United States District Court, N.D. Illinois, Eastern Division
January 10, 2005.
SUSAN SCHAD, on behalf of herself and all others similarly situated, Plaintiff,
Z-TEL COMMUNICATIONS, INC., Defendant.
The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge
MEMORANDUM OPINION AND ORDER
Before this court is plaintiff Susan Schad's motion to remand
the present case to the Circuit Court of Cook County, Illinois.
For the reasons set forth herein, Schad's motion is granted.
Defendant Z-Tel Communications, Inc. ("Z-Tel") provides
telecommunications services for businesses and individuals.
Beginning in October 2002, Susan Schad, a resident of Cook
County, Illinois, subscribed to Z-Tel's local and long-distance
telephone services. On May 13, 2004, Schad filed a putative class
action against Z-Tel in Illinois state court, Schad v. Z-Tel
Communications Inc., No. 04 CH 07882 (Cir. Ct. Cook Cty. 2004),
alleging that Z-Tel overcharged its customers for
telecommunications services by deceptively labeling various
line-item charges appearing on its phone bills as being
government-mandated when they were not. Specifically, Schad
alleges that Z-Tel deceptively billed her and others by means of
the following line-item charges: an "E911 Tax," a "Utility Users
Tax," a "Communications Service Tax," an "Interstate Recovery
Fee" and a "Federal Regulatory Compliance Fee." Schad's state
court complaint pled one cause of action, violation of the
Illinois Consumer Fraud and Deceptive Business Practices Act,
815 ILCS 505/1, et seq.
Z-Tel subsequently removed the action to this court, claiming
that Schad's fraud claim is actually a direct challenge to Z-Tel's rates (a federal claim),
and that even on its face the claim is preempted by the Federal
Communications Act ("FCA"), 47 U.S.C. § 151 et seq.,
regulations promulgated under the FCA and accompanying federal
common law. Z-Tel also maintains that even if Schad's complaint
states a non-preempted state law claim, her complaint would
require the court to adjudicate substantial questions of federal
law, making supplemental jurisdiction over the state law claim
appropriate under 28 U.S.C. § 1367(a). Schad responds that her
complaint sounds only in state law and has not been preempted,
and asks this court to remand her case to the Circuit Court of
Cook County and award her attorneys fees and costs arising out of
Z-Tel's alleged wrongful removal pursuant to 28 U.S.C. § 1447(c).
28 U.S.C. § 1441 provides that "any civil action brought in a
State court of which the district courts of the United States
have original jurisdiction, may be removed by the defendant or
the defendants, to the district court of the United States for
the district and division embracing the place where such action
is pending." 28 U.S.C. § 1441(a). Removal in this case is proper
if the court has "federal question" jurisdiction, meaning that
the case "aris[es] under the Constitution, laws, or treaties of
the United States." 28 U.S.C. § 1331. The party seeking removal
carries the burden of establishing jurisdiction. Shaw v. Dow
Brands, Inc., 994 F.3d 364, 366 (7th Cir. 1993). When deciding
whether a case warrants removal, trial courts should presume that
the plaintiff chose a valid and proper forum and resolve all
doubts about jurisdiction in favor of remand. Doe v.
Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993).
A. Complete Preemption.
Z-Tel first argues that Schad's claim is a direct challenge to
Z-Tel's rates that is completely preempted by federal law.*fn1 Removal of a case on the basis
of federal question jurisdiction is appropriate "only when the
plaintiff's well-pleaded complaint raises issues of federal law."
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987).
In most cases, a plaintiff may avoid the federal court by
choosing to plead only state law claims. Bastien v. AT&T
Wireless Services, Inc., 205 F.3d 983, 986 (7th Cir. 2000).
Although a defendant may raise federal preemption as defense to a
state law action, it is usually not a proper basis for removal
from state court. Taylor, 481 U.S. at 63.
In certain "extraordinary" cases, however, courts have found
that Congress intended to provide an exclusive federal remedy for
a particular claim, thus converting "an ordinary state common law
complaint into one stating a federal claim for purposes of the
well-pleaded complaint rule." Id. at 65. The Seventh Circuit
has held that Sections 201(b) and 202(a) of the FCA demonstrate
congressional intent to preempt state law claims relating to
rates and terms and conditions of long distance
telecommunications service. Boomer v. AT&T Corp., 309 F.3d 404,
418 (7th Cir. 2002). Section 201(b) of the FCA provides:
All charges, practices, classifications, and
regulations for and in connection with such
communication service, shall be just and reasonable,
and any such charge, practice, classification or
regulation that is unjust or unreasonable is declared
to be unlawful.
