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Justice Scalia
| 1,990 | 9 |
majority
|
Employment Div., Dept. of Human Resources of Ore. v. Smith
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https://www.courtlistener.com/opinion/112404/employment-div-dept-of-human-resources-of-ore-v-smith/
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it violated free exercise by conscripting persons who opposed a particular war on religious grounds. Our most recent decision involving a neutral, generally applicable regulatory law that compelled activity forbidden by an individual's religion was United -261. There, an Amish employer, on behalf of himself and his employees, sought exemption from collection and payment of Social Security taxes on the ground that the Amish faith prohibited participation in governmental support programs. We rejected the claim that an exemption was constitutionally required. There would be no way, we observed, to distinguish the Amish believer's objection to Social Security taxes from the religious objections that others might have to the collection or use of other taxes. "If, for example, a religious adherent believes war is a sin, and if a certain percentage of the federal budget can be identified as devoted to war-related activities, such individuals would have a similarly valid claim to be exempt from paying that percentage of the income tax. The tax system could not function if denominations were allowed to challenge the tax system because tax payments were spent in a manner that violates their religious belief." Cf. *881 The only decisions in which we have held that the First Amendment bars application of a neutral, generally applicable law to religiously motivated action have involved not the Free Exercise Clause alone, but the Free Exercise Clause in conjunction with other constitutional protections, such as freedom of speech and of the press, see -307 ; ; or the right of parents, acknowledged in to direct the education of their children, see[1]*882 Some of our cases prohibiting compelled expression, decided exclusively upon free speech grounds, have also involved freedom of religion, cf. ; West Virginia Bd. of And it is easy to envision a case in which a challenge on freedom of association grounds would likewise be reinforced by Free Exercise Clause concerns. Cf. The present case does not present such a hybrid situation, but a free exercise claim unconnected with any communicative activity or parental right. Respondents urge us to hold, quite simply, that when otherwise prohibitable conduct is accompanied by religious convictions, not only the convictions but the conduct itself must be free from governmental regulation. We have never held that, and decline to do so now. There being no contention that Oregon's drug law represents an attempt to regulate religious beliefs, the communication of religious beliefs, or the raising of one's children in those beliefs, the rule to which we have adhered ever since Reynolds plainly controls. "Our cases do not at their farthest reach support the
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Justice Scalia
| 1,990 | 9 |
majority
|
Employment Div., Dept. of Human Resources of Ore. v. Smith
|
https://www.courtlistener.com/opinion/112404/employment-div-dept-of-human-resources-of-ore-v-smith/
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"Our cases do not at their farthest reach support the proposition that a stance of conscientious opposition relieves an objector from any colliding duty fixed by a democratic government." at B Respondents argue that even though exemption from generally applicable criminal laws need not automatically be extended to religiously motivated actors, at least the claim for a *883 religious exemption must be evaluated under the balancing test set forth in Under the test, governmental actions that substantially burden a religious practice must be justified by a compelling governmental interest. See -403; see also 490 U. S., at 9. Applying that test we have, on three occasions, invalidated state unemployment compensation rules that conditioned the availability of benefits upon an applicant's willingness to work under conditions forbidden by his religion. See ; We have never invalidated any governmental action on the basis of the test except the denial of unemployment compensation. Although we have sometimes purported to apply the test in contexts other than that, we have always found the test satisfied, see United ; In recent years we have abstained from applying the test (outside the unemployment compensation field) at all. In 476 U.S. 3 we declined to apply analysis to a federal statutory scheme that required benefit applicants and recipients to provide their Social Security numbers. The plaintiffs in that case asserted that it would violate their religious beliefs to obtain and provide a Social Security number for their daughter. We held the statute's application to the plaintiffs valid regardless of whether it was necessary to effectuate a compelling interest. See 476 U.S., at 9-701. In we declined to apply analysis to the Government's logging and road construction activities on lands used for religious purposes by several Native American Tribes, even though it was undisputed that the activities "could have devastating effects on traditional Indian religious practices," *884 In we rejected application of the test to military dress regulations that forbade the wearing of yarmulkes. In we sustained, without mentioning the test, a prison's refusal to excuse inmates from work requirements to attend worship services. Even if we were inclined to breathe into some life beyond the unemployment compensation field, we would not apply it to require exemptions from a generally applicable criminal law. The test, it must be recalled, was developed in a context that lent itself to individualized governmental assessment of the reasons for the relevant conduct. As a plurality of the Court noted in a distinctive feature of unemployment compensation programs is that their eligibility criteria invite consideration of the particular circumstances behind an applicant's unemployment:
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Justice Scalia
| 1,990 | 9 |
majority
|
Employment Div., Dept. of Human Resources of Ore. v. Smith
|
https://www.courtlistener.com/opinion/112404/employment-div-dept-of-human-resources-of-ore-v-smith/
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invite consideration of the particular circumstances behind an applicant's unemployment: "The statutory conditions [in and Thomas] provided that a person was not eligible for unemployment compensation benefits if, `without good cause,' he had quit work or refused available work. The `good cause' standard created a mechanism for individualized exemptions." See also As the plurality pointed out in our decisions in the unemployment cases stand for the proposition that where the State has in place a system of individual exemptions, it may not refuse to extend that system to cases of "religious hardship" without compelling reason. Whether or not the decisions are that limited, they at least have nothing to do with an across-the-board criminal prohibition on a particular form of conduct. Although, as noted earlier, we have sometimes used the test to analyze free exercise challenges to such laws, see United v. *885 ; we have never applied the test to invalidate one. We conclude today that the sounder approach, and the approach in accord with the vast majority of our precedents, is to hold the test inapplicable to such challenges. The government's ability to enforce generally applicable prohibitions of socially harmful conduct, like its ability to carry out other aspects of public policy, "cannot depend on measuring the effects of a governmental action on a religious objector's spiritual development." To make an individual's obligation to obey such a law contingent upon the law's coincidence with his religious beliefs, except where the State's interest is "compelling" permitting him, by virtue of his beliefs, "to become a law unto himself," contradicts both constitutional tradition and common sense.[2] The "compelling government interest" requirement seems benign, because it is familiar from other fields. But using it as the standard that must be met before the government may accord different treatment on the basis of race, see, e. g., *886 or before the government may regulate the content of speech, see, e. g., Sable Communications of is not remotely comparable to using it for the purpose asserted here. What it produces in those other fields equality of treatment and an unrestricted flow of contending speech are constitutional norms; what it would produce here a private right to ignore generally applicable laws is a constitutional anomaly.[3] Nor is it possible to limit the impact of respondents' proposal by requiring a "compelling state interest" only when the conduct prohibited is "central" to the individual's religion. Cf. -476 It is no *887 more appropriate for judges to determine the "centrality" of religious beliefs before applying a "compelling interest" test in the
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Justice Scalia
| 1,990 | 9 |
majority
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Employment Div., Dept. of Human Resources of Ore. v. Smith
|
https://www.courtlistener.com/opinion/112404/employment-div-dept-of-human-resources-of-ore-v-smith/
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religious beliefs before applying a "compelling interest" test in the free exercise field, than it would be for them to determine the "importance" of ideas before applying the "compelling interest" test in the free speech field. What principle of law or logic can be brought to bear to contradict a believer's assertion that a particular act is "central" to his personal faith? Judging the centrality of different religious practices is akin to the unacceptable "business of evaluating the relative merits of differing religious claims." United n. 2 (STEVENS, J., concurring). As we reaffirmed only last Term, "[i]t is not within the judicial ken to question the centrality of particular beliefs or practices to a faith, or the validity of particular litigants' interpretations of those creeds." 490 U. S., at 9. Repeatedly and in many different contexts, we have warned that courts must not presume to determine the place of a particular belief in a religion or the plausibility of a religious claim. See, e. g., ; Presbyterian in U. ; ; United[4] *888 If the "compelling interest" test is to be applied at all, then, it must be applied across the board, to all actions thought to be religiously commanded. Moreover, if "compelling interest" really means what it says (and watering it down here would subvert its rigor in the other fields where it is applied), many laws will not meet the test. Any society adopting such a system would be courting anarchy, but that danger increases in direct proportion to the society's diversity of religious beliefs, and its determination to coerce or suppress none of them. Precisely because "we are a cosmopolitan nation made up of people of almost every conceivable religious preference," and precisely because we value and protect that religious divergence, we cannot afford the luxury of deeming presumptively invalid, as applied to the religious objector, every regulation of conduct that does not protect an interest of the highest order. The rule respondents favor would open the prospect of constitutionally required religious exemptions from civic obligations of almost every conceivable kind ranging from *889 compulsory military service, see, e. g., to the payment of taxes, see, e. g., United to health and safety regulation such as manslaughter and child neglect laws, see, e. g., 763 P.2d 5 compulsory vaccination laws, see, e. g., drug laws, see, e. g., and traffic laws, see 312 U.S. 5 ; to social welfare legislation such as minimum wage laws, see Tony and Susan Alamo child labor laws, see animal cruelty laws, see, e. g., of the Lukumi Babalu Aye cf.
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Justice Scalia
| 1,990 | 9 |
majority
|
Employment Div., Dept. of Human Resources of Ore. v. Smith
|
https://www.courtlistener.com/opinion/112404/employment-div-dept-of-human-resources-of-ore-v-smith/
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laws, see, e. g., of the Lukumi Babalu Aye cf. environmental protection laws, see United v. Little, and laws providing for equality of opportunity for the races, see, e. g., Bob Jones University v. United U.S. 574, The First Amendment's protection of religious liberty does not require this.[5] *890 Values that are protected against government interference through enshrinement in the Bill of Rights are not thereby banished from the political process. Just as a society that believes in the negative protection accorded to the press by the First Amendment is likely to enact laws that affirmatively foster the dissemination of the printed word, so also a society that believes in the negative protection accorded to religious belief can be expected to be solicitous of that value in its legislation as well. It is therefore not surprising that a number of have made an exception to their drug laws for sacramental peyote use. See, e. g., Ariz. Rev. Stat. Ann. 13-3402(B)(1)-(3) ; Colo. Rev. Stat. 12-22-317(3) ; N. M. Stat. Ann. 30-31-6(D) But to say that a nondiscriminatory religious-practice exemption is permitted, or even that it is desirable, is not to say that it is constitutionally required, and that the appropriate occasions for its creation can be discerned by the courts. It may fairly be said that leaving accommodation to the political process will place at a relative disadvantage those religious practices that are not widely engaged in; but that unavoidable consequence of democratic government must be preferred to a system in which each conscience is a law unto itself or in which judges weigh the social importance of all laws against the centrality of all religious beliefs. * * * Because respondents' ingestion of peyote was prohibited under Oregon law, and because that prohibition is constitutional, Oregon may, consistent with the Free Exercise Clause, deny respondents unemployment compensation when their dismissal results from use of the drug. The decision of the Oregon Supreme Court is accordingly reversed. It is so ordered. *891 JUSTICE O'CONNOR, with whom JUSTICE BRENNAN, JUSTICE MARSHALL, and JUSTICE BLACKMUN join as to Parts I and II, concurring in the judgment.
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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[*] These cases arise under the Telecommunications Act of Each is about the power of the Federal Communications Commission to regulate a relationship between monopolistic companies providing local telephone service and companies entering local markets to compete with the incumbents Under the Act, the new entrants are entitled, among other things, to lease of the local telephone networks from the incumbent monopolists The issues are whether the is authorized (1) to require state utility commissions to set the rates charged by the incumbents for leased on a forward-looking basis untied to the incumbents' investment, and (2) to require incumbents to combine such at the entrants' request when they lease them to the entrants We uphold the 's assumption and exercise of authority on both issues I The consent decree settling the Government's antitrust suit against the American Telephone and Telegraph Company (AT&T) divested AT&T of its local-exchange carriers, leaving AT&T as a long-distance and equipment company, and limiting the divested carriers to the provision of local telephone service United aff'd sub nom The decree did nothing, however, to increase competition in the persistently monopolistic local markets, which were thought *476 to be the root of natural monopoly in the telecommunications industry See S Benjamin, D Lichtman, & H Shelanski, Telecommunications Law and Policy 62 (hereinafter Benjamin et al); P Huber, M Kellogg, & J Thorne, Federal Telecommunications Law 211, pp 4- (hereinafter Huber et al); W Baumol & J Sidak, Toward Competition in Local Telephony 7- (1994); S Breyer, Regulation and Its Reform 291-, 314 These markets were addressed by provisions of the Telecommunications Act of ( Act or Act), Pub L 4-4, that were intended to eliminate the monopolies enjoyed by the inheritors of AT&T's local franchises; this objective was considered both an end in itself and an important step toward the Act's other goals of boosting competition in broader markets and revising the mandate to provide universal telephone service See Benjamin et al 716 Two sets of related provisions for opening local markets concern us here First, Congress required incumbent localexchange carriers to share their own facilities and services on terms to be agreed upon with new entrants in their markets 47 US C 21(c) (1994 ed, Supp V) Second, knowing that incumbents and prospective entrants would sometimes disagree on prices for facilities or services, Congress directed the to prescribe methods for state commissions to use in setting rates that would subject both incumbents and entrants to the risks and incentives that a competitive market would produce 22(d) The particular method devised by the for setting rates to
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
|
https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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The particular method devised by the for setting rates to be charged for interconnection and lease of network under the Act, 22(d)(1),[1] and regulations the imposed to implement the statutory duty to share these 21(c)(3), are the subjects of this litigation, which must be understood against the background of ratemaking for public *477 utilities in the United States and the structure of local exchanges made accessible by the Act A Companies providing telephone service have traditionally been regulated as monopolistic public utilities[2] See J Bonbright, Principles of Public Utility Rates 3- (hereinafter Bonbright); I Barnes, Economics of Public Utility Regulation 37- (hereinafter Barnes) At the dawn of modern utility regulation, in order to offset monopoly power and ensure affordable, stable public access to a utility's goods or services, legislatures enacted rate schedules to fix the prices a utility could charge See ; C Phillips, Regulation of Public 111-112, and n (hereinafter Phillips) See, e g, ; As this job became more complicated, legislatures established specialized administrative agencies, first local or state, then federal, to set and regulate rates Barnes 173-17; Phillips 11-117 See, e g, Minnesota Rate Cases, ; Shreveport Rate Cases, See generally T McCraw, Prophets of Regulation 11-6 The familiar mandate in the enabling Acts was to see that rates be "just and reasonable" and not discriminatory Barnes 29 See, e g, Transportation Act of 1920, 49 US C 1() (1934 ed) *47 All rates were subject to regulation this way: retail rates charged directly to the public and wholesale rates charged among businesses involved in providing the goods or services offered by the retail utility Intrastate retail rates were regulated by the States or municipalities, with those at wholesale generally the responsibility of the National Government, since the transmission or transportation involved was characteristically interstate[3] See Phillips 143 Historically, the classic scheme of administrative ratesetting at the federal level called for rates to be set out by the regulated utility companies in proposed tariff schedules, on the model applied to railroad carriers under the Interstate Commerce Act of 17, After interested parties had had notice of the proposals and a chance to comment, the tariffs would be accepted by the controlling agency so long as they were "reasonable" (or "just and reasonable") and not "unduly discriminatory" Hale, Commissions, Rates, and Policies, See, e g, Southern Pacific 219 US The States generally followed this same tariffschedule model Barnes 29 See, e g, at *479 The way rates were regulated as between businesses (by the National Government) was in some respects, however, different from regulation of rates as between
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
|
some respects, however, different from regulation of rates as between businesses and the public (at the state or local level) In wholesale markets, the party charging the rate and the party charged were often sophisticated businesses enjoying presumptively equal bargaining power, who could be expected to negotiate a "just and reasonable" rate as between the two of them Accordingly, in the Federal Power Act of 1920, and again in the Natural Act of 1, Congress departed from the scheme of purely tariff-based regulation and acknowledged that contracts between commercial buyers and sellers could be used in ratesetting, 16 US C 24d(d) (Federal Power Act); 1 US C 717c(c) (Natural Act) See United Pipe Line When commercial parties did avail themselves of rate agreements, the principal regulatory responsibility was not to relieve a contracting party of an unreasonable rate, but to protect against potential discrimination by favorable contract rates between allied businesses to the detriment of other wholesale customers See Cf New This Court once summed up matters at the wholesale level this way: "[W]hile it may be that the Commission may not normally impose upon a public utility a rate which would produce less than a fair return, it does not follow that the public utility may not itself agree by contract to a rate affording less than a fair return or that, if it does so, it is entitled to be relieved of its improvident bargain In such circumstances the sole concern of the Commission would seem to be whether the rate is so low as to *40 adversely affect the public interestas where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory" Sierra Pacific Power at See also United Pipe Line Regulation of retail rates at the state and local levels was, on the other hand, focused more on the demand for "just and reasonable" rates to the public than on the perils of rate discrimination See Barnes 29-299 Indeed, regulated local telephone markets evolved into arenas of statesanctioned discrimination engineered by the public utility commissions themselves in the cause of "universal service" Huber et al 0- See also Vietor 167-1 In order to hold down charges for telephone service in rural markets with higher marginal costs due to lower population densities and lesser volumes of use, urban and business users were charged subsidizing premiums over the marginal costs of providing their own service See Huber et al 4 These cross subsidies between markets were not necessarily transfers between truly independent companies,
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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between markets were not necessarily transfers between truly independent companies, however, thanks largely to the position attained by AT&T and its satellites This was known as the "Bell system," which by the mid-20th century had come to possess overwhelming monopoly power in all telephone markets nationwide, supplying local-exchange and long-distance services as well as equipment Vietor 174-17 See also R Garnet, Telephone Enterprise: Evolution of Bell System's Horizontal Structure, 176-1909, pp 160-163 (19) (Appendix A) The same pervasive market presence of Bell providers that made it simple to provide cross subsidies in aid of universal service, however, also frustrated conventional efforts to hold retail rates down See Huber et al 4- Before the Bell system's predominance, regulators might have played competing carriers against one another to get lower rates for the public, see Cohen 47-0, but the strategy became virtually * impossible once a single company had become the only provider in nearly every town and city across the country This regulatory frustration led, in turn, to new thinking about just and reasonable retail rates and ultimately to these cases The traditional regulatory notion of the "just and reasonable" rate was aimed at navigating the straits between gouging utility customers and confiscating utility property FPC v Hope Natural See also Barnes 29-290; Bonbright 3 More than a century ago, reviewing courts charged with determining whether utility rates were sufficiently reasonable to avoid unconstitutional confiscation took as their touchstone the revenue that would be a "fair return" on certain utility property known as a "rate base" The fair rate of return was usually set as the rate generated by similar investment property at the time of the rate proceeding, and in the Court held that the rate base must be calculated as "the fair value of the property being used by [the utility] for the convenience of the public" In pegging the rate base at "fair value," the Court consciously rejected the primary alternative standard, of capital actually invested to provide the public service or good The Court made this choice in large part to prevent "excessive valuation or fictitious capitalization" from artificially inflating the rate base, lest "`[t]he public be subjected to unreasonable rates in order simply that stockholders may earn dividends,' " )[4] But proved to be a troublesome mandate, as Justice Brandeis, joined by Justice Holmes, famously observed *42 2 years later Missouri ex rel Southwestern Bell Telephone v Public Serv Comm'n of Mo, The Court itself had described, without irony, the mind-numbing complexity of the required enquiry into fair value, as the alternative to historical investment: "[I]n
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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into fair value, as the alternative to historical investment: "[I]n order to ascertain [fair] value, original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case We do not say that there may not be other matters to be regarded in estimating the value of the property" -47 To the bewildered, simply threw up its hands, prescribing no one method for limiting use of these numbers but declaring all such facts to be "relevant"[]Southwestern Bell Telephone -29, and n 6 (Brandeis, J, dissenting) What is more, the customary checks on calculations of value in other circumstances were hard to come by for a utility's property; its costly facilities rarely changed hands and so were seldom tagged with a price a buyer would actually pay and a seller accept, at ; West v Chesapeake & Potomac Telephone of Baltimore, Neither could reviewing courts resort to a utility's revenue as an index of fair value, since its revenues *43 were necessarily determined by the rates subject to review, with the rate of return applied to the very property subject to valuation Duquesne Light v ; Hope Natural Small wonder, then, that Justice Brandeis was able to demonstrate how basing rates on `s galactic notion of fair value could produce revenues grossly excessive or insufficient when gauged against the costs of capital He gave the example (simplified) of a $1 million plant built with promised returns on the equity of $90,000 a year Southwestern Bell Telephone If the value were to fall to $600,000 at the time of a rate proceeding, with the rate of return on similar investments then at 6 percent, would say a rate was not confiscatory if it returned at least $36,000, a shortfall of $4,000 from the costs of capital But if the value of the plant were to rise to $1,70,000 at the time of the rate proceeding, and the rate of return on comparable investments stood at percent, then constitutionality under would require rates generating at least $140,000, $0,000 above capital costs The upshot of then, was the specter of utilities forced into bankruptcy by rates inadequate to pay off the costs of capital, even when a drop in value resulted from general economic decline,
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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when a drop in value resulted from general economic decline, not imprudent investment; while in a robust economy, an investment no more prescient could claim what seemed a rapacious return on equity invested Justice Brandeis accordingly advocated replacing "fair value" with a calculation of rate base on the cost of capital prudently invested in assets used for the provision of the public good or service, and although he did not live to enjoy success, his campaign against came to fruition in FPC v Hope Natural In Hope Natural this Court disavowed the position that the Natural Act and the Constitution required fair value as the sole measure of a rate base on which "just and *44 reasonable" rates were to be calculated - See also FPC v Natural Pipeline In the matter under review, the Federal Power Commission had valued the rate base by using "actual legitimate cost" reflecting "sound depreciation and depletion practices," and so had calculated a value roughly 2 percent below the figure generated by the natural-gas company's fair-value methods using "estimated reproduction cost" and "trended original cost" Hope Natural 320 U S, at -9, and nn 4- The Court upheld the Commission "Rates which enable the company to operate successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks assumed certainly cannot be condemned as invalid, even though they might produce only a meager return on the so-called `fair value' rate base"[6] at 60 Although Hope Natural did not repudiate everything in since fair value was still "the end product of the process of rate-making," 320 US, federal and state commissions setting rates in the aftermath of Hope Natural largely abandoned the old fair-value approach and turned to methods of calculating the rate base on the basis of "cost" A Kahn, Economics of Regulations: Principles and Institutions 40- (19) "Cost" was neither self-evident nor immune to confusion, however; witness the invocation of "reproduction cost" as a *4 popular method for calculating fair value under see n and the Federal Power Commission's rejection of "trended original cost" (apparently, a straight-line derivation from the cost of capital originally invested) in favor of "actual legitimate cost," Hope Natural at Still, over time, general agreement developed on a method that was primus inter pares, and it is essentially a modern gloss on that method that the incumbent carriers say the should have used to set the rates at issue here The method worked out is not a simple calculation of rate base as the original cost of "prudently invested" capital that Justice Brandeis
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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the original cost of "prudently invested" capital that Justice Brandeis assumed, presumably by reference to the utility's balance sheet at the time of the rate proceeding Southwestern Bell Telephone 262 U S, Rather, "cost" came to mean "cost of service," that is, the cost of prudently invested capital used to provide the service Bonbright 173; P Garfield & W Lovejoy, Public Utility Economics 6 (1964) This was calculated subject to deductions for accrued depreciation and allowances for working capital,[7] see Phillips 22-23 (table -1) ("a typical electric utility rate base"), naturally leading utilities to minimize depreciation by using very slow depreciation rates (on the assumption of long useful lives),[] and to maximize working capital claimed as a distinct rate-base constituent *46 This formula, commonly called the prudent-investment rule, addressed the natural temptations on the utilities' part to claim a return on outlays producing nothing of value to the public It was meant, on the one hand, to discourage unnecessary investment and the "fictitious capitalization" feared in 169 U S, and so to protect ratepayers from supporting excessive capacity, or abandoned, destroyed, or phantom assets Kahn, Tardiff, & Weisman, Telecommunications Act at three years: an economic evaluation of its implementation by the Federal Communications Commission, 11 Information Economics & Policy 319, 330, n 27 (hereinafter Kahn, Telecommunications Act) At the same time, the prudent-investment rule was intended to give utilities an incentive to make smart investments deserving a "fair" return, and thus to mimic natural incentives in competitive markets[9] (though without an eye to fostering the actual competition by which such markets are defined) In theory, then, the prudent-investment qualification gave the ratepayer an important protection by mitigating the tendency of a regulated market's lack of competition to support monopolistic prices But the mitigation was too little, the prudent-investment rule in practice often being no match for the capacity of utilities having all the relevant information to manipulate the rate base and renegotiate the rate of return every time a rate was set The regulatory response in some markets was adoption of a rate-based method commonly called "price caps," United States Telephone 1 F3d 21, 24 as, for example, by the 's setting of maximum access charges paid to large local-exchange companies *47 by inter exchange carriers, In re Policy and Rules Concerning Rates for Dominant Carriers, Rcd 676, 677, (1990) The price-cap scheme starts with a rate generated by the conventional cost-of-service formula, which it takes as a benchmark to be decreased at an average of some 2-3 percent a year to reflect productivity growth, Kahn, Telecommunications Act 330-332, subject
