was illegal, and AT&T indisputably did that. [00:12:08] Speaker 05: It had no burden. [00:12:10] Speaker 05: Judge Griffith, can I ask you a preliminary question? [00:12:14] Speaker 05: Sure. [00:12:14] Speaker 05: Isn't it significant that the CLEC Bill and Keep Rule has no interstate rate cap? [00:12:22] Speaker 05: I mean, it mentions it in the rule's preamble, but shouldn't the plain text prevail over the preamble? [00:12:29] Speaker 03: Your Honor, I don't think it is significant, and I don't think it's just the preamble. [00:12:34] Speaker 03: I mean, I think the paragraph, I think it's 799, [00:12:38] Speaker 03: as plain as a prescription as you can get. [00:12:40] Speaker 03: It says all interstate rates are capped. [00:12:43] Speaker 03: And, you know, the scope of a rule under the Administrative Procedure Act can include operative language such as the language I just mentioned from the explanation for the rule. [00:12:56] Speaker 03: And I think in this case, that's clearly part of the actual rule. [00:13:02] Speaker 03: And the FCC has taken that position as well. [00:13:04] Speaker 03: And I think their view is entitled to deference in this circumstance. [00:13:07] Speaker 07: But if you're wrong about that, I mean, we have case law that says preamble language doesn't, and I think the commission does, too. [00:13:14] Speaker 07: If you're wrong with that, then doesn't that take care of the interstate rate issue? [00:13:19] Speaker 03: I don't believe so, Your Honor. [00:13:20] Speaker 03: It's my... Well, our principal view is that we are correct about that, obviously, but... That's why... Right. [00:13:28] Speaker 07: If you're wrong about it, doesn't that take care of the interstate? [00:13:31] Speaker 03: I don't think so, Your Honor, because other aspects of the actual rules [00:13:37] Speaker 03: relate how you calculate the intrastate rates to the interstate rates. [00:13:42] Speaker 03: And if you conclude that the absence of an explicit interstate rate in the rules themselves is fatal to an interstate rate cap, then that makes a hash of the entire regulatory scheme. [00:13:55] Speaker 03: And I think for that reason, essentially I think it requires that the court take the position that 51-911C [00:14:07] Speaker 03: In fact, what were the 51-911 in fact includes an interstate component? [00:14:15] Speaker 04: Well, but hang on. [00:14:16] Speaker 04: Let's be a little more precise because there were separate claims made under 911A, B, and C. Commission didn't reach the claim under C. Let's talk about the one, the claim under A. That language by its terms, [00:14:37] Speaker 04: prohibits a rate increase for intrastate service above the rate in effect in 2011. [00:14:47] Speaker 04: That is plain as day limited to intrastates. [00:14:54] Speaker 04: How do we construe that provision to cover interstate or are you relying on a different provision? [00:15:02] Speaker 03: We're relying on the paragraph and the chart in the [00:15:08] Speaker 03: Let's talk about the CFR for now. [00:15:12] Speaker 04: What provision in 47 CFR part 51 can we construe to cover that violation the FCC found about the 2013 filing for interstate rates? [00:15:34] Speaker 03: Your honor, I don't, the excerpts that I have in front of me, I apologize, don't include, but I know that there is a reference to the chart in the transformation order that's in the, I think it's 51905. [00:15:47] Speaker 03: It refers to the chart in the transformation order itself. [00:15:53] Speaker 03: And so I think that incorporates by reference, if you're not going to accept our interpretation of the order itself as binding, I think that cross-reference [00:16:02] Speaker 03: is sufficient, particularly because then you have a sort of huge gap in a rule that's supposed to govern all interstate carrier rates. [00:16:13] Speaker 03: And this is part of a 10-year-old transformation of the entire intercarrier compensation scheme, and that would be a significant hole in that rule. [00:16:24] Speaker 04: Well, it might be a minor hole. [00:16:27] Speaker 04: You would still have an argument that C, which is [00:16:32] Speaker 04: 9-11C, which is not committed to intrastate rates, kicks in as of 2013. [00:16:41] Speaker 03: Your Honor, 9-11C is incorporating the CLEC benchmark rules. [00:16:48] Speaker 03: That's different from the CAPs. [00:16:50] Speaker 03: It's a different kind of CAP. [00:16:54] Speaker 03: So, I don't think 911C is the direct source. [00:16:59] Speaker 03: Obviously, I'll defer if Mr. Scherer has a different view on this subject, but my understanding is that 911C subjects ORIN and all other CLECs to the benchmarking rules under 6126 as of July 1st, 2013. [00:17:16] Speaker 03: So, the cap, the interstate rate cap, [00:17:19] Speaker 03: uh... and and and as you know that really get to my waiver point if i could uh... get