Opinion
Case No. C2-99-552
January 17, 2003
OPINION AND ORDER
This matter is before the Court for a merits review of the claim brought by the Ohio Bell Telephone Company, d/b/a Ameritech Ohio ("Ameritech"), under the Telecommunications Act of 1996, 47 U.S.C. § 151 et seq. ("the Act"). In its Complaint, Ameritech contends that three related decisions of the Public Utilities Commission of Ohio ("PUCO") violated the Act by requiring reciprocal compensation payable by Ameritech to MCI Metro Acccss Transmisaion Services, LLC and MCI Telecommunications Corporation, now known as MCI Worldcom Network Services, Inc. (collectively "MCI") for calls to Internet service providers. Following a hill briefing by the parties, the issues raised in the Plaintiffs Complaint are ripe for final determinations.
Subsequent to the filing of this action, Ameritech dismissed Defendants ICG Telecom Group, Inc. and Time Warner Telecom of Ohio, LP.
By previous Order of this Court dated September 29, 2000, the Court concluded that Plaintiff's action, proceeding under the doctrine expressed by the Supreme Court in Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), required a dismissal of the PUCO, consistent with the Eleventh Amendment to the United States Constitution. The action proceeds against the individual Commissioners in their official capacities.
Subsequent to the filing of this action, the parent company of MCI, Worldcom, Inc., on behalf of itself and its subsidiaries, filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York. By Order of the Bankruptcy Court issued on November 19, 2002, the automatic stay has been lifted with regard to the issues raised in this proceeding, provided that in the event Ameritech is entitled to any type of monetary relief from MCI, Ameritech must proceed by way of a claim filed with the Bankruptcy Court.
I.
This case involves a challenge by Ameritech to a decision rendered by the PUCO requiring Ameritech to pay reciprocal compensation to MCI for calls placed by Ameritech customers to Internet service providers ("ISPs") which had obtained local service and telephone numbers from MCI. Prior to the decision of the PUCO, MCI and Ameritech entered into an Interconnection Agreement pursuant to Sections 251 and 252 of the Act, such agreement having been previously approved by the PUCO on May 22, 1997.
The question raised by Ameritech involves the principle of reciprocal compensation, as the term is used in the Act at 47 U.S.C. § 251(b)(5). The principle of reciprocal compensation is easily applied when the customer of one local carrier places a call to a person who subscribes to a second local carrier. In such case, the party placing the call pays a monthly charge to only the first carrier, while the second carrier incurs the cost of completing the call to its customer. In the absence of reciprocal compensation, the second carrier has an unreimbursed expense regarding the completion of the call. The principle of reciprocal compensation is simply a method to reimburse the second earner's expense for the placement of another carrier's local calls.
Applying this basic principle to calls made by one local carrier's customers to an ISP serviced by a second carrier has generated an enormous amount of litigation before the Federal Communications Commission ("FCC") and the federal courts. Calls made to an ISP may be seen as local, in the sense that the initiator of the call is dialing a seven digit number for which no long distance charges are imposed. Conversely, the call placed to the ISP does not terminate upon connection. Rather, once the Internet is accessed through the local call, sites visited on the Internet are reached through long distance services.
In the proceedings before the PUCO, MCI alleged that Ameritech refused to pay reciprocal compensation for the transportation of local calls for Ameritech customers to ISPs served by MCI. The issue before the PUCO, and in this action, is whether the calls to ISPs are in essence local calls, requiring Ameritech to pay reciprocal compensation to MCI, or whether the calls are long distance, and therefore excluded from such payments.
The PUCO determined that resolution of the issue turned upon an interpretation of the terms of the Interconnection Agreement. The PUCO first reviewed Section 4.7.1 of the Agreement which states:
Reciprocal compensation applies for transport and termination of Local Traffic billable by Ameritech or MCIm that a Telephone Exchange Service Customer originates on Ameritech's or MCIm's network for termination on the other Parties network. The Parties shall compensate each other for such transport and termination of Local Traffic at the applicable rates provided at Item II of the Pricing Schedule . . .
