MetroPCS California, LLC v. Batjer

• Court: District Court, N.D. California
• Decided: September 22, 2021
• Docket: 3:17-cv-05959
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 METROPCS CALIFORNIA, LLC, Case No. 17-cv-05959-SI

8 Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR 9 v. SUMMARY JUDGMENT AND PROVIDING NOTICE OF INTENT TO 10 MARYBEL BATJER, et al., APPOINT SPECIAL MASTER AND SCHEDULING FURTHER STATUS 11 Defendants. CONFERENCE 12 Re: Dkt. Nos. 112, 123

13 14 On April 23, 2021, the Court held a hearing on the parties’ cross-motions for summary 15 judgment. After the hearing, the Court ordered supplemental briefing, and that briefing was 16 submitted on May 11. For the reasons set forth below, the motions are GRANTED in part and 17 DENIED in part. The Court sets a status conference for 11 a.m. on October 21, 2021, to discuss 18 further proceedings in this case, including the appointment of a Special Master and scheduling of a 19 bench trial. 20 21 DISCUSSION 22 I. The Ninth Circuit’s Opinion 23 This case returns to the Court following the Ninth Circuit’s reversal and remand in 24 MetroPCS California, LLC v. Picker et al., 970 F.3d 1106 (9th Cir. 2020). Because that opinion 25 sets the framework for the Court’s analysis on remand, and because the parties disagree about how 26 to interpret the Ninth Circuit’s decision, the Court finds it necessary to state the salient aspects of 27 that opinion before addressing the specific issues raised by the current motions. 1 Act was facially preempted by federal law. See generally Dkt. No. 88. In reversing that holding, 2 the Ninth Circuit instructed that in the context of this case, “there is a presumption against 3 preemption” because “[t]he Telecommunications Act is premised on a ‘system of cooperative 4 federalism,’ in which participating states are key partners to the federal government in regulating 5 the telecommunications industry.” MetroPCS, 970 F.3d at 1118 (internal citation omitted). 6 “Because the CPUC resolutions regulate an aspect of this scheme in which the Telecommunications 7 Act recognizes state authority—imposing surcharges on intrastate revenue to support state universal 8 service programs—there is a higher threshold for showing that those resolutions are preempted.” 9 Id. at 1119. 10 The Ninth Circuit then held that MetroPCS had failed to meet its burden to demonstrate that 11 the CPUC’s 2017 and 2018 Resolutions facially conflict with the FCC’s competitive neutrality 12 policy, which is related to the Telecommunication Act’s “equitable and nondiscriminatory 13 mandate.” Id. at 1120 (citing In re Federal State Joint Board on Universal Service, 12 FCC Rcd. 14 8776, 8801 (1997), and 47 U.S.C. § 254(d), (f)). The court noted that “[t]he FCC has defined 15 competitive neutrality to ‘mean[] that universal service support mechanisms and rules neither 16 unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor 17 disfavor one technology over another.’” Id. The court instructed, “[t]o the extent a state regulation 18 violates that competitive neutrality requirement, the regulation is preempted—and one way in which 19 a regulation can impermissibly create an ‘unfair[ ] . . . disadvantage,’ is by causing the double 20 assessment of one provider’s revenue but not a competing provider’s revenue.” Id. at 1121-22 21 (internal citations omitted). The court also noted that “under the CPUC resolutions, a provider of 22 prepaid services that was subject to the same surcharge rate as a provider of postpaid services, but 23 on a higher portion of its surchargeable revenues, would have found itself at an unfair competitive 24 disadvantage.” Id. at 1123. 25 The Ninth Circuit reversed this Court’s facial preemption holding because MetroPCS had 26 failed to show that “no set of circumstances existed under which the [CPUC’s] resolutions were 27 valid.” Id. at 1122 (internal quotation marks and brackets removed). The court stated that to meet 1 an unfair disadvantage for prepaid services, which MetroPCS could accomplish by showing that the 2 resolutions always resulted in uneven double assessments.” Id. The Ninth Circuit examined 3 different hypothetical scenarios involving prepaid and postpaid carriers who offered $100 voice- 4 only plans1 and how they would be assessed for federal and state universal service contributions. 