# DFW Metro Line Services v. Southwestern Bell Telephone, Corp.

> Court of Appeals for the Fifth Circuit · April 12, 1993 · 988 F.2d 601

URL: https://www.frixlaw.com/law-library/cases/5546

## Case

- **Full name:** DFW METRO LINE SERVICES, a Texas Partnership, Now Known as U.S. Metro Line Services, Inc., Plaintiff-Appellant, v. SOUTHWESTERN BELL TELEPHONE, CORPORATION, a Missouri Corporation, Defendant-Appellee
- **Court:** Court of Appeals for the Fifth Circuit
- **Decided:** April 12, 1993
- **Citations:** 988 F.2d 601; 1993 WL 95630
- **Precedential status:** Published
- **Opinion:** Opinion by Wiener
- **Judges:** Reavley, King, Wiener
- **Cited by:** 4 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/5546

## Opinion text

United States Court of Appeals,

Fifth Circuit.

No. 91-1364.

DFW METRO LINE SERVICES, A Texas Partnership, now known as U.S. Metro Line
Services, Inc., Plaintiff-Appellant,

v.

SOUTHWESTERN BELL TELEPHONE, CORPORATION, A Missouri Corporation,
Defendant-Appellee.

April 19, 1993.

Appeal from the United States District Court for the Northern District of Texas.

Before REAVELY, KING, and WIENER, Circuit Judges.

WIENER, Circuit Judge.

In this anti-trust case, Plaintiff-Appellant DFW Metro Line Services, now known as U.S.

Metro Line Services, Inc. (Metro), appeals the dismissal of its suit against Defendant-Appellee

Southwestern Bell Telephone Corporation (Bell), claiming that the district court erred in its

determination that Bell was protected from anti-trust liability under the state action doctrine. Our

plenary review of the record convinces us to agree with the district court's conclusion that the nature

of the Texas regulatory scheme is such that Bell is immunized from suit under the state action

doctrine. We therefore affirm that court's dismissal of Metro's complaint.

I

FACTS

Metro offers a flat rate telephone service between Dallas and Fort Worth called metro service

or EMS. To provide this service, Metro must use Bell's telephone lines. At the time the dispute

originated in 1982, Bell was leasing the lines to Metro, a licensed radio common carrier, at Radio

Common Carrier-Direct Inward Dialing (RCC-DID) rates for the express purpose of providing

one-way paging services. Without advising Bell, Metro later expanded its use of Bell's phone lines

by instituting EMS service, thereby competing directly with Bell. When Bell discovered that Metro

had expanded its services but was still paying the lower RCC-DID rates, Bell informed Metro that
it would have to pay the substantially higher, appropriate rate or the lease would be terminated.

According to Bell, the higher rates were required by the Public Utility Commission (PUC)—which

determines the rates to be charged based in part on the use to be made of the phone lines—under

authority of the Public Utility Regulatory Act (PURA).1

II

PROCEEDINGS

Metro originally brought suit seeking a temporary restraining order (TRO) and preliminary

and permanent injunctions preventing Bell from terminating telephone service to Metro, and asserting

an anti-trust claim. The district court granted the TRO, and the parties submitted briefs on the issues.

Based on these briefs, the district court lifted the TRO and denied Metro's application for preliminary

injunction. In its decision, the district court concluded that Metro had little likelihood of success on

the merits because Bell had demonstrated that it was entitled to immunity from anti-trust liability by

meeting the requirements of the two-prong test set forth in California Retail Liquor Dealers

Association v. Midcal Aluminum Inc.2 (the Midcal test). The district court concluded that the active

supervision requirement of the Midcal test was satisfied by PURA, which vested the PUC with power

to ensure compliance with PURA, fixing and regulating rates, determining the classifications of

customers and services, and determining the applicability of rates.

We affirmed the district court in DFW Metro Line Services v. Southwestern Bell Tel. Co.

