Original Complaint in U.S. Telephone Association v. FBI.
U.S. District Court, District of Columbia, Case No. 98-CV-2010.
Filed: August 19, 1998.
Source: Law firm of Wilmer, Cutler & Pickering.  This document was created by TLJ by converting a WordPerfect version into HTML.  Double spacing, pagination, and paragraph indentations were lost in the conversion process.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Plaintiff United States Telephone Association ("USTA"), for its complaint against the Federal Bureau of Investigation ("FBI"), Louis J. Freeh (in his official capacity as Director of the FBI), the United States Department of Justice ("DOJ"), and Janet Reno (in her official capacity as Attorney General of the United States) (collectively, the "Defendants"), states and alleges as follows:

Nature of the Action

1. This is an action pursuant to the Administrative Procedure Act ("APA") challenging two sets of regulations promulgated by the FBI under the Communications Assistance for Law Enforcement Act ("CALEA"), 47 U.S.C. § 1001, et seq. (1994). CALEA generally requires telecommunications carriers both to modify their existing networks and to design and deploy new generations of equipment (including software), all to ensure that carriers can meet certain specified "capability" and "capacity" requirements related to the ability of authorized government agencies to engage in wiretapping. See 47 U.S.C. §§ 1002-03. At the same time, CALEA reflects Congress's determination that all the costs of modifying existing equipment, much of the cost of designing and deploying future equipment, and all of the cost of providing capacity must be borne by the government rather than telecommunications carriers. Accordingly, CALEA provides that the Attorney General must, with certain exceptions, reimburse carriers for bringing their networks into compliance with CALEA and directs the Attorney General to promulgate regulations governing such cost recovery. See id. § 1009(e). In addition, CALEA directs the Attorney General to issue a notice by October 1995 of the "actual number" of simultaneous interceptions she estimates will be required "at specific geographical locations" as of October 1, 1998 and the "maximum" capacity that will be required to accommodate all the simultaneous interceptions she estimates will occur after that date. Id. § 1004(a).

2. Both the cost recovery regulations and the final notice of capacity issued by the FBI under these provisions (collectively, the "Rules") obliterate Congress’s careful allocation of costs by minimizing at every turn the costs eligible for reimbursement and thereby requiring telecommunications carriers to incur costs that Congress intended the government to bear. As a result, the FBI's Rules are arbitrary, capricious, an abuse of discretion, and contrary to law and exceed the FBI's statutory authority. USTA respectfully requests that this Court declare that the Rules are unlawful, enjoin the Defendants from enforcing the Rules, set aside the Rules, and remand for further proceedings.

The Parties

3. Plaintiff USTA is a nonprofit corporation incorporated under the laws of the state of Illinois, with its principal place of business in Washington, D.C.

4. USTA has over 1200 members consisting of small, mid-sized, and large providers of local telecommunications exchange and exchange access services to residential, business and other customers in locations throughout the country. USTA's members are predominantly "wireline carriers" (i.e., they deliver service using cables) and together have more than 95% of the nation's local access lines (the lines between a residential or business end user and a carrier’s switching office). USTA's members are "telecommunications carriers" as defined under CALEA. 47 U.S.C. § 1001(8)(A).

5. Congress directed defendant DOJ to implement the provisions of CALEA.

6. Defendant Janet Reno is the Attorney General of the United States and is sued in her official capacity.

7. Defendant FBI is an agency of the United States and is part of DOJ. The Attorney General of the United States delegated responsibility for the implementation of CALEA to the FBI and its Director.

8. Defendant Louis J. Freeh is the Director of the FBI and is sued in his official capacity.

Jurisdiction and Venue

9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331, 5 U.S.C. § 702, 5 U.S.C. § 611, and 28 U.S.C. §§ 2201-02.

10. Venue is proper under 28 U.S.C. § 1391(e) because the defendants reside in the District of Columbia and a substantial part of the events or omissions giving rise to the claims occurred in the District of Columbia.

Background

Interest of Plaintiff and Its Members

11. USTA members are subject to the various obligations imposed by CALEA and the Rules. Among other things, USTA's members are subject to the capability and capacity requirements set forth in the statute and must comply with those requirements by the deadlines specified in the statute or be subject to civil penalties of up to $10,000 per day per violation. To that end, USTA's members have devoted (and continue to devote) significant resources to meeting their CALEA compliance obligations.

