Supreme Court Backs Sprint, Saying Federal Courts Should Hear Telecom Act Disputes

The decision is a jurisdictional victory for Sprint, which sought a federal ruling on whether certain VoIP calls are subject to intrastate regulation, or whether the Telecom Act trumps state decisions on what fees should be paid. The ruling “is of great benefit in vigorously safeguarding the option of federal court review for the resolution of complex telecommunications issues that impact multiple carriers, parties and jurisdictions,” said a Sprint spokesman by email.

The case stems from a 2009 dispute between Sprint and Windstream. Sprint had been paying intercarrier compensation fees to Windstream for long-distance calls from Sprint customers to Windstream’s in-state customers. After concluding the Telecom Act preempts intrastate regulation of VoIP traffic, Sprint withheld payment for calls that started as VoIP but terminated on the public switched telephone network. Windstream threatened to block all calls to and from Sprint customers. The two telcos worked it out, and payments started flowing, but the Iowa Utilities Board became interested in the dispute, which the IUB thought was likely to come up again. The agency decided the intrastate fees apply to VoIP calls.

Sprint sued the IUB in federal court, seeking a ruling that the Telecom Act preempted the Iowa regulatory actions and the company didn’t have to pay VoIP access charges. The telco also sued in Iowa state court, arguing federal preemption and also making state law and procedural due process claims. The IUB asked the federal court to abstain because of the state suit, citing the Younger doctrine. Under that doctrine, federal courts generally refrain from acting where there’s a parallel state case. The federal court agreed the Younger abstention applies, and the 8th U.S. Circuit Court of Appeals upheld the decision.

The Supreme Court reversed Tuesday, ruling 9-0 that the federal courts should have resolved the issue rather than just deferring to the ongoing state proceeding. “The IUB proceeding does not resemble the state enforcement actions this Court has found appropriate for Younger abstention,” Ginsburg wrote. It’s not “akin to a criminal prosecution” -- the original context for Younger abstentions -- and it wasn’t initiated by “the State in its sovereign capacity,” she said.

The decision provides “additional guidance” on the question of when state agency actions are reviewable in federal court, in addition to being reviewable in state court, said Rob Hillesland, IUB information specialist. “It really only helps the parties to determine where a challenge to state agency action can be filed; it should have no effect on the merits of those challenges,” he told us by email. “It appears General Counsel staff of the Iowa Utilities Board may have to defend the Board’s decision on the merits twice, once in state court and once in federal court. It’s not the first time they've been in that position, so it should be workable.&rdquo

A state court ruled for the IUB in September, Hillesland said. Sprint filed a motion for reconsideration of that ruling, and the state court held a hearing on that motion last month. IUB attorneys are awaiting the state court’s decision, he said

"Regarding the substantive regulatory issue, the FCC resolved it on a going-forward basis in November 2011 with its ICC/USF order, so the impact of this case is limited to the past,” a Windstream spokesman told us. “Windstream remains confident of its position on the merits in both federal and state court.” Sprint’s spokesman said it welcomed the Supreme Court decision.

The high court ruling’s effect is that “when parties have a viable preemption claim, they will be able to get a federal hearing on that claim,” said telecom-litigation lawyer Marc Goldman of Jenner and Block, who wrote an amicus brief on behalf of several law professors supporting limitation of the Younger doctrine. It’s not a major change in the law, he said. If the case had come out the other way -- such that once a state administrative proceeding had begun, no one could raise a preemption challenge with respect to issues being evaluated in that proceeding -- “that would have been a major change,” said Goldman.

Some courts certainly “were applying Younger to forestall these kinds of cases,” although they hadn’t been doing that in a “huge number” of cases, Goldman said. “There was some uncertainty in the law created by dicta in some past Supreme Court cases that some lower courts had used to prevent parties from proceeding in federal court.” As a general matter, the case “ensures what most people have thought to be the law,” said Goldman. A ruling in the other direction “would have been a surprise."

The case was an “outlier” in federal appeals courts, said CTIA General Counsel Michael Altschul in an interview. The unanimous Supreme Court opinion “made clear what we had always thought was the case, which was that disputes involving claims about the Telecommunications Act are to be decided by federal court,” he said. The Younger doctrine -- an exception to the basic rule -- doesn’t apply in civil cases involving federal statutes, he said. “The case wasn’t exactly one-off, but it was an unusual case.”

The decision would be “significant” for Sprint, “which desires to have its federal law claims adjudicated in federal court,” wrote University of Texas law professor Linda Mullenix in an article published last month in the Preview of U.S. Supreme Court Cases (http://bit.ly/1iUb4dS). That’s an interest that applies to all corporations subject to federal regulations, she wrote. An IUB victory would have helped “preserve the domain of state law questions for all state proceedings, through an expansive embrace of Younger doctrine,” Mullenix said. The case also has “great cache for the academic community of federal court and constitutional law scholars,” she said.