Virgin Islands Telephone Corporation v. Federal Communications Commission and United States of America

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 14, 2005 Decided April 11, 2006
No. 04-1352
VIRGIN I SLANDS TELEPHONE CORPORATION ,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA ,
RESPONDENTS
AT&T CORPORATION , ET AL .,
I NTERVENORS
On Petition for Review of an Order of the
Federal Communications Commission
Helgi C. Walker argued the cause for petitioner. With
her on the briefs were Gregory J. Vogt, Eve Klindera Reed, and
Kelion N. Kasler.
Scott H. Angstreich argued the cause for intervenors and
amici curiae United States Telecom Association, et al. in
support of petitioner. With him on the briefs were Michael K.
Kellogg, Sean A. Lev, Stuart Buck, Richard A. Askoff, Daniel
Mitchell, Gerard J. Duffy, Karen Brinkmann, Bennett L. Ross,
James D. Ellis, Gary L. Phillips, Michael E. Glover, and

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Edward Shakin.
Richard K. Welch, Counsel, Federal Communications
Commission, argued the cause for respondents. With him on the
brief was Thomas O. Barnett, Acting Assistant Attorney
General, U.S. Department of Justice, Robert B. Nicholson and
Steven J. Mintz, Attorneys, and John E. Ingle, Deputy Associate
General Counsel, Federal Communications Commission.
Judy Sello, Mart Vaarsi, David W. Carpenter, David L.
Lawson, and Joseph R. Palmore were on the brief of intervenor
AT&T Corp.
Before: SENTELLE , RANDOLPH and ROGERS , Circuit
Judges.
Opinion for the Court filed by Circuit Judge RANDOLPH .
RANDOLPH , Circuit Judge: The Virgin Islands
Telephone Corporation (“Vitelco”) provides local telephone
service in the U.S. Virgin Islands. AT&T, like all providers of
long-distance phone service, pays interstate access charges to
Vitelco when Vitelco completes AT&T’s customers’ calls to the
Islands. At issue in this case are the rates that Vitelco charged
AT&T for this service from July to December 1997.
Vitelco filed with the Federal Communications
Commission a “streamlined” tariff for this period in June of
1997, pursuant to 47 U.S.C. § 204(a)(3) (“July 1997 Tariff”). At
AT&T’s behest, the Commission “suspend[ed] [Vitelco’s] tariff
filing[] for one day and initiate[d] an investigation into the
lawfulness” of the tariff. 1997 Annual Access Tariff Filings, 13
F.C.C.R. 5677, 5702 (1997) (“Suspension Order”). One month
later, the Commission “reconsider[ed] on [its] own motion” the
suspension and investigation. 1997 Annual Access Charge
Filings, 12 F.C.C.R. 11,417, 11,449 (1997) (“Reconsideration
Order”). In the order under review, the Commission found that

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its suspension of Vitelco’s tariffs, although later “reconsidered,”
was nevertheless sufficient to prevent the streamlined tariff from
being “deemed lawful” under 47 U.S.C. § 204(a)(3). Vitelco
therefore was liable to AT&T for damages resulting from its
overearnings during the period covered by the July 1997 Tariff.
AT&T Corp. v. Virgin Islands Tel. Corp., 19 F.C.C.R. 15,978
(2003) (“Order”). Vitelco challenges this order on two grounds:
first, that AT&T’s complaint to the Commission was untimely,
and, second, that the Commission erred in finding that Vitelco’s
July 1997 Tariff was not “deemed lawful” and that Vitelco was
liable for damages.
I.
The Commission must ensure that rates for
telecommunications service are “just and reasonable.” 47
U.S.C. § 201(b). The Commission does this duty primarily by
reviewing the tariffs that communications providers file, both
before and after the tariffs become effective. See generally
PETER W. HUBER ET AL ., FEDERAL TELECOMMUNICATIONS LAW
§ 3.12 (2d ed. 1999).
Courts adjudicating ratemaking cases have long drawn
a distinction between “legal” and “lawful” tariffs. See, e.g.,
Ariz. Grocery Co. v. Atchison, Topeka, & Santa Fe Ry. Co., 284
U.S. 370, 384 (1932). A legal tariff is a tariff that is
“procedural[ly] valid[],” ACS of Anchorage, Inc. v. FCC, 290
F.3d 403, 410 (D.C. Cir. 2002) – it has been filed with the
Commission, the Commission has allowed it to take effect, and
it contains the published rates the carrier is permitted to charge.
A lawful tariff is a tariff that is not only legal, but also contains
rates that are “just and reasonable” within the meaning of
§ 201(b). See ACS of Anchorage, 290 F.3d at 411; Ariz.
Grocery, 284 U.S. at 384; Implementation of Section
402(b)(1)(A) of the Telecomms. Act of 1996, 12 F.C.C.R. 2170,