12. Each of USTA's members is subject to and directly injured by the FBI's unlawful Rules. As set forth more fully below, USTA's members will incur significant costs for bringing equipment into compliance with the capability requirements of CALEA that CALEA requires the government to bear, and the Rules fail to permit carriers to recover these costs from the government as the statute requires. In addition, the Rules will compel USTA's members to deploy capacity far in excess of that required by CALEA and will not reimburse USTA's members for the costs of such deployment in their entirety as the statute requires.

CALEA

13. CALEA was signed into law on October 25, 1994. The statute was intended to balance several goals, including preserving law enforcement’s ability to conduct lawful electronic surveillance in the context of rapidly evolving technologies, protecting the privacy of communications that are not authorized to be intercepted, and not impeding the introduction of new services or technologies.

14. CALEA significantly increases the duties of carriers to facilitate electronic surveillance. Subject to various exceptions and limitations, the statute requires a carrier to ensure that its existing and future facilities, equipment, and services have particular capabilities relating to wiretapping and that it has sufficient capacity to meet law enforcement’s actual, lawful needs. See 47 U.S.C. §§ 1002-03. At the same time, CALEA recognizes that equipment designed before the statute was enacted is not capable of providing the required capabilities and that carriers do not currently dedicate capacity for law enforcement needs. Accordingly, the statute requires the government to reimburse carriers for all their costs of retrofitting existing equipment and meeting the capacity requirements set forth in the final capacity notice. See id. §§ 1003(e), 1008. Moreover, CALEA mandates that the government pay a substantial portion of the costs of making future equipment compliant with the statute’s capability requirements. See id. § 1008. The statute further provides that a carrier is deemed to be in compliance with CALEA to the extent that the Attorney General decides not to compensate carriers for costs that CALEA requires the government to reimburse. See id.

15. Under the capability requirements of CALEA, a carrier must "ensure" that its "equipment, facilities, or services" can intercept all "electronic and wire communications" carried by the carrier and provide access to "call-identifying information that is reasonably available to a carrier." 47 U.S.C. §§ 1002(a)(1)-(2). In addition, the carrier must be able to deliver the intercepted communications and call-identifying information to the government. Id. § 1002(a)(3). All of these tasks must be accomplished "unobtrusively" and in a manner that protects the privacy and security of communications not authorized to be intercepted and the confidentiality of the government's interception activity. Id. § 1002(a)(4).

16. Under the capacity provisions of CALEA, the Attorney General is required to specify both the "actual number of communication interceptions, pen registers, and trap and trace devices" that she estimates law enforcement may conduct "simultaneously" by October 25, 1998 and "the maximum capacity required to accommodate all of the communication interceptions, pen registers, and trap and trace devices" that she expects will be needed after that date. 47 U.S.C. § 1003(a). The maximum capacity represents the capacity level carriers must be able to accommodate "expeditiously" upon request from law enforcement. Id.

17. The Attorney General was obligated to issue a final capacity notice specifying this information within a year after CALEA’s passage (i.e., by October 26, 1995), id., but did not do so. No later than three years after the Attorney General has specified the capacity requirements, a carrier must ensure that its facilities can accommodate the government’s actual capacity requirements and can expand to handle the maximum capacity, or it is subject to suit by the government. Id. §§ 1003(b), 1007.

18. Under its cost recovery provisions, CALEA specifically allocates the costs of achieving compliance with the statute's capability requirements between the government and carriers. As a general matter, CALEA envisions that the government will be responsible initially for a carrier’s costs of providing new capabilities, particularly with regard to retrofitting existing equipment, but that carriers will bear compliance costs for new generations of equipment unless compliance is not reasonably achievable (in which case the government again bears the cost burden). See 47 U.S.C. § 1008.

a.  For equipment, facilities, and services that were either "installed or deployed on or before January 1, 1995" ("grandfathered equipment"), a carrier must provide the capabilities required under CALEA only if the Attorney General agrees to reimburse the carrier for its "direct costs" of doing so. Id. § 1008(a), (e)(2)(A). Otherwise, such equipment, facilities, and services "shall be considered to be in compliance" with the capability requirements. Id. §§ 1008(a), (d).

