# Petition for Writ of Certiorari — AT&T Corp. v. Ting

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2003
- **Citation:** 540 U.S. 811

## Text

us

‘s \ FILED

0 21521 APR 16 2003

U.S.

No. 02-

IN THE

Supreme Court of the Gnited States

AT&T CORP.,
Petitioner,
V.

DARCY TING, An Individual
And On Behalf Of All Others Similarly Situated, And
CONSUMER ACTION, A Non-Profit Membership Organization
Both As Private Attorneys General,
Respondents.

>

Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

MARK C. ROSENBLUM DAVID W. CARPENTER*
EDWARD R. BARILLARI PAUL J. ZIDLICKY

HOWARD SPIERER SIDLEY AUSTIN BROWN & WooD
AT&T CORP. Bank One-Plaza

900 Route 202/206N 10 S. Dearborn

Bedminster, NJ 07921 Chicago, IL 60603 :
(908) 532-1750 (312) 853-7000

MARK E. HADDAD

JENNIFER A. RATNER

SIDLEY AUSTIN BROWN &
WOOD LLP

555 W. Fifth Street, 40th Floor

Los Angeles, CA 90013

(213) 896-6000

Counsel for Petitioner
April 16, 2003 * Counsel of Record

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 - WASHINGTON, D. C. 20001

os

QUESTION PRESENTED

Whether the Ninth Circuit correctly held — contrary to
Boomer v. AT&T Corp., 309 F.3d 404 (7th Cir. 2002), the
prior decisions of this Court, and the express provisions of the
orders of the Federal Communications Commission
(“FCC”) —that, absent a_ tariff filing requirement, the
lawfulness of the rates, terms, and conditions of interstate
long distance services is not governed exclusively by §§ 201
and 202 of the Communications Act, but is subject to
challenge under unconscionability and other laws of
individual states?

(i)

PARTIES AND RULE 29.6 STATEMENT

The parties to the proceeding are listed in the caption.
Pursuant to Supreme Court Rule 29.6, petitioner AT&T Corp.
states that it has no parent company, and there is no publicly
held company that owns 10% or more of AT&T’s stock.

TABLE OF CONTENTS

Page

QUESTION PRESENTED...
PARTIES AND RULE 29.6 STATEMENT. i
TABLE OF AUTHORITIES... iv
OPINIONS BELOW... I
PORISDICTION 0000 ooccecccscsccce |
STATUTORY PROVISIONS... |

/ STATEMENTOFTHECASE....
REASONS FOR GRANTING THE PETITION __ 15

I. THE NINTH CIRCUIT DECISION SQUARELY
CONFLICTS WITH THE SEVENTH
CIRCUIT’S DECISION IN BOOMER v. AT&T ... 16

Il. THE NINTH CIRCUIT’S DECISION CON-
FLICTS WITH PRIOR DECISIONS OF THIS
COURT AND IS CLEARLY WRONG ................. 19

III. UNLESS REVERSED, THE NINTH CIRCUIT’S
DECISION WILL ADVERSELY AF FECT THE
ENTIRE LONG DISTANCE INDUSTRY AND
SUBVERT THE FCC’S REGULATION .)

PIE se scstenessarsicsecscsssceossosseencc. 29

iv
. TABLE OF AUTHORITIES
CASES Page
AT&T Co. v. Central Office Tel., Inc., 524 US.
Pe Orci taean os anda. 2, 20, 22
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366
ER A ARIS RES OT Mtn Te PET nae ae ean 6
Boomer v. AT&T Corp., 309 F.3d 404 (7th Cir.
2 | _- ERap are en nny rcmsntO ROE au are IOURIRC RIND NEEa passim -
Chevron USA, Inc. v. Natural Res. Def. Council,
Bone, BT OS. BaF CII sais. vss veseenictnetincesecs 26
Chicago & Alton R.R. v. Kirby, 225 US. 155
ho, feet ne eee VED nis atint Cr ora meg ear cee at, 2
Davis v. Cornwell, 264 U.S. 560 (1924)... 22
MCI Telecomms. Corp. v. AT&T Co., 512 US.
I ses Notte csi oe aadeca 6, 24
MCI Worldcom Network Servs., Inc. v. FCC, 274
ee a Gi BER ois. ater es 10
Maislin Indus. U.S., Inc. v. Primary Steel, Inc.,
Oe SE FI kitties 26
Marcus v. AT&T Corp., 138 F.3d 46 (2d Cir.
ERRNO a me Ces SRA AES nee on gh le 8
Metro East Ctr. v. Qwest Communications Int'l,
Inc., 294 F.3d 924 (7th Cir.), cert. denied, 123
Be Pe ine es 17, 27, 29
Postal Tel.-Cable Co. v. Warren Godwin Lumber
OM be Bl), |, Renee nr een ees 2, 4, 20
Western Union Tel. Co. v. Esteve Bros., 256 U.S.
| ER Oe Be MERA RRR te 2, 4, 20, Z1, 23
STATUTES AND REGULATION
ee i ei ae 13
I Pi No isisky sevedancedecctn casts 13
77 O25, Oe 09th ee 4
Oh Be Re mae Seen teh 1, 6, 7, 25
Rape pent onan tees Cn ae Mr RNR ori l

BE ita sh eno ee ae |... passim

v

TABLE OF AUTHORITIES - continued

Page

OY Ce OE si ibccis Serie ee passim

FY Sn eee MRER Sen Merc passim

SRE nner cne ss 5

Seca ee 5

ae ee 5

SONG Ge re eee See

WO ermenn ater toot. 5, 8, 23, 27

Oe I ice nas elas bee ees 24

DT Tern | 7

YF Se le BR ns cpvisssniencd ee 4, a7

ADMINISTRATIVE DECISIONS

AT&T Co., 76 F.C.C.2d 195 (1980) 1]
Competitive Common Carrier Servs., 85 F.C.C.2d

FL. nearer mame Ce 2 6
Competitive Common Carrier Servs., 91 F.C .C.2d

VOU kc ee 6
Interstate Interexchange Marketplace, 6 FCC

Red. SOOO OPT oo ek 22
Interstate Interexchange Marketplace, 11 FCC

mee. TU a es 7
Interstate Interexchange Marketplace, 11 FCC

Red. 9564 (1996)... 7, 22, 25
Interstate Interexchange Marketplace, 11 FCC

WU. TO TIO TIO, ions co evovcecagle tn 8,9
Interstate Interexchange Marketplace, 12 FCC

Red. 15014009. 3,9, 10
Krauss v. MCI Telecomms. Corp., 14 FCC Red.

Tt. mann INT ne nn 12, 28

Unrepeated Message Case, 44 ICC 670 (1917)..... 4

LEGISLATIVE HISTORY

H.R. Rep. No. 73-1850 (1934) 000 4

vi

TABLE OF AUTHORITIES -— continued
SCHOLARLY AUTHORITY Page

Priest, A Theory of the Consumer Product War-
raety,, Fo ae 1.5, FEST CTIBG Don ccs isenvcessscssnenes 28

PETITION FOR A WRIT OF CERTIORARI

AT&T Corp. (“AT&T”) respectfully submits this petition
for a writ of certiorari to the United States Court of Appeals
for the Ninth Circuit. :

OPINIONS BELOW

The opinion of court of appeals (Appendix (“App.”) la-
43a) is-reported at 319 F.3d 1126 (9th Cir. 2003). The
opinion of the District Court (App. 44a-1 10a) is reported at
182 F. Supp. 2d 902 (N.D. Cal. 2002).

