USTelecom – The Broadband Association v. Alice Buching Reynolds, et al.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 San Francisco Division 11 USTELECOM – THE BROADBAND Case No. 25-cv-08959-LB ASSOCIATION, 12 ORDER GRANTING MOTION TO Plaintiff, DISMISS 13 v. Re: ECF No. 23 14 ALICE BUSCHING REYNOLDS, et al., 15 Defendants. 16 17 INTRODUCTION 18 Plaintiff USTelecom – The Broadband Association challenges a decision of the California 19 Public Utilities Commission (CPUC) extending certain service-quality rules (installation timelines, 20 outage restoration, repair intervals, and customer-service responsiveness) — historically applicable 21 to landlines — to fixed interconnected Voice over Internet Protocol (VoIP) providers. VoIP allows 22 calls over the internet. Fixed interconnected VoIP allows internet calls (including calls to and 23 received from traditional landlines) via a broadband connection to a customer’s physical address. 24 The decision exempts nomadic VoIP service, which allows internet calls wherever the user is. The 25 CPUC’s service-quality standards are enforced through reporting requirements and potential fines. 26 USTelecom, on behalf of its members (including AT&T and Frontier), asserts that the 27 Communications Act of 1934 and Federal Communications Commission (FCC) policy preempt 1 because VoIP cannot be separated into intrastate and interstate components for compliance. The 2 defendants — CPUC commissioners sued in their official capacity under Ex parte Young for 3 declaratory and injunctive relief — moved to dismiss under Federal Rule of Civil Procedure 4 12(b)(6), arguing that the complaint does not plausibly allege preemption. The motion is granted. 5 The Communications Act preserves state authority over intrastate communications. 47 U.S.C. § 6 152(b); La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 370 (1986). While courts recognize a limited 7 “impossibility exception” permitting federal preemption where interstate and intrastate aspects of a 8 service cannot be separated and state regulation would interfere with federal objectives, that 9 doctrine is narrow. Pub. Serv. Comm’n of Md. v. FCC, 909 F.2d 1510, 1515 (D.C. Cir. 1990); 10 California v. FCC, 905 F.2d 1217, 1243 (9th Cir. 1990). Even accepting USTelecom’s allegations 11 of inseverability at the pleadings stage, the complaint does not identify a federal objective that 12 conflicts with California’s service-quality rules. To the contrary, the FCC has recognized a role for 13 states in consumer-protection regulation, including with respect to VoIP. Because USTelecom has 14 not plausibly alleged conflict preemption, the complaint fails to state a claim. 15 16 REGULATORY SCHEME 17 1. The Regulated Telecommunications 18 The technology at issue involves VoIP service. Traditional telephone calls (“plain old telephone 19 service” or POTS) are transmitted over dedicated physical circuits, historically over copper wires. 20 VoIP service breaks voice calls into data packets, sends them via different internet routes, and 21 reassembles them at the destination. VoIP services are either interconnected or non-interconnected. 22 An interconnected VoIP service allows the user to call or receive calls from traditional telephone 23 numbers, even if associated with non-VoIP users. 47 U.S.C. § 153(25); 47 C.F.R. § 9.3. A non- 24 interconnected VoIP service typically allows users to communicate only with others using the same 25 app, such as FaceTime or WhatsApp. 