b.  If, after January 1, 1995, a carrier "replace[s]" or "significantly upgrade[s]" equipment that had been previously installed or deployed, or such equipment "undergoes major modification" after that date, then the equipment is no longer grandfathered. Id. § 1008(d).

c.  If the FCC determines that compliance with the capability requirements is not "reasonably achievable" for equipment neither installed nor deployed before January 1, 1995, the Attorney General must agree to pay the costs of making compliance "reasonably achievable" or the carrier is "deemed to be in compliance" with the capability requirements. Id. § 1008(b).

d.  The government must reimburse carriers for all "costs directly associated with modifications" necessary to meet the capacity requirements. Id. § 1003(e). Within 180 days after the Attorney General gives notice of the capacity required, a carrier must identify to the government which of its "systems or services" do not have the requisite capacity. Id. § 1003(d). The Attorney General may agree to reimburse a carrier for the reasonable costs of modifications to meet the capacity requirement. Id. § 1003(e). Until the Attorney General agrees to reimburse a carrier for the costs associated with such modifications, the carrier "shall be considered in compliance with the capacity" requirements. Id. § 1003(e).

e.  CALEA directs the Attorney General to establish regulations necessary to effectuate "timely and cost-efficient" payment to carriers to reimburse them for their costs upon submission of a "claim" for reimbursement. 47 U.S.C. § 1008(e)(1). The regulations must permit recovery from the federal government of (i) the "direct costs of" developing the modifications needed for grandfathered equipment and of providing the capabilities for non-grandfathered equipment and capacity; (ii) training; and (iii) the "direct costs of deploying or installing" capabilities and capacity. Id. § 1008(e)(2).

19. Congress authorized the appropriation of $500 million for the Attorney General to use for carrying out the provisions of CALEA. Id. § 1009.

FBI's Cost Recovery Rules Implementing CALEA

20. On May 10, 1996, the FBI published a proposed set of cost recovery rules setting forth the costs of complying with CALEA's capability and capacity requirements that the FBI proposed to treat as eligible for reimbursement and the procedure by which carriers can claim such reimbursement. 61 Fed. Reg. 21396 (1996). USTA, certain USTA members, and other parties filed comments objecting to many features of the proposed rules. After this notice and comment period, on March 20, 1997, the FBI promulgated its final cost recovery rules. 62 Fed. Reg. 13307 (1997). The rules took effect on April 21, 1997. See id. at 13307.

21. The cost recovery rules provide that carriers are eligible for reimbursement of the "reasonable plant costs directly associated" with (a) bringing grandfathered equipment into compliance (as long as it has not been significantly upgraded, replaced, or undergone major modification after January 1, 1995), (b) bringing non-grandfathered equipment into compliance where the FCC has determined that compliance is not reasonably achievable, and (c) meeting the capacity requirements. 28 C.F.R. § 100.11. Contrary to the statute, the cost recovery rules do not expressly provide for any reimbursement for grandfathered equipment that has been significantly upgraded but for which compliance is not reasonably achievable. The rules further state that "[p]lant costs that are not directly associated with the modifications identified in § 100.11 are disallowed." Id. § 100.15(c).

22. Under CALEA, equipment is grandfathered if it was "installed" or it was "deployed" on or before January 1, 1995. 47 U.S.C. § 1008. The cost recovery rules collapse these terms into one by providing a single definition for both: "Installed or deployed means that, on a specific switching system, equipment, facilities, or services are operable and available for use by the carrier's customers." 28 C.F.R. § 100.10.

23. The cost recovery rules specify that allowable plant costs include the costs of "installation, inspection, and testing," as well as the costs of "direct supervision and office support." 47 C.F.R. 100.11(b). The rules do not expressly state whether allowable plant costs for which reimbursement is available include the costs of developing CALEA solutions (e.g., engineering costs), even though the statute explicitly requires the regulations to "permit recovery from the Federal Government of . . . the direct costs of developing" CALEA solutions for grandfathered equipment. 47 U.S.C. § 1008(e)(2). The cost recovery rules also do not expressly provide for reimbursement for costs of deployment or training in the use of the newly-deployed capabilities and capacity, despite the statutory requirement that those costs be reimbursed. Id.

