United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 6, 2001 Decided November 9, 2001
No. 00-1207
Verizon Telephone Companies, et al.,
Petitioners
v.
Federal Communications Commission and
United States of America,
Respondents
Sprint Corporation, et al.,
Intervenor
On Petitions for Review of Orders of the
Federal Communications Commission
Aaron M. Panner argued the cause for petitioners and
supporting intervenors. With him on the briefs were Michael
K. Kellogg, Michael E. Glover, John M. Goodman, James D.
Ellis, Roger K. Toppins, Jeffry A. Brueggeman, Jay C.
Keithley, and Michael B. Fingerhut.
John E. Ingle, Deputy Associate General Counsel, Federal
Communications Commission, argued the cause for respon-
dents. With him on the briefs were Daniel M. Armstrong,
Associate General Counsel, Laurel R. Bergold and Lisa E.
Boehley, Counsel, John M. Nannes, Acting Assistant Attor-
ney General, United States Department of Justice, Robert B.
Nicholson and Robert J. Wiggers, Attorneys. Christopher J.
Wright, General Counsel, Federal Communications Commis-
sion, and Lisa S. Gelb, Counsel, entered appearances.
Michael J. Thompson, Albert H. Kramer, Katherine J.
Henry, and Andrew J. Phillips were on the joint brief of
intervenors ABTEL Communications, Inc., et al. Robert F.
Aldrich entered an appearance.
Michael E. Glover, John M. Goodman, James D. Ellis,
Roger K. Toppins, Jeffry A. Brueggeman, Michael K. Kel-
logg, Aaron M. Panner, Jay C. Keithley, and Michael B.
Fingerhut were on the brief of Local Exchange Carrier
intervenors.
Before: Ginsburg, Chief Judge, Edwards and Sentelle,
Circuit Judges
Opinion for the Court filed by Circuit Judge Edwards.
Edwards, Circuit Judge: A group of local phone companies
(known as "local exchange carriers," or "LECs") seek review
of an order of the Federal Communications Commission
("FCC" or "Commission") holding them liable for violating
the unreasonable charge provisions of 47 U.S.C. s 201(b)
(1994). The violations occurred when the LECs wrongfully
imposed so-called End User Common Line ("EUCL") fees on
certain "independent payphone providers" ("IPPs"). In an
agency adjudication that addressed complaints challenging
the fees, the FCC initially construed the rules enunciated in
an earlier rulemaking, In re MTS and WATS Market Struc-
ture, 97 F.C.C.2d 682 (1983) ("Access Charge Reconsidera-
tion") (setting rules by which LECs could recover costs
associated with calls made on payphones), to allow the imposi-
tion of the fees. However, the FCC's decision did not survive
judicial review. In C.F. Communications Corp. v. FCC, 128
F.3d 735 (D.C. Cir. 1997), the court held that the Access
Charge Reconsideration did not allow for the fees. The case
was remanded, leading the Commission to reverse itself in
the order now under review. See In re C.F. Communications
Corp. v. Century Tel. of Wisconsin, Inc., 15 F.C.C.R. 8759
(2000) ("Liability Order"). In changing its position following
judicial review, the FCC conclusively determined that the
LECs had violated the applicable Access Charge Reconsidera-
tion rules by imposing the EUCL charges; the Commission
decided, however, that the question of what damages should
flow from that violation was best reserved for another day.
In their present petition, the LECs contend, first, that the
Liability Order is final, and thus immediately reviewable by
this court. Second, they argue that the agency may not now
sanction them for conduct that had been expressly approved,
and may have even been compelled, by the Commission itself.
The FCC responds that we lack jurisdiction at this time,
because by leaving the issue of damages unresolved, the
Liability Order was rendered non-final. Moreover, the Com-
mission asserts that even if we do reach the merits, the
LECs' retroactivity argument must fail, as whatever reliance
those carriers placed on ultimately erroneous FCC pro-
nouncements cannot excuse their violations of governing
law - as that law is properly construed. We conclude that
the Liability Order is final, and that we therefore have
jurisdiction to review it. It is true that the general rule is
that an adjudicatory decision resolving only liability and not
damages is not final. In this case, however, the relevant
jurisdiction-conferring statute, 47 U.S.C. s 208(b), provides
that an order "concluding an investigation ... of the lawful-
ness of a charge" is a final order subject to immediate appeal.
We are presented with just such an order here.
On the merits, we hold that it was appropriate for the FCC
to find the LECs liable for their EUCL charges, even though
the Commission initially construed the Access Charge Recon-
sideration rules to allow the charges. We do not believe that
the Commission should be prevented from stating the law
correctly merely because it may have misconstrued the appli-
cable rules in the past. We emphasize, however, that this
holding does not necessarily doom the LECs' retroactivity
arguments. Because the FCC has not yet fixed the means by
which it will calculate damages, the LECs are not foreclosed
from presenting their equitable concerns to the agency during
the next phase of the proceedings. We therefore express no
opinion as to the Commission's authority to impose damages
on the LECs for charges that they may have collected in
reliance on the agency's initial (and mistaken) interpretations
of the Access Charge Reconsideration rules.
I. Background
Much of the regulatory and procedural background to the
present petition is set out in C.F. Communications. See 128
F.3d at 736-38. We will not repeat that entire discussion
here, but rather will concentrate on the most salient points.
The underlying issue in this case is how local phone compa-
nies are to recover the costs that they incur when long-
distance calls are made on coin-operated telephones. The
story begins in 1983, when the FCC issued general rules
establishing a regulatory mechanism for LECs to be compen-
sated for providing long-distance carriers (known as "interex-
change carriers" or "IXCs") access to their local networks.
