Opposition Brief — American Telephone & Telegraph Co. v. Central Office Telephone, Inc.

a

Supreme Court, U.S.

a a ee

ss WV 14 «1997 |

No. 97-679 ae. ae

Ere ween -

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

AT&T CORP.,

Petitioner,

v.

CENTRAL OFFICE TELEPHONE, INC.,

Respondent.

Petition For A Writ of Certiorari

To The United States Court of Appeals

For The Ninth Circuit

RESPONDENT?’S BRIEF IN OPPOSITION

Bruce M. Hall

BRUCE MACGREGOR HALL, P.C.

1454 SW Highland Road

Portland, OR 97221

(503) 241-8524

Counsel of Record for Respondent

0149817.01

Brad T. Summers

Sarah J. Ryan

BALL JANIK LLP

101 S.W. Main Street

Suite 1100

Portland, OR 97204

(503) 228-2525

Counsel for Respondent

J. Richard Urrutia

JAMES, DENECKE &

HARRIS

1150 Pioneer Tower

888 SW Sth Avenue

Portland, Oregon 97204

(503) 228-7967

Co-Counsel for Respondent

November 17, 1997

0149817.01

QUESTION PRESENTED

Whether the Ninth Circuit correctly

concluded that a jury verdict for intentional interference

with business relationships and for breach of contract.

based on willful misconduct by a long-distance

telecommunications carrier in seeking to eliminate a

competitor, was not in this case related to rates or rate-

setting, such that the filed rate doctrine did not apply?

0149817.01

i

LIST OF PARTIES AND AFFILIATES TABLE OF CONTENTS

The petition accurately lists the parties to the Page

pee QUESTION PRESENTED ....cccccscccsssssssscsssssssssssesesessnsese j

LIST OF PARTIES AND AFFILIATES .......0.-..cooooooee i

TABLE OF CONTENTS .0ccccccccssccccccesssscssscseccoseesseseeeee ii

TABLE OF AUTHORITIES .........cccccssscssscsscssssessssssssse iv

STATEMENT OF CASE 0...cccscssssssssssssssssesssssssszssessssscscec

I. STATEMENT OF FACTS .......::csccccssssssscsscssesesee

I. PROCEEDINGS BELOW........c.cccccccscsesssoseessssen 3

Ill. AT&T’S MISSTATEMENTS OF THE

li ae a 4

REASONS FOR DENYING THE PETITION.........00000-- g

| ___ NE alaaR = eine cele ae Ce 19

Rana iiadiiaiee eee SS App. 1 - 43

Appendix A (6/27/94 Verdict) ....ccccccccccceseeeeee App. 1-2

Appendix B (MCI’s 1/6/97 Motion for Stay

Pending Judicial Review in MCI v, FCC,

No. 96-1459 (D.C. Circuit) ....cccccccsssssssseeeee App. 3 - 38

Appendix C (Order, MCI v. FCC, No. 96-

1459 (D.C. Cir. Feb. 13, 1997).....cccccccee. App. 39 - 43

0149817.01 0149817.01

iv

TABLE OF AUTHORITIES

Cases

rw oS

Instrument Corp., 69 F.3d 381

CO GR. CRG cxnstesstriennsenenecttatiscticmmneneimsione 15

Mtchi T&S.F.Ry.C Robi

233 U.S. 173, 34S. Ct. S56 (1914) ..ccccccccccceeeeeeeenenes 12

Central Office Telephone, Inc. v. American

Telephone and Telegraph Co., 08 F.3d 981

(9th Cir. 1997), petition for cert. filed, 66 U.S.L.W.

3308 (U.S. Aug. 27, 1997) (No. 97-656) and

66 U.S.L.W. 3308 (U.S.

Oct. 16, 1997) (NO. 97-679)......ccccccecsercsneenersenenenennenens 7

Chi & Alton R. C Kirt

225 U.S. 155, 32 S. Ct. 648 (1912) ........cccccsrenseeeeenees 12

Chi & N.W.Ry.C Lindel!

281 U.S. 14, 50 S. Ct. 200 (1930) .......cccccccceeecereeenens 13

Columbia Stee! Casting Co. v. Portland General

Elec. Company, 103 F.3d 1446 (9th Cir. 1996),

as amended on denial of rehearing, 111 F.3d

1427 (1997), petitioy for cert, filed, 66 U.S.L.W.

3085 U.S. Jul. 2, 1997) (No. 97-49) oc. cccccccecceeeeeeees 12

0149817.01

867 F. Supp. 1511 (D. Utah 1994) 2000. ‘ 14, 15

C F Stanis! Pacific G { Elec. Co..

Be Oe Pe ee Gas COO UD ceescittsnctattncrecsncicercniareses 12

Davis v. Cormwell, 264 U.S. 560, 44 S. Ct. 410

GREE wincteliseneihtvsiesnncinceiabecictatemabtapusttincstocssttinenteiannes 12

Fj ial Planning inati I Lenoctonn Tal.

& Tel. Co,, 788 F. Supp. 75 (D. Mass. 1992) ........... 14

BPG Fee GRP GNC, BDGT) ccccccscesessssecsnscsesorncccsecece 14

998 F.2d 1144 (31rd Cir. 1993) ooo...ccccccceceseseeeeeeeeenes 12

—e N KJ —

Tel. & Tel. Co,, 893 F. Supp. 1207 (S.D.N_Y.

SOO) scinniniiaasinatpehitietabindipasdeseeininetviatinitenieevtecktmansoniee 6

MCI Tel ications C TCI Mail. Inc..

772 F. Supp. 64 (D.R.1. 1991) .0......cccccceseseececeseneeeesseens 9

MC] v, FCC,

No. 96-1459 (D.C. Cir. Feb. 13, 1997) .o...cccccccceseees 18

faislin Industries, U.S.. ] Pri Steel. |

497 U.S. 116, 110 S. Ct. 2759 (1990) ooo. eecccececeeeees 16

0149817.0!

vi

Inc., 875 F.2d 434 (4th Cir. 1989) .....cccccccccceceeeeeees 9.10

M F AT&T 900 Dial-lt Servi ‘Third

illi i ices, 4 F.C.C.

Red. B4ZD (TDBD) rcoceccrccscccccccvscescscocescsscsssnscsscccossoseves 6

M + Detariffing of Billing & Collections Servs.,

102 F.C.C.2d 1150 (1996) .........:ccccccccssccerrreeeserererseeenes 6

Motion of AT&T.C be Reclassified on

Dominant Carrier, FCC 95-427 (rel. October 23,

1995), TECOM, PENGING «....-ceccecseeseeeserseereerereeenrennenneees 17

426 U.S. 290, 96 S. Ct. 1978 (1976) ..... 10,11,12,13,14

Nantahala Power and Light Co. v. Thornburg,

476 U.S. 953, 106 S. Ct. 2349 (1986) ........ccccceceeenees 10

Pacific S.S. Co. v, Cackette, 8 F.2d 259

(BBs Cie. BGR) ncccccccvccescheesecnvevevescevsscceccnssccscscescssesesees 12

Policy and Rules Concerning the Interstate

Interexchange Marketplace (CC Docket

No. 96-61), FCC 96-424, 61 Fed. Reg. 59340

(November 22, 1996) ........cccccccceseerseeerereeseereeseeees 17,18

Pri Ww Union Tel. C

154 U.S. 1, 14S. Ct. 1098 (1894) ooo ccccceceeceeeeeeeee 9

0149817.01

vii

w4S4 F.24 357 Grd Cit. 1972) ere, 1

Swain v. AT&7 Corp., No. CIVA3:-94-CV-1088-D,

1997 WL 573464 (N.D. Tex. Sept. 9, 1997).......00..... 12

08 US. 426,278, CL 350 190) eae 1,12

Statutes

Telecommunications Act of 1996 (Pub. L. 104-104

§ 401, 110 Sint. 128-129) ..........coscersersscessssoeesseee 16, 17

Fe Peele TF CICD sncccibuliivasiniitaccosabitiancenssdenniteragnie tie 16

CF WES Ged Wh GEO scnenlctelnctdgnicintebescbscéchcadesoedesieceledicaus 14

014981701

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STATEMENT OF THE CASE

I. STATEMENT OF FACTS

Central Office Telephone, Inc. (“COT”) is a reseller

of long-distance telecommunication services. Resellers are

firms that purchase “bulk” long-distance services from

carriers and resell them to their own customers. They

qualify for volume discount plans by aggregating the

business of multiple customers who would not individually

qualify for volume discounts. The reseller is the customer

of the long-distance carrier, as well as its competitor, and

the end users are the customers of the reseller.