24. The cost recovery rules expressly exclude certain categories of costs from eligibility for reimbursement, including general and administrative expense, certain plant costs, and other costs that cannot, under the FBI's definition, be "directly assigned or directly allocated" to CALEA. 28 C.F.R. § 100.15.

25. The cost recovery rules require all carriers to comply with highly burdensome, inefficient, and time-consuming procedural requirements in order to claim reimbursement for costs to which they are entitled. See 28 C.F.R. §§ 100.16-19. Before beginning work, carriers must submit detailed cost estimates and data. Id. § 100.16. Carriers must then enter into cooperative agreements as a prerequisite to obtaining reimbursement. 62 Fed. Reg. at 13309. The FBI has demanded that, pursuant to these agreements, carriers transfer certain data rights and other property interests to the government. Once a cooperative agreement is executed and the work is completed, carriers must again submit detailed cost information. 28 C.F.R. § 100.17. The rules also require carriers to permit broad audits of their books and records and those of their suppliers. Id. § 100.18.

Capacity Notice

26. On October 18, 1995, the FBI published an initial notice of capacity setting forth law enforcement’s asserted requirements for actual and maximum capacity needed to carry out electronic surveillance. 60 Fed. Reg. 53643 (1995). After receiving comments from numerous parties, including USTA, that identified significant deficiencies in the proposal, the FBI published a second notice of capacity on January 14, 1997. 62 Fed. Reg. 1902 (1997). The FBI again received numerous comments, including from USTA, and then published its final notice of capacity on March 12, 1998 -- more than two years after the statutory deadline. 63 Fed. Reg. 12218 (1998).

27. The FBI has stated that the final notice of capacity has the "force and effect of a rule." 63 Fed. Reg. at 12220. The notice represents the consummation of the agency’s decisonmaking process on this issue. Moreover, the capacity notice has determined certain rights and obligations of carriers (including USTA’s members) and will have legal consequences, such as forcing carriers to deploy certain amounts of capacity or else face enforcement actions and potential penalties in judicial proceedings.

28. The FBI arrived at its asserted capacity requirements by (a) starting with selective data concerning the peak number of purportedly "simultaneous" interceptions that occurred in each county in the United States at any time during a 26-month period; (b) deriving purported "growth factors" to project how this historical activity would likely increase in the future; and (c) multiplying the historical activity by the growth factor to determine the number of simultaneous interceptions that the FBI estimated might occur in each county. See 63 Fed. Reg. at 12224-27. The notice directs every carrier to have sufficient capacity to carry out this number of simultaneous interceptions throughout each county in which it operates. Id. at 12230. As a result, a carrier that has more than one switch in a county must have all the capacity necessary to conduct that number of interceptions with respect to calls at every one of its switches in the county.

29. Although CALEA requires the government to set forth capacity requirements in terms of "specific geographical locations," 47 U.S.C. § 1003(a)(2), the FBI determined to estimate capacity requirements on a county-by-county basis. 63 Fed. Reg. at 12225.

30. The FBI purported to base its determination of its actual and maximum capacity requirements on historical data. However, the FBI manipulated those data so as to arrive at greatly overstated results.

31. First, although CALEA requires the government to specify the number of "simultaneous" interceptions, 47 U.S.C. § 1003(a), the FBI decided to adopt the fiction that two interceptions were "simultaneous" if they occurred at any time during the same day, even if they did not overlap at all in time and therefore were not in fact simultaneous. 63 Fed. Reg. at 12225.

32. The FBI then purported to calculate the maximum number of "simultaneous" interceptions that occurred in each county during a 26-month sample period between January 1, 1993 and March 1, 1995. The FBI did not, however, simply determine the highest number of interceptions that occurred in a county on any single day during the sample period. Instead, the FBI totaled the highest number of "simultaneous" interceptions for each switch in a county during the sample period, even if (as almost certainly was the case) the switches reached their peak on different days during the 26-month period. Thus, if a county had two switches, with one having a maximum of five interceptions on one day during the entire 26 months and the other having a maximum of four interceptions on another day during that entire period, the FBI determined that the maximum number of interceptions for the county was nine, even if in fact the highest number of interceptions on any given day in the county was actually fewer. See id. at 12225-26.

