METROPCS CALIFORNIA, LLC, Plaintiff-Appellee, v. MICHAEL PICKER; MARTHA GUZMAN ACEVES; CARLA PETERMAN; LIANE RANDOLPH; CLIFFORD RECHTSCHAFFEN, Defendants-Appellants.
No. 18-17382
United States Court of Appeals for the Ninth Circuit
Filed August 14, 2020
D.C. No. 3:17-cv-05959-SI
Before: Richard A. Paez, Carlos T. Bea, and Michelle T. Friedland, Circuit Judges.
FOR PUBLICATION
OPINION
Appeal from the United States District Court for the Northern District of California
Susan Illston, District Judge, Presiding
Argued and Submitted February 5, 2020
San Francisco, California
Opinion by Judge Friedland
SUMMARY*
Telecommunications
Reversing the district court‘s summary judgment and remanding, the panel held that federal law did not facially preempt California law governing universal service contributions from prepaid wireless providers.
The panel explained that federal law requires telecommunications providers to contribute to the federal Universal Service Fund from revenues the providers derive from their customers’ interstate telecommunications. The Federal Communications Commission has authorized three methods that wireless providers can use to distinguish between interstate and intrastate revenues. Federal law also permits states to require telecommunications providers to contribute to state universal service programs based on the providers’ intrastate revenues. California requires its own universal service contributions. In 2014, California adopted the Prepaid Mobile Telephony Services Surcharge Collection Act, which governed the collection of surcharges from prepaid wireless customers. The California Public Utilities Commission issuеd resolutions implementing the Prepaid Act that required providers of prepaid services to use a method other than the three FCC-recognized methods to determine the revenues generated by intrastate traffic that were subject to surcharge. The district court held that the CPUC resolutions were facially preempted by federal law, and the CPUC appealed.
As a threshold matter, the panel held that the expiration of the Prepaid Act while this appeal was pending did not cause this case to become moot. Plaintiff MetroPCS, a prepaid wireless provider, sought declaratory and injunctive relief on its claim that federal law preempts the CPUC‘s resolutions that required that prepaid providers use a uniform intrastate allocation factor, and not their chosen FCC-recognized method, to determine intrastate revenues subject to surcharge. The panel held that the case was not moot because MetroPCS had not complied with the CPUC‘s 2017 and 2018 Resolutions, and the CPUC still plans to enforce them.
On the merits of the preemption claim, the panel held that the CPUC resolutions were not facially preempted by the Telecommunications Act and related FCC decisions. The panel concludеd that preemption was disfavored because there was a dual federal-state regulatory scheme and a history of state regulation in the area of intrastate telecommunications. The panel rejected MetroPCS‘s theories in support of its claim that the CPUC resolutions were facially preempted: (1) that the resolutions conflicted with the requirement of competitive neutrality by depriving prepaid providers (but not their competitors) of the “right” to calculate intrastate revenues in a way that avoided assessing the same revenues as federal contribution requirements; or (2) that because prepaid providers were deprived of that “right,” the resolutions were preempted regardless of the treatment of competing providers. The panel reversed the district court‘s summary judgment and remanded to the district court to consider in the first instance MetroPCS‘s other challenges to the resolutions, including MetroPCS‘s as-applied preemption challenge.
COUNSEL
Enrique Gallardo (argued), Arocles Aguilar, and Helen M. Mickiewicz, California Public Utilities Commission, San Francisco, California, for Defendants-Appellants.
Peter Karanjia (argued) and Joy G. Kim, DLA Piper LLP (US), Washington, D.C.; Martin L. Fineman and Geoffrey S. Brounell, Davis Wright Tremainе LLP, San Francisco, California; for Plaintiff-Appellee.
Niyati Shah, Asian Americans Advancing Justice | AAJC, Washington, D.C.; Jeffrey S. Raskin and Pejman Moshfegh, Morgan Lewis & Bockius LLP, San Francisco, California; for Amici Curiae Asian Americans Advancing Justice | AAJC, and Multicultural Media, Telecom and Internet Council.
FRIEDLAND, Circuit Judge:
MetroPCS California, LLC (“MetroPCS“), a wholly owned subsidiary of T-Mobile USA, Inc. (“T-Mobile“), sells prepaid cell phone plans in California and other states. Like other telecommunications providers, MetroPCS remits a portion of its revenue to federal and state governments to fund universal service programs. This appeal raises the question whether federal law preempts California law governing universal service contributions from MetroPCS and other prepaid wireless providers.