In the fall of 1989, COT became aware of the

opportunity to resell AT&T’s “Software Defined Network”

(“SDN”) service to its customers. Ninth Circuit Excerpt of

Record (hereinafter “ER”) 365-66. SDN is a virtual

private network service that allows an AT&T customer, in

consideration for a commitment to purchase large volumes

of minutes of long distance usage, to receive substantially

higher discounts than provided for other available AT&T

long-distance services. ER 589-90, 2529, 3526, 3545,

3021-23.

COT developed a business plan to include the

addition of salesmen, telemarketing and expansion into

other states, and on October 30, 1989 signed an agreement

letter memorializing COT’s selection of SDN Expanded

Volume Program Plan 2, under which COT would receive

up to a 20% discount off basic SDN rates in exchange for a

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renewable commitment to purchase 2 million minutes

annually. ER 405, 4396, 4447, 416, 3721-24, 2336-37,

431, 4515-16. COT also selected the SDN Multiple

Location Billing Option under which AT&T would bill up

to 6,000 of COT’s SDN service locations at no extra

charge. ER 414-16.

When COT began selling SDN services it

immediately experienced provisioning delays. Due to these

problems, AT&T suggested that COT “park” its customers

under a new and different service known as Multi-Location

Calling Plan (““MLCP”). ER 418-21. Its stated purpose

was to serve COT’s customers’ long-distance needs until

they could be provisioned onto SDN. _ This service

commenced on March 8, 1990. ER 417, 3737-38A.

On April 9, 1990, AT&T informed COT that its

first account had been placed onto the SDN. ER 432.

Believing that its SDN was now functional, COT upgraded

its SDN subscription to Plan 6, which offered a larger

discount (up to 25%) in exchange for a larger volume

commitment (15 million minutes annually). ER 4037.

Unbeknownst to COT, on or about March 1, 1990,

AT&T, through an Ad Hoc Committee formed to “kill” the

arbitrage by which resellers conducted their business,

initiated multiple strategies to discourage resale (set forth

below). ER 1222, 1238-39, 3415, 3735-36, 3739-41, 3743.

After COT signed the April 9 contract and continuing until

September 30, 1992, when COT canceled its SDN contract

with AT&T to avoid going out of business (ER 1942), COT

and its customers experienced, among other things,

transferred accounts (ER 440-43, 599-600, 1686, 3379),

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decreased service (ER 441-42, 1838-39, 1891, 2577, 3149,

3647), slow or non-existent provisioning of both SDN and

MLCP orders (ER458-59, 1277, Ninth Circuit

Supplemental Excerpt of Record (hereinafter “SER”) 33),

lost orders (ER 423), limited calling card service (ER 401-

03, 748-50), discount misallocation between COT and its

customers (ER 968, 1754-55, 468-69, 471, 1709, 2670,

4171, 4180, 1762, 2600-01, 2672-73), incorrect billing

(ER 481-84), untimely cal! detail billing (ER 451-52, 1405,

1895, 2676-77), delayed billing (ER 738, 4308), and

“slamming” of customers (ER 746, 1877, 4278-96). As of

the termination date, COT had lost over 75% of its

customer base. ER 3085.

Il. PROCEEDINGS BELOW

On June 27, 1994, in the United States District

Court for the District of Oregon, a jury found AT&T liable

for willful misconduct in breaching its contract with COT,

and intentional interference with COT’s contracts with its

customers. App.1. The jury awarded COT damages

against AT&T in the amount of $13,000,000. App. 2.

On November 9, 1994, the district court granted in

part and denied in part AT&T’s motion for judgment as a

matter of law. ER 4771-90. The district court found that

COT’s evidence with respect to damages was not

sufficiently grounded in objectively verifiable facts after

1992, when COT was forced by AT&T’s conduct to

terminate the contract, and reduced the damages award to

reflect that decision. The district court determined that the

proper amount of damages was $1.154 million. (The issues

raised by the district court’s reduction of COT’s

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$13 million verdict to a $1.154 million judgment are the

subject of a separate petition for a writ of certiorari filed by

COT.)

COT appealed from the district court’s partial grant

of judgment as a matter of law on several grounds. AT&T

also appealed from the judgment against it.

On February 26, 1997, the United States Court of

Appeals for the Ninth Circuit affirmed COT’s judgment

against AT&T. However, it reversed the district court’s

decision not to submit punitive damages evidence to the

jury and remanded the case for trial on the issue of punitive

damages. It also affirmed the district court’s decision with

regard to its partial grant of AT&T's motion for judgment

as a matter of law. Central Office Telephone, Inc. v.

American Telephone and Telegraph Co,, 108 F.3d 981,

990-991, 993-994 (9th Cir. 1997), petition for cert. filed, 66

U.S.L.W. 3308 (U.S. Aug. 27, 1997) (No. 97-656) and

petition for cert. filed, 66 U.S.L.W. 3308 (U.S. Oct. 16,

1997) (No. 97-679).

Il. AT&T's MISSTATEMENTS OF THE CASE

AT&T presents a version of this case that bears

little resemblance to the case that was actually tried to the

jury. AT&T continually refers to COT’s claims as mere

contract claims seeking to enforce “side deals.” This is a

highly inaccurate description. It is difficult to discern it

from AT&T's rendition of the facts, but this case concerns

some very bad conduct by AT&T. AT&T’s sanitized

version of the case conceals most of the unpleasant (to

0149817.01

5

AT&T) evidence, and it also ignores that the Ninth Circuit

has remanded for a trial on punitives.

COT’s claims did not seek to enforce “side deals”

for expedited service, as AT&T suggests. Rather, COT

proved that it had suffered damages due to AT&T's

intentional interference with COT’s business relationships

with its customers and other willful misconduct. COT’s

proof included the following:

(1) AT&T initially overpromoted the use

of SDN by long-distance resellers to bolster its decreasing

revenues in the late 1980s, and to wrestle business from

MCI and other carriers. ER 1183-89. However, AT&T

then realized that resellers could become formidable

competitors to AT&T, and it adopted a corporate policy to

“kill arbitrage” by resellers. ER 3735, 1203, 1206, 1219,

1222.

(2) AT&T formed an Ad _ Hoc

Committee to implement this policy by establishing

“roadblocks” to the use of SDN with the purpose of

eliminating resellers. ER 3736, 1238, 1249-52, 3739-41,

SER 27.

(3) One “roadblock” implemented by

AT&T was to provision SDN for resellers at a glacial pace.

As an AT&T executive said internally, “with a one percent

provisioning rate [resellers] won’t be around much longer.”

ER 1277.

(4) AT&T also had its telemarketers

contact COT’s SDN customers and, without authorization,

0149817.01

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convert them into reg.ctar AT&T long-distance service, a

practice known as “slamming.” ER 746, 1579, 1877, 4278-

96.

(5) AT&T failed to implement MLCP

orders that COT submitted and failed to advise that it had

not done so until several months later, by which time

COT’s customers had departed. ER 423, 1664, 2612, 4205-

06, 738.

(6) AT&T delivered bills to COT’s

customers allocating to them 100% of COT’s discount, so

that COT would not receive any revenues. ER 968, 1754,

468-69, 471, 1709."

(7) AT&T adopted a policy against

allowing cash payments due to COT and other resellers

' AT&T contends before this Court that its obligations related to

billing services are governed exclusively by its tariff and the Federal

Communications Act (“FCA”). In Intemational Audiotext Network,

Inc. vy. American Tel, & Tel, Co,, 893 F. Supp. 1207 (S.D.N.Y. 1994),

aff'd, 62 F.3d 69 (2nd Cir. 1995), AT&T contended just the opposite.

