Opinion
Civil No. 04-2981 (JRT/SRN).
June 29, 2004
Andrew G. McBride, WILEY REIN FIELDING, Washington, DC, and Jeffrey John Keyes, BRIGGS MORGAN; Minneapolis, MN, for plaintiffs Cellco Partnership, Verizon Wireless (VAW) LLC, Duluth MSA Limited Partnership.
Jeffrey John Keyes, BRIGGS MORGAN, Minneapolis, MN, for plaintiffs for plaintiffs Midwest Wireless Holdings L.L.C.; Midwest Wireless Communications L.L.C.; American Cellular Corporation; Rural Cellular Corporation.
Kenneth Schifman, Sprint Corporation, Overland Park, KS and Teresa J. Kimker, HALLELAND LEWIS NILAN SIPKINS JOHNSON, Minneapolis, MN, for plaintiffs Sprint Spectrum L.P. and WirelessCo, L.P.
Seamus C. Duffy, DRINKER BIDDLE REATH, Philadelphia, PA and Barbara P. Berens, KELLY BERENS, Minneapolis, MN, for plaintiff ATT Wireless Services of Minnesota, Inc.
Michael R. Drysdale, DORSEY WHITNEY-MINNEAPOLIS, Minneapolis, MN and Daniel B. Rapport, FRIEDMAN KAPLAN SEILER ADELMAN LLP, New York, NY, for plaintiffs VoiceStream Minneapolis, Inc. and T-Mobile USA, Inc.
Cassandra Opperman O'Hern and Brian Sande, MINNESOTA ATTORNEY GENERAL, St. Paul, MN, for defendant.
TEMPORARY RESTAINING ORDER
Plaintiffs, a group of national and regional wireless carriers, challenge Article 5 of H.F. No. 2151, Minn. Sess. L. CH. 261 ("Article 5"), which is scheduled to take effect on Wednesday, July 1, 2004. Plaintiffs seek an immediate injunction prohibiting the Attorney General from enforcing Article 5. The Court held a short telephone conference regarding plaintiffs' motion for preliminary injunctive relief on June 23, 2004, and heard more extensive oral argument on June 28, 2004. For the reasons set forth below, the Court grants the following temporary restraining order. During oral argument, the parties indicated that no additional briefing would be required for the Court's consideration of a preliminary injunction. The purpose of this Order, therefore, is to preserve the status quo until the Court can more fully consider the parties' positions. The Court considers the motions fully submitted and will issue an Opinion and Order on the preliminary injunction as soon as practicable.
Plaintiffs Cellco Partnership d/b/a Verizon Wireless; Verizon Wireless (VAW) LLC d/b/a Verizon Wireless; Duluth MSA Limited Partnership d/b/a Verizon Wireless filed the initial motion for a temporary restraining order. [Docket No. 4]. This motion was joined by plaintiffs Rural Cellular Corp., Midwest Wireless Holdings L.L.C., Midwest Wireless Communications L.L.C., and American Cellular Corp. [Docket No. 5]. Plaintiff Sprint Spectrum L.P. joined the motion [Docket No. 14]; as did ATT Wireless Services of Minnesota, Inc. [Docket No. 32], and plaintiff VoiceStream Minneapolis, Inc., and T-Mobile USA, Inc. [Docket No. 34].
BACKGROUND
The relevant portions of the challenged law provide:
Subd. 3. [PROVIDER-INITIATED CHANGE.] A provider must notify the customer in writing of any proposed substantive change in the contract between the provider and the customer 60 days before the change is proposed to take effect. The change only becomes effective if the customer opts in to the change by affirmatively accepting the change prior to the proposed effective date in writing or by oral authorization which is recorded by the provider and maintained for the duration of the contract period. If the customer does not affirmatively opt in to accept the proposed substantive change, then the original contract terms shall apply.
Subd. 4. [CUSTOMER-INITIATED CHANGE.] If the customer proposes to the provider any change in the terms of an existing contract, the provider must clearly disclose to the customer orally or electronically any substantive change to the existing contract terms that would result from the customer's proposed change. The customer's proposed change is only effective if the provider agrees to the proposed change and the customer agrees to any resulting changes in the contract. The provider must maintain recorded or electronic verification of the disclosure for the duration of the contract period.
"Substantive change" is defined in Subdivision 1 as
(d). "Substantive change" means a modification to, or addition or deletion of, a term or condition in a contract that could result in an increase in the charge to the customer under that contract or that could result in an extension of the term of that contract. "Substantive change" includes a modification in the provider's administration of an existing contract term or condition. A price increase that includes only the actual amount of any increase in taxes or fees, which the government requires the provider to impose upon the customer, is not a substantive change for the purposes of this section.
