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Jul 15, 2008

The Legal Line

Supreme Court Rules in Favor of APCC

Ed Maldonado

Dear Ed:

I wrote to you in February this year about the U.S. Supreme Court case of Sprint Communications Co. v. APCC Services, Inc. Thank you for answering it in The Legal Line. I have followed the case online since that time, including the oral arguments and questions of the Justices. Today, June 23, 2008, the Supreme Court judged in favor of APCC Services. Although I understand what I have to do in regard to DAC and am not really worried by their decision today as I was before, the ruling surprised and confused me. It confused me because it was long reading to say that this case is only about collections and not the Telecom Act. In your response you saw some issues that I thought should also be important to the Supreme Court as to both procedures and the Telecom Act, they did not address them in the Decision. What does this decision mean to all of us in the prepaid telecommunications business beyond the DAC? Can you follow-on my previous Legal Line question with this one? Thank you.

Anonymous in FL



Dear Anonymous in FL (AFL):

The Supreme Court ruling is still too fresh to fully analyze, however, I see some things that should be important to know for those in the industry that have followed the case. Also, when looking at the final decision of the Court, look to the dissenting opinion as much as the opinion of the Court. It is important, as today’s majority decision came down to a 5 to 4 vote between the Court majority and the dissenting opinions. It seems that Justice Anthony Kennedy, again, was the swing vote, this time ruling in favor of the APCC’s standing. Justice Kennedy has been known for his swing vote in high profile 5–4 Supreme Court Decisions which are sometimes more liberal or conservative. This case was no different.

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Before addressing the telecom side of the case, it is important to keep in mind how the question for certiorari was famed for the Court’s review. The question asked whether a plaintiff that has been assigned the right to pursue a legal claim, in this case collection of the DAC, but did not stand to gain any proceeds from the outcome of the litigation, had standing under Article III. This framed the APCC’s role as that of an “aggregator” for collection purposes of volume numbers of payphone providers. As I stated in my last response, Article III of the U.S. Constitution limits a federal Court’s jurisdiction to the cases and controversies brought it. This usually requires the plaintiff be “a real party of interest” to bring the actual lawsuit in order to possess standing. There traditionally have been three basic requirements that any plaintiff must prove: (1) that the plaintiff have a injury, in fact, which can be found in some violation of a legally protected interest that is identifiably by the Courts in that it is (a) concrete and particular, and is (b) actual or imminent, not hypothetical; (2) a connected relationship between that injury and to activity of the defendant; and (3) the likelihood that the injury will be remedied by a favorable decision, and that relief from the Court is not too speculative. In layman’s terms, this means that traditionally, standing hinges on having an injury that can be clearly and concretely identified as a result of the defendant’s violation or action, and that a tangible remedy is available through the Courts.

The APCC’s position as an “aggregator” inlayed into this framework and added a slightly different dimension for the Court to consider. This was the APCC’s interpretation of how it acted as an “aggregator” for DAC violations by virtue of an assignment. The APCC’s position was that it was assigned DAC claims by the payphone providers expressly “for purposes of collection,” thereby requiring the APCC to litigate “on behalf of” the payphone providers as their “true and lawful attorney-in-fact” and to “pass back” any amounts recovered in litigation or negotiation. This interpretation veiled itself in standing concepts and doctrines purely attuned to collection cases. It placed before the Court a question of how different is the standing of the APCC compared to other types of assignment relationships in litigation - contingency fee cases, intellectual property right assignees, qui tam whistle blowers, and most importantly, receivers or guardians ad litem – where attorneys, not the injured Plaintiffs, prosecute the claim because of the Plaintiff’s weak position to pursue their rights in Court. The Majority of the Court clearly accepted this interpretation of the APCC. The Majority’s Opinion in this case also stepped carefully not to impact, or erode, other types of assignment relationships in litigation by means of this particular ruling.