(Metro I ).3 In addition to affirming the denial of a permanent injunction, the panel opinion in Metro

I stated:

As an additional basis for our holding, we find that Southwestern Bell is immune from the
antitrust liability alleged in [Metro's] complaint under the "state action" doctrine enunciated
in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), as applied to private

1
TEX.REV.CIV.STAT.ANN. ART. 1446c (Vernon Supp.1989).
2
445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). As is discussed in more detail below,
private conduct is immunized from anti-trust liability if the action meets the two-prong Midcal
test, which requires the party seeking immunity to show that (1) the conduct is regulated by the
state; and (2) the state actively supervises the regulated activity.
3
901 F.2d 1267 (5th Cir.), reh'g denied, 908 F.2d 971, cert. denied, 498 U.S. 985, 111 S.Ct.
519, 112 L.Ed.2d 530 (1990).
state-regulated ratemaking in Southern Motor Carriers Rate Conference v. United States, 471
U.S. 48, 105 S.Ct. 1721, 85 L.Ed.2d 36 (1985). Southwestern Bell clearly meets the
two-prong test set out in California Retail [Liquor] Dealers Assn. v. Midcal Aluminum, Inc.,
445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). There is no, therefore, likelihood of
success on the merits in the instant case.4

Metro's petition for certiorari proved unsuccessful and the case was returned to the district court.

At that point in the proceedings, the district court addressed the merits of the case, and

dismissed Metro's anti-trust action under Rule 12(b)(6). Metro appealed, and we affirmed the

dismissal based on Metro I and the law of the case doctrine.5 On writ of certiorari , the Supreme

Court --- U.S. ----, 112 S.Ct. 2987, 120 L.Ed.2d 2987 (1992), vacated and remanded Metro II for

further consideration in light of Federal Trade Commission v. Ticor Title Insurance Co.6 It is that

case which we consider on the Court's remand today.

III

ANALYSIS

A. Standard of Review

Although the district court dismissed Metro's claim for failure to state a cause of action under

Rule 12(b)(6), it comes to us o n appeal with an extensive record, developed in detail during the

proceedings for injunctive relief. Given the status of the record and the extensive procedural history

of this case, both parties stipulated at oral argument to this court that, in effect, we review the case

as though it were before us on appeal from the grant or denial of a summary judgment motion.

Accordingly, we review the reco rd "under the same standards which guided the district

court."7 These standards, set forth in the Supreme Court trilogy of Anderson v. Liberty Lobby Inc.,8

4
Id. at 1269 n. 6.
5
DFW Metro Line Services v. Southwestern Bell Tel. Co., 947 F.2d 1486 (5th Cir.1991)
(unpublished per curiam opinion) (Metro II ).
6
504 U.S. ----, 112 S.Ct. 2169, 119 L.Ed.2d 410 (1992).
7
Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir.1988).
8
477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
Celotex Corp. v. Catrett,9 and Matsushita Electrical Industrial Co. v. Zenith,10 provide that summary

judgment is appropriate when no issue of material fact exists and the movant is entitled to judgment

as a matter of law.11 In determining whether summary judgment was proper, all fact questions are

viewed in the light most favorable to the nonmovant. Questions of law, however, are reviewed de

novo.12 A movant such as Bell is entitled to judgment as a matter of law if it demonstrates that it is

entitled to claim immunization from liability on the grounds alleged.

Given the procedural history of this case, our de novo review is limited somewhat by the law

of the case doctrine, which provides:

The decision of a legal issue by an appellate court establishes the "law of the case" and must
be followed in all subsequent proceedings in the same case at both the trial and appellate
levels unless the evidence at a subsequent trial was substantially different, the controlling
authority has since made a contrary decision of law applicable to such issues, or the decision
was clearly erroneous and would work a manifest injustice.13

As the Supreme Court's order of remand directed us to consider this case in light of Ticor, and a fair

reading of that case discloses that the Court considered only the second prong of the Midcal test, it

follows that the prior decision of this court regarding the first prong remains undisturbed. As such,

the law of the case doctrine requires that we follow the prior panel's determination that Bell has met

the first prong of the Midcal test, i.e., that Texas has expressly authorized the regulation. That leaves

as the only issue for our review today whether Bell has satisfied the second prong of the Midcal test,

as clarified in Ticor, which requires that the state actively supervise the regulated activity.

