Opinion
00-CV-70034-DT
March 27, 2002
OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT and DENYING DEFENDANTS' MOTION TO DISMISS
This matter is presently before the court on plaintiffs motion for summary judgment and the motion of defendants Strand, Nelson and Svanda to dismiss the complaint. Response and reply briefs have been filed and, pursuant to E.D. Mich. LR 7.1(e)(2), the court shall decide the motions without oral argument.
Plaintiff Michigan Bell Telephone Company d/b/a Ameritech Michigan ("Ameritech") has brought this action pursuant to the Telecommunications Act of 1996 ("FTA"), 47 U.S.C. § 151, et seq., for review of an interconnection agreement approved by the Michigan Public Service Commission ("MPSC") between Ameritech and AirTouch Cellular, Inc. ("AirTouch"). The parties resolved most of their differences over the terms and conditions of this agreement, but seven unresolved issues remained (R 488). AirTouch requested arbitration, and the matter was heard by a three-member panel of arbitrators appointed by the MPSC. After considering lengthy briefs and hearing oral argument (R 523-653), the arbitrators issued a written decision, in which they resolved all but one of the contested issues (R 487-496). Both parties filed objections to the arbitrators' decision with the MPSC (R 497-519, 665-669). In a written opinion and order, the MIPSC adopted the arbitrators' decision with one modification (R 717-736). The parties submitted an interconnection agreement that incorporated the MPSC's rulings on the contested issues (R 749-793), and the MPSC then gave its approval to this final version of the agreement (R 743-745).
Ameritech then commenced this action pursuant to 47 U.S.C. § 252(e)(6). Section 252(e)(6) permits a party to an interconnection agreement to seek review in an appropriate federal district court "to determine whether the agreement or statement meets the requirements of section 251 of this title and this section." Section 251 places various duties on telecommunications carriers. In particular, the statute requires incumbent local exchange carriers to interconnect with any other telecommunications carrier desiring to do so. See 47 U.S.C. § 251(c). The statute also requires the Federal Communications Commission to establish implementing regulations. See 47 U.S.C. § 251(d).
In this case, Ameritech's complaint raises six issues which the MPSC decided in AirTouch's favor. These issues concern reciprocal compensation rates (Count I), rates for SS7 access services (Counts II and III), rates for entrance facilities (Count IV), direct trunking (Count V), and netting (Count VI). Ameritech has since stipulated to voluntarily dismiss Counts II and III see Ameritech's Brief in Support of Motion for Summary Judgment, p. 1 n. 2, so that only four issues remain for the court to consider. The defendants are AirTouch and the three members of the MPSC, who are sued in the official capacity.
The individual defendants, Strand, Nelson and Svanda, raise a jurisdictional defense which the court must resolve before proceeding to the merits. These defendants argue that as to them the suit is barred by the Eleventh Amendment, which prohibits suits against unconsenting states. They also argue that the Tenth Amendment bars plaintiffs' request for an order remanding the matter with instructions that the MPSC revise the interconnection agreement, and that they are not necessary or indispensable parties.
The individual defendants acknowledge that the United States Court of Appeals for the Sixth Circuit ruled against them on precisely these issues in Michigan Bell Tel. Co. v. Climax Tel. Co., 202 F.3d 862 (6th Cir. 2000). Just as in the present case, Ameritech in Climax challenged an interconnection agreement under 47 U.S.C. § 252(e)(6) and named the individual members of the MPSC as defendants. The district court denied their motion to dismiss. In affirming the denial of that motion, the court of appeals held that the MPSC members' Eleventh Amendment defense fails under Ex parte Young, 209 U.S. 123 (1908); that the Tenth Amendment defense fails because there is no "commandeering" of state resources; and that the individual commission members are proper parties, since it is the commission that is statutorily required to adopt and enforce interconnection agreements. See Climax, 202 F.3d at 867-68.
In their motion to dismiss in the instant case, defendants urge the court not to follow Climax because it was "wrongly decided." Defendants' Brief in Support of Motion to Dismiss, p. 2, n. 2. Defendants also indicate that they filed a petition for a writ of certiorari with the Supreme Court. Regardless of whether Climax was rightly or wrongly decided, this court is bound by decisions of the Sixth Circuit until they are vacated or overruled. See Timmreck v. United States, 577 F.2d 372, 374 n. 6 (6th Cir. 1978) ("The district courts in this circuit are, of course, bound by pertinent decisions of this Court even if they find what they consider more persuasive authority in other circuits"). Moreover, in a supplemental brief defendants indicate that the Supreme Court has denied their certiorari petition. See Strand v. Michigan Bell Tel., 121 S.Ct. 54 (2000). Accordingly, the Sixth Circuit's decision in Climax stands as the binding authority on these issues in this circuit, and the defendants' motion to dismiss on these grounds must be denied.