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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year to reflect productivity growth, Kahn, Telecommunications Act 330-332, subject to an upward adjustment if necessary to reflect inflation or certain unavoidable "exogenous costs" on which the company is authorized to recover a return Rcd, at 677, ¶ Although the price caps do not eliminate games manship, since there are still battles to be fought over the productivity offset and allowable exogenous costs, United States Telephone Assn, at 24, they do give companies an incentive "to improve productivity to the maximum extent possible," by entitling those that out perform the productivity offset to keep resulting profits, Rcd, at 677-67, ¶¶ 7-9 Ultimately, the goal, as under the basic prudent-investment rule, is to encourage investment in more productive equipment Before the passage of the Act, the price cap was, at the federal level, the final stage in a century of developing rate setting What had changed throughout the era beginning with was prevailing opinion on how to calculate the most useful rate base, with the disagreement between fair-value and cost advocates turning on whether invested capital was the key to the right balance between investors and ratepayers, and with the price-cap scheme simply being a rate-based offset to the utilities' advantage of superior knowledge of the facts employed in costof-service rate making What is remarkable about this evolution of just and reasonable rate setting, however, is what did not change The enduring feature of rate setting from to the institution of price caps was the idea that calculating a rate base and then allowing a fair rate of *4 return on it was a sensible way to identify a range of rates that would be just and reasonable to investors and ratepayers Equally enduring throughout the period was dissatisfaction with the successive rate-based variants From the constancy of this dissatisfaction, one possible lesson was drawn by Congress in the Act, which was that regulation using the traditional rate-based methodologies gave monopolies too great an advantage and that the answer lay in moving away from the assumption common to all the rate-based methods, that the monopolistic structure within the discrete markets would endure Under the local-competition provisions of the Act, Congress called for rate making different from any historical practice, to achieve the entirely new objective of uprooting the monopolies that traditional rate-based methods had perpetuated H R Conf Rep No 4-230, p 113 A leading backer of the Act in the Senate put the new goal this way: "This is extraordinary in the sense of telling private industry that this is what they have to do in order to let the
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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what they have to do in order to let the come in and try to beat your economic brains out "It is kind of almost a jump-start I will do everything I have to let you into my business, because we used to be a bottleneck; we used to be a monopoly; we used to control everything "Now, this legislation says you will not control much of anything You will have to allow for nondiscriminatory access on an unbundled basis to the network functions and services of the Bell operating companies network that is at least equal in type, quality, and price to the access [a] Bell operating company affords to itself" 1 Cong Rec 172 (199) (remarks of Sen Breaux (La) on ) *49 For the first time, Congress passed a rate setting statute with the aim not just to balance interests between sellers and buyers, but to reorganize markets by rendering regulated utilities' monopolies vulnerable to interlopers, even if that meant swallowing the traditional federal reluctance to intrude into local telephone markets The approach was deliberate, through a hybrid jurisdictional scheme with the setting a basic, default for use in setting rates when carriers fail to agree, but leaving it to state utility commissions to set the actual rates While the Act is like its predecessors in tying the to the objectives of "just and reasonable" and nondiscriminatory rates, 47 US C 22(d)(1), it is radically unlike all previous statutes in providing that rates be set "without reference to a rate-of-return or other rate-based proceeding," 22(d)(1)(A)(i) The Act thus appears to be an explicit disavowal of the familiar public-utility model of rate regulation (whether in its fair-value or cost-of-service incarnations) presumably still being applied by many States for retail sales, see In re Implementation of Local Competition in Telecommunications Act of 11 Rcd 1499, 17, ¶ 704 (First Report and Order), in favor of novel ratesetting designed to give aspiring every possible incentive to enter local retail telephone markets, short of confiscating the incumbents' property B The physical incarnation of such a market, a "local exchange," is a network connecting terminals like telephones, faxes, and modems to other terminals within a geographical area like a city From terminal network interface devices, feeder wires, collectively called the "local loop," are run to local switches that aggregate traffic into common "trunks" The local loop was traditionally, and is still largely, made of copper wire, though fiber-optic cable is also used, albeit to a *490 far lesser extent than in long-haul markets[] Just as the loop runs from terminals to local
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markets[] Just as the loop runs from terminals to local switches, the trunks run from the local switches to centralized, or tandem, switches, originally worked by hand but now by computer, which operate much like railway switches, directing traffic into other trunks A signal is sent toward its destination terminal on these common ways so far as necessary, then routed back down another hierarchy of switches to the intended telephone or other equipment A local exchange is thus a transportation network for communications signals, radiating like a root system from a "central office" (or several offices for larger areas) to individual telephones, faxes, and the like It is easy to see why a company that owns a local exchange (what the Act calls an "incumbent local exchange carrier," 47 US C 21(h)) would have an almost insurmountable competitive advantage not only in routing calls within the exchange, but, through its control of this local market, in the markets for terminal equipment and long-distance calling as well A newcomer could not compete with the incumbent carrier to provide local service without coming close to replicating the incumbent's entire existing network, the most costly and difficult part of which would be laying down the "last mile" of feeder wire, the local loop, to the thousands (or millions) of terminal points in individual houses and businesses[11] The incumbent company could also control its local-loop plant so as to connect only with terminals it manufactured or selected, and could place conditions or fees (called "access charges") on long-distance carriers seeking to connect *491 with its network In an unregulated world, another telecommunications carrier would be forced to comply with these conditions, or it could never reach the customers of a local exchange The Act both prohibits state and local regulation that impedes the provision of "telecommunications service," 23(a),[12] and obligates incumbent carriers to allow to enter their local markets, 21(c) Section 21(c) addresses the practical difficulties of fostering local competition by recognizing three strategies that a potential competitor may pursue First, a competitor entering the market (a "requesting" carrier, 21(c)(2)) may decide to engage in pure facilities-based competition, that is, to build its own network to replace or supplement the network of the incumbent If an entrant takes this course, the Act obligates the incumbent to "interconnect" the competitor's facilities to its own network to whatever extent is necessary to allow the competitor's facilities to operate 21(a) and (c)(2) At the other end of the spectrum, the statute permits an entrant to skip construction and instead simply to buy and resell "telecommunications service," which
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and instead simply to buy and resell "telecommunications service," which the incumbent has a duty to sell at wholesale 21(b)(1) and (c)(4) Between these extremes, an entering competitor may choose to lease certain of an incumbent's "network"[13] which *492 the incumbent has a duty to provide "on an unbundled basis" at terms that are "just, reasonable, and nondiscriminatory" 21(c)(3) Since wholesale markets for companies engaged in resale, leasing, or interconnection of facilities cannot be created without addressing rates, Congress provided for rates to be set either by contracts between carriers or by state utility commission rate orders 22(a)(b) Like other federal utility statutes that authorize contracts approved by a regulatory agency in setting rates between businesses, e g, 16 US C 24d(d) (Federal Power Act); 1 US C 717c(c) (Natural Act), the Act permits incumbent and entering carriers to negotiate private rate agreements, 47 US C 22(a);[14] see also 21(c)(1) (duty to negotiate in good faith) State utility commissions are required to accept any such agreement unless it discriminates against a carrier not a party to the contract, or is otherwise shown to be contrary to the public interest 22(e)(1) and (e)(2)(A) Carriers, of course, might well not agree, in which case an entering carrier has a statutory option to request mediation by a state commission, 22(a)(2) But the option comes with strings, for mediation subjects the parties to the duties specified in 21 and the pricing standards set forth in 22(d), as *493 interpreted by the 's regulations, 22(e)(2)(B) These regulations are at issue here As to pricing, the Act provides that when incumbent and requesting carriers fail to agree, state commissions will set a "just and reasonable" and "nondiscriminatory" rate for interconnection or the lease of network based on "the cost of providing the network element," which "may include a reasonable profit"[1] 22(d)(1) In setting these rates, the state commissions are, however, subject to that important limitation previously unknown to utility regulation: the rate must be "determined without reference to a rate-of-return or other rate-based proceeding" In AT&T 2 US 3, 34-3 this Court upheld the 's jurisdiction to impose a new on the States when setting these rates The attack today is on the legality and logic of the particular the Commission chose As the Act required, six months after its effective date the implemented the local-competition provisions in its First Report and Order, which included as an appendix the new regulations at issue Challenges to the order, mostly by incumbent local-exchange carriers and state commissions, were consolidated in the United States Court of Appeals for the
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consolidated in the United States Court of Appeals for the Eighth Circuit Iowa 120 F3d 73, aff'd in part and rev'd in part, 2 US 3, See also rev'd in part, 2 US 3, So far as it bears on where we are today, the initial decision by the Eighth Circuit held that the had no authority *494 to control the of state commissions setting the rates incumbent local-exchange carriers could charge entrants for network 47 CFR (b)(1) Iowa The Eighth Circuit also held that the misconstrued the plain language of 21(c)(3) in implementing a set of "combination" rules, 47 CFR 131(b)(f) the most important of which provided that "an incumbent LEC shall not separate requested network that the incumbent LEC currently combines," 131(b) On the other hand, the Court of Appeals accepted the 's view that the Act required no threshold ownership of facilities by a requesting carrier, First Report and Order ¶¶ 32-340, and upheld Rule 319, 47 CFR 1319 which read "network " broadly, to require incumbent carriers to provide not only equipment but also services and functions, such as operations support systems (e g, billing databases), 1319(f)(1), operator services and directory assistance, 1319(g), and vertical switching features like call-waiting and caller I D, First Report and Order ¶¶ 263, 3 120 F3d, at 0- This Court affirmed in part and in larger part reversed AT&T 2 U S, at We reversed in upholding the 's jurisdiction to "design a pricing " to bind state ratemaking commissions, at 3, as well as one of the 's combination rules, Rule 31(b), barring incumbents from separating currently combined network when furnishing them to entrants that request them in a combined form, at 39 We also reversed in striking down Rule 319, holding that its provision for blanket access to network was inconsistent with the "necessary" and "impair" standards of 47 US C 21(d)(2), 2 US, at 392 We affirmed the Eighth Circuit, however, in upholding the 's broad definition of network to be provided, and *49 the 's understanding that the Act imposed no facilitiesownership requirement, The case then returned to the Eighth Circuit at With the 's general authority to establish a pricing secure, the incumbent carriers' primary challenge on remand went to the method that the Commission chose There was also renewed controversy over the combination rules (Rules 31(c)(f)) that the Eighth Circuit had struck down along with Rule 31(b), but upon which this Court expressed no opinion when it reversed the invalidation of that latter rule 219 F3d 744, As for the method to derive a
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219 F3d 744, As for the method to derive a "nondiscriminatory," "just and reasonable rate for network" the Act requires the to decide how to value "the cost of providing the network element [which] may include a reasonable profit," although the is (as already seen) forbidden to allow any "reference to a rate-of-return or other ratebased proceeding," 22(d)(1) Within the discretion left to it after eliminating any dependence on a "rate-of-return or other rate-based proceeding," the Commission chose a way of treating "cost" as "forward-looking economic cost," 47 CFR something distinct from the kind of historically based cost generally relied upon in valuing a rate base after Hope Natural In Rule 0, the defined the "forward-looking economic cost of an element [as] the sum of (1) the total element long-run incremental cost of the element [TELRIC]; [and] (2) a reasonable allocation of forward-looking common costs," (a), common costs being "costs incurred in providing a group of that "cannot be attributed directly to individual" (c)(1) Most important of all, the decided that the TELRIC "should be measured based on the use of the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the incumbent[`s] wire centers" (b)(1) *496 "The TELRIC of an element has three components, the operating expenses, the depreciation cost, and the appropriate risk-adjusted cost of capital" First Report and Order ¶ 703 (footnote omitted) See also 47 CFR (b)(2) (3) A concrete example may help Assume that it would cost $1 a year to operate a most efficient loop element; that it would take $ for interest payments on the capital a carrier would have to invest to build the lowest cost loop centered upon an incumbent carrier's existing wire centers (say $0, at percent per annum); and that $9 would be reasonable for depreciation on that loop (an 11-year useful life); then the annual TELRIC for the loop element would be $20[16] The Court of Appeals understood 22(d)(1)'s reference to "the cost of providing the network element" to be ambiguous as between "forward-looking" and "historical" cost, so that a forward-looking ratesetting method would presumably be a reasonable implementation of the statute But the Eighth Circuit thought the ambiguity afforded no leeway beyond that, and read the Act to require any forward-looking to be "based on the incremental costs that an [incumbent] actually incurs or will incur in providing the unbundled access to its specific network " 219 F3d, at 71-73 Hence, the Eighth Circuit held that 22(d)(1) foreclosed the use of the TELRIC In other words, the court read
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use of the TELRIC In other words, the court read the Act as plainly requiring rates based on the "actual" not "hypothetical" "cost of providing the network element," and reasoned that TELRIC was clearly the latter at *497 70-71 The Eighth Circuit added, however, that if it were wrong and TELRIC were permitted, the claim that in prescribing TELRIC the had effected an unconstitutional taking would not be "ripe" until "resulting rates have been determined and applied" at 73-74 The Court of Appeals also, and for the second time, invalidated Rules 31(c)(f), 47 CFR 131(c)(f) the 's so-called "additional combination" rules, apparently for the same reason it had rejected them before, when it struck down Rule 31(b), the main combination rule 219 F3d, at 7-79 In brief, the rules require an incumbent carrier, upon request and compensation, to "perform the functions necessary to combine" network for an entrant, unless the combination is not "technically feasible" at 79 The Eighth Circuit read the language of 21(c)(3), with its reference to "allow[ing] requesting carriers to combine" as unambiguously requiring a requesting carrier, not a providing incumbent, to do any and all combining Before us, the incumbent local-exchange carriers claim error in the Eighth Circuit's holding that a "forward-looking cost" (as opposed to the use of "historical" cost) is consistent with 22(d)(1), and its conclusion that the use of the TELRIC forward-looking cost presents no "ripe" takings claim The and the entrants, on the other side, seek review of the Eighth Circuit's invalidation of the TELRIC and the additional combination rules We granted certiorari, 31 US 1124 and now affirm on the issues raised by the incumbents, and reverse on those raised by the and the entrants I A The incumbent carriers' first attack charges the with ignoring the plain meaning of the word "cost" as it occurs *49 in the provision of 22(d)(1) that "the just and reasonable rate for network shall be based on the cost (determined without reference to a rate-of-return or other rate-based proceeding) of providing the network element " The incumbents do not argue that in theory the statute precludes any forward-looking but they do claim that the cost of providing a competitor with a network element in the future must be calculated using the incumbent's past investment in the element and the means of providing it They contend that "cost" in the statute refers to "historical" cost, which they define as "what was in fact paid" for a capital asset, as distinct from "value," or "the price that would be paid on the open market" Brief for
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that would be paid on the open market" Brief for Petitioners in No 00-11, p 19 They say that the technical meaning of "cost" is "past capital expenditure," ib and they suggest an equation between "historical" and "embedded" costs, which the defines as "the costs that the incumbent LEC incurred in the past and that are recorded in the incumbent LEC's books of accounts," 47 CFR (d)(1) The argument boils down to the proposition that "the cost of providing the network element" can only mean, in plain language and in this particular technical context, the past cost to an incumbent of furnishing the specific network element actually, physically, to be provided The incumbents have picked an uphill battle At the most basic level of common usage, "cost" has no such clear implication A merchant who is asked about "the cost of providing the goods" he sells may reasonably quote their current wholesale market price, not the cost of the particular items he happens to have on his shelves, which may have been bought at higher or lower prices When the reference shifts from common speech into the technical realm, the incumbents still have to attack uphill To begin with, even when we have dealt with historical costs as a ratesetting basis, the cases have never assumed a sense *499 of "cost" as generous as the incumbents seem to claim[17] "Cost" as used in calculating the rate base under the traditional cost-of-service method did not stand for all past capital expenditures, but at most for those that were prudent, while prudent investment itself could be denied recovery when unexpected events rendered investment useless, Duquesne Light v 4 U S, at 312 And even when investment was wholly includable in the rate base, ratemakers often rejected the utilities' "embedded costs," their own book-value estimates, which typically were geared to maximize the rate base with high statements of past expenditures and working capital, combined with unduly low rates of depreciation See, e g, Hope Natural 320 U S, at 97 9 It would also be a mistake to forget that "cost" was a term in value-based rate making and has figured in contemporary state and federal ratemaking untethered to historical valuation[1] What is equally important is that the incumbents' plainmeaning argument ignores the statutory setting in which the mandate to use "cost" in valuing network occurs First, the Act uses "cost" as an intermediate term *00 in the calculation of "just and reasonable rates," 47 US C 22(d)(1), and it was the very point of Hope Natural that regulatory bodies required to set
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point of Hope Natural that regulatory bodies required to set rates expressed in these terms have ample discretion to choose 320 US, at Second, it would have been passing strange to think Congress tied "cost" to historical cost without a more specific indication, when the very same sentence that requires "cost" pricing also prohibits any reference to a "rate-of-return or other rate-based proceeding," 22(d)(1), each of which has been identified with historical cost ever since Hope Natural was decided[19] The fact is that without any better indication of meaning than the unadorned term, the word "cost" in 22(d)(1), as in accounting generally, is "a chameleon," Strickland v Commissioner, Maine Dept of Human Services, 96 F3d 42, 46 a "virtually meaningless" term, R Estes, Dictionary of Accounting 32 (2d ed 19) As Justice Breyer put it in Iowa Bd, words like "cost" "give ratesetting commissions broad methodological leeway; they say little about the `method employed' to determine a particular *01 rate" 2 US, at 423 We accordingly reach the conclusion adopted by the Court of Appeals, that nothing in 22(d)(1) plainly requires reference to historical investment when pegging rates to forward-looking "cost" B The incumbents' alternative argument is that even without a stern anchor in calculating "the cost of providing the network element," the particular forward-looking the chose is neither consistent with the plain language of 22(d)(1) nor within the zone of reasonable interpretation subject to deference under U S A Inc v Natural Resources Defense Council, Inc, 467 US 37, 43-4 This is so, they say, because TELRIC calculates the forward-looking cost by reference to a hypothetical, most efficient element at existing wire centers, not the actual network element being provided 1 The short answer to the objection that TELRIC violates plain language is much the same as the answer to the previous plain-language argument, for what the incumbents call the "hypothetical" element is simply the element valued in terms of a piece of equipment an incumbent may not own This claim, like the one just considered, is that plain language bars a definition of "cost" untethered to historical investment, and as explained already, the term "cost" is simply too protean to support the incumbents' argument 2 Similarly, the claim that TELRIC exceeds reasonable interpretative leeway is open to the objection already noted, that responsibility for "just and reasonable" rates leaves largely subject to discretion Permian Basin Area Rate Cases, 390 US 747, ("We must reiterate *02 that the breadth and complexity of the Commission's responsibilities demand that it be given every reasonable opportunity to formulate methods of regulation appropriate
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given every reasonable opportunity to formulate methods of regulation appropriate for the solution of its intensely practical difficulties") See generally -4, [20] The incumbents nevertheless field three arguments *03 They contend, first, that a method of calculating wholesale lease rates based on the costs of providing hypothetical, most efficient may simulate the competition envisioned by the Act but does not induce it Second, they argue that even if rates based on hypothetical could induce competition in theory, TELRIC cannot do this, because it does not provide the depreciation and risk-adjusted capital costs that the theory compels Finally, the incumbents say that even if these objections can be answered, TELRIC is needlessly, and hence unreasonably, complicated and impracticable a The incumbents' (and Justice Breyer's) basic critique of TELRIC is that by setting rates for leased network on the assumption of perfect competition, TELRIC perversely creates incentives against competition in fact See post, at 4-1 The incumbents say that in purporting to set incumbents' wholesale prices at the level that would exist in a perfectly competitive market (in order to make retail prices similarly competitive), TELRIC sets rates so low that entrants will always lease and never build network See post, at 49-0 And even if an entrant would otherwise consider building a network element more efficient than the best one then on the market (the one assumed in setting the TELRIC rate), it would likewise be deterred by the prospect that its lower cost in building and operating this new element would be immediately available to its ; under TELRIC, the incumbents assert, the lease rate for an incumbent's existing element would instantly *04 drop to match the marginal cost[21] of the entrant's new element once built See ante, at 0; Brief for Respondents BellSouth et al in Nos 00-, etc, pp 2-29 According to the incumbents, the result will be, not competition, but a sort of parasitic free riding, leaving TELRIC incapable of stimulating the facilities-based competition intended by Congress We think there are basically three answers to this nostimulation claim of unreasonableness: (1) the TELRIC does not assume that the relevant markets are perfectly competitive, and the scheme includes several features of inefficiency that undermine the plausibility of the incumbents' no-stimulation argument; (2) comparison of TELRIC with alternatives proposed by the incumbents as more reasonable are plausibly answered by the 's stated reasons to reject the alternatives; and (3) actual investment in competing facilities since the effective date of the Act simply belies the no-stimulation argument's conclusion (1) The basic assumption of the incumbents' no-stimulation argument is contrary to
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basic assumption of the incumbents' no-stimulation argument is contrary to fact As we explained, the argument rests on the assumption that in a perfectly efficient market, no one who can lease at a TELRIC rate will ever build But TELRIC does not assume a perfectly efficient wholesale market or one that is likely to resemble perfection in any foreseeable time The incumbents thus make the same mistake we attributed in a different setting to the itself In Iowa Bd, we rejected the 's necessary-and-impair rule, 47 CFR 1319 which required incumbents to lease any network element that might reduce, however slightly, an entrant's marginal cost of providing a telecommunications service, as compared with providing the service using the entrant's own equivalent *0 element 2 US, at 39-390 "In a world of perfect competition, in which all carriers are providing their service at marginal cost, the Commission's total equating of increased cost (or decreased quality) with `necessity' and `impairment' might be reasonable, but it has not established the existence of such an ideal world" Not only that, but the has of its own accord allowed for inefficiency in the TELRIC design in additional ways affecting the likelihood that TELRIC will squelch competition in facilities First, the Commission has qualified any assumption of efficiency by requiring ratesetters to calculate cost on the basis of "the existing location of the incumbent[`s] wire centers" 47 CFR (b)(1) This means that certain network principally local-loop will not be priced at their most efficient cost and configuration to the extent, say, that a shorter loop could serve a local exchange if the incumbent's wire centers were relocated for a snugger fit with the current geography of terminal locations Second, TELRIC rates in practice will differ from the products of a perfectly competitive market owing to built-in lags in price adjustments In a perfectly competitive market, retail prices drop instantly to the marginal cost of the most efficient company See Mankiw 23-2, 312-313 As the incumbents point out, this would deter market entry because a potential entrant would know that even if it could provide a retail service at a lower marginal cost, it would instantly lose that competitive edge once it entered the market and adjusted to match its price See Brief for Respondents BellSouth et al in Nos 00-, etc, at 2 29 Wholesale TELRIC rates, however, are set by state commissions, usually by arbitrated agreements with 3- or 4-year terms, see Brief for Respondent Qwest Communications International, Inc, in Nos 00-11, etc, p 39; Reply Brief for Petitioners Worldcom, Inc, et al 6; Reply
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Reply Brief for Petitioners Worldcom, Inc, et al 6; Reply Brief for Respondent Sprint Corp 7, and n 3; Reply Brief for Petitioner *06 AT&T Corp 11-12; and no one claims that a competitor could receive immediately on demand a TELRIC rate on a leased element at the marginal cost of the entrant who introduces a more efficient element But even if a competitor could call for a new TELRIC rate proceeding immediately upon the introduction of a more efficient element by a competing entrant, the competitor would not necessarily know enough to make the call; the fact of the element's greater efficiency would only become apparent when reflected in lower retail prices drawing demand away from existing (including the incumbent), forcing them to look to lowering their own marginal costs In practice, it would take some time for the innovating entrant to install the new equipment, to engage in marketing offering a lower retail price to attract business, and to steal away enough customer subscriptions (given the limited opportunity to capture untapped customers for local telephone service) for to register the drop in demand Finally, it bears reminding that the prescribes measurement of the TELRIC "based on the use of the most efficient telecommunications technology currently available," 47 CFR (b)(1) Owing to that condition of current availability, the marginal cost of a most efficient element that an entrant alone has built and uses would not set a new pricing standard until it became available to as an alternative to the incumbent's corresponding element[22] *07 As a reviewing Court we are, of course, in no position to assess the precise economic significance of these and other exceptions to the perfectly functioning market that the incumbents' criticism assumes Instead, it is enough to recognize that the incumbents' assumption may well be incorrect Inefficiencies built into the scheme may provide incentives and opportunities for to build their own network perhaps for reasons unrelated to pricing (such as the possibility of expansion into data-transmission markets by deploying "broadband" technologies, cf post, at 2 (Breyer, J, concurring in part and dissenting in part), or the desirability of independence from an incumbent's management and maintenance of network ) In any event, the significance of the incumbents' mistake of fact may be indicated best not by argument here, but by the evidence of actual investment in facilities-based competition since TELRIC went into effect, to be discussed at Part IB-2 a(3), infra[23] (2) Perhaps sensing the futility of an unsupported theoretical attack, the incumbents make the complementary argument that the 's choice of TELRIC, whatever might be