In re MTS and WATS Market Structure, Third Report and
Order, 93 F.C.C.2d 241 (1983) ("Access Charge Rulemaking"),
modified on recon., 97 F.C.C.2d 682 (1983), modified on
further recon., 97 F.C.C.2d 834 (1984), aff'd and remanded in
part sub nom. Nat'l Ass'n of Regulatory Util. Comm'rs v.
FCC, 737 F.2d 1095 (D.C. Cir. 1984). For most phones, the
Commission decided that these costs were to be footed by
"end users" who would be assessed EUCL charges by the
LECs. Pay telephones, however, which tend to have no
predetermined end-user, required a different solution. Ac-
cordingly, the FCC decided to exempt public payphones from
EUCL fees altogether, instead allowing the LECs to recover
their costs from the IXCs directly, in the form of Carrier
Common Line ("CCL") charges. See Access Charge Recon-
sideration at 705. Not all payphones were exempted, howev-
er. Instead, the FCC distinguished between true "public"
payphones - such as those in airports and on street corners -
and those which it labeled "semi-public" - a category that
included coin-operated phones found in restaurants and gas
stations, where "there is a combination of general public and
specific customer need for the service." Id. at 704 & n.40.
Reasoning that this latter class could be linked to identifiable
subscribers, the Commission allowed the LECs to impose flat
EUCL charges on those subscribers, just as they would do
for ordinary private phones. See id. at 706.
At the time when the Access Charge Reconsideration was
issued, all of the nation's payphones were owned by the LECs
themselves. This situation was soon undermined when the
FCC allowed a group of "independent" providers to enter the
payphone market. See Registration of Coin Operated Tele-
phones, 49 Fed. Reg. 27,763 (July 6, 1984). These IPPs
brought with them a technological advantage: so-called
"smart" phones, which connected to ordinary phone lines
rather than to the special coin lines that linked the LEC-
owned phones to the central processors that supervise their
calls. The new phones, which were able to perform this
managerial task internally, needed no such specialized hook-
up. However, despite their architectural and cognitive differ-
ences, the two types of phones are found in the same kinds of
places and are basically indistinguishable from the lay user's
perspective. Nevertheless, when it came to EUCL charges,
the LECs decided to treat the smart phones rather different-
ly from their less sophisticated cousins. Acting at first
without any guidance from the Commission other than the
original Access Charge Reconsideration, the LECs imposed
EUCL fees on all of the new phones - not merely those
located in semi-public places - and assessed these tolls on the
IPPs directly.
Unsurprisingly, the IPPs balked at these charges. Their
concerns, however, were not well received by officials at the
FCC. In 1988 and 1989, informal complaints filed by two
IPPs generated two letters from Anita J. Thomas, an analyst
in the Enforcement Division of the Commission's Common
Carrier Bureau. In both of these letters, Thomas declared
that by imposing EUCL fees on IPPs, the LECs violated
neither their own tariffs nor the agency's regulations. See
Letter from Anita J. Thomas to LeRoy A. Manke, Manager,
Coon Valley Farmers Telephone Co. (Apr. 4, 1989), reprinted
in Joint Appendix ("J.A.") 154; Letter from Anita J. Thomas
to Lance C. Norris, Vice President, American Payphones, Inc.
(Sept. 14, 1988), reprinted in J.A. 152. In May of 1989,
another IPP, C.F. Communications Corp. ("CFC"), filed a
formal complaint, alleging that the LECs' conduct had violat-
ed various provisions of the Communications Act and seeking
reparations for the wrongfully collected EUCL charges. This
challenge proved unsuccessful at the agency level, as both the
Common Carrier Bureau and ultimately the Commission it-
self sided with the LECs. In re C.F. Communications Corp.
v. Century Tel. of Wisconsin, 8 F.C.C.R. 7334 (Com. Car.
Bur. 1993); 10 F.C.C.R. 9775 (1995) ("EUCL Decisions"). In
rejecting CFC's complaint, the FCC concluded that IPPs
were properly considered "end users" and thus could be
subjected to EUCL charges. Moreover, the agency held that
the IPPs' payphones were "semi-public" within the meaning
of the Access Charge Reconsideration no matter where they
were located or how they were used.
CFC sought review of the FCC decision in this court and
found some success. In C.F. Communications, the court
vacated the EUCL Decisions, holding both that the classifica-
tion of IPPs as "end users" was an unreasonable interpreta-
tion of the relevant regulation, 47 C.F.R. s 69.2(m), and that
the FCC had not adequately justified allowing EUCL charges
to be collected for IPP phones while exempting similarly
situated LEC-owned payphones from such fees. See 128
F.3d at 738-42. In deciding this second issue, the court
pointedly rejected the FCC's theory that a payphone should
be denied "public" (and thus EUCL-exempt) status under the
Access Charge Reconsideration merely because it was capa-
ble of private use. Rather, the court stated that the relevant
question was how a phone was actually used, that is, the
manner in which it was held out to the public. Id. at 741-42.
These holdings were significant because they undermined the
legal basis on which the LECs had relied to rationalize their
disparate treatment of independently owned "smart" pay-
phones. And, without such support, the LECs' actions seem
to collapse into the kind of unreasonable discrimination pro-
scribed by the Communications Act. See 47 U.S.C. s 202(a).
However, the court in C.F. Communications declined to
decide "whether the Commission's interpretation compelled
LECs to discriminate under Section 202(a), or the precise
consequences if it did," leaving those issues for another day.
