Cavalier Telephone v. Verizon Virginia ( 2003 )

Filed: June 6, 2003
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 02-1337
(CA-01-736-3)
Cavalier Telephone, LLC,
Plaintiff - Appellant,
versus
Verizon Virginia, Incorporated,
Defendant - Appellee.
O R D E R
The court amends its opinion filed May 20, 2003, as follows:
On page 9 -- the designation for the footnote is corrected,
from “1” to “*.”
On page 26, first full paragraph, line 8 -- the word “true” is
deleted; the words now read “may prove that it ....”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
4444444444444444444444444444444444444444444444447
CAVALIER TELEPHONE, LLC,
Plaintiff-Appellant,
v.
VERIZON VIRGINIA, INCORPORATED,
Defendant-Appellee,
INTEGRITY TELECONTENT,
Movant.
COVAD COMMUNICATIONS COMPANY; No. 02-1337
AT&T CORPORATION;
ASSOCIATION FOR LOCAL
TELECOMMUNICATIONS SERVICES,
Amici Supporting Appellant.
UNITED STATES TELECOM
ASSOCIATION; BELLSOUTH
CORPORATION; SBC COMMUNICATIONS,
INCORPORATED,
Amici Supporting Appellee.
4444444444444444444444444444444444444444444444448
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
James R. Spencer, District Judge.
(CA-01-736-3)
Argued: January 23, 2003
Decided: May 20, 2003
Before WIDENER and NIEMEYER, Circuit Judges, and
Morton I. GREENBERG, Senior Circuit Judge of the United States
Court of Appeals for the Third Circuit, sitting by designation.
____________________________________________________________
Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Widener joined. Senior Judge Greenberg wrote a dis-
senting opinion.
____________________________________________________________
COUNSEL
ARGUED: David William Carpenter, SIDLEY & AUSTIN, Chicago,
Illinois, for Appellant. Richard Gary Taranto, FARR & TARANTO,
Washington, D.C., for Appellee. ON BRIEF: Stephen T. Perkins,
Alan M. Shoer, Donald F. Lynch, III, CAVALIER TELEPHONE,
Richmond, Virginia, for Appellant. John Thorne, Christopher M.
Arfaa, VERIZON, Arlington, Virginia; Anne Marie Whittemore,
Richard Cullen, Robert Michael Tyler, MCGUIREWOODS, L.L.P.,
Richmond, Virginia; Mark C. Hansen, Aaron M. Panner, KELLOGG,
HUBER, HANSEN, TODD & EVANS, P.L.L.C., Washington, D.C.;
Andrew Gerald McBride, WILEY, REIN & FIELDING, L.L.P.,
Washington, D.C., for Appellee. Margaret A. Robbins, Antony Rich-
ard Petrilla, COVAD COMMUNICATIONS COMPANY, Washing-
ton, D.C., for Amicus Curiae Covad. Jonathan M. Askin,
ASSOCIATION FOR LOCAL TELECOMMUNICATIONS SER-
VICES, Washington, D.C.; David L. Lawson, Ryan D. Nelson, SID-
LEY, AUSTIN, BROWN & WOOD, L.L.P., Washington, D.C.; Mark
C. Rosenblum, Lawrence J. Lafaro, AT&T CORPORATION, Bask-
ing Ridge, New Jersey, for Amici Curiae AT&T, et al. Lawrence E.
Sarjeant, Indra Sehdev Chalk, Robin E. Tuttle, UNITED STATES
TELECOM ASSOCIATION, Washington, D.C.; James F. Rill, Scott
E. Flick, HOWREY, SIMON, ARNOLD & WHITE, L.L.P., Wash-
ington, D.C.; Sanford M. Litvack, DEWEY BALLANTINE, L.L.P.,
New York, New York; James R. Young, HUNTON & WILLIAMS,
McLean, Virginia; Kimberly A. Newman, HUNTON & WILLIAMS,
Washington, D.C., for Amicus Curiae U.S. Telecom. Michael W.
McConnell, Salt Lake City, Utah; Marc Gary, J. Henry Walker, Marc
W.F. Galonsky, BELLSOUTH CORPORATION, Atlanta, Georgia;
Stephen M. Shapiro, Jeffrey W. Sarles, MAYER, BROWN, ROWE
& MAW, Chicago, Illinois; James D. Ellis, William M. Schur, SBC
COMMUNICATIONS, INC., San Antonio, Texas, for Amici Curiae
BellSouth, et al.
____________________________________________________________
2
OPINION
NIEMEYER, Circuit Judge:
This appeal presents the question of whether the allegations of the
complaint in this case, which state ostensible violations of §§ 251 and
252 of the Telecommunications Act of 1996, Pub. L. No. 104-104,
110 Stat. 56 (1996) (codified at 47 U.S.C. § 151 et seq.), state a claim
of a monopolization violation of § 2 of the Sherman Act, 15 U.S.C.
§ 2.
