Global NAPs, Inc. v. Massachusetts Department of Telecommunications & Energy ( 2005 )

United States Court of Appeals
For the First Circuit
Nos. 04-2313; 04-2334; 04-2397
GLOBAL NAPS, INC.,
Plaintiff, Appellee/Cross-Appellant,
v.
MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY;
PAUL B. VASINGTON, in his capacity as Commissioner; JAMES
CONNELLY, in his capacity as Commissioner; W. ROBERT KEATING, in
his capacity as Commissioner; DEIRDRE K. MANNING, in her capacity
as Commissioner; EUGENE J. SULLIVAN, in his capacity as
Commissioner; and VERIZON NEW ENGLAND, INC.,
Defendants, Appellants/Cross-Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge]
Before
Lynch and Howard, Circuit Judges,
and Restani,* Judge.
Daniel J. Hammond, Assistant Attorney General, with whom
Thomas F. Reilly, Attorney General, was on brief, for Massachusetts
Department of Telecommunications and Energy and Paul B. Vasington,
James Connelly, W. Robert Keating, Deirdre K. Manning, and Eugene
J. Sullivan, in their official capacities as Commissioners.
*
Chief Judge of the United States Court of International
Trade, sitting by designation.
Scott H. Angstreich, with whom Bruce P. Beausejour, Keefe B.
Clemons, Sean A. Lev, and Kellogg, Huber, Hansen, Todd, Evans &
Figel, P.L.L.C., were on brief, for Verizon New England, Inc.
William J. Rooney, Jr., with whom Jeffrey C. Melick was on
brief, for Global NAPs, Inc.
October 18, 2005
LYNCH, Circuit Judge. This case raises a new issue of
importance under the Telecommunications Act of 1996 (TCA), Pub. L.
No. 104-104, 110 Stat. 56 (codified as amended in scattered
sections of 47 U.S.C.). The question is whether the doctrine of
issue preclusion applies so as to bind one state's commission to
apply the findings and conclusions of another state's commission in
disputes between the same parties about the interpretation of
identical contract language contained in different state
interconnection agreements.
The district court concluded that the Full Faith and
Credit Clause compelled application of the doctrine. Its order
bound the Massachusetts Department of Telecommunications and Energy
(DTE), which was interpreting a Massachusetts interconnection
agreement between Global NAPs, Inc. (Global) and Verizon New
England, Inc. (Verizon), to follow the earlier decision of the
Rhode Island Public Utility Commission (RIPUC) as to the effect of
a prior order by the Federal Communications Commission (FCC) on the
parties' Rhode Island interconnection agreement. On de novo
review, we reverse. The district court's reasoning is contrary to
the language of and policies behind the TCA.
Underlying this legal issue is the question of whether
Verizon owes an estimated $30 to $50 million in payments to Global
as "reciprocal compensation" for calls placed by Verizon's
customers to Global's customers connected through an internet
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service provider (ISP) in Massachusetts during the period from July
24, 2000 to June 14, 2001.
The DTE ruled on June 24, 2002 that Verizon did not owe
the reciprocal compensation sought. On Global's federal court
challenge to the DTE order, the court vacated and remanded the DTE
order, ruling that the DTE could not base its decision on an
interpretation of the interconnection agreement that was contrary
to the interpretation reached by the RIPUC on that point; its
remand, however, also allowed that differences between
Massachusetts and Rhode Island law might lead the DTE to a
different ultimate outcome as to payment of reciprocal
compensation. Global NAPs, Inc. v. Verizon New Eng., Inc. (Global
NAPs II), 332 F. Supp. 2d 341, 374-75 (D. Mass. 2004). Verizon and
the DTE took this interlocutory appeal. We reverse and remand to
the district court for further proceedings consistent with this
opinion.1
I.
The TCA was enacted to "promote competition and reduce
regulation in order to secure lower prices and higher quality
1
This case raises different issues than those raised in
Global NAPs, Inc. v. Verizon New England, Inc., 396 F.3d 16 (1st
Cir. 2005); that case revolved around the parties' attempts to
negotiate a new interconnection agreement to replace the one at
issue here. A separate district court case involving an earlier
interconnection agreement between Global and Verizon is
tangentially related for reasons that will become apparent below.
See Global NAPs, Inc. v. New Eng. Tel. & Tel. Co. (Global NAPs I),
226 F. Supp. 2d 279 (D. Mass. 2002).
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services for American telecommunications consumers." 110 Stat. at
56. One of the overriding aims of the TCA was to introduce
competition into the market for local telephone service, which
previously had been monopolized by state-regulated entities created
after the break up of the American Telephone and Telegraph Company
(AT&T). See Verizon Commc'ns. Inc. v. FCC, 535 U.S. 467, 475-76
(2002). Under the TCA, incumbent local exchange carriers (ILECs)
-- that is, the former local phone monopolies -- must allow
competitive local exchange carriers (CLECs) to interconnect with
their phone networks. See 47 U.S.C. § 251(c). Interconnection
allows customers of CLECs to receive calls from, and place calls
to, customers of ILECs.
The TCA imposes a number of duties on local exchange
carriers. See id. §§ 251-52. Most important, for present
purposes, is the duty of all local exchange carriers, whether
incumbent or competitive, "to establish reciprocal compensation
arrangements for the transport and termination of
telecommunications." Id. § 251(b)(5). As between two local
exchange carriers, a "reciprocal compensation arrangement" is "one
in which each of the two carriers receives compensation from the
other carrier for the transport and termination on each carrier's
network facilities of telecommunications traffic that originates on
the network facilities of the other carrier." 47 C.F.R. § 51.701.