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1 This hearing may be conducted by the Commission
upon its initial review of a tariff, 47 U.S.C. § 204(a)(1); as part
of a rate prescription proceeding, id. § 205; or, as in this case,
upon receiving a complaint that a carrier has charged
unreasonable rates, id. § 208.
2 Section 204(a)(3) provides, in pertinent part, that a
tariff filed in this manner “shall be deemed lawful and shall be
effective 7 days [for a rate decrease] or 15 days [for a rate
increase] after the date on which it is filed with the Commission
unless the Commission takes action under [47 U.S.C.
§ 204(a)(1)] before the end of that 7-day or 15-day period.” Id.
§ 204(a)(3) (emphasis added). Section 204(a)(1) grants the
Commission authority to “enter upon a hearing concerning the
lawfulness [of a tariff].” Id. Pending the outcome of the
hearing, the Commission may suspend the operation of the tariff
for up to five months. If the tariff goes into effect before the
conclusion of the hearing, the Commission can require the
carrier to keep “accurate account of all amounts received” under
the tariff; this facilitates refunds in the event the tariff is
declared unlawful. Id.
2182 (1997) (“Streamlined Tariff Order”) (“[A] rate is ‘lawful’
only if it is reasonable.”). There are two ways for a merely legal
tariff to become substantively lawful. The tariff can be so
adjudged in a hearing before the Commission,1 or it can be
“deemed lawful” if it is filed in a “streamlined” manner pursuant
to 47 U.S.C. § 204(a)(3).2 See ACS of Anchorage, 290 F.3d at
411; Streamlined Tariff Order, 12 F.C.C.R. at 2182 (“[A]
streamlined tariff that takes effect without prior suspension or
investigation is conclusively presumed to be reasonable and,
thus, a lawful tariff during the period that the tariff remains in
effect.”).

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If a merely legal tariff is found unlawful – if it contains
rates that are not “just and reasonable” – the carrier is liable for
its overcharges. A carrier charging rates under a lawful tariff,
however, is immunized from refund liability, even if that tariff
is found unlawful in a later complaint or rate prescription
proceeding. Refunds from lawful tariffs are “impermissible as
a form of retroactive ratemaking.” ACS of Anchorage, 290 F.3d
at 411. Remedies against carriers charging lawful rates later
found unreasonable must be prospective only. See id;
Streamlined Tariff Order, 12 F.C.C.R. at 2182-83.
The Commission determines whether certain
carriers—including Vitelco—are charging “just and reasonable”
rates by prescribing a maximum rate of return and “leav[ing] it
to the carrier to set its rates at a level designed to yield up to the
prescribed rate of return.” MCI Telecomms. Corp. v. FCC, 59
F.3d 1407, 1409 (D.C. Cir. 1995). Violations of rate of return
prescriptions are per se violations of the duty to charge only
“just and reasonable” rates and give rise to liability for
“overearnings.” Id. at 1414.
Carriers regulated in this manner continue to file tariffs
reflecting their actual charges. But they also file “monitoring
reports” indicating their rates of return for a given period. The
Commission evaluates rates of return over two-year periods. 47
C.F.R. § 65.701. The long review period “allows the
Commission to monitor interstate access rates while still
providing carriers an opportunity to respond to changing market
conditions with mid-course rate revisions.” Virgin Islands Tel.
Corp. v. FCC, 989 F.2d 1231, 1237 (D.C. Cir. 1993) (“Vitelco”).
Carriers therefore file both “interim monitoring reports”
indicating any necessary adjustments during the monitoring
period and “final monitoring reports” covering the duration of
the enforcement period. 47 C.F.R. § 65.600(b). The
Commission may base its enforcement only on the rate of return