47 U.S.C. § 153(36). USTelecom’s members are “fixed” 26 interconnected providers (such as AT&T and Frontier) that sell VoIP telephone services and a 27 1 broadband connection between the user’s physical address and the provider’s network.1 In contrast, 2 “nomadic” VoIP providers (such as Vonage or Ooma) sell only the VoIP service, which allows 3 users to use the service anywhere there is an internet connection.2 4 Unlike traditional telephone companies, which (by law in the twentieth century) offered separate 5 intrastate (local and toll) and interstate (long-distance) services, VoIP providers offer only any- 6 distance calls, did not design separate intrastate and interstate networks, and cannot determine 7 whether a telephone number reflects a physical location.3 The first six digits of a ten-digit telephone 8 number historically were tied to a geographic area, but due to “technological, regulatory, and 9 marketplace developments,” it has not been reasonable or reliable for many years to assume that a 10 called party is physically located in that geographic area.4 11 12 2. Federal Statutory Scheme 13 The Communications Act establishes a dual system of federal and state authority. The FCC 14 regulates interstate and foreign commerce in wire and radio communications. 47 U.S.C. § 151. It 15 cannot exercise jurisdiction over intrastate wire and radio communications absent a specific 16 provision of the Act giving it authority. Id. § 152(b). The Supreme Court has described § 152(b) as 17 a jurisdictional boundary that preserves state authority over intrastate communications unless 18 Congress has clearly indicated otherwise. La. Pub. Serv. Comm’n, 476 U.S. at 370. The 19 Telecommunications Act of 1996 gave the FCC some authority over a portion of intrastate matters 20 previously reserved for the states. AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 377–81 (1999). 21 But absent a specific provision giving the FCC intrastate authority, the jurisdictional limits remain. 22 Glob. Tel*Link v. FCC, 866 F.3d 397, 409 (D.C. Cir. 2017) (§ 152(b) sets a presumption against 23

24 1 Compl. – ECF No. 1 at 6 (¶¶ 24–27). The parties consented to magistrate-judge jurisdiction under 28 25 U.S.C. § 636(c)(1). Consents – ECF Nos. 19–20. Citations refer to the Electronic Case File (ECF); pinpoint citations are to the ECF-generated page numbers at the top of documents. 26 2 Compl. – ECF No. 1 at 6–7 (¶ 28) (can offer users the ability to have internet calls from any location). 27 3 Id. at 7–8 (¶¶ 30–31), 14 (¶¶ 53–54). 4 1 the FCC’s regulation of intrastate communications; voided FCC order setting intrastate rate caps 2 for inmate-calling services); see La. Pub. Serv. Comm’n, 476 U.S. at 373 (§ 152(b) is a 3 jurisdictional limit on the FCC’s power and a rule of statutory construction). 4 Courts have recognized a limited “impossibility exception” to § 152(b)’s preservation of state 5 authority where (1) preemption is necessary to protect a valid federal regulatory objective, and (2) 6 state regulation negates the FCC’s exercise of its authority because interstate and intrastate aspects 7 of the communication service are inseverable. Pub. Serv. Comm’n of Md., 909 F.2d at 1515; 8 California v. FCC, 905 F.2d at 1243 (FCC order must be narrowly tailored to preempt only state 9 regulations that negate valid regulatory goals). 10 11 3. FCC Regulation of VoIP 12 Title II of the Communications Act gives the FCC express authority to regulate all wireline 13 telecommunication services. 47 U.S.C. §§ 201–276; see, e.g., id. § 201 (services and charges). It 14 generally lacks jurisdiction over Title I information services, defined as “the offering of a capability 15 for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making 16 available information via telecommunications, and includes electronic publishing, but does not 17 include any use of any such capability for the management, control, or operation of a 18 telecommunications system or the management of a telecommunications service.” Id. § 153(24). 19 The Supreme Court has held that the FCC has discretion to classify services. Nat’l Cable & 20 Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 980–81 (2005) (under now over-ruled 21 Chevron deference). It can exercise authority over Title I and unclassified services if it is reasonably 22 ancillary to the effective performance of its specific statutory responsibilities. United States v. Sw. 23 Cable Co., 392 U.S. 157, 178 (1968); California v. FCC, 905 F.2d at 1240 n.35. 