The merits of the case are before the court on Ameritech's motion for summary judgment and defendants' responses thereto. The court reviews the MPSC's legal conclusions, including its interpretation of the FTA, de novo; the MPSC's factual findings, however, are reviewed under the arbitrary and capricious standard. See Michigan Bell Tel. Co. v. MCI Metro Access Transmission Servs., Inc., 128 F. Supp.2d 1043, 1051 (E.D. Mich. 2001); Michigan Bell Tel. Co. v. Climax Tel. Co., 121 F. Supp.2d 1104, 1108-1109 (W.D. Mich. 2000). The arbitrary and capricious standard has been articulated as follows:
In determining whether a decision is arbitrary and capricious, a court must consider whether the decision was based on the relevant factors and whether there was a clear error of judgment. "Generally, an agency decision will be considered arbitrary and capricious if the agency had relied on factors which Congress had not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The Court is not empowered to substitute its judgment for that of the agency."MCI Telecomms. Corp. v. Michigan Bell Tel. Co., 79 F. Supp.2d 768, 773 (E.D. Mich. 1999) (citations omitted). Further, "[t]his court should not `sit as a surrogate public utilities commission to second-guess the decisions made by the state agency to which Congress has committed primary responsibility for implementing the Act.'" Id. (citation omitted).
In the present case, Ameritech challenges four provisions of the interconnection agreement. The first of these (Count I of the Amended Complaint) concerns the agreement's reciprocal compensation rate. See Amended Complaint ¶¶ 37-49, 86-88. Ameritech has summarized the dispute as follows:
"Reciprocal compensation" is the term that describes th[e] intercarrier compensation for the transport and termination of local calls. Reciprocal compensation rates are based on the costs attributable to the switching and transport of calls. . . . The parties agreed on the rates that would be applicable when AirTouch delivered traffic to Ameritech Michigan's network ("mobile-to-land" traffic). Because the parties' networks are not technologically symmetrical, however, the parties could not agree on what rates would apply when Ameritech Michigan delivered traffic to AirTouch's network ("land-to-mobile traffic").
Ameritech's Brief in Support of Motion for Summary Judgment, p. 6. AirTouch requested that Ameritech be charged the "tandem interconnection rate" for calls made by Ameritech customers terminating on AirTouch's network. Ameritech requested that a lower, "blended" rate be adopted (86% of the tandem rate), based on its theory that AirTouch's switches are not functionally equivalent to those used by Ameritech.
The FTA requires interconnection rates to be "just, reasonable, and nondiscriminatory." 47 U.S.C. § 251(c)(2)(D). The Federal Communications Commission has indicated that the tandem rate is appropriately charged to the incumbent carrier if the switches of the requesting carrier serve a geographic area that is comparable to that of the incumbent carrier. See 47 C.F.R. § 51.711(a)(3); Implementation of the Local Competition Provisions in the Telecommunication Act of 1996, FCC Docket No. 96-98, First Report and Order. In opposing AirTouch's request to charge the tandem rate for calls terminating on its network, Ameritech argues that AirTouch's switches are not functionally equivalent to Ameritech's, and that the two carriers' switches do not serve geographically comparable areas.
In rejecting Ameritech's position on this point, the MPSC stated:
This language [the FCC's First Report and Order] does not require that AirTouch's MSCs or MTSOs operate in precisely the same manner as Ameritech Michigan's tandem switches. Rather, they need only perform functions "similar to" those performed by Ameritech Michigan's tandems. Id. Likewise, the provision quoted above does not require that those MSCs or MTSOs cover the exact geographical areas served by Ameritech Michigan's corresponding tandem switches. Instead, the AirTouch facilities need only serve geographic areas that are "comparable" to those served by Ameritech Michigan's corresponding tandem switches.
Information submitted by the parties supports AirTouch's claim that its MSCs and MTSOs function in a manner that is similar to, and possibly better than, Ameritech Michigan's facilities. For example, it was noted that "interconnection at one AirTouch MSC allows [Ameritech Michigan] access to AirTouch's entire network." Tr. 42. In contrast, interconnection at one of Ameritech Michigan's tandem switches "is limited to access to the end offices that reside behind that specific tandem" and interconnection at an Ameritech Michigan end office "is limited to the NXXs that reside on it." Id. As for geographic area served, the record indicates that (due to its use of wireless technology) AirTouch's coverage is "continuous" within each county where one of its MSCs or MTSOs provide service, whereas each of Ameritech Michigan's tandem switches generally serves scattered exchanges. Tr. 43.