Cavalier Telephone, LLC ("Cavalier") entered the local telecom-
munications service business pursuant to an interconnection agree-
ment with Verizon Virginia, Incorporated ("Verizon"), an incumbent
provider of telecommunications services in central and northeastern
Virginia. The agreement made Verizon's lines and facilities available
for use by Cavalier, as mandated by the Telecommunications Act.
Problems in the implementation of the interconnection agreement,
which Cavalier contends were deliberately created by Verizon to
exclude Cavalier as a competitor, prompted Cavalier to file this
action, alleging, among other things, that Verizon monopolized or
attempted to monopolize the relevant telecommunications market, in
violation of § 2 of the Sherman Act.
The district court granted Verizon's motion to dismiss the antitrust
claims under Federal Rule of Civil Procedure 12(b)(6), concluding
that Cavalier's allegations "merely represent violations of the 1996
[Telecommunications] Act dressed up in antitrust garb." For the rea-
sons that follow, we affirm.
I
The facts for purposes of this appeal are those alleged in Cavalier's
complaint, which we take to be true in deciding whether Cavalier
stated a claim under § 2 of the Sherman Act upon which relief can be
granted. See Fed. R. Civ. P. 12(b)(6); Estate Constr. Co. v. Miller &
Smith Holding Co., 14 F.3d 213, 217-18 (4th Cir. 1994).
Cavalier, a corporation whose principal place of business is in
Richmond, Virginia, was formed in 1998 to enter into the business of
3
providing basic telecommunications services to customers in the
Richmond, Tidewater, and Northern Virginia areas. Cavalier defines
basic telecommunications services to include traditional local tele-
phone service, dial-up Internet access, digital subscriber line (DSL)
services, high-capacity voice and data services, voice mail, access to
long-distance services, and any other service that could be provided
over copper wire and fiber-optic cable linking consumers with the
office of a service provider. This portion of a copper wire or fiber-
optic network that takes telecommunications services into individual
homes and businesses is commonly referred to as the "last mile" of
facilities.
Until 1996, the predecessor of Verizon, a company also located in
Richmond, was the telecommunications franchisee in the Richmond,
Tidewater, and Northern Virginia areas that had been regulated by the
Commonwealth of Virginia as a natural monopoly. Verizon owns the
last-mile wire and cable facilities in its service area.
In 1996, Congress enacted the Telecommunications Act of 1996
(the "Telecommunications Act" or the "1996 Act") to promote com-
petition in local telecommunications markets. The 1996 Act opens
local telecommunications services to competition and requires exist-
ing telecommunications service providers, referred to in the Act as
incumbent local exchange carriers ("ILECs"), to enter into intercon-
nection agreements that make their facilities available to new entrants
in the market, often referred to as competing local exchange carriers
("CLECs"), such as Cavalier. Also in 1996, Virginia lifted its ban on
competition in local telecommunications markets, authorizing the
State Corporation Commission to grant certificates to applicants pro-
posing to furnish local exchange telephone service in the service terri-
tory of another certificate holder. Va. Code § 56-265.4:4.C. The
Virginia State Corporation Commission, however, retained continuing
supervision over the services provided by existing and competing car-
riers.
Acting under the authority of the Telecommunications Act, Cava-
lier leased telecommunications facilities from Verizon by entering
into a comprehensive interconnection agreement with Verizon's pre-
decessor dated January 13, 1999, that was approved by the Virginia
State Corporation Commission. The interconnection agreement states
4
that Verizon "has undertaken to make such terms and conditions
available to Cavalier hereby only because of and, to the extent
required by, Section 252(i) of the [Telecommunications] Act," which
required Verizon to make interconnections, services, and network ele-
ments available to Cavalier to the same extent as provided to another
party through another interconnection agreement pursuant to the Tele-
communications Act. Through the interconnection agreement, Veri-
zon agreed (1) to resell its telecommunications services to Cavalier;
(2) to lease and make available trunks to permit Cavalier to intercon-
nect with Verizon's operations; (3) to allow access to Verizon's net-
work elements; (4) to participate in "collocation," i.e., allowing
Cavalier to have a location in Verizon's central offices to house Cava-
lier's equipment; (5) to allow access to Verizon's equipment; and (6)
to facilitate telephone number portability. The agreement also gov-
erned the process by which Verizon was to bill Cavalier and made
provision for the resolution of disputes.
As enabled by the interconnection agreement, Cavalier acquired
customers in the Richmond, Tidewater, and Northern Virginia areas,
and by the fall of 2001, it provided services to customers over approx-
imately 100,000 telephone lines through its access to facilities owned
by Verizon.
Shortly after the interconnection agreement was approved by the
State Corporation Commission, problems in implementation of the
agreement developed between Cavalier and Verizon. According to
Verizon, after July 2000, Cavalier did not pay "one cent for those
lines or for listing services that Verizon has provided, and now owes
Verizon approximately $17 million." Verizon acknowledges that
some of that amount was disputed but that over $9 million was undis-
puted. It asserts that even with respect to the $9 million amount due,
Cavalier's president "refused to allow any money to be paid to Veri-
zon because doing so would reduce Cavalier's ``leverage' in negotiat-
ing with Verizon."