back in just a second but uh... the interstate cap itself i think is uh... under the definition again under the administrative procedure act definition i think that that prohibit capping of rates is an actual legislative rule if i could return your honor to the waiver point uh... the uh... [00:17:46] Speaker 03: And the GLEC benchmarking rule really gets to the essence of this point. [00:17:52] Speaker 03: To the extent the FCC properly revived the 2012 rate, it did so as the measure of AT&T's damages, as the rate Orion should have charged instead of its unlawful 2013 rate, which is what Orion asked for in its petition for reconsideration. [00:18:07] Speaker 03: Because the 2012 rate was relevant only as a measure of damages, its validity did not have to be determined in the liability phase. [00:18:14] Speaker 03: Instead, AT&T had the right and should still have the right to show in the damages phase that the 2012 rate could not be the rate that should have been charged. [00:18:23] Speaker 03: Even if it was lawful when filed in 2012, even if it was deemed lawful shortly thereafter, it was not lawful forever because if it exceeded the C-like benchmark rate on or after July 2013, then it was de-tariffed by operation of law and void and unenforceable. [00:18:41] Speaker 03: And there's a fundamental logical inconsistency in the FCC's reasoning here because it says that AT&T can challenge the validity of the 2012 rate if it's based on furtive concealment, which is just another way of saying that the 2012 rate is invalid. [00:18:56] Speaker 03: They can do that in the damages phase, but for some reason that they haven't explained, they can't challenge it under the SEALIC benchmarking rules, which just is irrational distinction. [00:19:06] Speaker 03: And in addition, Your Honor, the FCC hasn't adequately explained why waiver principles should trump its responsibility to enforce those SELECT benchmark rules. [00:19:17] Speaker 03: Again, if the rate exceeded the SELECT benchmark as of July 2013, then it's void and unenforceable. [00:19:24] Speaker 03: And the FCC hasn't explained why a procedural footfall, and we don't agree that there was one, makes it okay to enforce a rate that's unlawful or void. [00:19:32] Speaker 03: It hasn't said that the interest of finality or need to prevent undue prejudice to orient justifies not caring about whether or not the rate is illegal. [00:19:41] Speaker 03: All it said is you should have seen this coming. [00:19:44] Speaker 03: And as we pointed out in our papers, that's wrong because A, they cite no precedent in which any complainant has been required to challenge rates in a complaint that may be revived as a measure of damages. [00:19:58] Speaker 03: And even if AT&T should have seen that the rate might be revived as a measure of damages, that simply meant that it should have been unnoticed that it would have to challenge that rate in the damages phase, not as part of the liability proceedings. [00:20:12] Speaker 03: If I could just turn to the deemed lawful provision itself, Oren is asking this court to read a single sentence in that provision entirely out of context and to ignore the structure of the statute, in particular, Section 205A. [00:20:27] Speaker 03: That provision empowers the FCC to prescribe just and reasonable rates to be thereafter observed, and those descriptions have the force of a statute. [00:20:35] Speaker 03: Congress surely knew this in 1996, and yet it did not amend 205A in any way when it added 20483 to the statute. [00:20:44] Speaker 03: In light of this, you would need very strong evidence to justify the counterintuitive, if not implausible, conclusion. [00:20:51] Speaker 03: That Congress thought that rates the FCC has already prohibited should be eligible for deemed lawful status and there is no such evidence here. [00:20:59] Speaker 04: Isn't it inherent in a deemed lawful formulation that there will be rates that would otherwise be unlawful but are treated as lawful by operation of this provision? [00:21:19] Speaker 03: Your honor, the point of the provision was to address the situation that arose in the ACS case. [00:21:24] Speaker 03: You have circumstance where people file rates under rate of return regulations, and you can't know, as the court said, it's virtually impossible to tell whether they're going to be found to be reasonable or not for months, if not years. [00:21:35] Speaker 03: And this provision shifted the risk of that uncertainty from carriers who were otherwise, who previously were subject to refund liability, over to customers and said, from now on, if you don't object quickly, there's no refund right. [00:21:49] Speaker 03: But there's no evidence that Congress meant to shift the risk of illegal filing to a, uh, to, from the, from the Lex to the, uh, to the, uh, customers. [00:21:59] Speaker 03: And that's what they're