The PUCO further noted that the term "Local Traffic" is defined under Schedule 1.2-8 of the Interconnection Agreement as "local service area calls as defined by the Commission [PUCO]." The PUCO, in a prior proceeding, Local Service Guidelines, Case No. 95-845-TP-C01, Entry on Rehearing (Feb. 20, 1997), defined Local Traffic as
. . . the perimeter of ILEC [Incumbent Local Exchange Company] local calling area, as revised to reflect EAS [Extended Area Service] . . . Any end user call originating and terminating within the boundary of such local calling area, regardless of the LEC at the originating or terminating end, shall be treated as a local call.
The PUCO further noted that the Interconnection Agreement further defined those services excepted from the payment of reciprocal compensation. Section 4.7.2 exempted from such payments Switched Exchange Access Service which is defined in Schedule 1.2-11. The services listed do not include calls made to an ISP.
From this, the PUCO determined that there was "no legal basis under the Interconnection Agreement for treating ISP traffic differently than other local traffic originated by an end user for purposes of reciprocal compensation." (PUCO Opinion and Order, Oct. 14, 1998, at p. 7). In addition to relying on the language of the Interconnection Agreement, the PUCO noted that Ameritech itself charged its own end users for calls made to an ISP as though the call were entirely local. Further, the PUCO noted that Ameritech had previously paid to MCI reciprocal compensation for calls to ISPs until October of 1997 in what the PUCO termed "an attempt to undo the terms it negotiated in the interconnection agreement." Id. at 7.
According to the PUCO, prior to the final negotiation of the interconnection agreement, Ameritech had rejected what is called "bill and keep" compensation for ISP traffic, which is the opposite of reciprocal compensation. Under a bill and keep approach, if one company's customer places a local call to another carrier's ISP customer, the first phone company is allowed to bill its own customer and keep all such receipts without having to share under a reciprocal compensation agreement. The PUCO noted that Ameritech rejected this approach during the negotiations leading to the Interconnection Agreement, but later sought precisely the same treatment once it realized that MCI had attracted a substantial amount of ISP traffic.
Finally, the PUCO acknowledged that the FCC was then currently considering what type of charges were appropriate for ISP traffic under the 1996 Act. In refusing to defer its decision, the PUCO noted that its decision was based on the terms of the contract and was in accord with every state commission addressing the same issue of reciprocal compensation for ISP traffic.
Ameritech next sought review in this Court pursuant to 42 U.S.C. § 252(e)(6) of the Act. Thereafter, the FCC issued an Order to be effective on June 14, 2001, addressing the issue of compensation for the exchange of ISP calls. In the Matter of the Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic, FCC Docket No. 96-98, 99-68, Declaratory Ruling and Proposed Rulemaking, February 26, 1999 ("ISP Remand Order"). The Rule, as promulgated, was to be in effect for thirty-six (36) months to give the FCC time to address a permanent solution. Ameritech correctly notes that the FCC concluded in Paragraph 34 of the ISP Remand Order that Congress did not intend to include ISP calls within the statutory requirement of reciprocal compensation. Nonetheless, the FCC explicitly stated at Paragraph 82:
The original "initial order" of the FCC was subject to a remand in the case of Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1, 5 (D.C. Cir. 2000), resulting in the ISP Remand Order.
The interim compensation regime we establish here applies as carriers renegotiate expired or expiring interconnection agreements. It does not alter existing contractual obligations, except to the extent that parties are entitled to invoke contractual change-of-law provisions. This Order does not preempt any state commission decision regarding compensation for ISP-bound traffic for the period prior to the effective date of the interim regime we adopt here.
The parties in this case are in the process of renegotiating a new interconnection agreement. The issue raised in this case applies only to application of the 1997 Interconnection Agreement.
II.
