United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 20, 2001 Decided April 27, 2001
No. 00-1136
Global NAPs, Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
Verizon Delaware, Inc., et al.,
Intervenors
---------
On Petition for Review of Orders of the
Federal Communications Commission
---------
Christopher W. Savage argued the cause and filed the
briefs for petitioner. John D. Seiver entered an appearance.
Lisa E. Boehley, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With her on the
brief were Christopher J. Wright, General Counsel, John E.
Ingle, Deputy Associate General Counsel, A. Douglas Me-
lamed, Assistant Attorney General, U.S. Department of Jus-
tice, Catherine G. O'Sullivan and Robert J. Wiggers, Attor-
neys. Laurel R. Bergold, Counsel, Federal Communications
Commission, and Nancy C. Garrison, Attorney, U.S. Depart-
ment of Justice, entered appearances
Aaron M. Panner argued the cause for intervenors Verizon
Telephone Companies. With him on the brief were Mark L.
Evans, Michael E. Glover, Edward H. Shakin and Lawrence
W. Katz.
Before: Williams, Sentelle and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge: Petitioner Global NAPs, Inc.
("GNAPs") seeks review of a Federal Communications Com-
mission ("FCC") ruling that GNAPs' tariff for Internet-bound
traffic was facially invalid under FCC regulations. GNAPs
raises both procedural and substantive challenges to the
FCC's order. Specifically, GNAPs contends that the FCC
violated its own rules and due process requirements in void-
ing the tariff, misconstrued the tariff terms, and improperly
invalidated the tariff retroactively. We hold that the FCC
did not deprive GNAPs of due process, did not exceed its
authority by invalidating the tariff, and reasonably declared
GNAPs' tariff unlawful. Therefore we uphold the FCC's
order and deny the petition for review.
I. Background
A. Statutory & Regulatory Context
1. Reciprocal Compensation
Under Section 251(b) of the Telecommunications Act of
1996, local exchange carriers ("LECs") are required to "es-
tablish reciprocal compensation arrangements for the trans-
port and termination of telecommunications." 47 U.S.C.
s 251(b)(5). This means that when a customer of Carrier X
calls a customer of Carrier Y who is within the same local
calling area, Carrier X pays Carrier Y for completing, or
"terminating," the call. The FCC interprets this requirement
to apply only to local calls--that is, calls that originate and
terminate within a local area. The reciprocal compensation
requirement "do[es] not apply to the transport or termination
of interstate or intrastate interexchange traffic." In re Im-
plementation of the Local Competition Provisions in the
Telecom. Act of 1996, 11 F.C.C.R. 15,499, 16,013 p 1034 (1996)
(subsequent history omitted).
Under the Act, carriers are expected to negotiate the rate
and terms of reciprocal compensation. If the carriers are
unable to reach agreement, they may submit the contested
issues to arbitration by the relevant state public utility com-
mission ("PUC"). 47 U.S.C. s 252(e)(1). Once the PUC
approves an interconnection agreement, it is charged with
interpreting and enforcing the agreement, but the PUC's
determinations are subject to review in federal court for
consistency with the Act. See 47 U.S.C. s 252(e)(6).
In February 1999, the FCC published an order holding that
Internet-bound calls to Internet Service Providers ("ISPs")
