Securus v FCC, DC, Pet Intervenors Brief, inmate calling services, 2014
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USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 1 of 60 [ORAL ARGUMENT NOT YET SCHEDULED] UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 13-1280 (consolidated with 13-1281, 13-1291, 13-1300, 14-1006) SECURUS TECHNOLOGIES, INC., ET AL., PETITIONERS, v. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, RESPONDENTS. On Petitions for Review from an Order of the Federal Communications Commission BRIEF OF INTERVENORS MARTHA WRIGHT, DOROTHY WADE, ANNETTE WADE, ETHEL PEOPLES, MATTIE LUCAS, LAURIE NELSON, WINSTON BLISS, SHEILA TAYLOR, GAFFNEY & SCHEMBER, M. ELIZABETH KENT, KATHERINE GORAY, ULANDIS FORTE, CHARLES WADE, EARL PEOPLES, DARRELL NELSON, MELVIN TAYLOR, JACKIE LUCAS, PETER BLISS, DAVID HERNANDEZ, LISA HERNANDEZ, VENDELLA F. OURA, THE D.C. PRISIONERS’ LEGAL SERVICES PROJECT, INC., CITIZENS UNITED FOR THE REHABILITATION OF ERRANTS, PRISON POLICY INITIATIVE, THE CAMPAIGN FOR PRISON PHONE JUSTICE, AND OFFICE OF COMMUNICATION, INC. OF THE UNITED CHURCH OF CHRIST Angela J. Campbell Andrew Jay Schwartzman Aaron Mackey Institute for Public Representation Georgetown Law 600 New Jersey Avenue NW Washington, DC 20003 (202) 662-9545 adm232@law.georgetown.edu Counsel to Martha Wright, et al. USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 2 of 60 CERTIFICATE AS TO PARTIES, RULINGS AND RELATED CASES 1. Parties and Amici Curiae. All parties and Intervenors appearing in this Court are listed in the Petitioners’ briefs. The following organizations and individuals have been granted leave to participate as amici curiae in support of the FCC: Professors Richard H. Frankel, Steven H. Goldblatt, and Alistair E. Newbern, of the Law School Appellate Litigation Clinics at Drexel, Georgetown, and Vanderbilt Universities; Asian Americans Advancing Justice-AAJC, the NAACP, and the Lawyers’ Committee for Civil Rights Under Law; and Verizon. 2. Rulings under review. The ruling at issue is Rates for Interstate Inmate Calling Services, 28 FCC Rcd 14107 (2013)(JA_____). 3. Related cases. The Order on review has not previously been the subject of a petition for review in this Court or any other court. Counsel is not aware of any related cases pending before this Court or any other court. i USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 3 of 60 CORPORATE DISCLOSURE STATEMENT Pursuant to the United States Court of Appeals for the District of Columbia Circuit R. 26.1 and Fed. R. App. P. 26.1, The D.C. Prisoners’ Legal Services Project, Inc., Citizens United for Rehabilitation of Errants, the Prison Policy Initiative, The Campaign for Prison Phone Justice, and Office of Communication, Inc. of the United Church of Christ respectfully submit this Corporate Disclosure Statement. The D.C. Prisoners’ Legal Services Project is a project of the Washington Lawyers’ Committee for Civil Rights & Urban Affairs, Inc., which is a nonprofit corporation that does not have any parent companies, subsidiaries, or affiliates that have issued shares to the public. Citizens United for Rehabilitation of Errants (“CURE”) is a nonprofit corporation that has no parent companies, subsidiaries, or affiliates that have issued shares to the public. Prison Policy Initiative is a nonprofit corporation that has no parent companies, subsidiaries, or affiliates that have issued shares to the public. The Campaign for Prison Phone Justice is jointly led by the Media Action Grassroots Network, Working Narratives, Prison Legal News, and diverse civil and human rights organizations. The Media Action Grassroots Network is a project of the Center for Media Justice, a nonprofit corporation that has no parent companies, subsidiaries, or affiliates that have issued shares to the public. Working Narratives is a nonprofit organization that has no parent companies, subsidiaries, or affiliates that ii USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 4 of 60 have issued shares to the public. Prison Legal News is a project of the Human Rights Defense Center, a nonprofit corporation that has no parent companies, subsidiaries, or affiliates that have issued shares to the public. The Office of Communication, Inc. (“UCC OC, Inc.”) is a not-for-profit corporation of the United Church of Christ (“UCC”). The United Church of Christ is a not-for-profit, religious organization, with 5,100 local congregations across the United States. Neither UCC nor UCC, OC Inc. has any parent companies, subsidiaries, or affiliates that have issued shares to the public. Respectfully submitted, /s/ Angela J. Campbell Andrew Jay Schwartzman Aaron Mackey Counsel to Intervenors Martha Wright, et al. October 20, 2014 iii USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 5 of 60 TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT .......................................... ii TABLE OF CONTENTS ........................................................................... iv TABLE OF AUTHORITIES ..................................................................... vi GLOSSARY ............................................................................................... ix STATUTES AND REGULATIONS ......................................................... 1 SUPPLEMENTAL STATEMENT OF THE CASE ................................... 1 I. Attempts to Lower ICS Rates Prior to the 2012 Rulemaking ...... 2 II. The Rulemaking Proceeding ......................................................... 3 A. The Impact of High ICS Costs on Families ........................... 5 B. Charges to ICS Customers ..................................................... 7 C. The Role of Site Commissions ................................................ 9 D. Changes in the ICS Industry ................................................ 11 SUMMARY OF ARGUMENT ................................................................ 13 ARGUMENT ............................................................................................ 14 I. The Commission’s Actions Do Not Impermissibly Interfere with the Administration of State and Local Prison Facilities. .. 14 A. The Exclusion of Site Commissions from Costs is Lawful and Does Not Impermissibly Interfere With Prison Administration. ..................................................................... 15 B. How Correction Facilities Use Site Commissions is Not Relevant, but in Any Event, Site Commissions are Used for Many Purposes Unrelated to Prisoners’ Welfare. ........ 17 C. Security Features are Compensable Costs of ICS. .............. 21 D. The Commission Has Clear Authority over Interstate ICS. ........................................................................ 24 E. The Legal Authorities cited by Petitioners Do Not Support Their Position. ........................................................ 27 II. The Commission’s Requirement that Ancillary Fees be CostBased is Reasonable. .................................................................... 29 iv USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 6 of 60 A. The Plain Language of the Communication Act Gives the Commission Authority over Ancillary Fees. ................ 30 B. All ICS Customers are Required to Pay Ancillary Fees ..... 30 C. The Cost-Based Rule is Necessary to Prevent Providers from Offsetting Lower ICS Rates with Ancillary Fees. ...... 31 CONCLUSION ........................................................................................ 32 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE APPENDIX v USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 7 of 60 TABLE OF AUTHORITIES Cases Bell v. Wolfish, 441 U.S. 520 (1979) .......................................................................27 Business Roundtable v. SEC, 905 F.2d 406 (D.C. Cir. 1990) ........................ 25, 26 * Cable and Wireless P.L.C. v. FCC, 166 F.3d 1224 (D.C. Cir. 1999) ........... 16, 17 California v. FCC, 798 F.2d 1515 (D.C. Cir. 1986) ...............................................27 Gregory v. Ashcroft, 501 U.S. 452 (1991) ..............................................................27 Jones v. N.C. Prisoners’ Labor Union, Inc., 433 U.S. 119 (1977) ..........................27 * NAACP v. Fed. Power Comm’n, 425 U.S. 662 (1976) ................................. 25, 26 * Pa. Dep’t of Corr. v. Yeskey, 524 U.S. 206 (1998) .................................. 