MetroPCS California, LLC v. Batjer

Background

MetroPCS California, LLC, a provider of prepaid wireless plans in California, challenged two resolutions of the California Public Utilities Commission (CPUC). The resolutions used fixed “intrastate allocation factors”—72.75% for 2017 and 69.45% for 2018—to determine the share of prepaid-plan revenue subject to California universal-service surcharges.

MetroPCS brought an as-applied preemption claim under the Supremacy Clause. An as-applied challenge argues that a rule is unlawful when applied to the particular plaintiff, even if the rule might be valid in other circumstances. The parties agreed that mobile broadband revenue was not subject to CPUC surcharges and that the resolutions would be preempted as applied if they imposed surcharges on that revenue.

The Ninth Circuit had previously rejected MetroPCS’s facial challenge, which claimed the resolutions were invalid in every application. It sent the as-applied issue back to the district court for a largely factual determination. The district court denied the parties’ renewed cross-motions for summary judgment and held a one-day bench trial on May 30, 2023. The parties later presented closing arguments.

Evidence and Findings

MetroPCS’s prepaid plans bundled voice, text, and, in many plans, broadband data. MetroPCS allocated revenue among those components to calculate federal contributions, state surcharge obligations, and taxes. Its Bundle Valuation Committee used generally accepted accounting principles (GAAP), applying the relative selling-price method. That method estimates the standalone selling price of each component and allocates the bundled price proportionally.

The court found MetroPCS’s accounting expert credible and persuasive. It also found that MetroPCS made a good-faith effort to apply GAAP and that its estimates—including the estimated standalone prices for voice, text, basic internet access, and high-speed data—were reasonable enough on the trial record. The court noted that MetroPCS later adopted a cost-plus-margin approach for allocating revenue, but its decision focused on whether the CPUC’s fixed allocation factors would impose unlawful surcharges.

Legal Standard and Analysis

MetroPCS had to prove by a preponderance of the evidence—that its position was more likely true than not—that applying the 2017 and 2018 resolutions would impose surcharges on revenue from non-surchargeable broadband data services.

The court relied on a Federal Communications Commission order describing two “safe harbors” for allocating revenue from bundled telecommunications and enhanced services. Under the first safe harbor, a carrier may report telecommunications revenue using unbundled service prices, without allocating the bundle’s discount to telecommunications services. The court concluded that, under this approach, a substantial portion of MetroPCS’s bundled-plan revenue would be broadband revenue that could not lawfully be surcharged.

The court compared that result with the CPUC’s fixed allocation factors. For a hypothetical $60 plan with unlimited talk, unlimited text, and unlimited data, the CPUC’s 2017 factor would treat $43.65 as surchargeable, and its 2018 factor would treat $41.67 as surchargeable. The court concluded that those amounts necessarily included impermissibly surcharged broadband revenue. It found that the same problem applied to many plans priced at $37 or more and that this evidence alone was sufficient for MetroPCS to prevail on its as-applied preemption challenge.

The court also determined that MetroPCS’s GAAP-based relative-selling-price method was a reasonable alternative allocation method. It rejected the CPUC’s argument that MetroPCS had to prove its allocation method would survive a formal audit. The court emphasized that this lawsuit was not an audit; the issue was whether the rigid application of the CPUC’s allocation factors would necessarily surcharge MetroPCS’s non-surchargeable broadband revenue.

Disposition

The court ruled that CPUC Resolutions T-17542, T-17568, and T-17579 were preempted as applied to MetroPCS. It permanently enjoined the CPUC from enforcing those resolutions against MetroPCS and entered judgment for MetroPCS and against the CPUC.

The order did not prevent the CPUC from conducting audits concerning MetroPCS’s 2017 and 2018 state universal-service obligations. Any future surcharge determination had to be wholly independent of the challenged allocation factors. Judge James Donato signed the order on August 4, 2023.