Verizon Maryland, Inc. v. Global Naps, Inc.

377 F.3d 355

VERIZON MARYLAND, INCORPORATED, Plaintiff-Appellant, v. GLOBAL NAPS, INCORPORATED; The Public Service Commission of Maryland; TCG-Maryland, Defendants-Appellees United States of America, Intervenor/Defendant-Appellee, and MCIMetro Access Transmission Services, LLC; American Communications Services Of Maryland, Incorporated, d/b/a E.Spire Communications, Incorporated; Maryland Office Of People's Counsel; MCI Worldcom Communications, Incorporated, formerly known as MFS Intelenet of Maryland, Incorporated; RCN Telecom Communications, LLC; Glenn F. Ivey, in his official capacity as Chairman of the Public Service Commission of Maryland; Claude M. Ligon, in his official capacity as Commissioner of the Public Service Commission of Maryland; E. Mason Hendrickson, in his official capacity as Commissioner of the Public Service Commission of Maryland; Susan Brogan, in her official capacity as Commissioner of the Public

Service Commission of Maryland; Catherine I. Riley, in her official capacity as Commissioner of the Public Service Commission of Maryland; Core Communications, Incorporated; J. Joseph Curran, III, in his official capacity as Commissioner of the Public Service Commission of Maryland; Gail C. McDonald, in her official capacity as Commissioner of the Public Service Commission of Maryland; Ronald A. Guns, in his official capacity as Commissioner of the Public Service Commission of Maryland; Harold Williams, Defendants Verizon Maryland, Incorporated, Plaintiff-Appellee, v. The Public Service Commission of Maryland; Catherine I. Riley, in her official capacity as Commissioner of the Public Service Commission of Maryland; 2 J. Joseph Curran, III, in his official capacity as Commissioner of the Public Service Commission of Maryland; Gail C. McDonald, in her official capacity as Commissioner of the Public Service Commission of Maryland; Ronald A. Guns, in his official capacity as Commissioner of the Public Service Commission of Maryland; Harold Williams, Defendants-Appellants Global Naps, Incorporated; TCGMaryland, Defendants-Appellees United States of America, Intervenor/Defendant-Appellee, and MCIMetro Access Transmission Services, LLC; American Communications Services Of Maryland, Incorporated, d/b/a E.Spire Communications, Incorporated; Maryland Office Of People's Counsel; MCI Worldcom Communications, Incorporated, formerly known as MFS Intelenet of Maryland, Incorporated; RCN Telecom Services Of Maryland, Incorporated; Starpower Communications, LLC; 3 Glenn F. Ivey, in his official capacity as Chairman of the Public Service Commission of Maryland; Claude M. Ligon, in his official capacity as Commissioner of the Public Service Commission of Maryland; E. Mason Hendrickson, in his official capacity as Commissioner of the Public Service Commission of Maryland; Susan Brogan, in her official capacity as Commissioner of the Public Service Commission of Maryland; Core Communications, Incorporated, Defendants.

No. 03-1448NO03-1449.

United States Court of Appeals, Fourth Circuit.

Argued: December 4, 2003.

Decided: August 2, 2004.

Appeal from the United States District Court for the District of Maryland, Frederic N. Smalkin, Senior Judge.

ARGUED

: Aaron M. Panner, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, D.C., for Appellant.

Susan Stevens Miller, General, Public Service Commission of Maryland, Baltimore, MD; Charles Wylie Scarborough, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C.; Donald Beaton Verrilli, Jr., Jenner & Block, L.L.C., Chicago, IL, for Appellees.

ON BRIEF

: Mark L. Evans, Sean A. Lev, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, D.C.; James P. Garland, Miles & Stockbridge, P.C., Baltimore, MD; David A. Hill, Vice President and General, Verizon Maryland Inc., Baltimore, MD, for Appellant.

Gregory G. Katsas, Acting Assistant Attorney General, Thomas M. DiBiagio, United States Attorney, Mark B. Stern, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C.; John J. Hamill, John R. Harrington, Steven J. Winger, Jenner & Block, L.L.C., Chicago, IL; William Single, IV, MCI, Washington, D.C.; Russell M. Blau, Michael W. Fleming, Swidler, Berlin, Shereff, Friedman, L.L.P., Washington, D.C.; James R.J. Scheltema, Director, Regulatory Affairs, Global Naps, Inc., Pensacola, FL; William J. Rooney, Global Naps, Inc., Quincy, MA; Matthew W. Nayden, Ober, Kaler, Grimes & Shriver, Baltimore, MD; Michael A. McRae, AT & T, Oakton, VA, for Appellees.

Before NIEMEYER, MICHAEL, and GREGORY, Circuit Judges.