For example, generally when a customer of local exchange carrier A
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calls a customer of local exchange carrier B -- so that B must
complete the call -- A must share with B some of the revenues it
receives from its customer to compensate B for use of its
facilities. See Ill. Bell Tel. Co. v. WorldCom Techs., Inc., 157
F.3d 500, 501 (7th Cir. 1998). The FCC has ruled that the
reciprocal compensation obligations under § 251(b)(5) only extend
to traffic that begins and terminates within a local area. See
Local Competition Provisions in the Telecomms. Act of 1996, 11
F.C.C.R. 15499, 16012-13, 16015-16 (1996) (subsequent history
omitted); Pac. Bell v. Pac-West Telecomm Inc., 325 F.3d 1114, 1120
(9th Cir. 2003).
The TCA requires ILECs to negotiate interconnection
agreements with CLECs to provide the terms of interconnection and
"fulfill the duties" enumerated in § 251, including the duty to
establish reciprocal compensation arrangements. 47 U.S.C.
§ 251(c)(1). These agreements can be concluded through voluntary
negotiation or mediation, id. § 252(a), or if these methods fail,
through compulsory arbitration, id. § 252(b). Alternatively, a
CLEC has the option of adopting one of the ILEC's interconnection
agreements that had been previously approved within that state.
Id. § 252(i). Once the parties finalize their interconnection
agreement, it must be submitted to the relevant state's commission
for approval. Id. § 252(e).
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A long-running battle has ensued over whether ISP-bound
traffic is "local telecommunications traffic" subject to reciprocal
compensation within the meaning of the TCA. See, e.g., Bell Atl.
Tel. Cos. v. FCC, 206 F.3d 1, 2-3 (D.C. Cir. 2000). The debate
centers around the question of whether ISP traffic "terminates" at
an ISP when a user in one state dials into a local ISP and visits
a website hosted on a server in another state. The issue could be
argued both ways. One could consider such calls to terminate at
the ISP, with communications between the ISP and the out-of-state
website considered a separate transaction unrelated to the call.
Alternatively, one might consider the call to have terminated in
the state where the web server is located. See id. at 5.
Generally, CLECs like Global tend to have more ISP customers than
do ILECs like Verizon. Since ISPs receive calls that are generally
much longer than voice calls, and do not place calls of their own,
carriers with more ISP customers will be net beneficiaries of a
reciprocal compensation scheme that includes ISP traffic. CLECs
and ILECs, then, have opposing interests. See id. at 3.
In 1998, Global and Verizon began negotiations for an
interconnection agreement in Rhode Island. Global NAPs II, 332 F.
Supp. 2d at 350. Rather than submitting their dispute over
reciprocal compensation for ISP traffic to arbitration, Verizon and
Global agreed to the following compromise provision, § 5.7.2.3, the
language of which is at the heart of the present dispute:
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The Parties . . . disagree as to whether . . . "ISP
Traffic" . . . constitutes Local Traffic as defined
herein, and the charges to be assessed in connection with
such traffic. The issue of whether such traffic
constitutes Local Traffic on which reciprocal
compensation mus[t] be paid pursuant to the [TCA] is
presently before the FCC in CCB/CPD 97-30 and may be
before a court of competent jurisdiction. The Parties
agree that the decision of the FCC in that proceeding, or
[of] such court, shall determine whether such traffic is
Local Traffic (as defined herein) and the charges to be
assessed in connection with ISP Traffic. If the FCC or
such court determines that ISP Traffic is Local Traffic,
as defined herein, or otherwise determines that ISP
Traffic is subject to reciprocal compensation, it shall
be compensated as Local Traffic under this Agreement
unless another compensation scheme is required under such
FCC or court determination. Until resolution of this
issue, [Verizon] agrees to pay GNAPS Reciprocal
Compensation for ISP traffic . . . . (emphasis added)
Contemporaneous interconnection agreements between Global and
Verizon in New York, Maine, New Hampshire, and Vermont contained an
identical provision. The Massachusetts interconnection agreement
in effect between the parties at this time did not contain this
provision.
On February 26, 1999, the FCC issued its ruling in Docket
No. CCB/CPD 97-30, the proceeding specifically referred to in
§ 5.7.2.3.2 In this decision, the FCC concluded that ISP-bound
traffic is "largely interstate" and thus did not fall under the
reciprocal compensation duties imposed by 47 U.S.C. § 251. Local
Competition Provisions in the Telecomms. Act (Internet Traffic
Order), 14 F.C.C.R. 3689, 3705-06 (1999). The FCC suggested that
2
The FCC consolidated Docket No. CCB/CPD 97-30 into Docket
No. 96-98. Global NAPs II, 332 F. Supp. 2d at 350-51.
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its decision "might cause some state commissions to re-examine"
their decisions "to the extent that [they] are based on a finding
that [ISP] traffic terminates at an ISP server." Id. at 3706. But
the FCC also stated that it did not intend to "preclude[] state
commissions from determining, pursuant to contractual principles or
other legal or equitable considerations, that reciprocal
compensation is an appropriate interim inter-carrier compensation
rule" pending final rulemaking by the FCC on such compensation for
ISP-traffic. Id.
Soon after the FCC issued the Internet Traffic Order,
Verizon stopped making reciprocal compensation payments to Global
under the Rhode Island interconnection agreement and other
agreements containing § 5.7.2.3. Global filed a complaint with the
RIPUC under the Rhode Island agreement, contending that it was
entitled to continued payments because the condition for non-
payment -- "resolution of [the] issue" -- had not been met: it
argued that the Internet Traffic Order had left to state
commissions the ability to determine whether reciprocal
compensation payments were required under "contractual principles
or other legal or equitable considerations." Verizon argued to the
contrary: that the FCC had effectively resolved the issue in
deciding that ISP traffic was non-local interstate traffic not
subject to the reciprocal compensation duties imposed by 47 U.S.C.