Also relevant to this case is Congress's regulation of telecommunications. In particular, plaintiffs argue that 47 U.S.C. § 332 preempts any state law that touches on rate-making.
47 U.S.C. § 332(c)(3)(A) provides that
no State or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service
The next clause of the statute has been termed a "savings clause" and provides:
except that this paragraph shall not prohibit a State from regulating the other terms and conditions of commercial mobile services.
ANALYSIS
The parties agree that the Dataphase factors control this motion. The following four factors are relevant to the Court's consideration of plaintiffs' request for a TRO/preliminary injunction: (1) that there is a likelihood of success on the merits; (2) that the movant will suffer irreparable harm absent the restraining order; (3) that the balance of harms favors the movant; and (4) that the public interest favors the movant. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).I. Likelihood of Success on the Merits
A. PreemptionThere is no dispute that 47 U.S.C. § 332(c)(3)(A) prevents states from regulating either the entry or the rates of wireless services. There is also no dispute, however, that the statute provides an exception to this rule by allowing states to regulate the "other terms and conditions" of commercial mobile services. 47 U.S.C. § 332(c)(3)(A). The plain language of the statute, subsequent case law, and legislative history establish that Congress did not intend to preempt all state law. Therefore, for plaintiffs to show a likelihood of success on this argument, they must demonstrate that "the broader and more familiar doctrine of ordinary preemption" applies. Smith v. GTE Corp., 236 F.3d 1292, 1313 (11th Cir. 2001) (citations omitted).
"[I]t is the intent of the Committee that the states still would be able to regulate the terms and conditions of these services. By `terms and conditions,' the Committee intends to include such matters as customer billing information and practices and billing disputes and other consumer protection matters; facilities citing issues (e.g., zoning); transfers of control. . . . This list is intended to be illustrative only and not meant to preclude other matters generally understood to fall under `terms and conditions.'" H.R. Rep. No. 103-111 103rd Con, 1st Sess. (1993), reprinted in 1993 U.S.C.C.A.N. 378, 588 (emphasis added).
Plaintiffs' overall success on the merits hinges on their ability to demonstrate that Article 5 amounts to a prohibited rate regulatory scheme. Although it is clear that Article 5 will increase plaintiffs' costs of doing business, that is not enough. "To equate state action that may increase the cost of doing business with rate regulation would . . . forbid nearly all forms of state regulation, a result at odds with the `other terms and conditions' portion of the [statute]." Cellular Telecommunications Indus. Ass'n v. F.C.C., 168 F.3d 1332, 1336 (D.C. Cir. 1999). At the same time, this statute is clearly aimed, in part, at rates. Specifically, the definition of "substantial change" which is integral to the statute's function is directed at "modification to, or addition or deletion of, a term or condition in a contract that could result in an increase in the charge to the customer under that contract." Article 5, Subd. 1(d) (emphasis added).
Article 5 is certainly closer to rate regulation than those cases, cited by both parties, in which a general regulatory statute or common law theory of recovery was deemed not preempted. See, e.g., Fedor v. Cingular Wireless Corp., 355 F.3d 1069, 1074 (7th Cir. 2004) (holding not preempted a putative class action alleging breach of contract, and characterizing the relief sought as "an accounting problem" the remedy for which would require the cell phone companies, at most to (1) adjust billing systems or (2) alter contracts to provide that roaming charges are billed separately — neither of which amounted to preempted rate regulation); In re Long Distance Telecommunications Litig., 831 F.2d 627 (6th Cir. 1987) (holding not preempted plaintiffs' state law claims that providers failed to inform customers of practices for charging for uncompleted calls); but see also Bastien v. ATT Wireless Serv., Inc., 205 F.3d 983, 987 (7th Cir. 2000) (plaintiff's claims, ostensibly for breach of contract, were preempted because the claims would have required ATT to exceed the FCC's requirements regarding towers, signals, and rates).
Article 5 is distinguishable from the cited cases because Article 5 is not a "generally applicable" consumer protection law. Instead, it is directed only at providers of cellular services. Compare Article 5 with Fedor, 355 F.3d at 1072-73 ("claims stemming from state contract or consumer fraud laws governing disclosure of rates or rate practices are not generally preempted") (citations omitted) and Cellular Telecommunications Indus., 168 F.3d at 1336 (discussing more general consumer protection laws). If Article 5 does not amount to rate regulation, it is very close. Plaintiffs have shown some likelihood of success on this claim, and therefore the Court considers this factor to be in favor of granting temporary injunctive relief.