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for the complete monitoring period. See Vitelco, 989 F.2d at
1239-40. In ACS of Anchorage, we held that streamlined tariffs
“deemed lawful” under § 204(a)(3) immunized rate of return
carriers from damages liability, at least for those periods within
the larger monitoring period during which the streamlined tariffs
were in effect. 290 F.3d at 411-12.
II.
The Communications Act requires “[a]ll complaints
against carriers for the recovery of damages” arising from rate
of return violations to “be filed with the Commission within two
years from the time the cause of action accrues.” 47 U.S.C.
§ 415(b). The Commission found that AT&T’s cause of action
against Vitelco accrued on September 30, 1999, when Vitelco
filed its final monitoring report for the 1997-1998 period, and
that AT&T’s complaint, filed on September 10, 2001, was
therefore within the two-year limitations period. Order, 19
F.C.C.R. at 15,984.
The Commission’s finding was a straightforward
application of its own rules and our caselaw. This court follows
the “discovery of injury” rule to determine when the § 415(b)
limitations period begins running. See Communications
Vending Corp. of Ariz., Inc. v. FCC, 365 F.3d 1064, 1074 (D.C.
Cir. 2004); MCI, 59 F.3d at 1417. We have specifically held
that claims for damages against rate of return carriers accrue
when the carrier files its final monitoring report. See id. This
rule follows naturally from the FCC’s mechanism for rate of
return regulation. Because the Commission does not (and
indeed cannot, see Vitelco, 989 F.2d at 1239) evaluate whether
a rate of return violation has occurred until the end of the
relevant monitoring period, see 47 C.F.R. § 65.701, it is not
possible for any other party to have knowledge of the violation
before then.

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3 Vitelco filed interim monitoring reports for the first six
months of 1997 on September 30, 1997, and for the last six
months of 1997 on March 30, 1998. Order, 19 F.C.C.R. at
15,984. In Vitelco’s view, March 30, 1998, is the latest possible
date on which AT&T’s claim accrued, so AT&T’s September
10, 2001, petition was untimely.
4 The Commission may still impose its own remedy for
overearnings during 1998; this remedy, if any, must be
prospective rather than retrospective. See Streamlined Tariff
Order, 12 F.C.C.R. at 2183.
Vitelco argues that because AT&T is seeking damages
only for 1997, it had all of the necessary facts to discover its
injury when Vitelco filed its interim monitoring report for 1997.3
The argument mistakenly conflates the issues of claim accrual
and remedy. AT&T’s complaint alleges that Vitelco exceeded
its prescribed rate of return for the 1997-1998 monitoring
period. Order, 19 F.C.C.R. at 15,978. This is as it should be.
“Under the present system, the target ‘authorized return’ is a
number that has meaning only in relation to the full two-year
monitoring period.” Vitelco, 989 F.2d at 1238. AT&T seeks
damages only for 1997 because it acknowledges that Vitelco’s
1998 streamlined tariffs were deemed lawful and therefore
cannot give rise to refund liability. The claim is for
overearnings during the entire monitoring period; the remedy is
a refund of overcharges during the monitoring period not
covered by “deemed lawful” tariffs.4 AT&T had no legal claim
until Vitelco filed its final monitoring report.
For similar reasons, Vitelco is mistaken when it asserts
that the operation of § 204(a)(3) “cut[s] short” the monitoring
period. See ACS of Anchorage, 290 F.3d at 413. In ACS of
Anchorage, we expressed uncertainty over how the Commission