are not local on the theory that such traffic does not originate
and terminate in the same local calling area, and is therefore
not covered by the reciprocal compensation obligation. See
In re Implementation of the Local Competition Provisions in
the Telecom. Act of 1996, Inter-carrier Compensation for
ISP-Bound Traffic, 14 F.C.C.R. 3689 (1999) ("Reciprocal
Compensation Ruling"). While the call to the ISP may be
local, the FCC concluded that the terminating end of the call
is actually the site reached by the Internet connection. The
FCC noted that there was no federal rule governing inter-
carrier compensation for Internet-bound traffic, but held that
carriers would be bound to provide compensation as provided
under their respective interconnection agreements as inter-
preted by state PUCs. Id. at 3704 p 24. The FCC also
initiated a rulemaking on an appropriate federal inter-carrier
compensation mechanism. Id. at 3707 p 28. While this rule-
making was underway, the affected LECs petitioned this
court for review of the FCC's decision. We vacated and
remanded the order for the Commission's failure to provide
an adequate explanation as to why Internet-bound calls were
not treated as local calls. See Bell Atlantic Tel. Cos. v. FCC,
206 F.3d 1 (D.C. Cir. 2000).
2. Tariff Requirements
Under Section 201(b) of the Telecommunications Act, all
interstate communications "charges, practices, classifications,
and regulations" must be "just and reasonable." 47 U.S.C.
s 201(b). Carriers must publish rate tariffs before they go
into effect. Published tariffs "must contain clear and explicit
explanatory statements regarding the rates and regulations."
47 C.F.R. s 61.2 (a). Tariffs may not "make reference to any
other tariff publication or to any other document or instru-
ment." Id. at s 61.74(a). Tariffs filed by nondominant carri-
ers, such as GNAPs, take effect on only one day's notice.
Such tariffs receive streamlined review and are presumed
lawful by the Commission. Failure to comply with the rele-
vant regulatory provisions "may be grounds for rejection" of
the tariff. Id. at s 61.1(b).
B. Relevant Facts
GNAPs is a competitive local exchange carrier ("CLEC") in
several states. GNAPs and Intervenor Verizon, an LEC
formerly known as Bell Atlantic, have interconnection agree-
ments in several states. In April 1997, the two carriers
entered into an interconnection agreement including a provi-
sion that "[r]eciprocal compensation only applies to the trans-
port and termination of Local Traffic" defined as "a call which
is originated and terminated within a given [Local Access and
Transport Area or "LATA"]" in Massachusetts. The parties
did not agree as to whether the agreement's reciprocal com-
pensation provisions covered Internet-bound traffic, but
agreed to abide by the interpretation of the Massachusetts
Department of Telecommunications and Energy ("DTE")--
the Massachusetts PUC--of either the GNAPs-Verizon
agreement or identical language in other agreements to which
Verizon was a party.
On October 21, 1998, DTE ruled that Verizon was required
to pay reciprocal compensation for the delivery of Internet-
bound traffic by MCI WorldCom. Complaint of MCI World-
Com, Inc., D.T.E. 97-116 (Mass. D.T.E. Oct. 21, 1998). At
the time, DTE directed Verizon to pay reciprocal compensa-
tion to other LECs with which it had similar agreements
within the state. Shortly thereafter, however, the FCC pub-
lished the Reciprocal Compensation Ruling declaring that
Internet-bound traffic is interstate, not local. DTE respond-
ed on May 19, 1999 by vacating its October decision and
declaring that Verizon was not required to pay reciprocal
compensation for Internet-bound traffic, but may be required
to pay compensation under the interconnection agreement.
Complaint of MCI WorldCom, Inc., D.T.E. 97-116-C (Mass.
D.T.E. May 19, 1999). On February 25, 2000, after this
Court vacated the FCC's order, DTE reaffirmed its May 1999
ruling, but this ruling is the subject of ongoing litigation.
Complaint of MCI WorldCom, Inc., D.T.E. 97-116-D (Mass.
D.T.E. Feb. 25, 2000).
On April 14, 1999, while the DTE proceedings were under-
way (and before the DTE vacated its initial decision) GNAPs
filed a tariff imposing an $0.008 per minute charge on the
delivery of all Internet-bound calls for which GNAPs "does
not receive compensation ... under the terms of an intercon-
nection agreement." The tariff further provided that a carri-
er's "[f]ailure ... to actually compensate [GNAPs] for ISP-
bound traffic as local traffic under the terms of an Intercon-
nection Agreement shall constitute an election to compensate
[GNAPs] under the terms of this Tariff." On May 27, 1999,
GNAPs billed Verizon under this tariff over $1.7 million for
fifteen days of service. Verizon refused to pay.