arguing for here. [00:22:01] Speaker 03: And if I could just point out, your honor, even the sentence that they are focusing on says that if the FCC decides to take action, the action it's supposed to take under subsection a one is to enter upon a hearing to deter concerning the lawfulness of the rate. [00:22:16] Speaker 03: It makes no sense to hold a hearing to decide whether a rate you already outlawed is lawful. [00:22:21] Speaker 03: And that, in congruity, just points out that Congress could not have anticipated this kind of situation when it adopted the deemed lawful provision. [00:22:29] Speaker 04: What it was really aimed at was the circumstance I just described, where you wouldn't necessarily know whether the rate was... Your theory is that this operates only if the [00:22:43] Speaker 04: substantive rules governing the rate if it's unclear, if it's sufficiently unclear how those rules apply to the filing at the moment of the filing. [00:22:59] Speaker 04: Your Honor, I don't know that it's... That makes some intuitive sense, but I just don't see it in the text of 204A3. [00:23:09] Speaker 03: Your Honor, what I think what you need to find in the text of 204A3 is [00:23:13] Speaker 03: that congress authorized the filing of rates that have been proscribed by the FCC in advance that have the force of a statute. [00:23:21] Speaker 03: And you have to reconcile, I think this is a question of reconciling the tension between two provisions. [00:23:27] Speaker 04: That's fine, but I mean the statute itself, without any action by the FCC, proscribes unjust and unreasonable rates. [00:23:38] Speaker 04: But you're only saying the same thing about the statute, right? [00:23:42] Speaker 04: Once someone figures out that the rate is unjust and unlawful, you could say, well, it was made that way by the statute from the moment of the filing. [00:23:55] Speaker 04: Or suppose the FCC, you put a lot of weight on their promulgating regulation. [00:24:03] Speaker 04: Suppose they just promulgate a regulation that says, [00:24:07] Speaker 04: no rate shall be unjust or unreasonable. [00:24:10] Speaker 04: Your argument would apply equally to that regulation as to the rules we're talking about here. [00:24:19] Speaker 03: I don't think so, Your Honor. [00:24:20] Speaker 03: That would just be a restatement of the statutory standard. [00:24:23] Speaker 03: But the issue with the statutory standard is you cannot, this is what you said in the ACS case, you cannot know at the time of the filing whether the rate is unlawful. [00:24:32] Speaker 03: And that uncertainty is what 204-A... [00:24:35] Speaker 04: So the key point on your theory is not that there's a pre-existing regulation. [00:24:42] Speaker 04: It's that it's hard to figure out how that regulation applies to the filing at issue. [00:24:49] Speaker 03: Your honor, what we're saying is that when the FCC has proscribed rates and said no rates above X, that that's not just that's not a regulation. [00:24:58] Speaker 03: That is a prescription of rates above X that has the force of a statute. [00:25:02] Speaker 03: There's no [00:25:03] Speaker 03: ambiguity, there's no reason, there's no uncertainty as to whether or not the rates that exceed that level are reasonable anymore. [00:25:12] Speaker 03: They are per se unreasonable. [00:25:14] Speaker 03: And that's the only circumstance we're saying, again, because you have to resolve the tension between these two provisions, that you cannot plausibly conclude that Congress intended to allow carriers to file rates that have already been outlawed as per se unreasonable. [00:25:30] Speaker 03: And that's [00:25:32] Speaker 03: There's no evidence in the Legislative History Congress intended that. [00:25:36] Speaker 03: The single sentence that says you may file does not contain the kind of evidence you would need to justify that conclusion. [00:25:41] Speaker 03: In the CSX case, by contrast, you had a statute that said that a carrier could file any new rate and then prescribe one exception, leaving the conclusion that, aside from that one exception, even unlawful rates could be filed. [00:25:55] Speaker 03: You don't have that here. [00:25:56] Speaker 03: And so in light of that, we're seeing as a matter of holistic statutory interpretation, [00:26:01] Speaker 03: You have to read these pieces of parts together to conclude that Congress did not authorize and did not consider already unlawful rates to be eligible for deemed lawful status and just sort of create the exercise of having to put people on, if you can catch me if you can kind of filing requirement in which if somebody gets away with it, suddenly a rate, they're effectively amending a rate prescription by the FCC. [00:26:25] Speaker 05: Mr. Garrett, this is Judge Griffith. [00:26:27] Speaker 05: Let me back up a little bit and ask a broader