27, 28, 29 Preiser v. Rodriguez, 411 U.S. 475 (1973)....................................................... 27, 28 Schuette v. BAMN, 134 S. Ct 1623 (2014) ............................................................27 Sorenson Communications, Inc. v. FCC, 765 F.3d 37 (D.C. Cir. 2014). ..............16 Time Warner Entertainment Co., L.P. v. FCC, 56 F.3d 151 (D.C. Cir. 1995) .....15 Statutes 47 U.S.C. § 151........................................................................................................26 47 U.S.C. § 152(a) ...................................................................................................28 * 47 U.S.C. § 201(a) ................................................................................................25 * 47 U.S.C. § 201(b) ......................................................................................... 28, 32 vi USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 8 of 60 47 U.S.C. § 276(b)(2) ..............................................................................................28 * 47 U.S.C. § 276(d) ......................................................................................... 25, 32 Ala. Code § 45-3-231.20 ........................................................................................21 Ariz. Rev. Stat. § 41-1604.03(B) ............................................................................20 Ark. Code § 12-27-128 ...........................................................................................20 Cal. Penal Code § 4025 .........................................................................................21 Fla. Stat. § 945.215(b).............................................................................................19 Haw. Rev. Stat. § 353-136 .....................................................................................21 Ind. Code § 5-22-23-7(a) .......................................................................................20 Mass. Gen. Laws ch. 127 § 3 ................................................................................21 Mass. Gen. Laws ch. 29 § 2 ..................................................................................19 Miss. Code § 47-5-158(3).......................................................................................20 Miss. Code § 47-5-66(2).........................................................................................20 Tenn. Code § 41-7-104...........................................................................................21 Tex. Gov’t Code § 495.027(c) ...............................................................................19 Va. Code § 53.1-127.1 ............................................................................................21 Wis. Stat. § 301.105(1) ...........................................................................................19 vii USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 9 of 60 Other Authorities About Securus, Securus ..........................................................................................13 Barbagallo, FCC Proposes Cap on Prison Phone Rates, Explores Two Companies’ Market Dominance, Bloomberg BNA (Jan. 2, 2013) .........................................................................11 GTL Deposit Systems, Global Tel*Link .............................................................12 History of Securus, Securus ...................................................................................11 Michaelson, et al., More Than Visiting Hours, 4 Sociology Compass 576 (2010) ........................................................................7 Securus Grows by 28% in 2010, Now More than 800 Associates Strong, Securus (Dec. 20, 2010) ......................................................................................13 Shields, Prison Phones Prove Captive Market for Private Equity, Bloomberg Business Week (Oct. 4, 2012) .......................................................11 Transcript of FCC Workshop on Inmate Calling Services (July 9, 2014) ......31 Xu, Castle Harlan Said in Talks to Sell Securus for $640 Million, Bloomberg News (Apr. 5, 2013).......................................................................12 * Authorities chiefly relied upon are marked with asterisks. viii USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 10 of 60 GLOSSARY Commission Federal Communications Commission Communications Act Communications Act of 1934 (codified as amended at 47 U.S.C. §151 et seq.) Corr. Br. Joint Brief for Correctional Facility Petitioners and Supporting Intervenors CURE Citizens United for the Rehabilitation of Errants FCC Br. Brief for the Federal Communications Commission HRDC Human Rights Defense Center ICS Inmate Calling Services ICS Br. Joint Brief for ICS Provider Petitioners and Supporting Intervenors Justice Project University of St. Thomas Community Justice Project LCCHR The Leadership Conference on Civil and Human Rights NYU Ctr. New York University Law School Center on the Administration of Criminal Law Order Rates for Interstate Inmate Calling Services, 28 FCC Rcd 14107 (2013) PPI Prison Policy Initiative ix USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 11 of 60 STATUTES AND REGULATIONS The FCC’s addendum to its brief sets forth the relevant statutes and rules. SUPPLEMENTAL STATEMENT OF THE CASE Intervenors adopt the Federal Communications Commission’s (“Commission”) statement of the case and offer these supplemental facts. Most Americans today pay only a few cents per minute to make a long-distance interstate phone call. Prior to the Commission’s actions on review here, however, millions of Americans could pay up to $17.30 plus additional fees for a 15-minute interstate phone call to a family member behind bars. Rates for Interstate Inmate Calling Services, 28 FCC Rcd 14107, ¶35 (2013)(“Order”)(JA_____). Because prisoners are often incarcerated hundreds of miles from home, their families, which are typically among the most economically distressed in the country, rely on Inmate Calling Services (“ICS”) as the primary way to stay in touch with their loved ones. Id. ¶¶2, 42 (JA_____,_____). The financial burden of ICS deterred communication with prisoners, often forcing families to choose between speaking with a prisoner or paying for basic necessities. Id., Statement of Comm’r Clyburn (JA______,_______). For more than a decade, families of prisoners and civil rights groups have advocated for the Commission to bring down ICS rates. Finally in 2013, the Commission found that ICS rates were unjust, unreasonable, and 1 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 12 of 60 unfair under Sections 201 and 276 of the Communications Act. As more fully explained in the Commission’s brief, the Commission’s actions brought down the cost of a 15-minute call to $3.75, allowing more families to connect or talk more frequently. At the same time, the Order allowed ICS providers to cover their costs and reasonably profit while ensuring that necessary security features of the service remain. Id. ¶2 (JA_____). I. Attempts to Lower ICS Rates Prior to the 2012 Rulemaking Families, prisoners, and lawyers faced with crippling ICS phone bills have fought for reform for more than a decade. The case that eventually led to the Commission’s Order began in 2000 when Martha Wright, a retired nurse living in Washington, D.C., found herself paying more than $100 per month to call her grandson, Ulandis Forte. Compl. of Martha Wright, et al. 7 (Feb. 16, 2000); Wright v. Corrections Corp. of Am., No. 00-293, Opinion and Order (D.D.C. Aug. 22, 2001)(App. 1-3). Mr. Forte was incarcerated in Arizona, too far from home to permit Ms. Wright to visit him. Joined by other D.C. residents and defense attorneys, Ms. Wright filed a putative class action that sought to end ICS monopolies at private prison facilities. The complaint alleged that exclusive agreements between ICS providers and facilities, which required providers to share profits with prisons in arrangements known as “site commissions,” led to unjust and unreasonable rates under the Communications Act. (App. 3). 