128 F.3d at 742.
On remand, the FCC chose not to mount a renewed
defense of its decision to allow the LECs to assess end-user
fees on the IPPs. Instead, the Commission decided to hold
the LECs liable for devising and implementing that policy in
the first place. In the Liability Order now on review, the
FCC concluded that, in light of the C.F. Communications
decision, a EUCL fee imposed on an independent payphone
that is used in the same manner as a LEC-owned "public"
payphone is an "unreasonable charge" under 47 U.S.C.
s 201(b). See Liability Order at 8766, p 20. The agency
then concluded that an award of damages for such liability
was appropriate. Id. at 8768-69, p p 27-29. At the same
time, however, the agency postponed a final ruling on dam-
ages, reasoning that further briefing and argument were
needed in order to fix the proper amount of the award. Id. at
8771, p p 33-34. The LECs filed the present petition for
review before that phase of the proceedings commenced.
II. Discussion
This petition presents two central questions, one jurisdic-
tional and one merits-based. The first is whether the FCC's
Liability Order is final and therefore subject to immediate
judicial review. We answer this question in the affirmative.
The second is whether it was permissible for the Commission
to hold the LECs liable for imposing charges that had
previously been condoned by the FCC itself. We answer this
question in the affirmative as well. At the same time,
however, we note that, because the agency has not yet
conclusively determined how it will measure damages, the
LECs still will be able to raise their concerns about retroac-
tivity and reliance with the FCC during the next phase of
these proceedings. And, until the Commission reaches a
conclusion on that issue, we are unable to review the propri-
ety and permissible extent of damages in this case.
A. Finality under 47 U.S.C. s 208(b)
Under 28 U.S.C. s 2342(1) (1994), this court has jurisdic-
tion to determine the validity of "all final orders of the
Federal Communications Commission made reviewable by
section 402(a) of title 47." In turn, 47 U.S.C. s 208(b) states
that "[a]ny order concluding an investigation" of, inter alia,
"the lawfulness of a charge" commenced at the behest of a
party complaining about the actions of a common carrier
"shall be a final order and may be appealed under section
402(a) of this title." The jurisdictional question in this case,
then, is whether the Liability Order "concluded" the investi-
gation that began with CFC's original 1989 complaint against
the LECs.
All parties agree that, in the Liability Order, the FCC
reached a final determination that the LECs had imposed
unreasonable charges in collecting EUCL fees from the IPPs,
thereby violating 47 U.S.C. s 201(b). See Liability Order at
8773, p p 40-41. This decision is undoubtedly final, in the
sense that there is no indication that the agency will revisit it
in future proceedings. Indeed, neither the Commission's
brief nor agency counsel's argument on appeal claimed that
the finding of liability is subject to further review by the FCC
sans a court order requiring it. Nonetheless, the Commission
contends that its decision to bifurcate the damages phase of
its investigation from the liability phase stripped the entire
Liability Order of its finality. In other words, according to
the FCC, an investigation under s 208 of a single complaint
that seeks a determination of liability and an award of
damages is not over until the Commission has resolved both
aspects of the complaint. See Br. for Respondents at 27.
As a general proposition, an FCC order is final if it "(1)
represents a terminal, complete resolution of the case before
the agency, and (2) determines rights or obligations, or has
some legal consequence." Capital Network Sys., Inc. v. FCC,
3 F.3d 1526, 1530 (D.C. Cir. 1993) (internal quotations and
citations omitted). Here, we are sure that the Liability
Order, even without a concomitant determination of damages,
has "some legal consequence" for the LECs. The actions of
the FCC bear this out. Agency officials have relied on the
Liability Order at least twice in unrelated cases to deny
requests made by SBC Communications, one of the named
LECs, to have sanctions against it mitigated. See In re SBC
Communications, Inc., 16 F.C.C.R. 10963, 10968, p 15 & n.38
(Enf. Bur. rel. May 24, 2001); In re SBC Communications,
Inc., 16 F.C.C.R. 5535, 5543, p 19 & n.53 (Enf. Bur. rel. Mar.
15, 2001). If the Liability Order now furnishes the basis for
agency judgments in subsequent cases, the FCC is hard
pressed to deny that the finding of legal liability is sufficient
to satisfy the second prong of the finality test. Cf. Consolida-
tion Coal Co. v. Fed. Mine Safety & Health Review Comm'n,
824 F.2d 1071, 1078 (D.C. Cir. 1987) (holding that an agency
designation that "became a part of [the regulated party's]
permanent record, thereby exposing [it] to more severe sanc-
tions for later violations" supplied "the 'modicum of injury'
necessary to support jurisdiction") (quoting Meredith Corp. v.
FCC, 809 F.2d 863, 868 (D.C. Cir. 1987)).
The FCC is, however, quite correct to point out that, under
a well-established principle of finality, when a tribunal elects
to resolve the issue of liability in a particular action while
reserving its determination of damages on that liability, that
decision generally is not considered "final" for purposes of
judicial review. See Franklin v. District of Columbia, 163
F.3d 625, 628 (D.C. Cir. 1998) ("In damage and injunction
actions, a final judgment in a plaintiff's favor declares not
only liability but also the consequences of liability--what, if
anything, the defendants must do as a result."); see also
Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 744 (1976)
(holding that a summary judgment order imposing liability is
not considered final under 28 U.S.C. s 1291 where "assess-
ment of damages or awarding of other relief remains to be
resolved"). This basic understanding of finality is the norm
not only in civil litigation, but also in the administrative
context, at least where the relevant statute does not embrace
a non-traditional view of finality. See, e.g., Rivera-Rosario v.