" JURISDICTION

The opinion and judgment of the Court of Appeals was
entered on February 11, 2003. This Court’s jurisdiction is
invoked pursuant to 28 U.S.C. § 1254.

STATUTORY PROVISIONS

Sections 10, 201-208, and 254(g) of the Communications
Act, 47 U.S.C. §§ 160, 201-208, and 254(g), are reprinted at
App. 118a-129a.

STATEMEN? OF THE CASE

In this case, the Ninth Circuit exempted California residents
from the limitation of liability and consumer remedies
provisions of the Consumer Services Agreement that had
begun governing AT&T’s national interstate long distance
services on August 1, 2001 — which was the effective date of
the orders of the Federal Communications Commission
(“FCC”) that ended the tariffing of these services under § 203
of the Communications Act. It was undisputed that these
provisions of AT&T’s contract are just, reasonable, nondis-
criminatory, and lawful under §§ 201 and 202 of the

_—

2

Communications Act and the FCC’s rules and policies. The
Ninth Circuit held, however, that the effect of the FCC’s
Detariffing Orders is that the lawfulness of the rates, terms,
and conditions of interstate telephone services is now
governed by state law. The Ninth Circuit further held that the
challenged contractual provisions are “unconscionable” under
California law, and it enjoined AT&T from enforcing them
against California residents.

This decision conflicts with the holding of the Seventh
Circuit on this same issue, with the prior decisions of this
Court, and with the FCC’s Detariffing Orders and its policies.

First, as the Ninth Circuit acknowledged (App. 10a-1 1a), its
decision conflicts with the decision in Boomer v. AT&T
Corp., 309 F.3d 404 (7th Cir. 2002). The Seventh Circuit
there held that §§ 201 and 202 of the Communications Act
preempt unconscionability and other state law challenges to
the rates, terms, and conditions of interstate long distance
services following detariffing. The Seventh Circuit thus
enforced under federal law the very provisions of the AT&T
Consumer Services Agreement that the Ninth Circuit here
invalidated under state law.

Second, the Ninth Circuit’s decision conflicts with prior
decisions of this Court. They hold that the ban on preferences
and other terms of §§ 201 and 202 of the Act preempt state
law challenges to contractual provisions that limit the liability
of communications common carriers where, as here, the
catriers are exempt from statutory tariffing requirements.
E.g, Western Union Tel. Co. v. Esteve Bros., 256 U.S. 566,
570-74 (1921); Postal Tel. Cable Co. v. Warren Godwin
Lumber Co., 251 U.S. 27, 30 (1919); see AT&T Co. v.
Central Office Tel., Inc., 524 U.S. 214, 227-28 (1998).

Third, the Ninth Circuit’s decision conflicts with the FCC’s
Detariffing Orders and with the FCC’s policies. The FCC
expressly held that its Detariffing Orders did “not affect” the
operation of §§ 201 and 202 of the Act, that these statutory

3

provisions would “continue[] to govern” the “lawfulness” of
the “rates, terms, and conditions” for interstate long distance
services, and that state law would govern only “other issues,
such as contract formation.” Interstate, Interexchange
Marketplace, 12 FCC Rcd. 15,014, 15,057 (4 77) (1997).
Further, the FCC’s policy is to rely on marketplace forces —
not cost of service data or state law standards of unconscion-
ability—to assure that the rates, terms, and conditions of
interstate services are just and reasonable

The resolution of these conflicts in this case iS a matter of
great national importance. Although the provisions of
AT&T’s Consumer Services Agreement currently apply to
consumers in the Seventh Circuit (and elsewhere), the Ninth
Circuit’s decision means that these same provisions cannot
apply to AT&T’s 7 million long distance customers in
California.

Further, the issue has importance beyond AT&T and its 40
million interstate long distance customers The challenged
provisions of AT&T’s Consumer Services Agreement include
arbitration requirements and bans on Class actions which were
previously imposed by tariffs by some carriers and which
have become terms and conditions of the interstate services of
virtually all major long distance carriers That is the case
because the FCC generally permits marketplace forces to
determine the terms and conditions that long distance carriers
offer and because consumers of long distance services place
little value on judicial and class remedies and prefer the lower
rates that these provisions allow carriers to offer Review of
the Ninth Circuit’s decision and the resolution of the conflicts
that it creates thus has profound importance for the entire long
distance industry and for the federal laws that govern it.

1. The Regulation Of Interstate Long Distance
Carriers. Federal law has governed the lawfulness of the
rates, terms, and conditions of interstate telecommunications
services since 1910. In that year, Congress subjected inter-
state telephone and telegraph carriers to some but not all of

etaaiiciaiiaiiiieeiicieg Ate ge ee

4

the requirements of the Interstate Commerce Act (ICA) that
previously applied only to railroads. Congress exempted long
distance carriers from the requirement (§ 6 of the ICA) that
they set forth the rates, terms, and conditions of their service
in tariffs. At the same time, Congress subjected these carriers
to the requirement that the rates, terms, and conditions of their
services be “just and reasonable” (§ 1 of the ICA) and to the
prohibitions against “unreasonable discrimination” (§ 2 of the
ICA) and against extending any “unreasonable or undue
preference or advantage to any person, class of persons, or
localities” (§ 3 of the ICA).

-Thereafter, this Court held that, even in the absence of any
duty to file and adhere to tariffs, §§ 1-3 of the ICA and their
ban on unreasonable preferences for any locality preempt
state law challenges to any of the rates, terms, or conditions
of interstate telecommunications services, including
contractual provisions that limit a telecommunications
carrier’s liability to its customers.’

In the Communications Act of 1934 (47 U.S.C. §§ 151 ef
seq.), Congress transferred authority over interstate telecom-
munications services to the Federal Communications
Commission (FCC). Congress also adopted substantive and
procedural requirements that were copied, almost verbatim,
from the Interstate Commerce Act — in order “to preserve the
value of court and commission interpretation” of these
provisions. H.R. Rep. No. 73-1850, at 4 (1934).

Section 201 of the Act codified the requirement (of § 1 of
the ICA) that the “charges, practices, classifications, and
regulations” of interstate telecommunications services be
“just and reasonable.” Section 202(a) codified both (1) the
ban (of § 2 of the ICA) on any unreasonable discrimination in
the “charges, practices, classifications, regulations, facilities,

' Western Union Tel. Co. v. Esteve Bros., 256 U.S. 566 (1921); Postal
Tel. Cable Co. vy. Warren Godwin Lumber Co., 251 U.S. 27 (1919); see
Unrepeated Message Case, 44 ICC 670 (1917).

5

or services” for or in connection with “like communication
service” and (2) the prohibition (of § 3 of the ICA) against the
making or giving of any “undue or unreasonable preference
or advantage to any particular person, class of persons, or
locality.”

The Communications Act of 1934 also extended to
interstate telecommunications carriers the same provisions for
the filing and review of tariffs that previously had applied
only to railroads. Section 203(a) required every common
carrier to file tariffs containing all their rates, and all
classifications, practices, and regulations affecting their rates.
Section 203(c) prohibited carriers from charging any rates or
extending to any person any privilege or classification,
regulation, or practice affecting rates that was not specified in
its filed tariff. Sections 204 and 205 of the Act allowed the
FCC to review and to investigate tariff provisions in advance
of their effective date and to order revisions to filed tariffs if it
found that their provisions violated the substantive
requirements of §§ 201 and 202 of the Act.