47 U.S.C. § 201(b). Section 202(a) states:
It shall be unlawful for any common carrier to make
any unjust or unreasonable discrimination in charges,
practices, classifications, regulations, facilities,
or services for or in connection with like communication service,
directly or indirectly, by any means or device, or to
make or give any undue or unreasonable preference of
advantage to any particular person, class of persons,
or locality or to subject any particular person,
class of persons, or locality to any undue or
unreasonable prejudice or disadvantage.
47 U.S.C. § 202(a). Although the Seventh Circuit recognizes a
potential role for state law in actions against long distance
carriers, state law "cannot operate to invalidate the rates,
terms or conditions of a long-distance service contract." Id.
In the similar context of wireless telecommunications services,
the Seventh Circuit has found that challenges to wireless
telecommunications rates are completely preempted and upheld
denial of remand of state law fraud claims against wireless
service providers that were determined to be rate challenges.
Bastien, 205 F.3d at 987. Z-Tel cites two cases in this
district denying remand to Illinois state court for similar
billing fraud claims against wireless service providers. See
Franczyk v. Cingular Wireless, LLC, No. 03 C 6473, 2004 WL
178395 (N.D. Ill. Jan. 21, 2004) (ICFA claim regarding a
"Regulatory Cost Recovery Fee" line-item on a bill); Alport v.
Sprint Corp., No. 03 C 6246, 2003 WL 22872134 (N.D. Ill. Dec. 3,
2003) (ICFA challenge to "Federal E911" line item). Z-Tel
maintains that Schad's challenge to Z-Tel's line-item charges,
like those in Franczyk and Alport, should be characterized as
a rate challenge and therefore preempted.
Although the reasoning in Franczyk and Alport appears to
support the denial of remand in this case, subsequent case law
developments militate against a finding of complete preemption.
First, after these cases were decided, the Seventh Circuit
clarified its holding in Bastien. In Fedor v. Cingular
Wireless Corp., 355 F.3d 1069 (7th Cir. 2004), the Seventh
Circuit rejected the argument that "any claims related to the
billing amount are automatically preempted." Fedor,
355 F.3d at 1074. Rather, courts "must examine whether the claims require the
state court to assess the reasonableness of the rates charged, or
impact market entry." Id. At issue in Fedor were state law claims which alleged that wireless telecommunications provider
Cingular had inappropriately attributed calls made in one billing
period to a different billing period. Id. The Fedor court
concluded that the claims would require the state law court to
refer to the rates charged, but would not require the court to
assess the reasonableness of the rates. Id. Fedor relied in
part on the Sixth Circuit's decision in Long Distance
Telecommunications Litig., 831 F.2d 627 (6th Cir. 1987), which
held that state law fraud claims against long-distance telephone
companies for failing to inform customers of the practice of
billing for uncompleted calls were not preempted. Id. at 1072.
Second, after the parties finished briefing the present remand
motion, Franczyk and Alport were ordered remanded to Illinois
state court as part of a set of cases transferred to the Judicial
Panel on Multidistrict Litigation. See, generally, In re
Wireless Telephone Federal Cost Recovery Fees Litigation, MDL
1559, ___ F. Supp. 2d ___, 2004 WL 2496052 (W.D. Mo. 2004). The
MDL transferee court specifically considered the facts of
Franczyk and Alport under Seventh Circuit law in light of
Fedor, and found that the plaintiffs in those cases were not
challenging the reasonableness of the disputed fees, but rather
the defendants' description and placement of fees on their bills.
Id. at *11. Accordingly, that court held that the line-item
disputes in Franczyk and Alport were not rate challenges
warranting preemption. Id.
Z-Tel responds that Fedor is distinguishable in that wireless
telecommunications providers are exempt from certain provisions
of Federal Communications Commission ("FCC") truth-in-billing
requirements generally applicable to common carriers. See
47 C.F.R. §§ 64.2400, 64.2401. However, the FCC appears to have made
clear that at least some federal truth-in-billing requirements
are applicable to both wireline and wireless carriers. In re
Truth in Billing Format, 14 F.C.C.R. 7492, ¶ 13 (1999) ("We
believe that the broad principles we adopt to promote
truth-in-billing should apply to all telecommunications carriers,
both wireline and wireless. . . . Like wireline carriers, wireless carriers also should be fair, clear, and truthful in
their billing practices.") Moreover, as Z-Tel concedes, the very
regulation it cites contemplates overlapping state regulation of
billing practices, see 47 C.F.R. § 64.2400(c), undermining
Z-Tel's argument that Congress intended to provide an exclusive
federal remedy for Schad's claim.