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argument that the 's choice of TELRIC, whatever might be about it on its own terms, was unreasonable as a matter of law because other methods of determining cost would have done a better job of inducing competition Having considered *0 the proffered alternatives and the reasons the gave for rejecting them, 47 CFR (d) ; First Report and Order ¶¶ 630-711, we cannot say that the acted unreasonably in picking TELRIC to promote the mandated competition The incumbents present three principal alternatives for setting rates for network : embedded-cost methodologies, the efficient component pricing rule, and Ramsey pricing[24] The arguments that one or another of these methodologies is preferable to TELRIC share a basic claim: it was unreasonable for the to choose a method of setting rates that fails to include, at least in theory, some additional costs beyond what would be most efficient in the long run,[2] because lease rates that incorporate such costs will do a better job of inducing competition[26] The theory is that once an *09 entrant has its foot in the door, it will have a greater incentive to build and operate its own more efficient network element if the lease rates reflect something of the incumbents' actual and inefficient marginal costs And once the entrant develops the element at its lower marginal cost and the retail price drops accordingly, the incumbent will have no choice but to innovate itself by building the most efficient element or finding ways to reduce its marginal cost to retain its market share The generic feature of the incumbents' proposed alternatives, in other words, is that some degree of long-run inefficiency ought to be preserved through the lease rates, in order to give an entrant a more efficient alternative to leasing Of course, we have already seen that TELRIC itself tolerates some degree of inefficient pricing in its existing wire-center configuration requirement and through the ratemaking and development lags just described This aside, however, there are at least two objections that generally undercut any desirability that such alternatives may seem to offer over TELRIC The first objection turns on the fact that a lease rate that compensates the lessor for some degree of existing inefficiency (at least from the perspective of the long run) is simply a higher rate, and the difference between such a higher rate and the TELRIC rate could be the difference that keeps a potential competitor from entering the market See n 27, infra Cf First Report and Order ¶ 37 ("[I]n some areas, the most efficient means of providing competing service may be
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the most efficient means of providing competing service may be through the use of unbundled loops In such cases, preventing access to unbundled loops would either discourage a potential competitor from entering the market in that area, thereby denying those consumers the benefits of competition, or cause the competitor to construct unnecessarily duplicative * facilities, thereby misallocating societal resources") If the TELRIC rate for bottleneck is $0 and for other (say, switches) is $, an entering competitor that can provide its own, more efficient switch at what amounts to a $7 rate can enter the market for $7 If the lease rate for the bottleneck were higher (say, $1) to reflect some of the inefficiency of bottleneck that actually cost the incumbent $, then the entrant with only $7 will be kept out Is it better to risk keeping more potential entrants out, or to induce them to compete in less capital-intensive facilities with lessened incentives to build their own bottleneck facilities? It was not obviously unreasonable for the to prefer the latter[27] *11 The second general objection turns the incumbents' attack on TELRIC against the incumbents' own alternatives If the problem with TELRIC is that an entrant will never build because at the instant it builds, other can lease the analogous existing (but less efficient) element from an incumbent at a rate assuming the same most efficient marginal cost, then the same problem persists under the incumbents' methods For as soon as an entrant builds a more efficient element, the incumbent will be forced to price to match,[2] and that rate will be available to all other The point, of course, is that things are not this simple As we have under TELRIC, price adjustment is not instantaneous in rates for a leased element corresponding to an innovating entrant's more efficient element; the same would presumably be true under the incumbents' alternative methods, though they do not come out and say it Once we get into the details of the specific alternative methods, other infirmities become evident that undermine the claim that the could not reasonably have preferred TELRIC As for an embedded-cost the problem with a method that relies in any part on historical cost, the cost the incumbents say they actually incur in leasing network is that it will pass on to lessees the difference between most efficient cost and embedded cost[29] See First Report and Order ¶ 70 Any such cost difference is an inefficiency, whether caused by poor management resulting in higher operating costs or poor investment strategies *12 that have inflated capital and depreciation
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poor investment strategies *12 that have inflated capital and depreciation If leased were priced according to embedded costs, the incumbents could pass these inefficiencies to in need of their wholesale and to that extent defeat the competitive purpose of forcing efficient choices on all carriers whether incumbents or entrants The upshot would be higher retail prices consumers would have to pay ¶¶ 6 and 70 There are, of course, objections other than inefficiency to any method of ratemaking that relies on embedded costs as allegedly reflected in incumbents' book-cost data, with the possibilities for manipulation this presents Even if incumbents have built and are operating leased at economically efficient costs, the temptation would remain to overstate book costs to ratemaking commissions and so perpetuate the intractable problems that led to the price-cap innovation See There is even an argument that the Act itself forbids embedded-cost methods, and while the rejected this absolutistic reading of the statute, First Report and Order ¶ 704,[30] it seems safe to say that the statutory language places a heavy presumption against any method resembling the traditional embedded-cost-of-service model of ratesetting[31] At the very least, proposing an embedded-cost *13 alternative is a counterintuitive way to show that selecting TELRIC was unreasonable Other incumbents say the was unreasonable to pick TELRIC over a method of ratesetting commonly called the efficient component pricing rule (ECPR) See Brief for Respondent Qwest Communications International, Inc, in Nos 00-11, etc, at 40- ECPR would base the rate for a leased element on its most efficient long-run incremental cost (presumably, something like the TELRIC) plus the opportunity cost to the incumbent when the entrant leasing *14 the element provides a competing telecommunications service using it See Iowa Bd, 2 U S, at 426 (Breyer, J, concurring in part and dissenting in part); J Sidak & D Spulber, Deregulatory Takings and the Regulatory Contract 24-2 ; First Report and Order ¶ 70 The opportunity cost is pegged to the retail revenue loss suffered by the incumbent when the entrant provides the service in its stead to its former customers The rejected ECPR because its calculation of opportunity cost relied on existing retail prices in monopolistic local-exchange markets, which bore no relation to efficient marginal cost "We conclude that ECPR is an improper method for setting prices of interconnection and unbundled network because the existing retail prices that would be used to compute incremental opportunity costs under ECPR are not cost-based Moreover, the ECPR does not provide any mechanism for moving prices towards competitive levels; it simply takes prices as given" In effect, the
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levels; it simply takes prices as given" In effect, the adjustment for opportunity cost, because it turns on pre-existing retail prices generated by embedded costs, would pass on the same inefficiencies and be vulnerable to the same asymmetries of information in ratemaking as a straightforward embedded-cost scheme[32] The third category of alternative methodologies proposed focuses on costs over an intermediate term where some fixed costs are unavoidable, as opposed to TELRIC's long run See n 2, The fundamental intuition underlying this method of ratesetting is that competition is actually favored by allowing incumbents rate recovery *1 of certain fixed costs efficiently incurred in the intermediate term The most commonly proposed variant of fixed-cost recovery ratesetting is "Ramsey pricing" See Iowa Bd, (Breyer, J, concurring in part and dissenting in part) Ramsey pricing was originally theorized as a method of discriminatory taxation of commodities to generate revenue with minimal discouragement of desired consumption Ramsey, A Contribution to the Theory of Taxation, 37 Econ J 47, -9 (1927) The underlying principle is that goods should be taxed or priced according to demand: taxes or prices should be higher as to goods for which demand is relatively inelastic K Train, Optimal Regulation: The Economic Theory of Natural Monopoly 122 12 As applied to the local-exchange wholesale market, Ramsey pricing would allow rate recovery of certain costs incurred by an incumbent above marginal cost, costs associated with providing an unbundled network element that are fixed and unavoidable over the intermediate run, typically the 3- or 4-year term of a rate arbitration agreement The specific mechanism for recovery through wholesale lease rates would be to spread such costs across the different to be leased according to the demand for each particular element First Report and Order ¶ 696 Cf B Mitchell & I Vogelsang, Telecommunications Pricing: Theory and Practice 43-61 Thus, when demand among entrants for loop is high as compared with demand for switch a higher proportion of fixed costs would be added as a premium to the loop-element lease rate than to the switch lease rate But this very feature appears to be a drawback when used as a method of setting rates for the wholesale market in unbundled network Because the for which demand among entrants will be highest are the costly bottleneck duplication of which is neither likely nor desired, high lease rates for these would be *16 the rates most likely to deter market entry, asour earlier example showed: if the rate for bottleneck went from $0 to $1, the $7 competitor would be kept out This is what the
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$7 competitor would be kept out This is what the has : "[W]e conclude that an allocation that relies exclusively on allocating common costs in inverse proportion to the sensitivity of demand for various network and services may not be used We conclude that such an allocation could unreasonably limit the extent of entry into local exchange markets by allocating more costs to, and thus raising the prices of, the most critical bottleneck inputs, the demand for which tends to be relatively inelastic Such an allocation of these costs would undermine the pro-competitive objectives of the Act" First Report and Order ¶ 696 (footnote omitted) (3) At the end of the day, theory aside, the claim that TELRIC is unreasonable as a matter of law because it simulates but does not produce facilities-based competition founders on fact The entrants have presented figures showing that they have invested in new facilities to the tune of $ billion since the passage of the Act see Association for Local Telecommunications Services, Local Competition Policy & the New Economy 4 ; Hearing on H R 142 before the House Committee on Energy and Commerce, Ser No 7-24, p 0 (statement of James H Henry, Managing General Partner, Greenfield Hill Capital, LLP); see also M Glover & D Epps, Is the Telecommunications Act of Working?, 2 Admin L Rev 13, 1 The 's statistics indicate substantial resort to pure and partial facilities-based competition among the three entry strategies: as of June 30, 2001, 33 percent of entrants were using their own facilities; 23 percent were reselling services; and 44 percent were leasing *17 network (26 percent of entrants leasing loops with switching; 1 percent without switching) See Local Telephone Competition: Status as of June 30, 2001, p 2 (Feb 27, 2002) (tables 3-4) The incumbents do not contradict these figures, but merely speculate that the investment has not been as much as it could have been under other ratemaking approaches, and they note that investment has more recently shifted to nonfacilities entry options We, of course, have no idea whether a different forward-looking pricing scheme would have generated even greater competitive investment than the $ billion that the entrants claim, but it suffices to say that a regulatory scheme that can boast such substantial competitive capital spending over a 4-year period is not easily described as an unreasonable way to promote competitive investment in facilities[33] b The incumbents' second reason for calling TELRIC an unreasonable exercise of the 's regulatory discretion is the supposed incapacity of this to provide enough depreciation and allowance for capital
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of this to provide enough depreciation and allowance for capital costs to induce rational competition on the theory's own terms This challenge must be assessed against the background of utilities' customary preference for extended depreciation schedules in ratemaking (so as to preserve high rate bases), see n ; we have already noted the consequence of the utilities' approach, that the "book" value or embedded costs of capital presented to traditional ratemaking bodies often bore *1 little resemblance to the economic value of the capital See Releases Audit Reports on RBOCs' Property Records, Report No CC 99-3, WL 9044 ("[B]ook costs may be overstated by approximately $ billion"); Huber et al116 (We now know that "[b]y the early 190s, the Bell System had accumulated a vast library of accounting books that belonged alongside dime-store novels and other works of fiction By 197, it was widely estimated that the book value of telephone company investments exceeded market value by $2 billion dollars") TELRIC seeks to avoid this problem by basing its valuation on the market price for most efficient ; when rates are figured by reference to a hypothetical element instead of an incumbent's actual element, the incumbent gets no unfair advantage from favorable depreciation rates in the traditional sense This, according to the incumbents, will be fatal to competition Their argument is that TELRIC will result in constantly changing rates based on ever cheaper, more efficient technology; the incumbents will be unable to write off each new piece of technology rapidly enough to anticipate an even newer gadget portending a new and lower rate They will be stuck, they say, with sunk costs in less efficient plant and equipment, with their investment unrecoverable through depreciation, and their increased risk unrecognized and uncompensated[34] *19 The argument, however, rests upon a fundamentally false premise, that the TELRIC rules limit the depreciation and capital costs that rate setting commissions may recognize In fact, TELRIC itself prescribes no fixed percentage rate as risk-adjusted capital costs and recognizes no particular useful life as a basis for calculating depreciation costs On the contrary, the committed considerable discretion to state commissions on these matters "Based on the current record, we conclude that the currently authorized rate of return at the federal or state level is a reasonable starting point for TELRIC calculations, and incumbent LECs bear the burden of demonstrating with specificity that the business risks that they face in providing unbundled network and interconnection services would justify a different risk-adjusted cost of capital or depreciation rate States may adjust the cost of capital if a party demonstrates
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may adjust the cost of capital if a party demonstrates to a state commission that either a higher or a lower level of cost of capital is warranted, without that commission conducting a `rate-of-return or other rate based proceeding' We note that the risk-adjusted cost of capital need not be uniform for all We intend to re-examine the issue of the appropriate riskadjusted cost of capital on an ongoing basis, particularly in light of the state commissions' experiences in addressing this issue in specific situations" First Report and Order ¶ 702 The order thus treated then-current capital costs and rates of depreciation as mere starting points, to be adjusted upward if the incumbents demonstrate the need That is, for *20 calculating leased element rates, the Commission specifically permits more favorable allowances for costs of capital and depreciation than were generally allowed under traditional ratemaking practice The incumbents' fallback position, that existing rates of depreciation and costs of capital are not even reasonable starting points, is unpersuasive As to depreciation rates, it is well to start by asking how serious a threat there may be of galloping obsolescence requiring commensurately rising depreciation rates The answer does not support the incumbents The local-loop plant makes up at least 4 percent of the incumbents will have to provide, see ¶ 37, n 1 ("As of 199 [l]ocal loop plant comprises approximately $9 billion of total plant in service, which represents 4 percent of network plant"), and while the technology of certain other like switches has evolved very rapidly in recent years, loop technology generally has gone no further than copper twistedpair wire and fiber-optic cable in the past couple of decades See n We have been informed of no specter of imminently obsolescent loops requiring a radical revision of currently reasonable depreciation[3] This is significant because the found as a general matter that federally prescribed rates of depreciation and counterparts in many States are fairly up to date with the current state of telecommunications technologies as to different See First Report and Order ¶ 702 *21 As for risk-adjusted costs of capital, competition in fact has been slow to materialize in local-exchange retail markets (as of June 30, 2001, the incumbents retained a 91 percent share of the local-exchange markets, Local Telephone Competition: Status as of June 30, 2001 (Feb 27, 2002) (table 1)), and whether the 's assumption about adequate risk adjustment was based on hypothetical or actual competition, it seems fair to say that the rate of 112 percent mentioned by the First Report and Order ¶ 702, is a "reasonable
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the First Report and Order ¶ 702, is a "reasonable starting point" for return on equity calculations based on the current lack of significant competition in local-exchange markets A basic weakness of the incumbents' attack, indeed, is its tendency to argue in highly general terms, whereas TELRIC rates are calculated on the basis of individual TELRIC rates leave plenty of room for differences in the appropriate depreciation rates and risk-adjusted capital costs depending on the nature and technology of the specific element to be priced (as between switches and loops, for example) For that matter, even the blanket assumption that on a TELRIC valuation the estimated purchase price of a most efficient element will necessarily be lower than the actual costs of current is suspect The New York Public Service Commission, for example, used the cost of the more expensive fiber-optic cable as the basis for its TELRIC loop fixed rates, notwithstanding the fact that argued that the cheaper copper-wire loop was more efficient for voice communications and should have been the underlying valuation for loop rates See 2 Lodging Material for Respondents Worldcom, Inc, et al 6-67 (Opinion No 97 2, effective Apr 1, (Opinion and Order Setting Rates for First Group of Network Elements)) In light of the many different TELRIC rates to be calculated by state commissions across the country, see Brief for Petitioners Worldcom, Inc, et al in No 00-, p 21 ("millions"), the Commission's *22 prescription of a general "starting point" is reasonable enough c Finally, as to the incumbents' accusation that TELRIC is too complicated to be practical, a criticism at least as telling can be leveled at traditional ratemaking methodologies and the alternatives proffered "One important potential advantage of the T[E]LRIC approach, however is its relative ease of calculation Rather than estimate costs reflecting the present [incumbent] networka difficult task even if [incumbents] provided reliable datait is possible to generate T[E]LRIC estimates based on a `green field' approach, which assumes construction of a network from scratch" App 12 ) To the extent that the traditional public-utility model generally relied on embedded costs, similar sorts of complexity in reckoning were exacerbated by an asymmetry of information, much to the utilities' benefit See 499 And what we see from the record suggests that TELRIC rate proceedings are surprisingly smooth-running affairs, with incumbents and typically presenting two conflicting economic models supported by expert testimony, and state commissioners customarily assigning rates based on some predictions from one model and others from its counterpart See, e g, 1 Lodging Material for Respondents Worldcom, Inc, et al 146-147, 367-36
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Lodging Material for Respondents Worldcom, Inc, et al 146-147, 367-36 ; 2 at 9-9, 701-704 (N Y Pub Serv Comm'n, Opinion No ) At bottom, battles of experts are bound to be part of any ratesetting scheme, and the was reasonable to prefer TELRIC over alternative fixed-cost schemes that preserve home-field advantages for the incumbents *23 * * * We cannot say whether the passage of time will show competition prompted by TELRIC to be an illusion, but TELRIC appears to be a reasonable policy for now, and that is all that counts See 467 U S, at The incumbents have failed to show that TELRIC is unreasonable on its own terms, largely because they fall into the trap of mischaracterizing the 's departures from the assumption of a perfectly competitive market (the wire-center limitation, regulatory and development lags, or the refusal to prescribe high depreciation and capital costs) as inconsistencies rather than pragmatic features of the TELRIC plan Nor have they shown it was unreasonable for the to pick TELRIC over alternative methods, or presented evidence to rebut the entrants' figures as to the level of competitive investment in local-exchange markets In short, the incumbents have failed to carry their burden of showing unreasonableness to defeat the deference due the Commission We therefore reverse the Eighth Circuit's judgment insofar as it invalidated TELRIC as a method for setting rates under the Act C The incumbents' claim of TELRIC's inherent inadequacy to deal with depreciation or capital costs has its counterpart in a further argument They seek to apply the rule of constitutional avoidance in saying that "cost" ought to be construed by reference to historical investment in order to avoid a serious constitutional question, whether a so divorced from investment actually made will lead to a taking of property in violation of the Fifth (or Fourteenth) Amendment The Eighth Circuit did not think any such serious question was in the offing, 219 F3d, at 73-74, and neither do we At the outset, it is well to understand that the incumbent carriers do not present the portent of a constitutional *24 taking claim in the way that is usual in ratemaking cases They do not argue that any particular, actual TELRIC rate is "so unjust as to be confiscatory," that is, as threatening an incumbent's "financial integrity" Duquesne Light 4 U S, at 307, 312 Indeed, the incumbent carriers have not even presented us with an instance of TELRIC rates, which are to be set or approved by state commissions and reviewed in the first instance in the federal district
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and reviewed in the first instance in the federal district courts, 47 US C 22(e)(4) and (e)(6) And this, despite the fact that some States apparently have put rates in place already using TELRIC See First Report and Order ¶ 631 and accompanying footnotes ("A number of states already employ, or have plans to utilize, some form of [long-run incremental cost] in their approach to setting prices for unbundled network ") This want of any rate to be reviewed is significant, given that this Court has never considered a taking challenge on a ratesetting without being presented with specific rate orders alleged to be confiscatory See, e g, Duquesne Light (denial of $3 million and $14 million increases to rate bases of electric utilities); 169 U S, at Granted, the Court has never strictly held that a utility must have rates in hand before it can claim that the adoption of a new method of setting rates will necessarily produce an unconstitutional taking, but that has been the implication of much the Court has See Hope Natural 320 U S, at ("The fact that the method employed to reach [just and reasonable rates] may contain infirmities is not important"); Natural Pipeline 31 U S, at 6 ; Los Angeles & Elec Corp v Railroad Comm'n of Cal, 29 US 27, 30 ("[M]indful of its distinctive function in the enforcement of constitutional rights, the Court has refused to be bound by *2 any artificial rule or formula which changed conditions might upset") Undeniably, then, the general rule is that any question about the constitutionality of ratesetting is raised by rates, not methods, and this means that the policy of construing a statute to avoid constitutional questions where possible is presumptively out of place when construing statutes prescribing methods The incumbents say this action is one of the rare ones placed outside the general rule by signs, too strong to ignore, that takings will occur if the TELRIC interpretation of 22(d)(1) is allowed First, they compare, at the level of the entire network (as opposed to element-by-element), industry balance-sheet indications of historical investment in local telephone markets with the corresponding estimate of a TELRIC evaluation of the cost to build a new and efficient national system of local exchanges providing universal service Brief for Petitioners in No 00-11, at -11, and n 6 As against an estimated $ billion for such a new system, the incumbents juxtapose a value representing "total plant" on the industry balance sheet for of roughly $342 billion They argue that the huge and unreasonable difference is proof
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They argue that the huge and unreasonable difference is proof that TELRIC will necessarily result in confiscatory rates (table 29, line no 32)) The comparison, however, is spurious because the numbers assumed by the incumbents are clearly wrong On the one side, the $ billion is supposed to be based on constructing a barebones universal-service telephone network, and so it fails to cover associated with more advanced telecommunications services that incumbents are required to provide by lease under 47 US C 21(c)(3) See Application by Bell Atlantic New York for Authorization under Section 271 of the Communications Act, 1 Rcd 393, ¶ 24 aff'd, 220 F3d 607 See also In re Federal-State Joint Bd on Universal Serv, 14 Rcd 20432, ¶ and n 12 (explaining that the universalservice *26 model may not be "appropriate [for] determining prices for unbundled network ") We do not know how much higher the efficient replacement figure should be, but we can reasonably assume that $ billion is too low On the other side of the comparison, the "balance sheet" number is patently misstated As explained above, any rates under the traditional public-utility model would be calculated on a rate base (whether fair value or cost of service) subject to deductions for accrued depreciation See Phillips 3-31 The net plant investment after depreciation is not $342 billion but $1 billion, Statistics of Communications Common Carriers, at 1 (table 29, line no 0), an amount less than the TELRIC figure the incumbents would like us to assume And even after we increase the $1 billion by the amount of net current liabilities ($22 billion) on the balance sheet, (line no 64 minus line no 13), as a rough (and generous) estimate of the working-capital allowance under cost of service, the rate base would then be $1 billion, still a far cry from the $342 billion the incumbents tout, and less than percent above the incumbents' $ billion universal-service TELRIC figure What the best numbers may be we are in no position to say: the point is only that the numbers being thrown out by the incumbents are no evidence that TELRIC lease rates would be confiscatory, sight unseen The incumbent carriers' second try at nonrate constitutional litigation focuses on reliance interests allegedly jeopardized by an intentional switch in rate setting methodologies They rely on Duquesne, where we held as usual that a rate setting would normally be judged only by the "overall impact of the rate orders,"[36] but went further *27 in dicta We remarked that "a State's decision to arbitrarily switch back and forth between
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"a State's decision to arbitrarily switch back and forth between methodologies in a way which required investors to bear the risk of bad investments at some times while denying them the benefit of good investments at others would raise serious constitutional questions" 4 US, at 31[37] In other words, there may be a taking challenge distinct from a plain-vanilla objection to arbitrary or capricious agency action[3] if a ratemaking body were to make opportunistic changes in ratesetting methodologies just to minimize return on capital investment in a utility enterprise In Duquesne itself, there was no need to decide whether there might be an exception to the rate-order requirement for a claim of taking by rates, and there is no reason here to decide whether the policy of constitutional avoidance should be invoked in order to anticipate a rate-order taking claim The reason is the same in each case: the incumbent carriers here are just like the electric utilities in Duquesne in failing to present any evidence that the decision to adopt TELRIC *2 was arbitrary, opportunistic, or undertaken with a confiscatory purpose What we do know is very much to the contrary First of all, there was no "switch" of methodologies, since the wholesale market for leasing network is something brand new under the Act There was no replacement of any predecessor methods, much less an opportunistic switch "back and forth" And to the extent that the incumbents argue that there was at least an expectation that some historically anchored cost-of-service method would set wholesale lease rates, no such promise was ever made First Report and Order ¶ 706 ("[C]ontrary to assertions by some [incumbents], regulation does not and should not guarantee full recovery of their embedded costs Such a guarantee would exceed the assurances that [the ] or the states have provided in the past") Cf Duquesne, at 31 Any investor paying attention had to realize that he could not rely indefinitely on traditional ratemaking methods but would simply have to rely on the constitutional bar against confiscatory rates[39] IV A The effort by the Government and the competing carriers to overturn the Eighth Circuit's invalidation of the additional *29 combination rules, 47 CFR 131(c)(f) draws the incumbents' threshold objection that the challenge is barred by waiver, since the petition to review the invalidation of Rule 31(b) did not extend to the Eighth Circuit's simultaneous invalidation of the four companion rules, Rules 31(c)(f), 19, n 39[40] The incumbents must, of course, acknowledge that the Court of Appeals sua sponte invited briefing on the status of Rules 31(c)(f)[] on remand
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invited briefing on the status of Rules 31(c)(f)[] on remand after this Court's reinstatement of Rule 31(b), Iowa Bd, 2 U S, at 39, and specifically struck them down again, albeit on its 219 F3d, at 7-79 But the incumbent carriers argue that the Eighth Circuit exceeded the scope of this Court's mandate when it revisited the unchallenged portion of its earlier holding, so that this Court should decline to reach the validity of Rules 31(c)(f) today To do so, they say, would encourage the sort of strategic, piecemeal litigation disapproved in Communist Party of United States v Subversive Activities Control Bd, 367 US 1, : "The demands not only of orderly procedure but of due procedure as the means of achieving justice according to law require that when a case is brought here for review of administrative action, all the rulings of the agency upon which the party seeks reversal, and which are then available to him, be presented Otherwise we would be promoting the `sporting theory' of justice, at the potential cost of substantial expenditures of agency time To allow counsel to withhold in this Court and save for a later stage procedural error would tend to foist upon *30 the Court constitutional decisions which could have been avoided had those errors been invoked earlier" We do not think Communist Party blocks our consideration of Rules 31(c)(f) The issue there was raised by the petitioner's failure on an earlier trip to this Court to pursue a procedural objection to agency action Litigation of the procedural point would not only have obviated the Court's need to review the constitutionality of an Act of Congress when the case got here, but could have saved five years of litigation during which time "the Board and the Court of Appeals [had] each twice more reconsidered [the] steadily growing record " at 31-32, n After all that time, petitioner sought review of the procedural point Nothing like that can be about these cases Addressing the issue now would not "make waste" of years of efforts by the or the Court of Appeals, at 32, n would not threaten to leave a constitutional ruling pointless, and would direct the Court's attention not to an isolated, "longstale" procedural error by the agency, ib but to the invalidation of rules meant to have general and continuing applicability There is no indication of litigation tactics behind the failure last time to appeal on these rules, which were reexamined on remand at the behest of the court, not the Government or the competing carriers Any issue "pressed or