2 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 13 of 60 Invoking the primary jurisdiction doctrine, the District Court referred the case to the Commission. (App. 4-5). The court listed five reasons for referring the case, including that “the FCC is statutorily charged with handling all claims contesting the reasonableness of telephone rates” and that “Congress has given the FCC explicit statutory authority to regulate inmate payphone services in particular.” (App. 6, 8). Regarding plaintiffs’ concerns about site commissions, the court held that the “FCC has authority to order that Defendants’ rates not reflect commissions.” (App. 7). In referring the case to the Commission, the court “expect[ed] the agency to move with dispatch.” (App. 15). When the Commission took no action on the court’s referral, the class filed a petition for rulemaking in 2003. Martha Wright et al. Petition for Rulemaking, Dkt. 96-128 (Nov. 3, 2003)(JA_____). The FCC sought public comment on the petition but took no further action. Four years later, as the problems with ICS worsened, Wright et al. filed a second petition asking the Commission to cap rates at $0.20 per minute for debit calls and $0.25 per minute for collect calls. Alternative Wright Petition, Dkt. 96-128 (Mar. 1, 2007)(JA_____). Again the Commission sought and received comments but failed to act, despite the continued urging of the Petitioners. II. The Rulemaking Proceeding Finally, in December 2012 the Commission granted the Wright Petitions and issued a Notice of Proposed Rulemaking. Rates for Interstate 3 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 14 of 60 Inmate Calling Services, 27 FCC Rcd 16629 (2012) (“Notice”)(JA_____). The Notice specifically sought comment on whether the rate caps proposed by the Wright Petitioners (Intervenors herein who were the petitioners below) would “ensure just and reasonable rates,” and asked what factors the Commission should “consider in determining an appropriate per-minute rate cap.” Id. ¶20 (JA_____). The Commission also sought comment on ICS rates proposed by providers in 2008. Id. ¶24 (JA_____). The Notice also asked for “specific, detailed cost information and other relevant data” to determine appropriate caps and asked how it should treat other charges, such as monthly account fees, that must be paid to use the service. Id. ¶¶20, 33 (JA_____,_____). Public response to the Notice was overwhelming. Tens of thousands of members of the public took the time to urge the Commission to lower ICS rates.1 More than one hundred organizations also participated, including prison reform and social justice organizations that joined Martha Wright and the original class of plaintiffs to comment on the Notice. 2 See Order, Ex. B (JA_____). One organization submitted comments signed by more than 24,000 people, including family members and friends of prisoners. Color of Change Comments (Mar. 25, 2013)(JA_____). See also 4,822 Comments filed by Credo Mobile (Mar. 23, 2013)(JA_____). 2 Organizations joining the Wright Petitioners in their comments included D.C. Prisoners’ Legal Services Project, Citizens United for the Rehabilitation of Errants (“CURE”), Prison Policy Initiative (“PPI”), and The Campaign for Prison Phone Justice. The Campaign for Phone Justice is made up of Media Action Grassroots Network, Working Narratives, and 1 4 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 15 of 60 Commenters developed a robust record for the Commission. Intervenor Human Rights Defense Center (“HRDC”), for example, provided comprehensive data on ICS rates. HRDC Comments, Ex. B (Mar. 25, 2013)(JA_____). Intervenor Prison Policy Initiative (“PPI”) submitted a report detailing how ICS providers use ancillary fees to increase customers’ bills. Please Deposit All of Your Money: Kickbacks, Rates, and Hidden Fees in the Jail Phone Industry 10, PPI (May 9, 2013) (“PPI Report”)(JA_____). A. The Impact of High ICS Costs on Families The thousands of individual stories and studies presented to the Commission showed how high ICS bills harmed prisoners’ families, including 2.7 million children. Because at least 50% of prisoners are incarcerated more than 100 miles away from home, with 10% more than 500 miles away, ICS is the main way families can meaningfully communicate with imprisoned loved ones. Wright Comments 34 (March 25, 2013)(JA_____). Although prisoners use ICS, it is family, friends, and clergy outside facility walls that typically end up footing the bill because most prisoners are indigent. NYU Ctr. Comments 4-5 (Mar. 25, 2013)(JA_____). Families with imprisoned loved ones struggle financially, in large part because the prisoner was often the primary breadwinner before incarceration. Id. at 5 the Human Rights Defense Center (“HRDC”). The United Church of Christ, Office of Communication, Inc., participated in a Commission workshop, filed separate comments on behalf of itself while joining the comments LCCHR, and joined the Wright Petitioners as Intervenors. 5 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 16 of 60 (JA_____). The lost income of the primary wage earner means that the spouse on the outside must work more to pay for basic needs such as childcare. Center for Media Justice, et al. Reply Comments 4 (Apr. 22, 2013)(JA______). With families already struggling to pay for food, utilities, and other basic needs, ICS costs can become an insurmountable barrier. In one study of families reporting significant barriers to maintaining contact with loved ones, 76% cited ICS costs as a primary impediment. See LCCHR Comments 3 (Mar. 25, 2013)(JA_____). Individual stories bring the burden of ICS bills into stark relief. One prisoner explained that high ICS costs prevented him from speaking with his children for two years. Comments of James Whitley (Apr. 2, 2013)(JA_____). Parents of a terminally ill prisoner described how they could afford only limited contact with him. Prisoners’ Legal Services of Mass. Comments 3 (Mar. 25, 2013)(JA_____). One mother reported sacrificing food and heat to speak with her son, while a disabled father went without his medicine to call his son. See Color of Change Comments 1,486 (comments of Melissa Jacobs), 2,266 (comments of Stephen Hurst) (JA_____,_____). High ICS costs have a profound effect on the 2.7 million children in the United States who have at least one incarcerated parent. Order ¶2 (JA______). Only 53% of parents in state prisons reported calling their children while incarcerated. Vera Inst. Comments 2 (Mar. 14, 6 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 17 of 60 2013)(JA______). Incarcerated mothers are imprisoned an average of 160 miles away from home, and less than half have had monthly contact with their children. Order ¶42 (JA_____); Comments of Michael Stewart 2 (Feb. 23, 2013) (citing Michaelson, et al., More Than Visiting Hours, 4 Sociology Compass 576, 580 (2010))(JA_____). Children who lack regular contact with incarcerated parents are more likely to face developmental difficulties and fall into cycles of crime, truancy, and depression. Order ¶¶2, 42 (JA_____,_____). The record also showed that lower ICS rates would have cumulative societal benefits. Through increased communication with family and friends, prisoners would feel more connected with the outside world, easing their transition into communities upon release. See Congressional Black Caucus Comments 3-4 (Apr. 22, 2013)(JA_____); Justice Project Comments 2-3 (Apr. 22, 2013)(JA_____). When released prisoners feel connected to their communities, they are less likely to commit additional crimes, reducing recidivism rates and decreasing criminal justice costs. Justice Project Comments 2-3 (JA______). B. Charges to ICS Customers ICS customers’ bills have been so high because they typically include three types of charges: per-call, per-minute, and ancillary fees. Per-call charges are fixed charges that must be paid anytime a customer initiates a call. For example, the record showed that providers charged customers $3.95 per call in Alabama and Alaska, and $2 per call in 7 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 18 of 60 Arizona. Wright Comments 20 (JA_____). Because the per-call charge is added to every phone call, a short call costs disproportionately more. Order ¶85 (JA_____). Sometimes in the course of a single conversation, customers must pay multiple per-call charges because providers frequently drop calls. Id. (JA_____); Wright Petitioner Reply Comments 19 (Apr. 22, 2013)(JA______). Petitioner GTL warns its customers that “even short pauses may result in disconnection.” See PPI Report, Ex. 22 (JA_____). In addition to the per-call charges, high per-minute rates mean that “[f]amilies of incarcerated individuals often pay significantly more to receive a single 15-minute call from prison than for their basic monthly phone service.” Order ¶42 (JA_____). For example, the rates of Mississippi and Arizona were as high as $0.75 and $0.40 per minute, respectively. HRDC Comments, Ex. B (JA_____). Combining the high per-minute rate with per-call fees, the Commission found that a single 15-minute phone call could cost up to $17.30. Order ¶35 (JA_____). On top of per-call and per-minute fees, customers must pay ancillary fees. See Order ¶90,n.335 (JA_____). The record showed, for example, that Petitioner GTL charges the following ancillary fees: $9.50 to set up an account. Id. (JA_____). Up to $9.50 to add money to an account. Id. (JA_____). 