There, the Court rule? in favor of AT&T that FCA Sections 201 and

202 did not apply to billing services furnished by AT&T, since Title II

of the FCA regulates communications services, and billing services that

do not use communications over the carrier’s wire or radio facilities are

not communications services. 893 F. Supp. at 1223-24, citing, Matter

of Detariffing of Billing & Collections Servs., 102 F.C.C.2d 1150,

1168 (1986); Mater AAT S00. DAR eee See ee

Billing and Collection Services, 4 F.C.C. Red. 3429 (1989). Consistent

with these authorities, an AT&T expert testified that AT&T's Multi-

Location Billing services were not covered by its tariff. ER 1767,

1774. The AT&T expert likewise testified that the SDN tariff contains

no terms pertaining to provisioning. ER 1774.

0149817.01

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resulting from other AT&T discounts, with the purpose to

“kill the resellers’ cash flow.” ER 1344, 3739-41.

(8) AT&T did not bill COT’s customers

for months after they were using COT’s services, through a

practice known as “suppressed” billing. ER 517, 1898-99.

This not only suspended payments that were due to COT, it

also made COT’s customers irate and unwilling to pay what

was due. ER 488, 1576, 4263, 4308, 524-26, 4308.

(9) AT&T denied COT and other

resellers SDN calling cards, account teams, and SDN User

Association memberships (which AT&T reserved for its

Fortune 500 clients), and blocked international calling card

calls. ER 748-50, 403, 440-42, 696-97, 753-55, 830, 1837-

40, 1874-75, 2577.

(10) AT&T refused to respond to COT’s

pleas to address these and other problems (ER 486, 516),

and AT&T personnel demonstrated AT&T's antipathy

toward COT and other resellers by the epithets they used to

describe them. AT&T managers referred to resellers as

“cockroaches,” “slime,” and “convicts.” ER 3405.

(11) After placing COT in the midst of

these problems, ~T&T forced it to cease dealing with local

AT&T representatives to attempt corrections, but instead

transferred its account to AT&T's Channel Development

and Operations Center (“CDOC”) in New Jersey, where

0149817.01

AT&T promised even poorer service.’ ER 1837-40, 3149,

440-42, 1890-91.

Through these and other “roadblocks,” AT&T

nearly drove COT out of the reseller h:s‘ness. To survive,

COT was forced to terminate its coxtr ct with AT&T in

September 1992, with one and one-half years remaining on

the contract. ER 1942, 481-86, 515-17.

This is the case that was actually tried to the jury. It

did not involve a mere failure to provide expedited

services, nor did it involve any secret “side deals.”

REASONS FOR DENYING THE WRIT

l. AT&T’s petition nearly ignores that it was found to

have engaged in willful misconduct. It also suggests that

the Ninth Circuit did not base its decision on AT&T's

willful misconduct, even though the Ninth Circuit

remanded the case for a trial on punitive damages. Once

these omissions and misstatements are corrected, AT&T's

filed rate doctrine argument evaporates. Even if AT&T's

tariff exclusively governed the parties’ relationship, it

expressly allows for the claims at issue.

> AT&T kept this promise. AT&T employees at CDOC were not

trained and CDOC was not staffed to meet the SDN demands that

followed AT&T's overpromotion. ER 1188-89, 1193, 1290, 1639,

2730-32, 2775, 2801. For example, several weeks after COT had been

sending orders to CDOC, an AT&T supervisor finally called to ask

“who Central Office Telephone was, and what in the world was all this

paper [it was sending to New Jersey].” ER 1847. He then flatly stated

that he “would not process [COT’s] MLCP orders.” ER 1848.

0149817.01

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AT&T's tariff states: “The company’s liability, if

any, for its willful misconduct is not limited by this tariff.”

ER 4487. To the extent that the tariff applies, this case was

tried precisely in accordance with its terms, and the jury

found that AT&T had engaged in willful misconduct.

AT&T concedes that there is no limitation on its liability

for willful misconduct. AT&T’s Petition for Centiorari 5.

For over a century, carriers have been prohibited

from limiting their liability by tariff for claims based on

willful misconduct. Primrose v. Western Union Tel. Co.,

154 U.S. 1, 14 S.Ct. 1098 (1894). This fundamental

principle predates and overrides any protections AT&T can

garner from the filed rate doctrine. Courts have on several

occasions held that willful misconduct claims are not

precluded by the doctrine. See MCI Telecommunications

Corp._v. IC] Mail, Ine. 772 F. Supp. 64 (D.R.L.

1991)(citing cases).”

* The exception has been Marco Supply Co. Inc. v. AT&T

Communications, Inc,, 875 F.2d 434 (4th Cir. 1989). There, Marco

Supply alleged that it had contracted with AT&T based on quotations

of certain rates, which were substantially less than the amounts AT&T

ultimately charged. The trial court dismissed Marco Supply’s claims

for breach of contract and willful misrepresentation based on the filed

rate doctrine, and the Fourth Circuit affirmed. That decision has been

criticized for its lack of analysis and for applying “blindly the doctrines

that were spawned by the ICA.” MCI Telecommunications Corp. v.

TCI Mail, Inc., 772 F. Supp. at 68. Moreover, Marco Supply is

distinguishable i from this case in any event. The willful misconduct at

issue in Marco Supply involved nothing but rates. Here, AT&T's

willful misconduct did not relate to rates. In addition, Marco Supply's

willful misrepresentation claim required proof of reasonable reliance.

The court found that element to be lacking, since Marco Supply was

0149817.01

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The filed rate doctrine does not protect AT&T from

willful misconduct claims. Even if AT&T's tariff wholly

defined the parties’ relationship - which it did not -

AT&T's tariff specifically preserves such claims.

2. To fashion this as a filed rate case, AT&T argues

that COT wanted better or faster service than required by

AT&T's tariff. It then parades several cases stating that

rates filed by carriers are the only lawful charges.

However, COT’s claims do not challenge AT&T's rates,

nor do they seek to enforce “side deals” for services not

covered by AT&T's tariff. COT did not demand

specialized services. Instead, while COT paid the same

rates as AT&T's favored corporate customers, COT was

offered services intentionally designed to be so defective as

to put COT out of business and thus eliminate it as a

reseller.

While the filed rate doctrine is “not limited to

‘rates’ per se,” Nantahala Power and Light Co, v.

Thornburg. 476 U.S. 953, 966, 106 S. Ct. 2349 (1986), it

must have something to do with rates or rate setting. As

the Ninth Circuit recognized in this case, not everything

that a carrier inflicts upon a customer is sufficiently related

to rates to bar common law remedies. This Court's

decision in Nader v. Allegheny Airlines, Inc, 426 U.S. 290,

96 S. Ct. 1978 (1976), demonstrates this point.

presumed to know the published tariff rate. 875 F.2d at 436. Here,

COT’s claims have nothing to do with a misquoted rate or a

misrepresentation as to rates. Reasonable reliance, found to be lacking

in Marco Supply, is not an issue here.

014981701

In Nader, an airline passenger brought fraud claims

against an airline arising from the airline's failure to apprise

the passenger of its deliberate overbooking practices. This

Court held that allowing a common law remedy in this

situation did not create a conflict with the Federal Aviation

Act's scheme for rate setting:

The court in the present case, in contrast [to

I & Pacific RC Abil C

Oil Co,, 204 U.S. 426, 27 S. Ct. 350 (1907)},

is not called upon to substitute its judgment

for the agency’s on the reasonableness of a

rate -- or, indeed, on the reasonableness of

any carrier practice. There is no Board

requirement that air carriers engage in

overbooking or that they fail to disclose that

they do so. And any impact on rates that

may result from the imposition of tort

liability or from practices adopted by a

carrier to avoid such liability would be

426 U.S. at 299-300.

AT&T likewise oversold its SDN services, and

failed to disclose that it had done so. More significantly,

AT&T subsequently changed its policy and intentionally

implemented “roadblocks” to the resale of SDN, again

without disclosure. There is no Federal Communications

Commission (“FCC”) requirement relating to either of

these practices. Finally, as in Nader, any impact on rates

that may result from the imposition of liability in this case

would be merely incidental.