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the Government or the competing carriers Any issue "pressed or passed upon below" by a federal court, United States v Williams, 04 US 36, is subject to this Court's broad discretion over the questions it chooses to take on certiorari, and there are good reasons to look at Rules 31(c)(f) The Court of Appeals passed on a significant issue, and one placed in a state of flux, see Virginia Bankshares, Inc v Sandberg, 01 US 3, 99, n by the split between these cases and US West Communications v MFS Intelenet, Inc, 193 F3d 1112, (affirming identical state-commission rules), cert denied, 30 US 124 We accordingly rejected the incumbents' *31 claim of waiver when they raised it in opposition to the petition for certiorari, and we reject it again today See Stevens v Department of Treasury, 00 US 1, B The Eighth Circuit found the four additional combination rules at odds with the plain language of the final sentence of 47 US C 21(c)(3), which we quote more fully: "[E]ach incumbent local exchange carrier has "[t]he duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory An incumbent local exchange carrier shall provide such unbundled network in a manner that allows requesting carriers to combine such in order to provide such telecommunications service" "Bundling" and "combination" are related but distinct concepts Bundling is about lease pricing To provide a network element "on an unbundled basis" is to lease the element, however described, to a requesting carrier at a stated price specific to that element Iowa Bd, The 's regulations identify in advance a certain number of for separate pricing, 47 CFR 1319 but the regulations do not limit the subject to specific rates A separately priced element need not be the simplest possible configuration of equipment or function, and a predesignated unbundled element might actually comprise items that could be considered separate themselves For example, "if the states require incumbent LECs to provision subloop [which together constitute a local loop], incumbent LECs must still provision a local loop *32 as a single, combined element when so requested, because we identify local loops as a single element in this proceeding" First Report and Order ¶ 29 The "combination" provided for in Rules 31(b)(f), on the other hand, refers to a mechanical connection of physical within an incumbent's network, or the connection of a competitive carrier's element with the incumbent's network "in a
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a competitive carrier's element with the incumbent's network "in a manner that would allow a requesting carrier to offer the telecommunications service" ¶ 294, n 620 The additional combination rules are best understood as meant to ensure that the statutory duty to provide unbundled gets a practical result A separate rate for an unbundled element is not much good if an incumbent refuses to lease the element except in combination with others that competing carriers have no need of; or if the incumbents refuse to allow the leased to be combined with a competitor's own equipment And this is just what was happening before the devised its combination rules Incumbents, according to the 's findings, were refusing to give ' technicians access to their physical plants to make necessary connections In re Implementation of the Local Competition Provisions of the Telecommunications Act of 1 Rcd 3696, 39, ¶ 42 (Third Report and Order), petitions for review pending sub nom United States Telecom Nos 00-1, etc (CADC) The challenged additional combination rules, issued under 21(c)(3), include two that are substantive and two that are procedural, the latter having no independent significance here Rule 31(c) requires an incumbent to "perform the functions necessary to combine unbundled network in any manner, even if those are not ordinarily combined" in the incumbent's own network, so long as the combination is "[t]echnically feasible" and "[w]ould not impair the ability of other carriers to obtain access to unbundled network or to interconnect" with the *33 incumbent's network The companion Rule 31(d) likewise requires the incumbent to do the combining between the network it leases and a requesting carrier's own so long as technically feasible[42] The rules are challenged alternatively as inconsistent with statutory plain language and as unreasonable interpretations The plain language in question is the sentence that "[a]n incumbent local exchange carrier shall provide such unbundled network in a manner that allows requesting carriers to combine such in order to provide such telecommunications service" 47 US C 21(c)(3) The Eighth Circuit read this as unambiguously excusing incumbents from any obligation to combine provided 219 F3d, at 79 The ruling has a familiar ring, for this is the same reason that the Court of Appeals invalidated these rules in along with Rule 31(b), as being inconsistent with a plain limit on incumbents' obligation under 21(c)(3) to provide "on an unbundled basis" But the language is not that plain Of course, it is true that the statute would not be violated literally by an incumbent that provided so that a requesting carrier could combine them, and thereafter
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so that a requesting carrier could combine them, and thereafter sat on its hands while any combining was done But whether it is plain that the incumbents have a right to sit is a question of context as much as grammar If Congress had treated incumbents and entrants as equals, it probably would be plain enough that the incumbents' obligations stopped at furnishing an element that could be combined The Act, however, proceeds on the understanding that incumbent monopolists and contending are unequal, cf 21(c) ("Additional obligations of incumbent local exchange carriers"), and within the actual statutory confines it is not self-evident that in obligating *34 incumbents to furnish, Congress negated a duty to combine that is not inconsistent with the obligation to furnish, but not expressly mentioned Thus, it takes a stretch to get from permissive statutory silence to a statutory right on the part of the incumbents to refuse to combine for a requesting carrier, say, that is unable to make the combination, First Report and Order ¶ 294, or may even be unaware that it needs to combine certain to provide a telecommunications service And these are the only instances in which the additional combination rules obligate the incumbents according to the 's clarification in the First Report and Order The conclusion that the language is open is certainly in harmony with, if not required by, our holding in Iowa Bd, dealing with Rule 31(b) In reinstating that rule, we rejected the argument that furnishing "on an unbundled basis," 21(c)(3), must mean "physically separated," 2 US, and expressly noted that " 21(c)(3) is ambiguous on whether leased network may or must be separated," at 39 We relied on that ambiguity in holding that an incumbent has no statutory right to separate when a competitor asks to lease them in the combined form employed by the incumbent in its own network That holding would make a very odd partner with a ruling that an ambiguous 21(c)(3) plainly empowers incumbent carriers to refuse to combine even when requesting carriers cannot We accordingly read the language of 21(c)(3) as leaving open who should do the work of combination, and under U S A Inc v Natural Resources Defense Council, Inc, 467 US 37 that leaves the 's rules intact unless the incumbents can show them to be unreasonable For the decision whether Rules 31(c)(f) survive step two, Iowa Bd is, to be sure, less immediate help, since in that case we found Rule 31(b) reasonable because it prevented incumbents from dismantling existing *3 combinations to sabotage 2 US, at 39,
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dismantling existing *3 combinations to sabotage 2 US, at 39, whereas here we deal not with splitting up but with joining together We think, nonetheless, that the additional combination rules reflect a reasonable reading of the statute, meant to remove practical barriers to competitive entry into local-exchange markets while avoiding serious interference with incumbent network operations At the outset, it is well to repeat that the duties imposed under the rules are subject to restrictions limiting the burdens placed on the incumbents An obligation on the part of an incumbent to combine for an entrant under Rules 31(c) and (d) only arises when the entrant is unable to do the job itself First Report and Order ¶ 294 ("If the carrier is unable to combine the the incumbent must do so") When an incumbent does have an obligation, the rules specify a duty to "perform the functions necessary to combine," not necessarily to complete the actual combination 47 CFR 131(c)(d) And the entrant must pay "a reasonable cost-based fee" for whatever the incumbent does Brief for Petitioner Federal Parties in Nos 00-7, etc, p 34 See also at 34, n 14 The force of the objections is limited further by the 's implementation in the rules of the statutory conditions that the incumbents' duty arises only if the requested combination does not discriminate against other carriers by impeding their access, and only if the requested combination is "technically feasible," 21(c)(3) As to the latter restriction, the Commission "decline[d] to adopt the view proffered by some parties that incumbents must combine network in any technically feasible manner requested" First Report and Order ¶ The concern was that such a rule "could potentially affect the reliability and security of the incumbent's network, and the ability of other carriers to obtain interconnection, or request and use unbundled " *36 Thus, the incumbents are wrong to claim that the restriction to "technical feasibility" places only minimal limits on the duty to combine, since the First Report and Order makes it clear that what is "technically feasible" does not mean merely what is "economically reasonable," or what is simply practical or possible in an engineering sense, see ¶96-19 The limitation is meant to preserve "network reliability and security," ¶ n 622, and a combination is not technically feasible if it impedes an incumbent carrier's ability "to retain responsibility for the management, control, and performance of its own network," This demanding sense of "technical feasibility," as a condition protecting the incumbent's ability to control the performance of its own network, is in accord with what we
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of its own network, is in accord with what we in Iowa Bd There, for example, we reinstated the Commission's "pick and choose" rule[43] in part because the duty to provide network on matching terms to all comers did not arise when it was "not technically feasible," 9(b)(2) 2 US, at 396 If "technically feasible" meant what is merely possible, it would have been no limitation at all The two substantive rules each have additional features that are consistent with the purposes of 21(c)(3) Rule 31(c), to the extent that it raises a duty to combine what is "ordinarily combined," neatly complements the facially similar Rule 31(b), upheld in Iowa Bd, at 39, forbidding incumbents to separate currently combined network when the entrant requests them in a combined form If the latter were the only rule, an incumbent *37 might well be within its rights to insist, for example, on providing a loop and a switch in a combined form when a naive entrant asked just for them, while refusing later to combine them with a network interface device, which is also ordinarily combined with the loop and the switch, and which is necessary to set up a telecommunications link But under Rule 31(c), when the entrant later requires the element it missed the first time, the incumbent's obligation is to "perform the functions necessary," 47 CFR 131(c) for a combination of what the entrant cannot combine alone, First Report and Order ¶ 294, and would not have needed to combine if it had known enough to request the together in a combined form in the first place Cf ("[I]ncumbent[s] must work with new entrants to identify the the new entrants will need to offer a particular service in the manner the new entrants intend") Of course, it is not this aspect of Rule 31(c), requiring the combination of what is ordinarily combined, that draws the incumbents' (or Justice Breyer's, see post, at 63) principal objection; they focus their attack, rather, on the additional requirement of Rule 31(c), that incumbents combine unbundled network "even if those are not ordinarily combined in the incumbent[`s] network" 47 CFR 131(c) To build upon our previous example, this would seemingly require an incumbent to combine the loop, switch, and interface (ordinarily combined in its network) with a second loop and network interface (provided by the incumbent as a separate unbundled element), so that the competitive carrier could charge for a second-line connection, as for a fax or modem See Brief for Petitioners Worldcom, Inc, et al in No 00-, at 4 (providing the example)
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et al in No 00-, at 4 (providing the example) But this provision of Rule 31(c) is justified by the statutory requirement of "nondiscriminatory access" 21(c)(3) As we have the has interpreted the rule as obligating *3 the incumbent to combine "[i]f the carrier is unable to combine the " First Report and Order ¶ 294 There is no dispute that the incumbent could make the combination more efficiently than the entrant; nor is it contested that the incumbent would provide the combination itself if a customer wanted it or the combination otherwise served a business purpose See Third Report and Order ¶ It hardly seems unreasonable, then, to require the incumbent to make the combination, for which it will be entitled to a reasonable fee; otherwise, an entrant would not enjoy true "nondiscriminatory access" notwithstanding the bare provision on an unbundled basis of the network it needs to provide a service As to Rule 31(d), it is hard to see how this rule is any less reasonable than 21(c)(2), which imposes a statutory duty to interconnect The rule simply requires the incumbent to perform functions necessary to combine the unbundled it provides with owned by the requesting carrier "in any technically feasible manner" Essentially, it appears to be nothing more than an elementto-element version of the incumbents' statutory duty "to provide, for the facilities and equipment of any requesting carrier, interconnection with the local exchange carrier's network," in 21(c)(2) In sum, what we have are rules that say an incumbent shall, for payment, "perform the functions necessary," 47 CFR 131(c) and (d) to combine network to put a competing carrier on an equal footing with the incumbent when the requesting carrier is unable to combine, First Report and Order ¶ 294, when it would not place the incumbent at a disadvantage in operating its own network, and when it would not place other competing carriers at a competitive disadvantage, 47 CFR 131(c)(2) This duty is consistent with the Act's goals of competition and nondiscrimination, and imposing it is a sensible way to reach the result the statute requires *39 * * * The Act sought to bring competition to localexchange markets, in part by requiring incumbent localexchange carriers to lease of their networks at rates that would attract new entrants when it would be more efficient to lease than to build or resell Whether the picked the best way to set these rates is the stuff of debate for economists and regulators versed in the technology of telecommunications and microeconomic pricing theory The job of judges is to ask
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microeconomic pricing theory The job of judges is to ask whether the Commission made choices reasonably within the pale of statutory possibility in deciding what and how items must be leased and the way to set rates for leasing them The 's pricing and additional combination rules survive that scrutiny The judgment of the Court of Appeals is reversed in part and affirmed in part, and the cases are remanded for further proceedings consistent with this opinion It is so ordered Justice O'Connor took no part in the consideration or decision of these cases Justice Breyer, with whom Justice Scalia joins as to Part VI, concurring in part and dissenting in part I agree with the majority that the Telecommunications Act of (Act or Telecommunications Act), 47 US C 21 et seq (1994 ed and Supp V), does not require a historical cost pricing system I also agree that, at the present time, no taking of the incumbent firms' property in violation of the Fifth Amendment has occurred I disagree, however, with the Court's conclusion that the specific pricing and unbundling rules at issue here are authorized by the Act I The primary goal of the Telecommunications Act is to "promote competition and reduce regulation" in both local *40 and long-distance telecommunications markets Preamble, ; see also H R Conf Rep No 4-4, p 1 As part of that effort, the Act requires incumbent local telecommunications firms to make certain "" of their local systems available to new seeking to enter those local markets 47 US C 21(c)(3) (1994 ed, Supp V) If the incumbents and cannot agree on the price that an incumbent can charge a new entrant, local regulators will determine the price 22 The regulated price will depend upon the element's "cost" 22(d) (1)(A) In AT&T 2 US 3 this Court held that the Act authorizes the Federal Communications Commission ( or Commission) to set rules for determining those prices These cases require the Court to review the Commission's rules Those rules create a "start-from-scratch" version of what the Commission calls a "Total Element Long-Run Incremental Cost" system (TELRIC) See Kahn, Tardiff, & Weisman, The Telecommunications Act at three years: an economic evaluation of its implementation by the Federal Communications Commission, 11 Info Econ & Policy 319, 326 (hereinafter Kahn) (referring to the 's system as "TELRIC-Blank Slate") In essence, the Commission requires local regulators to determine the cost of supplying a particular incumbent network "element" to a new entrant, not by looking at what it has cost that incumbent to supply the element in the past,
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cost that incumbent to supply the element in the past, nor by looking at what it will cost that incumbent to supply that element in the future Rather, the regulator must look to what it would cost a hypothetical perfectly efficient firm to supply that element in the future, assuming that the hypothetical firm were to build essentially from scratch a new, perfectly efficient communications network The only concession to the incumbent's actual network is the presumption that presently existing wire centerswhich hold the switching equipment for a local areawill remain in their current locations * See In re Implementation of Local Competition Provisions in the Telecommunications Act of 11 Rcd 1499, 14-149, ¶ 6 (hereinafter Order) (describing TELRIC as "based on costs that assume that wire centers will be placed at the incumbent LEC's current wire center locations, but that the reconstructed local network will employ the most efficient technology for reasonably foreseeable capacity requirements") An example will help explain the system as I understand it Imagine an incumbent local telephone company's major switching center, say, in downtown Chicago, from which cables and wires run through conduits or along poles to subsidiary switching equipment, other electronic equipment, and eventually to end-user equipment, such as telephone handsets, computer modems, or fax machines located in office buildings or private residences A new competitor, whom the law entitles to use an "element" of the incumbent firm's system, asks for use of such an "element," say, a single five-block portion of this system, thereby obtaining access to 20 downtown office buildings Under the Commission's TELRIC, the incumbent's "cost" (upon which "rates" must be based) equals not the real resources that the Chicago incumbent must spend to provide the five-block "element" demanded, but the resources that a hypothetical perfectly efficient new supplier would spend were that supplier rebuilding the entire downtown Chicago system, other than the local wire center, from scratch This latter figure, of course, might be very different from any incumbent's actual costs As a reviewing Court, we must determine, among other things, whether the Commission has "`abuse[d]' " its statutorily delegated "`discretion' " to create implementing rules Motor Vehicle Mfrs Assn of United States, Inc v State Mut Automobile Ins 463 US 29, (quoting Administrative Procedure Act, US C 706(2)(A)) In doing so, we must assume that Congress intended to grant *42 the Commission broad legal leeway in respect to the substantive content of the rules, Citizens to Preserve Overton Inc v Volpe, 401 US 402, 6 ; FPC v Hope Natural particularly since the subject matter is a highly technical
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Natural particularly since the subject matter is a highly technical one, namely, ratemaking, where the agency possesses expert knowledge U S A Inc v Natural Resources Defense Council, Inc, 467 US 37, 43-44 Nonetheless, that leeway is not unlimited It is bounded, for example, by the scope of the statute that grants authority and by the need for the agency to show a "rational connection" between the regulations and the statute's purposes State 463 U S, at 6 We must determine whether, despite the leeway given experts on technical subject matter, agency regulations exceed these legal limits See ; Overton at 6; Administrative Procedure Act, US C 706(2)(A) (requiring agency action to be set aside if "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law") And, reluctantly, I have come to the conclusion that they do After considering the incumbents' objections and the Commission's responses, I cannot find that "rational connection" between statutory purpose and implementing regulation that the law demands State at 6 Because the critical legal problem concerns the relation of the Commission's regulations to the statute's purpose, I must ask at the outset, what is that purpose? The relevant statutory provision says only that the agency shall set "rate[s]" (for "") "based on cost" 47 US C 22(d)(1) At first blush the word "cost" calls to mind traditional cost-based ratesetting See Natural Act, 1 US C 717c; Natural Act of 1, 4a, 2 Stat 24; Interstate Commerce Act, 49 US C 701 (1994 ed, Supp V); Federal Aviation Act of 19, 49 US C 1302(c) ( ed, Supp ) (repealed 190); see also ante, at 47 *43 (discussing traditional ratesetting); J Bonbright, A Danielsen, & D Kamerschen, Principles of Public Utility Rates 9-1, 3 (2d ed 19) (hereinafter Bonbright); In re Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, 9 Rcd 427, 4, ¶ (1994) (Commission rules referring to "[o]riginal cost" as traditional basis "for public utility valuation") An agency engaged in traditional ratemaking will seek to protect consumers by mandating low prices as the end result In doing so, the agency will sometimes try to mimic the prices that it believes (hypothetically) the regulated firm (often a legal monopoly) would have set had it been an unregulated firm in a competitively structured industry See ante, at 46; Bonbright 9 ("[M]any economists have declared that the prices that would result without regulation but under pure or perfect competition would be the `ideal' prices"); 1 A Kahn, Economics of Regulation: Principles and Institutions 63 (19) (hereinafter
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Kahn, Economics of Regulation: Principles and Institutions 63 (19) (hereinafter Economics of Regulation) ("The traditional legal criteria of proper public utility rates have always borne a strong resemblance to the criteria of the competitive market in long-run equilibrium") And the Commission's regulations are at least arguably consistent with an agency effort to find prices that replicate the end results of theoretically perfect competition See Order ¶¶ 679, 73 But that regulatory objectivelow, competitionmimicking pricesis not the objective of the relevant statutory provision here The Telecommunications Act is not a ratemaking statute seeking better regulation It is a deregulatory statute seeking competition It assumes that, given modern technology, local telecommunications markets may now prove large enough for several firms to compete in the provision of some servicesbut not necessarily all serviceswithout serious economic waste It finds the competitive process an indirect but more effective way to bring *44 about the common objectives of competition and regulation alike, namely, low prices, better products, and more efficient production methods But it authorizes the Commission to promulgate rules that will help achieve that procedural goalthe substitution of competition for regulation in local marketswhere that transformation is economically feasible See ante, at 39 (accepting this ) The Act does not authorize the Commission to promulgate rules that would hinder the transition from a regulated to a competitive marketplacewhether or not those rules directly mandate lower "element" prices along the way Five considerations, taken together, convince me that the description of the statutory goal I have just given is an accurate one First, the Act itself says that its objective is to substitute competition for regulation Preamble, ; see also H R Conf Rep No 4-4, at 1; ante, at 49 Second, the Act's history suggests the Congress would have thought that goal a reasonable one The 20th century's history of telecommunications markets is primarily one of regulation For decades experts justified regulation on the ground that telecommunications providers were "natural monopolists," i e, telecommunications markets would not support more than one firm of efficient size See ante, at 47-476 But beginning in the 1970's, technological developments led to a change of expert opinion by undermining the "natural monopoly" Long-distance telecommunications markets seemed newly capable of supporting several competing firms without significant economic waste See R Vietor, Contrived Competition: Regulation and Deregulation in America 1-190 (1994) And opinion began to change similarly in respect to local markets In the case of local markets, however, the change was marked by hesitation and lingering uncertainty See P Huber, M Kellogg, & *4 J Thorne, Federal Telecommunications Law 3,
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M Kellogg, & *4 J Thorne, Federal Telecommunications Law 3, 6-7 (hereinafter Huber); P Huber, M Kellogg, & J Thorne, The Geodesic Network : 1993 Report on Competition in the Telephone Industry 21-2 That is because local telecommunications service had long demanded expensive fixed investment, for example, digging up streets to lay cables or stringing wires on overhead poles See ante, at 49 491 And whether, or the extent to which, a new competitor could replicate, or avoid, that kind of investment without significantly wasting resources remained unclear See Huber 34, 206 Thus, at the time Congress wrote the new Act, technological development seemed to permit nonwasteful competition in respect to some aspects of local service; but in respect to other aspects an incumbent local telecommunications provider might continue to possess "natural monopoly" advantages 6-207 And these circumstances made it reasonable for Congress to try to secure local competition insofar as that competition would prove economically feasible, i e, where competition would not prove seriously wasteful See Order See also 47 US C 271(c)(1)(A), 271(c)(1)(B) (recognizing that some local markets will not support more than one firm) Third, the Act's structure and language indicate a congressional effort to secure that very end The Act dismantles artificial legal barriers to new entry in local markets, thereby permitting new firms to enter if they wish 23(a); see ante, at 491, and n 12 But the Act recognizes that simple permission may not prove sufficientperhaps because the incumbent will retain a "natural monopoly" form of control over certain necessary of service It consequently goes on to promote new entry in three ways See ante, at 491-492 First, it requires incumbents to "interconnect" with new entrants (at a price determined by the regulations before us), thereby allowing a new entrant's small set of subscribers to connect with the incumbent firm's likely larger customer base 21(c)(2) Second, it requires *46 incumbents to sell retail services to new entrants at wholesale rates, thereby allowing newly entering firms automatically to compete in retailing if they so desire 21(c)(4) Third, it requires incumbents to provide new entrants "access to network" say, telephone lines connecting homes or offices with switching centers, "on an unbundled basis" 21(c)(3) This third requirement permits a new entrant to compete selectively without replicating (or substituting) all of the the incumbent uses to offer the service in question Suppose, for example, the incumbent's control of certain existing cables, lines, or switching equipment would put the new entrant at an economic disadvantage because duplication of those "" would prove unnecessarily expensive The new Act does not
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"" would prove unnecessarily expensive The new Act does not require the new entrant and incumbent to compete in respect to those say, through wasteful duplication Rather, the Act permits the new entrant to offer, and to compete with respect to, a related service by obtaining "access" to (and therefore using) those "" of the incumbent's network, while finding on its own other necessary to the service It is as if a railroad regulator, anxious to promote railroad competition between City A and City B but aware that it would prove wasteful to duplicate a certain railroad bridge across the Mississippi River, ordered the bridge's owner to share the bridge with new The sharing would avoid wasteful duplication of the hard-to-duplicate resourcenamely, the bridge But at the same time it would facilitate competition in the remaining aspects of the A-to-B railroad service That, I assume, is why the Act says that the "" that must be shared are those for which access is "necessary" and in respect to which "failure to provide access" would "impair" the ability of the new entrant "to provide the services that it seeks to offer" 21(d)(2) See Iowa Bd, 2 U S, at 392 ; *47 cf at 6-7 (Breyer, J, concurring in part and dissenting in part) (stating that the "necessary" and "impair" provision's object is to require access to, and thereby force sharing of, those of an incumbent's system that would prove, to a significant degree, economically wasteful to duplicate) To put the matter more concretely, imagine that a communications firma potential new entrantwishes to sell voice, data, text, pictures, entertainment, or other communications services, perhaps in competition with the incumbent That firm must decide how its service will reach a customer inside a house or office Should the firm (1) run its own new cable into the house? (2) run wires through an already-existing electricity conduit? (3) communicate without wires, say, by wireless or one-way or two-way satellite? (4) or use the incumbent's pair of twisted copper telephone service wires already in place? If the potential new entrant claims that all but the last of these possibilities are impractical or far too expensivethat using existing telephone wires is far cheaper (in terms of real resources expended) than the alternativesthen the new entrant is claiming that the incumbent's wires are a kind of "bridge" to which it must have access And it may ask the regulator to make its new entry feasible by requiring the incumbent to permit it to use that "element" at a reasonable price Fourth, the Commission has described the