question. [00:26:31] Speaker 05: If we disagree with you on the applicability of the interstate rate cap, if we conclude that it doesn't apply to CLEC here, why should we reach any of the damages issues, including the deemed lawful issue? [00:26:48] Speaker 03: Well, Your Honor, I think in that circumstance, 18T should have the right to demonstrate that the rate as of 2013 violated the SELEC benchmark rule then. [00:26:58] Speaker 03: There's no question that that rule applied as of 2013. [00:27:02] Speaker 03: And that would have been an issue that I think the FCC in fact said that it was not going to address it in light of its conclusion that there was a rate cap violation that didn't need to address it. [00:27:15] Speaker 03: But they should not get off scot-free if you conclude that there's no interstate rate cap. [00:27:20] Speaker 03: If their rate exceeded the 2013 CELAC benchmark rule, then it was void and unenforceable as of that date. [00:27:27] Speaker 03: And so we would have a remand, I think, for that to assess that question. [00:27:34] Speaker 03: OK, thank you. [00:27:35] Speaker 07: So we're way over time here. [00:27:37] Speaker 07: Judge Cassis, do you have any other questions? [00:27:39] Speaker 03: No, I'm fine. [00:27:40] Speaker 07: Thank you. [00:27:40] Speaker 07: OK, let's go ahead and hear from the commission. [00:27:42] Speaker 07: And Mr. Ware, we'll give you a couple of minutes for rebuttal. [00:27:44] Speaker 03: Thank you, Your Honor. [00:27:46] Speaker 07: Mr. Sher? [00:27:48] Speaker 06: Good morning. [00:27:48] Speaker 06: May it please the court? [00:27:49] Speaker 06: I'd like to address three issues from my colleagues' presentations. [00:27:54] Speaker 06: The deemed lawful provision first, the bill and keep regulations and damages. [00:28:01] Speaker 07: First, with respect... Could you first begin with the issue we were just talking about, which is where in the transition rules, pricing rules, did the Commission even impose a cap on interest rates? [00:28:11] Speaker 07: Why don't you start there? [00:28:13] Speaker 06: Your Honor, we're relying on the cap that the commission established in the transformation order itself in paragraph 800. [00:28:22] Speaker 06: In paragraphs 800 and 801, the commission of the transformation order, the commission announced, we are hereby capping all interstate switch access rates for all LEX going forward. [00:28:39] Speaker 06: And as we argue in our brief, that's a legislative rule. [00:28:43] Speaker 05: That's all in the preamble, right? [00:28:49] Speaker 06: It's in the text of the transformation order. [00:28:56] Speaker 05: I thought the paragraphs were in the preamble. [00:29:01] Speaker 05: Am I wrong about that? [00:29:04] Speaker 06: It's in paragraphs 800 and 801 of the transformation order. [00:29:13] Speaker 06: I'm not sure if I understand your question about a preamble. [00:29:16] Speaker 07: Even if you're right that we can rely on the preamble language, I don't think we can when the regulation is clear, as it is here. [00:29:22] Speaker 07: The regulation itself does not mention more state rates. [00:29:25] Speaker 07: It's a little hard to incorporate that into clear regulatory language based on preamble language, isn't it? [00:29:34] Speaker 06: Well, Your Honor, as Mr. Guerra mentioned, there is a note into Section 51901 [00:29:42] Speaker 06: that references the chart that appears in the transformation order. [00:29:49] Speaker 06: But the fact that the rate cap doesn't appear in the commission's codified rules doesn't prevent a clear statement that's binding in the transformation order itself from being a legislative rule. [00:30:04] Speaker 07: Do you have a case that you can cite? [00:30:06] Speaker 06: Yes, I'm just looking for a site in our brief. [00:30:38] Speaker 01: Bear with me one more second here. [00:31:12] Speaker 06: On page 30 of our brief, Your Honor, National Mining Association versus McCarthy, an agency action that purports to impose legally binding obligations or prohibitions on regulated parties and that would be the basis for an enforcement action for violations of those obligations or requirements is a legislative rule. [00:31:34] Speaker 05: Mr. Chair, here's my problem. [00:31:37] Speaker 05: In the neighboring rules for ILEX, [00:31:42] Speaker 05: it's clearly stated, they clearly have interstate rate caps. [00:31:47] Speaker 05: And the best you can come up with on the SELEX is language in the preamble, which I think as Judge Tatel has suggested, we've got case law on that. [00:32:00] Speaker 05: And then this reference, which isn't a model of clarity. [00:32:05] Speaker 05: And it's so clear in the neighboring rules for the ILAC. [00:32:09] Speaker 05: That seems to be, [00:32:11] Speaker 05: To me, it's either an intentional omission in the CLEC rules, or maybe it's a drafting error. [00:32:18] Speaker 