Federal law requires telecommunications providers, including wireless providers such as MetroPCS, to contribute to the federal Universal Service Fund, which helps provide affordable telecommunications access. These contribution requirements are imposed on revenues the providers derive from their customers’ interstate telecommunications. See
California requires its own universal service contributions. It imposes surcharges on consumers’ use of intrastate telecommunications services and relies on providers to collect those surcharges from their customers. In 2014, California adopted the
MetroPCS filed this lawsuit alleging that the CPUC resolutions were preempted by federal law. Among other things, MetroPCS contended that the resolutions’ requirement of an intrastate allocation factor increased surcharges on prepaid services—but not on competing postpaid services—and thereby placed MetroPCS at a disadvantage in the wireless telecommunications market, in conflict with the federal Telecommunications Act of 1996 (“Telecommunications Act“) and FCC decisions implementing it. The district court ruled for MetroPCS, and the CPUC appealed. While this appeal was pending, the Prepaid Act expired.
As a threshold matter, we hold that the expiration of the Prepaid Act did not cause this case to become moot and that we therefore have jurisdiction to reach the merits of MetroPCS‘s preemption claim. With respect to that claim, we hold that the CPUC resolutions are not facially preempted by the Telecommunications Act and related FCC decisions, and we therefore reverse the district court‘s ruling in favor of MetroPCS. We remand to the district court to considеr in the first instance MetroPCS‘s other challenges to the resolutions.
I.
A.
The universal availability of critical telecommunications services is “a fundamental goal of federal telecommunications regulation.” Rural Cellular Ass‘n v. FCC, 588 F.3d 1095, 1098 (D.C. Cir. 2009). From its inception, the FCC has been charged with “making available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide . . . communication service with adequate facilities at reasonable charges.”
The Telecommunications Act solidified the commitment by the FCC and states to “ensuring the preservation and advancement of universal service.” Id. at 24747–48; see also
The FCC has exercised its authority to establish guiding principles “for the preservation and advancement of universal service,”
B.
To implement the Telecommunications Act‘s dual regulatory scheme, the FCC funds federal universal service programs by imposing a contribution requirement on the portion of telecommunications providers’ revenues that is generated by interstate traffic, while states such as California support their own universal service programs through surcharges on the portion of revenues generated by intrastate traffic.1
The federal Universal Service Fund supports, among other things, the extension of high-speed internet to rural areas and the provision of discounted phone services to low-income consumers. See Universal Service, FCC, https://www.fcc.gov/general/universal-service (last visited Aug. 4, 2020). Telecommunications providers’ contributions to the Universal Service Fund “are calculated by applying a quarterly ‘contribution factor’ to the portion of their surchargeable2 telecommunications revenues that is interstate. See Rural Cellular Ass‘n, 588 F.3d at 1099.
“For companies connecting landline customers, determining the percentage of interstate . . . calls is relatively simple.” Vonage Holdings Corp. v. FCC, 489 F.3d 1232, 1236-37 (D.C. Cir. 2007). But for providers of wireless and interconnected Voice over Internet Protocol (“VoIP“) services3—“whose customers may use their services from many locations and often have area codes that do not correspond to
First, if wirеless and interconnected VoIP providers have “actual revenue data” showing the portion derived from interstate telecommunications, they may rely on that data. In re Universal Service Contribution Methodology, 21 FCC Rcd. 7518, 7535, 7544 (2006) (“2006 Universal Service Order“). Second, providers may conduct a traffic study in which they take a sample of traffic on their network to estimate the percentage of all traffic that is interstate. See id. Finally, providers may rely on the FCC‘s “safe harbor,” a percentage that is intended to “reasonably approximate the percentage of interstate . . . telecommunications revenues.” See In re Federal-State Joint Board on Universal Service, 13 FCC Rcd. 21252, 21252, 21253 (1998); see also 2006 Universal Service Order, 21 FCC Rcd. at 7532, 7544. Under the wireless safe harbor of 37.1% that has been in effect since 2006, for instance, a wireless provider can report that 37.1% of its surchargeable revenue is interstate without looking at an actual breakdown of its revenue or using a traffic study to approximate the breakdown. See 2006 Universal Service Order, 21 FCC Rcd. at 7532–33.
Although federal universal service contributions are imposed on telecommunications providers, it is common for providers to recover the amounts of their contributions from their customers, typically by putting a line item on monthly bills. See Vt. Pub. Serv. Bd. v. FCC, 661 F.3d 54, 57 (D.C. Cir. 2011). As a result, “nearly every purchaser of telephone services in America helps support the [federal Universal Service Fund].” Id.