014981701

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The Ninth Circuit reached a decision in this case

that is entirely consistent with Nader.’ It correctly

concluded that COT’s claims did not create a conflict with

the FCA’s statutory scheme, since they did not relate to

rates or rate setting. The Ninth Circuit's decision was a

fact-based decision that does not denigrate the filed rate

doctrine, but finds it inapplicable under the particular facts

involved.

3. The principal decisions of this Court that are relied

upon by AT&T are Chicago & Alton R. Co, v, Kirby, 225

U.S. 155, 32 S. Ct. 648 (1912), Atchison, T, & S. F. Ry.

Co. vy. Robinson, 233 U.S. 173, 34 S. Ct. 556 (1914), and

Davis v. Cormwell, 264 U.S. 560, 44 S. Ct. 410 (1924), all

of which predate Nader by at least 50 years’. AT&T

* The Ninth Circuit’s decision is also consistent with previous Ninth

Circuit decisions and decisions from other circuits. See Columbia Sice]

Casting Co, v. Portland General Elec, Company, 103 F.3d 1446 (9th

Cir. 1996), as amended on denial of rehearing, 111 F.3d 1427 (1997),

petition for cert, filed, 66 U.S.L.W. 3085 (U.S. Jul. 2, 1997) (No. 97-

49); In re Lower Lake Erie Iron Ore Anti Trust Litigation, 998 F.2d

1144, 1159 (3rd Cir. 1993); Pacific $.S. Co, v, Cackette, 8 F.2d 259,

261 (9th Cir. 1925), cert. denied, 269 U.S. $86 (1926)\(rejecting

carrier's tariff-based defense on ground that customer's tort claim had

“no perceptible relation to rates.”) Subsequent decisions have also

cited the opinion below with approval for the rather obvious

proposition that where the claim at issue does not involve rates or rate-

setting, the filed rate doctrine does not apply. County of Stanislaus v.

Pacific Gas and Elec, Co,, 114 F.3d 858, 865 (9th Cir. 1997); Swain v,

AT&T Cor., No. CIVA3:94-CV-1088-D, 1997 WL 573464 (N.D.

Tex., Sept. 9, 1997).

* Moreover, all of these decisions follow Texas & Pacific R. Co. v.

Abilene Cotton Oil Co,., which this Court found to be consistent with

its decision in Nader. 426 U.S. at 299-300.

014981701

13

contends that these cases bring virtually every aspect of a

carrier's services within the scope of the filed rate doctrine.

However, these cases did not go that far. They each

involved a customer who paid one tariff rate while claiming

services that were not required by that tariff. In effect,

these Lustomers sought to pay a lower rate for services due

under a separate tariff.

Here, COT paid the same rates as AT&T's other

customers for the same services. While AT&T provided

those services to its “high end customers,” it provided COT

with services intentionally designed to be so defective as to

put COT out of the reseller business. This has nothing to

do with AT&T's rates or even the relationship between a

particular rate and a particular service.

The only relationship to rates that AT&T has been

able to identify is based on the cost that AT&T will incur to

satisfy COT’s judgment. However, the fact that AT&T

may attempt to pass this cost on to its customers through

higher rates is not a sufficient relationship to rates to bring

the filed rate doctrine into play. Nader expressly states that

such an effect on rates is too attenuated. 426 U.S. at 300.

AT&T also argues that allowing a damages claim

results in a disguised rebate favoring one of its customers,

which the filed rate doctrine was designed to prevent.

However, this Court has held that the potential for

disguised rebates is not a sufficient reason to abolish claims

of a customer who is truly damaged by a carrier’s conduct.

Chicago & NW, Ry, Co, v, Lindell, 281 U.S. 14, 18, 50 S.

Ct. 200 (1930); see also Southern Pacific Co. v. Miller

Abattoir Co,, 454 F.2d 357, 360-61 (3rd Cir. 1972) (“The

014981701

14

Railroad’s argument overlooks the fact that a customer who

is truly damaged by a railroad’s breach of its shipping

contract, whether the breach be intentional or not, receives

no ‘rebate’ when the railroad pays it for the amount of its

loss.”)

= The Ninth Circuit correctly concluded that this case

does not involve rates, rate-setting, or practices or

privileges affecting charges specified in AT&T's tariff.

The filed rate doctrine therefore does not apply

4. Finally, the filed rate doctrine does not preempt

COT’s common law claims because the right to prove such

claims is specifically preserved by the savings clause of the

FCA, 47 U.S. C. § 414. It provides:

Nothing in this chapter contained shall in

any way abridge or alter the remedies now

existing at common law or by statute, but

the provisions of this chapter are in addition

to such remedies.

Nader interpreted a similar savings clause as

preserving a passenger’s common law claim for fraud based

on an airline’s failure to disclose its overbooking practices.

On the basis of 47 U.S.C. § 414 and the Nader decision,

courts have held that common law claims asserted against

telecommunications carriers are not preempted by the FCA.

See, eg., In_re Long Distance Telecommunications

Litigation, 831 F.2d 627, 633-64 (6th Cir. 1987); Financial

Planning Institute, Inc, v. American Tel. & Tel, Co,, 788 F.

Supp. 75, 77 (D. Mass. 1992); Cooperative

Communications, Inc. v. AT&T Corp., 867 F. Supp. 1511,

0149817.01

15

1516 (D. Utah 1994); (“[I]nclusion of the savings clause

clearly indicates Congress’ intent that independent state law

causes of action, such as interference with contract . . . not

be subsumed by the Act, but remain as separate causes of

action.”).

Judge Brunetti, who authored the dissent in the

Ninth Circuit’s decision below, reached the same

conclusion in Allarcom Pay Television, Lid. v. General

Instrument Corp., 69 F.3d 381 (9th Cir. 1995). There, the

defendants raised express and implied preemption under the

FCA as a defense to claims for interference with contract

and with prospective economic advantage. In rejecting this

defense, Judge Brunetti relied on a savings clause within

the FCA substantially similar to the savings clause at issue

here. He concluded that there was no preemption because

allowing the state law claims would not impose obligations

inconsistent with the FCA, nor would it frustrate any

congressional objective. 69 F.3d at 387.

If the language and intent of the FCA itself did not

permit exclusion of the claims at issue in Allarcom,

particularly where an express preemption clause was

involved, it logically follows that the judicially-created

filed rate doctrine should not bar such claims. Allowing

such claims would not create obligations inconsistent with

the FCA. To the contrary, as Judge Brunetti stated in

Allarcom, “[t}he obligations imposed under state law

causes of action for unfair competition, interference with

contract, and interference with prospective economic

advantage are in addition to FCA obligations.” 69 F.3d at

386.

0149817.01

16

5. One additional point needs to be made, to correct a

misimpression that has been conveyed by AT&T. The filed

rate doctrine is not threatened by the Ninth Circuit's

decision in this case. The Ninth Circuit's decision in this

case is consistent with the doctrine, for the reasons stated

above. Rather, the filed rate doctrine is today almost

extinct because the body of law that gave rise to the

doctrine is rapidly disappearing. The dissent in Maislin

Industries, U.S... Inc. v. Primary Steel, Inc., 497 U.S. 116,

138, 110 S. Ct. 2759 (1996), recognized this trend nearly

eight years ago.”

Specifically with respect to this case, the

Telecommunications Act of 1996 was enacted on

February 8, 1996. Pub. L. 104-104, 110 Stat. 56. Under its

provisions, the entire field of telecommunications law is

being transformed, including as to tariffs.

Section 401 of the Telecommunications Act of 1996

(Pub. L. 104-104 § 401, 110 Stat. 128-129), adding Section

160(aX1) to the FCA (47 U.S.C. § 160(a)(1)), requires the

FCC to forbear from applying any regulation or any

provision of the FCA to a telecommunications carrier if the

FCA determines that (1) enforcement is not necessary to

ensure that charges, practices, classifications or regulations

by the carrier are just and reasonable, (2) enforcement is

* “T]he majority fails to appreciate the significance of the ‘sea

change” im the statutory scheme that has converted a regime of

regulated monopoly pricing into a highly competitive market. Even

arguments the Court accepts today.” 497 U.S. at 138 (Stevens, J.