This court finds the reasoning underlying the MDL transferee
court's remand of Franczyk and Alport to Illinois state court
to be persuasive here, particularly in light of the deference
that must be accorded a plaintiff's choice of forum and the
showing of clear congressional intent that must be made prior to
a finding of complete preemption. Accordingly, the court
concludes that the complete preemption doctrine cannot support
removal of Schad's state law claim to federal court.
B. Substantial Federal Question.
Z-Tel also maintains that this court also has jurisdiction
under 28 U.S.C. § 1331 based on the substantial federal question
doctrine. Under this doctrine, federal jurisdiction can exist
even where a state law creates the cause of action when a
well-pleaded complaint necessarily "requires resolution of a
substantial question of federal law." Franchise Tax Bd. v.
Constr. Laborers Trust, 463 U.S. 1, 13 (1983). Z-Tel maintains
that resolving the question of the validity of the descriptions
given to its line-item charges will necessarily implicate federal
law, citing FCC truth-in-billing requirements governing
descriptions of charges on bills from common carriers. See
47 C.F.R. §§ 64.2400, 64.2401. In addition, Z-Tel argues that
certain of its charges, including the disputed "Interstate
Recovery Fee," have been authorized by FCC order. See Report and
Order and Second Further Notice of Proposed Rulemaking, CC
Docket No. 98-170, FCC 02-329, 17 FCC Red 24952, ¶¶ 2, 54-55
(rel. Dec. 13, 2002). Therefore, according to Z-Tel, Schad's
fraud claim on its face will require the interpretation of rules
set forth by the FCC, necessitating the resolution of a
substantial federal question. Z-Tel's argument must fail. As an initial matter, the court
notes that the substantial federal question doctrine has been
criticized as ambiguous and therefore "should be applied with
caution." See, e.g., Almond v. Capital Properties. Inc.,
212 F.3d 20, 24 (1st Cir. 2000) ("The Supreme Court has periodically
affirmed this basis for jurisdiction in the abstract . . .,
occasionally cast doubt upon it, rarely applied it in practice,
and left the very scope of the concept unclear. Perhaps the best
one can say is that this basis endures in principle but should be
applied with caution and various qualifications."). Additionally,
as the Supreme Court has made clear, federal jurisdiction cannot
be based on a federal defense, including a preemption defense,
with the limited exception of the conversion of a state law claim
to a federal claim via the complete preemption doctrine. Rivet
v. Regions Bank of Louisiana, 522 U.S. 470, 475-76 (1998). As
noted above, Schad's state law fraud claim is not completely
preempted, and it does not appear that Schad's claim on its face,
as opposed to Z-Tel's affirmative defenses, would require the
resolution of a substantial federal question. See, e.g., Smith
v. GTE Corp., 236 F.3d 1292, 1310-11 (11th Cir. 2001)
(preemption defense in case involving state law fraud claims
against telecommunications service provider does not demonstrate
that any "substantial question of federal law" is necessary for
plaintiffs to obtain requested relief); In re Wireless Telephone
Federal Cost Recovery Fees Litigation, 2004 WL 2496052 at *12-13
(state law claims that providers of telephone services
misrepresented nature of charges assessed to cover expenses of
federally mandated activities not subject to removal on
substantial federal question grounds). Z-Tel, therefore, also may
not rely on the substantial federal question doctrine to support
its notice of removal.
C. Supplemental Jurisdiction.
Because this court does not have original jurisdiction over any
federal claims in this case, there is no basis for the exercise
of supplemental jurisdiction. See 28 U.S.C. § 1367(a). D. Costs and Attorneys Fees.
Schad seeks costs and attorneys fees pursuant to
28 U.S.C. § 1447(c). An award of costs and fees under Section 1447 is
discretionary. Based on the above analysis, it appears that
Z-Tel's arguments were not frivolous and were made in good faith.
Accordingly, each party is responsible for its own costs incurred
in bringing and answering this motion.
For the foregoing reasons, plaintiff's motion to remand the
present case to the Circuit Court of Cook County, Illinois is
granted. Plaintiff's motion for costs and attorneys fees pursuant
to 28 U.S.C. § 1447(c) is denied. This action is hereby