Rehearing and Rehearing En Banc Denied January 21, 1993.
Opinion for the Court filed by Circuit Judge SILBERMAN.
SILBERMAN, Circuit Judge.
AT & T petitions for review of an order of the Federal Communications Commission that concluded an investigation into a complaint filed by AT & T in 1989. The complaint alleged that MCI had violated and was continuing to violate section 203 of the Communications Act, 47 U.S.C. § 203 (1988), by charging some customers rates that were not filed with the FCC. The Commission denied AT & T's complaint in part and dismissed it in part without determining whether MCI had violated the Act and ostensibly without addressing the validity of the Commission's Fourth Report and Order, 95 F.C.C.2d 554 (1983), on which MCI had relied to justify its actions. The FCC said that it would postpone reconsideration of the validity of the Report to a rulemaking that it announced at the same time it denied AT & T relief. We hold that it was arbitrary and capricious for the agency to dismiss AT & T's complaint for immediate relief without deciding the question of law it presented. Moreover, we think that in dismissing the complaint the FCC necessarily, if implicitly, assumed the validity of the Fourth Report as a substantive rule. And under our precedent the rule is plainly contrary to section 203. We remand to the Commission for it to reconsider the appropriate relief it should grant AT & T.
Section 203(a) of the Communications Act, 47 U.S.C. § 203(a) (1988), requires that every communications common carrier file its rates with the FCC.
The Commission, however, went beyond mere forbearance in 1985 in its Sixth Report and Order, 99 F.C.C.2d 1020 (1985), by making detariffing mandatory and by telling non-dominant carriers that it would
The Commission, in subsequent litigation, did not help to clarify the nature of the Fourth Report. In 1985 the FCC argued that the Fourth Report could be "fairly characterized" as an exercise of the agency's enforcement discretion and that it was thus immune from review. Respondent's Brief at 27, MCI Telecommunications Corp. v. FCC, 799 F.2d 773 (D.C.Cir. 1984) (Memorandum Order). In the same brief, however, the Commission referred to the Second and Fourth Reports as rules designed to "exempt" some carriers from the filing requirements of the Act. Id. at 29.
In August 1989, with the FCC's characterization of the Fourth Report apparently still uncertain, AT & T filed a complaint against MCI under section 208 of the Communications Act. Section 208 allows any person injured by a violation of the Act to file a complaint with the Commission, see 47 U.S.C. § 208(a) (1988),
MCI, in response, did not deny AT & T's factual allegations. It relied on the Fourth Report. According to MCI, the Fourth Report was a substantive rule that removed the nondominant carriers' obligation to file all of their rates under section 203(a). AT & T contended, in accordance with our tentative understanding, that the Fourth Report had been merely a statement of the FCC's enforcement policy and therefore MCI still had an independent obligation imposed by statute to file all of its rates. If the Fourth Report were a substantive rule that purported to remove obligations imposed by the statute, AT & T
Despite section 208's requirement that the Commission issue an order concluding its investigation into a complaint within 12 months, see 47 U.S.C. § 208(b)(1), AT & T's complaint went unresolved for a good deal longer. The FCC first determined that the complaint raised a broad issue of policy and should be transferred to its policy division. Thereafter, a decision on the complaint was further postponed pending the conclusion of the Commission's rulemaking on Competition in the Interstate Interexchange Marketplace. See Report and Order, 6 F.C.C.Rcd. 5880 (1991). Finally, in October 1991, 25 months after the complaint had been filed, AT & T petitioned this court for a writ of mandamus ordering the Commission to issue a cease and desist order against MCI. We dismissed the petition in January 1992 when the FCC announced that it would issue an order concluding its investigation by January 30, 1992.