In California, the CPUC similarly imposes universal service surcharges on consumers’ use of intrastate telecommunications services, which are collected by providers and then remitted to the state. The CPUC uses these funds to provide, among other things, telecommunications devices to people with hearing loss and discounted telecommunications services to schools, libraries, hospitals, and other nonprofits.
For years, the CPUC did not mandate any particular methodology for wireless and VoIP providers to determine their intrastate revenues. Those providers could therefore use the three options recognized by the FCC—actual revenue, a traffic study, or the inverse of the FCC safe harbor.4
C.
In 2014, California adopted the Prepaid Act, which addressed the collection of surcharges from consumers of prepaid wireless services. See
Although postpaid providers can recover surcharges on intrastate traffic by placing charges on customers’ monthly bills, prepaid service does not involve a monthly billing process. Prior to 2014, prepaid providers “essentially built” surcharges “into the purchase price” of prepaid services, and then remitted surcharges from their overall profits. Against this backdrop, the Prepaid Act was intended to “ensure equitable contributions from end-use consumers of postpaid and prepaid mobile telephony services in [California]” by “standardizing . . . the method used to collect communications taxes, fees, and surcharges from end-use consumers of prepaid mobile telephony services.”
Under the Prepaid Act, a single surcharge rate, which included a component funding state universal service programs, had to be “imposed on each prepaid consumer.” See
The CPUC issued a series of resolutions implementing the Prepaid Act. The first resolution (the “2016 Resolution“) set a surcharge rate of 8.51%, which it stated applied only to “intrastate revenues subject to surcharge.” But the 2016 Resolution did not specify how that amount of intrastate revenue was to be determined. In particular, nothing in the 2016 Resolution prevented prepaid providers from using any of the three FCC-recognized methods to do so. To take a hypothetical (and simplified) example of how the 2016 Resolution worked: suppose a provider selling a $40 voice-only prepaid plan had decided to use the traffic study method, and that its study showed that 60% of its traffic was intrastate. The provider would have applied the 8.51% surcharge to the portion of the sales price representing intrastate revenue ($24, or 60% of $40), producing a surcharge amount of $2.04 (8.51% of $24).
The CPUC changed course in its next resolution (the “2017 Resolution“). The CPUC explained that, on further study, it had determined that the 2016 Resolution did not comply with the Prepaid Act. The CPUC now believed that the Prеpaid Act required that the surcharge rate “be applied to the total sales price” of prepaid services instead of only to “the intrastate portion” of the sales price.
Although the 2017 Resolution required applying that adjusted surcharge rate to the entire sales price, it achieved the same mathematical result as applying the unadjusted surcharge rate to the intrastate portion of the sales price, as determined by applying the CPUC‘s intrastate allocation factor. To illustrate using a hypothetical $40 plan, applying the adjusted surcharge rate of 5.15% to the entire price of that plan would have produced a surcharge of $2.06. The same surcharge amount would result from using the 72.75% intrastate allocation factor to determine that $29.10 of that $40 plan was intrastate revenue, and then applying the unadjusted surcharge rate of 7.0854% only to that revenue.
This aspect of the 2017 Resolution—the requirement that providers use the 72.75% intrastate allocation factor to determine intrastate revenue subject to surcharge—was challenged by MetroPCS and T-Mobile. Their application to modify the 2017 Resolution argued that they and other direct sellers should be allowed to rely on the FCC methods to determine intrastate revenue, rather than being required to use the intrastate allocation factor to do so. The CPUC denied the application and issued a resolution affirming the 2017 Resolution.
The next CPUC resolution (the “2018 Resolution“) took the same approach as the 2017 Resolution, but with updated rates. As relevant here, it adopted a new intrastate allocation factor of 69.45% for determining prepaid intrastate revenue subject to surcharge.
In contrast to prepaid services, postpaid services were not governed by the Prepaid Act or the CPUC resolutions. Providers of postpaid services were therefore allowed to continue using the three FCC-recognized methods to determine their intrastate revenues subject to CPUC surcharge.
D.
MetroPCS filed a lawsuit in 2017 against the members of the CPUC in their official capacities, challenging the CPUC‘s intrastate allocation factor methodology. MetroPCS explained in the operative Complaint that it has “been offering prepaid wireless service in California since 2002” and that it sells a variety of plans, “including voice, data, and text plans ranging from $30 to $60 per month.” All MetroPCS plans are prepaid.