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at a reasonable price Fourth, the Commission has described the Act's goals as including promotion of nonwasteful competition The preamble to the Commission's price regulations describes their statutorily based aim as "giv[ing] appropriate signals to producers and consumers and ensur[ing] efficient entry and utilization of the telecommunications infrastructure" Order ¶ 630 The Commission also says that "the prices that potential entrants pay for these should reflect forward-looking economic costs in order to encourage efficient levels of investment and entry" ¶ And it adds that "Congress specifically *4 determined that input prices should be based on costs because this would foster competition in the retail market" ¶ 7; see also Fifth, the Solicitor General confirmed this view at oral argument when he that the rates in question should be set in order to "encourage new entrants to come into the market," Tr of Oral Arg 60, to "allow them to enter the market at competitive rates," ib and to "encourage them to develop new technologies," The statute, then, seeks new local market competition insofar as local markets can support that competition without serious waste And we must read the relevant ratesetting provisionincluding the critical word "cost"with that goal in mind I The Commission's criticsVerizon, other incumbents, and experts whose published articles Verizon has lodged with the Courtconcede that the statute grants the Commission broad authority to define "cost[s]" They also concede that every ratesetting system has flaws Cf, e g, Missouri ex rel Southwestern Bell Telephone v Public Serv Comm'n of Mo, (Brandeis, J, joined by Holmes, J, dissenting) (criticizing "reproduction cost" systems because of the administrative difficulty of determining costs); Economics of Regulation 9-111 (criticizing "historical cost" systems because of their failure to provide proper incentives) Nonetheless, the critics argue, the Commission cannot lawfully choose a system that thwarts a basic statutory purpose without offering any significant compensating advantage They take the relevant purpose as furthering local competition where feasible See Part They add that rates will further that purpose (1) if they discourage new firms from using the incumbent's facilities or "" when it is significantly less expensive, economically speaking, for the entrant to build or to buy elsewhere, and (2) if *49 they encourage new firms to use the incumbent's facilities when it is significantly less expensive, economically speaking, for the entrant to do so They point out that prices that approximately reflect an actual incumbent's actual additional costs of supplying the services (or "element") demanded will come close to doing both these things See Kahn 330 (prices set at "incremental cost," the cost of supplying an added
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set at "incremental cost," the cost of supplying an added "increment," will give challengers the "proper target at which to shoot" only if that cost reflects "the cost that society will actually incur if they purchase more" or the resources that it would save if they purchase less); Knieps, Interconnection and Network Access, 23 Ford Int'l L J 90 ; see also J Sidak & D Spulber, Deregulatory Takings and the Regulatory Contract (199) (arguing that a market-determined efficient component pricing rule (MECPR) satisfies these objectives and that the has misunderstood the MECPR system) But prices like the Commission's, based on the costs that a hypothetical "most efficient" firm would incur if hypothetically building largely from scratch, Order ¶ 6, would do neither Indeed, they would do exactly the opposite, creating incentives that hinder rather than further the statute's basic objective First, the critics ask, why, given such a system, would a new entrant ever build or buy a new element? After all, the Commission's ratesetting system sets the incumbent's compulsory leasing rate at a level that would rarely exceed the price of building or buying elsewhere That is because the Commission's ratesetting system chooses as its basis the hypothetical cost of the most efficient method of providing the relevant servicei e, the cost of entering a house through the use of electrical conduits or of using wireless (if cheaper in general), and it then applies those costs (based on, say, hypothetical wireless) as if they were the cost of the system in place (the twisted pair of wires) Why then would the new entrant use an electrical conduit, or a wireless system, to enter a house when, by definition, the Commission *0 will require the incumbent to lease its pair of twisted wires at an equivalent price or lowerwhether or not the incumbent will have to spend more, in fact, to provide the twisted wires? The rules further discourage independent building or buying by assessing a special penalty upon the new entrant that does so, for that entrant will have to worry that soon another newer new entrant will insist upon sharing the incumbent's equivalent of that very element at a still lower regulation-determined price based on subsequent technological developments The Commission's system will tend to create instances in which (1) the incumbent's actual future cost of maintaining an element (say, a set of wires) will exceed (2) the new entrant's cost of building or buying elsewhere (say, through wireless or wires in electrical conduits) which, in turn, will equal (or even exceed) (3) the hypothetical future "best practice"
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equal (or even exceed) (3) the hypothetical future "best practice" cost (namely, what the experts decide will, in general, be cheapest) In such a case (or in related cases, where technological improvements, actual or predicted, tend to offset various cost differences), the new entrant will uneconomically share the incumbent's facilities by leasing rather than building or buying elsewhere And that result, in the assumed circumstances, is wasteful It undermines the efficiency goal that the majority itself claims the Act seeks to achieve Cf ante, at 09-, 39 Nor is the "sharing" of facilities (e g, the wire pairs) that this result embodies consistent with the competition that the Act was written to promote That is because firms that share existing facilities do not compete in respect to the facilities that they share, any more than several grain producers who auction their grain at a single jointly owned market compete in respect to auction services Cf Iowa Bd, 2 U S, at 429 (Breyer, J, concurring in part and dissenting in part) ("It is in the un shared, not in the shared, portions of the enterprise that meaningful competition would likely emerge") Yet rules that combine a *1 strong monetary incentive to share with a broad definition of "network element," see 47 CFR 1319(f)(g) ; Order ¶ 3, will tend to produce widespread sharing of entire incumbent systems under regulatory supervisiona result very different from the competitive market that the statute seeks to create See Iowa Bd, at 36-37 At the least, those rules are inconsistent with the Commission's own view that they will sometimes "serve as a transitional arrangement until fledgling could develop a customer base and complete the construction of their own networks" In re Implementation of the Local Competition Provisions of the Telecommunications Act of 1 Rcd 3696, 3700, ¶ 6 (Third Report and Order) Why, given the pricing rules, would those "fledgling " ever try to fly on their own? Second, what incentive would the Commission's rules leave the incumbents either to innovate or to invest in a new "element?" The rules seem to say that the incumbent will share with the cost-reducing benefits of a successful innovation, while leaving the incumbent to bear the costs of most unsuccessful investments on its own But see infra, at 2 Why would investment not then stagnate? See, e g Jorde, Sidak, & Teece, Innovation, Investment, and Unbundling, 17 Yale J Reg 1, ("It makes no economic sense for the [incumbent] to invest in technologies that lower its own marginal costs, so long as can achieve the identical cost savings
|
Justice Souter
| 2,002 | 20 |
majority
|
Verizon Communications Inc. v. FCC
|
https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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costs, so long as can achieve the identical cost savings by regulatory fiat"); Sidak & Spulber, Deregulation and Managed Competition in Network Industries, 1 Yale J Reg 117, 124-12 (199) ("If deprived of a return to capital facilities after capital has been sunk in irreversible investments, or if faced with reduced returns to investments already made, any economically rational company will eliminate or reduce similar capital investments in the future"); Armstrong, AT&T Scoffs at Possible Common Carrier Status, Telecommunications Reports, *2 Nov 9, 199 (Chief Executive Officer of AT&T, which here supports the Commission's regulations), cited in Huber 206, n 611 ("`No company will invest billions of dollars if who have not invested a penny of capital, nor taken an ounce of risk, can come along and get a free ride on the investments and risks of others' ") I recognize that no regulator is likely to enforce the Commission's rules so strictly that investment literally slows to a trickle Indeed, the majority cites figures showing that in the past several years new firms have invested $30 to $60 billion in local communications markets See ante, at 16 We do not know how much of this investment represents facilities, say, broadband, for which an incumbent's historical network offers no substitute Nor do we know whether this number is small or large compared with what might have been Cf Statistics of Communications Common Carriers 1 (table 27); Statistics of Communications Common Carriers 42 (table 27); Statistics of Communications Common Carriers 29 (table 27); Statistics of Communications Common Carriers 1 (table 27) (incumbents' similar investment over the same period amounts to over $0 billion); cf /2001 Statistics of Communications Common Carriers 1 (table 29) (total depreciated investment plus working capital equals $220 billion); ante, at 16, 21 (new entrants' market share provided by entrants' own facilities alone is 33%) Regardless, given the incentives, this independent investment would seem to have been made despite the "start from scratch" rules, not because of them At best, such statistics do no more than show that at least some of the coincidences I describe below have, happily for the Commission and the public alike, come to pass See infra, at 4, 6, 60-61 The critics mention several other problems as well They say, for example, that the Commission's regulations will exacerbate the problem of "stranded costs"i e, the need for a once-regulated incumbent to recover its reasonable, but now *3 technologically outdated, historical investment See Part IC, ante They add that the regulations will make nearly redundant the statute's provisions for "element" rates set through negotiation
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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redundant the statute's provisions for "element" rates set through negotiation See 47 US C 22(a)(1) After all, given the Commission's regulations, how much is there to negotiate about? The regulations entitle the new entrant to a price equal to, or lower than, the price to which any rational incumbent could agree See Brief for United States in Mathias v Worldcom Technologies, Inc, O T 2001, No 00-7, p 1, n ("[A]s a practical matter" carriers have little incentive to negotiate) Nor, in the critics' view, do the regulations possess any offsetting advantages They lack that ease of administration that led Justices Holmes and Brandeis to favor use (for ratesetting purposes) of an incumbent's historic costs despite their economic inaccuracy See Southwestern Bell Telephone 262 U S, at - ; see also ante, at -43 The hypothetical nature of the Commission's system means that experts must estimate how imaginary firms would rebuild their systems from scratch whether, for example, they (hypothetically) would receive permission to dig up streets, to maintain unsightly telephone poles, or to share their pole costs with other users, say, cable operatorsand they must then estimate what would turn out to be most "efficient" in such (hypothetical) future circumstances The speculative nature of this enterprise, the critics say, will lead to a battle of experts, each asking a commission to favor what can amount to little more than a guess See Kahn 333, 334, n 36, 33 (describing three models introduced in regulatory proceedings, one of which reduced all actual expenses by 27% because railroad regulation had brought similar efficiency gains, another of which assumed that all utilities, including electricity producers, would rebuild entire systems from scratch at the same time, and the third of which assumed New Hampshire's telecommunications system was administratively most efficient but then reduced its actual administrative expenses by 2%) *4 These administrative difficulties seem far greater than any difficulty likely involved in an effort to determine an actual incumbent's actual (past or likely future) costs See Affidavits of W Baumol, J Ordover, & R Willig, Comments of AT&T Corp, CC Docket 96-9: In the Matter of Implementation of Local Competition Provisions in the Telecommunications Act of ¶ 2 App 67 (TELRIC's estimates "do not simply accept the architecture, sizing, technology, or operating decisions" of the incumbents "as bases for calculating" costs) Assumptions are inevitable And the resulting uncertainties mean a somewhat random sort of rate that can either exacerbate the incentive problems previously mentioned or alleviate those problems by a kind of regulatory coincidence See ante, at 22 (describing how state commissioners "customarily
|
Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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coincidence See ante, at 22 (describing how state commissioners "customarily assig[n] rates based on some predictions from one model and others from its counterpart") IV The criticisms described in Part I are serious, potentially severing any rational relation between the Commission's regulations and the statutory provision's basic purposes State 463 U S, at 6 Hence, the Commission's responses are important Do those responses reduce the force of the criticisms, blunt their edges, or suggest offsetting virtues? I have found six major responses But none of them is convincing First, the points out that rates will include not only a charge reflecting hypothetical "most-efficient-firm" costs but also a depreciation chargea charge that can reconcile a firm's initial historic investment, say, in equipment, and the equipment's current value, which diminishes over time See Order ¶ ("[P]roperly designed depreciation schedules should account for expected declines in the value of capital goods") If, for example, an incumbent's reasonable investment, measured actually and historically, came to $0 million, but experts predict a "most-efficientfirm-building-from-scratch" * future replication cost of $30 million, a depreciation charge could permit the incumbent to recoup the otherwise missing $20 million And, in theory, a state commission might structure a potentially complex depreciation charge so as both to permit recovery of historic investment and also to offset many of the improper investment incentives described in Part This response, however, does not reflect what the Commission's regulations actually say Those regulations say nothing about permitting recovery of reasonable historic investment nor about varying the charge to offset perverse investment incentives Rather, they strongly indicate the opposite They clearly require state commissions to use current depreciation rates right alongside the Commission's new and different "most-efficient-firm-building-from-scratch" charges See Order ¶ 702 They do create an exception from "current" rates But to take advantage of that exception "incumbent LECs" have to bear the "burden of demonstrating with specificity that the business risks that they face in providing unbundled network and interconnection services would justify a different depreciation rate" Unless the exception is to swallow the rule, the term "business risks" must refer to some special situationnot to the ordinary circumstance in which a new entrant simply asks to share an "element" at rates determined under Commission "most-efficient-firm" rules In any event, that is how 24 state commissions have read the language See 199 Biennial Regulatory ReviewReview of Depreciation Requirements for Incumbent Local Exchange Carriers, 1 Rcd 242, ¶ 69 And the nowhere explicitly says to the contrary Hence the depreciation rules as written do not respond to the critics' claims in the ordinary case, nor do
|
Justice Souter
| 2,002 | 20 |
majority
|
Verizon Communications Inc. v. FCC
|
https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
|
to the critics' claims in the ordinary case, nor do they otherwise transform its "most-efficient-firm-building-from-scratch" system into a system that reflects historic costs *6 Second, the points out that a state commission can adjust permissible profit rates In theory, such an adjustment could offset many of the improper investment incentives described in Part But, like the depreciation regulations, the profit regulations say nothing about the matter Indeed, like the depreciation regulations, they suggest the opposite The relevant regulations say that "the currently authorized rate of return at the federal or state level is a reasonable starting point" Order ¶ 702 They, too, add an exception, available to "incumbent LEC's" that successfully "bear the burden of demonstrating with specificity that the business risks that they face in providing unbundled network and interconnection services would justify a different riskadjusted cost of capital" But this exception, like the depreciation exception, cannot respond to the critics' claims in the ordinary case for similar reasons The adds that it did not have "time" to offer more than "tentative guidance," Reply Brief for Federal Parties 11-12, that profits now may be too high, Order ¶ 702, and that the incumbents may find other ways to lower their capital costs, ¶ 67 These additions, however, concede the critics' basic pointthat the "profit" rules as written do not provide an answer to Part I's claims Rather, considered as a response to those claims, they must rest upon no more than hope for a regulatory coincidence Most significantly, they hope that current market conditions mean that current profit rates somehow magically offset the adverse effects of the Commission's other regulations, see Part I, See Reply Affidavit of J Hausman ¶ 9, n submitted with Reply Comments of the United States Telcom Association, CC Docket No 96-9 App 197 (testifying for critics that profit rates would have to double or triple to secure investment) Cf G Hubbard & W Lehr, Capital Recovery Issues in TELRIC Pricing: Response to Professor Jerry A Hausman App 216, 221 *7 (arguing for defenders that Hausman overstates the need for change, but stating that "if any adjustments are required such adjustments would be modest") And the majority relies on its belief that that hope has been realized Ante, at 21 (stating that in light of the fact that "competition in fact has been slow to materialize," "it seems fair to say" that the current rate is a "`reasonable starting point' ") Of course, one must sympathize with the 's time problem But the statute did not require the so quickly to create so complex a
|
Justice Souter
| 2,002 | 20 |
majority
|
Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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not require the so quickly to create so complex a system Rather, the statute seems to foresee rates set, not by regulations primarily or in detail, but by negotiations among the parties, 47 US C 22(a)(1), if not by state commissions See Iowa Bd, 2 U S, at 2-420 (Breyer, J, concurring in part and dissenting in part) Third, the Commission supports the reasonableness and practicality of its system with the claim that "a number of states" have used it successfully, as have several European nations Order ¶ 61 As to domestic experience, I can find no evidence that, prior to the promulgation of the rules at issue here, any State had successfully implemented the 's version of TELRIC It is hardly surprising that since then several States have tried to apply it Nor is it surprising that their implementation has produced criticisms similar to those made here See, e g, MCI Telecommunications Corp v GTE Northwest, Inc, F Supp 2d 117, 116-1169, and n 7 (discussing problems with the 's TELRIC) And the "foreign nation" part of the Commission's claim rests only upon a European Community paper referring to a "best current practice" approach as a future goal See Commission of European Communities, Recommendation on Interconnection in a liberalised telecommunications market, C(97) 314, 33, 3 http://europaeuint/ ISPO/infosoc/telecompolicy/en/r314-enhtm (Apr 17, 2002) Indeed, Britain's counterpart has that, in the * absence of a showing of inefficiency, the incumbent's actual current expenditures on capacity additions should be used "as the starting point" See Office of Telecommunications (Oftel), Access to Bandwidth: Indicative prices and pricing principles ¶ 9 http://wwwoftelgovuk/ publications/broadband/llu/llu000htm (Apr 17, 2002) In fact, as I understand the European system, it may turn out in practice to work roughly as follows: The relevant European regulatory agency, seeking competition, encourages new firms to enter local markets in order to provide new voice, data, text, picture, entertainment, or other communications service Like the Commission, the agency normally has the authority to insist that an incumbent firm "unbundle," e g, that it permit a new entrant to use its pair of twisted wires running from switching center to the inside of a house It also has the authority to set prices But in exercising that authority, it has neither required, nor is it likely to rely upon, any one ratesetting method Rather, it may encourage negotiation among the parties in order to reach agreed-upon prices low enough to prevent the incumbent from blocking entry but high enough to encourage the new firm to consider other entry methods, such as use of electricity conduits, or new
|
Justice Souter
| 2,002 | 20 |
majority
|
Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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entry methods, such as use of electricity conduits, or new cables, where economically feasible If no agreement can be reached, the regulator, in determining the price, can use formulas, modified to take proper account of depreciation and historical cost, or it can look to prices set in other European nations as a yardstick to help produce competition This less formal kind of "play it by ear" system, in my view, is what the statute before us intended The Act provides for price negotiation among the parties, it brings in state regulators where necessary to break deadlocks, and it permits the States to use a variety of different ratesetting approaches, looking to experience in other States as appropriate, in order to determine proper prices The mysterious statutory parenthetical phrase "(determined without reference *9 to a rate-of-return or other rate-based proceeding)," 22(d)(1), makes sense from this point of view It reflects Congress' desire to obtain not perfect prices but speedy results It specifies that States need not use formal methods, relying instead upon bargaining and yardstick competition See Iowa at 424-42 (Breyer, J, concurring in part and dissenting in part); cf Order ¶ 631 (describing how the New York Commission "se[t] prices on a case-by-case basis") I recognize, however, that the has rejected this approach in favor of extraordinarily complex national ratesetting standards, which we review only to determine whether they will further, or serve as obstacles to, the competitive marketplace that the statute seeks Fourth, the adds that its system seeks to base rates on the costs a hypothetical "most efficient firm" hypothetically would incur were it "building from scratch" And such a system, in its view, will "simulate" or "best replicat[e], to the extent possible, the conditions of a competitive market" Order ¶ 679; see also ¶ 73 This response, however, does not do more than describe that very feature of the system upon which the critics focus their attack As I have previously such an objective is perhaps consistent with an ordinary ratesetting statute that seeks only low prices But the problem before usthat of a lack of "rational connection" between the regulations and the statutegrows out of the fact that the Telecommunications Act is not a typical regulatory statute asking regulators simply to seek low prices, perhaps by trying to replicate those of a hypothetical competitive market Rather, this statute is a deregulatory statute, and it asks regulators to create prices that will induce appropriate new entry See Part That being so, we may assume, purely for argument's sake, that the rules could successfully "replicate" the prices toward
|
Justice Souter
| 2,002 | 20 |
majority
|
Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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sake, that the rules could successfully "replicate" the prices toward which perfectly efficient, perfectly competitive markets would tend But see Kahn 326-327 (stating that such prices are never achieved in any actual *60 market); A Kahn, Whom the Gods Would Destroy, or How Not to Deregulate 4 (stating that a firm in an actual market would determine efficient investment in light of its actual system, not a hypothetical system built from scratch) Still, those rules, if successful, would produce the strong incentives to demand sharing, and the strong disincentives to build independently, that Part describesfor they would create a "sharing" or "interconnection" price equal to or lower than any price associated with the creation of independent facilities They would thereby tend toward a system in which regulatory price setting would supplant, not promote, competition And however congenial institutional regulators might find such a system, it differs dramatically from the system that the statute seeks to bring about See Part Cf Iowa Bd, 2 U S, -392 At least that is the claim that underlies much of the criticism set forth in Part I, And the Commission's response that its system simulates the conditions of a competitive market does not respond to that basic criticism Fifth, the Commission says that its regulations are simply suggestive, leaving States free to depart Reply Brief for Federal Parties 11-12 The short but conclusive answer to this response is that the Commission considered a "suggestive" approach and rejected it See Order ¶ (refusing to characterize rules as setting forth, not "requirements," but "`preferred outcomes,' " because the latter approach "would fail to establish explicit national standards for arbitration, and would fail to provide sufficient guidance to the parties' options in negotiations") Sixth, the majority (but not the Commission) points out that local commissions are likely to leave any given set of rates in effect for some period of time And this "regulatory lag" will solve the problem See ante, at 0-06 I do not understand how it could solve the main problemthat of *61 leading new entrants to lease a more costly incumbent "element" where building or buying independently could prove less costly See at 4-0 Nor, given any new entrant's legal right to obtain a regulator's decision, am I certain that lags will prove significant But, in any event, lags will differ, depending upon regulator, time, and circumstance, thereby introducing a near random element that might, or might not, ameliorate the system's otherwise adverse effects In sum, neither the Commission's nor the majority's responses are convincing V Judges have long recognized the difficulty of
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Justice Souter
| 2,002 | 20 |
majority
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Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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are convincing V Judges have long recognized the difficulty of reviewing the substance of highly technical agency decisionmaking Compare Ethyl Corp v EPA, F2d 1, (Bazelon, C J, concurring) ("[T]he best way for courts to guard against unreasonable administrative decisions is not themselves to scrutinize the technical merits [but to] establish a decision-making process that assures a reasoned decision" ), with (Leventhal, J, concurring) (stating that judges must assure, on substantive review, "conformance to statutory standards and requirements of rationality," acquiring "whatever technical background is necessary") This Court has emphasized the limitations the law imposes upon judges' authority to insist upon special agency procedures Vermont Yankee Nuclear Power Corp v Natural Resources Defense Council, Inc, 43 US 19, 43-4 (197) But it has also made clear that judges nonetheless must review for rationality the substance of agency decisions, including technical decisions State 463 U S, at 6 That review requires agencies to undertake the difficult task of translating technical matters into language that judges can understand and preparing technical responses to challenges of the sort found here But, despite the difficulty, review by generalist judges is important, both *62 because technical agency decisions are often of great importance to the general public and because the law forbids agencies, in the name of technical expertise, to wrest themselves free of public control Agencies are, of course, expert in technical areas That is why Judge Leventhal wrote that "the judges," when reviewing the rationality of substantive decisions, "must act with restraint" Ethyl Corp, F 2d, And I agree But, he added, judges may not "abstain from any substantive review" at 6 And again I agree In these cases, the critics' claims are strong They suggest that the 's pricing rule, together with its original "forced leasing" twin, see Iowa Bd, at 3-392 would bring about, not the competitive marketplace that the statute demands, but a highly regulated marketplace characterized by widespread sharing of facilities with innovation and technological change reflecting mandarin decisionmaking through regulation rather than decentralized decisionmaking based on the interaction of freely competitive market forces And the Commission's replies are unsatisfactory The majority nonetheless finds the Commission's pricing rules reasonable As a regulatory theory, that conclusion might be supportable But under this deregulatory statute, it is not Under these circumstances, it would amount to abstention from, indeed abdication of, "rational basis" review, were I to agree that the record here demonstrates the "rational connection" between regulations and statutory purpose upon which the law insists State at 6; Administrative Procedure Act, US C 706(2)(A); see also State As Judge Leventhal properly
|
Justice Souter
| 2,002 | 20 |
majority
|
Verizon Communications Inc. v. FCC
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https://www.courtlistener.com/opinion/118502/verizon-communications-inc-v-fcc/
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US C 706(2)(A); see also State As Judge Leventhal properly put it, "Restraint, yes, abdication, no" Ethyl Corp, The Court, of course, with 6 pages of careful analysis, does not abdicate its reviewing responsibility; but for the reasons stated here I cannot agree with *63 its substantive conclusion Consequently, I would affirm the Eighth Circuit's determination that the regulations are unlawful VI I disagree with the majority about one further legal issue The statute imposes upon an incumbent the "duty to provide for the provision of a telecommunications service, nondiscriminatory access to network on an unbundled basis in a manner that allows requesting carriers to combine such in order to provide such telecommunications service" 47 US C 21(c)(3) The pointing to this provision, has that (upon request) incumbents must themselves combine, among other things, that are ordinarily not combined Rules 31(c)(f), 47 CFR 131(c)(f) How, the incumbents ask, can a statute that speaks of the requesting carriers combining grant the authority to insist that they, the incumbents, combine the ? In Iowa Bd, the Court found authority for a somewhat similar rulea rule that forbids incumbents to un combine ordinarily found in combination But, as the majority recognizes, ante, at 34-3, that different rule rests upon a absent here If an incumbent takes apart that it ordinarily keeps together, it is normally discriminating against the requesting carriers And the statutory provision forbids discrimination But here the incumbent simply keeps apart that it ordinarily keeps apart in the absence of a new entrant's demand How does that discriminate? And if it does not discriminate, where does this statutory provision give the authority to forbid it? I cannot find the statutory authority And I consequently would affirm the lower court on the point For these reasons, I dissent
|
Justice Breyer
| 1,999 | 2 |
second_dissenting
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Sutton v. United Air Lines, Inc.