Reversed and remanded in part, affirmed in part, and dismissed in part by published opinion. Judge MICHAEL wrote the opinion, in which Judge GREGORY joined. Judge NIEMEYER wrote a separate opinion, concurring in part and dissenting in part.

MICHAEL, Circuit Judge:

This case arises from the regulatory scheme created by the Telecommunications Act of 1996 (1996 Act or Act), Pub.L. 104-104, 110 Stat. 56, to promote competition in local telephone markets. It is now before us for the second time after a remand by the Supreme Court. The main question today is this: whether a federal court has jurisdiction over a local carrier's claim that a state utility commission misinterpreted interconnection agreement provisions on reciprocal compensation that are based on federal law. We hold that there is federal question jurisdiction under 28 U.S.C. § 1331. We also hold that the state utility commission had the authority under federal law to impose reciprocal compensation terms in arbitration proceedings. We reject the state commissioners' arguments that the regulatory scheme in the 1996 Act violates the Tenth Amendment, that the incumbent local carrier's amended complaint fails to state a claim, and that the action was not filed on a timely basis. The case will be remanded for further proceedings on the incumbent local carrier's contract misinterpretation claim.

I.

A.

Before the Telecommunications Act of 1996 came along, telephone service in a local calling area was provided by a single local exchange carrier (local carrier), operating as a state-licensed monopoly. The 1996 Act ended the monopoly system and opened local telephone markets to competition. Congress, of course, recognized that a new carrier would not be able to break into a local market if it had to bear the prohibitive costs of building an entire telephone network. See MCI Telecomm. Corp. v. Bell Atl.-Pa., 271 F.3d 491, 498 (3d Cir.2001). Section 251 of the Act therefore requires an incumbent local carrier to share its network and services, on reasonable rates and terms, with a competing carrier seeking to enter a local telephone market. 47 U.S.C. § 251.

A competing carrier may enter a local market by interconnecting with the network of the incumbent local carrier. Interconnection allows "for the transmission and routing of telephone exchange service and exchange access." Id. § 251(c)(2)(A). The duty to interconnect is coupled with other duties set forth in § 251, including the "duty [of all local carriers] to establish reciprocal compensation arrangements for the transport and termination" of telephone calls. Id. § 251(b)(5). The FCC by regulation has limited the reciprocal compensation requirement to local traffic. 47 C.F.R. § 51.701(a) (1996). Thus, when a customer of local carrier A places a call to a customer of local carrier B in the same local exchange area, carrier A pays carrier B for completing the call, usually on a per-minute basis; when the direction is reversed, carrier B pays carrier A for completing the call.

The terms under which two competing local carriers interconnect their networks and provide for reciprocal compensation are set forth in an interconnection agreement. The Act requires both parties to negotiate in good faith in an effort to reach agreement. 47 U.S.C. § 251(c)(1). If the parties fail to reach agreement, § 252 allows the state utility commission to resolve disputed issues through compulsory arbitration. Id. § 252(c)(1). The resulting agreement, whether arrived at through negotiation or arbitration, must be submitted to the state commission for approval. Id. § 252(e). (If a state commission fails to assume this role, the FCC must step in and fill it. Id. § 252(e)(5).) Any party aggrieved by a state commission's determination under § 252 of the Act may bring an action in federal district court "to determine whether the [interconnection] agreement ... meets the requirements" of § 251 and § 252 of the Act. Id. § 252(e)(6).

B.

When the Act went into effect in 1996, Verizon (then called Bell Atlantic Maryland, Inc.) was providing local telephone service in Maryland. As the incumbent local carrier, Verizon proceeded to negotiate an interconnection agreement with a competing local carrier, MFS Intelenet of Maryland, Inc. (We will refer to MFS Intelenet in the name of its successor, MCI WorldCom, Inc. (MCI).) The agreement, signed in July 1996 and approved by the Maryland Public Service Commission (PSC) in October 1996, required the payment of reciprocal compensation "for transport and termination of Local Traffic." J.A. 76. After Verizon and MCI negotiated their interconnection agreement, Verizon entered into substantively identical agreements with certain other competing local carriers. The later interconnection agreements were also approved by the PSC.

A dispute soon arose between Verizon and MCI over whether Verizon had to pay MCI reciprocal compensation for calls Verizon customers made to the local numbers of internet service providers (ISPs) that were MCI customers. Verizon claimed that these ISP-bound calls are not local traffic because ISPs connect their calls to distant internet websites. The issue comes up for a simple reason: ISP-bound traffic goes in one direction; the customers call the ISPs, but the ISPs do not call back. This means that the reciprocal compensation for these calls also flows in one...