5 Id. at 1122-24. Under certain circumstances, a prepaid carrier would be subject to a double 6 assessment of its voice revenue while the postpaid carrier was not; the Ninth Circuit concluded that 7 in those circumstances, “[t]he double assessment on prepaid services would, at least if the surcharge 8 rates applicable to prepaid services were similar to the rates applicable to postpaid services, create 9 a disadvantage for the provider of the prepaid services compared to the provider of postpaid 10 services.” Id. at 1123. The Ninth Circuit continued, 11 That disadvantage for the provider of prepaid services would have been an “unfair[]” one. See 1997 Universal Service Order, 12 FCC Rcd. at 8801. We see no 12 meaningful distinction between prepaid and postpaid services that could justify imposing the higher surcharge only on prepaid services. Cf. AT&T, Inc., 886 F.3d at 13 1250 (explaining that competitive neutrality does not prohibit a regulator “from according different treatment to competitors whose circumstances are materially 14 distinct”). Prepaid and postpaid services offer the same telecommunications options of voice, text messaging, and data. See, e.g., In re Implementation of Section 6002(b) 15 of the Omnibus Budget Reconciliation Act of 1993, 26 FCC Rcd. 9664, 9725 (2011). And counsel for the CPUC acknowledged at oral argument that prepaid and postpaid 16 providers are equally capable, if permitted to do so, of using the three FCC- recognized methods to determine their intrastate revenues. See Oral Argument at 17 9:39–10:40. Thus, under the CPUC resolutions, a provider of prepaid services that was subject to the same surcharge rate as a provider of postpaid services, but on a 18 higher portion of its surchargeable revenues, would have found itself at an unfair competitive disadvantage. 19 Id. (internal footnote omitted). 20 However, MetroPCS’s facial preemption challenge failed because there were other 21 hypothetical scenarios under which prepaid carriers would not be disadvantaged by the CPUC’s 22 resolutions. See id. at 1123-24 (positing hypothetical involving application of traffic studies to 23 determine federal contribution).2 “Thus, the adoption of an intrastate allocation factor in and of 24

25 1 MetroPCS does not offer any voice-only plans. The evidence before the Court shows that MetroPCS offers a few plans with voice and text messaging, and many plans with a combination of 26 voice, text messaging, and broadband data.

27 2 The FCC has recognized three methods carriers may use to determine their interstate 1 itself would not have invariably resulted in double assessments conflicting with the principle of 2 competitive neutrality. Nor has MetroPCS even attempted to argue that it is possible to discern from 3 the specific intrastate allocation factors adopted by the CPUC (72.75% for 2017 and 69.45% for 4 2018) that double assessments unfairly disadvantaging every provider of prepaid services would 5 have occurred.” Id. at 1124. 6 The Ninth Circuit concluded, “[o]ur analysis above makes clear that the resolutions would 7 be preempted if applying them to MetroPCS resulted in double assessments on MetroPCS’s revenue, 8 which would unfairly disadvantage MetroPCS relative to its competitors—and thereby conflict with 9 the competitive neutrality requirement. Resolving that as-applied claim requires a largely factual 10 inquiry that is best left to the district court.” Id. at 1126. The Ninth Circuit did not reach 11 MetroPCS’s claim that the intrastate allocation factor is preempted by the Mobile Telephony 12 Sourcing Act, nor did the court address MetroPCS’s contention that “2017 and 2018 intrastate 13 allocation factors were ‘based on a fundamentally flawed methodology’ and impermissibly 14 ‘require[d] a substantial assessment’ of non-surchargeable revenue.” Id. at 1126.3 15 On remand, MetroPCS has filed a second motion for summary judgment. MetroPCS 16 contends that it has demonstrated that the CPUC’s 2017 and 2018 Resolutions are preempted as 17 applied to it. The CPUC opposes summary judgment, arguing alternatively that there are factual 18 issues that preclude summary judgment and that MetroPCS cannot meet its burden to demonstrate 19 as-applied preemption and thus that the Court should enter summary judgment in favor of the CPUC. 20 21 II. As-applied preemption 22 Before turning to the specifics of MetroPCS’s as-applied challenge, the Court notes that the 23 parties agree that revenue from broadband data is not surchargeable by the CPUC, and thus that if 24

25 (2006) (“2006 Universal Service Order”). If a carrier elects to use a traffic study, the carrier takes a sample of voice traffic on their network to estimate the percentage of all traffic that is interstate. 26