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https://www.courtlistener.com/opinion/118311/sutton-v-united-air-lines-inc/
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We must draw a statutory line that either (1) will include within the category of persons authorized to bring suit under the Americans with Disabilities Act of 1990 some whom Congress may not have wanted to protect (those who wear ordinary eyeglasses), or (2) will exclude from the threshold category those whom Congress certainly did want to protect (those who successfully use corrective devices or medicines, such as hearing aids or prostheses or medicine for epilepsy). Faced with this dilemma, the statute's language, structure, basic purposes, and history require us to choose the former statutory line, as Justice Stevens (whose opinion I join) well explains. I would add that, if the more generous choice of threshold led to too many lawsuits that ultimately proved *514 without merit or otherwise drew too much time and attention away from those whom Congress clearly sought to protect, there is a remedy. The Equal Employment Opportunity Commission (EEOC), through regulation, might draw finer definitional lines, excluding some of those who wear eyeglasses (say, those with certain vision impairments who readily can find corrective lenses), thereby cabining the overly broad extension of the statute that the majority fears. The majority questions whether the EEOC could do so, for the majority is uncertain whether the EEOC possesses typical agency regulation-writing authority with respect to the statute's definitions. See ante, at 479-480. The majority poses this question because the section of the statute, 42 U.S. C. 12116, that says the EEOC "shall issue regulations" also says these regulations are "to carry out this subchapter " (namely, 12111 to 12117, the employment subchapter); and the section of the statute that contains the three-pronged definition of "disability" precedes "this subchapter," the employment subchapter, to which 12116 specifically refers. (Emphasis added.) Nonetheless, the employment subchapter, i. e., "this subchapter," includes other provisions that use the defined terms, for example a provision that forbids "discriminat[ing] against a qualified individual with a disability because of the disability." 12112(a). The EEOC might elaborate, through regulations, on the meaning of "disability" in this lastmentioned provision, if elaboration is needed in order to "carry out" the substantive provisions of "this subchapter." An EEOC regulation that elaborated on the meaning of this use of the word "disability" would fall within the scope both of the basic definitional provision and also the substantive provisions of "this" later subchapter, for the word "disability" appears in both places. There is no reason to believe that Congress would have wanted to deny the EEOC the power to issue such a regulation, at least if the regulation is consistent with the
|
Justice O'Connor
| 1,995 | 14 |
majority
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Chandris, Inc. v. Latsis
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https://www.courtlistener.com/opinion/117953/chandris-inc-v-latsis/
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This case asks us to clarify what "employment-related connection to a vessel in navigation," McDermott Int'l, is necessary for a maritime worker to qualify as a seaman under the Jones Act, 6 U.S. C. App. 688(a). In we addressed the type of activities that a seaman must perform and held that, under the Jones Act, a seaman's job need not be limited to transportation-related functions that directly aid in the vessel's navigation. We now determine what relationship a worker must have to the vessel, regardless of the specific tasks the worker undertakes, in order to obtain seaman status. I In May 1989, respondent Antonios Latsis was employed by petitioner Chandris, as a salaried superintendent engineer. Latsis was responsible for maintaining and updating the electronic and communications equipment on Chandris' fleet of vessels, which consisted of six passenger cruise ships. Each ship in the Chandris fleet carried between 12 and 1 engineers who were assigned permanently to that vessel. Latsis, on the other hand, was one of two supervising engineers based at Chandris' Miami office; his duties ran to the entire fleet and included not only overseeing the vessels' engineering departments, which required him to take a number of voyages, but also planning and directing ship maintenance from the shore. Latsis claimed at trial that he spent 2 percent of his time at sea, App. 58; his immediate supervisor testified that the appropriate figure was closer to 10 percent, On May 1, 1989, Latsis sailed for Bermuda aboard the S. S. Galileo to plan for an upcoming renovation of the ship, which was one of the older vessels in the Chandris fleet. Latsis developed a problem with his right eye on the day of departure, and he saw the ship's doctor as the Galileo left port. The doctor diagnosed a suspected detached retina but failed to follow standard medical procedure, which would have been to direct Latsis to see an ophthalmologist on an emergency basis. Instead, the ship's doctor recommended *351 that Latsis relax until he could see an eye specialist when the Galileo arrived in Bermuda two days later. No attempt was made to transport Latsis ashore for prompt medical care by means of a pilot vessel or helicopter during the 11 hours it took the ship to reach the open sea from Baltimore, and Latsis received no further medical care until after the ship arrived in Bermuda. In Bermuda, a doctor diagnosed a detached retina and recommended immediate hospitalization and surgery. Although the operation was a partial success, Latsis lost 5 percent of his vision in his right eye.
|
Justice O'Connor
| 1,995 | 14 |
majority
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Chandris, Inc. v. Latsis
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https://www.courtlistener.com/opinion/117953/chandris-inc-v-latsis/
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lost 5 percent of his vision in his right eye. Following his recuperation, which lasted approximately six weeks, Latsis resumed his duties with Chandris. On September 30, 1989, he sailed with the Galileo to Bremerhaven, Germany, where the vessel was placed in drydock for a 6month refurbishment. After the conversion, the company renamed the vessel the S. S. Meridian. Latsis, who had been with the ship the entire time it was in drydock in Bremerhaven, sailed back to the United States on board the Meridian and continued to work for Chandris until November 1990, when his employment was terminated for reasons that are not clear from the record. In October Latsis filed suit in the United States District Court for the Southern District of New York seeking compensatory damages under the Jones Act, 6 U.S. C. App. 688, for the negligence of the ship's doctor that resulted in the significant loss of sight in Latsis' right eye. The Jones Act provides, in pertinent part, that "[a]ny seaman who shall suffer personal injury in the course of his employment may, at his election, maintain an action for damages at law, with the right of trial by jury" The District Court instructed the jury that it could conclude that Latsis was a seaman within the meaning of the statute if it found as follows: "[T]he plaintiff was either permanently assigned to the vessel or performed a substantial part of his work on the vessel. In determining whether Mr. Latsis performed a *352 substantial part of his work on the vessel, you may not consider the period of time the Galileo was in drydock in Germany, because during that time period she was out of navigation. You may, however, consider the time spent sailing to and from Germany for the conversion. Also, on this first element of being a seaman, seamen do not include land-based workers." App. 210. The parties stipulated to the District Court's second requirement for Jones Act coveragethat Latsis' duties contributed to the accomplishment of the missions of the Chandris vessels. Latsis did not object to the seaman status jury instructions in their entirety, but only contested that portion of the charge which explicitly took from the jury's consideration the period of time that the Galileo was in drydock. The jury returned a verdict in favor of Chandris solely on the issue of Latsis' status as a seaman under the Jones Act. Respondent appealed to the Court of Appeals for the Second Circuit, which vacated the judgment and remanded the case for a new trial. The court emphasized that its
|
Justice O'Connor
| 1,995 | 14 |
majority
|
Chandris, Inc. v. Latsis
|
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case for a new trial. The court emphasized that its longstanding test for seaman status under the Jones Act required "`a more or less permanent connection with the ship,' " a connection that need not be limited to time spent on the vessel but could also be established by the nature of the work performed. The court thought that the alternate formulation employed by the District Court (permanent assignment to the vessel or performance of a substantial part of his work on the vessel), which was derived from Offshore improperly framed the issue for the jury primarily, if not solely, in terms of Latsis' temporal relationship to the vessel. With that understanding of what the language of the Robison test implied, the court concluded that the District Court's seaman status jury instructions constituted plain error under established Circuit precedent. The court then *353 took this case as an opportunity to clarify its seaman status requirements, directing the District Court that the jury should be instructed on remand as follows: "[T]he test of seaman status under the Jones Act is an employment-related connection to a vessel in navigation. The test will be met where a jury finds that (1) the plaintiff contributed to the function of, or helped accomplish the mission of, a vessel; (2) the plaintiff's contribution was limited to a particular vessel or identifiable group of vessels; (3) the plaintiff's contribution was substantial in terms of its (a) duration or (b) nature; and () the course of the plaintiff's employment regularly exposed the plaintiff to the hazards of the sea." Elsewhere on the same page, however, the court phrased the third prong as requiring a substantial connection in terms of both duration and Finally, the Court of Appeals held that the District Court erred in instructing the jury that the time Latsis spent with the ship while it was in drydock could not count in the substantial connection equation. Judge Kearse dissented, arguing that the drydock instruction was not erroneous and that the remainder of the charge did not constitute plain error. We granted certiorari, to resolve the continuing conflict among the Courts of Appeals regarding the appropriate requirements for seaman status under the Jones Act.[*] *35 II The Jones Act provides a cause of action in negligence for "any seaman" injured "in the course of his employment." 6 U.S. C. App. 688(a). Under general maritime law prevailing prior to the statute's enactment, seamen were entitled to "maintenance and cure" from their employer for injuries incurred "in the service of the ship" and to recover damages from the vessel's
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of the ship" and to recover damages from the vessel's owner for "injuries received by seamen in consequence of the unseaworthiness of the ship," but they were "not allowed to recover an indemnity for the negligence of the master, or any member of the crew." The Osceola, ; see also Congress enacted the Jones Act in 1920 to remove the bar to suit for negligence articulated in The Osceola, thereby completing the trilogy of heightened legal protections (unavailable to other maritime workers) that seamen receive because of their exposure to the "perils of the sea." See G. Gilmore & C. Black, Law of Admiralty 6-21, pp. 328-329 ; Robertson, A New Approach to Determining Seaman Status, 6 Texas L. Rev. 9 (hereinafter Robertson). Justice Story identified this animating purpose behind the legal regime governing maritime injuries when he observed that seamen "are emphatically the wards of the admiralty" because they "are by the peculiarity of their lives liable to sudden sickness from * change of climate, exposure to perils, and exhausting labour." (No. 6,0) (CC Me. 1823). Similarly, we stated in that "[t]raditional seamen's remedies have been `universally recognized as growing out of the status of the seaman and his peculiar relationship to the vessel, and as a feature of the maritime law compensating or offsetting the special hazards and disadvantages to which they who go down to sea in ships are subjected.' " ). The Jones Act, however, does not define the term "seaman" and therefore leaves to the courts the determination of exactly which maritime workers are entitled to admiralty's special protection. Early on, we concluded that Congress intended the term to have its established meaning under the general maritime law at the time the Jones Act was enacted. See In we stated that "a seaman is a mariner of any degree, one who lives his life upon the sea." Similarly, in we suggested that "`every one is entitled to the privilege of a seaman who, like seamen, at all times contributes to the labors about the operation and welfare of the ship when she is upon a voyage' " ). Congress provided some content for the Jones Act requirement in 192 when it enacted the Longshore and Harbor Workers' Compensation Act (LHWCA), which provides scheduled compensation (and the exclusive remedy) for injury to a broad range of land-based maritime workers but which also explicitly excludes from its coverage "a master or member of a crew of any vessel." Stat. (part 2) 12, as amended, 33 U.S. C. 902(3)(G). As the Court has stated on several occasions, the
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902(3)(G). As the Court has stated on several occasions, the Jones Act and the LHWCA are mutually *356 exclusive compensation regimes: "`master or member of a crew' is a refinement of the term `seaman' in the Jones Act; it excludes from LHWCA coverage those properly covered under the Jones Act." Indeed, "it is odd but true that the key requirement for Jones Act coverage now appears in another statute." Injured workers who fall under neither category may still recover under an applicable state workers' compensation scheme or, in admiralty, under general maritime tort principles (which are admittedly less generous than the Jones Act's protections). See Cheavens, Terminal Workers' Injury and Death Claims, 6 Tulane L. Rev. 1, -5 (1989). Despite the LHWCA language, drawing the distinction between those maritime workers who should qualify as seamen and those who should not has proved to be a difficult task and the source of much litigationparticularly because "the myriad circumstances in which men go upon the water confront courts not with discrete classes of maritime employees, but rather with a spectrum ranging from the blue-water seaman to the land-based longshoreman." The federal courts have struggled over the years to articulate generally applicable criteria to distinguish among the many varieties of maritime workers, often developing detailed multipronged tests for seaman status. Since the 1950's, this Court largely has left definition of the Jones Act's scope to the lower courts. Unfortunately, as a result, "[t]he perils of the sea, which mariners suffer and shipowners insure against, have met their match in the perils of judicial review." Gilmore & Black, 6-1, at 22. Or, as one court paraphrased Diderot in reference to this body of law: "`We have made a labyrinth and got lost in it. We must find our way out.' " cert. denied, ; see 9 Oeuvres Complètes de Diderot, 203 (J. Assézat ed. 185). *35 A In decided in the Court attempted for the first time in 33 years to clarify the definition of a "seaman" under the Jones Act. Jon was injured while assigned as a foreman supervising the sandblasting and painting of various fixtures and piping on oil drilling platforms in the Persian Gulf. His employer claimed that he could not qualify as a seaman because he did not aid in the navigation function of the vessels on which he served. Emphasizing that the question presented was narrow, we considered whether the term "seaman" is limited to only those maritime workers who aid in a vessel's navigation. After surveying the history of an "aid in navigation" requirement under both the Jones
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of an "aid in navigation" requirement under both the Jones Act and general maritime law, we concluded that "all those with that `peculiar relationship to the vessel' are covered under the Jones Act, regardless of the particular job they perform," and that "the better rule is to define `master or member of a crew' under the LHWCA, and therefore `seaman' under the Jones Act, solely in terms of the employee's connection to a vessel in navigation," Thus, we held that, although "[i]t is not necessary that a seaman aid in navigation or contribute to the transportation of the vessel, a seaman must be doing the ship's work." at We explained that "[t]he key to seaman status is employment-related connection to a vessel in navigation," and that, although "[w]e are not called upon here to define this connection in all details,. we believe the requirement that an employee's duties must `contribut[e] to the function of the vessel or to the accomplishment of its mission' captures well an important requirement of seaman status." Beyond dispensing with the "aid to navigation" requirement, however, did not consider the requisite connection to a vessel in any detail and therefore failed to end the prevailing confusion regarding seaman status. *358 B Respondent urges us to find our way out of the Jones Act "labyrinth" by focusing on the seemingly activity-based policy underlying the statute (the protection of those who are exposed to the perils of the sea), and to conclude that anyone working on board a vessel for the duration of a "voyage" in furtherance of the vessel's mission has the necessary employment-related connection to qualify as a seaman. Brief for Respondent 12-1. Such an approach, however, would run counter to our prior decisions and our understanding of the remedial scheme Congress has established for injured maritime workers. A brief survey of the Jones Act's tortured history makes clear that we must reject the initial appeal of such a "voyage" test and undertake the more difficult task of developing a status-based standard that, although it determines Jones Act coverage without regard to the precise activity in which the worker is engaged at the time of the injury, nevertheless best furthers the Jones Act's remedial goals. Our Jones Act cases establish several basic principles regarding the definition of a seaman. First, "[w]hether under the Jones Act or general maritime law, seamen do not include land-based workers." ; see also Allbritton, Seaman Status in `s Wake, 68 Tulane L. Rev. 33, 38 Our early Jones Act decisions had not recognized this fundamental distinction. In International Stevedoring we held
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not recognized this fundamental distinction. In International Stevedoring we held that a longshoreman injured while stowing cargo, and while aboard but not employed by a vessel at dock in navigable waters, was a seaman covered by the Jones Act. Recognizing that "for most purposes, as the word is commonly used, stevedores are not `seamen,' " the Court nevertheless concluded that "[w]e cannot believe that Congress willingly would have allowed the protection to men engaged upon the same maritime duties to vary with the accident of their being employed by a stevedore rather than by the ship." at *359 52. Because stevedores are engaged in "a maritime service formerly rendered by the ship's crew," ), we concluded, they should receive the Jones Act's protections. See also ; In 196, the Court belatedly recognized that Congress had acted, in passing the LHWCA in 192, to undercut the Court's reasoning in the Haverty line of cases and to emphasize that land-based maritime workers should not be entitled to the seamen's traditional remedies. Our decision in acknowledged that Congress had expressed its intention to "confine the benefits of the Jones Act to the members of the crew of a vessel plying in navigable waters and to substitute for the right of recovery recognized by the Haverty case only such rights to compensation as are given by [the LHWCA]." See also South Chicago Coal & Dock 25 Through the LHWCA, therefore, Congress "explicitly den[ied] a right of recovery under the Jones Act to maritime workers not members of a crew who are injured on board a vessel." And this recognition process culminated in with the Court's statement that, "[w]ith the passage of the LHWCA, Congress established a clear distinction between land-based and sea-based maritime workers. The latter, who owe their allegiance to a vessel and not solely to a land-based employer, are seamen." 98 U.S., at 3. In addition to recognizing a fundamental distinction between land-based and sea-based maritime employees, our cases also emphasize that Jones Act coverage, like the jurisdiction of admiralty over causes of action for maintenance and cure for injuries received in the course of a seaman's employment, depends "not on the place where the injury is inflicted but on the nature of the seaman's service, his status as a member of the vessel, and his relationship as *0 such to the vessel and its operation in navigable waters." Thus, maritime workers who obtain seaman status do not lose that protection automatically when on shore and may recover under the Jones Act whenever they are injured in the service of a vessel,
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whenever they are injured in the service of a vessel, regardless of whether the injury occurs on or off the ship. In the Court held a shipowner liable for injuries caused to a seaman by a fellow crew member while the former was on shore repairing a conduit that was a part of the vessel and that was used for discharging the ship's cargo. We explained: "The right of recovery in the Jones Act is given to the seaman as such, and, as in the case of maintenance and cure, the admiralty jurisdiction over the suit depends not on the place where the injury is inflicted but on the nature of the service and its relationship to the operation of the vessel plying in navigable waters." 2-3. Similarly, the Court in emphasized that the LHWCA "leaves unaffected the rights of members of the crew of a vessel to recover under the Jones Act when injured while pursuing their maritime employment whether on board or on shore." 328 U.S., at -8. See also Our LHWCA cases also recognize the converse: Landbased maritime workers injured while on a vessel in navigation remain covered by the LHWCA, which expressly provides compensation for injuries to certain workers engaged in "maritime employment" that are incurred "upon the navigable waters of the United States," 33 U.S. C. 903(a). Thus, in Director, Office of Workers' Compensation 59 U.S. 29 we held that a worker injured while "working on a barge in actual navigable waters" of the Hudson River, could be compensated under the LHWCA, See also These decisions, which reflect our longstanding view of the LHWCA's scope, indicate that a maritime worker does not become a "member of a crew" as soon as a vessel leaves the dock. It is therefore well settled after decades of judicial interpretation that the Jones Act inquiry is fundamentally status based: Land-based maritime workers do not become seamen because they happen to be working on board a vessel when they are injured, and seamen do not lose Jones Act protection when the course of their service to a vessel takes them ashore. In spite of this background, respondent and Justice Stevens suggest that any maritime worker who is assigned to a vessel for the duration of a voyageand whose duties contribute to the vessel's missionshould be classified as a seaman for purposes of injuries incurred during that voyage. See Brief for Respondent 1; post, at 3 (opinion concurring in judgment). Under such a "voyage test," which relies principally upon this Court's statements that the Jones Act was designed to protect maritime
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statements that the Jones Act was designed to protect maritime workers who are exposed to the "special hazards" and "particular perils" characteristic of work on vessels at sea, see, e. g., the worker's activities at the time of the injury would be controlling. The difficulty with respondent's argument, as the foregoing discussion makes clear, is that the LHWCA repudiated the Haverty line of cases and established that a worker is no longer considered to be a seaman simply because he is doing a seaman's work at the time of the injury. Seaman status is not coextensive with seamen's risks. See, e. g., cert. denied, ; Robertson 93 (following "the overwhelming weight of authority in taking it as given that seaman status cannot be established by any worker who fails to demonstrate that a significant portion of his work was done aboard a vessel" and acknowledging that "[s]ome *3 workers who unmistakably confront the perils of the sea, often in extreme form, are thereby left out of the seamen's protections" ). A "voyage test" would conflict with our prior understanding of the Jones Act as fundamentally status based, granting the negligence cause of action to those maritime workers who form the ship's company. -5; O', 2-3. 32 U.S. 18, is not to the contrary. Although some language in that case does suggest that whether an individual is a seaman depends upon "the activity in which he was engaged at the time of injury," the context of that discussion reveals that "activity" referred to the worker's employment as a laborer on a vessel undergoing seasonal repairs while out of navigation, and not to his precise task at the time of injury. Similarly, despite Justice Harlan's suggestion in dissent that the Court's decision in necessarily construed the word seaman "to mean nothing more than a person injured while working at sea," our short per curiam opinion in that case does not indicate that we adopted so expansive a reading of the statutory term. Citing our prior cases which emphasized that the question of seaman status is normally for the factfinder to decide, see, e. g., 352 U.S. 30, 31-32 (195); 309 U. S., at 25-258, we reversed the judgment of the Court of Appeals and held simply that the jury could have inferred from the facts presented that the petitioner was a member of a crew in light of his overall service to the company (as the District Court had concluded in ruling on a motion for a directed verdict at the close of petitioner's case). That neither nor altered our established course
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of petitioner's case). That neither nor altered our established course in favor of a voyage test is confirmed by reference to our later decision in in which we repeated that "[t]he injured party must of course have `status as a member of the vessel' for it is seamen, not others who may work on *3 the vessel ( v. Marra Bros., ), to whom Congress extended the protection of the Jones Act." We believe it is important to avoid "`engrafting upon the statutory classification of a "seaman" a judicial gloss so protean, elusive, or arbitrary as to permit a worker to walk into and out of coverage in the course of his regular duties.' " 81 F.2d 106, 105 ). In evaluating the employment-related connection of a maritime worker to a vessel in navigation, courts should not employ "a `snapshot' test for seaman status, inspecting only the situation as it exists at the instant of injury; a more enduring relationship is contemplated in the jurisprudence." Easley, Thus, a worker may not oscillate back and forth between Jones Act coverage and other remedies depending on the activity in which the worker was engaged while injured. 26 F.3d 12, Unlike Justice Stevens, see post, at 383, we do not believe that any maritime worker on a ship at sea as part of his employment is automatically a member of the crew of the vessel within the meaning of the statutory terms. Our rejection of the voyage test is also consistent with the interests of employers and maritime workers alike in being able to predict who will be covered by the Jones Act (and, perhaps more importantly for purposes of the employers' workers' compensation obligations, who will be covered by the LHWCA) before a particular workday begins. To say that our cases have recognized a distinction between land-based and sea-based maritime workers that precludes application of a voyage test for seaman status, however, is not to say that a maritime employee must work only on board a vessel to qualify as a seaman under the Jones Act. In Southwest Marine, decided only a few months after we concluded that a worker's status as a ship repairman, one of the enumerated * occupations encompassed within the term "employee" under the LHWCA, 33 U.S. C. 902(3), did not necessarily restrict the worker to a remedy under that statute. We explained that, "[w]hile in some cases a ship repairman may lack the requisite connection to a vessel in navigation to qualify for seaman status, not all ship repairmen lack the requisite connection as a matter of
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ship repairmen lack the requisite connection as a matter of law. This is so because `[i]t is not the employee's particular job that is determinative, but the employee's connection to a vessel.' " (quoting 98 U. S., ) Thus, we concluded, the Jones Act remedy may be available to maritime workers who are employed by a shipyard and who spend a portion of their time working on shore but spend the rest of their time at sea. Beyond these basic themes, which are sufficient to foreclose respondent's principal argument, our cases are largely silent as to the precise relationship a maritime worker must bear to a vessel in order to come within the Jones Act's ambit. We have, until now, left to the lower federal courts the task of developing appropriate criteria to distinguish the "ship's company" from those members of the maritime community whose employment is essentially land based. C The Court of Appeals for the First Circuit was apparently the first to develop a generally applicable test for seaman status. In the court retained the pre- view that "the word `seaman' under the Jones Act [did] not mean the same thing as `member of a crew' under the [LHWCA]," 123 F.2d, at 99. It concluded that "one who does any sort of work aboard a ship in navigation is a `seaman' within the meaning of the Jones Act." To the phrase "member of a crew," on the other hand, the court gave a more restrictive meaning. The court adopted three elements to define the phrase that had been used at various times in prior cases, *5 holding that "[t]he requirements that the ship be in navigation; that there be a more or less permanent connection with the ship; and that the worker be aboard primarily to aid in navigation appear to us to be the essential and decisive elements of the definition of a `member of a crew.' " Cf. at 35 ("According to past decisions, to be a `member of a crew' an individual must have some connection, more or less permanent, with a ship and a ship's company"). Once it became clear that the phrase "master or member of a crew" from the LHWCA is coextensive with the term "seaman" in the Jones Act, courts accepted the Carumbo formulation of master or member of a crew in the Jones Act context. See 98 F.2d 283 ; Estate of 09 F.2d 1326, 132 ; 51 F.2d 2, (CA 196); cert. denied, 23 U.S. 105 (196); 20 F.2d 132, 1 The Court of Appeals for the Second Circuit
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132, 1 The Court of Appeals for the Second Circuit initially was among the jurisdictions to adopt the Carumbo formulation as the basis of its seaman status inquiry, see 51 F. 2d, at but that court took the instant case as an opportunity to modify the traditional test somewhat (replacing the "more or less permanent connection" prong with a requirement that the connection be "substantial in terms of its (a) duration and (b) nature"), The second major body of seaman status law developed in the Court of Appeals for the Fifth Circuit, which has a substantial Jones Act caseload, in the wake of Offshore At the time of his injury, Robison was an oil worker permanently assigned to a drilling rig mounted on a barge in the Gulf of Mexico. In sustaining the jury's award of damages to Robison under the Jones Act, the court abandoned the aid in navigation requirement of the traditional test and held as follows: *6 "[T]here is an evidentiary basis for a Jones Act case to go to the jury: (1) if there is evidence that the injured workman was assigned permanently to a vessel or performed a substantial part of his work on the vessel; and (2) if the capacity in which he was employed or the duties which he performed contributed to the function of the vessel or to the accomplishment of its mission, or to the operation or welfare of the vessel in terms of its maintenance during its movement or during anchorage for its future trips." at Soon after Robison, the Fifth Circuit modified the test to allow seaman status for those workers who had the requisite connection with an "identifiable fleet" of vessels, a finite group of vessels under common ownership or control. See also Barrett, 81 F. 2d, at 10; 00 F.2d 20 cert. denied, 6 U.S. 1069 The modified Robison formulation, which replaced the Carumbo version as the definitive test for seaman status in the Fifth Circuit, has been highly influential in other courts as well. See Robertson 95; 20 ; 828 F.2d 1, (CA11 198); 510 F.2d 11, 1 While the Carumbo and Robison approaches may not seem all that different at first glance, subsequent developments in the Fifth Circuit's Jones Act jurisprudence added a strictly temporal gloss to the Jones Act inquiry. Under if an employee's regular duties require him to divide his time between vessel and land, his status as a crew member is determined "in the context of his entire employment" with his current employer. at 105. See also Allbritton, 68 Tulane L. Rev.,
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employer. at 105. See also Allbritton, 68 Tulane L. Rev., at 386; Longmire, 610 F. 2d, at 13 (explaining that a worker's seaman status "should be addressed with reference to the nature * and location of his occupation taken as a whole"). In Barrett, the court noted that the worker "performed seventy to eighty percent of his work on platforms and no more than twenty to thirty percent of his work on vessels" and then concluded that, "[b]ecause he did not perform a substantial portion of his work aboard a vessel or fleet of vessels, he failed to establish that he was a member of the crew of a vessel." 81 F.2d, at 106. Since Barrett, the Fifth Circuit consistently has analyzed the problem in terms of the percentage of work performed on vessels for the employer in questionand has declined to find seaman status where the employee spent less than 30 percent of his time aboard ship. See, e. g., 930 F.2d 3, 39 ; 85 F.2d 5, 51 (198), cert. denied, 8 U.S. 1031 ; cf. Leonard v. Dixie Well Service & Supply, (198); Pickle v. International Oilfield Divers, 91 F.2d 123, 120 cert. denied, 9 U.S. 1059 (198). Although some Courts of Appeals have varied the applicable tests to some degree, see, e. g., 2 F. 2d, at 10-1063, the traditional Carumbo seaman status formulation and the subsequent Robison modification are universally recognized, and one or the other is applied in every Federal Circuit to have considered the issue. See Bull, Seaman Status Revisited: A Practical Guide To Status Determination, 6 U. S. F. Mar. L. J. 5, 5- (collecting cases). The federal courts generally require at least a significant connection to a vessel in navigation (or to an identifiable fleet of vessels) for a maritime worker to qualify as a seaman under the Jones Act. Although the traditional test requires a "more or less permanent connection" and the Robison formulation calls for "substantial" work aboard a vessel, "this general requirement varies little, if at all, from one jurisdiction to another," Bull, and "[t]he courts have repeatedly held *8 that the relationship creating seaman status must be substantial in point of time and work, and not merely sporadic," -588. D From this background emerge the essential contours of the "employment-related connection to a vessel in navigation," 98 U. S., at required for an employee to qualify as a seaman under the Jones Act. We have said that, in giving effect to the term "seaman," our concern must be "to define the meaning for the purpose of a
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be "to define the meaning for the purpose of a particular statute" and that its use in the Jones Act "must be read in the light of the mischief to be corrected and the end to be attained." 293 U. S., at 8. Giving effect to those guiding principles, we think that the essential requirements for seaman status are twofold. First, as we emphasized in "an employee's duties must `contribut[e] to the function of the vessel or to the accomplishment of its mission.' " 98 U.S., at (quoting Robison, 266 F. 2d, at ). The Jones Act's protections, like the other admiralty protections for seamen, only extend to those maritime employees who do the ship's work. But this threshold requirement is very broad: "All who work at sea in the service of a ship" are eligible for seaman status. Second, and most important for our purposes here, a seaman must have a connection to a vessel in navigation (or to an identifiable group of such vessels) that is substantial in terms of both its duration and its The fundamental purpose of this substantial connection requirement is to give full effect to the remedial scheme created by Congress and to separate the sea-based maritime employees who are entitled to Jones Act protection from those land-based workers who have only a transitory or sporadic connection to a vessel in navigation, and therefore whose employment does not regularly expose them to the perils of the sea. See 1B A. Jenner, Benedict on Admiralty 11a, pp. 2-10.1 to 2-11 ("If it can be shown that the employee performed a *9 significant part of his work on board the vessel on which he was injured, with at least some degree of regularity and continuity, the test for seaman status will be satisfied" ). This requirement therefore determines which maritime employees in `s broad category of persons eligible for seaman status because they are "doing the ship's work," 98 U.S., at are in fact entitled to the benefits conferred upon seamen by the Jones Act because they have the requisite employment-related connection to a vessel in navigation. It is important to recall that the question of who is a "member of a crew," and therefore who is a "seaman," is a mixed question of law and fact. Because statutory terms are at issue, their interpretation is a question of law and it is the court's duty to define the appropriate standard. 98 U. S., at 356. On the other hand, "[i]f reasonable persons, applying the proper legal standard, could differ as to whether the employee was
