Petition for Writ of Certiorari — Air Transport Ass'n of America v. Public Utilities Commission

Supreme Court brief1988

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Text

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1987

AiR TRANSPORT ASSOCIATION OF AMERICA,

DELTA AIR LINES, INC.,

PAN AMERICAN WORLD AIRWAYS, INC.,

UNITED AIRLINES, INC., AMERICAN AIRLINES, INC.,

NORTHWEST AIRLINES, INC., TRANS WORLD AIRLINES, INC.,

AiR CANADA, USAIR, INC. AND EASTERN AIRLINES, INC.,

Petitioners,

VS.

THe PuBLic UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA; and

Victor CALVO, PRISCILLA C. GREw,

RONALD VIAL, LEONARD M. GRIMES, JR.

and WILLIAM T. BAGLEyY, the members of

and constituting said Public Utilities Commission,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GILMORE F. DIEKMANN, JR.*

ELLIOT L. BIEN

BRONSON, BRONSON & MCKINNON

555 California Street, Suite 3400

San Francisco, California 94104

Telephone: (415) 986-4200

Attorneys for Petitioners

*Counsel of Record

BOWNE OF

SAN FRANCISCO. INC

¢« 190 NINTH ST. « SF CA 94103 «

QUESTIONS PRESENTED

In light of the Commerce Clause, the antidiscrimination provi-

sions of the Federal Communications Act of 1934, 47 U.S.C.

$§ 201 and 202(a), and the supremacy of that Act in the field of

interstate Communications, may a state public utilities commis-

sion enforce a so-styled “privacy” policy by ordering the tele-

phone companies within its jurisdiction to discontinue all

telephone service to the nation’s major airlines unless they aban-

don their undisputably lawful practice of random, quality-control

monitoring of calls to their privately owned and operated reserva-

tion/information systems, when the record establishes that such a

regulation necessarily affects and burdens interstate as well as

intrastate telephone communications?

Given the explicit preemption rule of the Airline Deregulation

Act of 1978, 49 U.S.C. § 1305(a)(1), does the Supremacy

Clause of the United States Constitution support federal declara-

tory or injunctive relief against a preempted regulation, even

assuming arguendo that the Act itself creates no private nght of

action for affirmative enforcement purposes?

Does the Eleventh Amendment prevent the federal courts from

considering the airlines’ state law arguments—arguments perti-

nent to their federal as well as state claims for relief—and

determining whether respondents may have been “acting in their

official capacities but without any statutory authority,” Pennhurst

State School & Hosp. v. Halderman, 465 U.S. 89, 114 at fn. 25

(1984)?

see)

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TABLE OF CONTENTS

Questions Presefited . ....... 2.65 <i65s%:

Table of Appendices........ Peer errr ee eee

Table of Authortites Cled.. oi .o4d4i vies an ee eee

Petition for a Writ of Certioran .........00ccauasace

Parties ... 0605 oC A eee eee

Opinions Below... o 5 00s a

JurinGiCtioR. . oo sas a eee

Seatutes lovolved.. cc. sc dia ae eee eee

Statement of the Case ; . 2.0. os cence eee

Reasons for Granting the Writ ... 6.0 ...044n nee eu

Concieim .. 3.4. Mt ye

—)

Appendix A:

Appendix B:

Appendix C:

Appendix D:

Appendix E:

Appendix F:

Appendix G:

iil

TABLE OF APPENDICES

Opinion of The United States Court of

Appeals for the Ninth Circuit, Air Trans-

port Association of America, et al., v. Pub-

lic Utilities Commission of the State of

California, et al. (Filed November 30,

RS ee een ere

Order of the United States District Court

Northern District of California, Air Trans-

port Association of America, et al., v. Pub-

lic Utilities Commission of the State of

California, et al. (Filed June 25, 1986) ..

Order of the United States District Court

Northern District of California, Air Trans-

port Association of America, et al., v. Pub-

lic Utilities Commission of the State of

California, et al. (Filed October 15, 1986)

Memorandum Opinion and Order by the

Federal Communications Commission

(Adopted September 6, 1985)..........

Judgment by United States District Court

Northern District of California, Order of

the United States District Court Northern

District of California, Air Transport Asso-

ciation of America, et al., v. Public Utilities

Commission of the State of California, et

al. (Filed October 21, 1986) ...........

Public Utilities Commission of the State of

California: General Order 107-B (Adopted

et ole ay 0 GA boos ew 2

Public Utilities Commission of the State of

California: Order Modifying Decision (D.)

83-06-02! and Denying Rehearing and

Further Modification. (Filed December 15,

ee ay ik week + oe

A-|

B-1

C-1

D-1

E-]

F-

TABLE OF AUTHORITIES CITED

Cases

Page

Air Transport Ass’n v. P.U.C. of State of Cal., 833 F.2d 299

Se es STE cae eke ek ce al ewe eee ees 2

American Trucking Association, Inc. v. P.C.C., 377 F.2d

121, 131 (2nd Cir. 1966), cert. denied, 386 U.S. 943 ..13, 15

Ark. Elect. Coop. v. Ark. Pub. Serv. Comm’n., 461 U.S.

a I sca aie aka eos Seba ats Oe Lae ee 2

Barnes v. Cohen, 749 F.2d 1009 (3d Cir. 1984) ........ 14, 22

Cooney v. Mountain States Teleph. & Teleg. Co., 294 U.S.

ie Lists sa weee sede ata eee ua 15, 16

Louisiana Public Service Comm’n v. F.C.C., 476 U.S. 355,

Pe ee Sick tinnde cess sere ceeanen. 16, 17

Metropolitan Life Ins. Co. v. Taylor, 55 U.S.L.W. 4468

ty SA pare ere ee een econ rete rae 18

Mitchell v. Forsyth, 472 U.S. ___, 86 L.Ed.2d 411 (1985) 21

Pilot Life Ins. Co. v. Dedeaux, 55 U.S.L.W. 4471 (1987) 18

Puerto Rico Dept. of Consumer Affairs v. ISLA Petroleum

Ce, ee ee. OEE GEUUED ici dae eencesaeneers 13, 20

Puerto Rico Telephone Co. v. FCC, 553 F.2d 694 (Ist Cir.

2 GO AIRE ay NOOR fog ys Aaa Ee Seg ae ed ae 17

Shaw v. Delta Air Lines, Inc., 453 U.S. 85 (1983) ....... 18

Pennhurst State School & Hosp. v. Halderman, 465 U.S.

i Bee a oe ot vo aoe eee OU UA Mase were i, 14, 22

Western Air Lines v. Port Auth. of N.Y. & N.J., 817 F.2d

222 (2nd Cir. 1987), cert. pending, Solicitor General

invited to submit brief, 56 U.S.L.W. 3383............ 13, 20

U.S. Constitution

Eleventh Amendment ................ i, 11, 13, 14, 20, 21, 22

I COD ole ca ceccce cence csv cvnanasee i, 13, 20

TABLE OF AUTHORITIES CITED

Statutes

Page

i gtk Tom TT bs) peepee rere eae ret ory f 5

28 U.S.C.:

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OOO. bcd pn cacseskeeeee Feels eee eee 7, 20

Dk eee rr rere rrr or rrr err ryT rT ry. 7, 20

RIE kkk danctccceeesddtaanbatiineeeteneer eee 7, 20

5: | ern Ey rrr mmr rrr rrr tS 7, 20

Pi) SP Perrer rr eer rrr or re rary re. 7, 20

2 USS. OUIGE) civics ceca desi eessss eee 18

reg ik tom | Sw EwrrErerrrrrerer ry Tye rr 20

47 US.C.:

Do rererrrerrr rrr errr: rrr ror en 14-15, 16

ESQ) oan ca dcccnccssneassnneassexceesseagne een 16

OPE vccnn ste aeudectsasatvaeeaeeeaeaeeee eee passim

0 PRO) ov caccaccscdWaseseaunesedaneeee eee passim

RPP Perro r rere rr Pr re rr Teor ee re 14, 22, 23

S MRDEE) ois vc ccc cccacdeseesscsdsua the hee tee 16

COGS viviac dc achacccsucess case e tee 12,17

USL. 8 1SRBGAG) oo occc ek cede vccccaeoiss i, 3, 8, 12, 18

No.

In the Supreme Court

OF THE

U nited States

OcToBer TERM, 1987

Ain TRANSPORT ASSOCIATION OF AMERICA,

Dev_ta Air Lines, INC.,

Pan AMERICAN Worip Airways, INC..

UNITED AIRLINES, INC., AMERICAN AIRLINES, INC.,

NORTHWEST AIRLINES, INC., TRANS WORLD AIRLINES, INC..,

Ain CANADA, USAIR, INC. AND EASTERN AIRLINES, INC.,

Petitioners.

VS.

THE Pustic UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA; and

Victor CaLvo, Priscitta C. Grew,

RONALD VIAL, LEONARD M. Grimes, Jr.

and WiLLiAM T. BAGLEY, the members of

and constituting said Public Utilities Commission,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioners, Air Transport Association of America, ef ai. re-

spectfully pray that a wrt of certioran issue to review the

judgment and opinion of the Ninth Circuit Court of Appeals

entered herein on November 31. 1987

PARTIES

The only parties to the proceeding below are those noted on the

caption to this petition

OPINIONS BELOW

The opinion below is reported as Air Transport Ass'n v. P.U¢

of State of Cal., 833 F.2¢ 299 (9th Cir. 1987), and is reproduced

as Appendix A to this petition. The principa! opinions of the

District Court and the Federal Communications Commission are

included as Appendices B through D, respectively. The judgment

sought to be reviewed is included as Appendix E

JURISDICTION

The judgment and opinion of the Court of Appeals were

entered on November 30, 1987. A timely petition for rehearing

was denied by order filed on January 12, 1988. By order signed on

Apnil 4, 1988, Justice O'Connor extended the time for the filing of

this petition to and including May 11, 1988. Subject matter

jurisdiction in this Court is conferred by 28 U.S.C. § 1254(1)

STATUTES INVOLVED

|. Federal Communications Act of 1934, 47 U.S.C. § 201 (a):

It shall be the duty of every common carrier engaged in

interstate or foreign communication by wire or radio to

furnish such communication service upon reasonable request

therefor: and, in accordance with the orders of the Commis-

sion, in cases where the Commission, after opportunity for

hearing, finds such action necessary or desirable in the public

interest, to establish physical connections with other carriers,

\ listing pursuant to Rule 28.1 was previously furnished to the Court

with petitioners application for an extension of time to file this petition

No amendments are required at this time

to establish through routes and charges applicable thereto

and the divisions of such charges, and to establish and

provide facilities and regulations for operating such through

routes.

2. Id., 47 U.S.C. § 202(a):

It shall be unlawful for any common carrier to make any

unjust or unreasonable discrimination in charges, practices,

classifications, regulations, facilities, or services for or in

connection with like communication service, directly or indi-

rectly, by any means or device, or to make or give any undue

or unreasonable preference or advantage to any particular

person, class of persons, or locality, or to subject any particu-

lar person, class of persons, or locality to any undue or

unreasonable prejudice or disadvantage.

3. Airline Deregulation Act of 1978, 49 U.S.C. § 1305(a) (1):

Except as provided in paragraph (2) of this subsection, no

State or political subdivision thereof and iio interstate agency

or other political agency of two or more States shall enact or

enforce any law, rule, regulation, standard, or other provision

having the force and effect of law relating to rates, routes or

services of any air carrier having authority under sub-

chapter IV of this chapter to provide interstate air

transportation.

STATEMENT OF THE CASE

1. The Regulation

The subject of this petition is a regulation promulgated in 1983

by respondent California Public Utilities Commission

(“CPUC”). Known as General Order 107-B (“the Order’), it

was originally adopted on June |, 1983 (App. F). and modified on

October 19, 1983. (App. G) In sum and substance, the Order as

modified threatens the disconnection of all telephone ser-

vice—interstate and intrastate—unless the petitioning airlines

abandon their undisputably lawful pratice of quality-control mon-

itoring of calls to their national flight information and reservation

networks.

The Order begins, in pertinent part, with a broad declaration

that “Monitoring or recording of telephone conversations shall not

be conducted except pursuant to this General Order.” (App.F-2)

In pertinent part, the Order specifies the two forms of permissible

monitoring or recording:

(a) [When] [a]ll the parties to the conversation give

their express prior consent to the monitoring or recording, or

(b) When notice that such monitoring or recording is

taking place is given to the parties to the conversation by one

of the methods required in this order. (App.F-3)

The required notice must be in the form of an automatic “beep

tone” or an operator’s verbal announcement to the parties.

(App.F-4-5) Either way, the Order effectively prohibits any

monitoring or recording of telephone conversations as they would

take place in the ordinary course of events, without either party to

the call being conscious of the monitoring.

The Order makes no distinction between interstate and intra-

state telephone communications. It purports to regulate all com-

munications relying on “the public telephone network” in

California (App.G-2), so long as the CPUC has jurisdiction over

the utility to which a customer is linked. The Ninth Circuit

correctly stated that “[T]he regulation reaches beyond the bor-

ders of California...” (App.A-3) It reaches far beyond those

borders as applied to petitioners. (See post, pp. 5-6)

The Order also spells out the drastic implications of noncompli-

ance with the monitoring rule:

The telephone utility shall discontinue service to a cus-

tomer for non-compliance with this rule if, after written

notice of at least five days, the customer has. not initiated

compliance with such notice. Service will be restored after

the customer establishes compliance with the rule and pays

the reconnection charge. (App.G-2) (emphasis added)

In sum, the Order does much more than reach and regulate

interstate (and intrastate) telephone communication by imposi-

tion of a local monitoring rule. It actually cuts off interstate

telephone service as the penalty for noncompliance with the rule.

Interestingly, though, the Order exempts from its prohibition

the very practice at issue in this case—but only when performed

by a telephone company, not by customers like petitioners:

Monitoring [covered by the Order] does not include:

* * *

(d) “Administrative monitoring” or “service monitoring”

performed by telephone utilities for training and quality

control purposes, when performed as authorized by our

decision. (App.F-3)

Quality control monitoring is also expressly exempted from the

prohibitions of federal law on this subject, 18 U.S.C.

§ 2511(2)(a). Nonetheless, the CPUC proposes to cut off peti-

tioners’ interstate telephone service on the sole basis of their

limited monitoring for quality control purposes.

2. The Regulation as Applied

The District Court found the following facts, based on the

petitioners’ uncontested affidavits in support of their summary

judgment motion:

“Facts

“Plaintiffs, as part of their operations, operate centralized

reservations facilities which provide nationwide reservation ser-

vices for their customers. Each facility employs a number of

reservation agents who, over the telephone, answer customer

inquiries as to rates, schedules and services, and make, confirm

and forward reservation requests. The reservation centers are part

of an integrated national network which routes calls from all over .

the country. Because of the integrated design of the system, a

caller cannot be certain of reaching a specific facility. For exam-

ple, a call originating in California may be routed to an East

Coast facility even though there is another reservation facility

located in or closer to California. This is because the system is

designed to distribute calls evenly among the various facilities.

When a call is routed to a facility it is taken by the next available

agent. Thus, there is no way a caller can make or an agent receive

a personal call over this integrated system. Separate private

telephones are available for non-business~calls. The terminal

equipment used by airlines is privately owned, though it is

naturally connected to the phone lines of the telephone utility.

Each plaintiff leases phone lines from the California utility.

“To ensure that their customers receive accurate information

and prompt, courteous service, each airline engages in the prac-

tice of monitoring a small percentage of the incoming calls (for

most it is less than 1% and no airline monitors more than 2% of

the calls). The monitoring equipment is privately owned and is

connected to the privately owned terminal equipment of the

airlines. Each agent is fully aware that the monitoring is being

performed by supervisory personnel, though they do not know

which specific calls are monitored.” (App.C-2-3)

The Ninth Circuit’s opinion challenges none of the District

Court’s factual findings. Indeed, those facts were undisputed by

the parties. The issues were decided on cross-motions for sum-

mary judgment. (E.R. [Excerpt of Record] 3 and 4)

Several other undisputed facts were not mentioned by the

District Court or Court of Appeals. First, the reservation agents

are not merely “aware” of their employers’ service monitoring.