8 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 19 of 60 $2.89 to receive a paper bill from GTL. Id. (JA _____).3 $5 to receive a refund. Id. (JA_____). As a result, ancillary fees “can easily double the cost of a single telephone call, and can add 50% to the phone bills charged to the families that receive more frequent calls.” PPI Report 6 (JA_____). Indeed, ancillary fees represent 38% of the $1 billion spent annually by ICS customers. Id. at 10 (JA_____). C. The Role of Site Commissions The record also detailed how most correctional facilities charge ICS providers site commissions in exchange for exclusive contracts to provide phone service to prisons and jails. In the seven states that have made the public policy decision to ban site commissions, ICS rates are much lower. For example, a 15-minute call in New Mexico dropped from $10.50 to $0.65 after it banned site commissions. Order ¶38 (JA_____). But in states that allow site commissions, ICS rates remained high because providers sought to outbid each other for monopolies at particular facilities by promising to split a share of their profits. See Order ¶41 (JA_____). The record showed that ICS providers contract to share anywhere between 20 to 88% of their profits with prison facilities. Order ¶34 (JA_____). States often use site commission revenue to subsidize their To avoid the paper bill charge, GTL recommends that customers log their own calls. PPI Report, Ex. 22 (JA_____). This is difficult because family members outside a prison do not control when they receive ICS calls. 3 9 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 20 of 60 general funds and prison operation expenses, such as employee salaries and benefits, facility maintenance, equipment, and prisoner programs. See Order ¶34 (JA_____). Thus, the record showed that “some correctional facilities may base their selection of a contractor largely on the amount of cash . . . offered rather than being driven by proposals focused on high quality service at the most affordable rates for customers.” Order ¶41 (JA______). As the Commission described, the resulting dysfunctional marketplace rewarded ICS providers for inflating prison phone bills far beyond the direct costs of the service and also discouraged correctional facilities from imposing rate constraints on providers. Order ¶41 (JA_____). Thus, the Commission found that “where site commission payments exist, they are a significant factor contributing to high rates.” Order ¶34 (JA_____). Site commissions not only lead to high per-call charges and perminute rates, they also result in high ancillary charges. The record showed that ICS providers offset the profits they share with facilities through ancillary charges. See PPI Report at 7 (JA______). The fees are a direct revenue stream for providers because they are not split with prison facilities. Id. (JA_____). The record also showed that the seven states choosing to prohibit site commissions still provided effective service and security measures for prisoners, correctional staff, and call recipients. Order ¶38 (JA______). In 10 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 21 of 60 those states, providers saw additional revenue because as ICS rates decreased, call volume increased. Id. (JA______). D. Changes in the ICS Industry Consolidation among ICS providers, changes in technology, and centralization of the service have significantly decreased the costs of providing ICS. The three ICS Petitioners in this case dominate the industry, with Global Tel*Link (“GTL”) and Securus controlling about 80% of the market and CenturyLink holding roughly another 10%. Order ¶29, n.106 (JA_____); Wright Comments 19 (JA_____).4 Petitioner Securus was formed by the merger of two companies, which themselves had previously acquired at least eight other ICS providers.5 Petitioner GTL acquired ICS operations previously owned by Verizon and AT&T, among others. Wright Comments 18-19 (JA_____-______). GTL has purchased at least four previously independent ICS operators in the last four years. Id. at 18 (JA_____). The consolidated ICS companies are very profitable. For example, Veritas/Goldman Sachs purchased Petitioner GTL for $345 million in 2008. See Shields, Prison Phones Prove Captive Market for Private Equity, Bloomberg Business Week (Oct. 4, 2012), www.businessweek.com/news/2012-10-04/prison-phones-prove-captivemarket-for-private-equity; Barbagallo, FCC Proposes Cap on Prison Phone Rates, Explores Two Companies’ Market Dominance, Bloomberg BNA (Jan. 2, 2013), http://www.bna.com/fcc-proposes-cap-n17179871636/. 5 See History of Securus, Securus, https://securustech.net/web/securus/securus-history (last visited Oct. 20, 2014). 4 11 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 22 of 60 Id. at 19 (JA_____). American Securities purchased GTL two years later for $1 billion, “resulting in a $655 million profit for its investors.” Id. (JA_____). And in 2011, private equity firm Castle Harlan purchased Petitioner Securus from H.I.G. Capital for $450 million. Id. (JA_____). Castle Harlan sold Securus to ABRY Partners, another private equity firm, in 2013 for an estimated $640 million.6 Besides economies of scale gained through consolidation, technology has also helped providers reduce costs and centralize services. As a result, “[e]ach of the major ICS providers now route each call through their centralized calling centers—which are located hundreds, if not thousands of miles from both the caller and the person receiving the call.” Wright Comments 17-18 (JA______). Regardless of where calls originate, they are routed to a calling center where providers apply all ICS security features before forwarding them on to the called party. Id. (JA_____). Further, the call centers are highly automated, using “interactive voice response” technology so that most calls are handled without human intervention.7 Thus, they handle higher volumes of calls with fewer Xu, Castle Harlan Said in Talks to Sell Securus for $640 Million, Bloomberg News (Apr. 5, 2013), http://www.bloomberg.com/news/2013-0405/castle-harlan-said-in-talks-to-sell-securus-for-640-million.html. 7 GTL Deposit Systems, Global Tel*Link, http:www.gtl.net/correctionalfacility-services/payment-and-depositsolutions/deposit-systems/ (last visited Oct. 20, 2014). 6 12 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 23 of 60 employees.8 According to one ICS provider, “[g]iven modern-day technology, the costs for providing secure phone and video services to correctional facilities are low (and are getting lower).” Turnkey Corrections Comments 3 (Mar. 25, 2013)(JA______). The calling centers and automation of ICS means that “the only onpremises equipment at each correction and detention facility is a [Voice over IP] router, several workstations for the site’s guards, and the actual inmate telephone handsets.” Wright Comments 18 (JA_____). The Commission predicted that ICS costs were likely to continue to decrease because of new technology and greater centralization of ICS. Order ¶¶29-31 (JA______). SUMMARY OF ARGUMENT The Commission’s interim action to lower the costs of interstate ICS was a lawful and reasonable response to a failed market. Intervenors write separately to address two claims made by Petitioners. First, the Commission did not interfere with the day-to-day administration of state and local prisons facilities under the guise of lowering phone rates. Securus, for example, reported having 800 employees in 2010. Securus Grows by 28% in 2010, Now More than 800 Associates Strong, Securus (Dec. 20, 2010), http://apps.securustech.net/press_listing.asp?press_id=78. However, Securus’ website currently reports that it has 750 employees. About Securus, Securus, https://securustech.net/web/securus/aboutsecurus (last visited Oct. 20, 2014). 