Court Upholds FCC Traffic-Pumping Damages Award to AT&T, Vacates Parts on State Claims

panel of the U.S. Court of Appeals for the D.C. Circuit ruled Friday on a petition of All American Telephone, e-Pinnacle and Chasecom in All American Telephone Co. et al. v. FCC, No. 15-1354. Judges hinted at the mixed ruling at oral argument (see 1703310068). The panel said "standing behind" the companies was ILEC Beehive Telephone, which in the early 2000s partnered with Joy Enterprises, a provider of conferencing and sex chat lines, in a "classic traffic-pumping scheme" that "became a victim of its own success" when its soaring traffic volume caused its access-charge rates to plummet. "Unwilling to let a good scheme end," Beehive created CLEC substitutes, which had more flexibility, the panel said. The companies made federal and state claims against AT&T (which filed counterclaims) in the U.S. District Court for the Southern District of New York. That court stayed the case and referred AT&T's federal claims to the FCC. The commission sided with AT&T in 2013, finding CLECs liable for traffic pumping. It awarded damages in 2015, prompting the companies' court challenge to that order. The D.C. Circuit panel found the damages permissible; its conclusion -- that the companies "did not render any service to AT&T chargeable" under federal law -- "is supported by substantial evidence," said the opinion of Judge Patricia Millett. The panel said the FCC lacked authority to address the state law claims, which "must be decided by the district court in the first instance." The FCC, All American Telephone and Beehive didn't comment.