9th Circuit reverses ruling on wireless carrier surcharge

Reversing a district judge, a 9th U.S. Court of Appeals panel on Friday ruled a state law requiring a surcharge on prepaid wireless phone providers is not preempted by federal law.

In 2018, Senior U.S. District Judge Susan Y. Illston of San Francisco ruled the state Prepaid Mobile Telephony Services Surcharge Collection Act conflicted with federal law and ordered the California Public Utilities Commission to stop collecting the money.

But the appellate panel, in a decision by 9th Circuit Judge Michelle T. Friedland, ruled California could impose the surcharge on the use of intrastate telecommunications services by MetroPCS California LLC and its customers.

The impact of the ruling is unclear, as the state never attempted to collect the surcharge on MetroPCS, now a subsidiary of T-Mobile Inc., and an attorney for the company, Peter Karanjia of DLA Piper, said during closing arguments in February the CPUC "has not been terribly forthcoming" on its position about collecting the surcharges now.

Also unclear is the future of the California law that allowed the state to collect surcharges on prepaid wireless phones in the first place. The law has expired while the case was on appeal, and a CPUC spokesperson could not be reached for comment Friday about what happens next.

Enrique V. Gallardo, an attorney with the CPUC, declined comment Friday but told the appellate panel during oral arguments the California Constitution "required state agencies to enforce state laws."

Karanjia argued the state law conflicted with the Federal Communications Commission regulations that imposed federal surcharges for interstate calls and texts.

The state law imposed a surcharge on calls and texts within California.

In her opinion, Friedland wrote MetroPCS, which said it was exclusively a prepaid carrier and was the lone plaintiff in the case, needed to establish the CPUC "caused an unfair disadvantage for prepaid services" that resulted in extra charges.

"Importantly, however, the CPUC's adoption of an intrastate allocation factor would not necessarily have resulted in an unfair disadvantage for every prepaid provider," she wrote. "MetroPCS's facial preemption challenge based on a conflict with competitive neutrality therefore fails." MetroPCS California LLC v. Picker et al., 2020 DJDAR 8787 (9th Cir., filed Aug. 14, 2020).

The decision reverses Illston's summary judgment ruling for MetroPCS and remanded it back to district court.

9th Circuit Judges Richard A. Paez and Carlos T. Bea concurred in the ruling.