United States Dept. of Agric., 151 F.3d 34, 37 (1st Cir. 1998)
("A final decision in an adjudicatory proceeding is one that
resolves not only the claim but, if liability is found, also the
relief to be afforded."); Washington Metro. Area Transit
Auth. v. Dir., Office of Workers' Comp. Programs, 824 F.2d
94 (D.C. Cir. 1987); accord AAA Eng'g & Drafting, Inc. v.
Widnall, 129 F.3d 602, 603 (Fed. Cir. 1997) (holding that an
order of the Armed Service Board of Contract Appeals was
not final because it resolved only "entitlement" (liability)
while reserving decision as to "quantum" (damages)).
In this case, however, this norm of finality has been sup-
planted by statute. Congress added subsection (b) to 47
U.S.C. s 208 in 1988. See Pub. L. No. 100-594, s 8(c), 102
Stat. 3021 (1988). This amendment converted what had been
s 208 - which allowed a broad group of entities to bring
complaints to the FCC challenging the actions of common
carriers, thus triggering investigations by the Commission of
the "matters complained of" - into what is now subsection (a).
In turn, the new provision, subsection (b), established time
limits pursuant to which certain investigations cognizable
under subsection (a) had to be concluded, and decreed that
dispositions in those investigations would be subject to imme-
diate judicial scrutiny. Thus, when the FCC conducts an
investigation into the "lawfulness" of a (1) charge, (2) classifi-
cation, (3) regulation, or (4) practice, "any order concluding"
such an investigation is deemed to be a final order under
s 208(b). This case falls squarely within the meaning of this
expediting amendment.
Our conclusion is compelled by the statutory text. The
crucial word in s 208(b) is "lawfulness," which must be read
to mean what it says, namely that which is "allowed or
permitted by law." Webster's Third New International
Dictionary 1279 (1993); cf. Holland v. Williams Mountain
Coal Co., 256 F.3d 819, 826 (D.C. Cir. 2001) (Sentelle, J.,
concurring) ("While it is fashionable in some legal circles to
deride 'hyper-technical reliance upon statutory provisions,'
this Court does not - and should not - move in them.") (citing
Palm Beach County Canvassing Bd. v. Harris, 772 So.2d
1220, 1227 (Fla. 2000), vacated, 531 U.S. 70 (2000)). As such,
interpreted literally (as we think is proper), s 208(b) applies
to final determinations of liability of the sort that the FCC
has delivered here.
This conclusion is further buttressed by the fact that
s 208(b) does not mention damages. By contrast, damages
are specifically covered in three other sections of the chapter:
s 206 makes common carriers who do anything "declared to
be unlawful" liable for damages; s 207 allows any party
harmed by the actions of a common carrier to file a complaint
with the FCC seeking damages; and s 209 authorizes the
Commission to "make an order directing the carrier to pay to
the complainant the sum to which he is entitled" if it deter-
mines that damages are appropriate. Given that s 208(b)
was designed to render only a limited category of FCC
decisions final, the failure of that provision to mention dam-
ages, set against the explicit reference to damages in these
other provisions, militates in favor of applying s 208(b) as it
is written.
It is also noteworthy that s 201(b) declares all "charges,
practices, classifications, and regulations" that are "unjust or
unreasonable" to be "unlawful." The categories listed in
s 201(b) are coterminous with those cognizable under
s 208(b), further suggesting that, as to this class of investiga-
tions, a determination of lawfulness is separate and distinct
from a determination of what damages (if any) should flow
from a violation of the law. For, even if the FCC ultimately
decides that the LECs need not pay any damages for their
EUCL charges, it would not follow from such a decision that
they had done nothing unlawful. One can violate the law
without being made to pay for it. Accordingly, when the
FCC conclusively resolved that the EUCL charges were
unreasonable within the meaning of s 201(b) and the Access
Charge Reconsideration, see Liability Order at 8766, p 20, it
simultaneously and necessarily concluded its investigation
into the "lawfulness" of those charges, as it left nothing more
to be said on the question of whether the LECs had run afoul
of the statute's proscriptions.
To the argument that the original "investigation" has not
been concluded because CFC's original complaint sought
damages, and the agency's failure to determine damages
means that it has not resolved all of the "matters complained
of" under s 208(a), our answer is simple. The class of
investigations contemplated by s 208(b), and subject both to
that subsection's time limitations and finality rules, is narrow-
er than the class of investigations contemplated by s 208(a).
Indeed, the FCC has conceded as much. See Br. for Respon-
dents at 32. This difference in coverage is stark, and plain on
the face of the statute. Under s 208(a), investigations can be
launched regarding "anything done or omitted to be done by
any common carrier subject to this chapter in contravention
of the provisions thereof." By contrast, s 208(b) governs
only the four types of investigations enumerated above. Its
text refers not to investigations "of the matters complained
of," but rather to investigations "of the lawfulness of a
charge, classification, regulation, or practice."
Taken together, then, the language of s 208(b), which
speaks only of lawfulness, and the structure of the common
carrier chapter, which contemplates separate determinations
of lawfulness and damages, compel the conclusion that when
the FCC enters an order dealing solely with the lawfulness of
a charge, that order is final under s 208(b)(3) even if it fails
to resolve a complainant's properly presented claim for dam-
ages. Our holding in no way limits how the Commission may
elect to investigate complaints under s 208. No FCC order
is subject to review under s 208(b)(3) unless it actually
terminates an investigation of the lawfulness of a common
carrier's activities. Thus, had the agency not bifurcated the
proceedings in this case, but instead reserved final judgment
on the LECs' liability until it was in a position to consider
damages simultaneously, this court would have been com-
pelled to wait as well. But, having elected to bifurcate, and
thus to render a conclusive finding that the LECs acted
unlawfully, the FCC subjected its decision to immediate
review. Accordingly, we proceed to the merits of the LECs'
petition.