(App.C-3) They are uniformly advised of this practice, as a

condition of employment, before they are hired. (C.R. 19)

Secondly, petitioner documented the adverse impacts of com-

pliance with the CPUC’s Order. In general, compliance would

render it impossible for the nation’s airlines to monitor the

competence with which basic flight information and reservation

services are being provided to the traveling public. (C.R. 19)

Thus, the CPUC’s desire to treat all such communications as

“private,” and prevent even limited quality-control monitoring,

will result in a significant detriment to vital transportation and

communication services. Furthermore, an inefficient flight infor-

mation and reservation system cannot help but add significant

burdens to airline management, distracting it from other essential

functions.

Finally, petitioners’ uncontradicted affidavits established that

their telephone equipment does not distinguish between interstate

and intrastate calls for flight information or reservations. (C.R.

19) All such calls are subject to automatic forwarding anywhere

in the country.

3. The Proceedings Below

The Order first went into effect on October 19, 1983, with the

adoption of modifications on that date. (See App.G) On Novem-

ber 18, 1983 petitioners” filed a complaint for declaratory and

injunctive relief in the United States District Court for the

Northern District of California. Federal jurisdiction was premised

on 25 U.S.C. § 1331 (federal question) and § 1337 (acts regulat-

ing commerce), and the Federal Declaratory Judgment Act, 28

U.S.C. §§ 2201 and 2202. Named as defendants, along with the

CPUC and its commissioners, were the two California telephone

companies which provided sérvice to petitioners—both privately

held, independent corporations. It was they who would actually

carry out CPUC’s policy by discontinuing service to petitioners.’

* All named petitioners herein were plaintiffs below, but two of those

plaintiffs were subsequently merged into other petitioners and no longer

appear separately.

‘This indirection in CPUC’s policy was necessary because CPUC

lacks statutory jurisdiction in California to regulate a private telephone

customer's internal business practices. It only has regulatory authority

The complaint asserted a number of different legal challenges

to the validity of the Order (E.R. 1, pp. 11-15), including the

Commerce Clause; the antidiscrimination provisions of the Fed-

eral Communications Act of 1934, 47 U.S.C. §§ 201 and 202(a);

the preemption of the field of interstate communications by that

Act; the broad prohibition against any state regulations “relating

to rates, routes or services of any [interstate] air carrier...”

contained in the Airline Deregulation Act of 1978, 49 U.S.C.

§ 1305(a) (1); and the lack of any underlying state law authority

for the Order.

CPUC and the commissioners* answered the complaint on

January 9, 1984. (E.R. 2) Although they professed a lack of

knowledge and denied that the Order had a necessary interstate

impact (Par. 24), their Tenth Affirmative Defense stated as

follows:

Defendant CPUC has jurisdiction to regulate use of local

telephone exchanges located in the State of California. (E.R.

2, p. 7) :

As events bore out, CPUC was staking out a defense of an

inescapably interstate regulation by citing its physical operation

within the State of California—essentially arguing that an “intra-

state” roadblock could permissibly interfere with an interstate

highway.

On April 20, 1984, petitioners moved for summary judgment

on all grounds stated in their complaint. (E.R. 3) On June 4,

1984, CPUC and its commissioners filed a combined opposition

and cross-motion for summary judgment. (E.R. 4) Their chief

contention was that federal law permitted free local regulation of

over public uttities, and the instant attempt to exceed that authority

forms one of petitioners’ challenges to the Order.

* The telephone company defendants answered as well (C.R. 5), and

relief was granted against them in the District Court. (App. E) But they

never appealed, the Ninth Circuit did not disturb the injunction against

them, and they are not named as respondents to this petition.

the “use” of the public telephone network (E.R. 4, p. 24), and

that:

[The Order]... applies to all subscribers equally. Sub-

scribers calling interstate are treated no differently than those

placing local calls. (E.R. 4, p. 34)

In other words, the defendants conceded that the Order reached

interstate telephone communications. But its effect—including

total disconnection—was said to be merely “incidental.” (E.R. 4,

p. 34)

When ihe cross-motions came on for hearing on July 9, 1984,

the District Court stayed any rulings to give the Federal Commu-

nications Commission an opportunity to consider taking jurisdic-

tion of the Communications Act preemption issue. (E.R. 18) In

an amicus memorandum (C.R. 52), the FCC suggested referral

of that issue. and proceedings were initiated thereon before the

FCC on November 23, 1984.

Contrary to its earlier position in the District Court, the CPUC

told the FCC that the Order was not intended to reach interstate

communications:

True enough, the [FCC] Commission has exclusive au-

thority to regulate the connection of terminal equipment to

the public network, but use of such equipment to monitor

intrastate communications is an entirely different matter. . . .

Properly understood, therefore, [the Order] cannot be said

to substantially affect interstate communication. (CPUC’s

Comments, pp. 7-8; emphasis added)

Based upon this argument, and without taking evidence, the FCC

held that the Order did not infringe upon the FCC’s exclusive

jurisdiction over interstate communications, finding that it was

only intended to regulate the “monitor[ing] [of] intrastate com-

munications...’ (App.D-6); that there was no federal preemp-

tion against regulating “intrastate monitoring...” (id. at 6); and

that the only result of noncompliance with the Order was that

eee

“intrastate telephone service [would] be disconnected.” (/d. at 8,

fn. 14)

Petitioners, who have never challenged CPUC’s general right

to regulate intrastate telephone service (to the extent authorized

by state jaw), saw no purpose in a direct appeal from an FCC

opinion saying so, particularly in light of the FCC’s confirmation

in the decision that its jurisdiction over interstate communications

was indeed exclusive. But the FCC failed to address any interstate

impacts of the Order, accepting CPUC’s representation that no

such impact was intended. Accordingly, upon renewal of proceed-

ings in the District Court, petitioners asked the court to apply the

principles articulated in the FCC’s opinion to the facts before the

court, showing the undisputed interstate impact of the Order. The

District Court proceeded accordingly.

In an initial opinion on June 25, 1986 (App.B), the court first

acknowledged what the FCC did not: that “interstate communi-

cations will be affected” by enforcement of the Order. (App.B-4)

Nonetheless, the court saw too little impact on the interstate

system to warrant preemption. (App.B-4-5) As for the Airline

Deregulation Act, the court held that the Order had only an

“incidental effect” on the airlines, and that the Act only covered

“air transportation services, not phone reservation services.”

(App.B-5) This opinion also summarily rejected petitioners’

Commerce Clause and several other challenges, but declined to

adjudicate either the state claim or the Communications Act

§ 202(a) claim, the latter because it also involved state law issues.

(App.B-5)

Later, upon reconsideration, the District Court addressed the

two remaining claims. First, on the Federal Communications Act

claim, it held that petitioners’ service monitoring was consistent

~The court had assumed that the California Supreme Court would

adjudicate the ultra vires issue and the question of whether the monitor-

ing practices violated any provisions of state law (App.C-2), but the

state court declined to entertain the petition filed by petitioners.

with all pertinent privacy laws—both civil and criminal, federal

and state. Based upon this conclusion, and the clear lack of

confidentiality in the subject calls, the court held that the

threatened denial of telephone service would violate 47 U.S.C.

§ 202(a). (App.C-4-6)

On the state law issues, the District Court held that the Order

exceeded CPUC’s regulatory authority under state law in two

respects.” Operationally, it reached into “the internal manage-

ment of a private business over which the [C]PUC had no

authority. ...” (App.C-8) Substantively, “It is not within the

power of the [C]PUC to [order utilities to] refuse service to a

customer based on otherwise permissible and legal conduct.” (/d.,

p. 9)

On October 21, 1986, based on its conclusions under 47 U.S.C.

§ 202(a) and state law, the District Court entered judgment

declaring that petitioners’ service monitoring was lawful, “im-

pair[ing] no constitutional or statutory privacy nights of the

airlines’ employees or the general public.” (App.E-2) It thus

concluded that the Order was “invalid and unenforceable as

applied to the plaintiff airlines’ service monitoring practices. . . .”

(Id.) The judgment went on to enjoin all defendants from

enforcing the Order in that regard. Petitioners’ other claims for

relief were dismissed.

CPUC appealed to the Ninth Circuit on November 3, 1986.

Petitioners cross-appealed on November 6, 1986 from the dismis-

sal of their two preemption claims.

The Court of Appeals issued its opinion on November 30, 1987.

It held (1) that the Eleventh Amendment barred any federal

court adjudication of the state law ultra vires issues; (2) that

ation of the ultra vires claim. It reyected CPUC’s last minute Eleventh

Amendment argument and a res judicata argument based on the

California Supreme Court's mere refusal to assume Jurisdiction over the

remaining issues. (App.C-6-8)

termination of telephone service based upon the airlines’ monitor-

ing practices would not violate the access requirements of §§ 201

and 202 of the Communications Act; (3) that the Communica-

tions Act preemption argument was waived by petitioners’ failure

to take a direct appeal from the FCC ruling; and (4) that any

preemptive intent in the Airline Deregulation Act was academic

because there was no “private right of action under [49 U.S.C. ]

section 1305(a).” (App.A-12)

As this petition will show, the Court of Appeals’ opinion is

seriously flawed, conflicts sharply with several other Circuits, and

represents a significant threat to fundamental federal policies on

interstate communications and airline deregulation. Its rulings

effectively immunize from federal control an insidious form of

local nullification of those federal policies.

REASONS FOR GRANTING THE WRIT

(1) Overview

Respondent CPUC characterizes its anti-monitoring Order as a

modest and exclusively local regulation, well within the states’

traditional police powers. The Court of Appeals has now agreed,

with a vengeance. The opinion finds a striking similarity in all the

federal constitutional and statutory provisions seemingly inconsis-

tent with the Order. It finds that they actually insulate the Order

from federal court intervention, or even review. “[T]he airlines

have not established any basis for the federal courts to interfere in

the operation of the state regulation.” (App.A-2)

Principally, the opinion—

(1) finds § 202(a) of the Communications Act to be

“primarily” concerned with purely economic discrimination,

and subordinated to a supposed intent of § 605 of that Act to

give carte blanche to state regulations designed to further

“state interests” (App.A-9);

(2) finds the Airline Deregulation Act—a classic case of

‘federally mandated free-market control,” Puerto Rico Dept.

of Consumer Affairs v. ISLA Petroleum Corp., 56 U.S.L.W.

4307 (Apr. 19, 1988)—to be lacking in any enforcement

authority whatsoever, not even the Supremacy Clause; and

(3) finds the Eleventh Amendment to be an absolute bar

to any consideration of the Order’s questionable grounding in

state law.

On every count, the opinion finds one obstacle or another to the

testing of this state regulation in federal court against any of the

- seemingly applicable federal or state standards. But other Circuits

have not felt so constrained. Thus, the important issues herein

now call for review in this Court.

(1) The Ninth Circuit’s highly restrictive construction of the

Communications Act’s antidiscrimination rule stands in sharp

contrast to the Second Circuit’s broad statement, that § 202(a):

[B]ristles with “any”. It is made unlawful for “any”

carrier to make “any” unjust discrimination by “any” means,

or to make “any” undue preference to “any” particular

person, or to subject “any” person to “any” undue prejudice.

American Trucking Association, Inc. v. P.C.C., 377 F.2d 121,

131 (2nd Cir. 1966), cert. denied, 386 U.S. 943. There is

surprisingly little case law on this important statute, and the

Ninth Circuit has now opened a wide breach in the nondiscrimi-

natory access rule seemingly intended by Congress.

(2) The Ninth Circuit’s even more striking construction of the

Airline Deregulation Act, denying any federal authority to effec-

tuate it, conflicts with the Supremacy Clause holding of the

Second Circuit in Western Air Lines v. Port Auth. of N.Y. & N.J.,

817 F.2d 222 (2nd Cir. 1987), cert. pending, Solicitor General

invited to submit brief, 56 U.S.L.W. 3383; and also with this

Court’s recent preemption analysis in Puerto Rico Dept. of Con-

sumer Affairs v. ISLA Petroleum Corp., supra. The Airline

Deregulation Act is no “pre- emptive grin without a statutory

cat.” /d., 56 U.S.L.W. at 4309. It is an explicit preemption rule,

which the opinion below has rendered completely hortatory.

(3) The Ninth Circuit’s holding under the Eleventh Amend-

ment, barring any adjudication of state law ultra vires challenges

to the subject regulation, conflicts with the Third Circuit's hold-

ing in Barnes v. Cohen, 749 F.2d 1009 (3d Cir. 1984), at least

insofar as the ultra vires issues form an element of petitioners’

federal claim under 47 U.S.C. § 202(a). Insofar as the ultra vires

issues from an independent state law claim, however, the Ninth

Circuit's opinion takes Pennhurst supra, 465 U.S. 89, as rejecting

any federal cognizance of such a claim, notwithstanding Pen-

nhurst’s explicit statement that it does not so hold. /d. at 114, fn.

25. This case squarely presents the Eleventh Amendment issue

left open in Pennhurst—i.e., whether the Eleventh Amendment

bars claims against state officials acting outside the scope of their

State law jurisdiction and authority.

(4) While no other Circuit has passed upon the scope of the

direct appeal provisions of the Communication Act in this con-

text, see 47 U.S.C. §402 and 28 U.S.C. § 2342, the Ninth

Circuit’s treatment of the FCC's limited ruling herein is not

merely factually erroneous, but effectively precludes any adjudi-

cation of the important preemption issue which the FCC never

reached. The FCC’s conclusions assumed an exclusively intra-

state intent of the Order. This assumption neither warranted nor

permitted a direct review addressing the Order's actual interstate

impact, as documented in the District Court.

Resolving the Circuit conflicts and settling the law on these

issues should command a high priority on this Court's agenda.

The Ninth Circuit’s opinion has a major national impact, both

practical and doctrinal.

(2) Interstate Communication Issues

The most obvious federal interest implicated by the CPUC’s

Order is the preservation of “a rapid, efficient, Nation-wide, and

world-wide wire and radio communication service...” 47 U.S.C

§ 151. This charter purpose of the 1934 Communications Act is

clearly buttressed by its guaranteed access and antidiscrimination

provisions:

It shall be the duty of every common carrier engaged in

interstate or foreign communication by wire or radio to

furnish such communication service upon reasonable request

therefor. ... (§ 20i(a))

It shall be unlawful for any common carrier to make any

unjust or unreasonable discrimination in charges, practices,

classifications, regulations, facilities, or services...,or to

subject any . . . class of persons . . . to any undue or unreason-

able prejudice or disadvantage . . . (§ 202(a))

But the Ninth Circuit says these provisions relate “primarily”

to economics, and that they are perfectly consistent with (1) a

public utilities commission ordering a telephone utility to discon-

nect the interstate telephone service of the nation’s airlines

because it disagrees with their lawful business practices, or

(2) the imposition of potentially conflicting and crippling local

regulations upon the airlines’ integrated national flight informa-

tion networks. The issue cries out for a resolution here. The

guaranteed access and antidiscrimination statute “bristles with

‘any’ in the Second Circuit, American Trucking, supra, 377

F.2d at 131, but in the Ninth Circuit it reels from a virtually

nullifying construction.