The Act also provides federal remedies to consumers who
contest the lawfulness of the rates, terms, and conditions of
interstate long distance services. It allows them to file
complaints that the FCC is required to investigate and
prosecute (§§ 206 & 208) or to file lawsuits in federal district
courts (§ 207).

2. The FCC’s Pre-1996 Policies Governing Competitive
Long Distance Services. After competition was introduced
into long distance services in the 1970s, the FCC modified —
or attempted to modify — its regulations for “nondominant
carriers,” which the FCC defined as carriers lacking market
power. AT&T was classified as a nondominant carrier in
1995, and all existing providers of long distance services are
today classified as nondominant.

The FCC first exempted nondominant carriers from the
requirements that they file their rates in advance of their

6

effectiveness or that they file or maintain cost data to support
the rates and terms and conditions of their services. The FCC
concluded that marketplace forces and other regulatory
remedies would generally prohibit a carrier from adopting
rates, terms, or conditions that are unjust and unreasonable or
unreasonably discriminating in violation of §§ 201 and 202
and that there was no need for cost of service rate regulation
of nondominant carriers. Competitive Common Carrier
Servs., 85 FCC 2d 1, 33-37 (FJ 97-106) (1980).

Thereafter, the FCC also sought to end tariff filings by
nondominant carriers. The FCC concluded that marketplace
forces and complaints for violations of §§ 201 and 202 could
sufficiently guarantee compliance with these substantive
provisions, and that tariffs were not necessary to enforce these
provisions. Competitive Common Carrier Servs., 91 FCC 2d
59, 71 (§ 24) (1982). Although courts acknowledged that
these FCC findings were reasonable, courts vacated these
FCC orders on the ground that tariffs were then Congress’s
“chosen means” of enforcing §§ 201 and 202 and that the
FCC then had no statutory authority to exempt carriers from
these requirements. MCI Telecomms. Corp. v. AT&T Co.,
512 US. 218, 230-31 & n4. (1994).

3. The Telecommunications Act of 1996. In the Tele-
communications Act of 1996 (“1996 Act”), Congress adopted
federal requirements designed to foster competition in local
and other intrastate telephone services that had previously
been subject to the exclusive jurisdiction of state commissions
and that were monopolies. See AT&T Corp. v. lowa Utils.
Bd., 525 U.S. 366, 377-86 (1999). But the 1996 Act also
adopted two amendments to the Communications Act that
apply to the competitive interstate long distance services over
which the FCC has exclusive jurisdiction.

First, Congress granted the FCC the authority to “forbear
from applying . . . any provision of [the Act]” to particular
carriers or services. 47 U.S.C. § 160(a). But Congress
provided that the FCC may exercise this authority only if the

7

FCC finds (1) that enforcing the provision is not “necessary to
ensure” that the rates, terms, and conditions of the service are
“just and reasonable and are not unjustly or unreasonably
discriminatory”; (2) that enforcing the provision is not
necessary for the protection of consumers; and (3) that
forbearing from enforcing the provision is in the public
interest. Jd. .

Second, Congress enacted a new provision of the Act that is
designed generally to maintain nationally uniform rates for all
“interstate interexchange [i.e., long distance] services”
offered by each carrier. 47 US.C. § 254(g). Section 254(g)
requires the FCC to adopt rules that “require that a provider
of interstate interexchange telecommunications services shall
provide such services to its subscribers in each State at rates
no higher than the rates charged to its subscribers in any other
State.” /d.

4. The FCC’s Detariffing Orders. On March 5, 1996, the
FCC issued a notice of proposed rulemaking to adopt rules
that would both implement § 254(g)’s uniform rate
requirements and also “forbear” from applying the tariffing
requirements of § 203 to the interstate long distance services

of nondominant carriers. Interstate, Interexchange Market-
place, 11 FCC Rcd. 7141 (1996).

In its First Report and Order, the FCC implemented the
rate uniformity requirements of § 254(g) by adopting rules
that codified the FCC’s existing interpretations of § 202(a) of
the Act. Jnterstate, Interexchange Marketplace, 11 FCC Rcd.
9564, 9574-75 (J 21) (1996). These rules generally require
carriers to provide long distance service at the same standard
rates throughout the nation. But they also permit carriers to
meet competition by offering services that provide discounts
from basic rate schedules and specialized services to meet the
needs of large customers so long as they are available to all
“similarly situated” customers “regardless of their geographic
location.” Jd. at 9576-77 (9§] 24 & 27).

8

In its Second. Report and Order, the FCC exercised its
forbearance authority to prohibit nondominant carriers from
filing tariffs for interstate long distance services. /nferstate,
Interexchange Marketplace, 11 FCC Red. 20,730 (1996). It
reasoned, again, that tariff filing requirements are not
necessary to ensure that long distance rates, terms, and
conditions are just, reasonable, and nondiscriminatory. It
found that marketplace forces will generally prevent carriers
from offering rates, or imposing terms and conditions, that
violate §§ 201 or 202 of the Act, and that if carriers
nonetheless did so, the complaint process under § 208 of the
Act constitutes a “more effective means of remedying such
conduct” than does tariff filings. /d. at 20,742-43 (21). The
FCC further found that tariff filings were unnecessary to
provide customers with the information required to enforce
§§ 201 and 202, and the rate averaging requirement of
§ 254(g),-and the FCC adopted alternative means of enforcing
these requirements. /d. at 20,745-46 (J 25) & 20,776 (¥| 84).

The FCC also found that the public interest required
banning the filings of tariffs. It primarily relied upon the
ground that banning tariffs would halt application of the so-
called “filed-tariff doctrine” that is mandated by § 203(c) of
the Act and that fictitiously presumed that customers have
knowledge of the terms of filed tariffs. Jd. at 20,762 (4 55).
This doctrine had harsh consequences of binding customers to
different rates, terms, and conditions than carriers had
promised them orally or in writing. /d. at 20,754 (J 45) n.122
(citing Maislin Indus. U.S., Inc. v. Primary Steel, Inc., 497
U.S. 116 (1990)). Because customers were presumed to
know all a carrier’s tariffed rates and terms, the doctrine had
been further held to preclude suits seeking prospective

injunctive relief against deceptive advertising. Marcus v. .

AT&T Corp., 138 F.3d 46, 64-65 (2d Cir. 1998).

The FCC emphasized that, in a detariffed regime, carriers
would provide customers with actual notice of the rates,
terms, and conditions on which the carriers offered service,

|

9

and customers would have to take steps sufficient to accept
these offers under state contract law before the customer
would be bound to them. The FCC anticipated this
requirement would impose only modest costs on carriers, for
they could enter into contracts with the nation’s millions of
residential customers by mailing “short, standard-form
contracts.” Jnterstate, Interexchange Marketplace, 11 FCC
Red. at 20,763 (157). The FCC stated that if that assumption
proved incorrect, the FCC would consider reimposing
tariffing obligations. /d. at 20,767 (§ 64).

Nowhere in the Second Report and Order did the FCC
forbear from enforcing the substantive requirements of §§ 201
and 202 and authorize state-by-state variations in rates, terms,
and conditions of interstate services. To the contrary, the
FCC stated that its “decision to forbear from requiring
nondominant interexchange carriers to file tariffs for
interstate, domestic interexchange services will not affect
such carriers’ obligations under Sections 201 and 202” (id. at
20,746-47 (§27)) and will not prevent the effective
enforcement of the interstate rate averaging requirements of
§ 254(g). Id. at 20,776 (§ 84).