B. Anti-Trust Law

The Sherman Anti-Trust Act (the Act)14 makes unlawful "[e]very contract, combination ...

9
477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
10
475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
11
Celotex, 477 U.S. at 323-25, 106 S.Ct. at 2552-54.
12
Walker, 853 F.2d at 358.
13
Reid v. Rolling Fork Pub. Util. Dist., 979 F.2d 1084, 1086 (5th Cir.1992) (quoting
Schexnider v. McDermott Int'l Inc., 868 F.2d 717, 718-19 (5th Cir.1989)).
14
15 U.S.C. §§ 1-7.
or conspiracy, in restraint of trade or commerce among the several States, or with foreign

nations...."15 The act also makes it unlawful to "monopolize, or attempt to monopolize, or combine

to conspire with any other person or persons to monopolize any part of the trade or commerce among

the several States or with foreign nations...."16 In the seminal case of Parker v. Brown,17 the Supreme

Court, addressing whether a state marketing program violated the Act, held that "in a dual system of

government in which, under the Constitution, the states are sovereign, save only as Congress may

constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over

its officers and agents is not lightly to be attributed to Congress." Therefore, "in view of the [Act's]

words and history, it must be taken to be a prohibition of individual and not state action."18

Thus, from Parker originated the "state action doctrine," which confers anti-trust immunity

for state regulatory programs. The Court subsequently made clear in Midcal19 that private party

conduct pursuant to a regulatory program shares this immunity only if the conduct meets both prongs

of a two-prong test, thenceforth called the "Midcal test." This test requires that: (1) the challenged

restraint be clearly articulated and affirmatively expressed as state policy; and (2) the state actively

supervise any anticompetitive conduct.20

1. Clearly Articulated State Policy

The district court held, and Bell agrees, that this prong is satisfied by PURA, which provides:

This Act is enacted to protect the public interest inherent in the rates and services of
public utilities. The legislature finds that public utilities are by definition monopolies in the
areas they serve; that therefore the normal forces of competition which operate to regulate
prices in the free enterprise society do not operate; and that therefore utility rates, operations
and services are regulated by public agencies with the objective that such regulation shall
operate as a subst itute for such competition. The purpose of this Act is to establish a
comprehensive regulatory system which is adequate to the task of regulating public utilities

15
Id. § 1.
16
Id. § 2.
17
317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).
18
Id. at 352, 63 S.Ct. at 314.
19
445 U.S. at 97, 100 S.Ct. at 937.
20
Id. at 105, 100 S.Ct. at 943.
as defined by this Act, to assure rates, operations, and services which are just and reasonable
to the consumers and to the utilities.21

Again, we have previously held in Metro I22 that Bell meets the first prong of the Midcal Test. As

neither Ticor nor any other Supreme Court decision or subsequent legislation has changed the legal

foundation of that holding, we are bound by the law of the case doctrine to follow our finding in

Metro I that the Texas system satisfies the first Midcal prong.

2. State Supervision

The real issue in this appeal, then, is the second prong of the Midcal Test—whether the state

of Texas actively supervises the regulatory conduct in question within the contemplation of Ticor.

The challenged conduct in Ticor was a horizontal price-fixing scheme within the title insurance

industry. In the instant case, the identity of the challenged conduct is the focus of dispute between

the parties. On one hand, Metro insists that the challenged conduct is Bell's threat to cut-off Metro's

access to Bell's phone lines, thereby forcing Metro out of business. On the other hand, Bell contends

that the challenged conduct is the application of the appropriate rate. According to Bell, the rate is

set by the PUC and Bell has no discretion in its application. Bell also explains that the "threat" to

cut-off Metro's line access was merely the explained consequences that would follow if—but only

if—Metro refused to pay the appropriate line charges.