B. The LECs' Liability for Imposing EUCL Charges
The LECs argue that the Liability Order was arbitrary
and capricious for two related reasons. First, they contend
that the Supreme Court's decision in Arizona Grocery Co. v.
Atchison, Topeka & Santa Fe Railway Co., 284 U.S. 370
(1932), precludes a finding of liability where a common carrier
imposes charges pursuant to and in reliance on the Commis-
sion's official mandate. Second, they assert that the FCC's
change in position amounted to a "new" rule, and, therefore,
the agency was foreclosed from applying it retroactively. We
reject both claims. In doing so, we emphasize that our
analysis here is limited to the question of whether it was
permissible for the FCC to hold the LECs liable for violating
the Communications Act. We do not decide the question of
whether the FCC may award damages for the LECs' charges
that have been found to be unlawful.
1. The Arizona Grocery Rule
In Arizona Grocery, the Supreme Court held that the
Interstate Commerce Commission could not order a common
carrier to pay reparations for charging a rate that the agency
had explicitly approved at the time it was collected, but
subsequently determined to have been unreasonable. In that
case, the ICC had, in a proceeding described by the Court as
"quasi-legislative," 284 U.S. at 388-89, ordered railroads ship-
ping sugar from California to Phoenix, Arizona to charge no
rate exceeding 96.5 cents per 100 pounds. In response, the
carriers adopted a rate of 86.5 cents, which they later reduced
to 84 cents; these rates were then challenged before the
Commission. In that proceeding, which the Court described
as "quasi-judicial," id. at 389, the agency determined that this
rate was unreasonable to the extent that it exceeded 71 to 73
cents and awarded the sugar shippers reparations from the
carriers for the difference. The Supreme Court ultimately
held that this damages award was improper:
Where the Commission has, upon complaint and after
hearing, declared what is the maximum reasonable rate
to be charged by a carrier, it may not at a later time, and
upon the same or additional evidence as to the fact
situation existing when its previous order was promulgat-
ed, by declaring its own finding as to reasonableness
erroneous, subject a carrier which conformed thereto to
the payment of reparation measured by what the Com-
mission now holds it should have decided in the earlier
proceeding to be a reasonable rate.
Id. at 390.
Despite the superficial appeal of this passage, the rule
enunciated therein is of no help to the LECs in this case.
First, Arizona Grocery deals only with the power of the ICC
to award reparations to shippers for unreasonable rates that
they had paid to carriers. See id. at 381 ("This case turns
upon the power of the Interstate Commerce Commission to
award reparations with respect to shipments which moved
under rates approved or prescribed by it."). Arizona Gro-
cery has been and should be understood in the terms in which
it was decided, as a proscription against the retroactive
revision of established rates through ex post reparations.
See, e.g., Alabama Power Co. v. ICC, 852 F.2d 1361, 1373
(D.C. Cir. 1988) (suggesting that Arizona Grocery stands for
the proposition that requiring railroads "to pay refunds,
based on a determination that the earlier Commission-
approved rates were impermissible, runs counter to the well-
established prohibition against retroactive ratemaking");
AT&T v. FCC, 836 F.2d 1386, 1394-95 (D.C. Cir. 1988) (Starr,
J., concurring) (citing Arizona Grocery for the "basic rule of
ratemaking" that "when the Commission determines that
existing rates are excessive, it cannot order a refund of past
payments under the revoked rate"); cf. Sea Robin Pipeline
Co. v. FERC, 795 F.2d 182, 189 n.7 (D.C. Cir. 1986) ("FERC
may not order a retroactive refund based on a post hoc
determination of the illegality of a filed rate's prescription.").
As such, neither Arizona Grocery nor the rule it announced
are concerned with a situation such as the one presented
here, in which we must decide not whether the FCC may
force the LECs to repay that which they took through EUCL
charges, but rather whether the Commission may make a
retroactive determination that those charges were unlawful at
the time that they were imposed. Indeed, the rule against
retroactive ratemaking is premised on the implicit under-
standing that an established rate is not made illegal if it is
later found to be impermissible or unreasonable. See, e.g.,
Arizona Grocery, 284 U.S. 370, 389 (1932) (the ICC "could
repeal the order as it affected future action, and substitute a
new rule of conduct as often as occasion might require, but
this was obviously the limit of its power, as of that of the
legislature itself"); Town of Norwood, Mass. v. FERC, 53
F.3d 377, 381 (D.C. Cir. 1995) ("The retroactive ratemaking
doctrine prohibits the Commission from authorizing or requir-
ing a utility to adjust current rates to make up for past errors
in projections. If a utility includes an estimate of certain
costs in its rates and subsequently finds out that the estimate
was too low, it cannot adjust future rates to recoup past
losses."); Sea Robin, 795 F.2d at 189 n.7 ("Sea Robin had a
right to rely on the legality of the filed rate once the
Commission allowed it to become effective."). The subse-
quent determination rejecting the earlier rate prescription is
similar to a congressional action revising an earlier statutory
enactment - the later action may suggest that the original
legislative act was ill-advised, but this will not justify repara-
tions for persons who were disadvantaged by the original
legislative enactment. This case does not involve the sort of
ratemaking contemplated by Arizona Grocery, so the same
assumptions do not apply here.
