D.C. Circuit Judges Appear to Defend FCC Action on Payphone Dispute

NetworkIP is challenging three FCC orders related to a compensation dispute between the carrier and payphone service providers. NetworkIP collaborated with debit card providers to complete coinless calls from payphones. When the payphone providers tried to collect payment for the calls, NetworkIP refused, saying it was the debit card providers that owed money. The FCC disagreed, finding NetworkIP liable because the carrier, unlike the debit card providers, is a facilities-based carrier with switching capabilities. NetworkIP also disputes a related waiver order allowing pay phone providers to collect damages for longer than they would have otherwise, and a damages order setting a 11.25 percent interest rate on the missed payments.

The FCC “ignored crucial facts in the record,” spun up legal reasoning “out of whole cloth,” and “punished unreasonably,” said NetworkIP counsel Michael Pryor. He said the case isn’t about whether the FCC reasonably interpreted the rules, but whether its decisions were fair. FCC attorney Nandan Joshi disagreed, saying that the case is about deference, and that the FCC correctly interpreted its rules.

The debit card providers are facilities-based providers liable for payment, NetworkIP’s Pryor said, citing the providers’ capacity to track call usage as an example of switching capability. The FCC’s Joshi disagreed. The debit card providers aren’t facilities-based, and the FCC never has defined tracking as a switching capability, he said. NetworkIP could have used its contracts with the debit card providers to force them to pay, but NetworkIP is “on the hook” otherwise, he said. The providers had other switching items, but the FCC ignored them in weighing the case, Pryor said in his rebuttal.

Judge Brett Kavanaugh seemed critical of NetworkIP’s position, several times asking Pryor why he didn’t believe the FCC rationally interpreted the definition of a facilities-based carrier with switching capabilities. The FCC reading “seems to be reasonable,” he said. Judge David Sentelle joined in, asking Pryor what kind of carrier, by NetworkIP’s definition, wouldn’t be deemed facilities-based. NetworkIP reads the rule as meaning only that a pure reseller would not be facilities-based, Pryor said. The debit card providers used NetworkIP’s facilities, so Network assumed they were liable, he said.

The FCC improperly waived the statute of limitations when it accepted a late-filed formal complaint by APCC, an agent for payphone providers, Pryor said. Under the statute, the damages window opens two years before a complaint is filed. But a complaint is deemed “abandoned” if the complainant doesn’t file again within six months of the defendant’s response. APCC formally complained to the FCC six months and 15 days after NetworkIP’s response, resetting the two-year statute of limitations. By accepting the late complaint, the FCC tripled the damages period for the case, Pryor said. The FCC allowed APCC to file late because its error was small, Joshi said. APCC had filed on time, but was $5 short on the filing fee and sent one check instead of two. APCC should have known the rules, and also could have filed earlier as a cushion for potential errors in filing, Pryor said. The FCC’s waiver power should be brought to bear only when circumstances are tantamount to “widespread calamity,” he said.

Again, Kavanaugh appeared to side with the FCC. It could be that the FCC decided, reasonably, that the “magnitude of the mistake … did not warrant the consequences,” he said. APCC shouldn’t be condemned for filing its initial, flawed complaint so close to the deadline, he said. Generally, people file documents near the due date, he said: “That’s what deadlines do.”

The FCC erred when it set an 11.25 percent interest rate on the damages, Pryor said. The IRS interest rate, which varies but which at the time was about half what the FCC set, should have applied, he said. The FCC assessment was “arbitrary and capricious” and unfair to the independent payphone carriers involved, he said. The 11.25 percent rate is outmoded, calculated decades ago for the largest phone companies, he said. The 11.25 percent figure is based on precedent that never has been reversed, Joshi said. He didn’t know when the FCC calculated it, he said, but if NetworkIP or another interested party believes the rate unreasonably high, it should petition the FCC, not the court.