'

014981701

17

not necessary for the protection of consumers, and (3)

forbearance is consistent with the public interest. In its

Marketplace (CC Docket No. 96-61), FCC 96-424 (rel.

October 31, 1996), 61 Fed. Reg. 59340 (November 22,

1996\(the “Detariffing Order”), the FCC ordered non-

dominant interexchange carriers to cancel all tariffs for

interstate, domestic, interexchange services currently on file

with the FCC, and prohibited nondominant interexchange

carriers from filing tariffs for such services in the future.

61 Fed. Reg. at 59353.” The FCC states as follows in

support of the Detariffing Order:

We find that a regime without nondominant

interexchange carrier tariffs for interstate,

domestic, interexchange services is the most

procompetitive, deregulatory system.

Specifically, we find that not permitting

nondominant interexchange carriers to file

tariffs with respect to interstate, domestic,

interexchange services will enhance

competition among providers of such

services, promote competitive market

conditions, and achieve other objectives that

7

Previously on October 23, 1995, the FCC issued an order granting

AT& I's motion to be reclassified as a nondominant carrier. Motion of

FCC 95-

427 (rel. October 23, 1995), recon. pending.

0149817.01

18 19

market conditions that more closely CONCLUSION

resemble an unregulated environment.

Moreover, we find that permitting non- For the reasons given above, AT&T’s petition for a

dominant interexchange carriers to file writ of certiorari should be denied.

tariffs on a voluntary basis would undermine

several of these benefits, and therefore is not R ly submitted,

in the public interest.*

61 Fed. Reg. at 59349 (emphasis added). dhs by

Meee

In short, the “century of decisions” on the filed rate Bruce M.

doctrine relied upon by AT&T is about to become ancient BRUCE MACGREGOR HALL,

history. The FCC wants to eliminate tariffs for non- PC.

dominant telecommunications carriers, and Congress has 1454 SW Highland Road

enacted a statute that allows the FCC to do so under Portland, OR 97221

circumstances the FCC now believes to exist. (503) 241-8524

Counsel of Record for Respondent

Brad T. Summers

Sarah J. Ryan

BALL JANIK LLP

101 SW Main

Suite 1100

Portland, OR 97204

(503) 228-2525

Counsel for Respondent

* MCI Telecommunications Corp., joined by AT&T, has obtained a

stay of the mandatory detariffing portion of the Detariffing Order

pending judicial review of the order. MCI v. FCC, No. 96-1459 (D.C.

Cir. Feb. 13, 1997). App. 3 - 43.

0149817.01 014981 7.01

20

J. Richard Urrutia

JAMES, DENECKE & HARRIS

1150 Pioneer Tower

888 SW Sth Avenue

Portland, Oregon 97204

(503) 228-7967

Co-Counsel for Respondent

0149817.01

App. |

FILED 94 JUN 27

IN THE UNITED STAT&S DISTRICT COURT

FOR THE DISTRICT OF OREGON

CENTRAL OFFICE TELEPHONE, INC.,

Civil No. 91-1236-JE

i i de a a a a

We, the jury, being duly empaneled and sworn to

try the issues in this case, return our verdict as follows:

1. On plaintiff COT’s claim for Breach of

Contract we find:

{4)_ In favor of plaintiff COT.

______ In favor of defendant AT&T.

2. Onplaintiff COT’s claim for Intentional

Interference with business relations we find:

(2. In favor of plaintiff COT.

APPENDIX A

App. 2

In favor of defendant AT&T.

If you find in favor of COT on either of the above

claims, answer question 3.

3. Damages are awarded to COT against

AT&T in the amount of $(13,000,000,00)

4. On defendant AT&T's counterclaim, we

___ In favor of AT&T, and award

damages in the amount of

$

{4 In favor of COT.

Dated this (29th)of June, 1994.

Linda C. Fitz-Armstrong)

Presiding Juror

VERDICT 01$0068.01

App. 3

FILED JAN 6 1997

In The

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

MCI TELECOMMUNICATIONS

CORPORATION, No. 96-1459

Petitioner,

v.

FEDERAL COMMUNICATIONS

COMMISSION and UNITED

)

)

)

)

)

)

)

)

STATES OF AMERICA, )

)

Respondents. )

MOTION FOR STAY PENDING JUDICIAL

REVIEW AND FOR EXPEDITED CONSIDERATION

AND A BRIEFING SCHEDULE

MCI Telecommunications Corporation ("MCI")

requests that this Court stay the portions of the Second

Report and Order ("Order") issued by the Federal

Communications Commission ("FCC") in Policy and Rules

Concerming the Interstate Interexchange Marketplace, CC

APPENDIX B 0150556.01

App. 4

Docket No. 96-61, released October 31, 1996, 61 Fed. Reg.

59,340 (Nov. 22, 1996) (copy attached at Tab A), which

prohibit nondominant interexchange carriers from filing

tariffs for domestic interstate interexchange common carrier

services. MCI also requests that this Court expedite its

review of the Order and establish a briefing schedule.

MCI requests this relief because the Order totally

transforms the nature of customer-carrier relationships in

the interexchange market in a way that will impose

enormous costs and generate widespread, debilitating

confusion about the laws and rules that will govern those

relationships. Specifically, the Order eliminates all

domestic tariffs, and requires carriers to establish individual

contractual relationships with each and every customer of

all domestic services. Indeed the Order eliminates tariffs

even for customers with whom it will be impossible to form

0150556.01

App. 5

contracts -- so-called casual callers who are not

presubscribed to a carrier's service.

For carriers such as MCI, the cost of moving from

tariffs to contracts for all domestic customers will be

enormous. See Affidavit of Victoria Harker, January 6,

1997, 94-11 (attached at Tab B) (detailing costs of

compliance). At the same time, the legal status of those

newly formed contractual relationships will remain in

substantial doubt during the pendency of appellate review.

The Order itself generates substantial confusion as to

whether the terms of these contractual relationships are

governed by the substantive requirements of federal law (47

U.S.C. §§201, 202) (as the Order in some places

suggested) or the requirements of state law (as the Order

elsewhere suggests). At a minimum, there is likely to be a

0150556.01

App. 6

plethora of litigation contesting the adequacy of the process

of contract formation with MCI's millions of customers.

Should the Order be invalidated, the carrier-

customer relationship will once again be governed

exclusively by tariff. Individual contracts (principally with

large business customers) with rates that differ from the

tariffed rates will presumably be invalid and potentially

unlawful. Thus, a second wave of litigation is likely in the

event the Order is invalidated. Because the Order works so

fundamental a change in prevailing law and practice -- and

imposes such enormous cost and uncertainty -- its

implementation should await a final determination of its

validity.

A stay to prevent these harms is particularly

warranted because the Order fails to provide anything

approaching a sufficient justification for eliminating tariffs.

0150556.01

App. 7

Section 203 of the Communications Act requires

interexchange carriers to file tariffs with the FCC. 47

U.S.C. §203(a). The FCC invokes §402 of the

Telecommunications Act of 1996, (codified at 47 U.S.C.

§ 10) as authority to forbid the filing of such tariffs. But

this provision cannot support mandatory detariffing. While

that provision may give the FCC authority to refrain from

enforcing § 203's tariff requirements, it does not authorize

the further step of affirmatively prohibiting carriers from

filing tariffs should they wish to do so.

Moreover, even if the FCC did have the authority to

forbid tariff filings, none of the rationales advanced by the

FCC provides a reasoned basis for doing so. The FCC's

principal rationale -- that eliminating tariffs will minimize

collusion and price-signalling in the interexchange market

-- is entirely undermined by a requirement imposed

0150556.01

App. 8

elsewhere in the Order that carriers make the same

information about rates, terms and conditions available to

the public at the carriers’ offices. see Order 4] 59, 85.

Thus, all the FCC has done is change the location where

this information is available to the public.

The other rationales offered by the FCC likewise

cannot support mandatory detariffing. The Order asserts

that mandatory detariffing promotes rapid efficient

responses to changes in demand and cost, eliminates costs

on carriers seeking to offer new services, and allows

consumers to seek out new arrangements tailored to their

individual needs. Order 953. But all of these alleged

benefits could have been achieved by permissive detariffing

(which MCI, other carriers, consumer groups, and NARUC

advocated to the FCC), with none of the costs imposed by

0150556.01

App. 9

mandatory detariffing. Thus, none of these rationales

justifies the choice of mandatory detariffing.