§ 251. The RIPUC agreed with Global and found that the Internet
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Traffic Order did not resolve the issue of whether "ISP Traffic
constitutes 'local traffic' for which reciprocal compensation must
be paid under the [interconnection agreement]." It relied in part
on a prior order in which it had held that "in the absence of a
federal rule establishing an appropriate interstate mechanism," it
had "the authority to resolve disputes concerning reciprocal
compensation provisions contained in [interconnection agreements]."
It appears that at the time, the RIPUC had not yet come to any
conclusion on "whether ISP Traffic is subject to reciprocal
compensation"; it had only just "opened a general inquiry into the
issue." The RIPUC remarkably concluded "the undisputed fact that
[Global] has filed a complaint against [Verizon] . . . creates a
presumption that the 'issue' has not been resolved." Since Verizon
could not rebut this presumption, RIPUC found that § 5.7.2.3
"clearly and unambiguously requires [Verizon] to make reciprocal
payments to [Global]." Verizon did not contest this ruling, and
resumed reciprocal compensation payments to Global for ISP traffic
in Rhode Island.
Meanwhile, in Massachusetts, the story developed quite
differently. Global NAPs and Verizon's first interconnection
agreement in Massachusetts was signed in 1997.3 Global NAPs II,
332 F. Supp. 2d at 350. In October 1998, the DTE ruled that FCC
3
In Global NAPs I, the court dealt with the issue of
reciprocal compensation under this earlier agreement. 226 F. Supp.
2d at 289-90.
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precedent bound it to conclude that ISP traffic was subject to
reciprocal compensation. Id. But after the FCC issued its
Internet Traffic Order, the DTE revisited its October 1998
decision. In May 1999, the DTE held that as of February 26, 1999,
the date of the Internet Traffic Order, local exchange carriers in
Massachusetts were no longer required to pay reciprocal
compensation for ISP-bound traffic. Id. at 352. In this order,
the DTE referred to the Internet Traffic Order as "liberating,"
since it had previously felt bound by FCC precedent to treat ISP
traffic as local traffic subject to reciprocal compensation under
the TCA.4 Id.On March 24, 2000, in the first appeal of the Internet
Traffic Order, the D.C. Circuit vacated the Internet Traffic Order
and remanded to the FCC, finding that the FCC's rationale for
treating ISP-bound traffic as interstate traffic for the purposes
of reciprocal compensation was inadequate. See Bell Atl. Tel. Cos.
206 F.3d at 9. The D.C. Circuit was to revisit this issue later.
In the interim, on June 16, 2000, the FCC approved the
merger of Verizon's predecessors into Verizon. See Application of
GTE Corp., Transferor, and Bell Atl. Corp., Transferee (Merger
Order), 15 F.C.C.R. 14032 (2000). As one of the conditions for
4
This May 1999 order was vacated in Global NAPs I, because
the DTE had failed to consider whether reciprocal compensation
might be required under contract law or other legal or equitable
principles, as the Internet Traffic Order allowed it to do. Global
NAPs I, 226 F. Supp. 2d at 288-89, 294-95.
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approval of the merger, the FCC required Verizon to allow a CLEC in
any one state to adopt any of Verizon's interconnection agreements
previously approved by a different state commission. Id. app. D at
14310; see also 47 U.S.C. § 252(i); 47 C.F.R. § 51.809 (allowing a
CLEC to adopt one of an ILEC's interconnection agreements
previously approved within that state). The provision containing
this condition is referred to by the parties and the district court
as "Paragraph 32." Paragraph 32 included the following language:
"[Verizon] shall not be obligated to provide pursuant to this
Paragraph any interconnection arrangement . . . unless it . . . is
consistent with the laws and regulatory requirements of . . . the
state for which the request is made." Merger Order, 15 F.C.C.R. at
14310.
On July 24, 2000, Global notified Verizon that, pursuant
to Paragraph 32, it wished to adopt the Rhode Island
interconnection agreement for the parties' dealings in
Massachusetts. However, Verizon and Global disagreed as to whether
§ 5.7.2.3 could be adopted under Paragraph 32. On November 15,
2000, the parties agreed that, effective back to July 24, 2000,
Global could adopt in Massachusetts all provisions of the Rhode
Island agreement that were consistent with Paragraph 32, thus
reserving Verizon's right to contest the adoption of § 5.7.2.3.
During pendency of negotiations between the parties, Verizon did
not pay Global reciprocal compensation for ISP-bound traffic.
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On April 27, 2001, Global filed a complaint with the FCC,
claiming it was entitled to adopt § 5.7.2.3 and seeking damages
based on its interpretation of that section. On February 21, 2002,
the FCC held that Verizon was required to offer the entire Rhode
Island agreement, including § 5.7.2.3, to Global in Massachusetts.
See Global NAPs, Inc. (Paragraph 32 Order), 17 F.C.C.R. 4031, 4039
(2002). Importantly, it also noted that under the terms of
Paragraph 32, "only the relevant state commission may ultimately
decide whether particular terms of the agreement should be adopted
in that state, and if so, what those terms mean." Id. at 2039
(emphasis added). The FCC also held that Global's damages claim
was "premature" because the DTE had yet to approve an
interconnection agreement between the parties that contained the
contested provision. Id. at 2040.
In the meantime, the FCC issued an order in response to
the D.C. Circuit's remand of the Internet Traffic Order. See Local
Competition Provisions in the Telecomms. Act of 1996 (Order on
Remand), 16 F.C.C.R. 9151 (2001). In the Order on Remand, the FCC
held once again that the "provisions of section 251(b)(5) do not
extend to ISP-bound traffic" but rested its decision on different
legal grounds. Id. at 9153. In addition, the FCC set up a new
compensation scheme for ISP-bound traffic, which would become
effective starting June 14, 2001. The FCC also made clear that it
had exclusive regulatory authority to address the issue, so that
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state commissions no longer have the power to do the same. Id. at
9168-69, 9189. In its consideration of the Order on Remand, the
D.C. Circuit held that the FCC could not validly base its actions
on the new legal grounds. See WorldCom, Inc. v. FCC, 288 F.3d 429,
433-34 (D.C. Cir. 2002). It did not vacate the FCC order, but
found the agency needed to provide a different rationale. Id. at
434. The result is that the Order on Remand still remains in
force. See Verizon Md. Inc. v. Global NAPs, Inc., 377 F.3d 355,
367 (4th Cir. 2004).