At the same time, however, the FCC had also stated that
“[iJn the absence of such tariffs, consumers . . . w[ould] also
be able to pursue remedies under state consumer protection
and contract laws.” Jd. at 20,753 (§ 42). To prevent any
future claim that the Second Report and Order authorized
state regulation of the rates, terms, or conditions of interstate
long distance services, AT&T petitioned for clarification of
this aspect of the FCC’s Order.

In its Order on Reconsideration, the FCC described
AT&T's petition as a request that the FCC “clarify that
federal, and not state, law governs the determination as to
whether a nondominant interexchange carrier’s rates, terms,
and conditions . . . are lawful.” Jnterstate, Interexchange
Marketplace, 12 FCC Red. at 15,056 (4 76). As the FCC
stated, AT&T’s contention was that any other result “is

10

foreclosed by numerous judicial decisions recognizing that
sections 201 and 202 of the Communications Act preempt
state law with respect to the reasonableness of rates, terms,
and conditions for interstate telecommunications services.”
Id. Sprint and WorldCom supported AT&T’s petition.

The FCC granted AT&T’s petition. /d at 15,057 (§ 77).
After reiterating its prior statements that detariffing “will not
affect” §§ 201 and 202, the FCC stated:

We therefore agree with AT&T, Sprint, and WorldCom
that the Communications Act continues to govern
determinations as to whether rates, terms, and conditions
for interstate, domestic, interexchange services are just
and reasonable, and are not unjustly or unreasonably
discriminatory. While the parties only sought clarifica-
tion that the Communications Act governs the determin-
ation as to the lawfulness of rates, terms, and conditions,
we note that the Communications Act does not govern
other issues, such as contract formation and breach of
contract, that arise in a detariffed environment. As
stated in the Second Report and Order, consumers may
have remedies under state consumer protection and
contract laws as to issues regarding the legal relationship
between the carrier and customer in a detariffed regime.

Id. The FCC’s Detariffing Orders were upheld on appeal.
MCI Worldcom Network Servs., Inc. v. FCC, 274 F.3d 542
(D.C. Cir. 2001).

Thereafter, the FCC set August 1, 2001, as the effective
date for detariffing.

5. AT&T’s Consumer Services Agreement. To imple-
ment its detariffing obligations, AT&T developed a national
Consumer Services Agreement (“CSA”) that set forth the
rates, terms, and conditions on which AT&T offers interstate
long distance service to residential subscribers throughout the
nation. In May and June of 2001, AT&T mailed each of its
40 million customers a copy of the CSA together with an

——_—__

1]

explanatory cover letter and a set of anticipated “Frequently
Asked Questions” (FAQs). AT&T’s mailing told its
customers that their use of AT&T’s interstate long distance
service on or after August 1, 2001 would constitute their
“acceptance” of the rates, terms, and conditions that AT&T
offered in the CSA. ER 398-406.

The CSA contains ten separately numbered and captioned
sections, with some terms emphasized in upper-case letters
and/or bold print. ER 400-01. Two of these sections were
challenged below and invalidated in whole or in substantial
part by the Ninth Circuit.

Section 4, captioned “LIMITATIONS OF LIABILITY,”
sets forth limitations on consumers’ damages remedies. /d.
It, among other things, limits AT&T’s liability for negligence
by barring any awards of indirect or consequential damages,
by limiting damages for harm to persons or property to direct
damages, and by limiting damages for other injuries to the
amount of AT&T’s charges for its services. AT&T intended
Section 4 to carry forward the same limitations on liability for
negligence that had previously been set forth in AT&T’s
tariffs and that the FCC had previously approved. AT&T Co.,
76 F.C.C.2d 195, 197 (4 5) (1980). ER 31, 35-38, 923-24.

Section 7 is entitled “DISPUTE RESOLUTION.” Al-
though it preserves the right of consumers to file complaints
with the FCC or to bring actions in small claims court, it
provides that any other disputes must be resolved through
arbitration. Section 7 expressly provides that “[n]o disputes
may be joined” “with a dispute of another person” or
“resolved on a class-wide basis.” ER 401, 434. Section 7
also sets a limitations-period of two years for bringing claims,
provides for AT&T’s payment of all but $20 of the costs of
arbitration claiming -less than $1,000 (later increased to
$10,000), and provides that arbitrations will be confidential.
ER 400, 434-35.

12

Arbitration clauses (including class action bans) had been
adopted in the tariffs of some of AT&T’s long distance
competitors prior to the effective date of the FCC’s
Detariffing Orders. However, AT&T did not adopt these
provisions until the effective date of these Orders. In
AT&T’s cover letter to its customers and in the accompany-
ing list of anticipated frequently asked questions, AT&T
identified the arbitration requirement as a new term of
AT&T’s service. ER 398-99.

6. The Proceedings Below. On July 31, 2002, plaintiffs
Darcy Ting (an AT&T customer) and Consumer Action (a
- membership organization) instituted an action in California
Superior Court to enjoin the enforcement of the Consumer
Services Agreement against California residents. Plaintiffs
contended that AT&T had taken insufficient steps to make the
CSA a binding contract with AT&T’s long _ distance
customers under California law and that even if a contract had
been formed, Sections 4 and 7 of the CSA were unlawful.

Plaintiffs did not contend that Sections 4 and 7 were
“unjust, unreasonable, and discriminatory” in violation of
§§ 201 or 202 of the Communications Act or any other
provision of federal law.” Rather, they contended that the
provisions were unconscionable under California law because
they were contracts of adhesion and were one-sided.
Plaintiffs also contended that the CSA’s provisions violated
the antiwaiver provision of the California Consumer Legal
Remedies Act and the public policy of California.

AT&T removed the case to the United States District Court
for the Northern District of California. In addition to

* The FCC’s mules specifically allow customers and carriers to agree to
resolve disputes through arbitration. 47 C.F.R. § 1.18. The FCC has
further concluded that the right of customers to file individual complaints
before the FCC protects all their legitimate interests, and the FCC refused
to authorize complaints to proceed as class actions because that would be
inconsistent with the remedial scheme of the Act. Krauss v. MCI
Telecomms. Corp., 14 FCC Red. 2770, 2775-76 (4 10) (1999).

13

contending that state law is completely preempted by §§ 201
and 202 of the Communications Act, AT&T relied on the fact
that the case could have been brought in federal district court
under diversity of citizenship jurisdiction (28 U.S.C. § 1332) _
and that AT&T is not a citizen of California. /d. § 1441(a) &
(b); see ER 23-28.

AT&T demonstrated that its CSA mailing had provided
California customers with sufficient notice of the CSA to
cause their subsequent use of the service to constitute
acceptance of an offer and to form a contract under California
state law. But AT&T contended that §§ 201 and 202
governed the lawfulness of Sections 4 and 7 of the CSA and
preempted plaintiffs’ substantive state law challenge to these
limitation of liability and consumer remedies provisions.

Following a trial, the District Court entered an injunction
that generally treated the CSA as a validly formed contract.
However, it rejected AT&T’s federal preemption claims
(App. 100a-105a), and it held that Sections 4 and 7 violated
state law.

First, the District Court held that the limitation of liability
clause of Section 4 covered not just negligence (as AT&T
contended) but also violated California law by limiting
liability for willful misconduct. Because the Court concluded
it had no authority under state law to “rewrite or reform”
Section 4, it enjoined its application entirely. App. 77a-83a.
Under the court’s order, there is no limitation on AT&T’s
liability to California customers for consequential or
economic damages caused by negligence from August 1,
2001 until AT&T adopted a new limitations of liability clause
in response to the District Court.