Immediate relief is needed. As of its effective date

of December 22, 1996, the Order forbids carriers from

filing any new tariffs or amending existing tariffs for long-

term customer arrangements. Order 990. Prior to the

Order's effective date, MCI filed approximately 300 such

tariffs each month. Thus, the Order is having significant

disruptive effects now which fully justify a_ stay.

Furthermore, the Order requires replacement of all

domestic tariffs with individual contracts by no later than

September 22, 1997 (nine months after its effective date).

Because the process of converting tens of millions of

individual customers from contract to tariff will take

months, that process will have to commence soon. See

Harker Aff. 93. It is extremely unlikely that briefing,

0150556.01

App. 10

argument and a final decision from this Court can be

completed before all carriers will have to undertake that

burden. Therefore, a stay of the entire Order is fully

justified.

Additionally, because the public interest (as well as

the interests of MCI and other carriers) will be greatly

served by a swift final resolution of this matter, MCI

respectfully requests a briefing schedule that would permit

a final decision to be rendered no later than June 1, 1997.

STATEMENT

The FCC's Notice of Proposed Rulemaking

proposed that the FCC would exercise its authority under

Section 10 of the Telecommunications Act of 1996 to

forbear from enforcing Section 203 of the Act, which

requires carriers to file with the Commission schedules of

charges (and classifications, practices and regulations

0150556.01

App. 11

affecting such charges).' The FCC identified two

alternatives: “permissive detariffing," a rule which would

permit but not require carriers to file tariffs; or "mandatory

detariffing,” a rule which would prohibit carriers from

filing tariffs altogether.

In its comments, MCI advocated permissive

detariffing and vigorously opposed mandatory detariffing.

MCI was joined in this position by other carriers (including

AT&T), consumer groups, and NARUC. Comments filed

by these parties demonstrated that mandatory detariffing

would impose significant costs on carriers and their

customers, with no countervailing benefits that could not

equally be achieved through permissive detariffing. The

1

Policy and Rules Concerming the Interstate, Interexchange

Marketplace: Implementation of Section _254(g) of the

Communications Act of 12934, as amended, CC Docket No. 96-61,

Notice of Proposed Rulemaking, 11 FCC Red. 7141, released

March 25, 1996 ("Notice").

0150556.01

App. 12

record showed that mandatory detariffing, especially as

applied to services offered to residential and small business

customers, would impose enormous transaction costs on

carriers and their customers, and could preclude "casual"

calling altogether.”

The FCC nevertheless chose “mandatory

detariffing." The FCC concluded that such a policy would

prevent carriers from invoking the filed rate doctrine, and

protect consumers by allowing them "to pursue remedies

under state consumer protection and contract laws." Order

455. The FCC also found that mandatory detariffing

would likewise “preserv[e] the reasonable commercial

expectations” of carriers (id,). The FCC claimed that tariffs

are not "the only feasible way for carriers to establish legal

: See AT&T Reply Comments, CC Docket No. 96-61, filed

May 24, 1996, at 3 (citing comments of other parties).

0150556.01

App. 13

relationships with their customers” (jd,); that nondominant

carriers would "not necessarily" need to negotiate contracts

for service with each individual customer (id.); and that

carriers could, for example, issue "short standard contracts"

that contained basic rates, terms and conditions and "cross-

referenced" other documents (jd,). The FCC also stated that

it was "not persuaded that detariffing will make casual

calling impossible," and that "carriers have other options to

establish legal relationships" for such calling (id,, 4 58).

The FCC therefore ordered nondominant carriers to cancel

their tariffs for domestic, interstate services as of nine

months from the Order's effective date. In addition, the

FCC prohibited nondominant carriers from filing new or

revised tariffs for long-term service arrangements (4 90).

MCI sought a stay of the Order from the FCC on

December 18, 1996. Consumer groups, including the

0150556.01

App. 14

Consumer Federation of America and the

Telecommunications Research and Action Center,

supported MCI's stay request. To date, the FCC has not

ruled on that request.

~

ARGUMENT

A stay should be granted where 1) the movant is

likely to prevail on the merits of the appeal; 2) the movant

will likely suffer irreparable harm absent a stay; 3) others

will not be harmed if a stay is issued; and 4) the public

interest will nct be harmed. See Washington Metropolitan

Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841,

843 (D.C. Cir. 1977)).

“The test is a flexible one.” Population Institute v.

McPherson, 797 F.2d 1062, 1078 (D.C. Cir. 1986). Relief

should be granted if a movant demonstrates "either a high

likelihood of success and some injury, or vice versa.” Id...

0150556.01

App. 15

Comm'n, 772 F.2d 972, 974 (D.C. Cir. 1985). An

“absolute certainty of success" on the merits is not required.

Id. Indeed, a stay should issue “even though [the Court's]

approach may be contrary to movant's view on the merits,"

as long as the movant makes a substantial showing on the

other factors. Washington Metropolitan Area Transit, 559

F.2d at 843.

Similarly, expedited review is appropriate where (i)

the decision under review is subject to substantial

challenge, and (ii) petitioners would suffer irreparable

injury absent expedition. Handbook of Practice and

Internal Procedures at 70, United States Court of Appeals

for the District of Columbia Circuit. An additional,

independently sufficient factor is whether "the public

0150556.01

App. 16

generally ... hafs}] an unusual interest in prompt

disposition." Id.

Each of the criteria for a stay and for expedited

review is easily satisfied here.

I. MCI _ IS LIKELY TO PREVAIL ON THE

MERITS,

The principal legal issue in this case is whether the

FCC properly exercised its authority under the new § 10 of

the Communications Act, 47 U.S.C. § 10, to eliminate

tariffs for all domestic interexchange services. Section 10

provides that the FCC may "forbear" from enforcing

substantive requirements of the Communications Act if:

(1) enforcement of such regulation or

provision is not necessary to ensure that the charges,

practices, classifications, or regulations by, for, or in

connection with that telecommunications carrier or

telecommunications service are just and reasonable

and are not unjustly or unreasonably discriminatory;

0150556.01

App. 17

(2) enforcement of such regulation or

provision is not necessary for the protection of

consumers; and

(3) forbearance from applying such

provision or regulation is consistent with the public

interest.

47 U.S.C. § 10(a).

As will be shown, the order cannot be justified

under § 10 for two reasons. First, the FCC's decision to

impose mandatory (rather than permissive) detariffing goes

beyond the limited authority conferred by § 10. Second,

the FCC's decision that mandatory detariffing is consistent

with the public interest lacks any reasoned foundation, and

is thus arbitrary and capricious.

A. The Order Exceeds The FCC's Statutory

Authority.

Section 10 confers upon the FCC the limited power

to "forbear from applying any regulation or any provision"

of the Act if particular conditions are met. § 10(a). In the

App. 18

Order, however, the FCC went much further and adopted a

mandatory detariffing policy which prevents carriers from

complying with the § 203 tariffing requirement, regardless

of the nature of the service, or the type of customer

involved.

The word “forbear” has an ordinary, well-

understood meaning: "refraining from action." See Black's

Law Dictionary 329 (Sth ed. 1983); Webster's Third

International Dictionary 886 (1981) (same); Random House

Dictionary 748 (2d Ed. 1987) (same). Thus, Congress gave

the FCC only the authority to refrain from enforcing the

mandates of the Act, including § 203's requirement that

carriers must file tariffs. Congress did not give the FCC

authority to prohibit carriers from relying on tariffs to order

their affairs, especially with the millions of small customers

0150556.01

App. 19

whose relationship with interexchange carriers is entirely

premised on tariffs.

Acknowledging that its order goes far beyond the

ordinary meaning of "forbear," the FCC argues that the

term should be interpreted in accordance with the FCC's

traditional use of word, which assertedly covers mandatory

as well as permissive detariffing. See Order 971. When

construing a statute, however, it must be assumed that the

"legislative purpose is expressed by the ordinary meaning

of the words used." Richards v. United States, 369 U.S. 1,

9 (1962). Thus, "[a]bsent a clearly expressed legislative

intention to the contrary, that language must ordinarily be

regarded as conclusive." Consumer Product Safety

Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1982).