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legal standard, could differ as to whether the employee was a `member of a crew,' it is a question for the jury." See also 352 U. S., at 3 The jury should be permitted, when determining whether a maritime employee has the requisite employment-related connection to a vessel in navigation to qualify as a member of the vessel's crew, to consider all relevant circumstances bearing on the two elements outlined above. In defining the prerequisites for Jones Act coverage, we think it preferable to focus upon the essence of what it means to be a seaman and to eschew the temptation to create detailed tests to effectuate the congressional purpose, tests that tend to become ends in and of themselves. The principal formulations employed by the Courts of Appeals"more or less permanent assignment" or "connection to a vessel that is substantial in terms of its duration and nature"are *30 simply different ways of getting at the same basic point: The Jones Act remedy is reserved for sea-based maritime employees whose work regularly exposes them to "the special hazards and disadvantages to which they who go down to sea in ships are subjected." Sieracki, 328 U. S., at Indeed, it is difficult to discern major substantive differences in the language of the two phrases. In our view, "the total circumstances of an individual's employment must be weighed to determine whether he had a sufficient relation to the navigation of vessels and the perils attendant thereon." 2 F.2d 2, 32 The duration of a worker's connection to a vessel and the nature of the worker's activities, taken together, determine whether a maritime employee is a seaman because the ultimate inquiry is whether the worker in question is a member of the vessel's crew or simply a land-based employee who happens to be working on the vessel at a given time. Although we adopt the centerpiece of the formulation used by the Court of Appeals in this casethat a seaman must have a connection with a vessel in navigation that is substantial in both duration and naturewe should point out how our understanding of the import of that language may be different in some respects from that of the court below. The Court of Appeals suggested that its test for seaman status "does not unequivocally require a Jones Act seaman to be substantially connected to a vessel" in terms of time if the worker performs important work on board on a steady, although not necessarily on a temporally significant, basis. 20 F.3d, 3. Perhaps giving effect to this intuition, or perhaps reacting to
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Perhaps giving effect to this intuition, or perhaps reacting to the temporal gloss placed on the Robison language by later Fifth Circuit decisions, the court phrased its standard at one point as requiring a jury to find that a Jones Act plaintiff's contribution to the function of the vessel was substantial in terms of its duration or It is not clear which version ("duration or nature" *31 as opposed to "duration and nature") the Court of Appeals intended to adopt for the substantial connection requirementor indeed whether the court saw a significant difference between the two. Nevertheless, we think it is important that a seaman's connection to a vessel in fact be substantial in both respects. We agree with the Court of Appeals that seaman status is not merely a temporal concept, but we also believe that it necessarily includes a temporal element. A maritime worker who spends only a small fraction of his working time on board a vessel is fundamentally land based and therefore not a member of the vessel's crew, regardless of what his duties are. Naturally, substantiality in this context is determined by reference to the period covered by the Jones Act plaintiff's maritime employment, rather than by some absolute measure. Generally, the Fifth Circuit seems to have identified an appropriate rule of thumb for the ordinary case: A worker who spends less than about 30 percent of his time in the service of a vessel in navigation should not qualify as a seaman under the Jones Act. This figure of course serves as no more than a guideline established by years of experience, and departure from it will certainly be justified in appropriate cases. As we have said, "[t]he inquiry into seaman status is of necessity fact specific; it will depend on the nature of the vessel and the employee's precise relation to it." 98 U. S., at 356. Nevertheless, we believe that courts, employers, and maritime workers can all benefit from reference to these general principles. And where undisputed facts reveal that a maritime worker has a clearly inadequate temporal connection to vessels in navigation, the court may take the question from the jury by granting summary judgment or a directed verdict. See, e. g., Palmer, 930 F. 2d, 39. On the other hand, we see no reason to limit the seaman status inquiry, as petitioners contend, exclusively to an examination of the overall course of a worker's service with a *32 particular employer. Brief for Petitioners 1-. When a maritime worker's basic assignment changes, his seaman status may change as well. See Barrett,
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| 1,995 | 14 |
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changes, his seaman status may change as well. See Barrett, 81 F. 2d, at 10 (Rubin, J., dissenting) ("An assignment to work as a crew member, like the voyage of a vessel, may be brief, and the Robison test is applicable in deciding the worker's status during any such employment"); Longmire, 610 F. 2d, at 13, n. 6. For example, we can imagine situations in which someone who had worked for years in an employer's shoreside headquarters is then reassigned to a ship in a classic seaman's job that involves a regular and continuous, rather than intermittent, commitment of the worker's labor to the function of a vessel. Such a person should not be denied seaman status if injured shortly after the reassignment, just as someone actually transferred to a desk job in the company's office and injured in the hallway should not be entitled to claim seaman status on the basis of prior service at sea. If a maritime employee receives a new work assignment in which his essential duties are changed, he is entitled to have the assessment of the substantiality of his vessel-related work made on the basis of his activities in his new position. See Cheavens, 6 Tulane L. Rev., at 389-390. Thus, nothing in our opinion forecloses Jones Act coverage, in appropriate cases, for Justice Stevens' paradigmatic maritime worker injured while reassigned to "a lengthy voyage on the high seas," post, at 386. While our approach maintains the status-based inquiry this Court's earlier cases contemplate, we recognize that seaman status also should not be some immutable characteristic that maritime workers who spend only a portion of their time at sea can never attain. III One final issue remains for our determination: whether the District Court erred in instructing the jurors that, "[i]n determining whether Mr. Latsis performed a substantial part of his work on the vessel, [they could] not consider the period *33 of time the Galileo was in drydock in Germany, because during that time period she was out of navigation." We agree with the Court of Appeals that it did. The foregoing discussion establishes that, to qualify as a seaman under the Jones Act, a maritime employee must have a substantial employment-related connection to a vessel in navigation. See -. Of course, any time Latsis spent with the Galileo while the ship was out of navigation could not count as time spent at sea for purposes of that inquiry, and it would have been appropriate for the District Court to make this clear to the jury. Yet the underlying inquiry whether a vessel
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to the jury. Yet the underlying inquiry whether a vessel is or is not "in navigation" for Jones Act purposes is a fact-intensive question that is normally for the jury and not the court to decide. See 356 U.S. 21 ; 2 M. Law of Seamen 30.13, p. 3 ("Whether the vessel is in navigation presents a question of fact to be determined by the trier of the facts. When the case is tried to a jury the fact question should be left to their consideration if sufficient evidence has been presented to provide the basis for jury consideration"). Removing the issue from the jury's consideration is only appropriate where the facts and the law will reasonably support only one conclusion, Anderson v. Liberty Lobby, U.S. 22, and the colloquy between the court and counsel does not indicate that the District Court made any such findings before overruling respondent's objection to the drydock instruction. See Tr. 32. Based upon the record before us, we think the court failed adequately to justify its decision to remove the question whether the Galileo was "in navigation" while in Bremerhaven from the jury. Under our precedent and the law prevailing in the Circuits, it is generally accepted that "a vessel does not cease to be a vessel when she is not voyaging, but is at anchor, berthed, or at dockside," DiGiovanni v. Traylor Bros., (CA1) cert. denied, 506 U. S. *3 82 even when the vessel is undergoing repairs. See at 21; 352 U. S., at 33; at ("[A] vessel is in navigation when it returns from a voyage and is taken to a drydock or shipyard to undergo repairs in preparation to making another trip, and likewise a vessel is in navigation, although moored to a dock, if it remains in readiness for another voyage" (footnotes omitted)). At some point, however, repairs become sufficiently significant that the vessel can no longer be considered in navigation. In 1 U.S. 118 we held that a shoreside worker was not entitled to recover for unseaworthiness because the vessel on which he was injured was undergoing an overhaul for the purpose of making her seaworthy and therefore had been withdrawn from navigation. We explained that, in such cases, "the focus should be upon the status of the ship, the pattern of the repairs, and the extensive nature of the work contracted to be done." See also United N. Y. and N. J. Sandy Hook Pilots ; 32 U. S., at 191. The general rule among the Courts of Appeals is that vessels undergoing repairs or spending a
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of Appeals is that vessels undergoing repairs or spending a relatively short period of time in drydock are still considered to be "in navigation" whereas ships being transformed through "major" overhauls or renovations are not. See Bull, 6 U. S. F. Mar. L. J., 2-58 (collecting cases). Obviously, while the distinction at issue here is one of degree, the prevailing view is that "major renovations can take a ship out of navigation, even though its use before and after the work will be the same." McKinley v. All Alaskan Seafoods, 980 F.2d 56, 50 Our review of the record in this case uncovered relatively little evidence bearing on the Galileo `s status during the repairs, and even less discussion of the question by the District Court. On the one hand, the work on the Chandris vessel took only about six months, which seems to be a relatively short period of time for important repairs on ocean going vessels. Cf. 1 *35 (1-month-long project involving major structural changes took the vessel out of navigation); 61 F.2d 956 ; see also at 33 (noting that "[e]ven a transoceanic liner may be confined to berth for lengthy periods, and while there the ship is kept in repair by its `crew' "and that "[t]here can be no doubt that a member of its crew would be covered by the Jones Act during this period, even though the ship was never in transit during his employment"). On the other hand, Latsis' own description of the work performed suggests that the modifications to the vessel were actually quite significant, including the removal of the ship's bottom plates and propellers, the addition of bow thrusters, overhaul of the main engines, reconstruction of the boilers, and renovations of the cabins and other passenger areas of the ship. See App. 93-9. On these facts, which are similar to those in McKinley, it is possible that Chandris could be entitled to partial summary judgment or a directed verdict concerning whether the Galileo remained in navigation while in drydock; the record, however, contains no stipulations or findings by the District Court to justify its conclusion that the modifications to the Galileo were sufficiently extensive to remove the vessel from navigation as a matter of law. On that basis, we agree with the Court of Appeals that the District Court's drydock instruction was erroneous. Even if the District Court had been justified in directing a verdict on the question whether the Galileo remained in navigation while in Bremerhaven, we think that the court's charge to the jury swept too broadly. Instead of
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court's charge to the jury swept too broadly. Instead of simply noting the appropriate legal conclusion and instructing the jury not to consider the time Latsis spent with the vessel in drydock as time spent with a vessel in navigation, the District Court appears to have prohibited the jury from considering Latsis' stay in Bremerhaven for any purpose. In our view, Latsis' activities while the vessel was in drydock are at least * marginally relevant to the underlying inquiry (whether Latsis was a seaman and not a land-based maritime employee). Naturally, the jury would be free to draw several inferences from Latsis' work during the conversion, not all of which would be in his favor. But the choice among such permissible inferences should have been left to the jury, and we think the District Court's broadly worded instruction improperly deprived the jury of that opportunity by forbidding the consideration of Latsis' time in Bremerhaven at all. IV Under the Jones Act, "[i]f reasonable persons, applying the proper legal standard, could differ as to whether the employee was a `member of a crew,' it is a question for the jury." 98 U. S., at 356. On the facts of this case, given that essential points are in dispute, reasonable factfinders could disagree as to whether Latsis was a seaman. Because the question whether the Galileo remained "in navigation" while in drydock should have been submitted to the jury, and because the decision on that issue might affect the outcome of the ultimate seaman status inquiry, we affirm the judgment of the Court of Appeals remanding the case to the District Court for a new trial. On remand, the District Court should charge the jury in a manner consistent with our holding that the "employmentrelated connection to a vessel in navigation" necessary to qualify as a seaman under the Jones Act, at comprises two basic elements: The worker's duties must contribute to the function of the vessel or to the accomplishment of its mission, and the worker must have a connection to a vessel in navigation (or an identifiable group of vessels) that is substantial in terms of both its duration and its As to the latter point, the court should emphasize that the Jones Act was intended to protect sea-based maritime workers, who owe their allegiance to a vessel, and not land-based employees, who do not. By instructing juries in Jones Act *3 cases accordingly, courts can give proper effect to the remedial scheme Congress has created for injured maritime workers. It is so ordered. Justice Stevens, with whom Justice Thomas
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Justice Blackmun
| 1,987 | 11 |
concurring
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I join JUSTICE BRENNAN's opinion. I would go further, however, and hold that the practice federal or state of *815 appointing an interested party's counsel to prosecute for criminal contempt is a violation of due process. This constitutional concept, in my view, requires a disinterested prosecutor with the unique responsibility to serve the public, rather than a private client, and to seek justice that is unfettered. See Brotherhood of Locomotive Firemen & ; see generally Note, Private Prosecutors in Criminal Contempt Actions under Rule 42(b) of the Federal Rules of Criminal Procedure, 54 Ford. L. Rev. 1141, 1146-1166 JUSTICE SCALIA, concurring in the judgment. I agree with the Court that the District Court's appointment of J. Joseph Bainton and Robert P. Devlin as special counsel to prosecute petitioners for contempt of an injunction earlier issued by that court was invalid, and that that action requires reversal of petitioners' convictions. In my view, however, those appointments were defective because of a failing more fundamental than that relied upon by the Court. Prosecution of individuals who disregard court orders (except orders necessary to protect the courts' ability to function) is not an exercise of "[t]he judicial power of the United States," U. S. Const., Art. III, 1, 2. Since that is the only grant of power that has been advanced as authorizing these appointments, they were void. And since we cannot know whether petitioners would have been prosecuted had the matter been referred to a proper prosecuting authority, the convictions are likewise void. I With the possible exception of the power to appoint inferior federal officers, which is irrelevant to the present cases,[1]*816 the only power the Constitution permits to be vested in federal courts is "[t]he judicial power of the United States." Art. III, 1. That is accordingly the only kind of power that federal judges may exercise by virtue of their Article III commissions. ; United The judicial power is the power to decide, in accordance with law, who should prevail in a case or controversy. See Art. III, 2. That includes the power to serve as a neutral adjudicator in a criminal case, but does not include the power to seek out law violators in order to punish them which would be quite incompatible with the task of neutral adjudication. It is accordingly well established that the judicial power does not generally include the power to prosecute crimes. See United (CA5) (en banc), cert. denied, and authorities cited therein; ; ; see generally United Rather, since the prosecution of law violators is part of the implementation
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| 1,987 | 11 |
concurring
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the prosecution of law violators is part of the implementation of the laws, it is at least to the extent that it is publicly exercised[2] executive power, vested by the Constitution in the *817 President. Art. II, 2, cl. 1. See ; These well-settled general principles are uncontested. The Court asserts, however, that there is a special exception for prosecutions of criminal contempt, which are the means of securing compliance with court orders. Unless these can be prosecuted by the courts themselves, the argument goes, efficaciousness of judicial judgments will be at the mercy of the Executive, an arrangement presumably too absurd to contemplate. Ante, at 796. Far from being absurd, however, it is a carefully designed and critical element of our system of Government. There are numerous instances in which the Constitution leaves open the theoretical possibility that the actions of one Branch may be brought to nought by the actions or inactions of another. Such dispersion of power was central to the scheme of forming a Government with enough power to serve the expansive purposes set forth in the preamble of the Constitution, yet one that would "secure the blessings of liberty" rather than use its power tyranically. Congress, for example, is dependent on the Executive and the courts for enforcement of the laws it enacts. Even complete failure by the Executive to prosecute law violators, or by the courts to convict them, has never been thought to authorize congressional prosecution and trial. The Executive, in its turn, cannot perform its function of enforcing the laws if Congress declines to appropriate the necessary funds for that purpose; or if the courts decline to entertain its valid prosecutions. Yet no one suggests *818 that some doctrine of necessity authorizes the Executive to raise money for its operations without congressional appropriation, or to jail malefactors without conviction by a court of law. Why, one must wonder, are the courts alone immune from this interdependence? The Founding Fathers, of a certainty, thought that they were not. It is instructive to compare the Court's claim that "[c]ourts cannot be at the mercy of another branch in deciding whether [contempt] proceedings should be initiated," ante, at 796, with the views expressed in one of the most famous passages from The Federalist: "[T]he judiciary, from the nature of its functions, will always be the least dangerous to the political rights of the constitution; because it will be least in a capacity to annoy or injure them. The judiciary has no influence over either the sword or the purse, no direction either of
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| 1,987 | 11 |
concurring
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either the sword or the purse, no direction either of the strength or of the wealth of the society, and can take no active resolution whatever. It may truly be said to have neither Force nor Will but merely judgment; and must ultimately depend upon the aid of the executive arm even for the efficacy of its judgments." The Federalist No. 78, pp. 522-523 (J. Cooke ed. 1961) (A. Hamilton) (emphasis added). Even as a purely analytic proposition the Court's thesis is faulty, because it proves too much. If the courts must be able to investigate and prosecute contempt of their judgments, why must they not also be able to arrest and punish those whom they have adjudicated to be in contempt? Surely the Executive's refusal to enforce a judgment of contempt would impair the efficacy of the court's acts at least as much as its failure to investigate and prosecute a contempt. Yet no one has ever supposed that the Judiciary has an inherent power to arrest and incarcerate. *819 II The Court appeals to a "longstanding acknowledgment that the initiation of contempt proceedings to punish disobedience to court orders is a part of the judicial function." Ante, at 795. Except, however, for a line of cases beginning in 1895 with In re whose holding and rationale we have since repudiated, no holding of this Court has ever found inherent judicial power to punish those violating court judgments with contempt, much less to appoint officers to prosecute such contempts. Our first reference to the special status of the federal courts' contempt powers appeared in United Hudson, where the question presented was whether circuit courts had the power to decide common-law criminal cases. Congress had not conferred such power, but the prosecution argued that it was part of the National Government's inherent power to preserve its own existence. The Court ruled that such an argument could establish, at most, that Congress had inherent power to pass criminal laws, not that the federal courts had inherent power without legislation to adjudge common-law crimes. At the end of its discussion, the Court noted: "Certain implied powers must necessarily result to our Courts of justice from the nature of their institution. But jurisdiction of crimes against the state is not among those powers. To fine for contempt imprison for contumacy inforce the observance of order, &c. are powers which cannot be dispensed with in a Court, because they are necessary to the exercise of all others: and so far our Courts no doubt possess powers not immediately derived from statute; but
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Justice Blackmun
| 1,987 | 11 |
concurring
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no doubt possess powers not immediately derived from statute; but all exercise of criminal jurisdiction in common law cases we are of opinion is not within their implied powers." Thus, the holding of Hudson was against the existence of broad inherent powers in the federal courts. Its discussion *820 recognized as inherent only those powers "necessary to the exercise of all others," that is, necessary to permit the courts to function, among which it included the contempt power when used to prevent interference with the conduct of judicial business. It made no mention of the enforcement of judgments, much less of an investigative or prosecutory authority. Nine years later, in the Court reiterated its view that the contempt power was an inherent component of the judicial power. That case presented an issue more closely related to the questions of the source and scope of the federal courts' contempt power, although still not directly on point: whether the House of Representatives could direct its Sergeant at Arms to seek out a person who had disrupted its proceedings, bring him before the House to be tried for contempt, and hold him in custody until completion of the proceedings. The Court noted that "there is no power given by the constitution to either House to punish for contempts, except when committed by their own members," and that "if this power is to be asserted on the plea of necessity, the ground is too broad, and the result too indefinite;. the executive, and every co-ordinate, and even subordinate, branch of government, may resort to the same justification, and the whole assume to themselves, in the exercise of this power, the most tyrannical licentiousness." Nevertheless, the Court upheld the House's action, concluding that any other course "leads to the total annihilation of the power of the House of Representatives to guard itself from contempts, and leaves it exposed to every indignity and interruption that rudeness, caprice, or even conspiracy, may meditate against it." It was in the course of recognizing this limited power of self-defense in the House that the Court pronounced the dictum cited in today's opinion that "[c]ourts of justice are universally *821 acknowledged to be vested, by their very creation, with power to impose silence, respect, and decorum, in their presence, and submission to their lawful mandates, and, as a corollary to this proposition, to preserve themselves and their officers from the approach and insults of pollution." at Read in the context of the case, it seems to me likely that all the Court meant by "mandates" was orders necessary to the
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Justice Blackmun
| 1,987 | 11 |
concurring
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the Court meant by "mandates" was orders necessary to the conduct of a trial, such as subpoenas. In any event, the statement was not a carefully considered opinion as to the outer limits of the federal courts' inherent contempt powers. As was the case in Hudson, moreover, the statement did not suggest that the courts should play any role in the contempt process other than that of neutral adjudicator, and was dictum not only because the judicial contempt power was not at issue but because the Judiciary Act of had already conferred the authority said to be inherently possessed. 17, I recognize, however, that the narrow principle of necessity underlying Anderson that the Legislative, Executive, and Judicial Branches must each possess those powers necessary to protect the functioning of its own processes, although those implicit powers may take a form that appears to be nonlegislative, nonexecutive, or nonjudicial, respectively does have logical application to the federal courts' contempt powers. But that principle would at most require that courts be empowered to prosecute for contempt those who interfere with the orderly conduct of their business or disobey orders necessary to the conduct of that business (such as subpoenas). It would not require that they be able to prosecute and punish, not merely disruption of their functioning, but disregard of the product of their functioning, their judgments. The correlative of the latter power, in the congressional context, would be an inherent power on the part of Congress to prosecute and punish disobedience of its laws which neither Anderson nor any rational person would suggest. I can imagine no basis, except self-love, for limiting *822 this extension of the necessity doctrine to the courts alone. And even if illogically limited to the courts it is pernicious enough. In light of the broad sweep of modern judicial decrees, which have the binding effect of laws for those to whom they apply, the notion of judges' in effect making the laws, prosecuting their violation, and sitting in judgment of those prosecutions, summons forth much more vividly than Anderson could ever have imagined the prospect of "the most tyrannical licentiousness." Anderson, III Our only holdings conferring an inherent contempt power to enforce judgments emanate from In re whose outcome and reasoning we have disapproved. There a Circuit Court, which had enjoined union officers and organizers from engaging in activities disruptive of interstate rail traffic, held them in contempt for failing to comply with the injunction and sentenced them to jail for terms from three to six months. This Court rejected the argument that
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Justice Blackmun
| 1,987 | 11 |
concurring
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three to six months. This Court rejected the argument that they had thereby been deprived of their right to a jury trial, stating: "[T]he power of a court to make an order carries with it the equal power to punish for a disobedience of that order, and the inquiry as to the question of disobedience has been, from time immemorial, the special function of the court. And this is no technical rule. In order that a court may compel obedience to its orders it must have the right to inquire whether there has been any disobedience thereof. To submit the question of disobedience to another tribunal, be it a jury or another court, would operate to deprive the proceeding of half its efficiency." At the time, many considered a dangerous decision, see Dunbar, Government by Injunction, 13 L. Q. Rev. 347 (1897); Gregory, Government by Injunction, ; Lewis, Strikes and Courts of Equity, 46 Am. *823 L. Reg. 1 ; Lewis, A Protest Against Administering Criminal Law by Injunction, 42 Am. L. Reg. 879 (1894); and the opinion continued to be criticized long after it was handed down. See Ultimately, its holding was repudiated in where we ruled that courts are required to afford persons charged with criminal contempt a jury trial to the same extent they are required to afford a jury trial in other criminal cases. But repudiated more than ' holding. It specifically rejected ' rationale that courts must have self-contained power to punish disobedience of their judgments, because " `[t]o submit the question of disobedience to another tribunal, be it a jury or another court, would operate to deprive the proceeding of half its efficiency.' " quoting The Court, to the contrary, "place[d] little credence in the notion that the independence of the judiciary hangs on the power to try contempts summarily and [was] not persuaded that the additional time and expense possibly involved in submitting serious contempts to juries will seriously handicap the effective functioning of the courts." The Court argues that does not control these cases, because "[t]he fact that we have come to regard criminal contempt as `a crime in the ordinary sense,' does not mean that any prosecution of contempt must now be considered an execution of the criminal law in which only the Executive Branch may engage." Ante, at 799-800. To this argument it could be added that did not draw the distinction relied on here between the narrow Anderson necessity principle, that the courts must be able to conduct their business free of interference, and the broad necessity principle, that
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| 1,987 | 11 |
concurring
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business free of interference, and the broad necessity principle, that courts must be able to do anything required to give effect to their decisions. *824 While both these points are true, it seems to me that is nonetheless highly relevant to the present cases. First, it eliminates this Court's only holdings that the courts must have autonomous power to hold litigants in contempt as a means of enforcing their judgments. And second, it makes clear that the argument from necessity to the existence of an inherent power must be restrained by the totality of the Constitution, lest it swallow up the carefully crafted guarantees of liberty. While this principle may have varying application to the jury-trial and separation-of-powers guarantees, it is inconceivable to me that it would not prevent so flagrant a violation of the latter as permitting a judge to promulgate a rule of behavior, prosecute its violation, and adjudicate whether the violation took place. That arrangement is no less fundamental a threat to liberty than is deprivation of a jury trial, since "there is no liberty if the power of judging be not separated from the legislative and executive powers." 1 Montesquieu, Spirit of the Laws 181, as quoted in The Federalist No. 78, p. 523 (J. Cooke ed. 1961). Moreover, as a practical matter the impairment of judicial power produced by requiring the Executive to prosecute contempts is no more substantial than the impairment produced by requiring a jury. The power to acquit is as decisive as the power not to prosecute; and a jury may abuse the former power with impunity, whereas a United States Attorney must litigate regularly before the judges whose violated judgments he ignores. Finally, the Court suggests that the various procedural protections that the Constitution requires us to provide contemners undercut the separation-of-powers argument against judicial prosecution. Ante, at 799, n. 9. The reverse argument that the structural provisions of the Constitution were not only sufficient but indeed were the only sure mechanism for protecting liberty was made against adoption of a Bill of Rights. Ultimately, the people elected to have both checks. The Court is right that disregard of one of these raises less of a prospect of "tyrannical licentiousness" than *825 disregard of both. But that is no argument for disregard of either. I would therefore hold that the federal courts have no power to prosecute contemners for disobedience of court judgments, and no derivative power to appoint an attorney to conduct contempt prosecutions. That is not to say, of course, that the federal courts may not impose
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Justice Blackmun
| 1,987 | 11 |
concurring
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say, of course, that the federal courts may not impose criminal sentences for such contempts. But they derive that power from the same source they derive the power to pass on other crimes which it has never been contended they may prosecute: a statute enacted by Congress criminalizing the conduct which has been on the books in one form or another since the Judiciary Act of See 18 U.S. C. 401. IV I agree with the Court that the District Judge's error in appointing Bainton and Devlin to prosecute these contempts requires reversal of the convictions. The very argument given for permitting a court to appoint an attorney to prosecute contempts that the United States Attorney might exercise his prosecutorial discretion not to pursue the contemners makes clear that that is the result required. In light of the discretion our system allows to prosecutors, which is so broad that we ordinarily find decisions not to prosecute unreviewable, see it would be impossible to conclude with any certainty that these prosecutions would have been brought had the court simply referred the matter to the Executive Branch. JUSTICE POWELL, with whom THE CHIEF JUSTICE and JUSTICE O'CONNOR join, concurring in part and dissenting in part. In this case, the District Court appointed counsel for a party in a civil suit as a prosecutor in a related criminal contempt proceeding. The Court of Appeals for the Second Circuit found that the District Court did not abuse its discretion in making such an appointment. The Court today reaches a contrary conclusion. I agree that the District Court abused *826 its discretion in this case, and that, as a general matter, courts should not appoint interested private lawyers to prosecute charges of criminal contempt. But while I agree with the underlying rationale of the Court's opinion, I do not believe that this Court's precedents call for per se reversal. I therefore cannot join the Court's judgment. The ethical rules of the legal profession prohibit representation of two clients who "may have differing interests." Ethical Consideration 5-14, American Bar Association, Model Code of Professional Responsibility (1982) (emphasis added). This is the situation the Court today correctly finds to exist. I agree that "the appointment of counsel for an interested party to bring the contempt prosecution in this case at a minimum created opportunities for conflicts to arise." Ante, at 806 (emphasis in original). A prosecutor occupies a unique role in our criminal justice system and it is essential that he carry out his duties fairly and impartially. Where a private prosecutor appointed by a
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| 1,987 | 11 |
concurring
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fairly and impartially. Where a private prosecutor appointed by a District Court also represents an interested party, the possibility that his prosecutorial judgment will be compromised is significant. This potential for a conflict of interest warrants an exercise of this Court's supervisory powers to hold that it is improper to appoint such a lawyer to prosecute a charge of criminal contempt. While the potential for prosecutorial impropriety may justify the conclusion that such appointments are inappropriate, it does not justify invalidation of the conviction and sentence in this case. Even where constitutional errors are found to have occurred, this Court has found harmless-error analysis to be appropriate. As the Court recently noted: "[I]f the defendant had counsel and was tried by an impartial adjudicator, there is a strong presumption that any other errors that may have occurred are subject to harmless-error analysis." Here, the error is not of constitutional dimension. Moreover, the defendants had counsel and were convicted of criminal *827 contempt by an impartial jury. The Court of Appeals found "[no] reason to believe" that the private prosecutor in this case acted unethically. The court also found the evidence offered at trial "ample" to support the convictions. These findings strongly imply that the error of appointing the private counsel in this case to prosecute the contempt proceeding was harmless. Although this Court has the authority to review a record to evaluate a harmless-error claim, United Hasting, I share the Court's concern that the effect of conflicting interests on the integrity of prosecutorial decisions may be subtle. Accordingly, I would remand these cases to the Court of Appeals in light of our decision today to determine whether the error of appointing the private attorney to prosecute the contempt proceeding at issue was harmless.