Ameritech brings this action pursuant to 47 U.S.C. § 252(e)(6) which provides in part:
In any case in which a State commission makes a determination under this section, any party aggrieved by such determination may bring an action 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.47 U.S.C. § 252(e)(6). Ameritech contends that the PUCO erroneously interpreted the Interconnection Agreement to require it to pay reciprocal compensation to MCI for ISP calls originated by Ameritech subscribers. During oral argument, Ameritech contended that the PUCO had misconstrued the language of the Interconnection Agreement.
In both its Complaint and Opening Merits Brief, Ameritech also contended that the decision of the PUCO violated federal law by requiring reciprocal compensation for ISP calls. At oral argument, Ameritech abandoned such claims. Through its counsel, Ameritech acknowledged, as found in Illinois Bell Tel. Co. v. Worldcom Technologies, 179 F.3d 566, 572 (7th Cir. 1999), cert. denied, 122 S.Ct. 2318 (2002). that the Act does not prohibit reciprocal compensation for ISP calls, nor does it require such compensation. Instead, the only issue before this Court is whether the Interconnection Agreement requires such payments.
Because Ameritech challenges the manner in which the PUCO interpreted the Interconnection Agreement, this Court is first confronted with the question of subject matter jurisdiction under 47 U.S.C. § 252(e)(6). Initially, the parties do not dispute that the PUCO had the authority to construe and interpret an issue arising under the Interconnection Agreements. See Bell South Telecomm. Inc. v. MCI Metro Access Transmission Serv., Inc., ___ F.3d ___, 2003 WL 76991 (11th Cir. Jan. 10, 2003) (en banc) (noting authority of state commissions to construe issues arising under interconnection agreements). More fundamentally, the issue before the Court is whether it may review, and if so to what extent, a decision of the state agency applying principles of state contract law in the context of an interconnection agreement entered into under the Act.
Various federal courts have reached differing conclusions on the issue of jurisdiction and scope of review. As described by Judge Tjoflat, dissenting in Bell South Telecomm. Inc., at least two approaches have been adopted by one or more of the various courts of appeals. Id. at *25 (Tjoflat, J., dissenting). In the first approach, several courts have found that under Section 252(e)(6), determinations made by state public utilities commissions as to interpretation of interconnection agreements are reviewable in federal court, even as to state contract law issues. Southwestern Bell Tel. Co. v. Brooks Fiber Communications of Oklahoma, Inc., 235 F.3d 493 (10th Cir. 2000); Southwestern Bell Tel. Co. v. Public Utility Comm'n of Texas, 208 F.3d 475 (5th Cir. 2000); GTE South, Inc. v. Morrison, 199 F.3d 733 (4th Cir. 1999).
A third approach, finding that state public utility commissions are precluded from adjudicating interconnection disputes, has not been adopted by any of the circuits. A panel of the Eleventh Circuit had originally reached such conclusion, although the decision of the panel was vacated following en banc review. Bell South Telecommunications, Inc., 2003 WL 76991 at *7,
A second approach was adopted by the Seventh Circuit in Illinois Bell Telephone Co. v. Worldcom Technologies, Inc., 179 F.3d 566, 571 (7th Cir. 1999), cert. denied, 122 S.Ct. 2318 (2002). The court held that federal courts were vested with jurisdiction to determine whether a decision of a state utilities commission was in accordance with federal law. With regard to state agency determinations of contract issues arising only under state law, federal courts were without jurisdiction.
The Sixth Circuit Court of Appeals has yet to decide the issue of jurisdiction. In Michigan Bell Tel. Co. v. Climax Tel. Co., 121 F. Supp.2d 1104 (W.D.Mich. 2000), a district court within the Circuit rejected the notion that it lacked jurisdiction over state law claims regarding interpretations of an interconnection agreement. The district court noted its concern that, given the combined operation of Sections 252(3) and (4), federal courts "very well may provide the only forum for review of state law issues arising in relation to interconnection agreements." Id. at 1115.