The Commission thus finds that AirTouch's network performs functions similar to Ameritech Michigan's tandem and end office switches and that each of AirTouch's MSCs or MSTOs serves a geographic area that is comparable to or greater than that served by one of Ameritech Michigan's tandem switches. It therefore concludes that the symmetrical reciprocal compensation proposed by AirTouch and recommended by the panel should be incorporated into the interconnection agreement.
R 724-726 (footnotes omitted).
A review of the record in this matter persuades the court that the MPSC committed no error in adopting the tandem rate for calls terminating on AirTouch's network. The MPSC cited the applicable legal authority, considered the correct factors, and resolved the disputed factual issues (i.e., functional and geographic comparability of the parties' switches) based on evidence submitted during the arbitration. Therefore, the court shall deny plaintiffs motion for summary judgment as to Count I.
In Count IV of the Amended Complaint, plaintiff challenges § 3.2 of the agreement, which specifies the rates for entrance facilities. Specifically, Ameritech argues that the MPSC erred in requiring it to provide access services to AirTouch at cost-based "unbundled network element" ("UNE") rates, rather than a higher `access tariff' rate proposed by Ameritech. See Amended Complaint ¶¶ 61-65, 95-97.
There is no substance to this argument. The MPSC explained its decision to apply the lower rate as follows:
The Commission disagrees with Ameritech Michigan and concludes that it should adopt the methodology recommended by the arbitration panel. In reaching this conclusion, the Commission relies on the FCC's pronouncement in its First Report and Order that:
[I]n establishing the rates for transmission facilities that are dedicated to the transmission of traffic between two networks, state commissions should be guided by the default price level we are adopting for the unbundled element of dedicated transport. . . . For example, if the providing carrier provides one-way trunks that the interconnecting carrier uses exclusively for sending traffic to the providing carrier, then the interconnecting carrier is to pay the providing carrier a rate that recovers the full forward-looking economic cost of those trunks.
FCC No. 96-325, supra, at ¶ 1062. This language clearly indicates that, notwithstanding Ameritech Michigan's claims to the contrary, the FCC authorized state commissions to set the price of using interconnection facilities at the providing carrier's TSLRIC [total service long run incremental costs] for those facilities (or, absent the existence of TSLRIC-based rates, at the LEC's [local exchange carrier's] corresponding TINE rates). The Commission further finds that, as asserted by AirTouch and recognized by the panel, signaling is part of interconnection and therefore should not be viewed solely as a separate access service. As stated by Mr. Clampitt, "simply interconnecting the two networks does not allow anything to happen unless you're able to signal between switches" because "without signaling, a switch cannot transfer a call outside of itself" Tr. 51.
For these reasons, the Commission finds that the panel's proposed resolution of this dispute should be adopted and pricing for interconnection facilities and signaling services should be set at Ameritech Michigan's UNE rates pending the establishment of TSLRIC-based rates.
R 727-728. In adopting the UNE rates, the MPSC clearly acted in accordance with the FCC's direction on this issue. The court shall therefore deny plaintiffs motion for summary judgment as to Count IV.
In Count V of the Amended Complaint, Ameritech claims that the MPSC violated the FTA in adopting AirTouch's proposed language concerning direct trunking. See Amended Complaint ¶¶ 66-75, 99-101. Ameritech summarizes this argument as follows:
68. Generally, . . . the Agreement permits AirTouch to interconnect at Ameritech Michigan's end offices, but does not require AirTouch to do so. However, if a sufficient volume of traffic originates at an AirTouch mobile switching center for termination at an Ameritech end office at which AirTouch is not interconnected, the traffic can contribute to the exhaustion, or overloading, of the Ameritech Michigan tandem that has to be used to route the traffic as described in the preceding paragraph. Accordingly, Ameritech Michigan sought to include language in the parties' interconnection agreement that required AirTouch, in certain limited circumstances, to establish a direct trunk from a specific AirTouch switch to a specific Ameritech Michigan end office if the traffic between those two switches exceeded the level of 700 Centum Call Seconds ("CCS"). . . .
69. The purpose of Ameritech Michigan's proposed language was two-fold. First, to avoid exhausting (or overloading) the tandem switch, which must [be] used by all other carriers, that was being used to carry such a high volume of traffic that could be more efficiently transported on a direct trunk; and second, to route AirTouch's traffic in accordance with industry standard network engineering principles.
Amended Complaint.