Second, the District Court found that the arbitration
provisions of Section 7 of the CSA, including the class action
prohibition, were unconscionable because the CSA is an
adhesion contract and these provisions are one-sided. After
finding that individual FCC complaints were not an adequate

14

remedy for consumers (App. 71a), the District Court found
the class action prohibition one-sided and oppressive because
it would “serve to shield AT&T from liabilit[ies]” it would
incur if there were no such ban. /d. at 68a, 9la-92a. It found
the cost provisions one-sided because the District Court
hypothesized claims in which customers would incur greater
fees in arbitration than would be incurred in court cases. /d.
at 96a-98a. While the District Court found that the two-year
limitation period was not unconscionable, it invalidated that
term under the anti-waiver provisions of the California
Consumer Legal Remedies Act. /d. at 84a.

7. The Ninth Circuit’s Decision. While it held that the
two-year limitations period is valid, the Ninth Circuit upheld
the District Court’s invalidation of the CSA’s limitation of
liability clause and its arbitration requirements and class
action ban. The court acknowledged that AT&T’s preemp-
tion claims were accepted in Boomer v. AT&T Corp., 309
F.3d 404 (7th Cir. 2002) and that the Seventh Circuit had
enforced the CSA’s legal remedies provisions after
dismissing state law unconscionability challenges to them.
But the Ninth Circuit “respectfully disagreed” with the
Seventh Circuit, and the Ninth Circuit rejected AT&T’s
preemption claims on two alternative grounds. App. 1 la.

First, it held that AT&T’s preemption claim is contrary to
the “text and structure” of the Communications Act of 1934
and “the clear intent of Congress in the Telecommunications
Act_of 1996.” App. lla. It concluded that the decisions
holding that the Communications Act (and the Interstate
Commerce Act) preempt state law challenges to rates, terms,
and conditions of interstate communications (and transporta-
tion) services rested solely on the existence of tariffs, and
that, absent a tariff; state law invalidations of the terms and
conditions for a rate do not constitute unreasonable prefer-
ences in violation of § 202(a). /d. at 16a-25a. It further held
that the 1996 Act’s “chosen means” of enforcing §§ 201 and
202 is to “deregulate” the services and rely on marketplace

————

15

forces which, the Ninth Circuit held, include the operation of
state laws of general applicability. /d. at 22a-32a.

Second, the Ninth Circuit held, in the alternative, that
AT&T’s preemptive claim was foreclosed by the District
Court’s findings of fact. The Ninth Circuit relied on the
District Court’s conclusion that AT&T had failed to prove
that class action and other lawsuits would increase AT&T’s
costs of service and, if so, by how much, and the court held
that the absence of such evidence foreclosed any claim that
the invalidation of the provisions created preferences in favor
of California customers. App. 32a-33a.

Finally, the Ninth Circuit held that the CSA’s limitation of
liability and consumer remedies provisions are unconscion-
able under California law, which required findings that the
CSA is both “procedurally” and “substantively” one-sided
and unfair. The court held that the procedural prong was
satisfied because the CSA is an adhesion contract and because
virtually all long distance carriers have similar provisions
App. 36a-37a. The court held the substantive prong was
satisfied because the CSA’s provisions were not “reciproca!”
as a practical matter because, for example, they barred
plaintiffs from bringing class actions against AT&T, whereas
AT&T would have little reason to pursue judicial claims
against a class of its customers. /d. at 37a-42a.

REASONS FOR GRANTING THE PETITION

Review of the Ninth Circuit’s decision is manifestly
appropriate. First, it creates a square and acknowledged
conflict with the Seventh Circuit not only on the broad
questions of the preemptive effect of §§ 201 and 202 of the
Communications Act following detariffing, but also on the
specific question of the validity of the remedial provisions of
AT&T’s national Consumer Services Agreement. Second,
the Ninth Circuit’s decision conflicts with prior decisions of
this Court, which establish that the Seventh Circuit is right

16

and the Ninth Circuit is wrong. Finally, the issues have
importance beyond AT&T and its 40 million interstate long
distance customers. The Ninth Circuit’s decision would
invalidate the comparable provisions in the contracts of
virtually all of the nation’s major long distance carriers. It
would also subvert the FCC’s policy of allowing marketplace
forces to determine the rates, terms, and conditions of
interstate service, subject to FCC intervention only in the
event of market failures.

I. THE NINTH CIRCUIT DECISION SQUARELY
CONFLICTS WITH THE SEVENTH CIRCUIT’S
DECISION IN BOOMER v. AT&T.

Foremost, as the Ninth Circuit expressly acknowledged
(App. 10a-11a), its decision conflicts with Boomer v. AT&T
Corp., 309 F.3d 404 (7th Cir. 2002). Two courts of appeals
have now squarely disagreed over the meaning of the FCC’s
Detariffing Orders and the preemptive effect of §§ 201 and
202 of the Communications Act in a detariffed environment.
They have also disagreed over the validity of the Legal
Remedies Provisions of AT&T’s Consumer Services
Agreement. This has created the anomaly that a single
national contract applicable to interstate services is
enforceable under federal law (and immune from state law
challenges) in one circuit and invalid under state law in
another. It means that rates, terms, and conditions applicable
to a single AT&T interstate call (e.g, Chicago to San
Francisco) now vary depending on where the call is billed.

The conflict could not be starker. The plaintiffs in this case
and the plaintiffs in Boomer each contended that the Lega!
Remedies provisions of the CSA were unconscionable under
state law. Each advanced identical arguments in contending
that state law challenges to the CSA’s rates, terms, and
conditions were not preempted under §§ 201 and 202 of the
Communications Act and the terms of the FCC’s Detariffing
Orders. Yet the two courts reached opposite conclusions, and

Ai Dodmaets MAIR nt SL AE TEM eee erst GOAN LaF em et ba aha

17

each offered extended and detailed analyses in support of
their respective and opposite holdings.

The Seventh Circuit had previously held that the
Communications Act preempted state law challenges to
arbitration clauses (including class action bans) that were set
forth in tariffs and that these clauses are valid and must be
enforced unless and until the FCC finds they violate §§ 201 or
202 of the Act. Metro East Ctr. v. Qwest Communications
Int’l, Inc., 294 F.3d 924 (7th Cir.), cert. denied, 123 S. Ct.
707 (2002). In Boomer, the Seventh Circuit held that §§ 201
and 202 of the Act continue to preempt state law challenges
to these provisions now that they are set forth in contracts, for
three independent reasons. 309 F.3d at 418-21.

First, it held that the object of §§ 201 and 202 was to
achieve uniform rates, terms, and conditions for interstate
telecommunications services and that allowing state law
challenges to terms and conditions would result in state-by-
state differences among similarly situated customers, contrary
to § 202(a)’s prohibition against unreasonable preferences for
any class of customers or locality. /d. at 418. Second, it
concluded that arbitrations and class action bans produce cost
savings for carriers that are passed through to consumers in
the form of lower rates, and that to allow state law injunctions
against these provisions would inevitably result in either price
differences from state to state or in price discrimination
among otherwise similarly situated customers that violates
§ 202(a). Jd. at 419-20. Third, the Seventh Circuit held that,
in this context, § 201(b) shows that Congress intended that
federal law would exclusively govern the question whether
rates, terms, and conditions of service are fair and reasonable
and preempt unconscionability and other state claims that
address the same ultimate questions under state law standards.
Id. at 420-21.

The Seventh Circuit rejected claims that the preemptive
effect of the Communications Act depended upon the
existence of tariffs or on the applicability of the filed rate

ies a

|

18 :

doctrine. /d at 421-22. It further held that the FCC’s Order
on Reconsideration established that state law in no way
applies to determinations of the lawfulness of rates, terms,
and conditions of interstate services. /d. at 423.