33. The FBI also decided that, if a county had no interceptions whatsoever during the sample period, it would nevertheless adopt the further fiction that one interception had in fact occurred for purposes of projecting the actual capacity law enforcement would need. Id. at 12227.

34. Having greatly exaggerated the maximum number of simultaneous interceptions in each county during the sample period, the FBI turned to calculating the factor by which it expected interception activity to grow in the future. The FBI applied the so-called "Best-Fit-Line" statistical method to project the number of future potential interceptions. 63 Fed. Reg. at 12226-27. For purposes of calculating the "actual" capacity needed in 1998, the FBI arrived at a growth rate of 5.92 percent on an annual basis for wireline carriers such as USTA members. Id. at 12227. For purposes of calculating the "maximum" capacity, the FBI derived a growth rate of 4.55 percent. Id.

35. The FBI then determined purported "actual" and "maximum" numbers of simultaneous interceptions for which it would need capacity by applying the growth factors to the historical data for each county.

36. The FBI made no attempt to break down the number of interceptions used to determine capacity among different types of interceptions, even though CALEA requires notice of the "actual number of communication interceptions, pen registers, and trap and trace devices" and the "maximum capacity required to accommodate all of the communication interceptions, pen registers, and trap and trace devices" that law enforcement will require, 47 U.S.C. § 1003(a), and the FBI recognized that the amount of capacity needed varies by the type of interception. As a result, carriers must assume that all interceptions will be of the type requiring maximum capacity in order to calculate the amount of capacity they must reserve for interceptions by authorized government agencies.

37. Having purported to set forth the actual and maximum capacity numbers for each county, the FBI then stated that the final capacity notice does not in fact set forth the amount of capacity a carrier must actually reserve to satisfy the capacity requirements. To the contrary, the FBI stated that the actual capacity needed to deliver intercepted information may require many more channels than the actual or maximum capacity numbers set forth in the final capacity notice, depending on factors such as how many advanced features (such as call forwarding) a carrier provides.

38. The FBI further decided that a carrier must be able to increase its capacity from the "actual" capacity to the "maximum" capacity within five days of a law enforcement request. 63 Fed. Reg. at 12219. As a result, carriers must reserve the maximum capacity even before any such law enforcement request because five days is too short a period to make the necessary increase.

39. The FBI mandated that each carrier in a county must have the actual capacity contained in the notice for each county in which it operates, regardless of the carrier’s size or its share of the market within that county. 63 Fed. Reg. at 12230. As a result, a carrier that happens to use one switch in a county containing a large metropolitan area must reserve as much capacity on that switch as necessary to meet the actual capacity requirements for the entire county, regardless of how much of the county the carrier actually serves.

40. The FBI decided that, although CALEA requires the government to reimburse carriers for all modifications made to meet the capacity requirements, 47 U.S.C. § 1003(e), the FBI will not reimburse carriers for any costs for any equipment or changes made later than 180 days after the effective date of the final capacity notice. 63 Fed. Reg. at 12220-21. For example, if a carrier installs new equipment after the 180-day period in order to expand the area in which it offers service, the carrier must bear all the costs of meeting the capacity requirements even though incumbent competitors -- i.e., those already serving the area -- may well have been reimbursed for some or even all of those same costs.

41. The final notice of capacity apparently requires carriers to reserve capacity, including delivery channels, for law enforcement’s use, yet does not appear to provide for reimbursement of all the costs of such reserved capacity.

42. The FBI determined that the notice of capacity will not have an annual economic effect of $100,000,000 or more and that the notice will not cause a major increase in costs or prices or have a significant adverse effect on competition, investment, or innovation. 63 Fed. Reg. at 12220.

43. USTA hereby realleges and reasserts the allegations set forth in paragraphs 1 through 42 as if fully set forth herein.

44. The cost recovery rules fail to provide for reimbursement of all costs to which carriers are entitled under CALEA for complying with the statute because, inter alia, the rules (a) define the statutory terms "installed" and "deployed" in a manner that excludes equipment that is grandfathered under the statute, (b) do not allow recovery of costs in any circumstances for grandfathered equipment that has been significantly upgraded, and (c) fail to permit recovery of all types of costs that the statute makes eligible for reimbursement.