Either approach is less than satisfactory. To date, no court has held that the federal courts are charged with developing federal common law relating to the interpretation of interconnection agreements. Instead, the principles of contract law applicable to interpretations and construction of such agreements are to be found in the common law of the various states.
28 U.S.C. § 1652, enacted as part of the Judiciary Act of 1789, states:
The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.
As noted in Bell South Telecomm., Inc. v. MCI Metro Access Transmission Serv., Inc., Congress has limited the creation of a body of federal common law to only labor-management disputes and anti-trust cases. 2003 WL 76991 at 16 (Tjoflat, J., dissenting.)
Under the approach adopted by the Seventh Circuit in Illinois Bell, a federal court has jurisdiction to determine whether an interpretation by a state commission violated substantive provisions of the Act. 179 F.3d at 571. At the same time, a federal court would not have jurisdiction to determine whether the same commission correctly interpreted, under state law, provisions of an interconnection agreement. There is certainly logic to this approach. This Court is aware of no other context in which a federal court would review a decision of the state agency to determine whether such agency acted in accordance with state law.
Yet, even the Seventh Circuit acknowledged that "this allocation of authority has a potential to cause problems." Id. at 574. Under the Seventh Circuit formulation, a carrier must file an initial action in federal court, which then determines whether there has been a violation of federal law. If not, the same carrier might then be required to file in state court on claims that state law was violated. The Seventh Circuit itself acknowledged this process as less than satisfactory.
The second approach, which finds jurisdiction in the federal courts to review interpretations of interconnection agreements under state contract law, avoids these procedural impediments. Moreover, as noted by Judge Quist in Michigan Bell Telephone Co. v. Climax Tel. Co., there is the distinct possibility that no relief may be available with regard to alleged misinterpretation of interconnection agreements if the federal courts are without such authority. 121 F. Supp.2d at 1115.
This Court is constrained to adopt the broader notion of jurisdiction adopted by the Fourth, Fifth, Ninth and Eleventh Circuits. Even though the claims made in this case by Ameritech arise only under principles of state contract law, this Court nonetheless concludes that given the overriding federal involvement in the creation and enforcement of interconnection agreements and the specific language of Section 252(c)(6), it has jurisdiction to review such state law claims.
This Court's concern over its jurisdiction as to state law claims regarding interpretation of interconnection agreements is tempered by the appropriate standards of review. As recently held in Michigan Bell Tel. Co. v. Strand, 305 F.3d 580, 586-87 (6th Cir. 2002), a state commission's findings of fact in this context are reviewed under the arbitrary and capricious standard. State agency determinations made with regard to interpretation of federal law are reviewed de nova. Id. at 586. In this case, however, no claim is currently made by Ameritech that the decision of the PUCO violated federal law. Rather, the claim is that the PUCO erroneously interpreted a contract. Consequently, this Court reviews the decision of the PUCO under the arbitrary and capricious standard. See also Southwestern Bell Tel. Co. v. Brooks Fiber Communications of Oklahoma, 235 F.3d 493, 498 (10th Cir. 2000) (applying arbitrary and capricious standard); Southwestern Bell Tel. Co. v. Public Utility Comm'n of Texas, 208 F.3d 475, 482 (5th Cir. 2000) (same). As noted by the Sixth Circuit, the standard of arbitrary and capricious
is the least demanding form of judicial review of administrative action. When it is possible to offer a reasoned explanation, based on the evidence, for a particular outcome, that outcome is not arbitrary or capricious. Thus, the standard requires that the decision be upheld if it is the result of a deliberate principled reasoning process, and if it is supported by substantial evidence.Michigan Bell Tel. Co. v. Strand, 305 F.3d at 586 (citing Killian v. Healthsource Provident Admin., Inc., 152 F.3d 514, 520 (6th Cir. 1998)).
III.