3 The Court notes that the second amended complaint alleges two causes of action asserting 27 preemption: violation of the Supremacy Clause of the United States Constitution, and violation of 1 MetroPCS can demonstrate that the CPUC’s resolutions assessed a surcharge on broadband revenue, 2 the resolutions would be preempted as applied to MetroPCS. The parties also agree that the CPUC 3 may not assess its surcharges or fees on the same interstate-service revenue that is already subject 4 to the FCC’s assessments because “any double assessments on MetroPCS’s revenue would 5 necessarily conflict with the competitive neutrality principle, so the CPUC resolutions would be 6 preempted on that ground.” Id. at 1126 n.12. 7 The parties disagree about whether the Ninth Circuit’s opinion discussed an additional way 8 to demonstrate as-applied preemption. MetroPCS contends that it can prevail on its preemption 9 claim if it shows that it “was subject to the same surcharge rate as a provider of postpaid services, 10 but on a higher portion of its surchargeable revenues, [and thus] would have found itself at an unfair 11 competitive disadvantage.” Id. at 1123. The CPUC disagrees, asserting that MetroPCS has quoted 12 the Ninth Circuit’s decision out of context: “In the text of the Opinion that MetroPCS cites, the 13 Ninth Circuit presented an exercise comparing the CPUC’s methodology on a prepaid carrier to a 14 revenue allocation on a [postpaid] carrier in its discussion of facial preemption.” CPUC’s Mtn. at 15 24 (emphasis in original). The CPUC contends that “[i]n order to prove its as-applied claims, 16 MetroPCS must demonstrate actual revenues are double assessed.” Id. at 25. 17 The Court agrees with MetroPCS’s interpretation of the Ninth Circuit’s opinion. While the 18 Ninth Circuit discussed as-applied preemption largely within the context of “double assessments,” 19 the Ninth Circuit noted that a double assessment was “one way in which a regulation can 20 impermissibly create an ‘unfair[] . . . disadvantage” that would violate the competitive neutrality 21 requirement.” MetroPCS, 970 F.3d at 1121-22 (emphasis added). In addition, the Ninth Circuit’s 22 focus on “double assessments” makes sense because the court was using examples of hypothetical 23 carriers who offered voice-only plans: the FCC assesses interstate voice revenue, while the CPUC 24 may assess intrastate voice revenue, and thus there is the possibility of a double assessment of 25 revenue. However, MetroPCS could also show a conflict with the FCC’s competitive neutrality 26 policy by demonstrating that the CPUC’s resolutions subject it “to the same surcharge rate as a 27 provider of postpaid services, but on a higher portion of its surchargeable revenues,” id. at 1123 – 1 or broadband data. 2 Indeed, the CPUC concedes that any state surcharges on broadband data revenue would be 3 preempted by FCC orders, and such a showing is not dependent on a “double” assessment because 4 neither the federal nor the state government may currently assess broadband data revenue for 5 universal service contributions. See Protecting & Promoting the Open Internet, 30 FCC Rcd. 5601, 6 5803 ¶¶ 431-32 (“[W]e reaffirm the Commission’s longstanding conclusion that broadband Internet 7 access service is jurisdictionally interstate for regulatory purposes,” and “we preempt any state from 8 imposing any new state USF contributions on broadband.”). The Court also takes note of the Ninth 9 Circuit’s statement that it saw “no meaningful distinction between prepaid and postpaid services 10 that could justify imposing the higher surcharge only on prepaid services,” MetroPCS, 970 F.3d at 11 1123, and thus to the extent the CPUC asserts that it may treat prepaid and postpaid services 12 differently, it must persuade the Court that any differential treatment does not violate the competitive 13 neutrality requirement. 14 However, the Court concludes that there are factual disputes that preclude summary 15 judgment on MetroPCS’s as-applied challenge. MetroPCS contends that it has submitted 16 undisputed evidence showing how it allocates revenue between the voice, data, and text components 17 of its various plans, and that this evidence demonstrates both that (1) the CPUC’s resolutions 18 discriminate against MetroPCS as compared to a hypothetical postpaid carrier who offered the exact 19 same plans as MetroPCS but who was not subject to the CPUC’s resolutions and (2) the CPUC’s 20 resolutions impermissibly assess broadband data revenue.4 Both preemption theories are premised 21 on MetroPCS’s revenue allocations as set forth in the report of its Bundle Valuation Committee. 22 MetroPCS contends that its revenue allocation methodology is reasonable and that the CPUC has 23 not put forth its own evidence challenging MetroPCS’s allocations. 24 The FCC has designated as “presumptively reasonable” the following two allocation 25