The Ninth Circuit has now “respectfully disagreed” with all
of the Seventh Circuit’s conclusions, calling them “novel.”
App. 10a-lla. The Ninth Circuit held that the only
circumstance in which the Communications Act preempts
staie law is where tariffs are required or permitted and the
filed tariff doctrine applies. /d. at 17a-18a. It held that,
absent tariffs, a state law injunction that exempts its citizens
from the rates, terms, and conditions of a national interstate
service does not result in unreasonable preferences for a
locality that violate § 202(a). /d. at 16a-25a. To the contrary,
the Ninth Circuit held that state-by-state variations in results
are dictated by the 1996 Act which purportedly “deregulated”
interstate services and thereby necessarily provided that
§§ 201 and 202 would be enforced by applying the laws of 50
different states to establish the rates, terms, and conditions
that would govern long distance services in each state. /d. at
24a-27a. The Ninth Circuit treated the FCC’s grant of
AT&T’s petition for clarification that §§ 201 and 202 would
continue to govern these issues as confirming this role for
state law. /d. at 28a.

Finally, the Seventh Circuit had held as a matter of law that
limitation-of-liability provisions and arbitration requirements
and class action bans affect a carrier’s costs and rates, such
that a state law injunction against these provisions would
necessarily result in price discrimination and lead to unrea-
sonable preferences. Boomer, 309 F.3d at 419-20. But the
Ninth Circuit concluded that the Seventh Circuit’s decision to
so hold in the absence of a “factual record” was improper and
that the District Court’s findings here established that
invalidating the limitations of liability and consumer remedies
provisions had no such effects. App. 32a-33a.

WA ue v0 sae bn

19

These conflicting legal holdings — and the fact that impor-
tant provisions of a single national contract are valid in some
states but not in others — make review by this Court a matter
of great importance. In this regard, because the Seventh and
Ninth Circuit’s have sharply framed the issues in detailed
opinions that reach opposite results, the question presented in
this case is manifestly now ripe for this Court’s consideration
and decision.

Il. THE NINTH CIRCUIT’S DECISION CONFLICTS
WITH PRIOR DECISIONS OF THIS COURT AND
IS CLEARLY WRONG.

Even apart from the square conflict with the Seventh
Circuit’s decision in Boomer, this case merits plenary review
because the Ninth Circuit’s decision also conflicts with the
prior decisions of this Court. They establish that the Seventh
Circuit is right and the Ninth Circuit is wrong.

First, the Ninth Circuit’s decision primarily rests on its
view of the “text and structure” of the Communications Act
of 1934. App. lla. It held that the only provision of the
Communications Act that preempts state law is § 203, and the
“filed rate doctrine” that implements it. But this holding has
been squarely rejected by nearly a century of decisions of this
Court that hold that the terms of §§ 201 and 202
independently preempt state law challenges to the rates, terms
and conditions of interstate services, whether or not the
carrier is subject to the tariffing requirements of § 203.

These decisions reject the Ninth Circuit’s conclusion that
the text of the Act gives § 203 a “preemption function” but
merely gives §§ 201 and 202(a) an “antidiscrimination
function.” App. 18a. In this regard, the so-called “filed tariff
doctrine” was compelled by the text of § 203(c), which
prohibits carriers from providing services at rates, terms, or
conditions that are not “specified” in its tariff. This provision
was held to preempt state law that would invalidate tariffed
limitations on liability because state laws cannot require what

20

federal law prohibits. AT&T Co. v. Central Office Tel., Inc.,
524 US. 214, 227-28 (1998). Section 202(a) of the Act, in
turn, prohibits carriers from extending unreasonable
preferences to any class of customers or localities, and the
Court has thus held that the Act also preempts state-law
claims that “constitute unlawful preferences.” /d. :

Indeed, this Court repeatedly so held during a prior period
when telephone and telegraph carriers were subject to the
same regulatory regime that applies to them now by virtue of
the FCC’s Detariffing Orders. Between 1910 and 1934, as
now, telecommunications carriers were exempt from tariffing
requirements and were subject to the statutory prohibitions
against unjust and unreasonable rates, terms, and practices
(now codified in § 201(b)) and against undue or unreasonable
preference or advantages for any class of customers or
locality (now codified in § 202(a)). This Court then held that
these latter provisions invalidated state law challenges not just
to rates, but also to contractual provisions that limit a carrier’s
liability to its customers and that had been challenged as
unconscionable or contrary to public policy under state law.

In Postal Telegraph-Cable Co. v. Warren Godwin Lumber
Co., 251 U.S. 27 (1919), there was no tariff, and a customer
brought a state law challenge to a “contract” that limited the
carrier’s liability for missending a message. /d. at 29. The |
Court held that the Act of Congress that required telegraph
carriers to adhere to the requirements now codified in §§ 201
and 202 was “clear[ly] . . . designed” to subject telegraph
companies to the “rule of equality and uniformity of rates”
and that the Act’s purpose would be “wholly destroyed” if the
substantive lawfulness of the terms of contracts made in their
interstate business were subject to state laws that inevitably
may be “divergent” and “conflicting.” Jd. at 30. It held that
the predecessors of §§ 201 and 202 were “an occupation of
the field by Congress.” /d. at 31.

ee ee a ae

Similarly, in Western Union Telegraph Co. v. Esteve Bros.,
256 US. 566 (1921) (Brandeis, J.), a telegraph carrier’s

21

limitation on liability was invalidated under state law, and the
Court reversed because state law had “grant[ed] an undue
preference or advantage” in violation of the predecessor to
section 202(a) of the Act. /d. at 571

The Ninth Circuit tried to distinguish these cases on the
ground that the ICA purportedly contained requirements
governing “voluntary” tariff filings App. 19a That is
incorrect. There was no such provision in the ICA, and while
a tariff was voluntarily filed in Esteve Brothers, there was
none in Postal Telegraph. More to the point, there was no
statutory basis for giving preemptive effect to any voluntary
tariffs, for the ICA’s tariffing requirements and the ban on
deviations from filed tariffs were then inapplicable to
telecommunications carriers.

Thus, it had been “strongly argued” in Esteve Brothers that
the limitation on liability clause could be subject to state law
challenges because telegraph carriers had the right to provide
' service “without filing tariffs with the Commission.” 256
U.S. at 572-73. But Justice Brandeis’s opinion for the Court
held that the absence of tariff filing requirements was
immaterial to the preemptive effect of the Act. It concluded
that tariff filings are merely “procedural features” of the Act
that create the “fiction” that customers have “constructive
notice” and that bind customers to the tariffed terms “whether
there is knowledge of [them] or not.” /d. at 573. It held that
the preemptive effect of the Act “flows” not from the filing of
the tariffs, but “from the requirement of equality and
uniformity of rates laid down in § 3 of the [ICA]” (now
§ 202(a) of the Communications Act). /d

Further, this Court has also held that even when limitation
of liability clauses are set forth in tariffs, state law challenges
to them are independently preempted both by the terms of
§ 203(c) and by § 202(a)’s ban on unreasonable preferences.
Chicago & Alton R.R. v. Kirby, 225 US. 155, 165 (1912)
(state law claim for better terms than those in the tariff is
preempted both by §6 of the ICA (predecessor to § 203)

22

because terms were not “published in the tariffs,” and by § 3
of the ICA (predecessor to § 202(a)) “because it is an undue
advantage” not available to all similarly situated customers);
Davis v. Cornwell, 264 U.S. 560, 562 (1924) (same).