This Court concludes that the decision of the PUCO finding that reciprocal compensation was owed by Ameritech to MCI for ISP traffic was neither arbitrary or capricious. The PUCO reviewed Section 4.7.1 of the Interconnection Agreement which requires payment of reciprocal compensation "for transportation and termination of local traffic billable by Ameritech or MCI." The PUCO reasonably concluded that local phone calls made by Ameritech subscribers to ISP customers of MCI represented local traffic, as the term is defined under Section 1.2-8 of the Agreement. Such calls originated within the boundary of the local calling area. Further, the PUCO found that the only exception regarding payment of reciprocal compensation involved services set forth in Section 4.7.2 as Switched Exchange Access Service, which is further defined in Schedule 1.2-11. The PUCO found that such services could not encompass ISP traffic.
Further, the PUCO noted that Ameritech expressly bargained for reciprocal compensation regarding ISP traffic at the time the agreement was originally consummated. The PUCO described Ameritech's challenge to payment of reciprocal compensation for ISP traffic as an attempt to undo the negotiated terms of the Interconnection Agreement. The PUCO also noted the undisputed fact that Ameritech had paid MCI reciprocal compensation for ISP traffic in the early months of the agreement. Finally, the Commission observed that Ameritech itself charges its own customers for dialing up an ISP as a local call.
This Court concludes that the decision of the PUCO contains a reasoned explanation and is based upon substantial evidence. The Court cannot conclude that the decision was either arbitrary or capricious. Further, although this point is not dispositive, the Court notes that the majority of state commissions addressing the same issue have reached the same conclusion as the PUCO. See Illinois Bell Tel. Co. v. Worldcom Technologies, Inc., 179 F.3d at 573. In addition, the vast majority of federal courts addressing the same issue have reached the same conclusion as the PUCO.
E.g., Southwestern Bell Tel., Co. v. Brooks Fiber Communications of Oklahoma, 235 F.3d 493, 499 (10th Cir. 2000), aff'g, Southwestern Bell Telephone Co. v. Brooks Fiber Communications of Oklahoma, Inc., No. 98-CV-468-K(J), slip op. at 6 (N.D. Ok., Oct. 1, 1999); Southwestern Bell Tel. Co. v. Public Utility Comm'n of Texas, 208 F.3d 475, 488 (5th Cir. 2000); Illinois Bell Tel. Co. v. Worldcom Technologies Inc., 179 F.3d 566, 571 (7th Cir. 2000), cert. denied, 122 S.Ct. 2318 (2002); US West Communications v. MFS Intelenet, 193 F.3d 1112, 1122-23 (9th Cir. 1999), aff'g 1998 WL 350588 (W.D. Wa. Jan. 7, 1998); US West Communications v. Hix, Nos. 97-D-152, et al., slip op. at 3-4 (D. Colo. June 23, 2000): Bell South Telecommunications. Inc. v MCI Metro Access Transmission Servs. Inc., 97 F. Supp.2d 1363, 1378-80; Bell South Telecommunications. v. ITC DeltaCom Communications, 62 F. Supp.2d 1302, 1310-15 (M.D. Ala. 1999); Michigan Bell Tel. Co. v. MFS Intelenet, No. 5:98 CV 18, 1999 US. Dist. LEXIS 12093. at *16 (W.D. Mich. Aug. 2, 1999); U.S. West Communications. Inc. v. Jennings, 46 F. Supp.2d 1004, 1026 (D. Az. 1999); US West Communications, Inc. v. WorldCom Technologies, Inc., 31 F. Supp.2d 819, 825 (D. Or. 1998).
IV.
Based upon the foregoing, this Court concludes that the Decision and Order of the PUCO rendered on October 14, 1998 and appealed by Ameritech to this Court, did not violate any requirements of Section 251 of the Act and is otherwise in accordance with federal law. The Complaint brought by Ameritech is therefore DISMISSED with prejudice.IT IS SO ORDERED.