Untitled Texas Attorney General Opinion

Mr. Marlin W. Johnston Opinion No. JM-618
Commissioner
Department of~Euman Services Re: Authority of the Department
P. 0. Box 2960 of Human Services to select a
Austin, Texas 78769 long-distance telephone carrier
for all of its offices with a
single letter of agency without
violating FCC regulations

Dear Mr. Johnston:

As Commissioner of the Texas Department of Human Services. you
inquire about the effect of certain Federal Communications Commission
(hereinafter FCC) orders regarding the divestiture of American
Telephone and Telegraph Company (hereinafter AT&T) on the purchase of
long distance telephone services by your agency. A brief history of
the AT&T divestiture decrees must precede discussion of your specific
questions.

Until recently, AT&T dominated the telecommunications industry.
See generally United States v. American Telephone and Telegraph Com-
~-, 552 F. Supp. 131, 160-65 (D.D.c. 1982) ohdificati0n of ~i-1
Judgment). aff'd, sub nom. Maryland v. United States, 460 U.S. 1001
(1983) (hereinafter U.S. v. AT&T). Through its Bell Operating
Companies, AT&T provided most of the country's local telephone service
and virtually all intrastate long distance service. Through its Long
Lines Division, AT&T also provided most of the country's interstate
long distance service. The physical connections between AT&T and
local companies are of high quality because the.system was designed to
afford accsss to only one carrier - AT&T. Soon after the FCC
authorized other long distance carriers to compete with AThT in
providing long distance service, these competing carriers began
demanding that local companies provide them with the same quality of
access given to AT&T. The refusal of the local companies to provide
this access was one of the factors which lead ultimately to antltru$t
actions in federal court. -See U.S. v. AThT. 552 F. Supp~.at 162-63.'

1. Actually, antitrust litigation against ATbT has a long and
rather curious history which dates back to 1949. See United States v.
American Telephone and Telegraph, 552 F. Supp. 131, 135-40 (D.D.C.
1982) (Modification of Final Judgment), aff'd. sub nom. Maryland v.
United States, 460 U.S. 1001 (1983). -

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Mr. Marlin W. Johnston - Page 2 (JM-618)

The main antitrust litigation against AT&T resulted in a Consent
Decree. See Modification of Final Judgment, Civil Action No. 82-0192
in the United States District Court for the District of Columbia
(hereinafter MFJ or Decree); see also U.S. v. ATM, 552 F. Supp. 131
(interpreting the decree). This Decree was intended to accomplish two
basic goals: (1) structural changes removing AT&T as the dominant
supplier of local telephone service by requiring AT&T to divest Itself
of its Bell Operating Companies, and (2) restrictions to prevent
cross-subsidization and to p~revent discrimination against AT&T's
competitors. See U.S. v. AThT., 552 F. Supp. at 141-42. With regard
to restrictionTto prevent discrimination, the Decree contains a
clause requiring local exchange carriers to provide access that is
"equal in type. quality, and price to that provided to AThT and its
affiliates." See MJ, III; U.S. v. ATST, 552 F. Supp. at 171-72.
Although the Decree does not establish specific requirements guaran-
teeing AThT's competitors access to AT&T's high quality interexchange
network, FCC decisions and regulations set forth specific equal access
requirements. U.S. v. AThT, 552 F. Supp. at 173. The FCC procedure
for obtaining equal access gave rise to the current controversy.

In geographic areas where equal access orders are technically
feasible, customers have been given the opportunity to choose a long
distance carrier. The Decree allowed AT&T to keep customers who did
not choose a different long distance carrier. United States v. Western
Electric Company, 578 F. Supp. 668.'676 (D.D.C. 1983). At first, the
FCC also allowed AT&T to keep "default" customers. Ultimately,
however, the FCC reversed its position and required a pro rata alloca-
tion of default cust&rs to various long distance carriers according
to the percentage each carrier received of choosing customers. See
Investigation of Access and Divestiture Related Tarrifs, CC Docket
83-1145. Phase I. FCC 85-69, 50 Fed. Reg. 9,462 (Mar. 8. 1985) (to be
codified in 47 C.F.R. Ch. 1); Investigation, CC Docket 83-1145, Phase
I. FCC 85-293, 50 Fed. Reg. 25, 982 (June 24, 1985) (to be codified in
47 C.F.R. Part 61); Investigation, CC Docket 83-1145, Phase I, FCC
85-293. 50 Fed. Reg. 38,200 (Sept. 20, 1985).