26 4 MetroPCS also contends that the CPUC’s resolutions impose a “double assessment” through the MTS Increment. That contention is discussed infra in Section II. In addition, while 27 MetroPCS asserts that the CPUC’s resolutions impermissibly assess revenue from text messaging 1 methodologies that carriers may use to allocate revenue when telecommunication services and non- 2 telecommunication services (such as broadband data) are offered as a bundled package: 3 50. First, contributors may elect to report revenues from bundled telecommunications and CPE/enhanced service offerings based on the unbundled 4 service offering prices, with no discount from the bundled offering being allocated to telecommunications services. For example, assume that a carrier offers voice-mail 5 service, an enhanced service, as a stand-alone offering for $6.00, and also offers basic phone service, a telecommunications service, for $20.00. The carrier offers the two 6 services for the bundled price of $22.00, resulting in a discount of $4.00. Under this approach, the carrier would report telecommunications service revenue of $20.00 per 7 month (the stand-alone price for the phone service) and non-telecommunications revenue of $2.00 per month (the stand-alone price for voice-mail minus the discount 8 from the bundled offering). . . . 9 51. Alternatively, contributors may elect to treat all bundled revenues as telecommunications service revenue for purposes of determining their universal 10 service obligations. For example, assume that a carrier offers a bundled package of voice-mail and basic phone service to end-users at $25.00 per month. The carrier 11 decides that it cannot distinguish revenue for the basic service (the telecommunications service) from voice-mail (the non-telecommunications service). 12 This carrier would report telecommunications revenue of $25.00 per month. This option would permit those contributors that are unable or unwilling to separate end- 13 user telecommunications revenues from non-telecommunications revenue to comply with their universal service obligations when they generate revenues from bundled 14 telecommunications services and CPE/enhanced service offerings. 15 In re Policy & Rules Concerning Interstate, Interexchange Marketplace, 16 FCC Rcd. 7418, 7447- 16 48 ¶¶ 50-51 (2001) (“Bundling Order”). The FCC states that “[t]hese allocation methods are ‘safe 17 harbors’ and will be afforded a presumption of reasonableness in an audit or enforcement context.” 18 Id. at 7448 ¶ 52. “Both of the above-described methods enable carriers to allocate revenues for 19 purposes of universal service contributions in an easily ascertainable and reasonable manner[,]” and 20 “[t]hese methods also decrease the investigative burden in an audit or other enforcement proceeding 21 because the necessary information is easily obtained and verified.” Id. 22 It is undisputed that MetroPCS does not use either of the presumptively reasonable FCC 23 methodologies for allocating bundled revenue. Instead, MetroPCS has used its own methodology, 24 and MetroPCS asserts that its revenue allocation is reasonable, supported by objective data, and 25 consistent with Generally Accepted Accounting Practices (“GAAP”). MetroPCS also contends that 26 its methodology has been reviewed by the CPUC in a recent audit as well as by an independent 27 auditor. MetroPCS emphasizes that the FCC permits carriers to “use allocation methods other than 1 However, the Court notes that the FCC advises, “[c]arriers should realize, however, that any 2 other allocation methods may not be considered reasonable, and will be evaluated on a case-by- 3 case basis in an audit or enforcement context.” Id. (emphasis added). The FCC instructed: 4 In evaluating the reasonableness of any alternative methods, we will apply the standards underlying the safe harbors described above. For example, carriers should 5 not apply discounts to telecommunications services in a manner that attempts to circumvent a carrier’s obligation to contribute to the universal service support 6 mechanisms. Should an audit or enforcement proceeding be initiated, carriers will need to provide evidence that the amount of reported telecommunication revenues 7 that they report reflects compliance with the carrier’s obligation to contribute to the universal service support mechanism based on interstate end-user 8 telecommunications revenue. 