Res Judicata, State Adjudications, and the Telecommunications Act of 1996
The Telecommunications Act of 1996 (“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, 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. 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 intend- ed 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. 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 statute (in the case of state court decisions). Federal common law may be overcome only if preclusion is inconsistent with congressional intent. Section 1738 is inapplicable only if Congress has “clearly manifest[ed]” such intent—a similar but heightened standard.
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, 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. 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.