You indicate that the Texas Department of Ruman Services desig-
nated AT&T Communications as its long distance carrier with an
"Appointment of Agent" letter. You indicate that Southwestern Bell
Telephone Company requires independent election by each department
location despite this letter of agency. Accordingly, you ask:

1. Do the provisions of the AThT divestiture
order require Southwestern Bell Telephone Company
to obtain an election document for each department
location?

2. If the answer to the first question is no,
does the department legally need to execute any
additional document to advise Southwestern Bell

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Mr. Marlin W. Johnston - Page 3 (JM-618)

Telephone Company and AT6T of its election to
continue with AT&T?

3. Does the Department of Human Services have
any legal responsibility for long distance service
from unregulated carriers selected by Southwestern
Bell Telephone Company or Its contractors to serve
the department (a) before the date and (b) after
the date of the department's formal election for
AT&T to provide long distance service?

You also indicate that the department chose AT&T. a regulated company,
in the belief that no competitive bidding was necessary to continue
long distance service with AT&T. You suggest that an automatic
allocation by Southwestern Bell would violate the state's competitive
bidding requirements.

As indicated in the foregoing discussion, FCC regulations, rather
than the court's divestiture decree, govern the equal access selec-
tion process through presubscriptian ballots and the allocation of
customers who fail to select a long distance company. Customers may
return ballots directly to local exchange carriers. The FCC also
authorizes a "Letter of Agency Procedure" which gives customers the
option of independently contacting a long distance company ~to make
arrangements for long distance service. See Investigation of Access
and Divestiture Related Tariffs, (Append- - Allocation Plan), 50
Fed. Reg. 25,982, 25,989 (para. 9). Paragraph 12 of the Allocation
Plan requires local exchange carriers to accept fram each long
distance carrier a list of customers that have made individual
arrangements with that long distance carrier. Id. at 25,989 (para.
12). The present controversy arose because theDepartment of Buman
Services is a multi-location and multi-line customer of long distance
service. Apparently, Southwestern Bell expects each department
location to independently choose a long distance carrier.

Your question depends on whether the FCC regulations authorize a
multi-line customer to designate its primary long distance carrier
with a single letter of agency. Paragraph 9 of the Allocation Plan
states that "[slince ballots contain all of the customer's lines, the
[long distance carrier] should encourage its customers to mail the
[carrier] the ballots or mail them to the [local operating company].”
Appendix B, at 25,989 (para. 9) (emphasis added). This suggestion is
not couched in mandatory language. Moreover, paragraph 10.4 states
that "[tlhe specific telephone number[s] for which the primary [long
distance carrier] Is being designated must be listed" in the letter of
agency. Appendix B, at 25,989 (para. 10.4). Thus, the letter of
agency procedure is intended as an alternative to the individual
ballot procedure. The FCC has not interpreted the letter of agency
procedure to require that multi-line customers submit an election
ballot in addition to a letter of agency - much less to require the
submission of multiple ballots.

p. 2784
Mr. Marlin W. Johnston - Page 4 UM-618)

The FCC addressed the subject of your first question when it
considered AT&T's petition for an interpretation of the Letter of
Agency Procedure:

AT&T states that customers presently place
presubscription orders on a billed telephone
number (BTW) basis. AT&T states that a BTW may
have associated with it one or more additional
lines or numbers and thus say represent hundreds
or even thousands of lines . . . AT&T argues that
it is cumbersome and unnecessary for customers to
provide individual line detail.

Investigation, 50 Fed. Reg. at 38.202 (para. 10). The FCC agreed with
AT&T's assertion:

The Commission did not intend to impose un-
reasonable burdens on multi-line customers in
their selection of an interexchange carrier. We
conclude that the requirements set out [at para-
graph] 10.4 of Appendix B may be fulfilled either
by provision of BTWs or by other unambiguous
customer description indicating the scope of the
customer's designation of a primary [long distance
carrier].