Despit e Metro's protestations, the conduct which it challenges is the application of the

established rates. Metro's attempt to finesse the language of PURA and to manipulate the facts is

mere obfuscation. Although the ultimate effect of Bell's application of the higher rates may well be

the death knell of Metro's business, that does not alter the character of Bell's initial conduct. In other

words, the possible future consequences of the action are irrelevant to our inquiry. Neither is it of

consequence that Bell may have harbored some secret desire to rid itself of a competitor. The state

action doctrine " "does not depend on the subjective motivation of the individual actors, but rather

on the satisfaction of the objective standards set forth in Parker ... and authorities which interpret it.'

21
PURA § 2.
22
Metro I, 901 F.2d at 1267.
"23 The only question for our review is whether the state sufficiently supervises the challenged

conduct—here, the ratemaking and rate application process.

Having identified the challenged conduct, we now examine the requirements of Midcal's

active supervision prong, as newly restated in Ticor. In that case, the Supreme Court held that " "the

mere presence of some state involvement or monitoring does not suffice.' "24 Rather, the state

supervisio n must be active; state officials must be vested with the power to review particular

anti-competitive acts and to disapprove those actions that do not comply with state policy.25 "[T]he

purpose of the active supervision inquiry is not to det ermine whether the State has met some

normative standard, such as efficiency, in its regulatory practices. Its purpose is to determine whether

the State has exercised sufficient independent judgment and control so that the details of the rates or

prices have been established as a product of deliberate state intervention, not simply by agreement

among private parties."26

The Texas regulatory structure under PURA provides for an active role for the PUC. The

PUC is authorized to establish rates, which are defined as "every compensation ... and any rules,

regulations, practices or contracts affecting any such compensation, tariff ... or classification."27 The

PUC's authority, therefore, is not limited to reviewing the fee charged for a particular service, but in

fact extends to reviewing rules, regulations, and practices of a utility. In addition, PURA provides

a forum for complaints from any affected person or from the PUC "whenever the regulatory authority

... finds that the existing rates of any public utility for any service are unreasonable or in any way in

violation of any provision of the law."28

23
Nugget Hydroelectric, L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429, 434 (9th Cir.1992)
(quoting Llewellyn v. Crothers, 765 F.2d 769, 774 (9th Cir.1985)).
24
Ticor, 504 U.S. at ----, 112 S.Ct. at 2177, 119 L.Ed.2d at 422 (quoting Patrick v. Burget,
486 U.S. 94, 100-101, 108 S.Ct. 1658, 1662-63, 100 L.Ed.2d 83 (1988)).
25
Id. 504 U.S. at ---- - ----, 112 S.Ct. at 2177, 119 L.Ed.2d at 422-23.
26
Id.
27
PURA § 3(d).
28
PURA § 42.
Alone, however, this potential for supervision does not satisfy the second prong of the Midcal

test. The PUC must actually fulfill the active role granted to it under the statute.

A review of the record demonstrates to our comfortable satisfaction that the PUC does in fact

actively supervise ratemaking and enforcement as defined by PURA to include the rules, regulations,

and practices of utilities. The record reflects numerous references to the PUC's inquiry into the

reasonableness of Bell's rates, in Docket 8585 filed January 4, 1989.29 In addition to this specific

inquiry into Bell's rates, published decisions reflect that the PUC has conducted other broad-based

ratemaking proceedings.30 In like manner, the record and published opinions together demonstrate

that PURA provides a forum for complaints regarding the application of tariffs.31

Most importantly, Metro and Bell filed a joint pleading recognizing that, while this suit was

pending, the PUC was adjudicating the very same issues presented in the instant case. In fact, the

very same attorneys participated in these state proceedings in January 1992. It is ludicrous, almost

to the point of frivolity, for Metro to contend that the PUC does not actively supervise the conduct

in question given the fact that Metro and Bell are awaiting a PUC decision on Bell's actions "as we

speak."