24 An “interconnected VoIP service” is a service that (1) enables real-time, two-way voice 25 communications, (2) requires a broadband connection from the user’s location, (3) requires 26 “internet protocol-compatible customer premises equipment,” and (4) permits users to receive calls 27 from and terminate calls to “the public switched telephone network.” 47 U.S.C. § 153(25); 47 1 C.F.R. § 9.3. The FCC has regulated interconnected VoIP services without explicitly classifying 2 them under Title I or II.5 3 For example, like Title II carriers, interconnected VoIP providers must contribute to the federal 4 Universal Service fund, established to ensure affordable telecommunications and broadband access, 5 particularly in rural, high-cost, low-income areas. Universal Serv. Contribution Methodology, 21 6 FCC Rcd. 7518, 7542–43 ¶ 48 (the VoIP providers interconnected with Title II carriers; a mandated 7 contribution thus was reasonably ancillary to § 254’s requirement that the FCC “preserve and 8 advance universal service”). VoIP providers must route 911 calls to emergency operators and 9 protect the privacy of customer proprietary network information.6 The FCC has not extended some 10 POTS regulations, such as its rules prohibiting cramming (unauthorized charges on phone bills) to 11 VoIP providers, because there was no evidence of a problem.7 Most relevantly to this dispute, it has 12 preempted Minnesota’s imposition of market-entry and tariff regulations on Vonage’s nomadic 13 VoIP service DigitalVoice. Vonage Holdings Corp., 19 FCC Rcd. 22404, 22406 ¶ 5, 22408–09 ¶¶ 14 10–11 (2004) (all statutes and regulations governing a “telephone company,” including obtaining 15 operating authority, filing tariffs, and providing and funding 911 services). There was “no practical 16 way to sever DigitalVoice into interstate and intrastate communications . . . .” Id. at 22423 ¶ 31. The 17 “lack of dependence on any geographically defined location . . . most distingishe[d] DigitalVoice 18 from other services whose federal or state jurisdiction is determined based on the geographic end 19 points of the communications.” Id. at 22420 ¶ 25. 20 In an amicus brief to the Eighth Circuit addressing Minnesota’s imposition of market-entry and 21 tariff regulations, the FCC described its orders as establishing “measured and appropriate 22 23 5 Compl. – ECF No. 1 at 10 (¶ 39) (has not classified as Title I or II); App. A – ECF No. 29-1 (FCC 24 orders). The parties have not asked the court to declare whether fixed VoIP is a Title II telecommunications service or a Title I information service. Mot. – ECF No. 23 at 28. The issue 25 provides context for the FCC’s orders and an FCC amicus brief. 26 6 Opp’n – ECF No. 29 at 11; Brief of the FCC as Amicus Curiae in Support of Plaintiffs-Appellees at 14–15, Charter Adv. Servs. (MN), LLC v. Lange, 903 F.3d 715 (8th Cir. 2018) (No. 17-2290), 27 https://bit.ly/4nw9uBv (collecting FCC orders) (hereinafter FCC Amicus Br.). 7 1 mechanisms for regulating VoIP service.”8 It elaborated that if a state identified “other regulatory 2 needs” related to VoIP services, it should “raise[] those concerns” with the FCC, which “would 3 allow the FCC to offer a solution that would apply nationwide,” avoiding “a patchwork of different 4 and potentially conflicting rules” and a state “blunderbuss approach to VoIP regulation” that would 5 “disrupt the national voice services market.”9 6 7 4. California’s Regulation of VoIP 8 From 2013 to 2019, with some exceptions, California removed VoIP and internet-enabled 9 services from CPUC’s jurisdiction. Cal. Pul. Utils. Code § 710. The law sunset on January 1, 10 2020. Thereafter, the CPUC took three regulatory steps. 