The opinion below also reflects a fundamental lack of apprecia-

tion of the nation’s strong commitment to an untrammeled

interstate communication system. That commitment was first

articulated in the Commerce Clause itself, as this Court held in

Cooney v. Mountain States Teleph. & Teleg. Co. 294 U.S. 384

(1934). The state license tax struck down in Cooney simply

counted the number of telephone instruments in use, although:

[T]he same telephones, the same signaling apparatus, the

same wires, land, buildings, central office equipment, and

operating organization are used in common for all services,

interstate as well as intrastate... . ; And, so far as the instru-

ments are not excepted, the tax is laid indiscriminately with

respect to each of these facilities, regardless of the nature of

their use. (294 U.S. at 392) (emphasis added)

The obvious conclusion—

[T]he tax, being indivisible and indiscriminate in its

application, necessarily burdens interstate commerce. (/d. at

394 —

The Order in the instant case taxes telephone service, too,

albeit in a different sense. But the instant “tax” is equally

“indivisible and indiscriminate” in its application to interstate

along with intrastate communications. This fact sharply distin-

guishes this case from Louisiana Public Service Comm'n vy.

F.C.C., 476 U.S. 355, 90 L.Ed.2d 369 (1986), wherein state

regulation of the depreciation of telephone plant and equipment

was upheld, in part because the “separations process” in 47

U.S.C. §410(c) “literally separates costs ... between interstate

and intrastate, ... facilitat{ing] the creation or recognition of

separate spheres of regulation.” 90 L.Ed.2d at 386. Here, to the

contrary, as in Cooney, the record establishes that there is no such

separation between interstate and intrastate communications for

the purposes of limiting the Order to the latter.

This case also differs from Louisiana Public Service Commis-

sion because there is no internal tension on the question presented

within the Communications Act. There, the general policy provi-

sion (§151) was held subordinate to a specific provision

(§ 152(b)) barring the FCC from regulating intrastate deprecia-

tion. Here, to the contrary, the thrust of the general policy

provision is amplified by the specific provisions of §§ 201 and

202(a). The latter advance the policy of an efficient nationwide

telephone network in a fundamental way: by mandating the

provision of interstate service to all who request it (§ 201), and

broadly prohibiting any unreasonable discrimination in the provi-

sion of that service (§ 202(a)).

There is no doubt, therefore, about whether federal or state

authority is “driving the car” on the issue of this case. Louisiana

Public Service Commission, supra, 90 L.Ed. 2d at 378. Congress

itself took the wheel, providing that interstate telephone service

simply may not be withheld under an “unreasonably discrimina-

tory” rules or practices. Congress emphatically did not leave this

issue to the states. The basic right of access to interstate tele-

phone service is governed by no other authority than the Federal

Communications Act itself. “Reasonableness” under the Act is a

federal, not a state standard. Puerto Rico Telephone Co. v. FCC,

§53 F.2d 694, 700 (Ist Cir. 1977)

Nor is the federally mandated right of access in any way

modified by § 605 of the Act, as the opinion below finds. That

section, never even mentioned in CPUC’s appellate briefs, pro-

hibits unauthorized interception and publication of interstate

communications, such as the “pirating” of satelite transmissions.

Although a non-preemption provision (§ 605(e)) preserves any

other applicable state or federal laws, that hardly injects § 605

into the subject matter of §§ 201 and 202(a), the basic guarantee

of access to interstate telephone service. Indeed, § 605 itself

creates specific civil and criminal remedies for its violation, and

disconnection of service is not among them.

The District Court correctly held that disconnection of peti-

tioners’ telephone service based on their lawful quality-control

monitoring would violate § 202(a). (App.C-4-6) CPUC’s pri-

mary defense of the Order was that the monitoring was illegal

and, therefore, the disconnection remedy was not “unreasonably

discriminatory.” (See App.C-4) Thus, the District Court re-

sponded with a thorough analysis of the pertinent civil and

criminal standards of privacy, and aptly concluded that “[W Je

are dealing with conversations and practices that all authority and

This conclusion is particularly appropriate here, where the District

Court ruled that the airlines’ practices do not violate any provision of

California constitutional or statutory law and impair no constitutional or

statutory privacy interests

common sense indicates are not confidential.” (App.C-6) Al-

though the Court of Appeals transmuted the District Court's

holding into the absurd proposition that states must “criminalize”

conduct in order to regulate it validly under § 202(a) (App.A- 7-

9), the District Court’s actual holding is unassailable and was not

addressed by the Ninth Circuit, which refused to rule on the

issue. (App.A-9, n.6)

In sum, the CPUC’s Order flies in the face of the express

provisions of the Communications Act and the Commerce

Clause. It impairs petitioners’ access to the interstate telephone

network solely because of their lawful business practices, and it

impermissibly seeks to regulate the interstate communications

that Congress has declared to be beyond state regulatory control.

In so doing, the Order itself, and the Ninth Circuit’s decision

approving it, interfere with petitioners’ federal rights and impair

significant federal interests.

(3) ‘Airline Deregulation Issues

Even if the Order were enforceable against interstate telephone

service in general, it would still be unenforceable against the

petitioning interstate air carriers. Congress has unequivocally

Stated its intention to preempt all state laws and regulations

“relating to rates, routes or services of any [interstate] air

carrier.” 49 U.S.C. § 1305(a) (1).

A similar clause exists under the Employment Retirement

Income Security Act (ERISA), preempting any state laws which

“relate to any employee benefit plan.” 29 U.S.C. § 1144(a). That

clause preempts not only state laws specifically designed to

regulate employee benefits, but any other state laws of general

import which have an impact upon such plans. Shaw v. Delta Air

Lines, Inc., 453 U.S. 85 (1983); Metropolitan Life Ins. Co. v.

Taylor, 55 U.S.L.W. 4468 (1987); Pilot Life Ins. Co. v. Dedeaux,

55 U.S.L.W. 4471 (1987). This Court specifically noted in Pilot

the “expansive sweep” of the clause, particularly noting its

application to any state laws “relating to” the subject of the

legislation.

The same expansive language is used in the preemption clause

of the Airline Deregulation Act. Presumptively, the same mean-

ing should be attributed to the same language used in the same

context.

The opinion below first observes, “[a]s an initial matter,”

(App. A-12) that the Airline Deregulation Act “does not appear”

(id.) to apply because the Order purportedly does not relate to

the rates, routes or services of airlines. Addressing only “ser-

vices,” however, the opinion finds the Act only applicable to

services provided by the airlines that are unique to airlines:

The type of telephone operation utilized by the airlines is

not peculiar to airlines, and is similar to those operations

used by other national service industries where reservations

are required, such as hotels and motels, and car rental

compaines. (App.A-12) (emphasis added) *

With respect, this “peculiarity” test would eliminate virtually

everything the airlines do from the Act’s coverage. Virtually every

service provided by interstate air carriers, and each component of

that service, is provided by other companies in some manner or

another, on a local or interstate basis. The Court of Appeals’

rationale would allow state regulation of meal service, cabin

interiors, smoking rules, and a wide range of other services

provided and equipment used by the airlines, all of which have

non-aviation applications as well. Surely, though, Congress in-

tended the Act to cover the airlines’ provision of these services,

and presumably their flight information networks as well.

But the opinion stops short of issuing a “definitive resolution”

of that issue. (App.A-12) Rather than gutting the Act’s coverage

with an outright holding on the “peculiarity” test, the court

* The basis for this statement of fact is not explained. No evidence to

support it exists in the record.

’

elected to emasculate the Act altogether by rejecting any federal

authority to block a preempted regulation. The opinion agrees

with the Second Circuit that there is no private right of action for

affirmative enforcement purposes, but disagrees with the Second

Circuit—in the very case cited—that the Supremacy Clause”

authorizes federal declaratory or injunctive relief against a pre-

empted regulation. See, Western Air Lines v. Port Authority etc.,

supra, 817 F.2d 222, cert. pending (Docket No. 87-333). Without

any recognition of the import of its holding, the court has turned

an explicit preemption rule into an unenforceable exhortation.

With apologies to the Solicitor General, see, Puerto Rico Dept.

of Consumer Affairs, supra, 56 U.S.L.W. at 4309, a pre-emptively

growling tiger has just had its teeth extracted. An examination in

this Court is clearly warranted.

(4) Eleventh Amendment Issues

Petitioners asserted below, and the District Court agreed

(App.C-8-9), that the Order was-not even within the scope of

CPUC’s own regulatory authority. If that is correct, the Order is

not only invalid as a matter of state law, but it is all the more

indefensible under the Commerce Clause and § 202(a) of the

Communications Act. Both of those federal provisions contem-

plate the balancing of national and local interests. And under the

Commerce Clause, at least, the nature of an alleged local interest

must be carefully scrutinized at the threshold. Only a “legitimate

local public interest,” Ark. Elect. Coop. v. Ark. Pub. Serv.

Comm’'n., 461 U.S. 375, 394 (1983), will qualify for any balanc-

ing against the national interest in untrammeled interstate com-

“The opinion cites 42 U.S.C. § 1983 in this context, implying that

Petitioners sought to use that statute as a vehicle for invoking the

Supremacy Clause. But petitioners’ only mention of that statute, in

either court below, was on petition for rehearing, questioning the Court

of Appeals’ citation to it. Petitioners’ jurisdictional allegations were

directly under 28 U.S.C. $§ 1331, 1337, 2201 and 2202. (E.R. 1, § 20)

merce. The “unreasonable discrimination” test in the Communi-

cations Act presumably operates in the same manner.

It is remarkable, therefore, that the opinion below refuses to

adjudicate any of the state law issues in this case. It holds that the

Eleventh Amendment bars any consideration of the claim “that

the CPUC acted in excess of its state statutory jurisdiction” in

promulgating the Order. (App.A-5) This holding was not only

applied to petitioners’ pendent state law claim, but also to their

federal claim under § 202(a) of the Communications Act.'” The

District Court held that the Order’s total lack of state law

grounding materially undercut the reasonableness of its discrimi-

nation in the provision of telephone service. The Court of Ap-

peals, however, while offering some general dicta about

California’s interest in privacy (App.A-12), specifically states

that “[W Je are not here deciding issues of state law.” (/d., fn. 6)

Thus, the opinion simply fails to address the two-pronged u/tra

vires challenge to the Order—that it attempts to regulate nonreg-

ulated private businesses, and radically exceeds California’s ac-

tual privacy principles.

Under both the Communications Act and the Commerce

Clause, it seems plain that the federal courts must address and

adjudicate substantial u/tra vires issues if they arise as an element

of a federal claim. It is difficult to defend a local interference with

interstate telephone communications when the regulation in ques-

tion is ultra vires, bereft of even a prima facie grounding in a

“legitimate local public interest.” Ark. Elect. Coop., supra, 461

U.S. at 394. As a matter of federal law, the balance must strongly

tilt in such cases against the local interference with the interstate

system.

The Court of Appeals did not comment on the Commerce Clause,

and petitioners did not raise it in that court. They do raise it here,

however, as is certainly permissible on a purely legal issue. Mitchell v.

Forsyth, 472 U.S. —_. 86 L.Ed. 2d 411 (1985)

The Third Circuit has squarely held that the Eleventh Amend-

ment is no bar to the adjudication of a state law issue as an

element of a federal claim. Barnes v. Cohen, supra, 749 F.2d

1009, 1018-11020. The court distinguished Pennhurst, supra, 465

U.S. 89, because it involved only a state law claim for relief. In

the instant case, however, the Ninth Circuit likewise cited Pen-

nhurst, but declined to rule on the important state law aspects of a

federal claim, declaring any such determination to be barred by

the Eleventh Amendment. This conflict with Barnes should be

resolved.

In addition, though, the instant case presents an issue expressly

reserved in Pennhurst: whether the Eleventh Amendment bars

adjudication of a state law ultra vires claim as such, not as an

element of a federal claim. Pre-Pennhurst decisions of the Court

had “except[ed] from the Eleventh Amendment bar suits against

officers acting in their official capacities but without any statutory

authority, even though the relief would operate against the

State.” Pennhurst, 465 U.S. at 114, fn. 25 (emphasis added) The

Court “question[ed] the continued vitality” of that exception, id.,

but expressly upheld its continued existence.

Nonetheless, the Ninth Circuit has now held that the Eleventh

Amendment bars petitioners’ u/tra vires claim. While there is no

current Circuit conflict on this issue, it is manifestly worthy of a

grant of certiorari.

(5) The § 402 Direct Appeal Issue

The FCC never reached the question whether the Order was

preempted by the Communications Act if it were applied to

interstate Communications. It merely held that the FCC’s juris-

diction over interstate communications was exclusive, but that it

would not presume an intent by the CPUC to interfere with

federal interconnection rights. However, the Ninth Circuit has

held that a direct appeal on that issue, pursuant to 47 U.S.C.

§ 402, was petitioners’ exclusive method for obtaining adjudica-

tion of the undecided question—the actual scope of the Order as

applied to the airlines’ national communications systems.

Petitioners concede that an issue actually decided by the FCC,

in a ruling otherwise meeting the criteria of § 402, can only be

reviewed in the manner there prescribed. But that statute involves

review. There can be no review of a nondecision, and the statute

therefore does not apply to this case. The cases cited by the Court

of Appeals simply apply § 402 to cases within its scope; they do

not bear on the FCC’s opinion in this instance.

An important preemption issue will thus go without any adjudi-

cation absent review in this Court. Also, § 402 will be applied in a

wholly unprecedented and improper manner.

CONCLUSION

The constitutional and statutory issues in this case well warrant

a grant of certiorari. The opinion below exposes petitioners to a

significant impairment of their basic federal right of access to the

interstate telephone service. The local regulation in question runs

afoul of several different federal statutes, both substantive and

preemptive, and the opinion below conflicts with several other

Circuits. A review in this Court should therefore be granted.

Respectfully submitted,

GILMORE F. DIEKMANN, JR.

ELLIoT L. BIEN

By: ELtiot L. BIEN

BRONSON, BRONSON &

MCKINNON

555 California Street

San Francisco, California 94104

Telephone (415) 986-4200

Attorneys for Petitioners

A-|1

APPENDIX A

For Publication

United States Court of Appeals

for the Ninth Circuit

Nos. 86-2885; 2906

D.C. No.

CV-83-5627-AJZ

Air Transport Association of America, et al.,

Plaintiffs-Appellees,

Public Utilities Commission of

the State of California, et al.,

Defendants-Appellants.

OPINION

Appeal from the United States District Court

for the Northern District of California

Alfonso J. Zirpoli, District Judge, Presiding

Argued and Submitted

August 13, 1987—San Francisco, California

Filed November 30, 1987

Before: Mary M. Schroeder, Cecil F. Poole and

Alex Kozinski, Circuit Judges.

Opinion by Judge Schroeder

OPINION

SCHROEDER, Circuit Judge:

This case concerns a regulation promulgated by the California

Public Utilities Commission. The regulation effectively prohibits

telephone customers in California from surreptitiously overhear-

ing or recording conversations without notice to the parties to the

conversation. The Commission and its Commissioners (CPUC)

A-2

appeal the grant of summary judgment and declaratory relief in

favor of the Air Transport Association of America and 13 airlines

(ATA), and the issuance of an injunction prohibiting the CPUC

from causing the termination of the airlines’ telephone service or

otherwise enforcing CPUC General Order 107-B (G.O. 107-B)

against them.

The principal issues which we must decide in reviewing the

district court’s judgment are, first, whether the district court erred

in holding that the CPUC lacked jurisdiction, as a matter of state

law, to issue the regulation and, second, whether the district court

erred in holding that G.O. 107-B violated section 202(a) of the

Federal Communications Act, 47 U.S.C. § 202(a), on the ground

that the regulation requires discontinuance of the airlines’ tele-

phone service in an unreasonably discriminatory manner. As

additional support for the result below, the ATA argues that relief

is justified by general preemption of the field by both the Federal

Aviation Act and the Federal Communications Act. We hold that

the district court’s judgment must be reversed, because we

conclude that the airlines have not established any basis for the

federal courts to interfere in the operation of the state regulation.

BACKGROUND

In December 1981, the CPUC initiated a rule-making proceed-

ing to determine whether the CPUC should adopt regulations

concerning monitoring of telephone conversations by telephone

customers who own their own equipment. Over 71 organizations

that might be interested were notified and invited to make

comments on the issue. The Air Transportation Association of

America (ATA) participated on behalf of the airlines. After

considering all comments, and denying petitions for rehearing

filed by ATA, Pacific Telephone and Telegraph Company, and

General Telephone Company of California, the CPUC adopted

G.O. 107-B in its present form.