29
Docket 8585, Inquiry of the General Counsel Into the Reasonableness of the Rates and
Services of Southwestern Bell Tel. Co., 17 PUC BULL. 1045 (Nov. 29, 1990, on rehearing Jan.
10, 1991).
30
Docket 6200, Petition of Southwestern Bell Tel. Co. for Authority to Change Rates, 14 PUC
BULL. 490 (June 26, 1986); Docket No. 5220, Petition of Southwestern Bell Tel. Co. for
Authority to Change Rates, 10 PUC BULL. 255 (May 14, 1984); Docket No. 5113, Phase I:
Petition of the Pub. Util. Comm'n for an Inquiry Concerning the Effects of the Modified Final
Judgment and the Access Charge Order Upon Southwestern Bell Tel. Co. and the Independent
Tel. Cos. of Texas, 13 PUC BULL. 493 (July 2, 1984) (motion for reh'g denied, Aug. 6, 1984);
Docket No. 4545, Petition of Southwestern Bell Tel. Co. for Authority to Change Rates, 8 PUC
BULL. 173 (Jan. 3, 1983); Docket No. 3920, Application of Southwestern Bell Tel. Co. for
Authority to Increase Rates, 6 PUC BULL. 719 (Dec. 11, 1981); Docket No. 3340, Application
of Southwestern Bell Tel. Co. for Authority to Increase Rates, 6 PUC BULL. 627 (Jan. 29, 1981);
Docket No. 2672, Application of Southwestern Bell Tel. Co. for Authority to Change Rates, 5
PUC BULL. 163 (Nov. 9, 1979); Docket No. 1704, Re: The Application of Southwestern Bell
Tel. Co. For Authority to Change Rules, 3 PUC BULL. 1758 (Aug. 2, 1978); Docket No. 78, Re:
The Application of Southwestern Bell Tel. Co. for Rate Increase, 2 PUC BULL. 432 (Jan. 10,
1977).
31
See, e.g., Docket 7952, Complaint of Metro-Link Telecom, Inc. Against Southwestern Bell
Tel. Co., (Examiner's Report & Recommendation) (Dec. 18, 1990); Docket 7438, Complaint of
Metro-Net Against Southwestern Bell Tel. Co., 14 PUC BULL. 334 (May 20, 1988).
These indisputable public records make it abundantly clear that the Texas regulatory scheme

is a far cry from the passive regulatory schemes at issue in Ticor which failed the Midcal test. The

systems contested in Ticor provided virtually no actual state supervision, allowing rates to come into

effect with only minimal review of some of the rates for mathematical accuracy.32 Instead of featuring

independent state ratemaking, the title insurance rates at issue were set by the title insurance industry

itself, with no input from or control by the states. Obviously, under such schemes, the absence of any

state involvement prevents the private conduct at issue from qualifying for anti-trust immunity under

the state action doctrine.

The Texas public utilities regulatory scheme, by contrast, does not suffer from this flaw. The

Texas system authorizes the state, through the Commission, to control the initial establishment of

rates, rules and regulations of the utilities, and allows a complaining party to challenge the application

of a particular rate through the PUC. And, more importantly, the record before us confirms that the

PUC acts under that grant of authority with sufficient involvement to satisfy Ticor's interpretation of

the second prong of the Midcal test.

IV

CONCLUSION

That the Texas system meets the first prong of the Midcal test is a given in this latest chapter

of the Metro litigation by virtue of the law of the case doctrine. And, when we view the "summary

judgment evidence" in the record of the instant case as a whole, we conclude beyond serious question

that the Texas regulatory scheme also satisfies the second or active supervision prong of the Midcal

test as contemplated by Ticor. Bell is therefore entitled to anti-trust immunity. Consequently, Metro

cannot state and has not stated a claim on which relief may be granted, so that the district court's

dismissal of Metro's claim is in all respects proper.

AFFIRMED.

32
Ticor, 504 U.S. at ----, 112 S.Ct. at 2179, 119 L.Ed.2d at 425.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/5546. Public record. Not legal advice.