For this reason, there is a lot of time spent in the Supreme Court’s majority opinion addressing the history and tradition of assignments of claims. Much of their opinion establishes differences between older and more modern concepts of standing when a collection claim is assigned. Here is where the Court majority finally drew the distinction in the case of the APCC, by ultimately considering more modern doctrines of collection assignments are appropriate in the APCC’s particular case. The Court’s majority concluded that the APCC, as an “aggregator” satisfied the modern doctrine of Article III standing, because payphone providers “assigned their claims to the aggregators lock, stock, and barrel.” This means that everything from injury to recovery can be assigned. The result of this concept led the Court to conclude that the aggregators could assert the provider’s Injury in Fact as their own, as all interests are assigned in this process. (This was a conclusion that the Court’s dissenting Justices did not share.) The Court also held that the APCC was a party of interest because “long-distance carriers would write a check to the aggregators” for the total amount of Dial Around Compensation owed, closing the entire violation of the carrier that had been assigned upon payment of DAC. This final settlement aspect kept consistent with other modern doctrines of assignment relationships commonly used in federal litigation.

Like architecture, however, evaluating the impact or future controversies that a Supreme Court decision will have must look at least ten years into the future to have any substance. Should the issue ever be addressed again, one vote can return a different conclusion and decision. Remember, this decision was clearly close (5-4 vote), and was not an overwhelming opinion of the Supreme Court as to federal Court standing. Here the dissent opinion, written by Chief Justice Roberts for himself and the other three Justices, is important. There are two statements by the Chief Justice that embody the dissent’s rational as to the majority’s evaluation of Injury in Fact: (1) That in the end, “Respondents have nothing to gain from their lawsuit;” and (2) By collecting the DAC and the APCC thereafter remitting it to the payphone providers, “the entire relief requested will run to a party not before the Court.” In layman’s terms, they felt that the APCC was not an injured party, payphone providers are, and such injuries cannot be assigned like other common debts or rights to sue. This was in essence the crux of Sprint’s argument - that the established requisites of standing could not be met by virtue of an assignment that structured a full right to DAC compensation to the APCC with a reversion right back again to the actual payphone providers once collected.

This issue was fundamental to the precise question raised to the Court, but apparently, it was sidestepped by the majority: Do you have an assignment that can grant federal standing when the assignee is given the legal right to sue, but with no connected right to the substantive recovery of the lawsuit? The dissenting justices agreed with Sprint - No. They simply felt that the APCC simply lacked the essential elements of standing. Furthermore, they stated that the cases and history cited by the majority only demonstrates unsettled views by lower Courts, and even state Courts, as to whether standing is met in this instance, not conclusiveness. Therefore, their final opinion was that on the merits the APCC failed to meet is standing for collection of DAC claims. However, they were the minority in this instance by one vote.

Now as to this decision’s impact. The APCC will continue to use the federal Courts to enforce the DAC for claims assigned to them by payphone providers under the Telecom Act. For those whose prepaid services have access through payphones, it may be wise to prepare your DAC reporting and invest in DAC audits where and when it may be necessary. Defense and accounting of the DAC are now more pivotal than ever for prepaid providers. Clearly, payphone providers will continue to aggregate their claims against carriers who do not compensate them, and it is the carrier’s responsibility to ensure that payphone providers are compensated the DAC. Stronger collection efforts by the APCC against prepaid providers who owe DAC will likely result in the near future as a direct result of this decision. Why not, the Supreme Court has given the blessing that they can.

As to an issue raised in my prior Legal Line about the implications of this decision on the Telephone Consumer Protection Act of 1991, I still have concerns that this decision may result in a spike in such claims, as attorneys lead the charge to recover for such violations – the new telecom equivalent of “slip & fall” cases. As I stated before, there are attorneys who have built entire legal practices prosecuting such cases on volume level. This potential increase in such claims may place the lower Courts in a position where they will have to interpret not only the Sprint v APCC case, but this case in connection to other types of Telecom Act violations.

I see this as problematic. This can lead to even more conflicting opinions and rulings when it comes to private claims under the Telecom Act. Because the Court’s decision addressed only the precise question of DAC and the APCC, there is room for interpretation. Other violations under the Telecom Act may be now wide open for further interpretation that the assignment of those claims can be done in a similar fashion to the way the APCC functions in collection of the DAC. It is definitely a plaintiff’s argument for federal standing now. We must wait and see what happens. Time and further Court review of this decision will ultimately tell.

Good Luck and Success in the Industry.



Edward Maldonado is a telecommunication regulatory attorney and consultant. He can be reached ateam@maldonado-group.com.

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