Thus, the parties here agree that the Order on Remand
"resolved" the question of reciprocal compensation for ISP traffic
by setting up a new compensation scheme from June 14, 2001 going
forward.5 But in Massachusetts there remains the question of
reciprocal compensation for ISP-bound traffic between July 24, 2000
(when the language of the Rhode Island agreement went into effect
in Massachusetts through the Massachusetts interconnection
agreement) and June 14, 2001 (when the alternative compensation
scheme in the Order on Remand went into effect). See Global NAPs
II, 332 F. Supp. 2d at 355.
In March 2002, Verizon submitted the Massachusetts
interconnection agreement containing terms identical to those in
the Rhode Island agreement for retrospective approval by the DTE.
5
There is no dispute in Rhode Island that this is the effect
of the Order on Remand.
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Before the DTE, Global argued that since it and Verizon had fully
litigated the issue of whether the Internet Traffic Order was
"resolution of this issue" under the identically worded Rhode
Island agreement before the RIPUC, the DTE was collaterally
estopped from relitigating the same. The DTE rejected Global's
argument. The DTE approved the Massachusetts agreement in its
entirety on June 24, 2002, but held that it was not bound by
RIPUC's interpretation and reached its own interpretation. It
noted that Paragraph 32 allowed the DTE to ensure that the
agreement was "consistent with the laws and regulatory requirements
of . . . the state for which the request is made." The DTE made
note of its prior precedent -- in particular, its May 1999 order
finding that the Internet Traffic Order had held that ISP traffic
was interstate traffic and thus not subject to reciprocal
compensation under the TCA. The DTE concluded that based on this
precedent it was required to find that the Internet Traffic Order
was resolution of the issue under the meaning of § 5.7.2.3.
Therefore, Global was not entitled to reciprocal compensation for
ISP-bound traffic during the relevant time period, between July 14,
2000 and June 14, 2001.
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Global filed suit challenging the DTE ruling.6 Global
asserted a number of claims in its complaint, including, most
importantly for our review, a claim that the DTE's decision not to
be bound by the RIPUC decision on the issue violated the Full Faith
and Credit Clause of the U.S. Constitution. See Global NAPs II,
332 F. Supp. 2d at 359. The district court issued a lengthy and
thoughtful decision on August 26, 2004, granting in part Global's
motion for summary judgment. Id. at 375. The court found the
RIPUC conclusion regarding the effect of the Internet Traffic Order
on § 5.7.2.3 could not be relitigated before the DTE. Id. at 345.
The court noted, however, that it was "possible that, in view of
the state of the law in Rhode Island in 1999, the issue was not
resolved, but, in view of the state of the law in Massachusetts,
the issue was resolved." Id. at 374. Thus, the court remanded the
case to the DTE to determine "whether and when Massachusetts state
legal or equitable principles that might serve as the foundation of
any obligation to pay reciprocal compensation were so well-settled
that the issue was resolved within the meaning of the parties'
6
Global also petitioned the DTE for reconsideration of its
order since the court in Global NAPs I had subsequently vacated the
DTE's May 1999 order, which the DTE had relied on heavily when
interpreting the interconnection agreement here. The DTE denied
this petition, and Global filed a second suit seeking review of
this denial. The district court in this case allowed the joint
motion of all parties to consolidate the two cases. See Global
NAPs II, 332 F. Supp. 2d at 343.
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agreement through a combination of the [Internet Traffic Order] and
Massachusetts state law." Id. at 345-46.
Verizon and the DTE each appealed, arguing that the
district court incorrectly applied the Full Faith and Credit
Clause. Global cross-appealed, claiming that the district court
erred in remanding the case to the DTE rather than reversing the
DTE decision outright.
We first address the question of appellate jurisdiction.
II.
While neither party challenges jurisdiction, "[w]e have
an obligation to inquire sua sponte into our jurisdiction over the
matter." Doyle v. Huntress, Inc., 419 F.3d 3, 6 (1st Cir. 2005)
(citing Florio v. Olson, 129 F.3d 678, 680 (1st Cir. 1997)).7 It
is clear that "the federal courts have subject matter jurisdiction
to review state agency determinations under the TCA for compliance
with federal law, pursuant to 28 U.S.C. § 1331." Global NAPs,
Inc. v. Verizon New Eng., Inc., 396 F.3d 16, 21-22 (1st Cir. 2005).
However, subject to a few exceptions not applicable here, we have
appellate jurisdiction only over "final decisions" of the district
courts under 28 U.S.C. § 1291. Generally, a district court order
7
Shortly after Verizon and the DTE filed this appeal, we
issued an Order to Show Cause directing the parties to address the
issue of our appellate jurisdiction in light of the district
court's remand order. In a later order, we referred the issue of
appellate jurisdiction to the panel, and asked the parties to
address certain jurisdictional questions in their opening briefs.
Verizon and DTE responded to our request, while Global did not.
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that remands to an administrative agency for further proceedings is
not considered a "final decision" within the meaning of § 1291.
See Mall Props., Inc. v. Marsh, 841 F.2d 440, 441-42 (1st Cir.
1988). Here we are faced with a remand order.