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5 The Commission has reserved its calculation of the
damages owed AT&T for a future proceeding. Order, 19
F.C.C.R. at 15,983 & n.47. We express no opinion concerning
how the Commission should calculate damages for overearnings
in a monitoring period in which some period is immunized from
refund liability by lawful tariffs.
would address rate of return violations for periods covered by
“deemed lawful” tariffs. Id. at 413-14. In the intervening years,
the Commission has chosen to keep its system of two-year
periods intact. The apparent effect of this choice is to “cut
short” only a complainant’s right to recover retrospective
damages.5 The Commission still evaluates earnings with respect
to a two-year period, and AT&T’s claim could not accrue until
this evaluation took place.
III.
Section 204(a)(3) states in relevant part that streamlined
tariffs “shall be deemed lawful . . . unless the Commission takes
action under [47 U.S.C. § 204(a)(1)]” within fifteen days after
the streamlined tariff is filed. Ten days after Vitelco filed its
tariff, the Commission – through its Common Carrier Bureau –
suspended it for one day and initiated an investigation into its
lawfulness. Suspension Order, 13 F.C.C.R. at 5702. About a
month later, the Commission, again operating through its
Common Carrier Bureau, “reconsider[ed]” its previous decision
pursuant to it own rules and “decline[d] to investigate” the tariff
provisions. Reconsideration Order, 12 F.C.C.R. at 11,449; see
47 C.F.R. § 1.108.
In this case the Commission ruled that its suspension of
the tariff and its initiation of an investigation were sufficient
“action[s]” within the meaning of 47 U.S.C. § 204(a)(3) and
(a)(1) to preclude the July 1997 Tariff from being “deemed

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lawful,” and that the Reconsideration Order did not restore the
tariff’s lawful status. Order, 19 F.C.C.R. at 15,988-92. Vitelco
argues that whatever the effect of the Suspension Order, the
Reconsideration Order rendered it a legal nullity. We agree.
The Commission’s rule allows it “on its own motion, [to]
set aside any action made or taken by it within 30 days from the
date of public notice of such action.” 47 C.F.R. § 1.108
(emphasis added). “Set aside” usually means “vacate.” See
BLACK ’ S LAW D ICTIONARY 1404 (8th ed. 2004) (defining “set
aside” as “to annul or vacate”); cf. Checkosky v. SEC, 23 F.3d
452, 491 (D.C. Cir. 1994) (op. of Randolph, J.) (“Setting aside
means vacating; no other meaning is apparent.”); Action on
Smoking & Health v. Civil Aeronautics Bd., 713 F.2d 795, 797
(D.C. Cir. 1983) (“To vacate . . . means to . . . set aside.”)
(internal quotation marks and citation omitted). Under this
interpretation, the Reconsideration Order vacated the
Suspension Order and restored the status quo ante; the July
1997 Tariff would thus be “deemed lawful.” Cf. Ramallo v.
Reno, 114 F.3d 1210, 1214 (D.C. Cir. 1997). The result would
be the same as if a court, finding the Suspension Order arbitrary
or capricious, set it aside pursuant to the Administrative
Procedure Act’s directive in 5 U.S.C. § 706(2).
Neither the Reconsideration Order nor the Commission
decision we are now reviewing offered any other interpretation
of § 1.108. Counsel tells us that the Commission has used
§ 1.108 to take actions short of vacatur, such as changing
“compliance dates” and modifying “the substantive
requirements of previously adopted rules.” Br. for Resp’ts 32.
But as Vitelco points out, it is also true that the Commission has
stated that setting aside pursuant to § 1.108 means vacating, as
in Stale or Moot Docketed Proceedings, 19 F.C.C.R. 2527
(2004): “The Commission ‘sets aside’ an action within the
meaning of section[] 1.108 . . . when it deliberately changes