AT&T Co. v. Central Office Tel., Inc., 524 U.S. 214 (1998)
(“COT’) followed these decisions and held that tariff filings
are not the sole source of state-law preemption. As the Ninth
Circuit correctly states (App. 19a), this Court there applied
the filed-tariff doctrine to reject COT’s claim that it could
bring state contract and tort claims to obtain “privileges” not
specified in the applicable tariffs. 524 U.S. at 224-26. But
the Ninth Circuit ignored that COT also argued, in the
alternative, that its state-law claims were “consistent” with
the tariffs because it authorized state claims based on willful
misconduct. Jd. at 228. The Court held that while such a
state claim is not barred by the filed-tariff doctrine, it is
barred by the FCA’s separate ban on “preferences” (id.)
which is contained in § 202(a). It “renders the promise of
preferences unenforceable.” /d.

These decisions also foreclose the Ninth Circuit’s reliance
on the ground that § 202(a) does not mandate “strict
uniformity,” but prohibits only “unjust or unreasonable”
preferences. App. 19a-21a, 28a-30a. The Ninth Circuit here
noted the FCC and other decisions that upheld rate
differences that were justified by differences in competitive
conditions and other such neutral rational factors. Jd. But the
decisions hold that § 202(a) requires that identical rates,
terms, and conditions be extended to all customers facing
similar competitive and other conditions, regardless of the
state in which they reside,’ and Postal Telegraph, Esteve
Brothers, Davis, Kirby, and COT all reject the Ninth Circuit’s
holding that preferences that result from the operation of state
law are “reasonable” and lawful under § 202(a).

* See, e.g., Interstate, Interexchange Marketplace, 11 FCC Rcd. at
9576-78 (99 24 & 27-28); Interstate, Interexchange Marketplace, 6 FCC
Red. 5880, 5900-01 (4 112 & 116) (1991).

ee

On a

23

Further, this Court’s decisions also foreclose the Ninth
Circuit’s alternative holding that California law could not be
held to create a preference because AT&T purportedly had
not introduced evidence that invalidation of the limitation of
liability and consumer remedy provisions would increase
AT&T’s costs and rates and if so, by how much. App. 32a.
There was no such evidence in Postal Telegraph, Esteve
Brothers, Davis, Kirby, and COT, and this Court there held
that limitations of liability provisions and other conditions
that carriers impose on the availability of a rate are “inherent
part[s] of the rate.” Esteve Bros., 256 US. at 571. In
particular, the Court held that it was sufficient to establish an
unreasonable preference that the plaintiff was seeking to use
state law to confer an advantage that “affects the value of the
service to the [customers] and its cost to the carrier” and that
is something for which a carrier “might” justify a higher rate.
Kirby, 225 US. at 165.

Here, moreover, one of the invalidated provisions of the
CSA (Section 4) is the same limitation of liability clause that
the Court specifically held to be an “inherent part” of the rate
in Esteve Brothers. And it is self-evident — as the district
court specifically found — that the arbitration clause and class
action ban of the CSA operate to reduce AT&T’s costs and to
“shield” AT&T from substantial liabilities that it would
otherwise incur. App. 67a-68a. For example, the class action
ban inherently prevents awards of damages to customers who
have not availed themselves of the costless right to file a
complaint under § 208 of the Act that the FCC is required to
investigate and prosecute or to pursue other remedies under
the CSA. Under this Court’s decisions, state law exemptions
from the foregoing provisions are unreasonable preferences as
a matter of law — as the Seventh Circuit correctly held in
Boomer, 309 F.3d at 423.

Second, the Ninth Circuit’s holding also rests on its view
that the “clear intent” of the Telecommunications Act of 1996
requires allowing state law challenges to the rates, terms, and

24

conditions of interstate services. App. lla. But this holding,
too, conflicts with this Court’s decisions, and is simply
wrong.

The Ninth Circuit’s holding principally rests on a
misreading of this Court’s decision in MCI Telecommuni-
cations Crop. v. AT&T Co., 512 U.S. 218 (1994). Because
this Court held that tariffs were Congress’s “chosen means”
of enforcing §§ 201 and 202 under the 1934 Act, the Ninth
Circuit concluded that §§ 201 and 202 will be unenforceable
under the detariffed regime authorized by the 1996 Act unless
state law is allowed to impose just and _ reasonable
arrangements. App. 22a-25a. But contrary to the Ninth
Circuit, the Court’s opinion in MCI v. AT&T expressly stated
that it was not holding that it would “frustrate” the “ultimate
purposes” of §§ 201 and 202 to end tariffing and to rely on
marketplace forces and FCC complaints to enforce these
provisions. 512 U.S. at 231 n4. Rather, the Court held that
because tariffs were then Congress’s prescribed “means” of
enforcing the provisions, the FCC could not then eliminate
them even if §§ 201 and 202 would be adequately enforced
through other means. /d.

The Ninth Circuit also confused two different sets of
provisions that were enacted by the 1996 Act. The Ninth
Circuit stated that the 1996 Act had the objective of
“replac[ing] the old monopoly-based regime” with a system
of deregulation that depends on market-based mechanisms
and the operation of state law. App. 22a. The Ninth Circuit
here cited to the legislative history and terms of the local
competition provisions enacted by the 1996 Act (47 U.S.C.
§§ 251-261), which govern local and other intrastate services
that had been regulated exclusively by states, that had been
monopolies, and that will continue otherwise to be subject to
-State law after new procompetitive federal requirements are
fully implemented. See App. 26a (citing Verizon Communi-
cations, Inc. v. FCC, 122 S. Ct. 1646 (2002)). These provi-
sions do not apply to interstate long distance services, which

25

had been subject to exclusive FCC jurisdiction and which
were competitive when the 1996 Act was passed.

Rather, the 1996 Act altered the regulation of interstate
long distance services in only two respects. Neither evinced
any intent that state law would govern the rates, terms, and
conditions of these services. First, by enacting § 254(g) and
mandating nationally uniform interstate rates, Congress
plainly was not authorizing the state-by-state variations that
the Ninth Circuit’s holding would create, and the FCC’s
implementing rules require identical rates for all similarly
situated customers, “regardless of their geographic location.”
Interstate, Interexchange Marketplace, 11 FCC Rcd. at 9576-
77 (FY 24 & 27).

Second, while the Act grants the FCC the authority to
“forbear” from applying any provision of the Act, Congress
limited this forbearance authority to conditions in which the
FCC found that the requirement is not necessary to assure that
rates, terms, and conditions of service are just, reasonable,
and nondiscriminatory and that forbearance is in the public
interest. 47 U.S.C. § 160(a). As the Seventh Circuit held,
this provision establishes that, if anything, the FCC is
prohibited from forbearing from enforcing §§ 201 and 202
and allowing state-by-state variations in rates, terms, and
conditions of interstate services by turning these matters over
to state law. Boomer, 309 F.3d at 423. But that issue need
not be reached here because the FCC exercised its forbear-
ance authority only over § 203. Thus, even if the FCC had
said nothing else on the subject, its orders would not have
affected the enforcement of §§ 201 and 202, and they would
have continued to preempt state law challenges to limitations
of liability clauses and other rates, terms, and conditions of
interstate services.

