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Cahnmann v. Sprint Corp.

January 7, 1998

SUZANNE CAHNMANN, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,

v.

SPRINT CORPORATION, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 96 C 5129 James B. Zagel, Judge.

Before Posner, Chief Judge, and Easterbrook and Kanne, Circuit Judges.

Posner, Chief Judge.

Argued November 7, 1997

Decided January 7, 1998

Sprint, a communications common carrier regulated by the FCC, was sued by customers of Sprint's "Fridays Free" long-distance calling promotion in a class action originally filed in an Illinois state court. The suit was removed to federal district court, which entered judgment for Sprint. The district judge ruled that although the complaint does not allege any violation of federal law and there is no diversity of citizenship, the suit was removable because the sort of claim that the class is making can arise only under federal, and not under state, law. Characterizing the federal claim as one to invalidate a tariff filed with the FCC, the judge gave judgment for Sprint on the pleadings, on the ground that he would be invading the FCC's jurisdiction if he invalidated the tariff.

In January 1996, Sprint had filed with the FCC a tariff setting forth the terms of a new service intended to attract long-distance customers to Sprint from other telephone companies. The tariff offered, to small businesses that agreed to subscribe to Sprint for a minimum of $50 in long-distance calls per month, up to $1,000 worth per month of free long-distance calls on Fridays to anywhere in the world for one year. Four months later, Sprint amended the tariff to delete ten countries, including Israel and China, from the offer of free Friday calling, although under the amended tariff customers receive a 25 percent discount off Sprint's regular rates for all calls (not just Friday calls) to nine of the countries (all but the Dominican Republic, for reasons not disclosed by the record).

The class members, several thousand in number, are "Fridays Free" customers who are continuing to call one or more of the ten countries and paying more, on balance, than they would have had to pay had the original tariff remained in force. Sprint claims to have had good reasons, having to do with congested phone lines and customer fraud (residential customers pretending to be small businesses), for amending the tariff. But there is no evidence on the issue, and for purposes of this appeal we assume that Sprint had no good reason for the amendment--or, worse, that it was planning from the start to renege on the offer of a full year of free Friday calls to anywhere in the world.

The first count in the complaint charges that Sprint broke its contract with its "Fridays Free" customers. It promised them the full year; it received consideration for the promise in the form of the minimum monthly paid calls; it broke its promise. Q.E.D. The plaintiff acknowledges that Sprint might interpose as a defense that in reneging on its promise it was merely complying with the amended tariff; that the Communications Act requires a common carrier to comply with its tariffs, 47 U.S.C. sec. 203(c); MCI Telecommunications Corp. v. American Tel. & Tel. Co., 512 U.S. 218, 230 (1994); and that the defense might therefore be a good one (though she thinks not). But she points out that a suit cannot be removed to federal court merely on the basis of a federal defense. Oklahoma Tax Comm'n v. Graham, 489 U.S. 838, 841 (1989); Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 10-14 (1983); Blackburn v. Sundstrand Corp., 115 F.3d 493, 495 (7th Cir. 1997).

Public utility regulation and common carrier regulation (essentially the same form of regulation, the term "common carrier" being generally used of firms providing transportation or communications and "public utility" of firms providing electricity or gas) have been rolled back very far in recent years. But a piece of it survives in its pristine form in the provision of long-distance telephone service. The terms and conditions of service are set forth in "tariffs," which are essentially offers to sell on specified terms, filed with the FCC and subject to modification or disapproval by it. Once a tariff is filed and until it is amended, modified, superseded, or disapproved, the carrier may not deviate from its terms. Lowden v. Simonds-Shields-Lonsdale Grain Co., 306 U.S. 516, 520 (1939); Keogh v. Chicago & Northwestern Ry., 260 U.S. 156, 163 (1922); Norwest Transportation, Inc. v. Horn's Poultry, Inc., 23 F.3d 1151, 1153 (7th Cir. 1994).