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Justice Thomas
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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In an effort to improve the collection of sales and use taxes for items purchased online, the State of Colorado passed a law requiring retailers that do not collect Colo- rado sales or use tax to notify Colorado customers of their use-tax liability and to report tax-related information to customers and the Colorado Department of Revenue. We must decide whether the Tax Injunction Act, which pro- vides that federal district courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law,” 28 U.S. C. bars a suit to enjoin the enforcement of this law. We hold that it does not. I A Like many States, Colorado has a complementary sales- and-use tax regime. Colorado imposes both a 2.9 percent tax on the sale of tangible personal property within the State, –26–104(1)(a), 39–26–106(1) (a)(II) (2014), and an equivalent use tax for any prop- erty stored, used, or consumed in Colorado on which a 2 DIRECT MARKETING ASSN. v. BROHL Opinion of the Court sales tax was not paid to a retailer, 39– 26–204(1). Retailers with a physical presence in Colorado must collect the sales or use tax from consumers at the point of sale and remit the proceeds to the Colorado De- partment of Revenue (Department). 39– 26–106(2)(a). But under our negative Commerce Clause precedents, Colorado may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the Department. See Quill Thus, Colorado re- quires its consumers who purchase tangible personal property from a retailer that does not collect these taxes (a “noncollecting retailer”) to fill out a return and remit the taxes to the Department directly. Voluntary compliance with the latter requirement is relatively low, leading to a significant loss of tax revenue, especially as Internet retailers have increasingly displaced their brick-and-mortar kin. In the decade before this suit was filed in 2010, e-commerce more than tripled. App. 28. With approximately 25 percent of taxes unpaid on Inter- net sales, Colorado estimated in 2010 that its revenue loss attributable to noncompliance would grow by more than $20 million each year. App. 30–31. In hopes of stopping this trend, Colorado enacted legis- lation in 2010 imposing notice and reporting obligations on noncollecting retailers whose gross sales in Colorado exceed $100,000. Three provisions of that Act, along with their implementing regulations, are at issue here. First, noncollecting retailers must “notify Colorado purchasers that sales or use tax is due on certain purchases and that the state of Colorado requires the purchaser to file a sales or use
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Justice Thomas
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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Colorado requires the purchaser to file a sales or use tax return.” see also –1:39–21–112.3.5(2) (2014), online at http://www.sos.co.us/CRR (as visited Feb. 27, 2015, and available in the Clerk of Court’s case file). The retailer must provide this notice during each transac- Cite as: 575 U. S. (2015) 3 Opinion of the Court tion with a Colorado purchaser, ib and is subject to a penalty of $5 for each transaction in which it fails to do so, –21–112(3.5)(c)(II). Second, by January 31 of each year, each noncollecting retailer must send a report to all Colorado purchasers who bought more than $500 worth of goods from the retailer in the previous year. 1 Colo. Code Regs. (c). That report must list the dates, categories, and amounts of those purchases. –21–112(3.5)(d)(I); see also 1 Colo. Code Regs. (c). It must also contain a notice stating that Colorado “requires a sales or use tax return to be filed and sales or use tax paid on certain Colorado purchases made by the purchaser from the retailer.” –21–112(3.5)(d)(I)(A). The retailer is subject to a penalty of $10 for each report it fails to send. see also 1 Colo. Code Regs. Finally, by March 1 of each year, noncollecting retailers must send a statement to the Department listing the names of their Colorado customers, their known addresses, and the total amount each Colorado customer paid for Colorado purchases in the prior calendar year. Colo. Rev. Stat. – 1:39–21–112.3.5(4). A noncollecting retailer that fails to make this report is subject to a penalty of $10 for each customer that it should have listed in the report. Colo. Rev. Stat. see also 1 Colo. Code Regs. B Petitioner Direct Marketing Association is a trade asso- ciation of businesses and organizations that market prod- ucts directly to consumers, including those in Colorado, via catalogs, print advertisements, broadcast media, and the Internet. Many of its members have no physical 4 DIRECT MARKETING ASSN. v. BROHL Opinion of the Court presence in Colorado and choose not to collect Colorado sales and use taxes on Colorado purchases. As a result, they are subject to Colorado’s notice and reporting requirements. In 2010, Direct Marketing Association brought suit in the United States District Court for the District of Colo- rado against the Executive Director of the Department, alleging that the notice and reporting requirements violate provisions of the United States and Colorado Constitu- tions. As relevant here, Direct Marketing Association alleged that the provisions (1) discriminate against inter- state commerce and (2) impose undue burdens on inter- state commerce, all in violation of this
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majority
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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burdens on inter- state commerce, all in violation of this Court’s negative Commerce Clause precedents. At the request of both parties, the District Court stayed all challenges except these two, in order to facilitate expedited consideration. It then granted partial summary judgment to Direct Market- ing Association and permanently enjoined enforcement of the notice and reporting requirements. App. to Pet. for Cert. B–1 to B–25. Exercising appellate jurisdiction under 28 U.S. C. the United States Court of Appeals for the Tenth Circuit reversed. Without reaching the merits, the Court of Appeals held that the District Court lacked juris- diction over the suit because of the Tax Injunction Act (TIA), 28 U.S. C. Acknowledging that the suit “differs from the prototypical TIA case,” the Court of Ap- peals nevertheless found it barred by the TIA because, if successful, it “would limit, restrict, or hold back the state’s chosen method of enforcing its tax laws and generating revenue.” We granted certiorari, 573 U. S. (2014), and now reverse. II Enacted in 1937, the TIA provides that federal district Cite as: 575 U. S. (2015) 5 Opinion of the Court courts “shall not enjoin, suspend or restrain the assess- ment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” The question before us is whether the relief sought here would “enjoin, suspend or restrain the assessment, levy or collection of any tax under State law.” Because we conclude that it would not, we need not consider whether “a plain, speedy and efficient remedy may be had in the courts of ” Colorado. A The District Court enjoined state officials from enforcing the notice and reporting requirements. Because an in- junction is clearly a form of equitable relief barred by the TIA, the question becomes whether the enforcement of the notice and reporting requirements is an act of “assess- ment, levy or collection.” We need not comprehensively define these terms to conclude that they do not encompass enforcement of the notice and reporting requirements at issue. In defining the terms of the TIA, we have looked to federal tax law as a guide. See, e.g., v. Winn, 542 U.S. 88, 100 Although the TIA does not concern federal taxes, it was modeled on the Anti-Injunction Act (AIA), which does. See Jefferson County v. Acker, 527 U.S. 423, 434–435 (1999). The AIA provides in relevant part that “no suit for the purpose of restraining the as- sessment or collection of any tax shall be maintained in any court by
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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of any tax shall be maintained in any court by any person.” 26 U.S. C. We as- sume that words used in both Acts are generally used in the same way, and we discern the meaning of the terms in the AIA by reference to the broader Tax Code. at 102–105; Read in light of the Federal Tax Code at the time the TIA was enacted (as well as today), these three terms refer to discrete phases of the taxation process that do not include 6 DIRECT MARKETING ASSN. v. BROHL Opinion of the Court informational notices or private reports of information relevant to tax liability. To begin, the Federal Tax Code has long treated infor- mation gathering as a phase of tax administration proce- dure that occurs before assessment, levy, or collection. See (1934 ed.); see also (“All provisions of law for the ascertainment of liability to any tax, or the assessment or collection thereof, shall be held to apply ”). This step includes private reporting of information used to determine tax liability, see, e.g., including reports by third parties who do not owe the tax, see, e.g., et seq. (2012 ed.); see also (1934 ed.) (authorizing a collector or the Commissioner of Internal Revenue, when a taxpayer fails to file a return, to make a return “from his own knowledge and from such information as he can obtain through tes- timony or otherwise”). “Assessment” is the next step in the process, and it refers to the official recording of a taxpayer’s liability, which occurs after information relevant to the calculation of that liability is reported to the taxing authority. See In the Court noted that “assessment,” as used in the Internal Revenue Code, “involves a ‘recording’ of the amount the taxpayer owes the Government.” 542 U.S., at 100 (quoting (2000 ed.)). It might also be understood more broadly to encompass the process by which that amount is calculated. See United States v. Galletti, ; see also at 100, n. 3. But even understood more broadly, “assess- ment” has long been treated in the Tax Code as an official action taken based on information already reported to the taxing authority. For example, not many years before it passed the TIA, Congress passed a law providing that the filing of a return would start the running of the clock for a timely assessment. See, e.g., Revenue Act of 1924, Pub. L. 68–176, Thus, assessment was Cite as: 575 U. S. (2015) 7 Opinion of the Court understood as a step in the taxation process that occurred after, and was distinct
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Justice Thomas
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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in the taxation process that occurred after, and was distinct from, the step of reporting infor- mation pertaining to tax liability. “Levy,” at least as it is defined in the Federal Tax Code, refers to a specific mode of collection under which the Secretary of the Treasury distrains and seizes a recalci- trant taxpayer’s property. See 26 U.S. C. (2012 ed.); (1934 ed.). Because the word “levy” does not appear in the AIA, however, one could argue that its meaning in the TIA is not tied to the meaning of the term as used in federal tax law. If that were the case, one might look to contemporaneous dictionaries, which defined “levy” as the legislative function of laying or imposing a tax and the executive functions of assessing, recording, and collecting the amount a taxpayer owes. See Black’s Law Dictionary 1093 (3d ed. 1933) (Black’s); see also Webster’s New International Dictionary 1423 (2d ed. 1939) (“To raise or collect, as by assessment, execution, or other legal process, etc.; to exact or impose by authority ”); 1544 (using “levying” and “levied” in the more general sense of an executive imposition of a tax liability). But under any of these definitions, “levy” would be limited to an official governmental action imposing, determining the amount of, or securing payment on a tax. Finally, “collection” is the act of obtaining payment of taxes due. See Black’s 349 (defining “collect” as “to obtain payment or liquidation” of a debt or claim). It might be understood narrowly as a step in the taxation process that occurs after a formal assessment. Consistent with this understanding, we have previously described it as part of the “enforcement process that ‘assessment’ sets in motion.” The Federal Tax Code at the time the TIA was enacted provided for the Commis- sioner of Internal Revenue to certify a list of assessments “to the proper collectors who [would] proceed to collect and account for the taxes and penalties so certified.” 8 DIRECT MARKETING ASSN. v. BROHL Opinion of the Court That collection process began with the collector “giv[ing] notice to each person liable to pay any taxes stated [in the list] stating the amount of such taxes and demanding payment thereof.” When a person failed to pay, the Government had various means to collect the amount due, including liens, distraint, forfeiture, and other legal proceedings, Today’s Tax Code continues to authorize collection of taxes by these methods. (2012 ed.). “Collection” might also be understood more broadly to encompass the receipt of a tax payment before a formal assessment occurs. For example, at the
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Justice Thomas
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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payment before a formal assessment occurs. For example, at the time the TIA was enacted, the Tax Code provided for the assessment of money already received by a person “required to collect or withhold any internal- revenue tax from any other person,” suggesting that at least some act of collection might occur before a formal assessment. (1934 ed.) (emphasis added). Either way, “collection” is a separate step in the taxation process from assessment and the reporting on which assessment is based. So defined, these terms do not encompass Colorado’s enforcement of its notice and reporting requirements. The Executive Director does not seriously contend that the provisions at issue here involve a “levy”; instead she por- trays them as part of the process of assessment and collec- tion. But the notice and reporting requirements precede the steps of “assessment” and “collection.” The notice given to Colorado consumers, for example, informs them of their use-tax liability and prompts them to keep a record of taxable purchases that they will report to the State at some future point. The annual summary that the retailers send to consumers provides them with a reminder of that use-tax liability and the information they need to fill out their annual returns. And the report the retailers file with the Department facilitates audits to determine tax deficiencies. After each of these notices or reports is filed, Cite as: 575 U. S. (2015) 9 Opinion of the Court the State still needs to take further action to assess the taxpayer’s use-tax liability and to collect payment from him. See –26–204(3) (describing the procedure for “assessing and collecting [use] taxes” on the basis of returns filed by consumers and collecting retail- ers). Colorado law provides for specific assessment and collection procedures that are triggered after the State has received the returns and made the deficiency determina- tions that the notice and reporting requirements are meant to facilitate. See 1 Colo. Code Regs. (“The statute of limitations on as- sessments of sales [and] use tax shall be three years from the date the return was filed ”). Enforcement of the notice and reporting requirements may improve Colorado’s ability to assess and ultimately collect its sales and use taxes from consumers, but the TIA is not keyed to all activities that may improve a State’s ability to assess and collect Such a rule would be inconsistent not only with the text of the statute, but also with our rule favoring clear boundaries in the interpreta- tion of jurisdictional statutes. See Hertz The TIA is keyed to the acts of assessment, levy, and
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Justice Thomas
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majority
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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TIA is keyed to the acts of assessment, levy, and collection themselves, and enforce- ment of the notice and reporting requirements is none of these.1 —————— 1 Our decision in (1982), is not to the contrary. In that case, California churches and religious schools sought “to enjoin the State from collecting both tax information and the state [unemployment] tax,” based, in part, on the argument that “recordkeeping, registration, and reporting require- ments” violate the Establishment Clause by creating the potential for excessive entanglement with religion. We held that the TIA barred that suit. But nowhere in their brief to this Court did the plaintiffs in Grace Brethren Church separate out their request to enjoin the tax from their request for relief from the record- keeping and reporting requirements. See Brief for Grace Brethren Church et al., in O. T. 1981, No. 10 DIRECT MARKETING ASSN. v. BROHL Opinion of the Court B Apparently concluding that enforcement of the notice and reporting requirements was not itself an act of “as- sessment, levy or collection,” the Court of Appeals did not rely on those terms to hold that the TIA barred the suit. Instead, it adopted a broad definition of the word “re- strain” in the TIA, which bars not only suits to “enjoin assessment, levy or collection” of a state tax but also suits to “suspend or restrain” those activities. Specifically, the Court of Appeals concluded that the TIA bars any suit that would “limit, restrict, or hold back” the assessment, levy, or collection of state 735 F.3d, at Be- cause the notice and reporting requirements are intended to facilitate collection of taxes, the Court of Appeals rea- soned that the relief Direct Marketing Association sought and received would “limit, restrict, or hold back” the De- partment’s collection efforts. That was error. “Restrain,” standing alone, can have several meanings. One is the broad meaning given by the Court of Appeals, which captures orders that merely inhibit acts of “assess- ment, levy and collection.” See Black’s 1548. Another, narrower meaning, however, is “[t]o prohibit from action; to put compulsion upon to enjoin,” ib which cap- tures only those orders that stop (or perhaps compel) acts of “assessment, levy and collection.” To resolve this ambiguity, we look to the context in which the word is used. Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). The statutory context provides several clues that lead us to conclude that the TIA uses the word “restrain” in its narrower sense. Looking to the company “restrain” keeps, we first note that the words —————— 81–31 etc.,
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Justice Thomas
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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keeps, we first note that the words —————— 81–31 etc., pp. 34–38. Grace Brethren Church thus cannot fairly be read as resolving, or even considering, the question presented in this case. Cite as: 575 U. S. (2015) 11 Opinion of the Court “enjoin” and “suspend” are terms of art in equity, see Fair Assessment in Real Estate Assn., Inc. v. McNary, 454 U.S. 100, 126, and n. 13 (1981) (Brennan, J., concurring). They refer to different equitable remedies that restrict or stop official action to varying degrees, strongly suggesting that “restrain” does the same. See ; see also Jefferson County, 572 U.S., at 433. Additionally, as used in the TIA, “restrain” acts on a carefully selected list of technical terms—“assessment, levy, collection”—not on an all-encompassing term, like “taxation.” To give “restrain” the broad meaning selected by the Court of Appeals would be to defeat the precision of that list, as virtually any court action related to any phase of taxation might be said to “hold back” “collection.” Such a broad construction would thus render “assessment [and] levy”—not to mention “enjoin [and] suspend”—mere sur- plusage, a result we try to avoid. See (interpreting the terms of the TIA to avoid superfluity). Assigning the word “restrain” its meaning in equity is also consistent with our recognition that the TIA “has its roots in equity practice.” Tully v. Griffin, Inc., 429 U.S. 68, 73 (1976). Under the comity doctrine that the TIA partially codifies, 560 U.S. 413, 431–432 courts of equity exercised their “sound discretion” to withhold certain forms of extraordi- nary relief, Great Lakes Dredge & Dock (13); see also Dows v. Chicago, 11 Wall. 108, 110 (1871). Even while refusing to grant cer- tain forms of equitable relief, those courts did not refuse to hear every suit that would have a negative impact on States’ revenues. See, e.g., Henrietta ; see also 5 R. Paul & J. Mertens, Law of Federal Income Taxation (1934) (discussing the word “restraining” in the AIA in its equi- table sense). The Court of Appeals’ definition of “restrain,” 12 DIRECT MARKETING ASSN. v. BROHL Opinion of the Court however, leads the TIA to bar every suit with such a nega- tive impact. This history thus further supports the con- clusion that Congress used “restrain” in its narrower, equitable sense, rather than in the broad sense chosen by the Court of Appeals. Finally, adopting a narrower definition is consistent with the rule that “[j]urisdictional rules should be clear.” Grable & Sons Metal Products, (THOMAS, J., concur- ring); see also Hertz at The question—at least for negative injunctions—is
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Direct Marketing Assn. v. Brohl
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https://www.courtlistener.com/opinion/2783506/direct-marketing-assn-v-brohl/
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see also Hertz at The question—at least for negative injunctions—is whether the relief to some degree stops “assessment, levy or collection,” not whether it merely inhibits them. The Court of Appeals’ definition of “restrain,” by contrast, produces a “ ‘vague and obscure’ ” boundary that would result in both needless litigation and uncalled-for dismissal, Sisson v. Ruby, 497 U.S. 358, 375 (1990) (SCALIA, J., concurring in judgment), all in the name of a jurisdictional statute meant to protect state resources. Applying the correct definition, a suit cannot be under- stood to “restrain” the “assessment, levy or collection” of a state tax if it merely inhibits those activities.2 —————— 2 Because the text of the TIA resolves this case, we decline the par- ties’ invitation to derive various per se rules from our decision in v. Winn, In the Court held that the TIA did not bar an Establishment Clause challenge to a state tax credit for charitable donations to organizations that provided scholarships for children to attend parochial schools. at –96. Direct Marketing Association argues that stands for the proposition that the TIA has no application to third-party suits by nontaxpayers who do not challenge their own liability. Brief for Petitioner 18–21. The Executive Director acknowledges that created an exception to the TIA, but argues that the exception does not apply to suits that restrain activities that have a collection-propelling function. Brief for Respondent 25–33. In we empha- sized the narrow reach of explaining that it was not “a run-of- the-mine tax case,” As we explained, held only “that the TIA did not preclude a federal challenge by a third party who Cite as: 575 U. S. (2015) 13 Opinion of the Court III We take no position on whether a suit such as this one might nevertheless be barred under the “comity doctrine,” which “counsels lower federal courts to resist engagement in certain cases falling within their jurisdiction.” Levin, Under this doctrine, federal courts refrain from “interfer[ing] with the fiscal operations of the state governments in all cases where the Federal rights of the persons could otherwise be preserved unim- paired. ” Unlike the TIA, the comity doctrine is nonjurisdictional. And here, Colorado did not seek comity from either of the courts below. Moreover, we do not understand the Court of Appeals’ footnote concerning comity to be a holding that comity compels dismissal. See n. 11 (“Although we remand to dismiss [petitioner’s] claims pursuant to the TIA, we note that the doctrine of comity also militates in favor of dismissal”). Accordingly, we leave it to the Tenth Circuit to
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