MetroPCS claimed that the CPUC‘s adoption of a “mandatory one-size-fits-all” intrastate allocation factor conflicted with federal law and was therefore preempted. As relevant here, the Complaint alleged that the CPUC‘s requirement that prepaid providers use the intrastate allocation factor to determine intrastate revenues subject to surcharge conflicted with an FCC order recognizing the three methods described above for separating interstate revenues from intrastate revenues for purposes of imposing federal contribution requirements. The Complaint further alleged that the CPUC resolutions resulted in “state Universal Service surcharges [being assessed] on the same revenues that
As to the Prepaid Act that the resolutions were issued to implement, MetroPCS contended that the Act itself could be construed to avoid a conflict with federal law. To the extent a saving construction was not possible, the Complaint sought a declaration that any provision of the Prepaid Act conflicting with federal law was preempted and an injunction barring enforcement of any such provision.
MetroPCS and the CPUC filed cross-motions for summary judgment, and the district court granted summary judgment for MetroPCS. MetroPCS Cal., LLC v. Picker, 348 F. Supp. 3d 948, 950 (N.D. Cal. 2018). The district court first observed that orders issued by the FCC “stand for the proposition that wireless carriers have several options when allocating their interstate and intrastate rеvenues” to determine federal universal service contributions. Id. at 962-63. Explaining that the CPUC resolutions required that “the intrastate allocation factor [be] the sole method” for determining intrastate revenue subject to surcharge, the court reasoned that the resolutions “deprived [prepaid] carriers of the ability to rely on [the] alternative allocation methodologies” recognized by the FCC. Id. at 963. The court held that the CPUC resolutions were facially preempted because the “mandatory intrastate allocation factor” conflicted with federal law by preventing providers from choosing among the FCC-recognized methods. Id. The court explained that this conclusion made it “unnecessary to address MetroPCS‘s other [preemption] challenges to the Contested Resolutions.” Id. With respect to the Prepaid Act, the court held that “the language and structure of the Act require[d] the usage of an intrastate allocation factor” and that the Act was therefore also preempted. Id. at 965. The court granted declaratory and injunctive relief with respect to both the resolutions and the Act.
Before the district court issued its ruling, the CPUC had adopted another resolution (the “2019 Resolution“) patterned on the 2017 and 2018 Resolutions. Following the district court‘s decision, the CPUC rescinded the 2019 Resolution. Instead, the CPUC reverted to using “the surcharge . . . collection and remittance framework that existed prior to” the Prepaid Act.
MetroPCS did not comply with the 2017 and 2018 Resolutions’ requirement that it use the intrastate allocation factor to determine the intrastate portion of the sales price subject to CPUC surcharge. Instead, MetroPCS remitted surcharges using the FCC-recognized traffic study method—an option permitted under the 2016 Resolution. There is no indication in the record that the CPUC has ever attempted to enforce its resolutions against MetroPCS, other than through its defense in this litigation.
The CPUC appealed the district court‘s ruling that the required intrastate allocation factor method for determining intrastate revenue is facially preempted. The Prepaid Act subsequently expired by its own terms on January 1, 2020. See
II.
The Prepaid Act‘s expiration prompts us to consider, as a preliminary matter, whether this case has become moot. “Mootness is a jurisdictional issue,
MetroPCS seeks only forward-looking declaratory and injunctive relief on its claim that federal law preempts the CPUC‘s requirement that prepaid providers use a uniform intrastate allocation factor, and not their chosen FCC-recognized method, to determine intrastate revenues subject to surcharge. But the Prepaid Act, which the CPUC interpreted as requiring use of an intrastate allocation factor, and which motivated the challenged resolutions, has expired. See
Generally, the “expiration of challenged legislation . . . render[s] a case moot.” Glazing Health, 941 F.3d at 1198. But a case challenging expired legislation remains justiciable when the litigant still “need[s] . . . the judicial protection that it sought.” See Jacobus v. Alaska, 338 F.3d 1095, 1102-03 (9th Cir. 2003) (quoting Adarand Constructors, Inc. v. Slater, 528 U.S. 216, 224 (2000) (per curiam)), overruled on other grounds by Glazing Health, 941 F.3d 1195. In Jacobus, we held that we had jurisdiction because the plaintiffs who had challenged a since-repealed law would “likely experience prosecution and civil penalties for their past violations” of the law. Id. at 1104. We explained that their claims were not moot “[i]n light of the ongoing civil and criminal ramifications of [their] past violations.” Id. To avoid mootness, liability need not be certain; it is enough that the “possibility” of liability “for a proven past violation is real and not remote.” Decker v. Nw. Envtl. Def. Ctr., 568 U.S. 597, 610 (2013).