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course by vacating a decision that it later determines to have
been ill-advised.” Id. at 2531 (emphasis added). We may
accept arguendo that the Commission properly uses § 1.108 to
modify a prior order without vacating it. The question is
whether it did so here.
In addition to suspending Vitelco’s tariff for one day, the
Suspension Order directed an investigation and ordered Vitelco
to keep accurate accounts “of all amounts received that are
associated with the rates that are subject to this investigation.”
Suspension Order, 13 F.C.C.R. at 5709; see 47 U.S.C.
§ 204(a)(1). The Reconsideration Order stated that the
Commission “reconsider[ed] on [its] own motion [its] decision
to suspend and investigate” Vitelco’s tariff, 12 F.C.C.R. at
11,449; see also id. at 11,418, 11,445, 11,452, and “decline[d]
to investigate” Vitelco’s tariff. Id. at 11,449, 11,452. This
necessarily signifies that the Commission revoked its order
directing an investigation and it also signifies – because
Vitelco’s rates were no longer subject to investigation – that the
Commission was rescinding its accounting order. Yet
investigations and accounting orders are generally prerequisites
to retroactive refunds. In the absence of any further
Commission elaboration, the Reconsideration Order can only
mean what it says: that the Commission’s previous decision to
suspend and investigate Vitelco’s tariff was being “set aside”
pursuant to § 1.108; that it ought not to have been made in the
first place. The Reconsideration Order was prompted by
Vitelco’s two-page submission of information demonstrating
that the Commission’s concern about “cash working capital” –
a component of the rate of return calculation – was unfounded.
See id. at 11,449. The Commission’s decision not to investigate
indicates that the Suspension Order was a mistake and that the
Commission corrected its error in the Reconsideration Order.
There is no indication that the Commission meant simply to
revise or modify this aspect of the Suspension Order, and there

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is nothing to suggest that the Reconsideration Order had
anything other than the effect of vacating the earlier order.
The Commission also concluded that the Common
Carrier Bureau, which issued both the Suspension Order and the
Reconsideration Order under delegated authority, lacked
authority to restore “deemed lawful” status to Vitelco’s July
1997 Tariff. Order, 19 F.C.C.R. at 15,911. Section 5(c) of the
Communications Act, 47 U.S.C. § 155(c)(1), prohibits the
Commission from delegating to one of its bureaus the power to
conclude hearings on the lawfulness of rates under § 204(a)(2).
But the Bureau did not purport to judge the lawfulness of
Vitelco’s tariff pursuant to a hearing. The Commission
recognized as much. See Order, 19 F.C.C.R. at 15,991 (“The
Reconsideration Order did not adjudge the lawfulness of
Vitelco’s rates, but merely decided not to investigate them.”).
Nowhere in the Reconsideration Order did the Bureau attempt
to evaluate whether Vitelco’s rates were “just and reasonable.”
Instead, the Bureau simply acknowledged a mistake and
retracted its previous order. See Reconsideration Order, 12
F.C.C.R. at 11,449.
The Commission’s argument – that the Bureau could
permanently remove “deemed lawful” status from the tariff but
was then powerless to correct what it admitted to be a mistake
– is implausible. See Griffin v. Oceanic Contractors, Inc., 458
U.S. 564, 575 (1982). By the Commission’s lights, the
“investigation” into Vitelco’s tariff was simply left open in
derogation of the Commission’s duty to complete tariff hearings
within five months. See 47 U.S.C. § 204(a)(2)(A). The
lawfulness of Vitelco’s tariff would thus be left in “almost
endlessly suspended animation.” ACS of Anchorage, 290 F.3d
at 413. The streamlined tariff provision was designed to avoid
this very result. See id.

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The Commission suggested at oral argument that Vitelco
should have sought mandamus to compel the Commission to
complete its investigation. But the Commission told Vitelco in
the Reconsideration Order that there would be no investigation.
Vitelco therefore had no reason to seek mandamus. Beyond the
Order itself, the Commission gave all appearance of having
abandoned the inquiry. After receiving an order entirely
favorable to itself, Vitelco had no reason to pursue further
proceedings or seek additional reconsideration.
By setting aside its previous order suspending and
investigating Vitelco’s July 1997 Tariff, the Commission
restored the tariff to its legal status quo ante. The Commission’s
determination that Vitelco was liable for retroactive refunds for
the period covered by the July 1997 Tariff was therefore
arbitrary and capricious. 5 U.S.C. § 706(2)(A).
* * *
The petition for review with respect to the statute of
limitations is denied. The petition with respect to the lawfulness
of the July 1997 Tariff is granted and the Commission’s order is
vacated in part and remanded for further proceedings.
So ordered.

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