The MPSC rejected Ameritech's proposal. In explaining its reasoning for doing so, the commission stated:
Ameritech Michigan objects to the panel's decision. Although conceding that it must allow interconnection at any technically feasible point on its network, Ameritech Michigan claims that the capacity of each of its tandem switches is effectively exhausted at 700 CCS. As a result, it argues, interconnection at such a tandem switch cannot be considered technically feasible where the volume of calls routed through the switch exceeds 700 CCS. Ameritech Michigan further argues that preventing it from taking "reasonable engineering precautions" in routing the traffic flow over its tandem switches "would likely result in not only decreased service quality (i.e., callblocking, if the tandem capacity is reached or exceeded), but also increased service cost (i.e., to account for the construction of new tandem switches)." Ameritech Michigan's objections to the DAP, p. 21. It therefore requests that the Commission reverse the panel on this issue and adopt Ameritech Michigan's proposed language regarding what constitutes a technically feasible point of itnerconnection.
Again, the Commission disagrees with Ameritech Michigan and finds that the arbitration panel's proposed result should be adopted. As noted by the panel, the following determination made by the FCC in its First Report and Order governs this issue:
We conclude that we should identify a minimum list of technically feasible points of interconnection that are critical to facilitating entry by competing local service providers. Section 251(c)(2) [of the FTA] gives competing carriers the right to deliver traffic terminating on an incumbent LEC's network at any technically feasible point on that network. rather than obligating such caters to transport traffic to less convenient or efficient interconnection points. Section 251(c)(2) lowers bafflers to competitive entry for carriers that have not developed ubiquitous networks by permitting them to select the points in an incumbent LEC's network at which they wish to deliver traffic. Moreover, because competing carriers must usually compensate incumbent LECs for the additional cost incurred by providing interconnection, competitors have an incentive to make economically efficient decisions about where to interconnect.
FCC No. 96-325, supra, at ¶ 209 (Emphasis added). Based on the FCC's above-quoted determination, the arbitration agreement at issue in this case should not include language restricting the right of AirTouch to select where to interconnect with Ameritech Michigan's network. In reaching this decision, the Commission recognizes that permitting traffic volumes to exceed 700 CCS may exhaust a tandem switch's capacity and necessitate the construction of additional switches. Nevertheless, it concludes that forcing AirTouch to use uneconomic connections and thus incur unnecessary expenses (by restricting AirTouch's choice) is a less acceptable alternative than encouraging Ameritech Michigan to make needed investment in its network (by ensuring AirTouch's access to the level of choice envisioned by the FCC).
R. 729-730 (emphasis in original).
By statute, an incumbent carrier is required to permit a requesting carrier to interconnect "at any technically feasible point within the [incumbent] carrier's network." 47 U.S.C. § 251(c)(2)(B). Ameritech's argument would rewrite this statute to require interconnection at any point deemed by the incumbent carrier to be in its own best interest. This is not the test. In interpreting this statute, the FCC has placed the burden on the incumbent carrier to "prove to the state commission that interconnection at that point is not technically feasible." 47 C.F.R. § 51.305(e). As the above-quoted passage makes clear, Ameritech failed to convince the MPSC that AirTouch's right to interconnect at Ameritech's tandem switches should be restricted, particularly in light of the anticompetitive and discriminatory effect Ameritech's proposal would have. In reaching this conclusion, the MPSC carried out the statutory mandate of the FTA and resolved the factual dispute (i.e., whether this type of interconnection was "technically feasible") is a manner that was neither arbitrary nor capricious. Therefore, the court shall deny plaintiffs summary judgment motion as to Count V.
Finally, Ameritech alleges in Count VI of its complaint that the MPSC erred in rejecting its proposal to include language in the interconnection agreement prohibiting "netting" — that is, prohibiting either party from setting off moneys owed the other in settling reciprocal compensation bills. Ameritech claims that the MPSC's decision on this issue is arbitrary and capricious and unsupported by the statute. See Amended Complaint ¶¶ 76-81, 103-105.
The MPSC analyzed this issue as follows:
Throughout the parties' negotiations, Ameritech Michigan sought to include in their interconnection agreement a provision stating that there shall be no "netting" of the amounts due under the agreement against any other amount owed by Ameritech Michigan or AirTouch to each other. AirTouch opposed that provision on the grounds that it has a common law right to set off amounts it claims are due to it against amounts that are due to Ameritech Michigan. In response, Ameritech Michigan expressed concern that AirTouch intended to disregard their mutually agreed upon contractual provisions concerning billing and payment (in Section 10 of the proposed agreement) and resolution of disputes (in Section 31). The arbitration panel agreed with Ameritech Michigan and recommended adopting [Ameritech's] proposed language to preclude netting. AirTouch objects to the panel's recommendation on three grounds. First, it contends that Michigan courts have repeatedly upheld the common law right to setoff and that netting constitutes an identical right. Second, it argues that netting would more quickly focus attention on disputes between these parties and would thus result in the more expeditious resolution of those disputes than has occurred in the past. Third, it notes that approximately 75% of the traffic exchanged by these parties (and thus 75% of the payments) runs from AirTouch to Ameritech Michigan. According to AirTouch, this allows Ameritech to "disrupt AirTouch's cash flow and obtain an advantage" in the dispute resolution process by "drawing the disputes out" as long as possible. AirTouch's objections to the DAP, p. 7. AirTouch therefore argues that the panel's decision regarding the denial of netting should be reversed.