Applying these principles here, we hold that this case is not moot. MetroPCS has not complied with the 2017 and 2018 Resolutions. Even though there is no indication that the CPUC has yet attempted to enforce those resolutions against MetroPCS, the CPUC asserts in its briefing that the California Constitution requires it to enforce the resolutions implementing the Prepaid Act. See
Even though the parties both contend that we have jurisdiction, we have an obligation to make that determination for ourselves. See Sherman v. U.S. Parole Comm‘n, 502 F.3d 869, 871–72 (9th Cir. 2007). We conclude we do have jurisdiction. The CPUC has announced its intent to enforce the resolutions, and we are not aware of any basis for concluding that the CPUC can no longer bring an enforcement action. For example, the Prepaid Act itself contains no statute of limitations. See
The possibility that the CPUC will bring an enforcement action against MetroPCS if the resolutions are upheld means there is still a live controversy, so we proceed to the merits of MetroPCS‘s preemption claim.
III.
Preemption is “a question of law reviewed de novo.” Toumajian v. Frailey, 135 F.3d 648, 652 (9th Cir. 1998). Wе first conclude that preemption is disfavored in the circumstances of this case, and we then turn to MetroPCS‘s specific preemption arguments.
A.
The Supremacy Clause provides that the “Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land.”
Conflict preemption occurs when “it is impossible to comply with both state and federal requirements,” or when “state law stands as an obstacle to the
“[T]he case for federal pre-emption” is “less persuasive” when “coordinate state and federal efforts exist within a complementary administrative framework[] and in the pursuit of common purposes.” N.Y. State Dep‘t of Soc. Servs. v. Dublino, 413 U.S. 405, 421 (1973); see also In re Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prods. Liab. Litig., 959 F.3d 1201, 1225 (9th Cir. 2020) (citing the existence of a “cooperative federalism scheme,” among other factors, as “rais[ing] the strong inference that Congress did not intend to” preempt state and local enforcement). Moreover, when Congress has legislated in a field in which there is a “historic presence of state law,” a presumption against preemption applies. See Wyeth v. Levine, 555 U.S. 555, 565 & n.3 (2009). What matters for application of this presumption is whether “Congress has set foot in a ‘field which the States have traditionally occupied,‘” McDaniel v. Wells Fargo Invs., LLC, 717 F.3d 668, 675 (9th Cir. 2013) (quoting Wyeth, 555 U.S. at 565); if it has, there is a presumption against preemption regardless of whether “Congress has regulated [in that field] comprehensively for fifty years or only interstitially for five,” see id.
Here, there is a “dual regulatory scheme” requiring that our “conflict-pre-emption analysis . . . be applied sensitively so as to prevent the diminution of the role Congress reserved to the States.” See Nw. Cent. Pipeline Corp. v. State Corp. Comm‘n, 489 U.S. 493, 514–15 (1989). The Telecommunications Act is premised on a “system of ‘cooperative federalism,‘” in which participating states are key partners to the federal government in regulating the telecommunications industry. See T-Mobile S., LLC v. City of Roswell, 574 U.S. 293, 303 (2015) (quoting City of Rancho Palos Verdes v. Abrams, 544 U.S. 113, 128 (2005) (Breyer, J., concurring)). Under this scheme, states are, “subject to the boundaries set by Congress and federal regulators, . . . called upon to apply their expertise and judgment and have
Further, the history of state regulation in this area requires us to apply the presumption against preemption. See McDaniel, 717 F.3d at 675. States traditionally “exercised broad power to regulate telecommunications markets within their borders in ways that were designed to promote . . . universal service.”
MetroPCS contends that our decisions in Qwest Corp. v. Arizona Corp. Commission, 567 F.3d 1109 (9th Cir. 2009), and Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003), nevertheless prevent the presumption against preemption from applying here. But Qwest Corp., relying on Ting, stated that “the long history of federal presence in regulating long-distance telecommunications” made the presumption inapplicable. See Qwest Corp., 567 F.3d at 1118 (emphasis added) (quoting Ting, 319 F.3d at 1136). As those cases explained, the historic telecommunications regulatory scheme granted authority to the FCC—not states—to regulate interstate long-distance telecommunications. See id. at 1112, 1117–18 (observing that “telephone service regulatory issues [used to] mainly revolve[] around rates, with the FCC setting interstate rates,” and that long-distance telecommunications are “typically interstate” (quotation marks omitted)); see also Ting, 319 F.3d at 1130-32 (describing the FCC‘s historical regulаtion of rates for interstate long-distance service). Qwest Corp. and Ting are therefore distinguishable from this case because they involved state laws covering a part of the regulatory scheme that was traditionally dominated by the FCC. By contrast, the CPUC resolutions here were focused on regulating intrastate telecommunications to further state universal service efforts. Because this is an area that has clearly been “traditionally occupied” by the states, see Wyeth, 555 U.S. at 565 (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)), the presumption against preemption applies.