05: But it's not there, clearly, the way it is in the ILEX. [00:32:22] Speaker 05: Why is that? [00:32:25] Speaker 06: I'm not sure, Your Honor. [00:32:28] Speaker 05: I think that the Commission... I mean, you agree with me that it's certainly not as clear as it is expressly stated in the rules for the ILEX. [00:32:39] Speaker 06: Right, and one of the situations you have here is that Orion is not an incumbent lex so it doesn't fall under those rules. [00:32:53] Speaker 06: And with respect to competitive lex, the commission basically relied on benchmarking rules generally to bring competitive lex into the [00:33:07] Speaker 06: Bill and keep transition. [00:33:09] Speaker 06: But I think that the commission believed that it was being universal and comprehensive when it spoke in the transformation order itself and said that. [00:33:19] Speaker 05: Okay, if we disagreed with you and thought that the SELEC rule contains no interstate rate cap, why should we reach the damages issues? [00:33:30] Speaker 06: Well, Your Honor, if you disagree on that point, then there is still the intrastate [00:33:37] Speaker 06: The commission found that there was a violation of the provisions of 51.911A and B. And I think that I agree with Mr. Guerra that if you were to conclude that the 2011 rate cap that the commission said that it adopted in the transformation order was not in fact applicable, [00:34:05] Speaker 06: Then there would still be an issue as to whether the 2013 rate that Orion filed violated the benchmark rule, which went into effect beginning July 2013, which clearly applies to interstate rates. [00:34:23] Speaker 04: That's an open issue. [00:34:24] Speaker 04: That hasn't been adjudicated yet, one way or the other. [00:34:27] Speaker 04: That's correct, Your Honor. [00:34:29] Speaker 05: So we would remand for damages determination on that. [00:34:34] Speaker 05: liability and damages determination on that? [00:34:38] Speaker 05: Is that your view? [00:34:39] Speaker 05: Once again, if we disagreed with you on the point about the interstate rate caps for CLEX. [00:34:47] Speaker 05: Yes, I believe so. [00:34:48] Speaker 05: OK, thank you. [00:34:49] Speaker 05: That's helpful. [00:34:53] Speaker 06: Going back to the deemed lawful provision, this case presents for the first time the question of whether a rate that violates a prescribed cap [00:35:01] Speaker 06: when filed can be deemed lawful. [00:35:03] Speaker 06: And the FCC's answer makes sense in terms of the statutory language, context, and purpose. [00:35:10] Speaker 06: Now the language has to be read in light of the common law that's set forth in Arizona Grocery. [00:35:16] Speaker 06: And the FCC did so reasoning that a rate that was not legal or lawful when it was filed because it exceeded a prescribed cap could not be deemed lawful. [00:35:26] Speaker 05: Why didn't the FCC challenge this? [00:35:30] Speaker 05: within 15 days of filing. [00:35:32] Speaker 05: I mean, I presume there's some sort of review within that period, right? [00:35:37] Speaker 06: There is a pretty effective tariff review process, Your Honor. [00:35:42] Speaker 05: So why wasn't this one challenged? [00:35:44] Speaker 06: This one flipped through the cracks. [00:35:47] Speaker 06: The fact is that the tariff process isn't perfect. [00:35:49] Speaker 06: The commission pointed out in one of the orders on review that it receives thousands of annual tariff filings. [00:35:58] Speaker 06: Um, and as a practical matter, it's not able to review as carefully as it, um, perhaps should or can every single tariff filing. [00:36:07] Speaker 06: And so some of the filings slipped through the cracks and, um, as Mr. Garrah was explaining, um, the question here is whether to interpret the statute, um, to immunize carriers from refund liability, um, in the event that they file a patently illegal [00:36:25] Speaker 04: that nevertheless slips through the cracks and we believe that... We believe that... In every single case where the deemed lawful provision would apply, it will always be the case that ex-post, once you figure out the specific rate under review, [00:36:54] Speaker 04: that rate will have violated some pre-existing source of law, whether it be statutory prohibition on unjust and reasonable rates or some regulation implementing that prohibition. [00:37:12] Speaker 04: I think that's correct, Your Honor. [00:37:14] Speaker 04: The situation can't be so the dispositive, the objection you're asserting can't simply be, oh, well, that filing [00:37:24] Speaker 04: was illegal at the time it was filed. [00:37:31] Speaker 06: The situation here that makes it unique is that when the tariff, when the rate is filed, it plainly violates a cap that was in existence before. [00:37:46] Speaker 06: And the Arizona, under common law, [00:37:49] Speaker 06: legality and lawfulness