On January 28, 1992, the FCC concluded its inquiry but nevertheless declined to decide forthrightly the issue before it. See AT & T Communications v. MCI Telecommunications Corp., 7 F.C.C.Rcd. 807 (1992). Although the Commission, dispelling prior confusion, determined conclusively that the Fourth Report and Order was a substantive rule upon which MCI had properly relied, see id. at 809, it purported not to consider whether the Fourth Report, so interpreted, was valid under the Communications Act. Instead, the Commission said the Fourth Report's "validity" would be better considered in a rulemaking that would afford all interested parties an opportunity to comment. Id. And the Commission announced such a rulemaking on the same day it issued the order concluding the investigation. See Tariff Filing Requirements for Interstate Common Carriers, Notice of Proposed Rulemaking, 7 F.C.C.Rcd. 804 (1992). The Commission thus asserts that it dismissed AT & T's claim for a cease and desist order without ever determining whether MCI was violating the Communications Act. Nevertheless, the Commission rejected AT & T's claim for damages because it determined that MCI was entitled to rely on the Fourth Report as a substantive rule that removed MCI's obligation to file all its rates. AT & T Communications v. MCI Telecommunications Corp., 7 F.C.C.Rcd. at 809. The FCC reasoned that even if the rule were declared invalid under the Communications Act, the consequence of that invalidity (whatever it may be) should not apply retroactively to MCI's past conduct. Id.
It is rather apparent that, because the Commission fears the Fourth Report cannot withstand judicial scrutiny (at least in our court), it wants to avoid judicial review of the rule. This will allow the Fourth Report to continue to govern the conduct of carriers for as long as possible. The Commission relies on SEC v. Chenery Corp., 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947), for the general proposition that "the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency." Id. at 203, 67 S.Ct. at 1580 (citation omitted). This maxim of administrative law permits an agency to develop a body of regulatory law and policy either through case-by-case decisionmaking (a quasi-adjudicative process) or through rulemaking (a quasi-legislative process). The Commission claims that it merely exercised a choice between these methods by dismissing AT & T's complaint without ruling on the merits,
The agency's responsibilities as an adjudicator are especially clear under the Communications Act. Sections 206-208 of the Act give AT & T the right to press a claim for damages suffered due to violation of the Act either in federal court or before the Commission. See 47 U.S.C. §§ 206-208. The statute thus expressly sets up the Commission as an adjudicator of private rights.
Agencies do have a fundamental choice whether to interpret and apply federal statutes through adjudication or through rulemaking. But they cannot avoid their responsibilities in an adjudication properly before them by looking to a rulemaking, which operates only prospectively. See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S.Ct. 468, 471, 102 L.Ed.2d 493 (1988). The choice an agency has between different methods of "making law" is simply irrelevant when the agency is called upon as an adjudicator to apply existing law to a complaint. Here, as in Meredith, the Commission "confuses its quasi-judicial role with its quasi-legislative one." Meredith, 809 F.2d at 873.
The Commission claims that a two-party adjudication would not have been suitable to consider the validity of the Fourth Report because so many carriers in the industry have an interest in the question. We do not think the FCC had any alternative but to confront the issue. However, it easily could have solicited the views of other carriers. The FCC was quite free to invite them to intervene or file briefs as non-parties. See General Amer. Transp. Corp. v. ICC, 883 F.2d 1029, 1030 (D.C.Cir. 1989) (Silberman, J., concurring in denial of rehearing). Indeed, nothing stopped the FCC from initiating a companion rulemaking when AT & T filed its complaint — as long as the Commission concluded its inquiry into AT & T's complaint within the 12 to 15 month period required by section 208 of the Act. Nor are we impressed with the FCC's argument that section 208 authorized the Commission's action by giving the agency authority to investigate complaints "in such manner and by such means as it shall deem proper." 47 U.S.C. § 208(a). A future rulemaking that will consider modifying the Fourth Report is in no sense an investigation of AT & T's complaint. It could not possibly be, because a rulemaking can affect the conduct of parties only prospectively; it does not determine the legality of past conduct. AT & T, it must be understood, challenged MCI's past and present actions. A cease and desist order,
The Commission's more interesting argument is that it could not "consider" AT & T's challenge to the legality of the Fourth Report because it could not disregard its own rule in an adjudication. See American Fed'n of Gov't Employees v. FLRA, 777 F.2d 751 (D.C.Cir.1985). We have never held, however, that an agency is obliged to apply a rule in an adjudicatory context if intervening events indicate that the rule is unlawful. Our opinion in Meredith points in the other direction. There we concluded that the FCC was obliged to entertain petitioner's claim that the FCC's Fairness Doctrine was unconstitutional, whether or not the FCC changed its policy in a new rulemaking. See Meredith, 809 F.2d at 873-74. Similarly, then Judge Scalia, concurring in American Federation of Government Employees, recognized that in some situations, when an agency declines to apply its own rule in an adjudication "we would be justified [on appeal] in looking beyond the defect of inconsistency, to affirm an adjudication on the ground that its result was mandated by statute and that the conflicting rule was simply unlawful." American Fed'n of Gov't Employees, 777 F.2d at 760 (Scalia, J., concurring). Judge Scalia's concern for situations only dimly perceived in that case seems very much on the mark, for otherwise an agency would be required to apply a rule in an adjudication until it had revoked the rule in a new rulemaking, even if the Supreme Court had invalidated the interpretation upon which the rule was based.