C. The FCC Proceedings
On July 8, 1999 Verizon filed a complaint against GNAPs'
tariff under Section 208 of the Communications Act. Verizon
alleged that 1) the tariff was inconsistent with FCC rules
insofar as the FCC exempted ISPs from access charges and
provided for joint provision of access service to interexchange
carriers, 2) the tariff preempted state determination of inter-
carrier compensation for interstate Internet-bound traffic, 3)
the tariff made Verizon an involuntary GNAPs customer, and
4) the tariff imposed excessive rates. Specifically, Verizon
alleged "GNAPs has no right to circumvent the negotiation
and arbitration process that the DTE and this Commission
have directed it to follow by unilaterally filing a federal
tariff." After a status conference, the FCC directed briefing
on ten issues concerning the legality of the tariff and the
applicability of specific FCC rules, including "why Global
NAPs filed a federal tariff and whether that was reasonable."
In re Bell Atlantic-Delaware, Inc., E-99-22 (Aug. 19, 1999).
On December 2, 1999, the FCC declared GNAPs' tariff
unlawful under section 201(b) and void ab initio. In re Bell
Atlantic-Delaware, Inc., et al. v. Global NAPs, Inc., Memo-
randum Opinion and Order, 15 F.C.C.R. 12,946 (1999) ("Or-
der"). The FCC found that the challenged tariff provisions
violated the requirement of 47 C.F.R. s 61.2 that tariffs be
"clear and explicit" because "those tariff provisions condition
the imposition of charges on circumstances that were indeter-
minate when the tariff took effect and remain indeterminate
today." Id. p 2. Additionally, the FCC found that the tariff
impermissibly cross-referenced another document--in this
case the interconnection agreement between GNAPs and
Verizon--in violation of 47 C.F.R. s 61.74(a). The Commis-
sion noted that at the time the tariff was filed, the parties did
not know whether GNAPs would receive reciprocal compen-
sation from Verizon for Internet-bound traffic because the
DTE proceedings were still underway.
On January 3, 2000, GNAPs petitioned for reconsideration
of the FCC's order. GNAPs raised several arguments.
First, GNAPs argued that in basing its decision on grounds
not raised by Verizon or briefed by either party, the FCC
denied GNAPs its right to notice and due process and illegal-
ly relieved Verizon of its burden of proof. GNAPs further
argued that the FCC, by voiding the tariff retroactively,
illegally denied GNAPs just compensation for the interstate
services it provided to Verizon. Finally, GNAPs claimed that
the FCC's order was wrong on the merits and the tariff was
legal under the Act and applicable FCC regulations.
The FCC denied GNAPs' petition on March 22. In re Bell
Atlantic-Delaware, Inc., et al. v. Global NAPs, Inc., Order on
Reconsideration, 15 F.C.C.R. 5,997 (2000) ("Reconsideration
Order"). The FCC rejected GNAPs procedural claims, ex-
plaining that its initial Order was based on issues that were
antecedent to those raised by Verizon's complaint, and there-
fore could be considered. The FCC further rejected GNAPs'
contentions that the tariff was lawful and that GNAPs was
due compensation for services rendered to Verizon.
On March 24, 2000, GNAPs petitioned for review of both
orders.
II. Notice
Petitioner GNAPs contends the FCC violated both its own
rules and GNAPs' due process rights by basing its ruling on
legal arguments that were not presented by either party nor
raised by the FCC in its August 1999 briefing order. Accord-
ing to GNAPs, only those issues pled to the Commission are
properly before it. Therefore, GNAPs claims, the Commis-
sion was precluded from basing its decision on any other
grounds. By doing otherwise, GNAPs claims the FCC violat-
ed its due process rights and the Order must be set aside.
The FCC's rules require that a petitioner plead "[a]ll
matters concerning a claim ... fully and with specificity." 47
C.F.R. s 1.720(a). As interpreted by the FCC, these rules
bar a complainant from amending or otherwise "introducing
new issues late in the development of the case." In re
Implementation of the Telecom. Act of 1996, 12 F.C.C.R.