Second, in light of the implicit assumptions underlying the
rule against retroactive revision of established rates through
ex post reparations, it is not surprising that the Court in
Arizona Grocery observed that the ICC had prescribed a
legal rate in its "quasi-legislative capacity." 284 U.S. at 388.
The Court recognized that ratemaking - "fixing rates or rate
limits for the future" - is a legislative function, and held that
once the Commission had exercised such a power it could only
undo the results prospectively. Id. at 388-89. In other
words, Arizona Grocery, by its own terms, does not apply
where an adjudicating agency alters, even with retroactive
effect, a policy established in a previous quasi-judicial action.
Nor has it ever been so applied. The lines between these
categories of activity are not always clear - indeed, in Ari-
zona Grocery itself the quasi-legislative rates were estab-
lished in an adjudicatory proceeding, see id. at 388. Never-
theless, the Court in Arizona Grocery made clear that there
is an important distinction between rules resulting from
quasi-adjudication and rules resulting from quasi-legislation.
We are therefore bound to follow the Court's mandate and
apply this distinction.
With these principles in mind, we are constrained to con-
clude that the FCC's actions in this case are not governed by
the rule established in Arizona Grocery. The Access Charge
Reconsideration, a rulemaking designed to establish how the
LECs were to recover end-user costs in the future, was
undoubtedly legislative in character. But this rulemaking
was not "revised" by the Liability Order that the LECs now
challenge. Rather, the Liability Order merely corrected the
EUCL Decisions, agency adjudications that had erroneously
interpreted the original Access Charge Reconsideration by
holding that particular instances of challenged conduct on the
part of the LECs did not violate the regulations arising from
that rulemaking. In those decisions, the FCC did not pur-
port to substitute a new legislative rule for an old one.
Moreover, when the court in C.F. Communications vacated
the judgment in the EUCL Decisions, it did so on the
grounds that the FCC had misconstrued the Access Charge
Reconsideration rulemaking. See 128 F.3d at 741-42. Our
opinion in that case did not, however, suggest that the
underlying rulemaking was in any way infirm. And on
remand, the FCC issued the Liability Order to rectify the
errors found pursuant to the judicial review of the EUCL
Decisions.
Therefore, the FCC's actions in issuing the orders in the
EUCL Decisions and the Liability Order were not analogous
to the situation in Arizona Grocery. In Arizona Grocery, the
ICC purported to retroactively revise an established rate
(that was the product of a "quasi-legislative" action); in this
case, by contrast, the FCC purported to interpret and apply
legislative regulations in succeeding adjudications.
There is no doubt that the EUCL Decisions were intended
to have prospective application, in the sense that these adjudi-
catory actions purported to interpret the Access Charge Re-
consideration rulemaking, which remained in force all along.
But this fact does not advance the LECs' argument. It is
well understood that judicial interpretations of legislative
enactments have consequences for parties in the future; yet,
this does not render the statutory construction a legislative
activity. See Japan Whaling Ass'n v. Am. Cetacean Soc., 478
U.S. 221, 230 (1986) ("[u]nder the Constitution, one of the
Judiciary's characteristic roles is to interpret statutes ...");
Northwest Airlines, Inc. v. Transport Workers Union of Am.,
451 U.S. 77, 95 & n.34 (1981) (emphasizing that "the federal
lawmaking power is vested in the legislative, not the judicial,
branch of government," but that once the legislature speaks,
"the task of the federal courts is to interpret and apply
statutory law"). So too with adjudication by administrative
agencies. See Bowen v. Georgetown Univ. Hosp., 488 U.S.
204, 216-17 (1988) (Scalia, J., concurring) ("Adjudication ...
has future as well as past legal consequences, since the
principles announced in an adjudication cannot be departed
from in future adjudications without reason."); Goodman v.
FCC, 182 F.3d 987, 994 (D.C. Cir. 1999) ("[T]he nature of
adjudication is that similarly situated non-parties may be
affected by the policy or precedent applied, or even merely
announced in dicta, to those before the tribunal."). To sug-
gest, as the LECs do here, that the EUCL Decisions were
somehow "legislative" merely because they interpreted a
rulemaking or because they had some future impact would
entirely collapse the distinction between rulemaking and adju-
dication, and thus the very distinction on which Arizona
Grocery rests. As such, we hold that when the FCC depart-
ed from the EUCL Decisions in a subsequent adjudication, it
was not constrained by Arizona Grocery's blanket prohibition
on retroactive repeals of quasi-legislative ratemaking.
2. The Retroactivity Doctrine
This is not to say that agency adjudications that modify or
repeal rules established in earlier adjudications may always
and without limitation be given retroactive effect. To the
contrary, there is a robust doctrinal mechanism for alleviating
the hardships that may befall regulated parties who rely on
"quasi-judicial" determinations that are altered by subsequent
agency action. Over fifty years ago, in SEC v. Chenery
Corp., 332 U.S. 194, 203 (1947), the Supreme Court cautioned
that the ill effects of retroactivity "must be balanced against
the mischief of producing a result which is contrary to a
statutory design or to legal and equitable principles."
In the ensuing years, in considering whether to give retro-
active application to a new rule, the courts have held that
[t]he governing principle is that when there is a "substi-
tution of new law for old law that was reasonably clear,"
the new rule may justifiably be given prospectively-only
effect in order to "protect the settled expectations of
those who had relied on the preexisting rule." Williams
Natural Gas Co. v. FERC, 3 F.3d 1544, 1554 (D.C. Cir.