In any event, the Commission's stated concern seems to us to be a red herring. If the agency believed its rule was invalid and did not want to so hold in an adjudication, as we mentioned above, it immediately could have started a companion rulemaking to repeal the rule. The agency's own lawyers could have determined the rule was inconsistent with the statute and a Notice of Proposed Rulemaking would then have so stated.
Typically, of course, when an agency's rule is challenged in an adjudication as inconsistent with the agency's authorizing statute, the agency rejects the challenge on the merits and the supposed concerns the FCC expresses here are never voiced. The agency applies its rule because it believes the rule is lawful, and the agency is prepared to stand by it forthrightly in a subsequent appeal. The FCC's unusual position here is plainly engendered by a desire to keep the rule in effect as long as possible despite serious doubts that the rule could not withstand judicial review. The Commission thought to achieve this goal by dismissing the complaint, thereby maintaining the legal regime created by the rule. Yet, it sought to do so without squarely relying on the rule to justify the dismissal. In that way, the Commission hoped to avoid judicial review. We have little difficulty in concluding that it was arbitrary and capricious for the Commission to dismiss AT & T's complaint with only a promise to address the legal issue it raised in a future rulemaking. To the extent that the Commission thought it had discretion to postpone decision to a rulemaking, it misunderstood its role as an adjudicator.
The Commission, not surprisingly in light of its obvious strategy, insists that even if we conclude, as we do, that the agency's dismissal of AT & T's complaint violated the law, we should not reach the validity of the Fourth Report. According to the Commission, the order below did not apply the Fourth Report or consider its validity and, indeed, did not even determine the lawfulness of MCI's conduct. Thus, we are told we must remand the case to the agency, so that the Commission can determine the validity of the rule in the adjudication.
Still, we need not rely on these factors to conclude that the Fourth Report is properly before us. It is well established that a rule may be reviewed when it is applied in an adjudication — an agency need not explicitly reassess the validity of a rule to subject the rule to challenge on review. See NLRB Union v. FLRA, 834 F.2d 191, 195 (D.C.Cir.1987); Functional Music, Inc. v. FCC, 274 F.2d 543, 546 (D.C.Cir.1958), cert. denied, 361 U.S. 813, 80 S.Ct. 50, 4 L.Ed.2d 60 (1959).
The Report, and the Commission's desire to protect it, clearly provided the underlying rationale for the order under review. The Commission explicitly justified its decision to dismiss on the grounds that the complaint challenged "the Commission's previously adopted and effective forbearance rule." AT & T Communications v. MCI Telecommunications Corp., 7 F.C.C.Rcd. 807, 809 (1992). And, in denying AT & T retrospective relief, the Commission relied on its conclusion that the Fourth Report was a substantive rule that removed the obligation of carriers to file tariffs. Id. The FCC's only reason for clarifying its view of the Report was to provide MCI and other carriers with a regulatory sanction for their behavior. As the Commission concluded: "It would be manifestly unfair to entertain AT & T's claim that MCI's alleged past conduct, which the Commission explicitly approved in advance, may give rise to a finding of liability." Id. (emphasis added).
Whatever tortured language the Commission used to describe its actions,
Finally, we see no need to remand to obtain an agency interpretation of the statute.
It is unnecessary to consider any more whether the Fourth Report is merely an enforcement policy. The Commission has determined unequivocally that it is a substantive rule
In MCI Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C.Cir.1985), as noted above, we concluded that section 203(b) could not be interpreted to permit the Commission's attempt to require nondominant carriers to stop filing tariffs under section 203(a). We struck down the mandatory detariffing rule contained in the Commission's Sixth Report and Order. See MCI, 765 F.2d at 1195-96. To be sure, we explicitly reserved holding on the permissive detariffing scheme of the Fourth Report, but only because we believed the Report "arguably immune from judicial review" as a
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We understand fully why the Commission wants the flexibility to apply the tariff provisions of the Communications Act to AT & T, which the Commission regards as the dominant carrier, differently from the way it applies the tariff provision to other competing carriers. We do not quarrel with the Commission's policy objectives. But the statute, as we have interpreted it, is not open to the Commission's construction. The Commission will have to obtain congressional sanction for its desired policy course.