45. The FBI defined the statutory term "deployed" in a manner that unlawfully fails to give that term any independent meaning.

a.  CALEA requires reimbursement of the costs incurred by telecommunications carriers to retrofit equipment, facilities, and services that were "installed" or "deployed" prior to January 1, 1995 to meet the statute’s capability requirements.

b.  The cost recovery rules adopt a single restrictive definition of both "installed" and "deployed" that effectively renders the term "deployed" superfluous and that creates arbitrary and capricious results.

c.  Under the FBI's definition, a particular piece of equipment installed by a carrier may be grandfathered and therefore entitled to reimbursement, while other pieces of the identical type of equipment that happened to be installed a few days after January 1, 1995 are not eligible for reimbursement.

46. The cost recovery rules are also unlawful because of their treatment of grandfathered equipment that undergoes a significant upgrade or major modification.

a.  Under the cost recovery rules, carriers are to be reimbursed for compliance costs associated with equipment installed or deployed prior to January 1, 1995, unless that equipment is significantly upgraded, replaced, or undergoes a major modification. The rules do not affirmatively provide for reimbursement of compliance costs for such upgraded equipment under any conditions, even though even new equipment installed or deployed after January 1, 1995 is eligible for reimbursement if compliance is not "reasonably achievable."

b.  The apparent effect of the rules is to prevent any reimbursement for equipment installed or deployed before January 1, 1995 that is significantly upgraded or modified, even if compliance was determined to be not reasonably achievable.

c.  As a result, if a switch was installed or deployed prior to January 1, 1995 and is significantly upgraded or replaced sometime after that date with a new switch, the switch is not eligible for reimbursement even if compliance with CALEA is not reasonably achievable. By contrast, if a competing carrier installs a new switch of the same type after January 1, 1995, the equipment is potentially eligible for reimbursement in the event compliance with CALEA is not reasonably achievable.

d.  This gap in the cost recovery rules is contrary to CALEA. Under the statute, pre-1995 equipment that undergoes a significant upgrade or is replaced must be treated as equipment installed or deployed after January 1, 1995 and as eligible for reimbursement to the extent that compliance is not reasonably achievable. Even the FBI appears to recognize this requirement when it states in commentary accompanying the cost recovery rules that "'significant upgrade or major modification' does not pertain to cases of reimbursement for capability modifications which have been deemed not reasonably achievable by the FCC," 63 Fed. Reg. at 13310, a statement that suggests all equipment, whether it has undergone a significant upgrade or not, is eligible for reimbursement if compliance is not reasonably achievable. Despite this apparent recognition, the rules do not expressly provide such reimbursement.

47. The cost recovery regulations fail to provide for recovery of other costs to which carriers are entitled under the statute.

a.  For example, the allowable plant costs under the rules do not provide for recovery of the costs of developing CALEA solutions (e.g., engineering costs) for grandfathered equipment, of deploying new capabilities, or of training to use the new capabilities and capacity, even though the statute expressly provides for the reimbursement of such costs. See 47 U.S.C. § 1008(e)(2).

b.  Moreover, the cost recovery rules specifically disallow certain categories of costs from eligibility for reimbursement, including general and administrative expense, certain plant costs, and other costs that cannot, under the FBI's definition, be "directly assigned or directly allocated" to CALEA, 28 C.F.R. § 100.15, even though carriers are entitled to recover those costs under the statute, see 47 U.S.C. § 1008(e).

48. The foregoing ways in which the rules fail to provide for appropriate cost recovery are, separately and cumulatively, arbitrary, capricious, an abuse of discretion, and contrary to law.

Count II

49. USTA hereby realleges and reasserts the allegations set forth in paragraphs 1 through 48 as if fully set forth herein.

50. CALEA provides that, after the Attorney General determines that a carrier must add a capability or capacity for which the carrier is entitled to reimbursement, the carrier may submit "claims" for reimbursement of costs incurred under the statute. 47 U.S.C. § 1008(e)(1). CALEA directs the Attorney General to develop a "timely and cost-efficient" payment mechanism. Id. The cost recovery rules transform this simple claims process envisioned by the statute into a set of highly burdensome, inefficient, time consuming procurement-like rules that are not authorized by the Act and that erect unlawful hurdles for carriers to obtain reimbursement to which they are entitled.