In this case, the ordinary meaning of the language at issue

is not broad enough to encompass the FCC's reading. Nor

0150556.01

App. 20

is there anything to indicate that Congress intended the

language to mean anything other than what it ordinarily

means. Thus, there was no statutory basis for the FCC's

decision.

B. The Order Is Arbitrary and Capricious.

Quite apart from the absence of statutory authority,

the Order lacks a reasoned justification. Indeed, the Order

is hopelessly contradictory, and does not satisfy the

requirement that agency action represent "a ‘rational

connection between the facts found and the choice made."

Vehicles A ‘ation Mire Ass! State Farm

Mutual Automobile Ins. Co., et al. 463 U.S. 29, 43 (1983),

quoting Burlington Truck Lines v. ULS., 371 U.S. 156, 168

(1962).

The Order rests principally on the FCC's conclusion

that mandatory detariffing satisfied the "public interest"

0150556.01

App. 21

prerequisite to forbearance (§ 10(a)(3)), because any

tariffing facilitates "price coordination in the interstate,

domestic, interexchange market ..." Order § 44; see also

Order 454 ("tacit coordination of prices for interstate,

domestic, interexchange services, to the extent it exists, will

be more difficult if we eliminate tariffs, because price and

service information about such service provided by

nondominant interexchange carriers would no longer be

collected and available in one central location"). The FCC

likewise relied on this rationale in finding that § 10's other

prerequisites were met. See, ¢.g., Order § 23 (discussing

whether tariffs are necessary to ensure that charges are just,

reasonable, and non-discriminatory, and finding that tariff

filings "facilitate, rather than deter, price coordination,

because under a tariffing regime, all rates and service

information is collected in one, central location"); id. § 37

0150556.01

App. 22

(discussing whether tariffs are mecessary to protect

consumers, and finding that "forbearance will promote

competition and deter price coordination, which can

threaten competitive benefits"); id. 441 ("we believe that

eliminating tariffs ... will reduce [carriers'}] ability to

engage in tacit price coordination").

Indeed, the FCC justified its choice of mandatory as

opposed to permissive detariffing (or true forbearance)

based on the view that permissive detariffing "would not

eliminate the collection and availability of rate information

in one centralized location," and "would create the risk that

carriers would file tariffs merely to send price signals and

thus manipulate prices." Order { 61.

Mandatory detariffing simply cannot be justified on

this ground. To begin with, the FCC did not find that

tariffs caused price coordination. Rather, it acknowledged

0150556.01

App. 23

that "evidence of tacit price coordination in the market for

interstate, domestic interexchange services is inconclusive."

Order § 23. More importantly, even if the risk of price

coordination were real, the Order would do nothing to

ameliorate it. The Order identifies tariffs as the means by

which competitors can ascertain pricing information. Yet

the FCC ordered carriers to continue to "make information

on current rates, terms, and conditions for all of their

interstate, domestic, interexchange services available to the

public in an easy to understand format and in a timely

manner." Order ¥ 84 (emphasis added). Indeed, the Order

requires carriers to publicize the location and hours during

which such information may be accessed. Order 4 86.

Thus, the order requires fully as much public

disclosure of rates, terms and conditions as does the tariff

regime it displaces. If disclosure risks price signalling and

0150556.01

App. 24

collusion, that risk remains present despite the FCC's

decision to detariff. The Order simply will not bring about

the principal public policy benefit the FCC claims it will

achieve. The only difference between the tariff

requirements of §203 and the public disclosure

requirements of the Order is the location of the information.

Pursuant to § 203, the information is located at the FCC.

Pursuant to the Order, it is available at the carrier's offices.

It is inconceivable that this difference could prevent the

risks of collusion identified by the FCC. Certainly, such a

dramatic and costly policy shift as mandatory detariffing

cannot be supported by so slender a reed.

Nor do any of the other rationales articulated in the

order survive scrutiny. The Order cannot be justified on the

ground that tariffing "removes incentives for competitive

price discounting." Order 453. According to the Order,

0150556.01

App. 25

carriers will not bother to offer discounts because

competitors will know immediately what discounts are

offered and will match them before the discount has the

effect of attracting new customers. See id. 945. This

assumption is, however, contrary to the record. The FCC

itself recognized that the “high churn rate among

consumers of interstate, domestic interexchange carriers

indicates that consumers .. . are likely to switch carriers in

order to obtain lower prices or more favorable terms and

conditions." Order 421. This rationale also suffers from

the same fundamental problem discussed above -- if

tariffing did provide a disincentive to offer discount

programs because other carriers would learn of them and

immediately match them, the Order's disclosure

requirements would merely perpetuate the problem.

0150556.01

App. 26

Nor can the Order be justified on the ground that

tariffing precludes carriers from making rapid, efficient

responses to changes in demand and costs. Order { 53.

This conclusion is inexplicable. Under the existing rules,

carriers can file tariffs on one day's notice, This allows

them to alter service plans almost instantaneously in

response to competition or other changes in the market.

The Commission itself found, however, that in a non-

tariffed world, carriers would, at a minimum, be required to

provide some form of advance notice to the millions of

consumers they serve before certain changes could be made

to rate structures. See Order 4 56 (Carriers would "likely

be required, as a matter of contract law, to give advance

notice of" changes such as rate increases). Thus, the move

from tariff to contract is certain to reduce carriers’

flexibility -- not enhance it. In any event, this benefit could

App. 27

have been fully achieved by adopting a permissive

detariffing rule, which would allow carriers to decide when

the cost of tariffing outweighed its administrative benefits.

The FCC also indicated that tariffing imposes costs

on carriers that attempt to make new offerings, and that

mandatory detariffing is therefore in the public interest.

But absent tariffs, carriers will have to enter into new

contracts with customers each time they make a new

offering. The cost of doing so, which the Commission

appears not to have considered, will far outstrip the cost of

tariff filings. And, once again, this benefit could have been

fully achieved by adopting a permissive detariffing rule.

Finally, the FCC made no serious attempt to deal

with the issue of "casual calling.” Casual callers are those

who use a carrier's services without having an ongoing

relationship with that carrier, such as credit card and collect

App. 28

callers. Carriers cannot enter into contractual arrangements

with casual callers prior to the time the call is actually

made. Under a tariffed regime, that is not a problem -- the

rates charged for calling card or collect calls, as well as the

terms and conditions governing those calls, are contained in

tariffs, and both the carrier and casual callers are bound by

the tariff. Absent tariffs, however, there is no mechanism

available to govern the rates, terms and conditions of the

call. The PCCe ofthand comment tat ty eslng 6 coulis

card and completing a call, "casual callers may be deemed

to have accepted a legal obligation to pay for any such

service rendered," Order 4 58 (emphasis added), does not

begin to answer the question of what, as a legal matter,

obligates these callers to pay carriers a specific rate for the

services they use; what terms and conditions, such as

0150556.01

App. 29

applicable liability limitations, govern the call; and what

law answers these questions.

In short, the FCC's order does not survive even

minimal scrutiny.

ll. MCl AND OTHERS WOULD SUFFER

NOT STAYED.

The Order mandates radical change in the way MCI

and all other interexchange carriers do business. Presently,

as a result of the Supreme Court's ruling in MCI]

Telecommunications Corp, v. AT&T, 113 S.Ct. 2223

(1994), all of MCI's domestic services to millions of

customers are provided under tariff. During the period

when the Commission's rules authorized permissive

detariffing, the vast majority of MCI's customers received

service under tariff because it was far more efficient to do

so than to enter into individual contracts with each

0150556.01

App. 30

customer. The Order will require MCI to establish

individual contractual relationships with each of these

customers, and to do so in a matter of months. That

process risks irreparable harm to MCI in at least four

distinct ways.