The original declared purpose of the tariff system was to prevent the utility or carrier from discriminating in price or service among its customers; a covert purpose was to discourage price competition by preventing secret discounts (tariffs are published documents). George W. Hilton, "The Consistency of the Interstate Commerce Act," 9 Journal of Law and Economics 87 (1966). These purposes are no longer widely supported, but the rule remains, vestige though it is: the carrier may not deviate from the terms of the tariff. It doesn't matter how eager both the carrier and its customers are to strike a special, off-tariff deal, Maislin Industries v. Primary Steel, Inc., 497 U.S. 116, 130-31 (1990), or even whether the customer reasonably relied on the carrier's promise to file the negotiated rate as a tariff. See id. at 124 n. 7.

What this means is that the filed tariff is the contract between the plaintiff (and the other members of the class) and Sprint. Or rather tariffs, since there were two. The plaintiff treats the first tariff, the one filed in January of 1996, as the contract between her and Sprint. If Sprint violated the tariff to her detriment, she would be entitled to proceed against Sprint under federal law. She could either seek reparations in an administrative proceeding before the FCC, or she could bring a suit for damages directly under the Communications Act, 47 U.S.C. sec.sec. 206, 207; Stiles v. GTE Southwest Inc., 128 F.3d 904, 907 (5th Cir. 1997); Richman Bros. Records, Inc. v. U.S. Sprint Communications Co., 953 F.2d 1431, 1435 (3d Cir. 1991), though if an issue arose in the suit concerning the validity of a tariff the court would interrupt the litigation and, pursuant to the doctrine of primary jurisdiction, compel the parties to resort to the FCC for a determination of that validity, after which the suit could resume if any other issues, such as relief, remained. United States v. Western Pacific R.R., 352 U.S. 59, 63-65 (1956); City of Peoria v. General Electric Cablevision Corp., 690 F.2d 116, 120-21 (7th Cir. 1982); National Communications Ass'n, Inc. v. American Tel. & Tel. Co., 46 F.3d 220, 222-23 (2d Cir. 1995); Allnet Communication Service, Inc. v. National Exchange Carrier Ass'n, Inc., 965 F.2d 1118 (D.C. Cir. 1992). Sprint would no doubt defend against the suit on the basis of the amended tariff, which it was duty-bound to comply with. The plaintiff would respond to this defense by asking the FCC to hold the second tariff invalid because unreasonable, see, e.g., Maislin Industries v. Primary Steel, Inc., supra, 497 U.S. at 129 n. 10, and that would be the setting in which Sprint's reasons for amending the original tariff would be ventilated and evaluated.

The plaintiff could thus have obtained all the relief to which she is entitled on the contract count--free calls to the ten countries for a full year, if her contract claim is sound--in a judicial or administrative or combined judicial and administrative proceeding under the Federal Communications Act. The issue is whether her federal remedy is exclusive or whether she can instead seek relief under Illinois' common law of contracts.

The Act does not say, and in fact contains a provision saving other remedies. 47 U.S.C. sec. 414. Although the provision is broadly written, if it were interpreted literally as permitting a state-law breach of contract suit regarding a tariffed service it would impair the Act's policy of confining telecommunications common carriers to tariffed services and vesting the FCC with primary jurisdiction to determine the validity of tariffs; indeed, it would effectively nullify the tariff provisions of the Communications Act. Such interpretations of savings clauses in common carrier statutes--interpretations that would empower state courts to gut the federal regulatory scheme or would place the carrier under inconsistent obligations--are therefore rejected. See for the general proposition Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 298-300 (1976); Pennsylvania R.R. v. Puritan Coal Mining Co., 237 U.S. 121, 129-30 (1915), and Texas & Pacific Ry. v. Abilene Cotton Oil Co., 204 U.S. 426, 446 (1907) ("the act cannot be held to destroy itself"), and for its application to section 414 of the Communications Act Broyde v. Gotham Tower, Inc., 13 F.3d 994, 997 (6th Cir. 1994), and MCI Telecommunications Corp. v. Garden State Investment Corp., 981 F.2d 385, 387-88 (8th Cir. 1992). The plaintiff in effect wanted the state court to knock out Sprint's second "Fridays Free" tariff on the ground that it violated the contract created by the original offer of the service and the plaintiff's acceptance of the offer. Such a procedure, bypassing the FCC, cannot have been the sort of thing intended by the savings provision, the proper operation ...


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