8 13 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 24 of 60 Petitioners grossly mischaracterize the Commission’s actions in pursuit of this argument. A fair reading of the Order shows the agency established just, reasonable, and fair ICS rates as required by federal law. Second, the Commission has explicit statutory authority over ancillary ICS fees. Because customers must pay ancillary fees to make ICS calls, they are an essential part of the service that the Commission can require to be cost-based. Moreover, the cost-based rule ensures that providers do not undermine the purpose of the Commission’s ICS reforms by offsetting lost revenue from the interim rate caps with higher ancillary fees. ARGUMENT As the Commission’s brief demonstrates, the agency has broad statutory authority to enact interim interstate ICS rules. The Commission gave sufficient notice of its intent to require that ICS charges be cost-based, and it established interim rates based on the information available to it that will both lower customers’ bills and ensure a return for providers. In this brief, Intervenors address two issues raised by Petitioners: first, whether the Commission’s action impermissibly interfered with the operation of state and local prison facilities; and second, whether the Commission has the authority to require that ancillary fees be cost-based. I. The Commission’s Actions Do Not Impermissibly Interfere with the Administration of State and Local Prison Facilities. Correctional Petitioners argue that the Commission dramatically exceeded its authority and transformed itself into “a prison reform board” 14 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 25 of 60 that interfered with state and local prison administration under the cloak of lowering interstate ICS phone rates. Corr. Br. 17, 22-45.9 The Commission did nothing of the sort; it merely determined the costs of interstate prison phone service under the Communications Act and set just, reasonable, and fair rates. See Order ¶¶12-15 (JA_____-_____). Those actions are entitled to “particularly deferential” review “because ratemaking is far from an exact science and involves policy determinations in which the agency is acknowledged to have expertise.” Time Warner Entertainment Co., L.P. v. FCC, 56 F.3d 151, 163 (D.C. Cir. 1995) (internal quotations omitted). A. The Exclusion of Site Commissions from Costs is Lawful and Does Not Impermissibly Interfere With Prison Administration. Petitioners argue that the Commission exceeded its authority and interfered with state and local prison administration by barring site commissions. Corr. Br. 27-29; ICS Br. 26. However, it is simply not true that the Commission barred site commissions. The Commission explicitly stated that “[w]e do not conclude that ICS providers and correctional facilities cannot have arrangements that include site commissions. We conclude only that, under the Act, such commission payments are not costs.” Order ¶56 (JA_____). Thus, ICS providers are free to share their profits with facilities as they see fit; they just cannot pass on the costs of the ICS Providers make largely the same argument with regard to the Commission’s treatment of site commissions. ICS Br. 26. That argument is addressed below in Part A. 9 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 26 of 60 profit sharing arrangements to customers because the resulting rates would be unjust and unreasonable.10 The Commission has broad authority to determine costs and exclude certain expenses ICS providers incur from the ultimate rate charged to customers. Indeed, this Court recently recognized the Commission’s authority to separate providers’ actual costs in providing a service from additional revenue that they seek to collect from their customers. See Sorenson Communications, Inc. v. FCC, 765 F.3d 37, 46-47 (D.C. Cir. 2014). In any event, even if Correctional Petitioners are correct that the Commission “effectively barr[ed]” site commissions, that action would also be lawful. Corr. Br. 29. This Court has held in a closely analogous case that the Commission does not exceed its authority simply because its actions have practical effects on entities outside its jurisdiction. Cable and Wireless P.L.C. v. FCC, 166 F.3d 1224 (D.C. Cir. 1999). In Cable and Wireless, a group of foreign phone companies sought review of a Commission rule that capped domestic telephone rates that could be paid to foreign providers for terminating a call. Id. at 1226. In challenging the rule, the foreign carriers argued that “the FCC’s Order unlawfully asserts regulatory authority over foreign telecommunications services.” Id. at 1229. Importantly, the Commission indicated that if correctional facilities incur direct costs for providing ICS, such as expenses for installing and maintaining physical phones, those costs may be recovered. Order ¶54, n.203 (JA_____). 10 16 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 27 of 60 This Court rejected the argument, holding that although the Order had practical effects on foreign carriers, “the Commission does not exceed its authority simply because a regulatory action has extraterritorial consequences.” Id. at 1230. This Court went on: Indeed, no canon of administrative law requires us to view the regulatory scope of agency actions in terms of their practical or even foreseeable effects. Otherwise, we would have to conclude, for example, that the Environmental Protection Agency regulates the automobile industry when it requires states and localities to comply with national ambient air quality standards . . . . Id. Thus, just because the Commission’s ICS reforms have consequences on prison facilities, those effects do not invalidate its actions. B. How Correction Facilities Use Site Commissions is Not Relevant, but in Any Event, Site Commissions are Used for Many Purposes Unrelated to Prisoners’ Welfare. Correctional Petitioners also argue that because they provide “welfare programs to rehabilitate inmates,” lost revenue from site commissions “would hobble the [inmate welfare] programs that many States have deemed desirable or necessary to managing their prisons.” Corr. Br. 24, 29. This is wrong as a matter of law and fact. It is irrelevant under the Communications Act whether ICS rates fund beneficial programs unrelated to the cost of making a prison phone call. The Commission correctly found that although programs funded by site commissions “may contain worthy goals, we are bound by our statutory mandate to ensure that end user rates are ‘just and reasonable,’ and ‘fair.’” 17 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 28 of 60 Order ¶57 (JA_____). Indeed, “[t]he Act does not provide a mechanism for funding social welfare programs or other costs unrelated to the provision of ICS, no matter how successful or worthy.” Id. (JA_____). Even if how facilities spend site commission revenue were relevant here, Correctional Petitioners’ arguments are not supported by the facts. First, their argument states that “users of prisons—inmates—ought to help cover the expenses of prison life and the services that correctional facilities provide.” Corr. Br. 25 (internal quotations omitted). But in fact, it is usually families, clergy, friends, and legal counsel, not prisoners, that pay for ICS calls. Order ¶42 (JA______); supra 5-6. Petitioners’ assumption about who pays for ICS is therefore incorrect. Second, Petitioners’ claim that site commissions pay for services that benefit inmates is not supported by the record. The record showed that although not all states collect site commissions, where they do, the funds are frequently used for purposes unrelated to inmate welfare. See Wright Petitioners Reply Comments 25-27, Ex. H (Apr. 22, 2013)(reviewing state laws governing how site commissions are spent)(JA_____,_____). State laws also give local sheriffs broad discretion on how they spend site commission proceeds from their county jails. Intervenors Martha Wright et al. showed that in four states, corrections department officials must deposit some or all site commission revenue into the states’ general funds. Id. (JA_____). Florida and Massachusetts’ Department of Corrections must deposit 100% of site commissions in their 18 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 29 of 60 states’ general funds; in Wisconsin, it is two-thirds; in Texas, half. Fla. Stat. § 