22,497, 22,597 p 241 (1997). GNAPs claims that any depar-
ture from those rules violates GNAPs' due process rights.
Specifically, GNAPs alleges that the FCC's conduct contra-
dicts the Administrative Procedure Act's ("APA") require-
ment that a party "shall be timely informed of ... the
matters of fact and law asserted." 5 U.S.C. s 554(b). See
Amoco Prod. Co. v. Fry, 118 F.3d 812, 819 (D.C. Cir. 1997)
("Notice and a meaningful opportunity to challenge the agen-
cy's decision are the essential elements of due process.").
The lack of notice, GNAPs claims, made it impossible for it to
respond to the arguments upon which the FCC ultimately
made its decision. Proper notice, GNAPs claims, would have
enabled it "to cut its losses early on by amending its tariff."
Brief for Petitioner at 27.
The FCC responds to GNAPs' procedural claims by argu-
ing that it voided GNAPs' tariff based on legal theories that
were "antecedent" to those raised by Verizon. The FCC
could not determine the reasonableness of the tariff without
determining what it covered, and that question was indeter-
minate given the ongoing DTE proceedings. We agree.
Though the precise legal theories relied upon by the Commis-
sion were different than those raised by Verizon, GNAPs
cannot credibly argue that the effect of the ongoing state
proceeding on GNAPs' tariff and Verizon's payment obli-
gations was not squarely before the agency. GNAPs cites
Virginia State Corp. Comm'n v. MCI, 14 F.C.C.R. 4744
(1999), for the proposition that in a Section 208 proceeding,
the FCC may only consider those issues briefed by the
complainant. While the FCC declined to consider issues
raised sua sponte by Commission staff in Virginia State
Corp., it was not because the Commission lacked the authori-
ty to do so. Rather, the FCC concluded that "[i]n the
particular circumstances" of that case the unbriefed issues
"raised difficult and important issues warranting extensive
analysis by the parties and the Commission." Id. at 4753 p 24
n.65. It was these "particular circumstances," and not the
complainant's failure to raise particular issues standing alone,
that would have deprived the parties "a full and fair opportu-
nity" to address the issues. Id.
There is no dispute that the FCC declared GNAPs' tariff
unlawful "for reasons other than those asserted" by Verizon.
Order at p 14. This does not, however, mean that GNAPs
was deprived due process. Even assuming that the FCC
violated its own rules, GNAPs had adequate opportunity to
meet the charges on reconsideration. GNAPs addressed the
substance of the FCC's findings in its petition for reconsider-
ation (while claiming not to), and identified no significant
evidence that might have changed the FCC's conclusions.
Unless we are given concrete reason to believe otherwise, we
will trust that an agency properly discharged its obligation to
reconsider those issues presented in a petition for reconsider-
ation; "we cannot consider the reconsideration to have been a
sham." U.S. Satellite Broad. Co. v. FCC, 740 F.2d 1177, 1186
(D.C. Cir. 1984). We therefore proceed to review the merits
of the FCC's decision.
III. Merits
A. Standard of Review
Under the APA, a reviewing court must uphold an FCC
order unless it is found to be "arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law." 5
U.S.C. s 706(2)(A). This is a "deferential standard" that
"presume[s] the validity of agency action." Southwestern
Bell Tel. Co. v. FCC, 168 F.3d 1344, 1352 (D.C. Cir. 1999).
The FCC is due substantial deference in its implementation
of the Communications Act, and "even greater deference"
when interpreting its own rules and regulations. Capital
Network Sys. v. FCC, 28 F.3d 201, 206 (D.C. Cir. 1994). A
similar standard applies to the FCC's interpretation of tariffs.
Such interpretations should be upheld where they are "rea-
sonable [and] based upon factors within the Commission's
expertise." American Message Centers v. FCC, 50 F.3d 35,
39 (D.C. Cir. 1995) (citation omitted). Reversing an FCC
tariff interpretation should only occur where it "is not sup-
ported by substantial evidence, or the [Commission] has made
a clear error in judgment." Id. (citation omitted).