B.
MetroPCS focuses on two theories in support of its claim that the CPUC resolutions are facially preempted by the Telecommunications Act and related FCC decisions: (1) that the resolutions conflict with the requirement of competitive neutrality by depriving prepaid providers (but not postpaid providers) of the “right” to calculate intrastate revenues in a way that avoids assessing the same revenues as federal contribution requirements, and (2) that because prepaid providers are deprived of that “right,” the resolutions are preempted regardless of the treatment of competing providers. Evaluating these theories in light of the foregoing reasons to disfavor preemption, we reject each of them.
MetroPCS argues that the CPUC resolutiоns facially conflict with the FCC‘s competitive neutrality policy, see
a.
As relevant to MetroPCS‘s argument, the Telecommunications Act provides:
A State may adopt regulations not inconsistent with the [FCC‘s] rules to preserve and advance universal service. Every telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State.
The FCC has defined competitive neutrality to “mean[] that universal service support mechanisms and rules neither unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor disfavor one technology over another.” Id.; see also AT&T Corp. v. Pub. Util. Comm‘n, 373 F.3d 641, 647 (5th Cir. 2004) (explaining that competitive neutrality at least prohibits putting some providers “at a distinct competitive disadvantage compared with” other providers). Competitive neutrality prohibits regulators “from treating competitors differently in unfair ways,” see AT&T, Inc. v. FCC, 886 F.3d 1236, 1250 (D.C. Cir. 2018) (formatting altered) (quoting Rural Cellular Ass‘n v. FCC, 588 F.3d 1095, 1104 (D.C. Cir. 2009)), but does not prohibit regulators “from according different treatment to competitors whose circumstances are materially distinct,” id.
One of our sister circuits has addressed the requirement that states impose universal service contributions on a competitively neutral basis. In AT&T Corp., the Fifth Circuit considered Texas‘s universal service fee, which the state imposed “on all telecommunications carriers who provide[d] any intrastate service.” 373 F.3d at 644. A 3.6% state fee applied to such carriers’ intrastate revenue as well as to any revenue they “derived from . . . interstate[] and international calls originating in Texas.” Id. The result was that “multijurisdictional carriers” providing both intrastate and interstate service in Texas had two different fees imposed on their interstate revenues: they paid the 3.6% state fee on such revenues plus the 7.28% federal universal service fee on the same revenues. See id. at 644, 646-47.
By contrast, “pure-interstate-provider[s]” were not subject to the Texas fee and paid only the 7.28% federal fee on their interstate revenues. Id. at 647. The Fifth Circuit determined that this “double assessment” of multijurisdictional carriers’ interstate revenues put them “at a distinct competitive disadvantage compared with the pure interstate carriers,” who did not have their interstate revenues doubly assessed. Id. It
The FCC adopted a similar position in a ruling addressing whether states could require universal service contributions from certain interconnected VoIP providers. See
The FCC explained that such double assessments might occur if states had different ways of determining which revenues fell within their respective jurisdictions and as a result imposed their universal service contribution requirements on the same revenue. See id. at 15659. The FCC described a hypothetical example in which “all of an interconnected VoIP provider‘s customers have a billing address in State A and service address in State B,” and “State A and State B use billing addresses and service addresses, respectively, to determine the state universal service revenue base.” Id. If the provider used the FCC safe harbor and its inverse to determine its interstate and intrastate revenue, 64.9% of its revenue would be assessed for federal contributions, 35.1% of its revenue would be assessed by State A, and 35.1% of its revenue would be assessed by State B—resulting in double assessments on 35.1% of its revenue. See id.
The FCC concluded that the double assessments it described “would violate the principle of competitive neutrality.” Id. at 15659–60. Interconnected VoIP providers compete with “traditional telephone service” providers. See
b.