G.O. 107-B defines disapproved monitoring of telephone calls

as the use of equipment which allows a third person to overhear or

record a telephone conversation without any indication to the

conversant parties that they are being overheard, or without

A-3

allowing the conversant parties to communicate with the third

person. A person wishing to listen in on a conversation without

violating the regulation can provide notice by using a beep-tone

warning device audible to all parties to the conversation or by

announcing to the parties that the conversation is being moni-

tored. The order requires utilities to file tariffs prohibiting moni-

toring unless notice is given to the parties to the conversation, or

their consent is obtained. If a telephone company learns that a

customer is monitoring conversations in violation of the tariff, the

order requires the utility to discontinue service if the customer

does not refrain from such monitoring within five days after notice

from the utilities. The customer can file a complaint with the

CPUC if discontinuance is threatened, and the customer’s service

will not be discontinued pending resolution of the complaint.

Rather than appealing the order adopting G.O. 107-B to the

California Supreme Court, as provided by Cal. Pub. Util. Code

§ 1756, the ATA and 13 airlines filed this suit in federal district

court. According to the complaint, all but one of the airlines has a

telephone reservations facility in California equipped with pn-

vately owned automatic call distribution equipment. This equip-

ment receives calls from both within and without California.

However, the equipment distributes incoming calls to reservation

centers throughout the United States on the basis of reservation

agent availability without regard to the place of origin of the

customer’s call. Thus, calls from California may be routed to

reservation agents within or without California, and calls from

outside California may be routed to reservations agents within or

without California. Thus, the regulation reaches beyond the

borders of California, and this is not disputed.

The reason that the airlines monitor conversations between

their reservations agents and members of the general public is

allegedly to assure that the agents give information accurately,

efficiently, and courteously.

In their complaint, they sought relief on the grounds that the

CPUC has exceeded its jurisdiction under California law in

adopting G.O. 107-B, that G.O. 107-B violates 47 U.S.C.

§ 202(a) in that it requires discontinuance of service in an

unreasonably discriminatory manner, and that G.O. 107-B is

A-4

preempted by both the Federal Communications Act, 47 U.S.C.

§$ 151, et seq., and the Federal Aviation Act, as amended by the

Airline Deregulation Act of 1978, 49 U.S.C. § 1305.' Named as

defendants were the CPUC and its Commissioners. Pacific Tele-

phone and Telegraph Company, and General Telephone Com-

pany of California. The complaint sought declaratory relief and an

injunction prohibiting enforcement of G.O. 107-B.

Shortly after the parties had filed cross-motions for summary

judgment, the district court allowed the Federal Communications

Commission (FCC) to file an amicus memorandum. Concerned

that G.O. 107-B’s interstate reach might affect matters within its

jurisdiction, the FCC requested the court to stay proceedings and

refer the parties to the FCC for consideration of the Federal

Communications Act preemption claim. The district court stayed

proceedings. ATA then filed a petition with the FCC for a

declaratory ruling and expedited relief. This was eventually de-

nied. /n re Petition of Aeronautical Radio, Inc. & Air Transport

Association of America, 102 FCC 2d 1 (1985) (ATA Petition).

In denying this petition, as well as ATA’s subsequent petition for

reconsideration,” the FCC determined that Congress had given

the states authority to provide measures to protect the privacy of

telephone conversations, that G.O. 107-B did not bar or restrict

subscriber interconnection with the public switched network, that

G.O. 107-B did not substantially affect the conduct of an efficient,

nationwide telecommunications network, that G.O. 107-B would

not have a significant impact on federal interconnection rights,

and that access to the interstate network would not unreasonably

be denied by GO. 107-B. ATA did not appeal these

determinations.

The complaint also sought relief on the grounds that G.O. 107-B

violated the Commerce clause, U.S. Const., art. I, cl. 3, the fourteenth

amendment, and the permanent injunction affirmed by this court in

Hughes Air Corp. v. Public Unil. Comm., 644 F.2d 1334 (9th Cir. 1981)

The ATA does not press these theories on this appeal, and has

apparently abandoned them.

* Memorandum Opinion and Order, FCC No. 86-123 (released

March 28, 1986). This opinion and order was not published.

SE ————————

A-5

After the FCC suling, the district court lifted the stay of the

action. It then granted summary judgment in favor of the CPUC

on all of ATA’s federal law claims except the 47 U.S.C. § 202(a)

claim. The district court dismissed ATA’s section 202(a) claim

without prejudice because of its belief that whether the regulation

constituted unreasonable discrimination in violation of that sec-

tion involved a question of state law. It similarly dismissed

without prejudice ATA’s claim that the CPUC had exceeded its

jurisdiction under state law.

ATA then filed an application for leave to file an out-of-time

petition for a writ of certiorari in the California Supreme Court to

obtain review of its state law claims. The California Supreme

Court denied the application for leave without opinion or

comment. !

ATA then moved the district court to reconsider its order

dismissing the section 202(a) and state law jurisdictional claim

on the ground that ATA no longer had a forum in which to

litigate these claims. The district court construed the motion as

one under Fed. R. Civ. P. 60(b)(6) and relieved the ATA from

the prior judgment.

The district court then ruled that the CPUC had exceeded its

jurisdiction in adopting G.O. 107-B and the G.O. 107-B consti-

tuted “unreasonable discrimination” under 47 U.S.C. § 202(a). It

granted ATA summary judgment, declaratory relief and an in-

junction prohibiting the telephone companies, the CPUC, and the

Commissioners from enforcing G.O. 107-B or “terminating,

threatening to terminate, or causing other parties to terminate the

telephone service of the plaintiff airlines because of their supervi-

sory monitoring practices.” It is from that ruling that the CPUC

appeals.

DISCUSSION

A. Eleventh Amendment

We first consider the district court’s holding that the CPLC

acted in excess of its state statutory jurisdiction in promulgating

G.O. 107-B. CPUC correctly contends that we must hold that the

A-6

eleventh amendment prohibits the district court from exercising

jurisdiction over ATA’s claim that the Commission acted in

excess of its state statutory jurisdiction in promulgating G.O.

107-B.

The eleventh amendment, by its terms, prohibits suits brought

against a state by a citizen of another state. The Supreme Court

has held that the amendment also prohibits suits against a state

by citizens of the state sued. Hans v. Louisiana, 134 US. |

(1890). The eleventh amendment does not bar suits against a

state official for federal constitutional or statutory violations in

some situations. See Ex Parte Young, 209 U.S. 123 (1908).

However, the amendment bars claims in federal court against

State officials based on state law violations. Pennhurst State

School & Hospital v. Haldeman, 465 U.S. 89, 106, 121 (1984).

ATA argues that the CPUC and the Commissioners acted

beyond their jurisdiction and that this characterization distin-

guishes this from other suits against state officials. We perceive no

meaningful distinction. Here, as in Pennhurst, defendants were

acting in good faith and “within the sphere of their official

responsibilities.’ Pennhurst, 465 U.S. at 107 (quoting Halderman

v. Pennhurst State School & Hospital, 446 F. Supp. 1295, 1324

(E.D. Pa. 1978)) (emphasis added by Supreme Court opinion).

The essence of their claim is that the state officials violated state

law in promulgating G.O. 107-B and will violate state law if they

attempt to enforce it. This is thus a claim barred by the eleventh

amendment. /d.

B. Federal Communications Act

We next turn to the district court's holding that the regulation

violates the anti-discrimination provision of the Federal Commu-

nications Act. 47 U.S.C. § 202(a). That section provides:

It shall be unlawful for any common carrier to make any

unjust or unreasonable discrimination in charges, practices.

classifications, regulations, facilities, or services for or in

connection with like communication service, directly or indi-

rectly, by any means or device, or to make or give any undue

or unreasonable preference or advantage to any particular

person, class of persons, or locality, or to subject any particu-

A-7

lar person, class of persons, or locality to any undue or

unreasonable prejudice or disadvantage.

The district court determined that the type of monitoring

proscribed by G.O. 107-B did not violate any statutory provisions

of federal or California law.’ The district court then held that

because G.O. 107-B purported to regulate otherwise lawful con-

duct, it violated section 202(a). It thus interpreted section 202(a)

as prohibiting, per se, a state regulatory agency from regulating

practices which have not been legislatively declared criminal. We

are unpersuaded by ATA’s arguments that this is a proper

interpretation of sectin 202(a).

ATA has not pointed out, and we cannot discern, anything in

the Federal Communications Act, the language of section

202(a), or the legislative history, to supporty its interpretation.

The Communications Act establishes, by its terms, a dual system

of state and federal regulation over telephone service. Louisiana

Public Service Commission v. FCC, 476 U.S. 355, , 106 S.Ct.

1890, 1894 (1986); California v. FCC, 798 F.2d 1515, 1517

(D.C. Cir. 1986); see 47 U.S.C. §§ 152, 221, 301, 605(e). The

Act is concerned with regulating interstate and foreign commerce

in and by wire communication to make available worldwide

communication services at reasonable charges and to protect the

safety of life and property through the use of wire and radio

communication. 47 U.S.C. § 151. However, like other statutes

prohibiting discrimination in commerce with respect to prices or

charges, such as section 2 of the Robinson-Patman Act, 15

U.S.C. § 13, Congress’ primary concern in enacting 47 U.S.C.

$ 202(a) was with economic discrimination, not the complete

regulation of an industry for the health and safety of the general

public. Congress certainly did not intend section 202(a) to

prohibit state regulation of intrastate utilities to protect public

health, safety and welfare. Cf, McDonnell Douglas Corp. v. GTE,

§94 F.2d 720, 723-24 (9th Cir.), cert. denied, 444 U.S. 839

(1979) (where state regulates intrastate communications prac-

tices within meaning of section 152(b), section 202(a) inapplica-

’The district court considered whether ATA’s monitoring practices

violated 18 U.S.C. §§ 2510-2520, or Cal. Penal Code §§ 631, 632.

A-8

ble): Diamond Int'l Corp. v. FCC, 627 F.2d 489, 493 n.7 (D.C.

Cir. 1980) (per curiam) (utility’s rates for modification of Private

Branch Exchange equipment subject to state regulation and not

violative of section 202(a)). Moreover, 47 U.S.C. § 605, which

affords some federal protection for a telephone user's privacy,

provides in subsection (e) that “[n]othing in this section shall

affect any right, obligation, or liability under... any... applica-

ble... State or local law.” This provision, like section 202(a),

does not limit state regulation to criminal statutes.”

The only case cited by ATA to support its proposed interpreta-

tion 1s Palermo v. Bell Tel. Co., 415 F.2d 298 (3d Cir. 1969). This

case, however, holds only that disconnection for legislatively

declared criminal conduct is not unreasonably discriminatory

under the statute. It does not hold that criminal conduct is a

prerequisite for non-discriminatory regulation. In Palermo, the

telephone company had cut off the Palermos’ telephone service at

the district attorney’s request after the district attorney learned

that Mr. Palermo was using the telephone to violate state gam-

bling and banking laws. The Palermos filed suit seeking restora-

tion of service by way of injunction, contending that

discontinuance without notice or a hearing violated 47 U.S.C.

$$ 201 and 202. The Third Circuit affirmed the district court’s

holding that because the telephone company acted reasonably,

there was no claim to relief under sections 201 and 202. /d.

Insofar as Palermo deals at all with a question of statutory

interpretation of section 202, the case, at most, stands for the

proposition that discontinuance of service based on criminal

conduct is not unreasonable discrimination.” However, assuming

* Similarly, the legislative history of the wiretapping and eavesdrop-

ping provisions contained in Title III of the Omnibus Cnme Control and

Safe Streets Act of 1968, 18 U.S.C. § 2510, et seq., suggests that states

may impose more stringent standards to protect their citizens’ privacy

but does not suggest that states must make the violation of such

standards criminal. See S. Rep. No. 1097, 90th Cong., 2d Sess. (1968),

reprinted in 1968 U.S. Code Cong. & Admin. News, 2181-87

* We find little reason to disagree this proposition, as we intimated as

much in McBride v. Western Union Tel. Co., 171 F.2d 1 (9th Cir. 1949)

A-9

arguendo that Palermo established this proposition, it does not

follow as a matter of logic that discontinuance based on less than

criminal conduct is unreasonable. Such a theory of section 202(a)

is not only unprecedented, but would severely interfere with the

ability of state agency to further legitimate state interests, as

authorized by 47 U.S.C. § 605(e). In this case the California

regulation was promulgated in furtherance of perceived privacy

interests of its citizens. In California, a citizen's interest in privacy

has been raised to the dignity of an express state constitutional

right. See Cal. Const. art. I, § 1. California has seen fit to protect

this right with statutes providing criminal sanctions for a violation

of one’s privacy, as well as a statutory civil cause of action for the

person whose rights are violated. See Cal. Penal Code §§ 630-

637.5. The CPUC has also been directed by the California

legislature to play a part in ensuring privacy rights. See Cal. Pub.

Util. Code §§ 7905-06. ATA’s theory would prevent any state

regulatory authority from effectuating protections for the interests

and rights of its citizens unless there was a specific legislative

provision criminalizing violations of those interests or rights.”

We decline to interpret the Federal Communications Act in a

manner which forces states to criminalize all conduct it wishes to

regulate through civil enforcement mechanisms. We therefore

hold that G.O. 107-B does not require discontinuance of service

On an unreasonably discriminatory basis. Our decision in this

regard is fully supported by the FCC’s decision on ATA’s petition

for declaratory ruling. The FCC held that G.O. 107-B was

unlikely to have a significant impact on customers’ federal inter-

connection rights, and stated in its order denying ATA’s petition

for rehearing that G.O. 107-B is not unreasonable. ATA has not

offered any other arguments that G.O. 107-B is discriminatory.

Because the regulation applies to all, it does not appear discrimi-

natory, and it is certainly not discriminatory on any basis other

than a neutral and rational one. See National Ass'n of Reg. Util.

Comm'rs v. F.C.C., 737 F.2d 1095, 113 (D. C. 1984), cert.

° We express no opinion on whether California constitutional and

statutory privacy protections extend to the conversations engaged in by

airline reservation agents and customers because we are not here

deciding issues of state law.

A-10

denied, 469 U.S. 1227 (1985). We see no reason to hold G.O.

107-B invalid.

ATA next contends that even if we reject its section 202(a)

argument, the Federal Communications Act still requires that the

district court’s judgment be affirmed because the Act occupies

the entire communications field so as to preempt state regulation

generally, and G.O. 107-B particularly.

The district court initially referred the parties to the FCC to

consider this point while staying proceedings on the rest of ATA’s

complaint. The FCC explicitly considered and rejected ATA’s

preemption contention, holding that Congress has indicated to the

states that they may legislate to protect the privacy of telephone

conversations, and that nothing in the Federal Communications

Act preempts state legislation in this area. ATA Petition, 102

FCC 2d at 5, 6. ATA did not appeal the order dismissing its

petition. When the district court lifted the stay, it explicitly

rejected the preemption argument, essentially agreeing with the

FCC on this point. ATA now contends that this ruling was in

error, and provides an alternative ground for affirming the district

court’s judgment.

