The Telecommunications Act of 19961 (“1996 Act”) revolutionized telecommunications regulation in the United States. As part of this revolution, the Act transferred much of the states’ regulatory authority to the federal government in order to craft a new federal regime. Although the Act explicitly announced its removal of authority from the states,2 the Act does not address a critical question created by this new regulatory scheme: To what extent do state adjudications of federal telecommunications-service regulation bind federal courts? The importance and difficulty of answering this question should not be understated. On one hand, res judicata—which prevents litigants from having a second bite at the apple—has long been a cornerstone of the judicial system in the United States.3 On the other, the radical changes made by the Act require a uniform federal policy to accomplish their purpose of creating a competitive national telecommunications market. In addition, both the Act’s explicit restrictions on and its preservation of the states’ authority would be undermined by res judicata. The decisive question is whether Congress intended federal courts to be bound by state adjudications of the Act. Careful examination of the Act’s history, purpose, and structure reveals that Congress did not.
Before the 1996 Act, the telecommunications-service market was regulated—primarily by the individual states—as a natural monopoly.4 Congress’s passage of the Act reflected a recognition that competition in the telecommunications-service market was both possible and desirable. Congress intended the Act to spur the transition from monopoly to competition through the creation of a uniform national regulatory policy. Uniformity is essential because it corrects the critical flaws of prior monopoly regulation: local and state protection of monopolists, and artificial rate setting that encouraged arbitrage and inefficiency. To implement and maintain this uniform national regulatory policy, the Act transferred much of the states’ authority to the Federal Communications Commission (FCC). The Act preserved the states’ authority only with regard to certain public-welfare issues and further mandated that states could regulate only in accordance with federal law. Thus, the Act fundamentally restructured telecommunications regulation in two ways: by promoting competition as opposed to monopoly and by shifting primary regulatory responsibility from the states to the federal government.
Courts have recognized these great changes wrought by the Act but have not resolved whether interpretations of the Act made through state adjudications bind federal courts. Federal courts accord state adjudications preclusive effect based on two different sources: federal common law (in the case of state agency adjudications) and 28 USC § 1738, the full faith and credit statute5 (in the case of state court decisions). Federal common law may be overcome only if preclusion is inconsistent with congressional intent.6 Section 1738 is inapplicable only if Congress has “clearly manifest[ed]” such intent—a similar but heightened standard.7
To date, federal court decisions are inconsistent as to whether federal common law grants preclusive effect to state agency adjudications; as for § 1738, courts have either applied it or avoided the issue altogether. Thorough examination of the Act, however, suggests that federal common law preclusion should not apply to state adjudications of federal law issues involving the Act or to the regulation of telecommunications services. Although implied repeal is rarely found,8 the Act nevertheless demonstrates strong qualities suggesting that partial implied repeal of § 1738 may in fact be possible as well. This Comment aims to demonstrate Congress’s intent that federal courts review federal law issues in this context—without being bound by prior state adjudications. Allowing state adjudications to preclude federal review would result in uneven and arbitrary implementation of federal telecommunications policy—the very problem that the Act was designed to solve.9 Furthermore, res judicata in this context would conflict with the Act’s explicit limitations on state authority and undermine the Act’s preservation of state authority to regulate certain issues. Altogether, the Act’s purpose and provisions show that Congress did not intend for state adjudications to have preclusive effect in federal courts. Accordingly, neither federal common law preclusion nor § 1738 should bar federal review.
Without federal review, states could impede and upset both telecommunications-service competition and innovation. For example, imagine that a new form of communication technology has arisen called quantum calling. Quantum calling uses quantum entanglement10 to make voice calls. A state agency decides through adjudication that quantum calling is a telecommunications service and is therefore subject to intrastate access charges. As a result, the cost of providing quantum calling (an already-expensive service, given its reliance on cutting-edge technology) increases dramatically. Because of this increase, consumer demand plummets and companies cancel plans to invest in and expand quantum-calling networks. If the state agency adjudication is res judicata, then neither the agency’s decision that it has the authority to make such a classification nor the classification itself can be challenged in federal court. Even if such decisions are blatant violations of federal law, a federal court will be powerless to intervene. Ultimately, the goals of the 1996 Act—increasing competition, reforming intercarrier compensation, and promoting universal service—are undermined, government intervention in the market creates inefficiency, and consumers suffer.11
To understand and evaluate Congress’s intent, Part I details the history of telecommunications regulation. This includes the regulatory history prior to the Act, the purpose of the Act itself, and how the Act was designed to function. Part II sets forth the underpinnings of res judicata based on both the federal common law and § 1738. It lays out the courts’ current, inconsistent stances on the application of res judicata to state adjudications involving the Act. Building on this foundation, Part III examines whether the congressional intent embodied in the Act—namely, in the Act’s purpose, limitations on state authority, and preservation of state authority—is consistent with giving state adjudications preclusive effect in federal court under either federal common law or § 1738. Finally, based on the evaluation of the Act in Part III, Part IV extrapolates the general characteristics that may indicate when res judicata is inapplicable to state adjudications of federal regulatory regimes.
- 1. Pub L No 104-104, 110 Stat 56, codified as amended in various sections of Titles 15, 18, and 47.
- 2. See, for example, 47 USC § 253(a) (“No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.”).
- 3. See San Remo Hotel, LP v City and County of San Francisco, California, 545 US 323, 336–37 (2005) (describing the history and purpose of res judicata in the United States).
- 4. See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rec 15499, 15508 ¶ 11 (1996) (recognizing that the telecommunications-service market has been “traditionally . . . viewed as creating a natural monopoly”). A natural monopoly exists when one firm “can supply the market at lower cost than can two or more firms,” such that the market will naturally create a monopoly. Daniel F. Spulber, Deregulating Telecommunications, 12 Yale J Reg 25, 31–32 (1995).
- 5. Act of May 26, 1790, 1 Stat 122, codified as amended at 28 USC § 1738.
- 6. See Astoria Federal Savings & Loan Association v Solimino, 501 US 104, 108 (1991).
- 7. Kremer v Chemical Construction Corp, 456 US 461, 477 (1982).
- 8. See Branch v Smith, 538 US 254, 293 (2003) (O’Connor concurring in part and dissenting in part) (observing that the Supreme Court has “not found any implied repeal of a statute since 1975”) (emphasis in original). The Court has not found implicit repeal since Branch either.
- 9. See Part I.B.
- 10. Quantum entanglement is the linkage of the state of two atoms. It is theorized that quantum entanglement could allow for the transmission of information faster than the speed of light. See generally Zeeya Merali, Quantum ‘Spookiness’ Passes Toughest Test Yet, 525 Nature 15 (Sept 3, 2015).
- 11. While quantum calling may sound far-fetched, this hypothetical parallels the Iowa Utilities Board’s actual classification of voice-over-Internet-protocol calls as telecommunications services and its approval of access charges. See Sprint Communications Co v Jacobs, 798 F3d 705, 706 (8th Cir 2015).