Verizon and the DTE argue that we nonetheless have
jurisdiction over this appeal because it falls in the "category of
cases in which an immediate appeal by a governmental agency is
allowed . . . , because otherwise the [agency] would be unlikely to
obtain review." Colon v. Sec'y of Health & Human Servs., 877 F.2d
148, 151 (1st Cir. 1989); see also Marsh, 841 F.2d at 443(suggesting jurisdiction would be appropriate in cases where
"unless review [is] accorded immediately, the agency likely would
not be able to obtain review").
This court has recognized our ability to review orders
remanding agency proceedings in situations similar to this one.
See Colon, 877 F.2d at 151-52; United States v. Alcon Labs., 636
F.2d 876, 884-85 (1st Cir. 1981); Lopez Lopez v. Sec'y of Health,
Educ. & Welfare, 512 F.2d 1155, 1156 (1st Cir. 1975).
For example, in Colon, the district court had remanded a
social security disability insurance benefits case to the Secretary
of Health and Human Services, ordering him to reopen an earlier
decision that had denied benefits. Colon, 877 F.2d at 151. The
Secretary appealed that order. We found that we had appellate
jurisdiction because otherwise "the Secretary [was] unlikely to
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obtain review of this important issue which is distinct from the
underlying merits of the claim of disability." Id. We noted that
if the Secretary decided to grant benefits on remand, it would be
"doubtful whether the Secretary could then appeal from his own
decision to grant benefits." Id. Even if the Secretary decided to
deny benefits, "[a]rguing that the district court has no
jurisdiction to order the Secretary to reopen a previous final
decision after that decision, in fact, has been reopened is largely
an academic exercise." Id. at 152.
Similarly, the Eleventh Circuit, in considering a TCA
case, held that it had jurisdiction to consider the appeal by the
Florida Public Service Commission and BellSouth of a district
court's order remanding the case to the state commission:
[T]here is a widely recognized distinction between
remands where a district court simply orders the agency
to proceed under a 'certain legal standard,' and in
situations where a district court remands for further
consideration of evidence. A remand order generally is
found appealable in the former cases because the agency,
forced to conform its decision to the district court's
mandate, cannot appeal its own subsequent order.
MCI Telecomms. Corp. v. BellSouth Telecomms. Inc., 298 F.3d 1269,
1271 (11th Cir. 2002) (internal citation omitted) (citing
Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 329–30 (D.C. Cir.
1989)). Other circuits considering an appeal under the TCA
challenging a district court order that had remanded to a state
commission seem to have assumed they had jurisdiction sub silentio.
See, e.g., Ind. Bell Tel. Co. v. McCarty, 362 F.3d 378, 382, 395
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(7th Cir. 2004); Sw. Bell Tel. Co. v. Pub. Util. Comm'n, 348 F.3d
482, 485, 487 (5th Cir. 2003); US W. Commc'ns, Inc. v. Jennings,
304 F.3d 950, 959 (9th Cir. 2002); MCI Telecomm. Corp. v. Bell
Atl.-Pa., 271 F.3d 491, 498, 521 (3d Cir. 2001); AT&T Commc'ns of
the S. States, Inc. v. BellSouth Telecomms. Inc., 229 F.3d 457, 459
(4th Cir. 2000).
For reasons similar to those given in Colon, we hold we
have appellate jurisdiction over this matter. The circumstances of
this case make clear that if review is denied at this stage, the
DTE will be unable to "obtain review of this important issue
distinct from the underlying merits of the claim of disability,"
see Colon, 877 F.2d at 150, because the district court has "simply
order[ed] the agency to proceed under a certain legal standard,"
MCI Telecomms., 298 F.3d at 1271 (internal quotation marks
omitted). If on remand from the district court, the DTE were to
reverse course and find that Global was due reciprocal
compensation, the DTE would be unable to appeal its own order for
the purpose of raising the issue raised here. Even if one of the
parties appealed this hypothetical later decision, the DTE would be
placed in the awkward position of challenging the district court's
original decision, while simultaneously defending its subsequent
order applying the district court's legal standards.
Alternatively, if the DTE once again denies Global's claim for
reciprocal compensation, and Global were to once again appeal this
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determination, the DTE's appeal of the district court's original
ruling would be "largely an academic exercise of little practical
significance." See Colon, 877 F.2d at 152. In this scenario, the
most salient issue on appeal would instead be whether the DTE's
alternative grounds were sufficient to support its decision.
Since we have jurisdiction over DTE's appeal, we may also
hear Verizon's appeal raising the same issue. See MCI Telecomms.,
298 F.3d at 1271 (hearing appeal of both the state commission and
a private party); NAACP v. U.S. Sugar Corp., 84 F.3d 1432, 1436
(D.C. Cir. 1996) ("[W]hat matters for the purposes of our appellate
jurisdiction is whether the district court's decision -- and not
any particular party challenging it -- is properly before us . . .
.").
Global's cross-appeal is a different matter. Global
argues that the district court erred in ordering a remand to the
DTE rather than reversing the DTE's decision outright. In a
nutshell, Global's argument is that the DTE is constrained by its
own administrative precedent from finding that reciprocal
compensation cannot be paid. These arguments go to the heart of
the underlying debate between Global and Verizon, and in making
these arguments Global asks us to reach issues not decided by the
district court. We decline to do so, and find that Global's cross-
appeal is not properly before us.
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III.
We turn now to the merits of the appeal. The district
court held:
[A] state public utility commission's conclusions of
state law relating to an interconnection agreement are
entitled to preclusive effect in subsequent proceedings
before other states' public utility commissions to the
same extent that they would receive preclusive effect in
the first state's courts.
Global NAPs II, 332 F. Supp. 2d at 366. It implicitly held that
Rhode Island law would require the DTE to be bound by the RIPUC's
decision. The district court based its decision on its view that
principles of collateral estoppel, or "issue preclusion," rooted in
the Full Faith and Credit Clause required such a holding. See AVX
Corp. v. Cabot Corp., No. 04-2656, slip op. at 6 (1st Cir. Sept.