Plaintiffs also claim that Article 5 conflicts with FCC regulations implementing certain federal programs. In particular, plaintiffs suggest that Article 5 conflicts with the FCC rules regarding the federal Universal Service Fund ("USF"). FCC regulations require wireless carriers to remit to the FCC monetary support for the USF, and the Code of Federal Regulations expressly authorizes wireless carriers to recoup USF fees by recovering them directly from customers. 47 C.F.R. § 54.712(a).
Despite this authorization, the plain language of Article 5 seems to prevent plaintiffs from continuing to recover the USF fees directly from customers. Article 5 exempts from its notice and opt-in policy only those fees that are required by the federal government to be collected. Providers are authorized, but not required, to pass USF and other similar fees, such as those for enhanced 911 services, through to their consumers. Because the plain language of the statute appears to conflict with federal policy, the plaintiffs have shown an initial likelihood of success on the merits of this portion of their challenge to the statute.
Because the Court finds that plaintiffs have shown an initial likelihood of success on at least a portion of their preemption argument, the Court will not address plaintiffs' alternate grounds for challenging the statute. Instead, the Court turns to the remaining Dataphase factors.
II. Irreparable Harm
Plaintiffs claim that they face irreparable harm in the form of lost customer goodwill, the inability to recover increases in federal program contributions, and the unrecoverable expenditures that plaintiffs will be forced to make in an effort to comply with this law by July 1, 2004. Plaintiffs also claim that it will be impossible to effectively train all of its customer service representatives or to put into place adequate methods of preserving records, prior to Article 5's effective date. Plaintiffs further emphasize that they compete directly with wire telephony services, and Article 5 puts them at a competitive disadvantage to traditional wire service providers.
The Court is persuaded that plaintiffs have established a showing of irreparable harm, should Article 5 take effect July 1, 2004.
III. Public Interest and Balance of Harms
Conflicting public interests are implicated in this matter. Defendant notes that the judicial branch cannot lightly dispute a determination by the political branches that the interests at stake are compelling. ( Def. Brief at 4 (quoting Finzer v. Barry, 798 F.2d 1450, 1459-60) (D.C. Cir. 1986))). Defendant further articulates Minnesota's obvious interest in protecting its consumers from unilateral changes to its contracts. The Court has reviewed summaries by employees of the Attorney General's office detailing legitimate complaints by Minnesota cell phone customers. On the other hand, the Court must also consider the strong public interest in deferring to the will of Congress, including Congress's goal of preventing states from regulating rates, and Congress's goal of allowing market forces to shape the wireless industry.
Despite these interests, plaintiffs have established that these factors favor the issuance of temporary, limited relief. Plaintiffs have demonstrated that they face significant expense, which could be for naught if the law is modified or found unenforceable. In contrast, the potential "harm" to consumers is mitigated substantially by the application of Minnesota's generally applicable consumer protection and contract laws. The Attorney General characterizes Article 5 as an unremarkable notice statute that simply codifies consumers' rights to have their contract terms respected. In essence, the Attorney General suggests that Article 5 merely requires cellular service providers to notify consumers of potential contract modifications, and obtain (and record and maintain) the customers' consent to that change. If this is an accurate interpretation of Article 5, there will be little harm to consumers if the implementation is delayed a short time, because Minnesota consumers will be able to protect their contractual rights via standard contract and consumer protection laws.
In the Court's view, the question of whether Article 5 constitutes impermissible rate regulation or whether it simply codifies consumers' rights to a balanced and fair contract is a very close issue. The parties and the people of Minnesota will benefit from the Court having sufficient time to carefully review this close question. So for the express purpose of preserving the status quo as much as possible and minimizing the possibility of irreparable harm until the Court has had an opportunity to rule on plaintiffs' motion for injunctive relief, the Court issues the following order.
ORDER
Based upon all of the files, records, and proceedings herein, and upon the argument of counsel, IT IS HEREBY ORDERED that:
1. Plaintiffs' motion for a temporary restraining order [Docket Nos. 4, 5, 14, 32, 34] is GRANTED IN PART.
2. Until further order of this Court granting or refusing a preliminary injunction or dissolving this Temporary Restraining Order, a Temporary Restraining Order is hereby entered preventing the defendant and any officers or employees of the State of Minnesota from taking action to enforce or attempt to enforce any provision of Article 5 of H.F. No. 2151.
3. In accordance with Rule 65(c) of the Federal Rules of Civil Procedure, plaintiffs shall post a bond with the Clerk in the amount of $50,000.00 for the payment of such costs and damages as may be incurred or suffered by defendant in the event defendants are found to have been wrongfully enjoined or restrained.