1993). By contrast, retroactive effect is appropriate for
"new applications of [existing] law, clarifications, and
additions." Id.
Pub. Serv. Co. of Colo. v. FERC, 91 F.3d 1478, 1488 (D.C. Cir.
1996) ("PSCC"). See also Aliceville Hydro Assocs. v. FERC,
800 F.2d 1147, 1152 (D.C. Cir. 1986) (discussing the distinc-
tion between "new applications of law" and "substitutions of
new law for old law"). In a case in which there is a
"substitution of new law for old law that was reasonably
clear," a decision to deny retroactive effect is uncontroversial.
Epilepsy Found. of N. Ohio v. NLRB, No. 00-1332, slip op. at
12-13 (D.C. Cir. Nov. 2, 2001). In cases in which there are
"new applications of existing law, clarifications, and addi-
tions," the courts start with a presumption in favor of retroac-
tivity. See, e.g., Health Ins. Ass'n of Am. v. Shalala, 23 F.3d
412, 424 (D.C. Cir. 1994). However, retroactivity will be
denied "when to apply the new rule to past conduct or to
prior events would work a 'manifest injustice.' " Clark-
Cowlitz Joint Operating Agency v. FERC, 826 F.2d 1074,
1081 (D.C. Cir. 1987) (en banc) (quoting Thorpe v. Housing
Auth. of the City of Durham, 393 U.S. 268, 282 (1969)); see
also Consol. Freightways v. NLRB, 892 F.2d 1052, 1058 (D.C.
Cir. 1989).
This court has not been entirely consistent in enunciating a
standard to determine when to deny retroactive effect in
cases involving "new applications of existing law, clarifica-
tions, and additions" resulting from adjudicatory actions. In
Clark-Cowlitz, the en banc court adopted a non-exhaustive
five-factor balancing test, see 826 F.2d at 1081-86 (citing
Retail, Wholesale & Dep't Store Union v. NLRB, 466 F.2d
380, 390 (D.C. Cir. 1972). In a subsequent case, however, we
substituted a similar three-factor test. See Dist. Lodge 64 v.
NLRB, 949 F.2d 441, 447-49 (D.C. Cir. 1991) (citing Chevron
Oil Co. v. Huson, 404 U.S. 97, 106-07 (1971)). And in other
cases, the court has jettisoned multi-pronged balancing ap-
proaches altogether. See Cassell v. FCC, 154 F.3d 478, 486
(D.C. Cir. 1998) (declining to "plow laboriously" through the
Clark-Cowlitz factors, which "boil down to a question of
concerns grounded in notions of equity and fairness"); PSCC,
91 F.3d at 1490 (concluding that "the apparent lack of detri-
mental reliance ... is the crucial point supporting retroactivi-
ty").
In the present case, the LECs argue that the Liability
Order should not be given retroactive effect, because it would
be grossly unfair to punish them for imposing EUCL charges
that were approved, and perhaps even required, by the
authoritative pronouncements of the Commission itself. Be-
fore addressing these concerns, we note that even if we were
to accept the LECs' argument in full, there would still remain
a period of approximately four years - from the IPPs' entry
into the payphone market in 1984 until the first Thomas letter
in 1988 - during which no claim of reliance can possibly be
maintained. During this period, the LECs imposed EUCL
fees on the IPPs wholly on their own initiative, i.e., without
specific guidance from the FCC, and thus entirely at their
own risk.
That said, we conclude that the FCC's decision to hold the
LECs liable for EUCL charges levied even after the Commis-
sion had spoken on the issue was not an abuse of discretion or
otherwise impermissible. In reaching this determination, we
rely primarily on two factors. The first is the fact that the
FCC's policy regarding the propriety of imposing end-user
fees on IPPs was never authoritatively articulated outside of
the same complaint proceeding in which it was eventually
reversed. Indeed, the two EUCL Decisions, on which the
LECs' reliance argument primarily rests, were part of a
single chain of decisions triggered by CFC's original com-
plaint, a chain whose natural progression led to this court,
where the Commission's holdings were vacated. Thus, the
agency orders on which the LECs claim to have relied not
only had never been judicially confirmed, but were under
unceasing challenge before progressively higher legal authori-
ties. Our cases indicate that under such circumstances reli-
ance is typically not reasonable, a conclusion that significantly
decreases concerns about retroactive application of the rule
eventually announced. See Clark-Cowlitz, 826 F.2d at 1083
n.7 ("[A] holding of nonretroactivity ... cannot be premised
on a single, recent agency decision ... that is still in the
throes of litigation when it is overruled.").
Indeed, our holding in PSCC is directly on point here. In
that case, a group of natural gas producers increased the
prices that they charged their pipeline customers in order to
recover an ad valorem tax imposed by the state of Kansas;
the legal theory behind this increase was that this tax was a
severance tax under s 110 of the Natural Gas Policy Act.
These price hikes were challenged before FERC, which sided
with the producers, holding that the Kansas tax came within
the meaning of s 110. Reviewing this decision, this court
found that FERC's statutory interpretation was unreasonable
and reversed. On remand, the Commission retreated from
its earlier analysis and found that the tax did not qualify as a
severance tax, and therefore that the producers had over-
charged the pipelines. We upheld the retroactive application
of this decision, in the process rejecting the claims of reliance
advanced by the producers, claims that uncannily echo those
made by the LECs in the present case. 91 F.3d at 1488-91.