11 First, it implemented an emergency disaster-relief program for communication-service 12 providers, including fixed VoIP providers, requiring waivers of fees and free services for a 13 specified time after a declared disaster.10 14 Second, it determined that under the FCC’s Vonage order, state market-entry regulations were 15 expressly preempted for nomadic carriers.11 16 Third, following a rule-making process that involved public comments, briefing, and a hearing, 17 the CPUC issued General Order 133-E, the decision challenged here.12 AT&T and Frontier had 18 poor maintenance measured against CPUC’s requirements for ninety-percent repair of customer 19 outages in twenty-four hours (compliance of 44.5 percent to 59.2 percent over four years), and VoIP 20 outages of more than thirty minutes fared poorly compared to traditional telephone carriers or 21 22 8 FCC Amicus Br., supra note 6, at 2. 23 9 Id. at 25–26. In Charter, the parties disputed whether VoIP should be classified as a Title I information 24 service or a Title II telecommunications service. 903 F.3d at 719. The court held that VoIP is an information service, focusing on whether VoIP offered a “net protocol conversion,” not whether the 25 FCC’s orders had preclusive effect. Id. at 719–20. 10 Mot. – ECF No. 23 at 14 (parties — including AT&T and Frontier — challenged the CPUC’s 26 exercise of jurisdiction but did not seek judicial review). 27 11 Id. (summarizing VoIP Licensing Decision, D.24-11-003, at 24 (Cal. Pub. Utils. Comm’n Nov. 7, 2024)). 1 wireless providers (in 2021, traditional telephone carriers reported 1,185 events, wireless carriers 2 reported 3,315, and VoIP carriers reported 9,000).13 The CPUC decision extends POTS service- 3 quality standards to fixed (but not nomadic) interconnected VoIP providers with more than 5,000 4 access lines: (1) completing new-service installation within five business days (with fines of $5 per 5 customer per day for non-compliance); (2) restoring outages within twenty-four hours (with per-line 6 daily fines of $5); and (3) maintaining 24/7 toll-free customer-service lines, with representatives 7 answering eighty percent of calls within sixty seconds (with fines of $5 per line multiplied by ten 8 percent for each day of non-compliance). Rules Governing Telecomms. Servs., CPUC General 9 Order 133-E §§ 2.1(a), (f), 2.2(a), 2.3(a)(i)–(iii), (f) (Sep. 18, 2025). Reporting requirements include 10 submitting a corrective-action plan with the provider’s investments to address a failure to correct 11 reporting outages within twenty-four hours. Id. at 4. 12 13 ANALYSIS 14 A complaint must contain a short and plain statement of the claim showing that the pleader is 15 entitled to relief to give the defendant fair notice of the claim and the grounds upon which it rests. 16 Fed. R. Civ. P. 8(a); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). It may fail by lacking a 17 cognizable legal theory or sufficient facts under one. Woods v. U.S. Bank N.A., 831 F.3d 1159, 18 1162 (9th Cir. 2016). The court accepts factual allegations as true and construes them favorably to 19 plaintiffs. Interpipe Contracting, Inc. v. Becerra, 898 F.3d 879, 886–87 (9th Cir. 2018). But 20 allegations must state a plausible claim. Twombly, 550 U.S. at 570. 21 The service-quality rules advance the CPUC’s mandate to provide “adequate, efficient, just, and 22 reasonable service, . . . equipment, and facilities, including telephone facilities,” needed to “promote 23 the safety, health, comfort, and convenience of . . . the public,” a traditional police power. Cal. Pub. 24 Utils. Code § 451. This triggers a presumption against preemption that cannot “be superseded” 25 absent “the clear and manifest purpose of Congress” or the federal agency. Wyeth v. Levine, 555 26 U.S. 555, 565 (2009); Nation v. City of Glendale, 804 F.3d 1292, 1297–98 (9th Cir. 2015). 27 1 USTelecom alleges conflict preemption of the CPUC service-quality rules under the 2 impossibility exception.14 It asserts the FCC’s “single, national regime for VoIP services,” where 3 the CPUC rules conflict with a procompetitive, light-touch policy, and intrastate/interstate 4 segregation is impossible.15 It sufficiently pleads inseverability.16 But it does not show that 5 preemption protects an FCC objective or that the rules negate FCC authority. Pub. Serv. Comm’n 6 of Md., 909 F.2d at 1515. 