9 Id. (citing 47 C.F.R. §§ 54.706, 54.709). The cited FCC regulations elaborate on the type of 10 information needed to demonstrate reasonableness in the event of an audit: 11 (e) Any entity required to contribute to the federal universal service support mechanisms shall retain, for at least five years from the date of the contribution, all 12 records that may be required to demonstrate to auditors that the contributions made were in compliance with the Commission’s universal service rules. These records 13 shall include without limitation the following: Financial statements and supporting documentation; accounting records; historical customer records; general ledgers; and 14 any other relevant documentation. This document retention requirement also applies to any contractor or consultant working on behalf of the contributor. 15 47 C.F.R. § 54.706 16 The Court has reviewed the voluminous evidence in the record and cannot determine on 17 summary judgment that the manner in which MetroPCS has allocated its bundled revenue is 18 reasonable as a matter of law. MetroPCS has not provided the Court with the information set forth 19 in the quoted FCC regulation, such as historical customer records. In addition, the CPUC has raised 20 various criticisms of MetroPCS’s methodology and argues that MetroPCS’s revenue allocation is 21 not reasonable, not consistent with GAAP, and that it overestimates the revenue attributable to 22 broadband data at the expense of surchargeable voice revenue. See generally Van Wambeke Decl. 23 The CPUC also disputes MetroPCS’s assertion that the recent CPUC audit validated MetroPCS’s 24 revenue allocation methodology with respect to how MetroPCS accounts for broadband data 25 revenue, and the CPUC objects that MetroPCS has only provided the Court with selected quotes 26 from the recent third-party audit. On this record, the Court cannot conclude as a matter of law that 27 MetroPCS’s revenue allocation methodology is reasonable, and thus MetroPCS has not met its 1 burden on summary judgment to show that the CPUC’s resolutions are preempted as applied to 2 MetroPCS. “[R]easonableness [is] appropriate for determination on [a] motion for summary 3 judgment when only one conclusion about the conduct’s reasonableness is possible.” In re Software 4 Toolworks Inc., 50 F.3d 615, 621-22 (9th Cir. 1994). Accordingly, the Court DENIES the parties’ 5 motions on this question. 6 At the hearing on the parties’ cross-motions, counsel stated that if the Court denied the 7 current motions, it was their view that the parties would likely present essentially the same evidence 8 about revenue allocation to the Court at a bench trial. The Court has determined that that it is 9 appropriate to appoint a Special Master pursuant to Federal Rule of Civil Procedure 54 to assist the 10 Court in determining whether MetroPCS’s revenue allocation methodology is reasonable (including 11 what evidence is needed to make that determination), and relatedly whether the CPUC’s Resolutions 12 impermissibly assess broadband data or other non-intrastate revenue.5 The Court will discuss the 13 appointment of a Special Master at the October 21, 2021 case management conference. 14 15 III. Challenge to MTS Increment 16 For the first time in this litigation, MetroPCS challenges the “MTS Increment,” an 17 administrative fee that the CPUC imposed on prepaid carriers in connection with the Prepaid Act. 18 MetroPCS contends that the MTS Increment is preempted because it (1) results in a double 19 assessment on intrastate voice services and (2) puts prepaid carriers at a competitive disadvantage 20 because only prepaid carriers were required to pay the fee. MetroPCS argues that because the 2017 21 and 2018 Resolutions required MetroPCS to assess the surcharge rate, including the MTS Increment 22 and adjusted by the CPUC’s intrastate factor, on the total sales price of service, the MTS Increment 23 “thus applied to all revenues from a MetroPCS prepaid wireless plan—critically, including revenues 24 for interstate Voice service that are already subject to federal USF assessments.” MetroPCS’s Mtn. 25 at 27. 