Id. at 38,202 (para. 11).
-
Accordingly, as long as the Department of Human Services included
a list of its BTWs or some other unambiguous description indicating
the scope of its designation of a primary long distance carrier in its
letter of agency to AT&T, the department need not submit an election
ballot for each department location. This designation of AT&T as the
department's long distance carrier does not violate Texas' competitive
bidding requirements. The State Purchasing and General Services Act
exempts the services of public utilities from its competitive procure-
ment requirements. V.T.C.S. art. 601b, 53.01(c)(4). At the present
time AT&T, as the dominant long distance carrier. is a public utility.
See V.T.C.S. art. 1446~. 53(c)(2). In light of the foregoing response
topour first question, a response to your second question. regarding
additional notification, is unnecessary.

You also ask whether the department is liable to long distance
carriers assigned to various department locations through the FCC
allocation process. Your request letter expresses concern about
liability for service provided both before and after the department's
formal election of AT&T as its primary long distance carrier through a
letter of agency. You indicate, however, that the department elected
AT&T within the final time limit prescribed by the FCC. Accordingly,
it is not entirely clear how or why Southwestern Bell allocated
various department locations to different long distance carriers prior

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Mr. Marlin W. Johnston - Page 5 (JM-618)

to the end of the time period allowed for the department's
election.' Resolution of this issue involves the scope of the
department's contract with Southwestern Bell. In contrast, your
question requires a determination of whether an implied contract can
be imposed directly against the state by the long distance carriers
assigned to the state through the allocation process for long distance
service. You suggest that the state's competitive bidding statutes
preclude an allocation of department locations to different long
distance carriers. Briefs submitted in response to your opinion
request contend that the FCC's allocation process preempts the state's
competitive bidding statutes.

As a preliminary matter, it is well-established that no state
agency or state employee holds the authority to bind the state by
contract unless authorized to do so expressly or by necessary
implication in the Texas Constitution or statutes. Tex. Coast. art.
III, 144; State v. Ragland Clinic-Hospital, 159 S.W.2d 105, 106 (Tex.
1942); see also Director of the Department of Agriculture and
Environment v. Printing Industries Association ,af .Texas, 600 S.W.2d
264. 265-66 (Tax. 1980) (doctrine of sovereign lmmnity prevents
suit to subject the state to liability 'without express legislative
consent). Article III, section 44, of the Texas Constitution pro-
hibits grants of public funds unless the grants are authorized by
preexisting law. In Ragland. an agent of the Texas Liquor Control
Board agreed expressly to pay for an injured prisoner's treatment.
Rejecting the hospital's claim, the court held that the board's
employees lacked the express.or implied authority to enter into the
contract in question. 159 S.W.2d at 107. The court rejected the
argument that the agent had apparent authority to bind the state:

Since the powers of all State officers are fixed
by law, all persons dealing with them are charged
with notice of the limits of their authority and
are bound at their peril to ascertain whether the
contemplated contract is within the power con-
ferred. There is no occasion or excuse in such a
case for indulging in presumptions or in relying
on appearances. (Citations omitted).

IL; see also Fasekas v. University of Houston, 565 S.W.Zd 299, 304-
306 (Tex. Civ. App. - Houston [lst Dist.] 1978, writ ref'd n.r.e.),

2. It should be noted that the FCC's Allocation Plan states
that, in order to use the letter of agency procedure, "[tlhe [long
distance carrier] must also agree to accept responsibility for any
billing disputes arising from implementation of its customer list."
Appendix B, at 25,989 (para. 11).

p. 2786
Mr. Marlin W. Johnston - Page 6 (JM-618)

appeal dismissed, 440 U.S. 952 (1979); cf. Bathe Halsey Stuart
Shields, Inc. v. University of Houston, 638 S.W.2d 920 (Tex. App. -
Houston [lst Dist.] 1982. writ ref'd n.r.e.).