B. The Tariff
The FCC found GNAPs' tariff to be ambiguous and to
contain an impermissible cross-reference. Either is a suffi-
cient ground to declare the tariff illegal. GNAPs maintains
that a proper reading of its tariff shows that it is not
ambiguous and does not contain an impermissible cross-
reference. Whereas the FCC and Verizon contend that the
tariff is conditional on another document--the referenced
interconnection agreement--GNAPs maintains that the tariff
is conditional on whether GNAPs was actually paid for carry-
ing the traffic, irrespective of the reason. GNAPs claims the
tariff is not unclear or ambiguous, as carriers will know
whether they paid GNAPs and therefore will know whether
the tariff applies. For the same reason, GNAPs claims, the
tariff should not be read to contain an impermissible cross-
reference in violation of 47 C.F.R. s 61.74(a).
The FCC clearly has the better of this argument. 47
C.F.R. s 61.74(a) provides that "no tariff publication filed
with the Commission may make reference to any other tariff
publication or to any other document or instrument." The
relevant portion of the tariff reads: "This tariff applies to all
ISP-bound traffic for which [GNAPs] does not receive com-
pensation from the Delivering LEC under the terms of an
interconnection agreement." (Emphasis added.) From
these words it is unmistakable that the application of the
tariff is contingent upon whether GNAPs is paid "under the
terms of an interconnection agreement." If GNAPs receives
payment for some other reason, this would not satisfy the
condition, and payment would still be due under the tariff.
The tariff, on its face, violates the FCC's rule. Any reason-
able construction of the tariff's language would require a
customer to consult the interconnection agreement to deter-
mine whether the tariff applied.
The FCC also reasonably concluded that the tariff violates
47 C.F.R. s 61.2(a) which provides that tariffs must be clear
and explicit "[i]n order to remove all doubt as to their proper
application." When GNAPs filed the tariff, the DTE pro-
ceedings were still underway. As a result, it remained un-
clear whether the GNAPs-Verizon interconnection agreement
required compensation for Internet-bound traffic. If a party
could not know whether compensation was due under the
agreement, it could not know whether any payment to
GNAPs was "under the terms of an interconnection agree-
ment." If a party could not reasonably ascertain the "proper
application" of the tariff at the time it was filed, the tariff was
unclear and therefore was invalid.
DTE's subsequent dismissal of GNAPs' claim for compen-
sation under the agreement did not "cure" its ambiguity for
several reasons. First, the FCC's Order focused on whether
the tariff was valid at the time it was filed. GNAPs revised
its tariff on February 14, 2000, eliminating the provisions
found unlawful by the FCC. DTE's subsequent ruling could
not retroactively cure the deficiency of the tariff in effect
prior to February 14 or affect the validity of charges GNAPs
sought to assess Verizon prior to that point. In addition,
because GNAPs appealed the DTE finding, that matter was
not resolved when the FCC made its determination. Finally,
even had the DTE ruling cured the tariff's indeterminacy, it
did not eliminate the impermissible cross-reference.
C. Statutory Structure
In a final effort to avoid the inevitable, GNAPs argues that
the FCC does not have the authority to invalidate tariffs
under Section 208, but only acts as an "adjudicator of private
rights." AT&T v. FCC, 978 F.2d 727, 732 (D.C. Cir. 1992).
In GNAPs' view, it would be proper for the FCC to award
damages to one party or another, but not to declare a tariff
unlawful on its face. Challenges to tariffs themselves,
GNAPs claims, must proceed under Sections 204 and 205,
which relate to modifying or invalidating tariffs.
This argument is no more successful than GNAPs' creative
reading of its own tariff. As we noted just last year, Section
204 grants the FCC "quasi-legislative authority to evaluate a
carrier's proposals for new or revised rates." Hi-Tech Fur-
nace Sys., Inc. v. FCC, 224 F.3d 781, 786 (D.C. Cir. 2000).