The Commission agrees with AirTouch and finds that the arbitration panel's proposed resolution of this issue should be rejected. Both the FTA and the MTA were intended to enhance the ability of new service providers to enter the market. By precluding netting in all circumstances, and thus using disputes among the parties as a potential means of disrupting a new entrant's cash flow, Ameritech Michigan's proposed language can be viewed as conflicting with the purposes of the FTA and the MTA. The Commission therefore concludes that it should reject the arbitration panel's recommendation, deny Ameritech Michigan's request to prohibit netting in every instance, and adopt the language proposed by AirTouch.
R 732-733.
Of all of Ameritech's challenges to the interconnection agreement, this one clearly is the weakest. Ameritech faults the MPSC for failing to cite any provision of the FTA "that would preclude Ameritech Michigan's contract language." Plaintiffs Brief in Support of Motion for Summary Judgment, p. 23. Yet Ameritech, for its part, fails to cite any provision of the FTA that requires an interconnection agreement to contain such language. In its own review of the statute, the court was able to identify only one provision applicable to this subject, and it is directly contrary to Ameritech's no-netting proposal. Section 252(d)(2), which requires state commissions to review the reasonableness of reciprocal compensation rates, states in subparagraph (B) that "[t]his paragraph shall not be construed — (i) to preclude arrangements that afford the mutual recovery of costs through the offsetting of reciprocal obligations, including arrangements that waive mutual recovery (such as bill-and-keep arrangements); . . ." It appears that the MPSC may well have violated the statute if, as Ameritech proposed, it had required the inclusion of language in the interconnection agreement prohibiting netting.
Nor is there anything arbitrary or capricious about the MPSC's recognition of either party's common law right to set off amounts it owes by amounts it is owed by the other party. Ameritech faults the MPSC for failing to cite case authority in support of this proposition. However, the soundness of the MPSC's observation on this point cannot seriously be challenged. The Michigan Court of Appeals has recognized a common law right of setoff in several published opinions. See, e.g., Whispering Pines AFC v. Department of Treasury, 212 Mich. App. 545, 553 (Mich.App. 1995); Blair v. Trafco Prods., 142 Mich. App. 349, 351 (Mich.App. 1985). Most significantly, in a case brought by Ameritech against the MPSC in a challenge to an interconnection agreement under the Michigan Telecommunications Act, the Michigan Court of Appeals specifically rejected Ameritech's argument that netting should be prohibited. The court stated:
Finally, Ameritech argues that the commission unreasonably allowed CenturyTel and Thumb Cellular to set off amounts owed to them in reciprocal compensation, paying only the net amount owed to Ameritech. The PSC reasoned that continuing this "netting" practice would allow new entrants to the market to operate without risk to their cash flow. Ameritech asserts that the practice would conflict with the dispute resolution procedure negotiated by the parties. However, Ameritech has failed to carry its burden of demonstrating that the decision of the PSC was unreasonable. Nothing in the MTA abrogates the common law right to setoff debts. Ameritech has cited no statutory authority that would preclude the PSC from adopting this practice.Michigan Bell Tel. Co. v. Michigan Pub. Serv. Comm'n, 2001 WL 1545900, *2 (Mich.App. Nov. 30, 2001) (citation omitted). The MPSC did not err in rejecting Ameritech's identical argument in the present case.
For the reasons stated above, the court concludes that Ameritech has failed to demonstrate that the individual defendants violated the FTA in adopting the interconnection agreement in this case between Ameritech and AirTouch. The court rejects Ameritech's claims that the MPSC violated the statute. The court also rejects Ameritech's claims that the MPSC's factual findings were arbitrarily or capriciously reached. Accordingly,
IT IS ORDERED that plaintiffs motion for summary judgment is denied.
IT IS FURTHER ORDERED that the motion of the individual defendants' to dismiss is denied.
IT IS FURTHER ORDERED that summary judgment is granted for defendants, the court having concluded that plaintiffs objections to the interconnection agreement are unfounded.