945.215(b); Mass. Gen. Laws ch. 29 § 2; Wis. Stat. § 301.105(1); Tex. Gov’t Code § 495.027(c). Other states, including Petitioner Mississippi and Intervenor Arkansas, deposit revenue into state funds unrelated to inmate welfare. The Mississippi Department of Corrections, for example, uses 25% of its site commission revenue to pay for departmental phone equipment unrelated to inmate calling and deposits 35% into the Prison Agricultural Enterprise Fund. Miss. Code § 47-5-158(3). Mississippi law provides that the agricultural fund can be used to support “agricultural and nonagricultural enterprises of the department.” Miss. Code § 47-5-66(2). By its own terms then, the statute allows officials to use the agricultural fund for nearly any purpose they desire. Intervenor Arkansas Department of Corrections creates a “cash fund” from site commission revenue that it can use “for periodic transfers to other department funds or for disbursements in support of department operations or debt service.” Ark. Code § 12-27-128. This grants Intervenor broad discretion to use the funds in any way it wishes. Even in states where site commission revenues are spent at correctional facilities, they are mostly used for employee salaries and benefits or facilities, not programs for prisoners. Petitioner Arizona Department of Corrections must deposit $500,000 of site commission revenue in a “building renewal fund.” Ariz. Rev. Stat. § 41-1604.03(B). 19 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 30 of 60 Intervenor Indiana Department of Corrections must use site commission revenue “for the purposes of improving, repairing, rehabilitating, and equipping department of correction facilities.” Ind. Code § 5-22-23-7(a). Alabama, Hawaii, and Tennessee use the revenue to pay for employee salaries, training, equipment, and supplies. See Ala. Code § 45-3-231.20; Haw. Rev. Stat. § 353-136; Tenn. Code § 41-7-104. When it comes to how county jails spend their site commission revenue, state laws give local sheriffs very broad discretion. For example, under Massachusetts law, site commission revenue received by Intervenor Barnstable County Sheriff’s Office “may be expended for the general welfare of all the inmates at the discretion of the superintendent.” Mass. Gen. Laws ch. 127 § 3. In California, “[i]nmate welfare funds may be used to augment those required county expenses as determined by the sheriff to be in the best interests of inmates.” Cal. Penal Code § 4025. See also Ala. Code § 45-3-231.20 (giving sheriffs discretion to spend site commission revenue on “other law enforcement purposes [. . .] that are in the interest of the public”); Va. Code § 53.1-127.1 (“[a]ny other profits may be used for the general operation of the sheriff’s office”). The broad discretion allows sheriffs to spend their counties’ site commission proceeds on other items that do not benefit inmates. In 2012, for example, the Orange County, California sheriff used 74% of site commission revenue for staff salaries, reserving only 0.8% for services, supplies, and training for inmate educational programs, and 0.6% for 20 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 31 of 60 inmate re-entry programs. See Wright Reply Comments 26 (JA_____). In nearby Los Angeles County, the sheriff spent 49% of the department’s site commission revenue on jail maintenance. Id. (JA_____). As the state statutes make clear, rather than paying for programs or services that help inmates, site commission revenue is used for the benefit of the correctional facilities or to pay general expenses. Thus, Petitioners’ claim that it is appropriate for prisoners to foot the bill for services through site commissions is both irrelevant and misleading. C. Security Features are Compensable Costs of ICS. In addition to arguing that the Commission’s treatment of site commissions interferes with local administration of prison facilities, Correctional Petitioners also argue that the Order “undermines the determination of state and local authorities that advanced security measures are essential to protecting the public, prison officials, and prisoners.” Corr. Br. 30. This argument is based on a gross mischaracterization of the Commission’s actions. The Order makes clear that ICS security features are an essential aspect of the service and are compensable costs.11 The The Commission repeatedly recognized that call recording, screening, preventing three-way calling, and other features are essential aspects of the service. See, e.g., Order ¶2 (JA_____)(recognizing that ICS includes “important security features, such as call recording and monitoring, that advance the safety and security of the general public, inmates, their loved ones, and correctional facility employees”); ¶38 (JA_____)(discussing how “no evidence in this record” showed that states with rates lower than the 11 21 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 32 of 60 Commission stressed at the outset that the “Order ensures that security features that are part of modern ICS continue to be provided and improved.” Order ¶2 (JA____). The Order later emphasized that “[w]hile our actions to establish interim ICS safe harbors and rate caps prohibit the recovery of site commission payments, we include costs associated with security features in the compensable costs recovered in ICS rates.” Id. ¶58 (JA_____). Costs of security features were incorporated into the rate caps adopted by the Commission, which were “based on cost studies that include the cost of advanced security features such as continuous voice biometric identification.” Id. (JA______). Moreover, the Commission rejected the rates proposed by Martha Wright et al. in part because their proposal did “not include additional security features typically needed for ICS.” Order ¶67,n.255 (JA_____). Thus, the Commission could not have been more clear that security features are a necessary aspect of ICS and that the cost of providing security will be compensated. Order’s rate caps were “below cost or insufficient to cover necessary security features”); ¶61 (JA_____)(concluding that safe harbor rates “include full recovery for security features the correctional facilities have determined to be necessary to protect the public”); ¶74 (JA_____)(setting rate caps based on “the highest costs in the record, which include the costs of advanced ICS security features”). 22 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 33 of 60 Correctional Facility Petitioners seize on the Order’s language in a single paragraph stating that “compensable costs would likely include [. . .] costs associated with security features,” id. ¶53 (JA_____), to argue that “any security measure not enumerated by the Order [. . .] is presumptively not recoverable.” Corr. Br. 31. As the Commission explains in its brief, the argument is unsound because the language “merely reflects the fact that the Order sets forth an interim framework for rates.” FCC Br. 35. Moreover, Petitioners’ argument overlooks the rest of the Order’s explicit assurances that security features would be treated as costs, as described above. And if the cost of particular security features would require rates above the Order’s interim price caps, providers may seek a waiver. Order ¶82 (JA____). Further, the record showed that states with rates much lower than the interim caps were still able to provide necessary security features for their ICS calls. Order ¶32,n.123 (JA_____). In New York, which has banned site commissions, ICS rates are less than $0.05 a minute, with the rate including the cost of security features required by state corrections officials. Id. (JA_____). Should Petitioners have additional evidence regarding the cost of security features, they have an opportunity to present it to the Commission as part of its pending rulemaking to establish permanent ICS rates. 23 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 34 of 60 D. The Commission Has Clear Authority over Interstate ICS. Correctional Petitioners contend that the Commission relied on some notion of promoting the general welfare as authority for its actions and thus exceeded its jurisdiction. Corr. Br. 2, 27-39. The argument conflates the social benefits of lower ICS rates with the Commission’s authority to do so. The Commission repeatedly cited Sections 201 and 276 of the Communications Act in the Order as the basis for its authority over interstate ICS, not some general public interest standard. Order ¶¶12-15, 45-53 (JA______-______). Those sections of the Communications Act give the Commission authority over “interstate . . . communication by wire or radio,” including “the provision of inmate telephone service in correctional institutions.” 