We agree with the reasoning of our sister circuit and the FCC. Cf. Dilts v. Penske Logistics, LLC, 769 F.3d 637, 649-50 (9th Cir. 2014) (“find[ing] . . . persuasive” an agency‘s position that a federal statute does not preempt state laws). Again, competitive neutrality attempts to create an even playing field between competitors by prohibiting rules that “unfairly advantage [or] disadvantage one provider over another.” See
In evaluating whether the CPUC resolutions at issue here are facially preempted, we use “the rules that apply to facial challenges” to statutes. See Puente Ariz. v. Arpaio, 821 F.3d 1098, 1104 (9th Cir. 2016). To succeed on its facial preemption claim under those rules, MetroPCS “must show that ‘no set of circumstances exist[ed] under which the [resolutions] [were] valid.‘” See id. (quoting United States v. Salerno, 481 U.S. 739, 745 (1987)); see also Salerno, 481 U.S. at 745 (explaining that a facial challenge is “the most difficult challenge to mount successfully“). Specifically, MetroPCS must demonstrate that every application of the CPUC resolutions caused an unfair disadvantage for prepaid services, which MetroPCS could accomplish by showing that the resolutions always resulted in uneven double assessments.
Under the CPUC resolutions, providers of prepaid services were still able to use any of the FCC-recognized methods to determine the portion of interstate revenue subject to federal contribution requirements (and a corresponding portion of intrastate revenue not subject to federal contribution requirements). But those providers could not rely on the FCC methods to determine the portion of intrastate revenue subject to state surcharge. Instead, the resolutions required use of an intrastate allocation factor to capture the portion of revenues that were intrastate. As the CPUC has explained, that intrastate allocation factor served the function of “determining” providers’ “intrastate revenue subject to the state‘s universal service surcharges.”9
For example, take a provider that operated exclusively in California and sold a $100 voice-only prepaid plan, all of the revenue from which was surchargeable. To determine its interstate revenue for federal universal service purposes, suppose that the provider used the federal safe harbor of 37.1% interstate revenue, which would have resulted in the FCC‘s assessing $37.10 of the plan—but not the $62.90 treated as intrastate revenue under the safe harbor. By contrast, under the CPUC‘s 2017 Resolution, the provider would have been required to use the intrastate allocation factor of 72.75% to determine that $72.75 of the plan was intrastate revenue for state universal service purposes. The unadjusted CPUC surcharge rate would have been applied to that $72.75. The end result would have been the FCC‘s assessing $37.10 and the CPUC‘s assessing $72.75 (a total of $109.85). Thus, as a consequence of the provider‘s using the FCC sаfe harbor to derive interstate revenue subject to federal contributions, but using the CPUC-mandated intrastate allocation factor to derive intrastate revenue
subject to state surcharge, there would have been a double assessment on $9.85 of the $100 plan.
By contrast, consider a competing provider that sold a similar $100 voice-only postpaid plan in California. The provider of postpaid services, unlike the provider of prepaid services, would have been permitted to use any of the three FCC methods to determine both its interstate and intrastate
The double assessment on prepaid services would, at least if the surcharge rates applicable to prepaid services were similar to the rates applicable to postpaid services, create a disadvantage for the provider of prepaid services compared to the provider of postpaid services. See AT&T Corp., 373 F.3d at 647 (explaining that there was a “competitive disadvantage” because one subset of carriers was “burden[ed] . . . more severely” than other carriers). On their $100 plans, both providers would have paid the same federal contribution amount. But the CPUC surcharge amount would have been higher for the provider of prepaid services if, as was true here, the surcharge rates for prepaid services essentially the same rates applicable to postpaid services. If the state surcharge rate for both were 10%, for example, the provider of prepaid services would have had an additional $9.85 in revenue subject to that rate—and therefore paid an additional surcharge amount of $0.985.
That disadvantage for the provider of prepaid services would have been an “unfair[]” one. See
but on a higher portion of its surchargeable revenues, would have found itself at an unfair competitive disadvantage.
Importantly, however, the CPUC‘s adoption of an intrastate allocation factor would not necessarily have resulted in an unfair disadvantage for every prepaid provider.
Thus, the adoption of an intrastate allocation factor in and of itself would not have invariably resulted in double assessments conflicting with the principle of competitive neutrality. Nor has MetroPCS even attempted to argue that it is possible to discern from the specific intrastate allocation factors adopted by the CPUC (72.75% for 2017 and 69.45% for 2018) that double assessments unfairly disadvantaging every provider of prepaid services would have occurred. See generally Faria v. M/V Louise, 945 F.2d 1142, 1143 (9th Cir. 1991) (explaining that “one of the most basic propositions of law” is “that the plaintiff bears the burden of proving [its] case“). MetroPCS‘s facial preemption challenge based on a conflict with competitive neutrality therefore fails. See Puente Ariz., 821 F.3d at 1104.
2.
