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Illinois Bell Telephone Co. v. Illinois Commerce Commission

July 27, 1984

ILLINOIS BELL TELEPHONE COMPANY, PLAINTIFF-APPELLEE,
v.
ILLINOIS COMMERCE COMMISSION, PHILIP R. O'CONNOR, ANDREW BARRETT, DANIEL ROSENBLUM, CHARLES STALON AND RUTH KRETSCHMER, DEFENDANTS-APPELLANTS



Author: Flaum

Before WOOD and FLAUM, Circuit Judges, and SWYGERT, Senior Circuit Judge.

FLAUM, Circuit Judge. The district court in this case granted a preliminary injunction ordering appellant Illinois Commerce Commission (Commission) both to conform to an order of the Federal Communications Commission (FCC) and to allow appellee Illinois Bell Telephone Company to place into effect a rate increase for intrastate service. This appeal raises two issues: whether the district court should have stayed its proceedings pending the outcome of a state court suit between the parties; and whether the district court found the degree of injury required to grant a preliminary injunction. For the reasons stated below, we affirm the judgment of the district court.

I

Illinois Bell is a public utility that provides both intrastate and interstate telephone service. The Commission has authority to set rates for intrastate telephone service. The FCC has authority to set rates for interstate telephone service.

Each agency sets rates based in part on the amount of Illinois Bell's expenses, investment, and taxes. Many of Illinois Bell's facilities are used in providing both types of service. Through a method called "separations," its total expenses, investment, and taxes are allocated between the intrastate and interstate portions of its business. The FCC has final authority to prescribe uniform separations procedures.*fn1 47 U.S.C. § 410(c). The FCC has adopted separations procedures, which are set forth in a "Separations Manual." Among other things, the Manual prescribes procedures for separating "Non-Traffic Sensitive" (NTS) facilities based on a "Subscriber Plant Factor" (SPF). This factor currently is based on the relative proportion of interstate use to total use, developed through studies conducted during a "representative period."

On February 26, 1982, the FCC ordered an immediate freeze of the SPF at actual 1981 levels pending a complete revision of the Separations Manual. In 1981, Illinois Bell had calculated its SPF on the basis of five-business-day studies.

At the time the FCC entered its order, Illinois Bell had a rate increase pending before the Commission. On May 26, 1982, the Commission issued a decision. The Commission granted Illinois Bell an annual rate increase. However, in setting the rates, the Commission rejected the use of the SPF based on five-day studies and instead applied an SPF based on seven-calendar-day studies. The effect of this was to reduce the requested rate increase by more than $34 million. The Commission did add an unidentified amount through an offsetting increase in interstate rates ("risk factor") in recognition of the risk that the $34 million might not be recovered in the separations process.

Pursuant to the Illinois Public Utilities Act, Illinois Bell appealed the Commission's order to the Circuit Court of Sangamon County, Illinois.*fn2 The parties briefed the issues and on May 24, 1983, the circuit court heard oral argument.

On May 27, 1983, Illinois Bell filed a proposed tariff with the Commission, seeking to raise its rates based solely on the separations issue. On June 22, 1983, the Commission suspended the proposed increase.

Illinois Bell had also sought another general rate increase. On July 13, 1983, the Commission granted a portion of the increase. The Commission continued to use the seven-day SPF in its calculations, thus reducing the amount of the requested increase. The Commission did not include any amount as a "risk factor" that the revenue would not be recovered in the separations process.

On July 14, 1983, Illinois Bell filed suit in federal district court in the Northern District of Illinois against the Commission and its members. Illinois Bell sought a preliminary injunction to enjoin the Commission from ignoring the separations procedure mandated by the FCC's freeze order and to allow it to place into effect its higher tariff. At that time, the state circuit court had not issued a decision in the case pending before it.

The district court granted the preliminary injunction. The court found that the Commission's use of the seven-day study was causing Illinois Bell to suffer a revenue shortfall of more than $95,000 a day, which Illinois Bell would never be able to recover, and that thus Illinois Bell was suffering irreparable harm. The court concluded that abstention and comity did not preclude it from exercising its jurisdiction. The court also concluded that Illinois Bell had shown a likelihood of success on the issue of whether the Commission's actions failed to conform to the FCC's freeze order. The court ordered the Commission to obey the FCC's freeze order and to allow Illinois Bell to increase its intrastate rates. The order provides that Illinois Bell must refund the money collected under the injunction, with interest, if it is finally determined that the injunction is improper. The Commission appealed.

Subsequent to the docketing of the appeal in this court, the state circuit court issued a decision, remanding the case to the Commission with instructions to receive certain late-filed evidence and to enter a new order based upon all the evidence in the case. The state court retained jurisdiction over the case.*fn3

On appeal, the Commission raises two issues. First, it argues that the district court should not have exercised jurisdiction because of the pending state court suit. Under the principles announced in Colorado River Water Conservation District v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976), a federal court should decline jurisdiction because of a pending state court suit only in exceptional circumstances. According to the Commission, this case involves exceptional circumstances both because of the risk of forum shopping and because of the policies underlying the Johnson Act, 28 U.S.C. § 1342 (1982), which limits federal court jurisdiction over state utility rate cases. Second, the Commission argues that the district court should have denied the injunction. On this issue, the Commission challenges only the district court's finding of injury. It contends that injunctive relief from rate orders is warranted only where the utility can show that ...


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