13, 2005) (describing the difference between issue and claim
preclusion). We review this conclusion of federal law de novo.
The Full Faith and Credit Clause provides: "Full Faith
and Credit shall be given in each State to the public Acts,
Records, and judicial Proceedings of every other State. And the
Congress may by general Laws prescribe the Manner in which such
Acts, Records, and Proceedings shall be proved, and the Effect
thereof." U.S. Const. art IV, § 1. Congress, exercising its power
under this provision, passed 28 U.S.C. § 1738, which provides that
the "Acts, records and judicial proceedings . . . [of any State]
shall have the same full faith and credit in every court within the
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United States . . . as they have by law or usage in the courts of
[the] State . . . from which they are taken."
There is no claim that the Full Faith and Credit Clause
compels full faith and credit be given to the unreviewed decisions
of state administrative agencies. And, under University of
Tennessee v. Elliott, 478 U.S. 788 (1986), the statute, § 1738,
does not apply to unreviewed decisions of state administrative
agencies. However, Supreme Court precedent makes clear that we
must determine whether application of a federal common law rule of
issue preclusion is appropriate here.
To set the scene, we describe briefly the requirements of
federal issue preclusion law, but do not rest on that ground. We
also assume arguendo that issue preclusion applies to an unreviewed
administrative agency proceeding.8 See Bath Iron Works Corp. v.
Dir., Office of Workers' Comp., 125 F.3d 18, 21 (1st Cir. 1997)
("[T]he subject [of preclusion in administrative contexts] is a
8
The courts generally "favor[] application of the common-law
doctrines of collateral estoppel (as to issues) and res judicata
(as to claims) to those determinations of administrative bodies
that have attained finality." Astoria Fed. Sav. & Loan Ass'n v.
Solimino, 501 U.S. 104, 107 (1991). This is true even "when the
issue has been decided by an administrative agency, be it state or
federal, which acts in a judicial capacity." Id. at 108 (citation
omitted) (citing Elliott, 478 U.S. at 798); see also United States
v. Utah Constr. & Mining Co., 384 U.S. 394, 422 (1996) ("When an
administrative agency is acting in a judicial capacity and
resolve[s] disputed issues of fact properly before it which the
parties have had an adequate opportunity to litigate, the courts
have not hesitated to apply res judicata to enforce repose.").
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complex one, with many variations; and it is perhaps well not to
generalize too broadly.").9
In Monarch Life Insurance Co. v. Ropes & Gray, 65 F.3d
973 (1st Cir. 1995) this court set forth the following "federal
preclusion principles": "(1) both the . . . proceedings involved
the same issue of law or fact; (2) the parties actually litigated
the issue in the [prior] proceeding[]; (3) the [first] court
actually resolved the issue in a final and binding judgment . . .
; and (4) its resolution of that issue of law or fact was essential
to its judgment (i.e., necessary to its holding)." Id. at 978(emphases in original); see also In re Bankvest Capital Corp., 375
F.3d 51, 70 (1st Cir. 2004). We have serious doubts about whether
this test could be met on the facts presented here, because it is
not at all clear that the RIPUC and the DTE decided "the same issue
of law or fact."10 The RIPUC here came to the conclusion that
9
See also 18B C. Wright, A. Miller & E. Cooper, Federal
Practice and Procedure § 4475, at 474-75 (2d ed. 2002) ("Preclusion
is much less likely to attach when a proceeding in one agency is
followed by a proceeding in another agency. . . . When the agencies
are creatures of different governments, all of the principles that
generally prevent one government from precluding another are at
work.").
10
There is considerable debate among the parties as to whether
the "issue" decided by the RIPUC was one of fact, law, or a mixed
question of fact or law. Verizon and the DTE argue that issue
preclusion is inappropriate when the issue decided by the first
state administrative agency was one of law rather than fact. See
Edmunson v. Borough of Kennett Square, 4 F.3d 186, 193 (3d Cir.
1993). Global argues that the issue is one of fact and so Edmunson
is inapposite, and in the alternative, that even if the issue were
one of law, issue preclusion should apply. The district court came
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federal law (viz, the Internet Traffic Order) did not "resolve" the
issue within the meaning of the parties' Rhode Island agreement,
relying at least in part on the fact that the question of
reciprocal compensation was still open in Rhode Island. The DTE,
in contrast, found that the Internet Traffic Order did resolve the
issue, but based its finding on its "well established position on
the issue of reciprocal compensation." Indeed, as of May 1999,
after the Internet Traffic Order had "liberat[ed]" it from its
earlier assumption that federal law required reciprocal
compensation, the DTE had come to a settled conclusion that
reciprocal compensation was not required.11
It is against the backdrop of its May 1999 order that the
DTE decided the present question of whether the FCC's Internet
Traffic Order "resolved" the issue of reciprocal compensation for
ISP-bound traffic. No similar "well-established position" guided
to the conclusion that the RIPUC decided an issue of law, but held
that issue preclusion was required. Global NAPs II, 332 F. Supp.
2d at 366 (citing Miller v. County of Santa Cruz, 39 F.3d 1030,
1037 & n.7 (9th Cir. 1994)). We do not resolve the parties'
disagreement about whether the DTE ruling is one of law or of fact
or of mixed law and fact.
11
The fact that the DTE's May 1999 order was subsequently
vacated and remanded in Global NAPs I, is of no import. The
district court in Global NAPs I simply remanded to the agency to
consider whether reciprocal compensation would be required under
state contractual or equitable principles. The DTE concluded that
compensation would not be required, and this decision was upheld
upon review by the Supreme Judicial Court of Massachusetts.