We decline to consider the contention because the district court

lacked jurisdiction to reconsider the general preemption issue. 28

U.S.C. § 2342 vests exclusive jurisdiction in the courts of appeals

to review final orders of the FCC and the Federai Maritime

Commissions, as well as other federal agencies. In Port of Boston

Marine Terminal Ass'n v. Rederiaktiebolaget Transatlantic, 400

U.S. 62 (1970), the district court stayed proceedings in a dispute

concerning the shifting of fees for cargo that remained on a wharf

beyond five days so that the parties could obtain a ruling from the

Federal Maritime Commission. The Supreme Court upheld the

district court's refusal to consider the issue once the Commission

had ruled on it on the ground that 28 U.S.C. § 2342 placed

exclusive jurisdiction to review the Commission’s order in the

court of appeals. /d. at 69. The Supreme Court has also held that

exclusive jurisdiction to review the FCC’s denial of a petition for

rulemaking resides in the court of appeals. See FCC v. [TT World

Communication, Inc., 466 U.S. 463, 468-69 (1984). Here, once

ATA filed a petition for declaratory ruling and obtained an order

denying its petition, the district court lost jurisdiction to consider

the preemption issue. 28 U.S.C. § 2342; ITT World Communica-

tions, 466 U.S. at 468-69; Marine Terminal, 400 U.S. at 69.

Accordingly, we will not consider the contention.’

C. Federal Aviation Act

ATA argues that the district court erred in rejecting its claim

that G.O. 107-B is preempted by the Federal Aviation Act, as

amended by the Airline Deregulation Act of 1978 and that the

judgment can be affirmed on this ground. The provision upon

which it relies states:

[ N Jo state or political subdivision thereof and no interstate

agency or other political agency of two or more states shall

enact or enforce any law, rule, regulation, standard, or other

provision having the force and effect of law relating to rates,

’ This analysis also raises a question as to whether the district court

had jurisdiction over ATA’s section 202(a) claim. We agree with the

parties that the FCC did not consider the particular section 202(a)

claim considered by the district court. Although contentions that a

regulation or practice is unlawful because unreasonable should generally

be referred to the FCC under the doctrine of primary jurisdiction, see

Ambassador, Inc. v. United States, 325 U.S. 317, 324 (1945), referral is

not required where the issue to be decided is a question of law. See Great

N.R. Co. v. Merchants Elevator Co., 259 U.S. 285 (1922): Klicker v.

Northwest Airlines, 563 F.2d 1310, 1313 (9th Cir. 1977); ICC v. Big Sky

Farmers & Ranchers Coop., 451 F.2d 511, 515 (9th Cir. 1971). Because

ATA’s per se theory of section 202(a) involved only the construction of

section 202(a), and incidentially California law, the district court

properly retained jurisdiction over the claim, while sending the parties to

the FCC to allow that agency to utilize its specialized, technical

expertise to determine whether G.O. 107-B would interfere with the

development of a rapid and efficient nationwide telecommunications

network. To the extent that the FCC considered the issue of reasonable-

ness at all, it did so as a matter of fact, without at all considering

whether G.O. 107-B proscribed conduct which was cnminal. See ATA

Petition, 102 FCC 2d at 5. Thus, the district court’s determination of

ATA’s per se claim did not involve a review of the FCC’s order and was

not prohibited by 28 U.S.C. § 2342.

A-12

routes, or services of any air carrier having authority under

subchapter IV of this chapter to provide air transportation.

49 U.S.C. § 1305(a) (1).

As an initial matter, G.O. 107-B does not appear to be a

regulation “relating to rates, routes or services of any carrier.” It

clearly does not relate, directly or indirectly, to rates or routes.

Nor does the regulation relate to “services” as we considered that

term in Hingson v. Pacific Southwest Airlines, 743 F.2d 1408,

1415-16 (9th Cir. 1984) (Federal Aviation Act preempts state

law which allegedly prohibits airline from requiring all handi-

capped persons to sit in a specified area of airplane). The type of

telephone operation utilized by the airlines is not peculiar to

airlines, and is similar to those operations used by other national

service industries where reservations are required, such as hotels

and motels, and car rental companies. We are presented with

nothing in the Deregulation Act or its history indicating that

Congress intended totally to preempt state reguiation of utilities

insofar as such regulation affects airlines.

This is not, however, an appropriate case for the definitive

resolution of the scope of federal preemption under the Deregula-

tion Act. ATA’s ability to maintain this claim depends upon the

existence of a private right of action under section 1305(a). This

very contention was considered by the Second Circuit, and we can

see no reason to disagree with their holding that 49 U.S.C.

§ 1305(a) does not create a private right of action. See Montauk-

Caribbean Airways, Inc. v. Hope, 874 F.2d 91, 97-98 (2d Cir.),

cert. denied, 107 S. Ct. 248 (1986); see also Western Air Lines v.

Port Auth. of New York and New Jersey, 817 F.2d 222, 225 (2d

Cir. 1987); petition for cert. filed, 56 U.S.L.W. 3183 (US.

Aug. 26, 1987) (No. 87-333). The requisite indicia is lacking in

the legislative history of the statute’ that Congress intended to

create a private right of action or remedy under the statute. See

Cort v. Ash, 422 U.S. 66, 78, 80, 82; Montauk-Caribbean Air-

ways, Inc., 784 F.2d at 97-98. Nor does the law of this circuit

permit an offensive challenge to the state regulation as violative of

“See H.R. Rep. No. 85-1211, 95th Cong., 2d Sess. 16, reprinted in

1978 U.S. Code Cong. & Admin. News 3737, 3751-52.

A-13

supremacy clause principles via 42 U.S.C. § 1983 because ATA’s

claim, to the extent it is not based on 49 U.S.C. § 1305(a), must

be considered as being based on federal preoccupation of the field.

See White Mountain Apache Tribe v. Williams, 810 F.2d 844, 850

(9th Cir. 1984) (amended opinion), cert. denied, 107 S. Ct. 940

(1987).

Because there is no basis in federal law for the district court’s

injunction, its judgment must be reversed and judgment in favor

of CPUC on its cross-motion for summary judgment must be

granted. In so holding, however, we express no opinion as to the

validity of G.O. 107-B under California law, or the availability of

remedies under California law.’ The district court’s judgment on

the 47 U.S.C. § 202(a) and state law claims is reversed with

instructions to vacate the injunction against CPUC. The case is

remanded with directions to enter judgment in favor of CPUC on

its cross-motion for summary judgment on ATA’s 47 U.S.C.

§ 202(a) claim, and to dismiss the state law claim for lack of

jurisdiction. The district court’s judgment dismissing the general

preemption claims is affirmed.

AFFIRMED in part, REVERSED and REMANDED in part.

” Our disposition makes it necessary to consider CPUC’s contention

that the California Supreme Court’s denial of ATA’s application for

leave to file a late petition for a wnt of certiorari is functionally

equivalent to a denial of a petition for certiorari for res jusicata purposes

under California law.

B-1

APPENDIX B

United States District Court

Northern District of California

No. C-83-5627 AJZ

Air Transport Association of America, et al.,

Plaintiffs,

VS.

Public Utilities Commission of the State of California, et al.,

Defendants.

ORDER

[Filed June 25, 1986]

Plaintiffs are airlines which provide both instate and interstate

transportaion services. They seek declaratory and injunctive relief

from General Order 107-B (“Order”) of the defendant California

Public Utilities Commission (“CPUC”), which prohibits them

from engagding in the practice of occasional monitoring of phone

calls to their reservation facilities for purposes of training and

quality control. Plaintiffs make several arguments in support of

their contention that the CPUC’s Order is invalid, some of which

present questions of state law.

In May and June of 1984, the airlines and the CPUC filed

cross-motions for summary judgment on all of the various claims

in this case. At oral argument on the parties’ cross-motions for

summary judgment, the court expressed a desire to obtain from

the Federal Communications Commission (“FCC’’) a statement

of its opinion on the Federal Communications Act preemption

issue raised by the motion. Plaintiffs sought such an opinion from

the FCC attorneys who asked the court to “refer the issue to the

FCC for its consideration and determination in the first instance.”

Based upon this request, the court entered an order on Septem-

ber 10, 1984, staying the action and directing plaintiffs to initiate

proceedings before the FCC to obtain a decision on the preemp-

tion issue. The court did not rule On any of the other issues.

Shortly thereafter, plaintiffs filed a petition with the FCC for a

declaratory ruling and expedited relief in which they sought a

B-2

.declaration that the CPUC’s Order infringed upon the exclusive

jurisdiction of the FCC. On September 12, 1985, in its initial

opinion, the FCC denied plaintiffs’ request for declaratory ruling.

The FCC confirmed this decision on March 28, 1986 in denying

plaintiffs’ Motion for Reconsideration.

Facts

As part of their operations plaintiffs operate reservations facili-

ties which provide nationwide reservation services for their cus-

tomers. With the exception of Eastern Airlines and Capitol

Airlines, each plaintiff has at least one of these reservation

facilities in California. Each facility employes a number of reser-

vation agents who, over the telephone, answer customer inquiries

as to rates, schedules and services, and make, confirm and

forward reservation requests. The reservation centers are part of

an integrated national network which routes calls from all over the

country. Because of the integrated design of the system, a caller

cannot be certain of reaching a specific facility. For example, a

call originating in California may be routed to an East Coast

facility even though there is another reservation center in or closer

to California. This is because the system is designed to distribute

calls evenly among the various facilities. When a call is routed to

a facility it is taken by the next available agent. Thus, there is no

way that a caller can make, or an agent receive, a personal call

over this integrated system. Separate private telephones are avail-

able for non-business calls. The terminal equipment used by the

airlines is privately owned, though it is connected to the phone

lines of the telephone utility. Each plaintiff leases phone lines

from the California telephone utility.

To ensure that their customers receive accurate information

and prompt, courteous service, each airline engages in the prac-

tice of monitoring a small percentage of the incoming calls (for

most it is less than 1% and no airline monitors more than 2% of

the calls). The monitoring equipment is privately owned and is

connected to the privately owned terminal equipment of the

airlines. Thus, the monitoring of calls occurs “after” the transmis-

sion “leaves” the lines of the telephone utility. Each agent is fully

aware that monitoring is being performed by supervisory person-

B-3

nel, though they do not know which specific calls are being

monitored. The monitored calls are not recorded.

The Order of the CPUC which plaintiffs challenge provides

that no monitoring of calls (either business or personal) shall be

permitted to take place unless notice is given that monitoring of

each specific call is taking place. The Order specifically requires

that “Notice of monitoring shall be given either: a. By a tone

warning device which automatically produces a distinct signal

audible to all parties to a conversation. The signal shall have those

characteristics specified by the Federal Communications Com-

mission, or by this order; or b. By verbal announcement by the

operator of monitoring equipment to the parties to a communica-

tion...’ The FCC has not specified any characteristics for tone

warning devices. The characteristics specified in the CPUC Order

require a tone not less than every 12 seconds nor more than 18.

The penalty for non-compliance with the CPUC’s Order is

discontinuance of phone service by the telephone utility until the

customer establishes compliance with the Order and pays a

reconnection charge.

Although the Order is not clear on its face, counsel for the

CPUC has stated that it applies only to reservation facilities

located in California. Thus, the Order does not apply to plaintiffs

Eastern or Capitol Airlines since they have no reservation facili-

ties in California.

The Federal Claims

Preemption

Plaintiffs contend that the CPUC Order as applied to the

airlines’ practice of monitoring the business calls made to their

reservations facilities is preempted by the Communications Act of

1934, 47 U.S.C. $$ 151 et seqg., and the exclusive jurisdiction of

the FCC over interstate communications and threatens the airli-

ness’ federal interstate connection rights.

In its initial opinion and upon reconsideration, the FCC found

that the CPUC Order was not preempted by the Federal Com-

munications Act because it did not appear to have a significant

impact on customer federal interconnection nights:

aa EN

B-4

The Order does not bar or restrict subscriber interconnec-

tions to the public switched network and petitioners have not

demonstrated that it substantially affects the conduct of an

efficient, nationwide telecommunications network. Petition-

ers have submitted no evidence that access to services

offered under the interstate tariffs have or will be unreasona-

bly denied. Absent such a showing we will not presume

California intends to interfere with legitimate federal rights.

It is clear from the record that if plaintiffs violate the Order and

service is terminated, interstate communications will be affected

because the California reservations facilities are an integral and

indivisible part of a national telecommuncations network. How-

ever, termination of service is not the issue here. The issue is

whether the prohibition of monitoring without notice impermissi-

bly interferes with the creation of a rapid, efficient and nationwide

communications system.

The court finds the Order does not impermissibly interfere with

interstate communications. The Order does not prohibit the

connection of any particular type of equipment, nor is it an

attempt to regulate the rates charged for privately owned equip-

ment. Rather, the Order merely seeks to regulate the manner in

which whatever private terminal equipment a customer owns is

used when that equipment is connected to the lines of the

telephone utility. The Order does not conflict with any FCC

regulation or policy designed to promote an efficient and unified

national communications system. And the giving of notice of

monitoring, by itself, is not so disruptive of interstate communica-

tions as to be preempted, at least in the absence of any FCC

regulation to that effect.

Section 202(a) of the Federal Communications Act

Plaintiffs’ second argument under the Federal Communications

Act is that the Order subjects them to unreasonable discrimina-

tion in their access to the telephone network on the basis of their

lawful business conduct in violation of 47 U.S.C. § 202. This

provision prohibits local telephone companies from terminating

telephone service because of the subscriber's use of the connec-

tion unless the use is in connection with criminal activity. The

heer

B-5

determination of whether, independent of the Order, the airlines’

supervisory monitoring activities are legal under state law is

central to a determination of this argument.

Defendants argue that the California Constitution, statutes and

case law prohibit the airlines’ supervisory monitoring activities.

Specifically, defendants rely on California Penal Code sections

631 and 632 which prohibit wiretapping and eavesdropping, the

State constitutional nght to privacy, a recent California Supreme

Court case, Ribas v. Clark, 38 Cal.3d 355 (1985), and decisions

of the CPUC itself in support of this position. Plaintiffs argue that

the monitoring in question is legal under California law.

Given that questions of state law are central to a determination

of whether there has been a violation of section 202(a), the court

will exercise its discretion not to entertain this claim and will

dismiss it without prejudice.

The Federal Aviation Act

Plaintiffs argue that the CPUC’s Order is preempted by the

Federal Aviation Act of 1958, as amended by the Airlines

Deregulation Act of 1978, 49 U S.C. § 1301 et seg. Section 1305

of that Act provides that “no State... shall enact or enforce any

law, rule, regulation, standard... relating to rates, routes or

services of any air carrier having authority ...to provide inter-

State air transportation.” Plaintiffs contend that the CPUC’s

Order is an impermissible attempt to regulate their “services.”

The court finds this argument is without merit. “In interpreting

a Statute, the [court’s] objective is to ascertain the intent of

Congress.” Hughes Air Corp. v. Public Utilities Commission, 644

F.2d 1334, 1337 (9th Cir. 1981). The court does not believe that

when Congress enacted the Federal Aviation and Airline Deregu-

lation Act, it intended to preempt every state law or regulation

which had some incidental effect upon some aspect of the airlines’

business. Rather, the “services” referred to were intended to be

air transportation services, not phone reservation services.

Unreasonable Burden on Interstate Commerce

Plaintiffs argue that termination of their phone service would

impose a severe burden on interstate commerce. However, as

B-6

discussed above, termination of service is not the issue. The issue

is whether the prohibition of monitoring without notice imposes

an impermissible burden on interstate commerce. The court finds

that the CPUC’s restrictions on monitoring do not impose any

significant burden on interstate commerce. The restrictions are

minimally burdensome and apply to all California businesses and

so they in no way discriminate against interstate commerce.

Deprivation of Property Without Due Process

Plaintiffs argue that the enforcement procedures specified in

the CPUC’s Order provide for the possible termination of their

telephone service without due process of law. This argument is

frivolous. The Order provides for termination of service only after

five days written notice from the phone company and no termina-

tion will occur if the customer files a formal complaint with the

CPUC either contesting its violation of the monitoring restrictions

or seeking a special hardship exemption from those restrictions.

Thus, by filing a complaint with the CPUC, termination will not

occur until after the customer has had a chance to be heard. The

fact that the customer has to request a hearing in order to prevent

automatic termination of service will not render the procedure

constitutionally inadequate.