26 5 Although MetroPCS also contends that the CPUC’s Resolutions are preempted because 27 they unfairly discriminate against prepaid carriers, that theory appears to be based primarily on its 1 The CPUC contends that the challenge to the MTS Increment is a new claim that MetroPCS 2 cannot raise for the first time on summary judgment. The Court agrees. “[W]here, as here, the 3 complaint does not include the necessary factual allegations to state a claim, raising such claim in a 4 summary judgment motion is insufficient to present the claim to the district court.” Navajo Nation 5 v. U.S. Forest Serv., 535 F.3d 1058, 1080 (9th Cir. 2008); see also Pickern v. Pier 1 Imports (U.S.), 6 Inc., 457 F.3d 963, 968-69 (9th Cir. 2006) (holding that the complaint did not satisfy the notice 7 pleading requirements of Federal Rule of Civil Procedure 8(a) because the complaint “gave the 8 [defendants] no notice of the specific factual allegations presented for the first time in [the 9 plaintiff’s] opposition to summary judgment”). 10 MetroPCS made no mention of the MTS Increment in its complaints or in its first motion 11 for summary judgment. Instead, as the CPUC notes, the second amended complaint alleges that the 12 CPUC’s initial implementation of the Prepaid Act – the 2016 Resolution – was “correct,” “consistent 13 with both state and federal law,” and that “[u]nlike the 2016 Resolution, however, the 2017 14 Resolution does not limit the imposition of the Surcharge to ‘intrastate revenues subject to 15 surcharge.’” Second Amend. Compl. ¶¶ 48, 51, 74. It is undisputed that the 2016 Resolution 16 contained the MTS Increment. MetroPCS’s first summary judgment motion similarly characterized 17 the 2016 Resolution as “consistent with federal law and state law” and “Properly Limit[ing] the 18 Surcharge to Intrastate Revenues.” MetroPCS’s First MSJ at 7, 20-21. The Court is unpersuaded 19 by MetroPCS’s assertion that its current challenge to the MTS Increment is embraced by its general 20 allegations that the 2017 and 2018 Resolutions discriminated against prepaid carriers as compared 21 to postpaid carriers. To the contrary, prior to the filing of the second summary judgment motion 22 MetroPCS had never challenged the MTS Increment as unlawful; rather, MetroPCS had consistently 23 described the 2016 Resolution – which contained that increment – as lawful. Thus, MetroPCS had 24 provided no notice of the specific factual allegations that MetroPCS is now asserting in its 25 preemption challenge to the MTS Increment. The Court finds that this is inappropriate and will not 26 consider this new claim at this late stage of the proceedings, and accordingly GRANTS summary 27 judgment in favor of the CPUC on this issue. IV. Challenge to CPUC’s Methodology for Calculating the Intrastate Allocation Factor 1 MetroPCS contends that the specific methodology that the CPUC used to come up with the 2 intrastate allocation factors contained in the 2017 and 2018 Resolutions was “fundamentally 3 flawed.” MetroPCS frames this challenge as an independent basis to find preemption. See 4 MetroPCS’s Mtn. at 32. The parties debate what standard of review the Court should use to evaluate 5 the CPUC’s methodology and whether what the CPUC did was reasonable or not. 6 The Court concludes that it cannot evaluate the CPUC’s methodology – under any standard 7 of review – as a standalone question divorced from the as-applied challenge. MetroPCS raises 8 numerous challenges to the CPUC’s methodology that do not depend on a showing that MetroPCS 9 was actually harmed by the use of that methodology. For example, MetroPCS complains that the 10 CPUC’s 2017 intrastate allocation factor is “based on a simple average (i.e., the arithmetic mean)— 11 that was not weighted by market share—of questionnaire responses from a subset of prepaid 12 carriers.” Id. Even if the Court agreed with MetroPCS’s criticism – a question the Court need not 13 reach at this time – that finding would not necessarily show that the 2017 intrastate allocation factor, 14 as applied to MetroPCS, resulted in an impermissible assessment of revenue. In the Court’s view, 15 MetroPCS’s independent challenges to the CPUC’s methodology appear to be a different form of a 16 facial preemption challenge. Cf. MetroPCS, 970 F.3d at 1124 (“Nor has MetroPCS even attempted 17 to argue that it is possible to discern from the specific intrastate allocation factors adopted by the 18 CPUC (72.75% for 2017 and 69.45% for 2018) that double assessments unfairly disadvantaging 19 every provider of prepaid services would have occurred.”). 