MetroPCS additionally contends that providers of prepaid services have a freestanding “right to use the same FCC-authorized methodologies . . . for purposes of calculating their intrastate telecommunications service revenues subject to CPUC surcharges” to avoid having the same revenue subject to both federal and stаte contribution requirements. MetroPCS argues that the CPUC resolutions deprived providers of this “right” and are therefore facially preempted regardless of how other providers were treated.
In making this argument, MetroPCS relies on a different part of the FCC‘s declaratory ruling permitting states to impose universal service contribution requirements on intrastate interconnected VoIP revenue. See
Suppose, for example, that an interconnected VoIP provider operating exclusivеly in one state used the federal safe harbor of 64.9% to determine interstate revenue subject to federal contribution requirements. If the provider were also required by that state to treat 50% of revenue as intrastate, the provider would be subject to assessments on 114.9% of its revenue (that is, double assessments on 14.9% of its revenue).
For two reasons, we conclude that this part of the FCC‘s ruling does not provide a basis for resolving this appeal in MetroPCS‘s favor. First, the FCC‘s position is unclear. It does not seem that the FCC has even reached a definitive conclusion about preemption; instead, the FCC used the tentative language “may.” See id. Nor does the FCC‘s sparsely reasoned ruling provide a clue as to how we could discern whether any double assessment sufficiently injured a federal objective so as to trigger preemption. See Topa Equities, Ltd., 342 F.3d at 1071; see also Wyeth, 555 U.S. at 576-77 (explaining that we can consider “an agency‘s explanation of how state law affects the regulatory scheme” in deciding whether a state law conflicts with a federal regulation, although we do “not defer[] to an agency‘s conclusion that state law is pre-empted” and must undertake our “own conflict determination“).
Second, in the circumstances present in this case, the question whether federal law enshrines a freestanding right to avoid double assessment of revenue is ultimately beside the point. To prevail on a facial challenge premised on the existence of such a right, MetroPCS would need to show that every application of the CPUC resolutions would have resulted in double assessment of prepaid revenue—but, as explained above, MetroPCS has failed to make such a showing. See supra Part III.B.1.b. Also, at least as far as we can tell, any double assessment on prepaid revenue would necessarily have created an “unfair[] . . . disadvantage” for the prepaid provider compared to competing postpaid providers. See
As a final matter, we reject one further argument by MetroPCS that an even more expansive right is guaranteed by federal law: the right to use the FCC-recognized methods to determine intrastate revenue, regardless of whether any inconsistency between those methods and state-permitted methods results in double assessments. Specifically, MetroPCS argues that the FCC “deliberately sought” to make available three options for determining revenue, and that the CPUC resolutions are preempted solely because they deprived prepaid providers of that flexibility. See Geier v. Am. Honda Motor Co., 529 U.S. 861, 878, 881 (2000); de la Cuesta, 458 U.S. at 155–56. But the CPUC resolutions did not prevent prepaid providers from using the FCC-recognized options to determine interstate revenue subject to federal contributions; they only prevented prepaid providers from using those options to determine intrastate revenue subject to state surcharge. Cf. In re Volkswagen, 959 F.3d at 1221 (holding that the EPA‘s enforcement of federal law would not be impeded by local “parallel rules, and so there is no basis to infеr a congressional intent to preempt them“). And MetroPCS
IV.
MetroPCS advances several other challenges to the CPUC resolutions. These challenges were not reached by the district court, and we therefore decline to address them in the first instance. See Davis v. Nordstrom, Inc., 755 F.3d 1089, 1094 (9th Cir. 2014) (“Typically, ‘a federal appellate court does not consider an issue not passed upon below.‘” (quoting Quinn v. Robinson, 783 F.2d 776, 814 (9th Cir. 1986))).
First, MetroPCS argues that the CPUC resolutions are preempted as applied to MetroPCS. Our analysis above makes clear that the resolutions would be preempted if applying them to MetroPCS resulted in double assessments on MetroPCS‘s revenue, which would unfairly disadvantage MetroPCS relative to its competitors—and thereby conflict with the competitive neutrality requirement. Resolving that as-applied claim requires a largely factual inquiry that is best left to the district court.12
Second, MetroPCS advances two alternative grounds for wholly invalidating the CPUC resolutions. MetroPCS argues that the intrastate allocation factor conflicts with the federal Mobile Telecommunications Sourcing Act. And MetroPCS contends that the 2017 and 2018 intrastate allocation factors were “based on a fundamentally flawed methodology” and impermissibly “require[d] a substantial assessment” of non-surchargeable revenue. The district court did not reach these arguments, and we decline to do so in the first instance.
REVERSED and REMANDED.