Court Rules in FTC’s Favor on Common Carrier” Status in Cramming Case

On an issue that takes on new-found importance after FTC v. AT&T Mobility, a federal court in Montana granted summary judgment in favor of the Federal Trade Commission (FTC) in a case alleging that the defendants violated the FTC Act by placing charges on consumer telephone bills for purportedly unwanted service add-ons, such as voicemail, electronic fax, and call forwarding (a practice referred to as cramming”). In its decision, the court rejected the defendants’ claim that the corporate entities involved in the case are common carriers,” and therefore exempt from prosecution under the FTC Act.

The defendants’ argument centered around the 2016 seminal decision by the U.S. Court of Appeals for the Ninth Circuit (where Montana lies) in FTC v. AT&T Mobility, which held that the common carrier exemption should be applied based on an entity’s status,” and thus telecommunications service providers are exempt from the FTC’s authority regardless of whether the activity at issue is a common carrier service. Applying the holding of the AT&T Mobility decision, the court nevertheless reached a different outcome, noting that unlike the case at bar, AT&T’s status as a common carrier was not in dispute [in the Ninth Circuit case].”

The key issue in this case, according to the opinion, was how to define a common carrier under federal law.” After considering arguments from both sides, the court determined that the corporate defendants are not common carriers, and therefore cannot avail themselves of the common carrier exemption. This conclusion should not be particularly surprising to those who regularly practice communications law, because the services in issue – voicemail, electronic fax and call forwarding – traditionally have been considered non-telecom services. What is interesting, however, is how a district judge sitting in Montana approached the arcane concepts of communications law.

First, the court agreed with the FTC’s claim that, based on prior statements on this issue by the Federal Communications Commission (FCC), the key point in determining if an entity is a common carrier is whether the entity operates a pipeline transmission service, or whether it provides services that rely upon the pipeline service for their operation.” The court then observed that no evidence had been presented to show that the corporate defendants in this case operated a transmission pipeline,” but rather that their services all rely on the transmission services of other entities, such as Verizon.” The court’s analysis seems to suggest that only facilities-based providers could be common carriers, a proposition that is not generally accepted among the communications bar. To be fair, it is not likely that the court had considered the nuances of communications classification decisions before, and – as noted below – this particular claim is not a close call. Nevertheless, the court’s analysis would set an unhelpful precedent for resellers seeking to claim common carrier status in the District of Montana.

The court’s other two factors more closely hue to traditional telecom analysis. The court found that the types of services provided by the corporate defendants – such as voicemail, electronic fax, and call forwarding – had previously been interpreted by the FCC to be enhanced” services, not basic” services that would allow them to assert common carrier status. The defendants did not appear to have offered other services that would be classified as basic service. Finally, the court noted that the corporate defendants never registered as common carriers with the FCC, did not comport with a number of other regulatory requirements applicable to common carriers, and did not otherwise hold themselves out to the public or to regulatory agencies as common carriers. The defendants’ late-found adherence to the common carrier classification thus rang hollow with the court. As a result of these findings, the court granted summary judgment to the FTC.

As we have noted previously, the interpretation of the common carrier exemption in the AT&T Mobility decision has the potential to reset the jurisdictional boundaries between the FTC and FCC. If AT&T Mobility is not overturned (a petition for rehearing en banc is pending), another consequence will be that courts in disparate places could be asked, as the district court in Montana was asked, to render classification decisions. The question was straightforward in this instance, but classification of a service (and thus determination of an entity’s status) can sometimes trouble the FCC and courts like the D.C. Circuit, which more commonly deal with the common carrier classification. The result could yield some unexpected conclusions along the way.