47 U.S.C. §§ 201(a); 276(d). Thus, the plain text of the Act gives the Commission authority over interstate ICS. Correctional Petitioners confuse the Commission’s discussion of the benefits of lowering ICS rates with the agency’s authority to determine the costs of prison phone service. The Commission had overwhelming evidence that lower rates would allow prisoners to talk to their families more often, resulting in many societal benefits. See Order ¶¶42-44 (JA_____-_____). It was perfectly reasonable for the Commission to take the evidence into account as a factor in determining just, reasonable, and fair ICS rates. But that evidence was not the basis of the Commission’s authority to set the rates for ICS at just and reasonable levels. 24 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 35 of 60 As the Commission stated in its Order, it had clear evidence that ICS rates were unjust, unreasonable, and unfair in violation of the Communications Act, Order ¶¶12-14 (JA______). Thus, by law the Commission had to lower ICS rates, regardless of whether societal benefits would result. Moreover, Correctional Petitioners’ argument that the Commission lacks authority because it cited to the general public interest objectives of the Communications Act (47 U.S.C. § 151) is without merit. Corr. Br. 38-39. Even if Section 151, which states that the Commission’s purpose is “to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, Nation-wide and world-wide wire and radio communications service with adequate facilities at reasonable charges,” is not found to be a source of authority, the fact that the Commission cited to Section 151 of the Act along with Sections 201 and 276 as the source of its authority would not render the Order invalid. So long as the Commission has authority for its actions under any provisions of the Act—which it clearly has under Sections 201 and 276—its citation to other provisions of the statute does not invalidate that authority. The cases Correctional Petitioners cite to argue that the Commission impermissibly used its public interest authority to regulate jails and prisons are inapposite. Corr. Br. 16, 32-34, 36-38 (citing NAACP v. Fed. Power Comm’n, 425 U.S. 662 (1976) and Business Roundtable v. SEC, 905 F.2d 406 (D.C. Cir. 1990)). 25 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 36 of 60 NAACP does not support Petitioners’ claims; in fact, it supports the Commission’s actions. In that case, the Supreme Court held that the Federal Power Commission (“FPC”) could not use its general “public interest” mandate to base licensing and rate decisions on utilities’ equal employment opportunity practices. NAACP, 425 U.S. at 669. Nonetheless, the Court reasoned that the FPC could use its just and reasonable rate mandate to prohibit utilities from passing on expenses to consumers that arose from discriminatory practices. Id. at 668. The same logic applies here. The Commission can rely on the Communication Act’s just and reasonable requirement to exclude any charges from customers’ bills that are unrelated to providing ICS. Order ¶55 (JA_____). Business Roundtable is also inapposite because in that case the Security Exchange Commission relied on its general public interest authority to upset state corporate law, an area historically belonging to the states. 905 F.2d at 412-13. In this case, Section 152(a) of the Commission Act gives the Commission exclusive authority over “all interstate and foreign communication by wire or radio.” Further, the Commission relied specifically on its authority under Sections 201 to ensure that all charges for interstate communications are just and reasonable and Section 276 to “establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call.” 47 U.S.C. §§ 201(b), 276(b)(2). 26 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 37 of 60 Nor are the cases calling for a congressional statement of intent to override state authority applicable here. Corr. Br. 22-23, 32-33 (citing Schuette v. BAMN, 134 S. Ct 1623 (2014) (plurality opinion); Gregory v. Ashcroft, 501 U.S. 452 (1991); California v. FCC, 798 F.2d 1515 (D.C. Cir. 1986)). Congress has unambiguously given the Commission authority over interstate ICS under the Communications Act. In any event, even if the Act were ambiguous regarding the FCC’s authority over ICS—and it is not— the Commission merits Chevron deference in interpreting its jurisdiction under the Act. City of Arlington, Texas v. FCC, 133 S. Ct. 1863, 1868 (2013). E. The Legal Authorities cited by Petitioners Do Not Support Their Position. Petitioners rely on a string of Supreme Court cases recognizing states’ strong interests in administering their prisons for the proposition that federal authorities must defer to local prison officials’ judgments regarding prison operations. Corr. Br. 23, 27-28; ICS Br. 22-23, 27 (citing Pa. Dep’t of Corr. v. Yeskey, 524 U.S. 206 (1998); Bell v. Wolfish, 441 U.S. 520 (1979); Jones v. N.C. Prisoners’ Labor Union, Inc., 433 U.S. 119 (1977); Preiser v. Rodriguez, 411 U.S. 475 (1973)). The cases are inapplicable here because they concern challenges to a prisoner’s conditions of confinement rather than the lawfulness of an agency’s actions regulating interstate commerce. Preiser was a Younger abstention case concerning whether the Civil Rights Act of 1871 gave state prisoners an end-run around state remedies for challenging the conditions of their confinement. Preiser, 411 U.S. at 476- 27 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 38 of 60 77, 491-92. Holding that prisoners must exhaust state remedies challenging their confinement before seeking federal court review, the Court reasoned that “[i]t is difficult to imagine an activity in which a State has a stronger interest, or one that is more intricately bound up with state laws, regulations, and procedures, than the administration of prisons.” Id. at 49192. This statement, relied upon by Correctional Petitioners, Corr. Br. 22-23, simply recognizes that states have a strong interest in dealing with confinement issues first before being reviewed in federal court. It does not support the broad principle that federal laws cannot apply to local prisons. Moreover, as amicus points out, Correctional Petitioners’ contention is wrong because “[i]n areas more closely tied to day-to-day prison operations than interstate calling, state and local prisons and jails are often subject to regulation by federal courts and federal agencies.” Law School Appellate Litigation Clinics Amicus Br. 14. The only prison case cited by Petitioners that concerns a conflict between state prison administration and federal law actually supports the Commission’s actions. In Yeskey, a hypertensive man sued under the Americans with Disabilities Act, arguing that the law afforded him equal access to a boot camp for first-time offenders. Yeskey at 208-10. The Court, in a unanimous decision written by Justice Scalia, held that state prisons clearly fell within the ADA’s requirements that states provide equal access to benefits programs. Id. at 210. 28 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 39 of 60 While the ICS Petitioners selectively quote Yeskey to say that “‘administration of state prisons’ is a core state function reserved to states,” ICS Br. 27,12 the case actually holds that state prison officials cannot excuse themselves from complying with federal law, even when it affects local decisions about how to confine prisoners. Here, the impact of federal law on state prisons is less substantial than in Yeskey, because the Order says nothing about how officials run prisons or should manage prisoners. Thus, none of the cases cited by the Correctional Petitioners require the Commission to defer to state authorities with respect to ICS rates. II. The Commission’s Requirement that Ancillary Fees be Cost-Based is Reasonable. ICS Petitioners assert that because ancillary fees are “financial transactions,” the Commission lacks authority to require that they be costbased. ICS Br. 45. This argument is wrong. First, the Communications Act provides the Commission with clear authority over ancillary fees. Second, the record showed that ancillary fees are an inescapable feature of ICS that every customer must pay to make phone calls. Third, if ancillary fees were beyond the purview of the Commission, providers could offset lower rate caps with higher ancillary fees to keep ICS customers’ bills high. Fearing this result, the Commission reasonably required ancillary fees to be costbased just like all other aspects of ICS. The term “core state function” is Petitioners’ characterization of the case. The phrase does not appear in the decision. 