See MCI WorldCom Commc'ns, Inc. v. Dep't of Telecomms. and Energy,
810 N.E.2d 802, 812 (Mass. 2004).
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the RIPUC in making its decision. It is difficult, then, to see
for preclusion purposes why the DTE and RIPUC decided the "same
issue of law or fact." See 18C C. Wright, A. Miller & E. Cooper,
Federal Practice and Procedure § 4425, at 659 (2d ed. 2002)
("Preclusion . . . may be defeated by showing . . . that there has
been a substantial change in the legal climate suggesting a new
understanding of the governing legal rules that may require a
different application.").12
Nonetheless, we do not rest on this ground because there
is of necessity a prior analysis. As the Supreme Court made clear
in Elliott, we must first answer the preliminary question of
whether application of a federal common law rule of issue
preclusion would be consistent with Congress's intent in enacting
the TCA. Elliott, 478 U.S. at 796; see also Astoria Fed. Sav. &
Loan Ass'n v. Solimino, 501 U.S. 104, 110 (1991). We find that, on
the facts of this case, it would not.
Elliott controls the structure of analysis. In Elliott,
a discharged employee of the university had filed a complaint with
a state administrative agency, claiming his discharge was racially
12
Courts should be particularly cautious about enforcing issue
preclusion rules across state lines because in contrast to the
rules of claim preclusion, "[m]any issue preclusion rules fall far
outside the central role of judicial finality." 18B C. Wright, A.
Miller & E. Cooper, supra, § 4467, at 42. There are many
situations where full faith and credit does not compel issue
preclusion rules to be applied in the second state. Id. § 4467, at
42-43.
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motivated. 478 U.S. at 790. When his claims were denied by the
state agency, rather than seeking review in the state courts, the
employee went to federal district court with claims under Title VII
of the Civil Rights Act of 1964, the Constitution, and the
Reconstruction-era civil rights statutes. Id. The district court
granted summary judgment for the university on the ground that the
state administrative decision was entitled to preclusive effect.
Id. at 792. The Supreme Court noted first that the full faith and
credit statute, 28 U.S.C. § 1738, did not apply to unreviewed
administrative factfinding. Id. at 794. As a result, the Court
had to "fashion federal common-law rules of preclusion in the
absence of a governing statute." Id. It determined that, with
respect to the employee's Title VII claim, the question of whether
the state administrative decision was entitled to preclusive effect
depended on "whether a common-law rule of preclusion would be
consistent with Congress'[s] intent in enacting Title VII." Id. at
796. The Court concluded based on the language and legislative
history of Title VII that "Congress did not intend unreviewed state
administrative proceedings to have preclusive effect on Title VII
claims." Id.; see also Solimino, 501 U.S. at 112-13 (holding that
unreviewed findings of a state administrative agency with respect
to an age discrimination claim had no preclusive effect on federal
proceedings under the Age Discrimination in Employment Act). In
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resolving the present dispute, we ask the same question as to
congressional intent in enacting the TCA.
The district court distinguished Elliott and Solimino
because "[a]s they involved decisions to be made by the federal
government, rather than a state, they were governed by the common
law of issue preclusion rather than the Full Faith and Credit
Clause." Id. at 366. However, there is nothing in those cases to
suggest that their holdings on the preclusive reach of judicially
unreviewed decisions of state agencies were limited to situations
where the subsequent case was in federal court.
In order to find that issue preclusion applies, the
district court held that "there is nothing explicit or implicit in
the [TCA] that indicates that Congress intended to depart from the
traditional rules of preclusion." Id. We disagree. Our
examination of the TCA leads us to conclude that to apply
principles of issue preclusion, at least in the situation presented
here, would contravene the intent of Congress.
In a sense, issue preclusion rules are about allocation
of authority to decide a question. General application of the
federal common law of issue preclusion would threaten two different
allocations of power under the TCA: the allocation among the
commissions of each state as to the effectuation of their state's
policies and the allocation of power between the FCC and the
states.
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The model under the TCA is to divide authority among the
FCC and the state commissions in an unusual regime of "cooperative
federalism," see P.R. Tel. Co. v. Telecomms. Regulatory Bd., 189
F.3d 1, 8 (1st Cir. 1999), with the intended effect of leaving
state commissions free, where warranted, to reflect the policy
choices made by their states. See P. Huber et al., Federal
Telecommunications Law §§ 3.3.3-3.3.4 (2d ed. 1999). Rather than
placing the entire scope of regulatory authority in the federal
government, "Congress enlisted the aid of state public utility
commissions to ensure that local competition was implemented fairly
and with due regard to the local conditions and the particular
historical circumstances of local regulation under the prior
regime." Id. § 3.3.4, at 227. We see little indication that
Congress intended its explicit allocation of authority between
state commissions to be generally displaced by common law rules
that themselves allocate authority.
The goal of preserving a role for the state regulatory
commissions is reflected in a number of provisions in the TCA.
Congress expressly left with the states the power to enforce "any
regulation, order, or policy of a State commission that . . .
establishes access and interconnection obligations of local
exchange carriers; . . . is consistent with the requirements of
this section; and . . . does not substantially prevent
implementation of the requirements of this section and the purposes
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of this part." 47 U.S.C. § 251(d)(3). While the TCA prevents
states and localities from passing laws "hav[ing] the effect of
prohibiting the ability of any entity to provide interstate or
intrastate telecommunications service," id. § 253(a), it allows "a
State to impose, on a competitively neutral basis . . . ,
requirements necessary to preserve and advance universal service,
protect the public safety and welfare, ensure the continued quality
of telecommunications services, and safeguard the rights of
consumers," id. § 253(b).
The role played by state commissions is especially
important with respect to interconnection agreements. State
commissions are given the authority to resolve though arbitration
or mediation any open issues in ongoing negotiations for
interconnection agreements. Id. § 252(a)(2). Before an
interconnection agreement goes into effect, it must be approved by
a state commission, which may reject the agreement if it "is not
consistent with the public interest, convenience, and necessity" or
it "discriminates against a telecommunications carrier not a party
to the agreement." Id. § 252(e)(2). Congress expressly preserved
each state's authority to "establish[] or enforc[e] other
requirements of State law in [a State commission's] review of an
agreement, including requiring compliance with intrastate
telecommunications service quality standards or requirements" as
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long as those requirements do not serve as barriers to entry. Id.