Deprivation of Right to Free Speech

Plaintiffs argue that the notice of monitoring requirement

deprives them of their first amendment right to free speech. The

court, however, finds they are not deprived of any first amend-

ment rights by the Order. Plaintiffs are not being prevented from

engaging in any commercial speech, they are prevented from

monitoring the conversations of others without notifying the

parties to the conversation that monitoring is occurring. In any

event, states are permitted to regulate the time, place and manner

of speech activity, as long as the regulations are reasonable,

content-neutral and serve a legitimate state interest. Even if the

CPUC’s Order does implicate plaintiffs’ first amendment rights,

the court finds it is a reasonable regulation of the manner in which

those nghts may be exercised.

The State Claims

Plaintiffs argue that the CPUC exceeded its jurisdiction when

it adopted the Order because it has jurisdiction to regulate public

utilities, not private business. Plaintiffs argue that in adopting the

Order, the CPUC was trying to indirectly regulate what it could

not directly regulate. In addition, plaintiffs argue that the Order

extends the scope of privacy rights beyond that afforded by the

legislature or the California constitution. While plaintiffs’ argu-

ments may have some merit, the court will not decide these

questions of state law.

“{PJendent jurisdiction is a doctrine of discretion, not of

plaintiff's right.” United Mine Workers v. Gibbs, 383 U.S. 715,

726 (1966); Mayor of Philadelphia v. Educational Equality

League, 415 U.S. 605, 627 (1974). The state law issues presented

here involve questions of legislative intent and the delegation of

powers to an administrative body, as well as an interpretation of

the scope of the right of privacy under the California constitution.

The resolution of such important issues of state law lies more

appropriately within the ambit of the state courts than this court.

Catalano v. Dep't of Hospitals of the City of New York, 299 F.

Supp. 166, 175 (S.D.N.Y. 1969). Since the proper resolution of

the state law issues presented involves interpretation of-a largely

undefined constitutional mght as well as the ascertainment of

legislative intent as to the scope of the CPUC’s jurisdiction,

dismissal of the state claims without prejudice is appropriate.

Accordingly,

IT IS HEREBY ORDERED that General Order 107-B is not

preempted by the Federal Communications Act of 1934, 47

U.S.C. $$ 151 et seg.. nor by any decisions of the Federal

Communications Commission.

IT IS FURTHER ORDERED that plaintitfs’ claims under

section 102(a) of the Federal Communications Act are dismissed

without prejudice.

IT IS FURTHER ORDERED that General Order 107-B is

not preempted by the Federal Aviation Act of 1958, as amended

by the Deregulation Act of 1978, U.S.C. $§ 1301 et seq.

B-8

IT IS FURTHER ORDERED that General Order 107-B does

not impose an unreasonable burden on interstate commerce.

IT IS FURTHER ORDERED that General Order 107-B does

not deprive plaintiffs of their rights without due process of law.

IT 1S FURTHER ORDERED that General Order 107-B does

not violate plaintiff's right to free speech under the first amend-

ment to the United States Constitution.

IT IS FURTHER ORDERED that plaintiffs’ state claims are

dismissed without prejudice.

IT IS FURTHER ORDERED that judgment will be entered

thirty days from the date of this order.

Dated: June 25, 1986

ALFONSO J. ZIRPOLI

United States District Judge

C-1

APPENDIX C

United States District Court

Northern District of California

No. C-83-5627 AJZ

Air Transport Association of America, et al.,

Plaintiffs,

VS.

Public Utilities Commission of the State of California, et al.,

Defendants.

ORDER

[ Filed Oct. 15, 1986]

Plaintiffs are airlines which provide both instate and interstate

transportation services. They seek declaratory and injunctive

relief from General Order 107-B (“Order”) of the defendant

California Public Utilities Commission (“PUC”) which prohibits

them from engaging in the practice of occasional monitoring of

phone calls to their reservation facilities for purposes of training

and quality control. The complaint in this matter asserted claims

under the Federal Communications Act, the Federal Airlines

Deregulation Act, various constitutional provisions and a number

of provisions of the California Public Utilities Code. On June 25,

1986, this court entered an order dismissing plaintiffs’ state law

claims without prejudice, stating that the resolution of the issues

“lies more appropriately within the ambit of the state courts than

this court.”” The court also dismissed with prejudice all of plain-

tiffs’ federal claims except that raised under section 202(a) of the

Federal Communications Act. The court found that the Act

“prohibits local telephone companies from terminating telephone

service because of the subscriber's use of the connection unless

the use is in connection with criminal activity,” and found that

the question of whether the airlines’ monitoring activities were

“lawful” required interpretation of state law.

On June 14, 1986 plaintiffs filed with the California Supreme

Court an application for leave to file a petition for writ of

certiorari. Defendant filed a memorandum opposing consideration

C-2

of the petition. The California Surpeme Court denied the applica-

tion for leave to file the petition. Plaintiffs now seek reconsidera-

tion of the court’s dismissal of their federal claim under section

202 and their state law claims on the ground that the court's

failure to address these claims would leave plaintiffs with no

forum whatever in which to secure an adjudication of these

claims.

Under Rule 60 of the Federal Rules of Civil Procedure, a tral

court has authority to relieve a party from an order on a number

of grounds, including newly discovered evidence, misrepresenta-

tion, or any other reason justifying relief from the operation of the

order. Plaintiffs argue, and the court agrees that this court’s

assumption that plaintiffs had a state law forum in which the state

issues could be litigated consitutes a sufficient basis on which to

base reconsideration of the court’s dismissal of their federal and

state claims. Th’ problem of a lack of forum is even more acute

with respect to plaintiffs’ federa/ claim under section 202(a)

because the absence of a state forum, coupled with this court’s

refusal to address the claim because of its state law elements,

means not only that plaintiffs would be denied a federal forum in

which to adjudicate their federal claim but would be denied

redress in any court.

Defendant argues that reconsideration is not warranted because

“no new facts have emerged nor have any circumstances changed

which would warrant a finding that General Order 107-B is either

in violation of Section 202(a) of the Communications Act or in

excess of the PUC’s jurisdiction.” Defendant, however, does not

address the threshold question of the effect a lack of any forum

should have on plaintiffs’ request. Instead, defendant argues the

merits of plaintiffs’ claims. This, however, is not the appropriate

inquiry because the court never actually addressed the merits of

those claims dismissed without prejudice. Thus, the court con-

cludes that reconsideration is appropriate under these

circumstances.

Facts

Plaintiffs, as part of their operations, operate centralized reser-

vations facilities which provide nationwide reservation services for

C-3

their customers. Each facility employs a number of reservations

agents who, over the telephone, answer customer inquiries as to

rates, schedules and services, and make, confirm and forward

reservations request. The reservations centers are part of an

intergrated national network which routes calls from all over the

country. Because of the integrated design of the system, a caller

cannot be certain of reaching a specific facility. For example, a

call originating in California may be routed to an East Coast

facility even though there is another reservation facility located in

or closer to Calfornia. This is because the system is designed to

distribute calls evenly among the various facilities. When a call is

routed to a facility it is taken by the next available agent. Thus,

there is no way a caller can make or an agent receive a personal

call over this integrated system. Separate private telephones are

available for non-business calls. The terminal equipment used by

the airlines is privately owned, though it is naturally connected to

the phone lines of the telephone utility. Each plaintiff leases

phone lines from the California utility.

To ensure that their customers receive accurate information

and prompt, courteous service, each airline engages in the prac-

tice of monitoring a small percentage of the incoming calls (for

most it is less than 1% and no airline monitors more than 2% of

the calls). The monitoring equipment is privately owned and is

connected to the privately owned terminal equipment of the

airlines. Each agent is fully aware that the monitoring is being

performed by supervisory personnel, though they do not know

which specific calls are being monitored.

The Order of the PUC which plaintiffs challenge provides that

no monitoring of calls (either business or personal) shall be

permitted to take place unless notice is given that monitoring of

each specific call is taking place. The Order specifically requires

that “Notice of monitoring shall be given either: a. By a tone

warning device which automatically produces a distinct signal

audible to all parties to a telephone conversation... .: or b. By

verbal announcement by the operator of monitoring equipment to

the parties to a communication...” The penalty for noncompli-

ance with the Order is discontinuance of phone service by the

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telephone utility until the customer establishes compliance with

the Order and pays a reconnection charge.

The procedures for enforcement of the Order provide that if

there is a dispute between the utility and a customer as to whether

the customer has violated the Order or if a customer desires

special relief form the Order, the customer may file a formal

complaint with the PUC. During the time such complaint is

pending, the utility may not terminate service for noncompliance.

Prior to the enactment of the Order, the PUC had required

notice of monitoring to be given whenever a customer used

terminal equipment supplied by the telephone utility. Because

plaintiffs in this case own their own terminal equipment, the

previous orders of the PUC concerning monitoring did not apply

to them. In order to eliminate what the PUC called a “loophole,”

the PUC issued the Order now being contested. Because the PUC

only has authority to regulate public utilities and the use of the

public telephone network, not private companies, the PUC could

not issue an order directly prohibiting plaintiffs from engaging in

monitoring. Consequently, the PUC’s order requires the tele-

phone company to cut off service to noncomplying customers.

Section 202(a) of the Federal Communications Act

Plaintiffs argue that the Order subjects them to discrimination

in their access to the telephone network on the basis of their

lawful business conduct in violation of Section 202(a) of the

Federal Communications Act. Section 202(a) prohibits tele-

phone companies from engaging in any unreasonable discrimina-

tion in connection with the provision of communication services.

Defendants argue that the Order does not unreasonably dis-

criminate against plaintiffs because all subscribers are treated

similarly and only those who engage in illegal conduct under the

California Penal Code face a loss of service. Plaintiffs argue that

the prohibited conduct is lawful under both California and Fed-

eral law and therefore the Order subjects them to unreasonable

discrimination.

California Penal Code Section 631 makes wiretapping unlaw-

ful. Section 632 makes unlawful the eavesdropping on or record-

C-5

ing of confidential communications. Confidential communication

is defined as any communication carried on in circumstances that

may reasonably indicate that any party to the communication

desires it to be confined to the parties thereto. Defendant argues

that the service monitoring involved in this case is prohibited by

these Penal Code sections.

The court is of the view that these Penal Code sections are

inapplicable to the calls at issue is this case. Calls to a business

entity to obtain public, commercial information and to impart

requests to the entity rather than a specific person are not

“confidential communications” within the scope of constitutional

and statutory privacy interests under either federal or state law. In

Moore v. Telfon Communications Corp., 589 F.2d 959 (9th Cir.

1978), the Ninth Circuit held that communications between two

business associates were not confidential within the meaning of

Penal Code Section 632 because the information was recorded

during the course of the parties business relationship and not

considered confidential. In fact the information was subsequently

related to other officers and employees. And in Simmons v.

Southwestern Bell Tel. Co., 452 F.Supp. 392 (W.D. Okla. 1978),

the court held that the telephone company’s monitoring of busi-

ness Calls for quality control purposes did not violate the plaintiffs

right of privacy. “As plaintiff knew his calls were monitored, he

had no reasonable expectation that his calls would remain pri-

vate.” Id. at 396. See also Rogers v. Ulrich, 52 Cal.App.3d 894,

899-900 (1975).

Plaintiffs also cite to prior opinions of the PUC which they

argue hold that service monitoring is legal and does not impair

any existing constitutional or statutorily protected privacy inter-

ests. (See Plaintiffs’ supplemental brief pages 17-19). Defend-

ants, however, argue that plaintiffs have misquoted these PUC

decisions and taken them out of context. (See Defendants’ reply

to plaintiffs’ supplemental bref pages 8-11). The court will not

consider these arguments in detail because it can reach a decision

without sifting through these PUC opinions.

In support of its argument that service monitoring violates the

Penal Code, defendants cite a recent California Supreme Court

case, Ribas v. Clark, 38 Cal. 3d 355 (1985). However, the court

a ene ETN Ee

C-6 |

believes that Ribas is inapplicable to this case. Ribas involved a

third party listening to a private conversation between a husband

and a wife over an extension to the wife’s private telephone. It did

not involve a business call to a company by a person seeking

information from the company through whomever answered, and

who intended any information provided to be relayed to others in

the company. The conversation in Ribas was presumed to be

private and confidential, and the only issue was whether an

extension phone fell within the technical ambit of the wire-tap

statute. Furthermore, the decision itself is replete with language

indicating that the intention of the Penal Code’s provisions is to

restrict third party intrusions into confidential communications.

The conversation in Ribas was admittedly a confidential one

and thus has little application here where we are dealing with

conversations and practices that all authority and common sense

indicates are not confidential. It is hard to see how either the

airline operator or the caller have any expectation of confidential-

ity in their communications; the operator is warned that calls

might be monitored (as in Simmons and Briggs v. American Air

Filter Co., 630 F.2d 414 (Sth Cir. 1980), and neither the operator

nor the caller have any control over the routing of the call. Thus,

the parties could not expect to nor conduct a personal call such as

that involved in Ribas.

State Law Claims

Defendants argue that the doctrine cf res judicata precludes

any further proceedings in this court on the state law claims. This

argument is based on the assumption that a denial of a petition for

certiorari by the California Supreme Court constitutes a decision

on the merits. See Pacific Telephone & Telegraph Co. v. Public

Utilities Commission, 600 F.2d°1309, 1311-1312 (9th Cir. 1979):

Napa Valley Electric Co. v. Railroad Commission, 251 U.S. 366

(1920) (Where California Supreme Court denied applications for

writs of certiorari, decision is tantamount to a decision of the

court that the orders and decisions of the PUC did not exceed its

authority or violate any nght of petitioners. Such a determination

is conclusive of the nghts of petitioners.) However, as plaintiffs

point out, this fact (even assuming it to be true) is beside the

point. No petition for certiorari ever was filed by plaintiffs because

the California Supreme Court denied their application for leave to

do so. Thus, the court did not rule on the proposed petition on any

ground. The court’s ruling was simply a discretionary refusal to

assume jurisdiction over the matter.

Defendants also argue, for the first time in this litigation, that

plaintiffs’ state law claims are barred by the eleventh amendment,

relying on the decision of the United States Supreme Court in

Pennhurst State School and Hospital v. Halderman, 465 U.S. 89

(1984). Pennhurst involved a claim that state officials violated

state law by not complying with specific obligations imposed by a

state statute. The Court held that the eleventh amendment bars a

suit against state officials when the State is the real, substantial

party in interest even under the doctrine of pendant jurisdiction.

The Court refused to adopt the dissenters’ view that an allegation

that official conduct is contrary to a state statute would suffice to

override the State’s protection from injunctive relief under the

eleventh amendment because such conduct is ultra vires the

official’s authority.

Pennhurst, however, is distinguishable from this case. Plaintiffs

in this case are not asserting that defendants’ conduct is contrary

to a state statute. Rather, plaintiffs allege that in requiring the

telephone companies to terminate plaintiffs’ telephone service

because of plaintiffs’ “lawful conduct,” the PUC and its officials

are acting beyond their authority and jurisdiction under state law.

The only relief sought is declaratory and prospective injunctive

relief. The eleventh amendment does not bar such “an action

against a state official that is based on a theory that the officer

acted beyond the scope of his statutory authority...” Florida

Department of State v. Treasure Salvors, Inc., 458 U.S. 670, 689

(1982). The Court in Treasure Salvors noted that where it was

not alleged that the government official had exceeded his statu-

tory authority, an action would be barred by sovereign immunity.

Thus, as to plainuffs’ state law claims, the eleventh amendment

will not constitute a bar to this court’s jurisdiction.

Plaintiffs do concede, however, that Pennhurst “probably

makes pendent jurisdiction against the PUC itself questionable on

the purely state law claims. Under Treasure Salvors, however, the

claims against the individual commissioners for acts beyond their

C-8

jurisdiction and authority still may be maintained, at least with

respect to prospective injunctive relief—the only relief sought in

this matter.” And this court should not be barred from adjudicat-

ing plaintiffs’ state law claims against the telephone company

defendants, who are not protected by the eleventh amendment.