12 29 USCA Case #13-1280 A. Document #1518085 Filed: 10/20/2014 Page 40 of 60 The Plain Language of the Communication Act Gives the Commission Authority over Ancillary Fees. The plain language of the Communications Act requires that “[a]ll charges, practices, classifications, and regulations for and in connection with” phone services “shall be just and reasonable.” 47 U.S.C. § 201(b). The Act also gives the Commission authority over “inmate telephone service in correctional institutions, and any ancillary services” associated with them. 47 U.S.C. § 276(d). Hence, the Commission has authority over any charges or practices that are bound up with ICS, and its judgment in this regard warrants Chevron deference. See FCC Br. 58-59. B. All ICS Customers are Required to Pay Ancillary Fees The record showed that ancillary fees are an unavoidable expense of ICS. Customers must pay fees to open an account, 13 use an account,14 not use an account, 15 or close an account. 16 Nor can ancillary fees be avoided See Supplemental Statement of the Case, supra 8-9. Petitioner GTL charges customers $9.50 to open an account. Order ¶90,n.333 (JA_____). 14 GTL charges $9.50 to add $50 to a customer’s account. Id. (JA_____). Petitioner Securus charges a $3.49 bill statement fee on top of a $1.49 bill processing fee. See Martha Wright Ex Parte Letter, Ex. 1 (July 17, 2013)(JA______). 15 Providers charge up to $4.95 per month for account inactivity. See Order ¶90 (JA_____). 16 For example, GTL charges $5 for customers to receive a refund, which must be requested in writing. Order ¶90,n.335; PPI Report, Ex. 22 (JA_____,_____). GTL claims any money left in an inactive account for more than 90 days. PPI Report, Ex. 22 (JA_____). Intervenor Telmate will not issue a cash refund if a customer has less than $50 in an account, charging a $10 fee to close the account and applying any remaining funds to a prepaid calling card. Id., Ex. 45 (JA_____). 13 30 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 41 of 60 by not setting up an account; customers who do not have an account with a provider must pay a non-account fee.17 It is impossible to use a prison phone without paying ancillary fees, and there is no reason for anyone to pay ancillary fees unless they are going to use a prison phone. Because the fees are therefore an essential aspect of ICS, the Commission has authority over them under the Communications Act. C. The Cost-Based Rule is Necessary to Prevent Providers from Offsetting Lower ICS Rates with Ancillary Fees. The Commission’s requirement that all charges, including ancillary fees, be cost-based is a reasonable and necessary corollary to its rate caps. As the Commission noted, if such fees were not required to be cost-based, ICS providers could “simply increase their ancillary charges to offset lower rates subject to our caps,” resulting in customers paying the same high charges to use prison phones. Order ¶91,n.338 (JA_____). A central purpose of the ICS rules—providing lower phone bills to customers— would therefore be severely blunted, if not undermined entirely. Or as PayTel President Vincent Townsend recently said, “until you fix these fees, it’s like spitting in the wind. You’re . . . wasting everybody’s time.”18 ICS Providers charge up to $14.99 for a call placed by parties lacking prepaid or debit accounts with the provider. Id. at 9-10 (JA_____). 18 Transcript of FCC Workshop on Inmate Calling Services p. 139 (July 9, 2014) (“Workshop Transcript”) http://apps.fcc.gov/ecfs/comment/view?id=6018248961. 17 31 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 42 of 60 The Commission’s concerns were grounded in a record demonstrating that ancillary fees have become a dominant feature of the ICS industry. Ancillary fees comprise 38% of the $1 billion ICS customers pay annually. See PPI Report 10 (JA____). Providers increasingly charge ancillary fees because they are not counted as profits that must be shared with prison facilities through site commissions. Id. at 7 (JA_____). As a result, ancillary fees are direct revenue for providers. Id. (JA______).19 Thus, if the Commission did not require ancillary fees to be cost-based, the purpose of the rules would be defeated because ICS customers could end up paying just as much as before. CONCLUSION For the foregoing reasons, this Court should reject Petitioners’ arguments and uphold the Commission’s Order in its entirety. Respectfully submitted, /s/ Angela J. Campbell Andrew Jay Schwartzman Aaron Mackey October 20, 2014 Counsel to Intervenors Martha Wright, et al. Moreover the Commission’s predictions about ancillary fees have proven true. At a recent FCC ICS workshop, PayTel described how after this Court stayed the Order’s cost-based rule, ancillary fees increased, including fees of nearly $11 to pay an ICS bill. See Workshop Transcript 136-37. 19 32 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 43 of 60 CERTIFICATE OF COMPLIANCE This brief complies with the type-volume limitation of Fed. R. App. P. 32 (a)(7)(B) because this brief contains 7,431 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii) and Circuit Rule 32(a)(1). This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief has been prepared in 14-point Book Antiqua, a proportionally spaced typeface. Respectfully submitted, /s/ Angela J. Campbell Andrew Jay Schwartzman Aaron Mackey Counsel to Intervenors Martha Wright, et al. October 20, 2014 33 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 44 of 60 CERTIFICATE OF SERVICE I certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the D.C. Circuit by using the appellate CM/ECF system on October 20, 2014. I certify that all parties in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system. Respectfully submitted, /s/ Angela J. Campbell Andrew Jay Schwartzman Aaron Mackey Counsel to Intervenors Martha Wright, et al. October 20, 2014 34 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 APPENDIX Page 45 of 60 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 1 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 46 of 60 Appendix - 1 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 2 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 47 of 60 Appendix - 2 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 3 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 48 of 60 Appendix - 3 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 4 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 49 of 60 Appendix - 4 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 5 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 50 of 60 Appendix - 5 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 6 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 51 of 60 Appendix - 6 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 7 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 52 of 60 Appendix - 7 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 8 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 53 of 60 Appendix - 8 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 9 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 54 of 60 Appendix - 9 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 10 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 55 of 60 Appendix - 10 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 11 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 56 of 60 Appendix - 11 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 12 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 57 of 60 Appendix - 12 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 13 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 58 of 60 Appendix - 13 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 14 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 59 of 60 Appendix - 14 Case 1:00-cv-00293-GK Document 94 Filed 08/22/01 Page 15 of 15 USCA Case #13-1280 Document #1518085 Filed: 10/20/2014 Page 60 of 60 Appendix - 15