The court held that as soon as the pipelines had petitioned
the Commission for a ruling that the producers' preferred
interpretation of s 110 was incorrect, the producers were put
on notice that the recoverability of the tax was "in dispute."
Once this challenge had been lodged, it was then unreason-
able for the producers to rely on that interpretation, even
though it was explicitly endorsed by the agency before ulti-
mately being reversed by this court. Id. at 1490. Thus, we
concluded that it was appropriate for FERC to hold the
producers liable for that which they had taken when the law
was uncertain but the Commission was on their side. Just so
here. Because the object of the LECs' reliance was neither
settled (but rather was perpetually enmeshed in litigation)
nor "well-established," see Clark-Cowlitz, 826 F.2d at 1083
("[T]he Commission's ruling in that solitary proceeding can
scarcely be viewed as 'well-established.' "), we are skeptical
that retroactive liability against the LECs would actually
impose a manifest injustice. In light of the ongoing legal
challenges to the EUCL Decisions, whatever reliance the
LECs placed on those rulings was something short of reason-
able for purposes of the retroactivity analysis.
The second factor pointing toward retroactive liability is
that the agency pronouncements on which the LECs relied
were subsequently held by this court to be mistaken as a
matter of law. As such, the FCC's Liability Order was
largely an exercise in error correction. We have previously
held that administrative agencies have greater discretion to
impose their rulings retroactively when they do so in re-
sponse to judicial review, that is, when the purpose of retroac-
tive application is to rectify legal mistakes identified by a
federal court. See Exxon Co., USA v. FERC, 182 F.3d 30,
49-50 (D.C. Cir. 1999); cf. Pub. Utils. Comm'n of the State of
Cal. v. FERC, 988 F.2d 154, 161-63 (D.C. Cir. 1993) (noting
that the normal rule against retroactive ratemaking may be
relaxed where the original order was challenged and deter-
mined by this court to be unlawful). Indeed, there can be
little dispute that had the FCC originally (whether in 1993 or
1995) held in favor of the IPPs, the Commission at that point
would have been well within its rights to have held the LECs
liable for violating the unreasonable charge provisions of 47
U.S.C. s 201(b). As such, the LECs' argument that the FCC
may not reach the same conclusion now reduces to the
assertion that the agency may not retroactively correct its
own legal mistakes, even when those missteps have been
highlighted by the federal judiciary. But this is not the law.
See United Gas Improvement Co. v. Callery Props., Inc., 382
U.S. 223, 229 (1965) ("An agency, like a court, can undo what
is wrongfully done by virtue of its order."); Natural Gas
Clearinghouse v. FERC, 965 F.2d 1066, 1073 (D.C. Cir. 1992)
(reading Callery to embody the "general principle of agency
authority to implement judicial reversals").
In sum, then, the IPPs should not be denied now what they
asked for in their original complaint - a determination that
the LECs violated the law - merely because the FCC bun-
gled their case the first time around. To do so would make a
mockery of the error-correcting function of appellate review.
It would be to say that the LECs must prevail now because
they (wrongfully) prevailed below. We are unwilling to tie
the Commission's hands in this way. Cf. Exxon USA, 182
F.3d at 49 ("There is also a strong equitable presumption in
favor of retroactivity that would make the parties whole.").
As such, we conclude that the Liability Order represented a
permissible exercise of the FCC's discretion and therefore
deny the LECs' petition for review.
Having upheld the imposition of retroactive liability, we
decline to address whether a similar finding regarding dam-
ages would be equally permissible. As described above, the
FCC has not yet entered a final order with respect to
damages. Both the amount that the LECs will ultimately
have to pay, and the time period that those payments will
cover, remain for determination. As such, the LECs' conten-
tion that equitable restitution, and not legal damages, is the
sole remedy available to the IPPs, see Atlantic Coast Line
R.R. Co. v. Florida, 295 U.S. 301 (1935); Moss v. Civil
Aeronautics Bd., 521 F.2d 298, 314 (D.C. Cir. 1975), is plainly
not ripe for adjudication at this time. See Abbott Labs. v.
Gardner, 387 U.S. 136, 149-50 (1967). Only after the Com-
mission both commits itself to a method for calculating the
proper amount of the award, and concretely applies that
method to the LECs, will this court be in a position to
evaluate the arguments regarding damages. See Eagle-
Pitcher Indus., Inc. v. EPA, 759 F.2d 905, 915 (D.C. Cir.
1985). By bifurcating the proceedings as it did, the FCC left
those decisions for another day.
As we read the Liability Order, the FCC has suggested a
possible means for figuring damages, but has not foreclosed
the possibility of modifying that suggestion during the next
phase of the proceedings. See Liability Order at 8771,
p p 33-34. Specifically, the FCC has not reached a conclusive
determination that it will compel the LECs to return all of
the monies that they collected in possible reliance on the
FCC's official pronouncements. Nor has it rendered a final
judgment that the LECs are not entitled to some kind of
equitable offset in light of such reliance. We will not pre-
judge these issues in advance of the agency.
III. Conclusion
For the reasons given above, we hold that the Liability
Order is final despite its failure to reach the issue of damages.
Rejecting the LECs' arguments that either the Arizona
Grocery doctrine or the rule against retroactivity bars the
FCC from imposing liability, we deny the petition for review
and uphold the Commission's finding that the LECs violated
the unreasonable charge provisions of the Communications
Act. At the same time, we express no opinion as to whether
damages or some other monetary remedy are appropriate in
this case, or whether such a remedy, if appropriate, may be
imposed retroactively.