To hold the Department of Human Resources liable directly to the
various long distance carriers assigned to different department loca-
tions by Southwestern Bell would require a finding that each depart-
ment location has the independent authority to bind the state to a
contract. Carried to its logical conclusion, this line of reasoning
could result in potentially unlimited state liability for implied
contracts entered Into by state employees. Although the Department of
Human Services holds the authority to purchase long distance service.
the department has not delegated this authority to the department's
various locations. The fact that the head of the agency executed an
agreement with AT&T for long distance service affirms that this power
was not delegated. This fact also militates against the reasonable-
ness of reliance on the silence of a regional office to constitute an
implied contract.

In State v. City National Bank of Austin. 578 S.W.Zd 155 (Tex.
Civ. App. - Tyler 1979). aff'd;603 S.W.2d 764 (Tex..1980). the court
considered the liabilitv of the State Comisslon for the Blind for
rent allegedly due for a period during which the commission occupied
leased premises as a holdover lessee. The lessor sued for rent for
the holdover period. The court noted:

The Legislature authorized the Commission to con-
tract for rental space and be the lessee. The
written lease provides that the lessor shall have
'the remedies . . . provided by law for recovery
of rent.' The Commission is an agency of the
State, and the State is bound by its contract as a
private citizen is bound by a like contract.
(Citations omitted).

578 S.W.Zd at 159. Because the legislature authorized the lease and
because the lease authorized suit against the state, the court found
no violation of the Texas Constitution article III, section 44,
requirement that contracts be authorized by preexisting law. --See id.
The court mentioned several cases dealing with the theory of quantum
meruit in holding the state liable for the reasonable value of the
benefits received. 578 S.W.Zd at 160-61. It is unclear. however,
whether guantum meruit constituted the theory of recovery or merely
the measure of damages. The Texas Supreme Court, in affirming the
court's decision, held the "state liable under the terms of the
written agreement for the damages occasioned by the default." State
v. City National Bank of Austin, 603 S.W.2d 764. 765 (Tex. 198or
(emphasis added). Thus, although the Supreme Court held the commis-
sion liable, the court did not rely on the quantum meruit theory or on
an implied contract theory.

p. 2787
Mr. Marlin W. Johnston - Page 7 (JM-618)

The City National Bank case clearly differs from the case at hand.
The Department of Human Services has not entered into contracts with
the different long distance carriers to which Southwestern Bell allo-
cated the various department locations. To hold the department liable
directly to these carriers would require holding the state liable for
a contract implied from the department's non-action in circumstances
beyond the department's practical control. This situation is not the
equivalent of a hold-over lessee's situation. Although the department
may have actually used long distance service from allocated long
distance carriers, it took no action to indicate its desire to change
existing service from AT&T to various other long distance carriers.
In fact, department employees may have been totally unaware of the
point at which long distance service was physically transferred.
After executing a letter of agency with AT&T. the department Indicated
affirmatively that it did not want primary service from other long
distance carriers. Additionally, as indicated above, the individual
department locations lack the authority to enter into any contracts,
express or implied. Accordingly, although the existence of an Implied
contract depends upon factual determinations beyond the scope of the
opinion process, an implied contract between the department and
allocated long distance carriers cannot exist in the instant case.

Consequently, the department Is not legally liable directly to
long distance carriers allocated to various department locations as
"default" customers under FCC regulations. This opinion does not
address whether the department may be liable to Southwestern Bell, it
addresses only the department's liability to long distance carriers
allocated to the department by Southwestern Bell.

SUMMARY

As long as the Texas Department of Human Services
included a list of its billed telephone numbers or
some other unambiguous description indicating the
scope of its designation of a primary long distance
carrier In its letter of agency to American Telephone
and Telegraph Company. the department need not submit
an election ballot for each department location. This
designation does not violate Texas' competitive pur-
chasing laws.

The department is not legally liable to long
distance carriers allocated to various department
locations as "default" customers under Federal
Communications Commission regulations.

Attorney General of Texas

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Mr. Marlin W. Johnston - Page 8 (JM-618)

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman. Opinion Committee

Prepared by Jennifer Riggs
Assistant Attorney General

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