Plaintiffs’ state law claims assert that because the Order

adopted by the PUC seeks to regulate the internal mangement of

a private business over which the PUC has no authority, it is an

exercise of authority beyond the PUC’s junsdiction under the

laws of the State of California, as set forth in California Public

Utilities Code sections 701, 1702, 7905 and 7906.

Section 701 of the Utilities Code provides that the PUC may

supervise and regulate “every public utility in the state,” and that

the PUC may do all things “which are necessary and convenient

in the exercise of such power and jurisdiction.” Plaintiffs argue

that the PUC’s authority under this section extends only to

regulation of public utilities and not private businesses, a limita-

tion which defendants appear to accept. See Pub. Util. Code

section 1702, which provides that while the PUC is empowered to

entertain a complaint from almost anyone, the only defendants

which may be named in a complaint before the PUC are public

utilities.

Plaintiffs argue that recognizing that it had no authority to

regulate the management practices of private businesses which do

not use utility equipment, the PUC attempted to do indirectly

what it could not do directly; the PUC structured a rule making

telephone companies surrogate enforcers by mandating that the

phone companies terminate service to any business operating in a

manner that is contrary to the PUC’s Order.

The PUC argues that the Order does not represent an attempt

by the PUC to regulate privately owned terminal equipment but

rather only represents a regulation of the use of the public

telephone network in California under authority of section 701 of

the Utilities Code. The PUC asserts its jurisdiction for the Order

under sections 7905 and 7906 of the Utilities Code. Section 7906

empowers the PUC to “make inquiry of every telephone corpora-

tion under its jurisdiction to determine whether. . . such corpora-

C-9

tion is taking adequate steps to insure the privacy of

communications over such corporation’s telephone communica-

tions system.” Defendants argue that the Order reflects a compre-

hensive policy regarding the right to privacy in

telecommunications.

Defendants’ argument is premised on the assumption that

service monitoring violates some nights of privacy and is illegal

under the California Penal Code. As discussed above, the court is

of the view that the monitoring involved in this case is legal under

both California and Federal iaw and therefore rejects defendants’

argument. It is not within the power of the PUC to refuse service

to a customer based on otherwise permissible and legal conduct.

See Pub. Util. Code section 7904 which provides that the only

circumstances under which a telephone utility may refuse service

to a customer is for non-payment of properly incurred charges, or

where the use of the telephone is for an illegal purpose. See also

People v. Brophy, 49 Cal.App.2d 15 (1942) (“Public utilities and

common carriers are not the censors of public or private morals,

nor are they authorized or required to investigate or regulate

public or private conduct of those who seek service at their

hands.’’)

Accordingly,

IT IS ORDERED that General Order 107-B as it relates to the

service monitoring practices of plaintiffs constitutes “unreasona-

ble discrimination” under Section 202(a) of the Federal Commu-

nications Act in that it prohibits otherwise lawful conduct on the

part of the airlines.

IT IS FURTHER ORDERED that General Order 107-B as

applied to the service monitoring practices of the airlines is in

excess of the jurisdiction of the PUC.

IT IS FURTHER ORDERED that defendant Commissioners

and telephone companies are enjoined from terminating plaintiffs’

telephone service because of their lawful supervisory monitoring

practices.

C-10

Plaintiffs are directed to submit an appropnate form

judgment

Dated: October 15, 1986

ALFONSO J. ZIRPOLI

Lnited States District Judge

D-1|

APPENDIX D

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

Petition for Declaratory Ruling

and Expedited Relief filed by

Aeronautical Radio, Inc. and the

Air Transport Association of America

Memorandum Opinion and Order

Adopted September 6, 1985 Released September 12, 1985

By the Commission: Commissioner Rivera not participating.

1. Before the Commission is a petition for declaratory ruling

and expedited relief filed by Aeronautical Radio, Inc. (ARINC)

and Air Transport Association of America (ATAA)' requesting

that this Commission find unlawful an order of the California

Public Utilities Commission (CPUC) that regulates service mon-

itoring practices of private businesses.” Comments were received

from the State of California (California), The Associated Tele-

phone Answering Exchange, Inc. (ATAE) and the North Amen-

can Telecommunications Association (NATA). The petitioners

have replied. For the reasons discussed below, the petition is

denied.

‘ ARINC states it is the communications company serving the air

transport industry by providing a vanety of communications services on

a non-profit basis. ATAA states it is the trade association of the nation’s

certihcated carners a“

’ Service or supervisory monitoring is the practice, used by employers

of listening in on business conversations between employees and custom-

ers for business reasons such as training and quality control, to identify

sources of customer complaints, and to help determine the most capable

employees for promotion. Although the California order in question also

regulates recording of telephone conversations, the petition addresses

only the service monitoring aspects of the order. We do not here

consider the recording aspects of the California order.

COO

D-2

Background

2. The investigation which led to adoption of CPUC’s Gen-

eral Order 107-B (hereafter “the Order”), was initiated by a

complaint filed by an employee of Western Airlines, Inc. (West-

ern). The employee alleged that Western had conducted service

or supervisory monitoring over privately-owned terminal equip-

ment without first providing proper notice to the employee. In

dismissing the complaint, CPUC cited its lack of authority over

the business practices of subscribers of telephone services. It

noted that the local telephone carrier had no physical control over

the subscriber's privately-owned equipment nor any duty to in-

spect, supervise or regulate service monitoring on privately-owned

terminal equipment. CPUC Decision No. 93839 (December 15,

1981). Nevertheless, the CPUC instituted an investigation into

the desirability of promulgating a rule “regulating monitoring of

telephone conversations by customers... who own or otherwise

provide their own terminal equipment.” CPUC Order Instituting

Investigation-Rulemaking 103 (December 15, 1981). The CPUC

proposed a rule it stated was intended to ensure privacy as it

existed before the widespread use of independently-furnished

terminal (PBX) equipment. The final rule was adopted on

June |, 1983. As amended by an order adopted October 19, 1983,

it provides that:

(a) A customer with his own terminal equipment and

who monitors calls must provide notice of such practice

through one of the CPUC’s authorized methods for equip-

ment provided by the telephone company (open transmitter

or beep-tone);’ and

(b) Upon learning of monitoring or recording not in

accordance with the CPUC regulation, the telephone com-

pany will notify the customer that unless the customer

‘In addition to the general rule requiring notice, the Commission

adopted a rule requiring each telephone utility to file a tariff that

provides that as a condition “of use of the telephone network” each

customer must give notice of monitoring

D-3

discontinues such practices, the company shall discontinue

service.

The CPUC order also provides that a customer disputing that he

is in violation of the CPUC rules or desiring “special relief” from

the rule “by reason of special hardship or impossibility of compli-

ance” may file a formal complaint with the CPUC. Finally, the

order provides that a telephone company “shall not, by taking

action pursuant to this rule, be liable for any loss, damage, or

injury, established or alleged, which may result or be claimed to

result therefrom.”

3. After the CPUC Order was adopted, a number of airlines

and the ATAA brought suit in the United States District Court

for the Northern District of California seeking a declaratory

judgment that the Order is invalid and unenforceable. Air Trans-

port Association of America v. Public Utilities Commission of the

State of California, No. C-83-5627-AJZ (N.D. Cal. filed No-

vember 18, 1983). The plaintiffs also requested a permanent

injunction enjoining the defendants from enforcing the Order “or

any other order seeking to regulate the services of the airline in

excess of the CPUC’s jurisdiction.”

4. An amicus curiae memorandum was filed by this Commis-

sion in tne District Court on September 5, 1984, asking the court

not to address the substantive issues regarding regulation of

service monitoring because the Order on its face appeared broad

enough to affect matters within the regulatory authority of the

FCC. Accordingly, an order staying proceedings in the District

Court.case was entered on September 10, 1984, pending a final

decision by this Commission determining whether the CPUC

regulation at issue is preempted by federal authority. The instant

petition is brought pursuant to that order.

The Petition and Comments

5. ARINC and ATAA claim that the CPUC service moni-

toring rule may adversely affect both the internal communications

operations of the air transport industry and its external communi-

cations with the traveling public. They maintain that it is essential

D-4

to both operations that calls be monitored. As to the internal

operations ARINC explains there is a central communications

center near San Francisco, California which receives calls from

domestic and international aircraft. Emergency communications

which require direct pilot access to technical support in order to

land aircraft safely are handled by the center through the public

switched network. The parties claim monitoring of these conver-

sations is required by the FCC* and the Federal Aviation Admin-

istration requires that they be recorded.” ARINC and ATAA

argue that the nature of these conversations prevents the express

prior consent of all parties.

6. With regard to the traveling public, petitioners explain that

there are regional or centralized reservation centers that provide

an essential, integrated component of the airlines’ interstate

network, allowing automatic routing of calls from one center to

another when the first is busy or closed. Calls are routed from the

network at the point where the privately owned equipment con-

nects to the network and are processed through “automatic call

distribution” equipment, which automatically routes them to a

reservation agent.’ Petitioners maintain that airlines do not differ-

entiate between calls which originate inside of California and

those which originate outside of the state.

7. In order to ensure that its agents are providing high quality

service to its customers, the airlines monitor a small percentage of

incoming calls.’ Petitioners report that the agents employed by

the airlines are made aware of the practice of service monitoring

* See 47 C.F.R. § 87.75

l4 C_FLR. §$§ 121.343. 121.711. These sections contain regulations

requiring the recording and storing of radio communications between

pilots and air carners and all data received by the aircraft flight

recorders

\ccording to ARINC and ATAA, most telephone equipment used

at airlines reservations centers is privately owned rather than leased from

a telephone carrier

The petitioners report that the proportion of calls monitored by most

,07

airlines is less than 1% and in no case more than

ee ae a ee eT ee

D-5

at the time they are hired and are fully aware that any incoming

call could be monitored by supervisory personnel.” They further

state that service monitoring is confined to incoming calls directed

to the airlines as a business entity and not to any individual, and

occurs on the airlines’ property after the call has left the telephone

company facilities. Employees are forbidden from making per-

sonal calls over the system, and the random assignment of calls

makes it virtually impossible for a caller to reach a specific agent.

It is the petitioners’ position that customers calling an airline, and

not a particular person, do not have their privacy invaded by

service monitoring. They maintain that customers are calling an

airline, that the monitoring is being conducted by the airline itself

and, therefore, the caller obviously has no expectation that his

conversation will not be heard by the airline. The petitioners

conclude that service monitoring has no relationship to the

privacy interest of either the customers who call the airline or the

agents employed by the airline. Petitioners contend the CPUC

rule: 1) impermissibly regulates interstate communications;

2) violates the FCC’s primacy in authority over the terms and

conditions governing interconnection of customer-provided equip-

ment by restricting use of equipment that does not cause harm;’

and 3) leads to an impossible situation of multi-state regulation.

* ATAE, the international trade association for the live telephone

answering service industry, reports that its members monitor calls

between operators and callers to ensure that operators are performing

their duties in an acceptable manner. Calls may also be recorded, ATAE

states, to ensure accuracy of the messages and to enable customers to

monitor how their calls are being handled.

‘NATA is concerned that the designation of telephone carriers as

enforcers of California’s privacy policy creates opportunities for carner

discrimination against users of independently-supplied CPE and there-

fore undermines the Commission's long-established competitive poll-

cies. Furthermore. NATA states, even if the CPUC rule ts lawful,

California’s privacy policy is totally at odds with the principle that

“when a customer connects its own PBX, the telephone company's

responsibility ends at the point of connection unless the connection

causes harm to the system.” Com Services, Inc. v. Murraysville Tele-

phone Co., 87 F.C.C. 2d 664, 666 (1981), citing Third Report in Docket

No. 19528, 67 F.C.C. 2d 1255, 1257 (1978); 47 C.F.R. § 68.108

D-6

8. In response, the CPUC explains that its Order followed a

directive by the California Legislature, under Section 7905 of the

Public Utilities Code, that telephone companies maintain records

of any monitoring devices which they discover and determine

— -whether those entities engaged in monitoring are ensuring the

privacy of telephone conversations. The CPUC reasons that

privacy can only be ensured by providing notice to both parties to

a call that the call is being monitored, recorded or otherwise

intercepted. The CPUC states that it has established an exception

to the notice requirement for monitoring conducted by telephone

companies for purposes of administration, supervision and main-

tenance, that an exception for airlines is not mandated by the

California Penal Code (as is the exception for the telephone

carriers), and that creation of such an exception would render

meaningless the right of privacy the Order intends to protect. The

CPUC further states that airlines are not precluded from using

the public network; they are simply required, like all other

subscribers, to give notice when this use is accompanied by

monitoring. '°

9. Furthermore, the CPUC argues that state restrictions on

monitoring constitute a legitimate regulation of intrastate service

and that the rules do not “substantially affect interstate communi-

cations.” While it recognizes that the Federal Communications

Commission has exclusive jurisdiction over the connection of

terminal equipment to the interstate network, it maintains that

use of this equipment to monitor intrastate communications is a

matter of local concern and is properly left to state regulation.

The CPUC contends that the right to interconnect terminal

equipment to the public switched network does not preempt states

from regulating intrastate monitoring. It denies that its Order

conflicts with any decision of this Commission.

“ The CPUC suggests two methods for the airlines to avoid interrup-

tion of service. First, the airlines could inform their employees that all

incoming calls are subject to being monitored and then limit the

monitoring to the employees’ end of the call, excluding the caller's end:

or second, they could provide an introductory recorded message to all

incoming callers that their calls are subject to being monitored.

D-7

Discussion

10. Federal law preempts state law when 1) Congress has

expressed a clear intent to preempt state law, 2) Congress has

legislated comprehensively to occupy an entire field of regulation

or 3) state law actually conflicts with federal law or stands as an

obstacle to the accomplishment and execution of the full purposes

and objectives of Congrees.'' In the field of telecommunications,

Congress has given this Commission broad and plenary authority

over interstate communications by wire and radio. 47 U.S.C.

$§ 151, 152(a).'* However, Congress has specifically indicated

that the states, if they wish, may enact local laws to protect the

privacy of telephone conversations, so long as the minimum

standards reflected in federal statues are met.'’ See S. Rep. No.

1097, 90th Cong., 2d Sess. (1968) reprinted 1968 U.S. Code

Cong. & Ad. News 211, 2181-2187; State v. Hanley, 605 P. 2d

1087 (1979), on rehearing, 608 P. 2d 104 (Mont. 1980); People

v. Conklin, 522 P. 2d 1049, 1057 (Calif. 1974), appeal dismissed,

419 US. 1064 (1974). Moreover, it appears unlikely that the

CPUC regulation will have a significant impact on customers’

federal interconnection rights.'* Accordingly, and particularly in

'' Capital Cities Cable. Inc. v. Crisp, 104 S. Ct. 2694 (1984);

Silkwood v. Kerr-McGee Corp., 104 S. Ct. 615, 621 (1984); Hines v.

Davidowitz, 312 U.S. 52 (1941).

'* See. e.g. National Association of Regulatory Utility Commissioners

v. FCC. 746 F.2d 1492, (D.C. Cir. 1984) (Interstate communications

are totally entrusted to the FCC).

‘* We express no view herein concerning whether the business moni-

toring engaged in by the airline industry meets federal requirements

regarding “private” surveillance of telephone conversations. See 18

U.S.C. $§ 2510-2520: see generally Briggs v. American Air Filter Co.,

Inc.. 630 F.2d 414 (Sth Cir 1980) and cases cited therein concernig the

“ordinary course of business exception” contained in the Ominbus

Crime Control and Safe Streets Act.

* Although the Commission has rules and decisions governing the

right of customers to interconnect equipment that is privately beneficial

and not publicly detrimental, the CPUC’s actions do not preclude or

restrict interconnection. There is no FCC registered terminal equipment

D-8

light of Congress’ recognition of a legitimate state interest in this

area, we conclude that federal preemption is not warranted.