51. The FBI requirement that carriers execute cooperative agreements as a prerequisite to reimbursement is not authorized or permitted by CALEA or the Federal Grant and Cooperative Agreement Act, 31 U.S.C. § 6301 et seq. The government may not prescribe cooperative agreements where it is reimbursing entities for costs they incur pursuant to government mandate.

52. The mandated use of cooperative agreements is also inconsistent with CALEA and thus unlawful because of the FBI's demand that such agreements include provisions to transfer certain data rights and other property interests to the FBI as a condition for reimbursement.

53. The cost recovery rules also impose other procedural requirements that are not authorized by CALEA. For example, to qualify for reimbursement carriers must, before beginning work, submit detailed cost estimates and data. Then, once the work is completed, carriers must again submit detailed cost information. Carriers are also required to permit broad audits of their books and records and those of their suppliers.

54. Considered separately or together, these requirements violate the statutory mandate that carriers shall be reimbursed upon the submission of "claims" and that the Attorney General shall establish a "timely and cost-efficient" payment mechanism. Accordingly, they are arbitrary, capricious, an abuse of discretion, and contrary to law.

Count III

55. USTA hereby realleges and reasserts the allegations set forth in paragraphs 1 through 54 as if fully set forth herein.

56. CALEA unconditionally provides that the Attorney General must reimburse carriers for the costs of meeting the capacity requirements and that, in the absence of such reimbursement, a carrier shall be deemed to be in compliance with the capacity requirements.

57. However, the final notice of capacity states that "[c]apacity costs associated with any equipment, facilities or services deployed after . . . 180 days following the effective date of this Final Notice of Capacity will not be eligible for reimbursement." 63 Fed. Reg. at 12220-21.

58. Moreover, the final notice of capacity apparently does not provide for the reimbursement of all the costs of capacity, including delivery channels, even when that capacity is reserved solely for law enforcement use.

59. The FBI’s refusal to reimburse carriers fully for their capacity costs is contrary to the statute.

60. Accordingly, the FBI’s refusal to reimburse carriers fully for their capacity costs is arbitrary, capricious, an abuse of discretion, and contrary to law.

Count IV

61. USTA hereby realleges and reasserts the allegations set forth in paragraphs 1 through 60 as if fully set forth herein.

62. CALEA requires that the Attorney General provide notice of the "actual number of communication interceptions, pen registers, and trap and trace devices" and the "maximum capacity required to accommodate all of the communication interceptions, pen registers, and trap and trace devices" that law enforcement will require. 47 U.S.C. § 1003(a). The FBI’s methodology for calculating the actual and maximum capacity is contrary to the statute.

63. Contrary to the statutory mandate that capacity requirements be set forth in terms of "specific geographical locations," the FBI has set forth capacity requirements only in terms of counties.

64. The FBI’s flawed methodology resulted in requirements that vastly and unlawfully overstate the capacity that carriers must have.

a. The FBI arbitrarily treated two interceptions as simultaneous if they occurred during the same day, even if they did not overlap in time.

b. The FBI derived its asserted actual and maximum capacities based not on the peak number of interceptions for a county on any one day, but on the sum of the peak number of interceptions for each switch in the county, even if the peaks for the switches occurred on different days.

c. The FBI arrived at its growth factor for projecting the future number of actual and maximum number of interceptions in an arbitrary and capricious manner.

d. The FBI relied on the admittedly false assumption that every county had at least one interception during the survey period, even if in fact no interceptions have ever occurred in that county.

e. By then applying the arbitrary growth factor to this one fictional interception and rounding up, the FBI arrived at the result that every county has a minimum actual capacity requirement of two simultaneous interceptions and a maximum capacity requirement of three simultaneous interceptions.

f. CALEA requires the Attorney General to set forth the "actual number of communication interceptions, pen registers, and trap and trace devices" that law enforcement will need by October 1998, as well as the "maximum capacity" it will need after that date. The FBI provides its capacity requirements in terms of generic interceptions, without distinguishing between various types of interceptions, such as those requiring only pen registers and those requiring delivery of the content of calls. But these types of interceptions require differing amounts of capacity. The FBI’s failure to break down the types of interceptions requires carriers to calculate the amount of capacity on the assumption that all interceptions will be of the type that requires the most capacity, even though that assumption is almost certainly untrue.