7 No FCC order preempts these service-quality rules (installation, outages, repair, 8 responsiveness).17 Unlike Vonage’s preemption of market-entry/tariff rules for nomadic VoIP, these 9 differ (by protecting consumers and public safety) and apply to fixed VoIP. Vonage Holdings Corp., 10 19 FCC Rcd. at 22423 ¶ 3, 22408–09 ¶¶ 10–11 (at stake was all statutes and regulations governing a 11 “telephone company,” including obtaining operating authority, filing tariffs, and providing and 12 funding 911 services; did not address performance standards). The FCC’s presence in VoIP 13 regulation does not imply conflict. Without a conflict, there is no preemption. La. Pub. Serv. 14 Comm’n, 476 U.S. at 374–76. The FCC orders lack a clear intent to displace state rules regarding 15 service quality. Nation, 804 F.3d at 1297–98. Instead, they recognize state roles in consumer 16

17 14 Opp’n – ECF No. 29 at 15. 18 15 Compl. – ECF No. 1 at 15–16 (¶¶ 57–64). 19 16 The defendants contend that the court need not accept USTelecom’s allegation that intrastate and interstate aspects cannot be unbundled because “at least some fixed VoIP providers can track the 20 jurisdictional endpoints of their calls.” Mot. – ECF No. 23 at 21. They point to the FCC’s suggestion that some fixed VoIP providers could separate interstate and intrastate traffic. Id. at 21–22 (citing 21 Universal Serv. Contribution Methodology, 21 FCC Rcd. 7518 (2006)). Courts have reached this conclusion. Id. at 22–23 (citing Centurytel of Chatham, LLC v. Sprint Commc’ns Co., L.P., 185 F. Supp. 22 3d 932, 944 (W.D. La. 2016) (“[S]oon after the 2004 Vonage decision, technology evolved to enable companies to track the jurisdictional confines of ‘fixed’ (or non-portable) VoIP-originated calls.”)). But 23 USTelecom alleges that “in most circumstances, fixed VoIP providers cannot determine on a real-time basis whether a particular call is intrastate or interstate” and “have no reliable method for knowing the 24 location of the person at the other end of the call while the call is occurring.” Compl. – ECF No. 1 at 14 (¶ 54). This is sufficient. Interpipe, 898 F.3d at 886–87 (fact allegations accepted as true). 25 17 No binding authority requires an on-point FCC order. California v. FCC, 905 F.2d at 1243–45 (discussing only the standard to apply to an FCC order). The impossibility exception may apply absent 26 an FCC decision. Opp’n – ECF No. 29 at 18–19 (collecting cases); see, e.g., Charter Advanced Servs. (MN), LLC v. Heydinger, No. 15-cv-3935 (SRN/HB), 2016 WL 11491383 (D. Minn. Apr. 21, 2016), R. 27 & R. adopted as modified, No. 15-3935 (SRN/KMM), 2016 WL 3661136 (D. Minn. July 5, 2016). Even ] protection. Vonage Holdings Corp., 19 FCC Red. at 22405 (“[S]tates will continue to play their 2 || vital role in protecting consumers ... for example, . . . generally responding to consumer inquiries 3 and complaints.”); Amendments to Part 4 of the Comm’n’s Rules Concerning Disruptions to 4 Commce’ns, 36 FCC Red. 6136, 6152-53 (§] 56-57) (2021) (FCC rejected requests from industry 5 || members to preempt state-outage reporting requirements; “states can determine what outage 6 || reporting requirements are most appropriate for their jurisdictions”). 7 Given this analysis, dispositive on its own, USTelecom does not rebut the presumption against 8 || preemption of California’s exercise of its police power. Nation, 804 F.3d at 1297-98. 9 The motion to dismiss is granted. 10 CONCLUSION 11 Any amended complaint is due by March 23, 2026, and must attach a blackline compare of the 12 || new complaint against the current complaint. 13 This resolves ECF No. 23. IT IS SO ORDERED. LAE 3 15 Dated: February 24, 2026 LAUREL BEELER A 16 United States Magistrate Judge

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