were two distinct things with respect to rates. [00:37:56] Speaker 06: This court discussed that in ACS. [00:37:58] Speaker 06: The Arizona grocery case holds that with respect to a situation like this where you have a rate cap, the agency prescribes a rate in advance, there can be no difference between the legal and the lawful rate. [00:38:13] Speaker 06: A rate that's filed [00:38:15] Speaker 06: that exceed a prescribed rate is a nullity. [00:38:18] Speaker 06: It's void av initio. [00:38:20] Speaker 06: And so that's the situation. [00:38:22] Speaker 06: I think as Mr. Garrett was explaining, what Congress changed drastically in adopting the deemed lawful provision was a situation where a carrier files a legal rate that later turns out to be unlawful because of developments. [00:38:39] Speaker 06: Because of what? [00:38:41] Speaker 06: Well, for instance, the rate of return. [00:38:44] Speaker 04: Because someone figures out how the just and reasonable requirement applies in a case where it's unclear. [00:38:54] Speaker 04: And it was unclear in our two cases because we had rate of return carriers. [00:39:03] Speaker 04: And that apparently is a very complicated thing to figure out. [00:39:08] Speaker 06: Well, it's not that it's complicated to figure out so much that rate of return, when you, when you, a rate of return, let's say the commission has a regulation that says you cannot have more than, earn more than 11.25% rate of return. [00:39:23] Speaker 06: You develop rates in order to achieve that rate of return, but then whether you go below it or above it depends on numerous variables like customer demand. [00:39:36] Speaker 06: So, [00:39:36] Speaker 06: uh... it used to be that if a carrier at the and you would only know this at the end of the two-year period if a carrier uh... earned more than the limit on the rate of return let's say to the increased customer demand i think there was a case this court involving the virgin island telephone company where there was a hurricane and rather was a tremendous amount of demand and as a result uh... there were over earning that the f e c could claw back those over earnings after [00:40:04] Speaker 06: uh... the period now there was no way absolutely no way of saying uh... when that rate was filed in that rate of return was filed that it was unlawful uh... it was so and it was it clearly legal to all intents and purposes uh... the congress set out to change that and it did change that but this is the completely different situation where in advance uh... you know that the rate is [00:40:29] Speaker 06: illegal and unlawful and the commission is reading the statute to bar deemed lawful status for those kind of filings specifically. [00:40:40] Speaker 06: We think that the interpretation not only makes sense but the context of the statute because the interpretation preserves FCC rate making authority and that would simply be undermined if tariff filers were free to ignore caps that the commission established in advance. [00:40:57] Speaker 06: And we certainly think the FCC's interpretation is consistent with Congress's purpose here, which was to provide certainty to carriers who filed rates that are legal from the outset that those rates will not be later deemed, later be found unlawful should they file the streamline tariff filings. [00:41:20] Speaker 06: So the court, we believe, should affirm the agency's interpretation of deemed lawful. [00:41:24] Speaker 06: Now, turning to Bill and Keith regulations, [00:41:27] Speaker 06: I think as the court recognized, the Bill and Keep regulations are comprehensive in scope. [00:41:32] Speaker 06: They apply to all local exchange carriers. [00:41:36] Speaker 06: Orient is not exempt as an intermediate carrier. [00:41:39] Speaker 06: It's not unique in being subject to cost-based rate-making and to rate caps. [00:41:44] Speaker 06: And its contrary arguments rest on a historical distinction that's really not meaningful anymore in the context of access charge reform. [00:41:54] Speaker 06: And finally, turning to damages, [00:41:57] Speaker 06: The FCC has strict statutory deadlines and proceedings like this one, so complainants must plead all matters fully and with specificity. [00:42:06] Speaker 06: AT&T thought the damages based on the just and reasonable rate that Orient should have charged instead of its 2013 rate. [00:42:14] Speaker 06: And the FCC found that Orient's 2012 rate was conclusively presumed to be that just and reasonable rate. [00:42:21] Speaker 06: Now at the end of the liability phase, AT&T argued the presumption should be reversed. [00:42:26] Speaker 06: but the FCC correctly concluded that it was too late. [00:42:29] Speaker 06: The determination that Orient is liable for charging a rate other than the deemed lawful rate belongs to the liability phase and couldn't be deferred to the damages