g. The FBI further provided that the actual capacity needed to deliver intercepted information may require more channels than the actual or maximum capacity numbers set forth in the final capacity notice, depending on factors such as how many advanced features (such as call forwarding) a carrier offers. As a result, the amount of capacity a carrier must reserve is far greater (by some unknown amount) than the numbers provided by the FBI.

h. The notice of capacity appears to indicate that carriers must have the capacity required for a county available in every switch in the county, which would vastly inflate the amount of capacity carriers have to dedicate to law enforcement.

65. The FBI’s mechanical application of statistical methods to historical information failed to produce the "actual number" of interceptions that law enforcement will require, as CALEA mandates. 47 U.S.C. § 104(a)(1)(A).

66. The FBI failed to fulfill its obligation to set forth the "actual number of communication interceptions, pen registers, and trap and trace devices" that law enforcement will need by October 1998, as well as the "maximum capacity" it will need after that date, because the final capacity notice fails (a) to break down the types of interceptions and (b) to set forth the amount of capacity a carrier must reserve to deliver intercepted information.

67. CALEA requires that carriers meet the "actual" capacity levels specified by the government within three years of the final capacity notice and be able to meet "expeditiously" the specified maximum capacity requirements. The final capacity notice provides that "expeditiously" for these purposes means no more than 5 days. The FBI provides no justification for setting a five-day deadline. Five days is an unreasonably short period and will require, as a practical matter, that carriers reserve in advance the maximum capacity rather than the actual capacity. The effect is to eviscerate the statutory distinction between actual and maximum capacity.

68. Taken separately or together, these deficiencies in the FBI’s methodology for determining the actual and maximum capacity requirements render the rules arbitrary, capricious, an abuse of discretion, and contrary to law.

Count V

69. USTA hereby realleges and reasserts the allegations set forth in paragraphs 1 through 68 as if fully set forth herein.

70. The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) requires that an agency submit for congressional review information such as a cost-benefit analysis about any "major rule." 5 U.S.C. § 801. The Act defines a major rule as one having an annual effect on the economy of $100,000,000 or more, causing a major increase in costs or prices, or having a significant adverse effect on competition, investment, or innovation. Id. § 804(2). In addition, Executive Order 12866 requires an agency to abide by various procedural requirements for "significant regulatory action," which includes any action that will have an annual effect on the economy of $100,000,000 or more.

71. The FBI’s determination that the final notice of capacity would not have an annual economic effect of $100,000,000 or more, as well as its assertion that the Notice would not cause a major increase in costs or prices or have a significant adverse effect on competition, investment, or innovation, 63 Fed. Reg. at 12220, is without support in the administrative record and is arbitrary and capricious.

72. The FBI’s unsupported determination that the SBREFA and Executive Order 12866 were inapplicable allowed the FBI to avoid justifying the disparate impact of its notice on small carriers.

a. For example, the FBI requires every carrier that operates in a county to meet the entire capacity requirement for that county, regardless of the carrier's size, its number of customers in that county, or any other characteristic. As a result, a small business that operates even partially in a county that contains a large metropolitan area is required to meet the entire capacity requirements for that county, even if that capacity is greater than the capacity the carrier requires for its own customers.

b. In addition, the FBI would have had to justify its failure to set the capacity requirements in light of the "number of subscribers" and "type or size of carrier." 47 U.S.C. § 1003(a)(2).

73. The FBI’s treatment of small businesses is arbitrary, capricious, an abuse of discretion, and contrary to law.

WHEREFORE, plaintiff prays that judgment be entered against the Defendants:

(1) declaring that the Rules are arbitrary, capricious, an abuse of discretion, and contrary to law in each of the respects alleged in Counts I-V above;

(2) enjoining the Defendants from enforcing the Rules;

(3) setting aside the Rules and remanding for further proceedings consistent with this Court’s opinion; and

(4) granting plaintiff such other further relief as the law and evidence may justify and as the Court may deem just and proper.

Counsel for Plaintiff United States Telephone Association

August 19, 1998