But the FCC did more. In granting AT&T’s petition for
clarification on this precise issue, the FCC “agreed” with
AT&T that the lawfulness of the rates, terms, and conditions
of interstate long-distance services would continue to be

26

governed by §§ 201 and 202 and that state law could only
govern other issues that arose because of detariffing, such as
contract formation. For the reasons stated above, this inter-
pretation of the Act was compelled by the Act’s terms and
structure and by Esteve Brothers and other prior decisions of
this Court that so interpret this same language in the absence
of a tariff-filing requirement. See Maislin Indus. U.S., Inc. v.
Primary Steel, Inc., 497 U.S. 116, 131 (1990). But even if the
Act were ambiguous, the FCC’s order plainly adopted a
reasonable interpretation, to which the Ninth Circuit would
have been required to defer even if the Ninth Circuit had
reviewed the FCC’s order on direct appeal. Chevron USA,
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

Here, moreover, the Ninth Circuit did not review the FCC’s
order directly. Instead, it has effectively collaterally attacked
the FCC’s rules and its interpretation of the Act in a
subsequent proceeding that challenged AT&T’s implemen-
tation of these rules — based on the Ninth Circuit’s mistaken
view that the 1996 Act required a greater role for state law
than afforded it by the FCC's Detariffing Orders. This is
flatly improper.

Ill. UNLESS REVERSED, THE NINTH CIRCUIT’S
DECISION WILL ADVERSELY AFFECT THE
ENTIRE LONG DISTANCE INDUSTRY AND
SUBVERT THE FCC’S REGULATION OF IT.

Finally, review of the Ninth Circuit’s decision is a matter of
national importance for other reasons. Unless reversed, the
Ninth Circuit’s decision will adversely affect the entire long
distance industry and subvert the FCC’s regulation of it.

First, the provisions of the CSA that the Ninth Circuit
invalidated are comparable to the terms and conditions of the
long distance services of many other long distance carriers.
App. 60a. In particular, all of the nation’s major long
distance carriers have adopted standard form contracts and
most contain some form of requirement that residential

27

customers arbitrate complaints that are not brought before the
FCC and that prohibit class actions. /d. Under the Ninth
Circuit’s decision in this case, these provisions are all subject
to challenge under the law of each state where each carrier
operates, and would appear all to be plainly unlawful under
the Ninth Circuit’s interpretation of California law.

Notably, the fact that most long distance carriers have
adopted these provisions reflects the operation of the very
marketplace forces on which the FCC now relies, absent
evidence of market failure, to assure that the rates, terms, and
conditions of service are just and reasonable. Regardless of
whether interstate services are governed by tariff or by
contract, the FCC has found that competition will prevent -
carriers from charging rates that are excessive or from
imposing terms and conditions that are unreasonable, and that
competition assures that where customers waive rights or
remedies, they will do so in exchange for receiving lower
rates than would otherwise be charged. See supra pp. 5-8.
Thus, the fact that most major long distance carriers have
adopted arbitration requirements and class actions bans
reflects widely shared judgments that customers of long
distance services place no or little value on rights to judicial
and class remedies and prefer the lower rates that waivers of
these remedies allow.

In this regard, while the FCC has not had any occasion
specifically to rule on the lawfulness of such arbitration
clauses and class action prohibitions in post-detariffing con-
tracts, these provisions had been included in the tariffs of
some carriers prior to detariffing, and were never disapproved
by the FCC. Metro East Cir., 294 F.3d at 927-28. Further,
the FCC’s regulations specifically authorize customers and
Carriers to agree to resolve disputes through arbitration. 47
C.F.R. § 1.18. In addition, the FCC has held that the right of
customers to bring individual complaints under § 208 (which
the FCC is statutorily required to investigate and prosecute)
fully protects their legitimate interests and that allowing

28

customers to bring complaints as class actions would be
inconsistent with the remedial scheme of the Act. Krauss v.
MCI Telecomms. Corp., 14 FCC Red. 2770, 2775-76 (¥ 10)
(1999). As the Seventh Circuit stated, these precedents
strongly indicate that the FCC would reject claims that
contractual arbitration requirements and class action bans are
unjust and unreasonable under § 201(b) of the Act. Boomer,
309 F.3d at 421.

Second, whatever the FCC might hold on that specific
question, it is very clear that the Ninth Circuit’s holding that
the lawfulness of the rates, terms, and conditions of interstate
services can be governed by state unconscionability standards
will subvert the FCC’s regulation of competitive interstate
services. State law unconscionability standards are funda-
mentally different than and incompatible with the standards
that the FCC applies in determining if arrangements are
unjust and unreasonable under § 201(b).

Here, for example, the Ninth Circuit held that the CSA’s
provisions are unconscionable because the CSA was a form
contract that was not individually negotiated, because most
long distance carriers had comparable provisions, and because
the provisions were not reciprocal in the sense that the
arbitration clause and class action ban — viewed in isolation —
did not have the same practical effect on AT&T as it did on
customers. App. 36a-42a. But under the FCC’s standards,
these factors are either irrelevant or powerful evidence of the
reasonableness of the arrangement.

First, the fact that a provision is in a form contract (or
tariff) has no significance under the FCC’s policies. Mass
market services were formerly governed by tariffs that
customers never saw, and all mass market services inherently
use form agreements. As other evidence and studies estab-
lish,* the FCC has found that competition in mass market

4 See, e.g., Priest, A Theory of the Consumer Product Warranty, 90
Yale L.J. 1297, 1319-47 (1981); ER 352-56, 388-90.

al

29

services will generally preclude the imposition of unfair or
exploitive arrangements, whether or not form contracts are
used. Second, under the FCC’s policies, the fact that virtually
all carriers in the competitive long distance market have
similar provisions is — absent some evidence of market
failure —conclusive or powerful evidence of their reason-
ableness. See Metro East Ctr., 294 F.3d at 927. Third, the
fact that an individual contractual term — viewed in isolation —
has a greater practical effect on customers than carriers is
irrelevant to its reasonableness under the FCC’s policy. The
FCC recognizes — as California law does not (in the Ninth
Circuit’s view) — that customers in competitive markets will
be compensated for any relative disadvantage that results
from a particular contractual provision in the form of lower
rates for the overall service. /d.

Under the Ninth Circuit’s view, California law would
categorically preclude any term that is adopted in a form
agreement, that is a feature of most competitors’ services, and
that is not “reciprocal” under the Ninth Circuit’s narrow
definition of that concept. For this reason, regardless of what
the FCC might conclude about the lawfulness of the specific
challenged provisions of AT&T’s Consumer Services
Agreement, the Ninth Circuit’s decision that state law
governs the lawfulness of such terms inevitably would result
in the invalidation of a range of contractual provisions that the
FCC would find to foster the public interest, to benefit
consumers; and to be lawful under federal standards. This is
an additional reason why review of the Ninth Circuit’s
decision is manifestly appropriate.

CONCLUSION

For the reasons stated, the petition for a writ of certiorari
should be granted.

MARK C. ROSENBLUM
EDWARD R. BARILLARI
HOWARD SPIERER
AT&T CORP.

900 Route 202/206N
Bedminster, NJ 07921
(908) 532-1750

30
Respectfully submitted,

DAVID W. CARPENTER*

PAUL J. ZIDLICKY

SIDLEY AUSTIN BROWN & WooD
Bank One Plaza

10 S. Dearborn

Chicago, IL 60603

(312) 853-7000

MARK. E. HADDAD

JENNIFER A. RATNER

SIDLEY AUSTIN BROWN &
WOOD LLP

555 W. Fifth Street, 40th Floor

Los Angeles, CA 90013

(213) 896-6000

Counsel for Petitioner

April 16, 2093

—_———_

* Counsel of Record

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1450%3A1. Public record. Not legal advice.