phase. [00:42:44] Speaker 07: Mr. Chair, I want to ask you about the, this is Judge Tatel, I want to ask you about the Commission's decision to defer [00:42:54] Speaker 07: AT&T Section 201B claim, it just seems to me that that action is completely inconsistent with what we said in AT&T Corporation versus FCC, where we said, when presented with AT&T's complaint, the Commission had an obligation to answer the question it raised and to decide whether the carrier had violated the statute, period. [00:43:24] Speaker 06: In our brief we cite to a subsequent decision by this court in a different AT&T case where this court declined to apply that precedent where there was no indication based on the court's review of the record of the same kind of quote unquote administrative shell game that the court believed [00:43:52] Speaker 06: the FCC had been engaging in in the 92 case when it deferred the 201B complaint to a future rulemaking proceeding. [00:44:01] Speaker 06: Now, here, what you had were two parallel complaint proceedings. [00:44:06] Speaker 06: AT&T was party to both proceedings. [00:44:10] Speaker 06: And you had the same fundamental issue presented in both proceedings. [00:44:14] Speaker 06: And what the Commission said was the gravamen of the [00:44:18] Speaker 06: um... claim involved a third-party one of uh... orients participating lax and a t t's right uh... interconnect directly with that with that third party said that because that party was a party to the other complaint proceeding yes he believed that the more efficient way uh... to address that issue was it was in the parallel complaint received i think if you compare [00:44:44] Speaker 06: On this case and what the commission did in this case to the previous case, they're simply not comparable. [00:44:53] Speaker 06: Here it's a parallel complaint proceeding involving the party that's the subject of the complaint. [00:44:59] Speaker 06: There it was, we're simply deferring to a future rulemaking proceeding, which was much more tentative and unsure. [00:45:09] Speaker 04: The parties in the two actions here are different, right? [00:45:14] Speaker 04: One involves AT&T's complaint against Orion, and the other involves their complaint against, I've forgotten the name, but the subtending LEC that's the notorious access stimulator. [00:45:31] Speaker 06: Correct. [00:45:33] Speaker 04: So you would presumably have different damages, you would have different [00:45:38] Speaker 04: legal issues since the whole question here arises only if AT&T has lost on its primary contention that LEC is itself an access stimulator. [00:45:55] Speaker 04: Now the question would be, well, can they nonetheless be roped in through an unreasonable practice? [00:46:02] Speaker 04: Not clear at all how that would arise in a case against [00:46:06] Speaker 04: subtending LEC which has the direct contract with the conference call service or whatever it is so doesn't seem like even if you had the discretion it doesn't seem like this is a reasonable exercise of it. [00:46:28] Speaker 06: What the Commission said was we think that the essence of this particular complaint [00:46:36] Speaker 06: is AT&T's right to avoid the Orion CEA network and interconnect directly with this subtending lag. [00:46:50] Speaker 06: I think it was Great Lakes. [00:46:52] Speaker 06: And AT&T's contention was that the [00:46:59] Speaker 06: The identity of the competing incumbent LAC and the nature of the services that it provided gave it a right to a different transport rate as to this subtending LAC and a right to interconnect directly with that LAC and the Commission just concluded that the [00:47:23] Speaker 06: The substance of the two claims was the same. [00:47:27] Speaker 06: I think the language in the order on review is this is really about Great Lakes, not Orient. [00:47:35] Speaker 06: And so we think that it's appropriately all fair. [00:47:47] Speaker 07: George Griffith, any other questions? [00:47:54] Speaker 07: Mr. Sherry, I think you may have a minute or two left. [00:47:59] Speaker 06: Thank you, Your Honor. [00:48:04] Speaker 07: Now you don't. [00:48:05] Speaker 07: All right. [00:48:08] Speaker 07: Well, thank you. [00:48:09] Speaker 07: Let's see. [00:48:14] Speaker 07: I think neither council had any time left. [00:48:17] Speaker 07: Am I right? [00:48:19] Speaker 07: Correct. [00:48:19] Speaker 07: OK. [00:48:20] Speaker 07: So you can each take two minutes if you would like. [00:48:24] Speaker 07: Okay. [00:48:28] Speaker 02: Thank you, Your Honor. [00:48:29] Speaker 02: This is James Troup. [00:48:31] Speaker 02: Just to follow up, the argument that Orion made that the rate ceilings do not comply with 205's requirement that a rate prescription be just and reasonable were set forth in its initial brief starting on page 16 and in its reply brief starting on page 