First, (as detailed in the Harker affidavit submitted

herewith) the cost of compliance with the Order will be

enormous. MCI alone is likely to incur costs that run to

tens of millions of dollars even to establish contracts using

standardized forms with its millions of customers and every

other interexchange carrier would be put to the same

expense. Specifically, MCI estimates that it will incur an

expense of approximately $20 million in transaction costs

to convert existing customers to contracts, and

approximately the same amount to form contractual

relationships with the approximately 16 million new

App. 31

subscribers MCI estimates it will obtain in 1997. Harker

Aff. 4 6. MCI also estimates that the need to use mailings

rather than tariff amendments to effectuate changes in terms

and conditions will cost approximately $48 million

annually. Id. 47. MCI further estimates that customer

support services for this conversion process will be

approximately $11 million. Id. 4 8.

This harm is certain to occur imminently. Absent a

stay, MCI will be required to begin the process of

converting customers from tariffs to individual contracts in

a matter of months in order to meet the Order's

September 22, 1997 deadline for the complete elimination

of tariffs. Harker Aff. 991, 5. Should the Order be

invalidated, that expense would have been wholly

unnecessary. Indeed, invalidation of the Order would

impose on MCI a further cost of informing all its customers

App. 32

that the contracts they previously received were no longer

valid. Because these harms are both certain and great, they

plainly warrant a stay. See Wisconsin Gas Co. v. FERC,

- 158 F.2d 669 (D.C. Cir. 1978). Furthermore, the harms are

certain to fall on MCI (and other carriers) or their

customers, or (as is most likely) both; In all likelihood MCI

will be forced to absorb a substantial measure of the costs

but higher rates for consumers will also result. Harker Aff.

q 11.

Second, the process of replacing tariffs with

contracts will expose MCI and other carriers to an

onslaught of litigation. To begin with, the Order has

created tremendous uncertainty as to ues customer-

carrier relationships will continue to be governed by

uniform federal law, or will instead be governed by state

law. On the one hand, as the Order makes clear, the

0150556.01

App. 33

substantive requirements of §§ 201 and 202 of the

Communications Act that interstate rates be just, reasonable

and nondiscriminatory continue to apply, and will be

enforced by the FCC in complaint proceedings authorized

by §208 of the Act. On the other hand, the Order

repeatedly suggests that state contract and consumer

protection law will henceforth govern carrier-customer

relationships. E,g. Order 4 42.

The process of contract formation will itself raise

many complicated questions. Under the law of many

States, it is unclear whether MCI can form contracts with

existing customers by virtue of a process that makes new

contract terms binding if a customer continues to use MCI

after receiving notice of the contract terms. Such a practice

may be deemed an unlawful "negative option,"

necessitating that MCI terminate service and then restore it

0150556.01

App. 34

only to customers who affirmatively request it. Many other

unresolved questions about the scope of MCI's new state

law duties will likewise be certain to prompt massive

consumer class action litigation. MCI and other carriers

should not be subjected to this burden in advance of a

conclusive determination of the Order's validity.

Third, as demonstrated, the Order will prevent MCI

from entering into contracts with a substantial class of

customers -- casual callers -- which will severely disrupt an

important aspect of its business.

Fourth, denial of a stay will cast a pall of

uncertainty over the market, particularly with respect to

large and mid-sized businesses with which MCI typically

enters into special customer arrangements (SCAs). During

the pendency of the appeal, it will remain unclear whether

existing tariffed SCAs can continue to govern those

0150556.01

App.35

relationships, or whether existing SCAs must be

renegotiated. It will be unclear whether the meaning and

enforcement of the SCAs will be governed by federal or

state law, and if the latter, which state’s law. Because the

Order forbids the filing of any new SCAs as of its effective

date ($90), all such relationships formed during the

pending of the appeal will have to be contractual. Should

the Order be invalidated, however, these contractual

relationships could be found to be without legal effect. See

American Broadcasting Companies. Inc. v. FCC, 643 F.2d

$18 (D.C. Cir. 1980). Customers may refuse to pay, or, if

they pay at all, may raise subsequent claims based on the

statutory requirements of §202(a) that rates be

adverse consequences were they required to shift to

contractual relationships en masse during the pendency of

0150556.01

App. 36

the appeal, only to shift back to tariff relationships should

they prevail.

Ill. NO OTHER PARTY WOULD HARMED BY

THE GRANT OF A STAY.

No other party would be substantially harmed by

the grant of a stay. The relationship between consumers

and carriers has been governed by tariffs for over sixty

years. For that same sixty years, the FCC has accepted and

maintained tariff filings. It cannot seriously claim that it or

the public would be harmed merely by maintaining the

Status quo -- a status quo mandated by the Communications

Act -- until the question of the Order's lawfulness can be

decided on the merits.

IV. THE PUBLIC INTEREST WOULD BE

SERVED BY THE GRANT OF A STAY.

The public interest would be served by the grant of

a stay. As discussed above, implementation of the Order

0150556.01

App. 37

would impose significant costs on carriers that would likely

be passed on to consumers. A stay preserving the status

quo would prevent the confusion and added expense

consumers may suffer if carriers are forced to move toward

a detariffed environment -- confusion and expense which

would be utterly needless if the Order is overturned on the

merits. That is doubtless why an array of groups

representing consumers supported MCI's request for a stay

from the FCC.

CONCLUSION

For all the reasons stated above, the Order should be

stayed pending review by this Court, and an expedited

schedule should be established.

0150556.01

App. 38 App. 39

a United States Court of Appeals

Respectfully submitted, For The District of Columbia Circuit

No. 96-1459 September Term, 1996

-S.

Thomas F. O'Neil III Donald B. Verrilli, Jr. UNITED STATES COURT OF APPEALS

MCI Telecommunications Jodie L. Kelley FOR THE DISTRICT OF COLUMBIA CIRCUIT

1113 19th Street, N.W. 601 13th St., N.W. MCI TELECO CATIONS

Washington, DC 20036 Suite 1200 CORPORATI —

(202) 736-6412 Washington, D.C. 20005 Peti ,

202-639-6000 toner,

Counsel for MCI ”

FEDERAL COMMUNICATIONS

COMMISSION and UNITED

Dated: January 6, 1997 STATES OF AMERICA,

Respondents.

Competitive Telecommunications Association, et al.,

Intervenors

Consolidated with 96-1477, 97-1009

BEFORE: Ginsburg, Sentelle, and Tatel, Circuit

Judges

APPENDIX C 0150608.01

0150556.01

App. 40

ORDER

Upon consideration of MCI Telecommunications

Corporation's motion for stay pending judicial review and

for expedited consideration and a briefing schedule, the

responses thereto, the replies, and the supplements;

America's Carriers Telecommunication Association's

motion for stay pending judicial review, the response

thereto, and the reply; and the motion to hold in abeyance,

the responses thereto, and the reply, it is

ORDERED that the motions for stay be granted.

Petitioners have satisfied the stringent standards required

for a stay pending court review. See Washington

Inc., 559 F 2d 841, 843 (D.C. Cir. 1977); D.C. Circuit

Handbook of Practice and Internal Procedures 68-69

(1994). Itis

App. 41

FURTHER ORDERED that the motion to hold in

abeyance be denied. It is

FURTHER ORDERED that the motions for

expedition be granted in part. The Clerk is directed to

calendar this case for oral argument early in the September

1997 Term. It is

FURTHER ORDERED, on the court's own

motion, it appearing that these consolidated cases present

potential problems of duplicative briefing, that the parties

show cause within fifteen days of the date of this order why

the following briefing format should not be adopted:

Joint brief of petitioners

(not to exceed 12,500 words)

—

Joint brief of intervenors in support of

petitioners (not to exceed 8,750 words)

Brief of respondenis

(not to exceed 12,500 words)

Joint brief of intervenors in support of

respondents (not to exceed 8,750 words)

App. 42

Joint reply brief of petitioners

(not to exceed 6,250 words)

Joint reply brief of intervenors in support of

petitioners (not to exceed 6,250 words)

The foregoing represents a proposed format. Those

parties with no objection to it need not respond. Any

responses to the order to show cause shall not exceed 20.

pages. Objections to the format should be detailed and

specific. The parties may also suggest an alternative

briefing format to reduce the number of pages submitted to

the court. In so doing, the parties should keep in mind that

the court looks with extreme disfavor on repetitious

submissions and will, where appropriate, require joint

briefs.

Mark J. Langer, Clerk