20 The Ninth Circuit remanded this case for a determination of whether MetroPCS can 21 demonstrate that the CPUC’s resolutions are preempted as applied to MetroPCS. To prevail, 22 MetroPCS must demonstrate that the use of the 2017 and 2018 intrastate allocation factors resulted 23 in an impermissible or discriminatory assessment of its revenue. The Court can only evaluate the 24 soundness of the CPUC’s methodology in calculating the 2017 and 2018 intrastate allocation factors 25 within the context of determining whether the CPUC’s Resolutions imposed an impermissible 26 surcharge on MetroPCS’s revenue. The Court DENIES the parties’ motions on this question. 27 V. Mobile Telephony Sourcing Act 1 MetroPCS invokes the doctrine of conflict preemption, see MetroPCS’s Mtn. at 37, to 2 contend that the CPUC’s resolutions are preempted by the Mobile Telephony Sourcing Act 3 (“MTSA”), 4 U.S.C. §§ 116 et seq. MetroPCS relies on the following provision in the MTSA: 4 Additional taxable charges -- If a taxing jurisdiction does not otherwise subject 5 charges for mobile telecommunications services to taxation and if these charges are aggregated with and not separately stated from charges that are subject to taxation, 6 then the charges for nontaxable mobile telecommunications services may be subject to taxation unless the home service provider can reasonably identify charges not 7 subject to such tax, charge, or fee from its books and records that are kept in the regular course of business. 8 4 U.S.C. § 123(b). 9 MetroPCS argues that under this section, “as long as the carrier can segregate the revenues 10 applicable to the particular voice service included in a bundle and that service would not otherwise 11 be subject to assessment, any ‘taxing jurisdiction’ such as the CPUC may not penalize the carrier 12 for bundling that non-assessable voice service when it is sold with other assessable services.” 13 The CPUC argues that the MTSA does not apply to universal service assessments. The 14 Court agrees.6 The General Exceptions section of the MTSA expressly states that sections 116 15 through 126 of the MTSA “do not apply to . . . any fee related to obligations under section 254 of 16 the Communications Act of 1934.” Id. at § 116(b)(5). Section 254 of the Communications Act, 17 titled “Universal Service,” provides, inter alia, that “[a] State may adopt regulations . . . to preserve 18 and advance universal service” and “[e]very telecommunications carrier that provides intrastate 19 telecommunications service shall contribute, on an equitable and nondiscriminatory basis, in a 20 manner determined by the State to the preservation and advancement of universal service in that 21 State.” 47 U.S.C. § 254(f); see also MetroPCS, 970 F.3d at 1110-11 (discussing 47 U.S.C. § 254 22 and dual regulatory regime permitting federal and state contribution requirements to fund federal 23 and state universal service programs). 24 Here, the state universal service surcharges assessed by the CPUC are “fee[s] related to 25 26 6 The Court also notes that there are no cases interpreting the General Exceptions section of 27 the MTSA, and only one case from New York that addresses any aspect of the MTSA. See People 1 obligations under section 254 of the Communications Act of 1934,” and thus they are not subject to 2 || the MTSA. MetroPCS argues that “Section 254 of the Communications Act does not create any 3 ‘obligations’ to pay the MTS surcharge—those obligations were created under the California 4 || Prepaid Collection Act.” Reply at 34. The Court is not persuaded by MetroPCS’s semantic 5 argument. Section 254 of the Communications Act expressly authorizes states to impose surcharges 6 to fund universal service, and the Prepaid Act, along with the CPUC’s 2017 and 2018 Resolutions 7 || implementing that Act, imposed a new structure for assessment and collection of prepaid carriers’ 8 state universal service fees. Accordingly, the Court GRANTS summary judgment in favor of the 9 || CPUC on this issue. 10 11 CONCLUSION 12 For the foregoing reasons, the Court GRANTS in part and DENIES in part the cross-motions 13 for summary judgment. The Court will hold a further case management conference on October 21, 14 || 2021 at 11:00 a.m. to discuss the appointment of a Special Master, the scheduling of a bench trial, 3 15 and any other proceedings necessary to bring this case to a final resolution. 16

= 17 IT IS SO ORDERED. Sn Mle 19 Dated: September 22, 2021 SUSAN ILLSTON 20 United States District Judge 21 22 23 24 25 26 27 28