There remains AT & T's claim for damages. The Commission, as part of its strategy to avoid judicial review of the Fourth Report, disposed of this claim by concluding that, assuming, arguendo, the Fourth Report was contrary to law, AT & T would still not be entitled to damages because any such determination of law should not be applied "retroactively." In other words, MCI was entitled to rely on the Commission's interpretation of the statute embodied in the Fourth Report. The Commission applied the five factor test we have used to determine whether new law developed by an agency in adjudication should be applied retroactively, see Retail, Wholesale & Dep't Store Union v. NLRB, 466 F.2d 380, 390 (D.C.Cir.1972); see also Clark-Cowlitz Joint Operating Agency v. FERC, 826 F.2d 1074, 1081 (D.C.Cir.1987), cert. denied, 485 U.S. 913, 108 S.Ct. 1088, 99 L.Ed.2d 247 (1988), and decided the answer to the hypothetical question in this case was no. AT & T claims that, in light of our MCI decision, an explicit Commission recognition that its Fourth Report is ultra vires is no real change in the law.
We do not think it appropriate to resolve this dispute and apply the five factor test
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We remand the case to the Commission, having vacated the Fourth Report as contrary to the Communications Act, with instructions to reconsider AT & T's claim for relief. It would appear that AT & T is entitled promptly to a cease and desist order against MCI. We do not direct the Commission to provide specific relief, however, partly out of a reluctance to direct an agency as to the exact remedy to be employed and partly because of our expectation that the practices sanctioned by the Fourth Report will cease since carriers who do not file tariffs will be subject to damage suits in our district court. The Commission will also have to reconsider AT & T's damages claim. If the Commission continues to believe that retroactivity is an obstacle to recovery of damages, it must explain what it understands to be the applicable law and why that law constitutes a change that implicates retroactivity concerns.
It is so ordered.
47 U.S.C. § 203(b)(2) states:
47 U.S.C. § 206 states:
As AT & T points out, our opinion in MCI is somewhat buttressed by the more recent Supreme Court case, Maislin Industries, U.S. v. Primary Steel, Inc., 497 U.S. 116, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990). There, the Court rejected the ICC's "deregulatory" interpretation of the quite similar rate-filing provisions of the Interstate Commerce Act, 49 U.S.C. §§ 10761-10762 (1988), which share a common ancestor with the Communications Act, the original Interstate Commerce Act. Due to this shared lineage, an interpretation of one of the modern statutes is often thought instructive in judicial construction of the other. See MCI Telecommunications Corp. v. FCC, 917 F.2d 30, 38 (D.C.Cir.1990); American Broadcasting Cos. v. FCC, 643 F.2d 818, 820-21 (D.C.Cir.1980); AT & T v. FCC, 487 F.2d at 873-74. In Maislin, a carrier had negotiated a rate with a shipper that was below the carrier's filed rate. When the carrier tried to collect the filed rate rather than the negotiated rate, the ICC, under its Negotiated Rate Policy, rejected the carrier's claim. The Supreme Court, however, disapproved the ICC's interpretation of the Act. "[B]y sanctioning adherence to unfiled rates," the Court said, the ICC had "undermine[d] the basic structure of the Act." Maislin, 497 U.S. at 132, 110 S.Ct. at 2769. The Court concluded that compliance with the filing requirements was "`utterly central' to the administration of the Act," id. (quoting Regular Common Carrier Conference v. United States, 793 F.2d 376, 379 (D.C.Cir.1986)) and that the obligation to charge only filed rates had "always been considered essential to preventing price discrimination," id. at 126, 110 S.Ct. at 2761. Despite the harsh result for a shipper who had negotiated a lower rate, the Court thought the ICC must adhere to the "filed rate doctrine" that requires carriers to charge, and shippers to pay, only the rate filed with the ICC.