11. [00:48:49] Speaker 02: The FCC relies greatly on Arizona grocery. [00:48:52] Speaker 02: It's notable that it does not argue that there's been any forbearance. [00:48:56] Speaker 02: And the case law is clear that mandatory de-tariffing, even permissive de-tariffing, or retroactive voiding of a filed and effective tariff rate is not permitted on this statute like they did in this case if there's been no forbearance. [00:49:12] Speaker 02: Instead, the FCC argues that the rate is not legal. [00:49:18] Speaker 02: In Arizona Grocery, there's two factors were specified for when a rate is legal is whether it was filed and whether it was published. [00:49:30] Speaker 02: And both of those things happened in this case. [00:49:33] Speaker 02: The rate was filed, reviewed, and accepted by the FCC. [00:49:36] Speaker 02: It was published on the FCC's website and in a public notice. [00:49:41] Speaker 02: Orion provided a statutory required notice for 2013 rate. [00:49:46] Speaker 02: Neither 18T nor any other carrier challenged the rate before it became effective. [00:49:50] Speaker 02: After reviewing the 2013 tariff rate, the FC decided to not suspend or investigate the rate amendment. [00:49:57] Speaker 02: The rate became effective and deemed lawful in July 2, 2013 and was charged to customers for four years before the rate was retroactively avoided. [00:50:10] Speaker 02: The rate ceilings, whether it be the rate ceiling 51905, which [00:50:16] Speaker 02: does not actually exist, the interstate rate ceiling there, which supposedly if Orion violated does not exist. [00:50:24] Speaker 02: Or whether you talk about the 51-911C rate benchmark, neither are just and reasonable because neither has the FCC allowed Orion to charge. [00:50:35] Speaker 02: If it's just and reasonable, Orion should be able to charge it. [00:50:39] Speaker 02: In its reply on reconsideration of the referral order, Orion indicated if a rate ceiling is just and reasonable, [00:50:46] Speaker 02: under 201 and 205, and the FTC must allow one in the billet. [00:50:50] Speaker 02: And that was rejected in the second, the first careful order. [00:50:54] Speaker 02: All right. [00:50:54] Speaker 02: Thank you, Your Honor. [00:50:55] Speaker 07: Mr. Guara? [00:51:02] Speaker 03: Mr. Guara? [00:51:04] Speaker 03: Yes, Your Honor. [00:51:04] Speaker 03: Two quick points. [00:51:05] Speaker 03: On the deemed lawful provision, Judge Katz, I think the key distinction between the just and reasonable language of 201 [00:51:12] Speaker 03: and section prescriptions under Section 205A is that Section 205A says that when there's a rate prescription is to be thereafter observed. [00:51:21] Speaker 03: And if you conclude that a carrier can just file a rate that's been prescribed under that provision and it can take deemed lawful effect, then I think that effectively nullifies that plain language in the 205A provision. [00:51:34] Speaker 03: With respect to, and also, as I said earlier, the point of having the FCC suspend and conduct a hearing [00:51:41] Speaker 03: doesn't make sense with respect to already prohibited rates because there's no reason to conduct a hearing in that circumstance there's already been a hearing and a conclusion that the rates unlawful and the fact that that just confirms the congresses and with focusing on rates that could be just unreasonable after a lengthy uh... set of factors like what those that you uh... mister share was identifying with respect to the existence of the interstate rate cap i would just make two points i know your honors have alluded to your cases but i would [00:52:10] Speaker 03: just make the plain language pitch under the APA that a rule is defined as the whole or part of any agency statement of general or particular applicability and future effect. [00:52:22] Speaker 03: And then I'm elipsing here and says, including the approval or prescription for the future of rates. [00:52:28] Speaker 03: And so if that is, I think, manifestly what the FCC did in paragraphs 800 and 801 in its transformation order. [00:52:39] Speaker 03: and for the reasons that they and we both have said we think that ought to be treated as an effective rate prescription. [00:52:45] Speaker 03: And the other observation I'd make again is that there isn't a reference to the chart on those pages in 51.901. [00:52:53] Speaker 03: And so if the court is going to be saying that only things that show up in the CFR constitute rules and rate prescriptions, then I think the court ought to take the view that a cross-reference [00:53:08] Speaker 03: to a part of an order should be treated as part of the CFR itself. [00:53:13] Speaker 03: Thank you, Your Honors. [00:53:15] Speaker 07: Thank you, gentlemen, for your oral arguments and for adjusting so nicely to our new remote audio lives here. [00:53:26] Speaker 07: We'll take the case under submission.