Conclusion

11. Accordingly, IT IS ORDERED, That pursuant to Sec-

tions 1, 4(1) and 4(j) of the Communications Act of 1934, as

amended, 47 U.S.C. $$ 151, 154(i) and 154(j), § 554(e) of the

Administrative Procedure Act, 5 U.S.C. § 554(e), and Commis-

sion rule 1.2, 47 C.F.R. § 1.2, the petition for declaratory ruling

filed by Aeronautical Radio, Inc. and the Air Transport Associa-

tion of America IS DENIED.

FEDERAL COMMUNICA-

TIONS COMMISSION

William J. Tricarico

Secretary

that may not be connected as a result of the California order. Only if the

equipment is used in a manner that California has found to be contrary

to public policy would intrastate telephone service be disconnected. See

also Diamond Intern. Corp. v. FCC, 627 F. 2d 489, 493 (D.C. Cir

1980), (Commission decision to refrain from exercising jurisdiction

upheld where there is no substantial effect on conduct or development of

interstate Communiciations. )

E-]

APPENDIX E

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

No. C-83-5627 AJZ

Air Transport Association of America, Western Airlines, Inc.,

Delta Airlines, Inc., Republic Airlines, Inc., Pan American

World Airways, Inc., United Airlines, Inc., American Airlines,

Inc., Northwest Airlines, Inc., Trans World Airlines, Inc.,

Pacific Southwest Airlines, Air Canada, Air California, Capitol

Air, Inc., Eastern Airlines, Inc.,

Plaintiffs,

Vv.

The Public Utilities Commission of the State of California;

Victor Calvo, Priscilla C. Grew, Donald Vial, Leonard M.

Grimes, Jr. and William T. Bagley, the members of and

constituting said Public Utilities Commission; Pacific Telephone

& Telegraph Company; and General Telephone Company of

California,

Defendants.

JUDGMENT

[Filed Oct. 21, 1986]

Based upon the parties’ cross-motions for summary judgment,

the absence of any disputed issues of material fact, and this

court’s orders of June 25, 1986 and October 15, 1986,

IT IS ORDERED, ADJUDGED AND DECREED that the

motions of plaintiffs Air Transport Association of America, West-

erm Air Lines, Inc., Delta Air Lines, Inc., Republic Airlines, Inc.,

Pan American World Airways, Inc., United Airlines, Inc., Ameri-

can Airlines, Inc., Northwest Airlines, Inc., Trans World Airlines,

Inc., Pacific Southwest Airlines, Ine.. Air Canada, Air California,

Capitol Air, Inc., and Eastern Airlines, Inc. (hereinafter the

“plaintiff airlines”) for summary judgment on their claims for

declaratory and injunctive relief protecting their mghts under

Section 202(a) of the Federal Communications Act and certain

provisions of the California Public Utilities Code (P.U.C. $$ 403,

701, 1702 and 7904) are granted, and the motions of defendants

The Public Utilities Commission of the State of California and its

Commissioners on said claims are denied. Accordingly,

IT IS DECLARED that the existing supervisory monitoring

activities of the plaintiff airlines are lawful under California and

federal law and impair no constitutional or statutory privacy rights

of the airlines’ employees or the general public.

IT IS FURTHER DECLARED that General order 107-B of

The Public Utilities Commission of the State of California, as

adopted by Decisions 83-06-21 and 83-01-90, is invalid and

unenforceable as applied to the plaintiff airlines’ service monitor-

ing practices in that it:

(a) unreasonably discriminates against the plaintiff air-

lines by threatening to deny them access to the telephone

network because of their lawful conduct, and thereby violates

Section 202(a) of the Federal Communications Act; and

(b) exceeds the authority and jurisdiction of the Public

Utilities Commission of the State of California.

IT IS THEREFORE ORDERED that defendants The Public

Utilities Commission of the State of California, Victor Calvo,

Priscilla C. Grew, Donald Vial, Leonard M. Grimes, Jr. and

William T. Bagley, the members of and constituting said Public

Utilities Commission, Pacific Bell, and the General Telephone

Company of California; together with their officers, agents, ser-

vants, employees and successors, are permanently enjoined from

(a) taking any action to enforce General Order 107-B, as

adopted by Decisions 83-06-21 and 83-10-90 of The Public

Lulities Commission of the State of California, based upon

the plaintiff airlines’ supervisory monitoring practices;

(b) terminating, threatening to terminate, or Causing

other parties to terminate the telephone service of the plain-

tiff airlines because of their supervisory monitoring p”actices.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that plaintiffs’ motions for summary judgment on the

remaining claims raised by the complaint are denied, and the

motions of The Public Utilities Commission of the State of

California and its Commissioners on said claims are granted, the

court finding no legal basis for relief on siad claims on the facts

presented to it. Accordingly, said claims are dismissed.

The parties shall bear their own costs.

DATED: October 21, 1986

/s/ ALFONSO J. ZIRPOLI

United States District Judge

APPENDIX F

General Order 107-B

(Supersedes General Order 107-A)

PUBLIC UTILITIES COMMISSION OF THE STATE

OF CALIFORNIA

RULES AND REGULATIONS CONCERNING THE

PRIVACY OF TELEPHONE COMMUNICATIONS.

Adogpted July 1, 1983. Effective July 1, 1983.

Decision 83-06-021. 011—Rulemaking 103.

I. REQUIRED RECORDS (Public Utilities Code §§ 7905 and

7906)

A. Each telephone corporation subject to the jurisdiction of

the Commission shall maintain complete records of all instances

in which employees discover any devices installed for the purpose

of overhearing communications over the lines of such corporation

and all instances in which employees reasonably believe and

report to the corporation that a device is installed or has been

installed but has since been removed.

Each such telephone corporation shall file with the Commis-

sion on or before the 31st day of March each year one copy of a

report of all instances in which its employees discover any devices

installed for the purpose of overhearing communications over the

lines of the corporation and all instances in which employees

reasonably believe and report to the corporation that a device is

installed or has been installed but since been removed. This report

shall cover the immediately preceding calendar year and shall

include the date, name of subscriber, telephone number, location

of service, nature of case, description of the device, circumstance

of discovery and designation of lines involved in each discovery of

these devices, by whom reported, action taken, and disposition of

the case. The reports will be labeled “confidential” and will be so

treated by the Commission as to details the disclosure of which, in

the Commission’s opinion, would be adverse to the public

interest.

as ,

F-2

B. Each telephone corporation subject to the jurisdiction of

the Commission shall maintain a central file available for Com-

mission inspection of all instructions to employees, regulations,

rules and forms designed to ensure the privacy and/or maintain

the secrecy of communications over the lines of the corporation

together with a record of the steps taken to ensure the privacy of

and/or secrecy of communications.

C. Each telephone corporation shall file with the Commission

on or before the 31st day of March of each year one copy of a

statement showing any changes in the steps being taken to ensure

privacy of and/or secrecy of communications together with one

copy of any new or revised instructions, regulations, rules and/or

forms being used.

D. Each telephone corporation which does not have instances

during the year under Section A above and/or changes under

Section C above shall file with the Commission on or before the

31st day of March each year one copy of a statement indicating it

has no instances or changes during the year.

Il. REGULATIONS GOVERNING MONITORING AND

RECORDING

A. Monitoring or recording of telephone conversations shall

not be conducted except pursuant to this General Order.

|. “Monitoring” means the use of monitoring equipment

to allow a third person to overhear the telephone conversa-

tion of two or more persons. Monitoring does not include:

a. Unlawful wiretapping or eavesdropping:

b. Monitoring by law enforcement or national de-

fense agencies, when the activity is permitted under

enabling laws and legal safeguards, or by tclephone

utilities as provided by law to prevent fraud or loss of

revenues, or to identity the source of lewd of harassing

calls:

¢ Accidental or unintentional interception of tele-

phone conversations by telephone utility personnel en-

F-3

gaged in normal operation, maintenance, or

construction;

d. “Administrative monitoring” or “service observ-

ing” performed by telephone utilities for training and

quality control purposes, when performed as authorized

by our decisions.

2. “Recording” means the recording or transcribing of

any telephone conversation by means of any electronic

device.

3. “Monitoring equipment” means any method or appa-

ratus by which a public utility telephone corporation or a

telephone subscriber, or any of their officers, employees, or

agents, may listen to or record telephone conversations on

premises owned or controlled by the utility or the subscriber:

a. Without any audible indication to the parties con-

versing that their conversation is being overheard, or

b. Without connection of a device to provide two-way

conversation between the listener and the parties con-

versing so that the listener's voice may be heard

throughout any period of monitoring, or

c. Without any indication to the parties conversing

that their conversation is being recorded.

4. No portion of the public utility telephone network in

California to which the public, or any portion of the public,

has access shal! be used for the purpese of transmitting any

telephone conversation which ts being monitored or recorded

except when:

a. All the parties to the conversation give their ex-

press prior consent to the monitoring or recording, or

b. When notice that such monitoring or recording is

taking place is given to the parties to the conversation

by one of the methods required in this order.

s .

F-4

Notice of recording shall be given either:

a. By an automatic tone warning device which shall

automatically produce the distinct tone warning signal

known as a “beep tone™ which is audible to all parties to

a communication and which is repeated at regular

intervals during the course of the communication when-

ever the communication is being recorded: or

b. By clearly, prominently and permanently marking

each telephone instrument for company use from which

communications may be recorded to indicate that a

communication of the user of the instrument may be

recorded without notice: provided that this method of

giving notice of recording may be used only if the

automatic tone warning signal is audible to all parties to

the communication using telephone instruments not so

marked.

Notice of monitoring shall be given either:

a. By a tone warning device which automaticalls

produces a distinct signal audible to all Parties to a

telephone conversation. The signal shall have those

charactenstics specified by the Federal Communica-

tions Commission, or by this order, or

b. By verbal announcement by the operator of moni-

toring equipment to the parties to a communication that

(heir communication is being monitored: or

c. By a telephone instrument transmitter which is

operationally Connected to the communication circuit

being monitored and which acoustically. mechanically,

electrically or otherwise has not been designed, modi-

hed, desensitized or located with the intent of eliminat-

ing notice of monitorng or interception. with the

eXxeeption that minimization of transmuss ON lOsses W

De Permilted

F-5

The tone warning signal referred to in the preceding

sections shall have the following characteristics:

Number of tones... |

Length of each tone 20/100 of a second, plus

‘i or minus 20%

Pitch of tone 1.400 cycles per second,

plus or minus 10%

Frequency of recurrence «

each signal not less than 12 seconds

and not more than |&

seconds

Level of tone equal to the average tele

phone talking signal

strength

8. Each California public utility telephone corporation

which offers monitoring or recording equipment to its cus-

tomers shall file and maintain on file, with this Commission a

tariff setting forth the requirements and restrictions for the

use of this equipment

9. All California telephone directories issued by, or

under the authority of, any public utility telephone corpora-

tion shail include a description and statement of the signifi-

cance of tone earning signals and marking or telephone

instruments

B. In order to assure the same degree of privacy for telephone

conversations conducted over the California lines of telephone

utilities interconnected with terminal equipment provided

customers of telephone utilities, each tele

rr re ’

b/s ~ aAall

nd maintair n tile. with this ¢ Mmm j« , port

F-6

2. That these customers shall provide notice of the

monitoring or recording by use of one of the methods

authorized for equipment provided by the telephone utility;

and

3. That customers using their own terminal equipment

shall allow reasonable access for inspection by personnel of

the telephone corporation to assure that monitoring or re-

cording is being conducted by approved procedures.

Approved and dated June 1, 1983, at San Francisco, California.

PUBLIC UTILITIES

COMMISSION

STATE OF CALIFORNIA

By JOSEPH E. BODWITZ

Executive Director

(END OF APPENDIX A)

G-|

APPENDIX G

Decision 83-10-090 Oct. 19, 1983

BEFORE THE PUBLIC UTILITIES COMMISSION OF

THE STATE OF CALIFORNIA

Oll-Rulemaking 103

Investigation by rulemaking instituted on the Commission's own

motion concerning monitoring of telephone conversations by

persons or organizations providing their own terminal

equipment.

(Filed December 15, 1981)

ORDER MODIFYING

DECISION (D.) 83-06-021 AND

DENYING REHEARING AND

FURTHER MODIFICATION THEREOF

Applications for rehearing of D.83-06-021 have been filed by

Air Transport Association of America (ATA), Pacific Telephone

and Telegraph Company (Pacific) and General Telephone Com-

pany of California (General). Southern California Edison Com-

pany (Edison) has filed a petition to modify D.83-06-021 in

certain respects. California Teamsters Public Affairs Council has

filed a response to the applications for rehearing, asking that they

be denied.

We have carefully considered each and every allegation of error

and request for modification in these filings and are of the opinion

that good cause for granting rehearing has not been shown.

However, D.83-06-021 and Appendix A thereto should be modi-

fied to more clearly set forth the basis for our jurisdiction in these

matters and to establish an enforcement program consistent with

others we have mandated wherein a customer's use of utility

service is of concern.

As to Edison’s petition, during the comment period of this

rulemaking procedure Edison recommended that the exception to

audible warning requirements, previously made in favor of tele-

phone utilities, be extended to cover all utilities. This recommen-

dation was not adopted for the reasons set forth in D.83-06-02]

G-2

Edison's petition for modification renews this request and sets

forth its proposal in more detail (especially as to how customers

should be notified of such monitoring). However, it raises no

substantial new matter. As for the greater detail of its proposal,

Edison fails to show why such material could not have been put

forward during the comment period. We find that no good cause

for the modification Edison requests has been shown and its

petition should be denied. No further issues need be discussed.

Therefore, good cause appearing,

IT IS ORDERED THAT,

1. D.83-06-021 is modified as follows:

(a) The last paragraph beginning at the bottom on

—page 13, mimeo and the first two paragraphs on page 14,

mimeo are deleted.

_ (bo) Parts II B.1, If B.2 and Ul B.3 of Appendix A are

deleted in full. In their places, the following language is

added:

“|. That any customer in California which provides

its own terminal equipment and which monitors or

records conversations between its employees and its

customers, and others engaging in conversations, where

such conversations make use of the public telephone

network, shall provide notice of the monitoring or re-

cording by use of one of the methods authorized for

equipment provided by the telephone utility:

“2. The telephone utility shall notify the customer

when it has learned of monitoring or recording which

does not use one of the authorized methods of providing

notice and, unless the customer will discontinue such

use, Section 3 below shall apply:

“3. The telephone utility shall discontinue service to

a customer for noncompliance with this rule if, after

written notice of at least five days, the customer has not

initiated compliance with such notice. Service will be

restored after the customer establishes compliance with

the rule and pays the reconnection charge.”

G-3

“4. Appeals Procedure. In the event of a dispute

between the Company and a customer as to whether the

customer is in fact in violation of provisions of Para-

graph No. 1, above, or if a customer desires special

relief from those provisions by reason of special hard-

ship or impossibility of compliance, the customer may

file a formal complaint with the California Public Utili-

ties Commission in the manner provided under the

Commission’s Rules of Practice and Procedure. During

the period the complaint is pending before the Commis-

sion the Company shall fot terminate service for

noncompliance.”

“5. Liability of Company. The Company shall

not, by taking action pursuant to this rule, be liable for

any loss, damage, or injury, established or alleged,

which may result or be claimed to result therefrom.”

2. Rehearing of D.83-06-021, as modified herein, is

denied.

3. The stay of D.83-06-021 is terminated.

4. The effective date of G.O. 107-B, as modified herein,

is the date of this order.

5. Edison's petition for modification is denied.

G-4

This order is effective today.

Dated Oct. 19, 1983, at San Francisco, California.

VICTOR CALVO

PRISCILLA C. GREY

RONALD VIAL

Commissioners

I dissent.

Leonard M.

Commissioner

I dissent.

William T. Eagley

Commissioner

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.