Section 208, on the other hand, grants "authority, upon
complaint by an injured party, to adjudicate the lawfulness of
a carrier's past and present rates and practices." Id. It is
difficult to conceive of this case as other than an adjudication
of "the lawfulness of a carrier's ... present rates and prac-
tices."
D. Relief
GNAPs argues, in the alternative, that even if the FCC was
correct to declare the tariff unlawful, the FCC erred by
"retroactively invalidating" the tariff. Whatever the deficien-
cies of the tariff in this case, GNAPs argues, it is not so
deficient as to justify retroactive invalidation under the stan-
dards set forth in ICC v. American Trucking Assn's, 467 U.S.
354 (1984). The retroactive invalidation is not, in GNAPs'
view, "legitimate, reasonable, and direct[ly] adjunct to the
Commission's explicit statutory power." Id. at 365 (internal
quotation omitted). While acknowledging that the FCC has
the authority to order a complete refund of tariff overcharges,
GNAPs argues that the Commission must consider the equi-
ties before ordering such a result. See Virgin Islands Tel.
Co. v. FCC, 989 F.2d 1231, 1240 (D.C. Cir. 1993); Las Cruces
TV Cable v. FCC, 645 F.2d 1041, 1047-48 (D.C. Cir. 1981).
Not only did the FCC not award GNAPs any compensation,
but it did not even bother to consider whether to exercise its
discretion. Thus, even if the Court sides with the FCC on
the merits, GNAPs argues that a remand is necessary for the
FCC to consider whether payment to GNAPs for services
rendered is due.
GNAPs' argument that relief under Section 208 of the Act
cannot be retroactive in effect is clearly wrong. Section 208
is designed to enable parties to obtain redress for a carrier's
violation of the Act or the FCC's regulations. Yet insofar as
Section 208 authorizes the award of damages or other reme-
dies, it is always "retroactive" in its application in that it will
always be changing the economic consequences of a carrier's
prior conduct. The remedy here--complete invalidation of
GNAPs' tariff--may be more severe than consequential dam-
ages, but it is no more backward-looking.
The FCC notes that it may be inappropriate for GNAPs to
have filed its tariff in the first place. The FCC has not
authorized, let alone required, carriers to file tariffs for local
Internet-bound traffic. Instead, the Commission expected
carriers to enter into interconnnection agreements that would
set compensation subject to state commission approval.
Merely because a tariff is presumed lawful upon filing does
not mean that it is lawful. Such tariffs still must comply with
the applicable statutory and regulatory requirements. Those
that do not may be declared invalid. Indeed, GNAPs ac-
knowledges that "[a] tariff that is so plainly defective as to be
a legal nullity may be declared retroactively invalid--void ab
initio--in order to ensure that an injustice is not worked on
the affected customers." Brief for Petitioner at 36. That
was the case here. The FCC found that the tariff, on its face,
violated the plain meaning of the FCC's tariff regulations and
therefore was unlawful from the date of issuance. This is
sufficient to satisfy the test laid out in American Trucking
Ass'ns as the FCC voided a tariff in furtherance of a "specific
statutory mandate" to which the action was "directly and
closely tied." 467 U.S. at 367. The other cases cited by
GNAPs--Virgin Islands Tel. Co. and Las Cruces TV Cable--
are distinguishable, as they involved refunds for unreasonable
rates, and not a patently unlawful tariff.
While we uphold the FCC's conclusion that the tariff was
void ab initio and invalid from the date it was published, we
have not left GNAPs without opportunity to seek redress.
Our holding today does not foreclose GNAPs' ability to seek
compensation under the interconnection agreement before the
DTE as well as to seek a negotiated compensation settlement
with Verizon. If this route is unsuccessful or impractical, and
the FCC's rules make it difficult for GNAPs and other
carriers to obtain compensation for Internet-bound traffic,
they may petition the FCC for a change in the Commission's
rules. That GNAPs sought to game the existing rules, and
lost, does not mean the FCC was arbitrary and capricious in
its application of its own rules.
IV. Conclusion
For the foregoing reasons, the petition for review is
Denied.