§ 252(e)(3).
In addition to threatening the allocation of authority
under the TCA among the states as to protection of their own state
interests, general implementation of default common law issue
preclusion rules could threaten the authority allocated to the FCC.
Congress gave the federal government an extensive oversight role.
Under the TCA, the FCC has authority to preempt state jurisdiction
over regulation of intrastate communications in a number of
specific situations. For example, if a state commission fails to
carry out the duties required of it with respect to its
consideration of a particular interconnection agreement, the FCC is
given authority to preempt the state commission's jurisdiction and
assume direct responsibility for that agreement. Id. § 252(e)(5).
Direct review of the state commission's failure to act is
foreclosed; the FCC's actions in response to an alleged failure to
act, and judicial review of those actions, are the "exclusive
remedies." Id. § 252(e)(6). In addition, the FCC may preempt the
enforcement of a state or local law if it finds, after notice and
an opportunity for comment, that the law acts as a barrier to
entry. Id. § 253(e). In addition to these specific grants of
authority, the FCC has broad regulatory authority over the TCA.
See id. § 201(b) ("The Commission may prescribe such rules and
regulations as may be necessary in the public interest to carry out
-30-
the provisions of this chapter."); AT&T Corp. v. Iowa Utils. Bd.,
525 U.S. 366, 378 (1999) (interpreting § 201 to extend to the local
competition provisions of the TCA).
Indeed, the FCC has issued its own orders and regulations
that have made clear that, at times, individual state commissions
are to decide matters and that, at other times, one state
commission's determination is owed some deference. The FCC, in
exercising the power granted to it under the TCA, has indicated
that the DTE is the decision-making authority as to the issue here.
In Paragraph 32, the FCC noted that the adoption of an
interconnection agreement from another state was subject to the
proviso that the agreement had to be "consistent with the laws and
regulatory requirements of . . . the state for which the request is
made." Merger Order, 15 F.C.C.R. 14032 app. D at 14310. In
considering the agreement here, the FCC reiterated that under the
terms of Paragraph 32 "only the relevant state commission may
ultimately decide whether particular terms of the agreement should
be adopted in that state, and if so, what those terms mean."
Paragraph 32 Order, 17 F.C.C.R. at 4039.
As a result of these orders, the FCC has essentially done
three things. It has said that nothing in the TCA itself requires
as a matter of federal law that Verizon pay the reciprocal
compensation charges. It has also said that each state commission
may make its own determination on the issue under state law. And
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although the FCC required Verizon to enter an agreement with Global
using the same language as the Rhode Island agreement, it also
recognized that there was a dispute about that language and that
the relevant state commission (the DTE) should decide the issue.
For a court to step in and shift the state-by-state
decision-making authority from the Massachusetts DTE to the RIPUC
on this issue would upset the allocations of authority made out
under the TCA. A judicially imposed rule of preclusion here would
also set up an opportunity for regulatory arbitrage contrary to the
purposes of the TCA. It is common in the telecommunications world
for ILECs and CLECs to negotiate multiple interconnection
agreements across multiple states simultaneously, and these
agreements often contain identical terms. Given this fact, a rule
granting preclusive effect to the decision of the first state
commission on a particular issue creates the risk of perverse
incentives. Carriers looking to lock in a friendly interpretation
will race to the state commission with the most amenable views, and
perhaps leverage that decision to their advantage in other states.
The state commissions themselves would be encouraged to decide an
issue as quickly as possible, to preserve their independence and to
avoid being bound by another state agency's interpretations of
contractual terms. These results cut directly against Congress's
desire, as evinced by the text and structure of the TCA, "to ensure
that local competition [be] implemented fairly and with due regard
-32-
to the local conditions and the particular historical circumstances
of local regulation under the prior regime." P. Huber et al.,
supra, § 3.3.4, at 227.
To be sure, in some other circumstances, deference by one
state commission to another state's conclusions may be appropriate.
For example, the FCC has chosen to give presumptive effect to
certain findings regarding technical feasibility by one state
commission. See 47 C.F.R. § 51.319(b)(3)(ii) ("Once one state
commission has determined that it is technically feasible to
unbundle subloops at a designated point, an incumbent LEC in any
state shall have the burden of demonstrating to the state
commission . . . that it is not technically feasible . . . to
unbundle its own loops at such a point."); id. § 51.230(c) ("Upon
a successful demonstration by [a competing] carrier before a
particular state commission [that 'deployment of a technology falls
within the presumption under paragraph (a)(3) of this section'],
the deployed technology shall be presumed acceptable for deployment
in other areas."). This presumption operates not because of the
law of issue preclusion but because the FCC has chosen this as an
appropriate method of achieving uniformity. The FCC has not
created any similar presumptions as to the issues presented here.
In part because of the complications of the TCA's scheme
of cooperative federalism, we do not think it wise to decide this
case in the broad terms urged by the parties. We do not address
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whether the enactment of the TCA itself displaced all aspects of
the federal common law of issue preclusion in the area. Nor do we
address the extent to which the TCA assigns the task of
displacement or adoption of rules of issue preclusion to the FCC.
We also do not resolve the dispute as to whether interconnection
agreements are creatures of state law or federal law. Rather, we
simply find that under the circumstances presented here,
application of common law principles of issue preclusion would
contravene the intent of Congress. The district court was in error
when it held otherwise.
IV.
We reverse the district court's judgment and vacate the
order remanding the matter to the DTE; we remand to the district
court for further proceedings consistent with this opinion. Costs
are awarded to Verizon and the DTE.
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