But Cavalier's complaint filed in this case, which we must accept
as true at this stage, describes a significantly different and larger prob-
lem that developed between the parties.
First, Cavalier alleges that Verizon erected obstacles to Cavalier's
interconnection with Verizon's network "by delaying the provision of
5
trunks [communication lines linking Cavalier's and Verizon's sys-
tems] required for Cavalier to compete and by not establishing ade-
quate trunks to carry telephone traffic between Cavalier's customers
and Verizon's customers." Cavalier asserts that the inadequate trunk-
ing blocked between 25% and 70% of calls intended for Cavalier's
customers and caused "a complete outage for Cavalier in northern
Virginia."
Second, as to collocation, Cavalier alleges that Verizon "used its
control over the central office to raise Cavalier's costs, delay competi-
tion, and blockade entry." Cavalier points to Verizon's initial decision
to charge $400,000 for a 10-foot-by-10-foot area for "space prepara-
tion" and its subsequent decision to charge only $47,686.20, an
amount Cavalier contends was still "far higher than comparable
charges for the same space preparation in states such as Massachu-
setts and Rhode Island." Cavalier also alleges that Verizon delayed
the provision of space, "forc[ing Cavalier] to wait over 600 days for
space in some Verizon central offices," and that Verizon charged non-
competitive prices and imposed "arbitrary and unnecessarily complex
and burdensome rules for collocation."
Third, as to Cavalier's ability to order facilities and services from
Verizon, Cavalier complains that Verizon "made the process of iden-
tifying and ordering last-mile facilities excessively lengthy, complex,
and expensive." Cavalier also alleges that Verizon's employees made
misrepresentations to existing or potential customers of Cavalier after
Cavalier requested customer service records from Verizon. In addi-
tion, Cavalier alleges that the methods Verizon provided for ordering
last-mile facilities were inferior, stating that they were either "fre-
quently slow or completely ``down' for the entire day" or "[did] not
function as well, or in the same manner as, the systems that Verizon
itself uses."
Fourth, in the area of assignment of facilities, Cavalier alleges that,
when Verizon assigned last-mile facilities to Cavalier, it used "sys-
tems and procedures that [were] intentionally flawed and unnecessar-
ily complex, delay-ridden, and expensive." For example, Cavalier
alleges that Verizon's database had "inaccuracies" that led Verizon to
"refuse[ ] to connect facilities to a certain port that Verizon [said did]
6
not exist or [was] already being used by another customer," even
when such was not the case.
Fifth, as to Verizon's provision of its last-mile facilities, Cavalier
alleges that Verizon used "systems and procedures that [were] flawed,
overly complex, delay-ridden, and expensive." Cavalier claims that
Verizon "refuse[d] to provide Cavalier with last-mile facilities on
integrated digital loop carriers . . . which serve [d] almost 25% of
Verizon's lines in Virginia." Integrated digital loop carriers were
designed to eliminate steps in providing telecommunications services
and thus yield significant savings in equipment and operations. Cava-
lier contends that Verizon's explanation that provision of the facilities
was not "technically feasible" was unsupportable, given that other
companies provide access to such last-mile facilities. Cavalier also
claims that the facilities that Verizon provided "had a disproportion-
ately high number of problems" and that Verizon "also imposed costs
on Cavalier's existing or potential customers through the premature
disconnection of customers who unexpectedly los[t] telephone service
in the process of switching to Cavalier as their provider of Basic Tele-
communications Services." In addition, Cavalier alleges harm from
"Verizon's intentionally costly approach to both directory assistance
and directory publications." And Cavalier complains that Verizon's
rates were anticompetitive, stating that Verizon "proposed to offer
[last-mile facilities] services at a price lower than Cavalier's ``retail'
cost for high-capacity facilities, or at a price so low that Cavalier
could not profitably offer such services if forced to obtain last-mile
facilities at ``retail' cost."
Sixth, Cavalier complains that Verizon "imposed an unnecessarily
complex, lengthy, and expensive process for Cavalier to mount its
fiber on Verizon's utility poles or to pull its fiber th[r]ough conduit
systems owned by Verizon," delaying Cavalier's network building "as
long as 250 days." Cavalier also complains that Verizon was "disin-
genuous[ ]" when it claimed that Cavalier's requested process for
using Verizon's spare fiberoptic cable was not "technically feasible."
Cavalier alleges that when Verizon did provide its spare cable, Cava-
lier experienced problems in that "Verizon interrupted all service to
Cavalier's northern Virginia switch for a period of several hours."
And seventh, Cavalier complains of Verizon's "error-laden" bills.
Cavalier alleges that Verizon's bills suffered from "application of the
7
wrong rate elements and non-compliance with conditions imposed by
the [Merger Order between Bell Atlantic Corporation and GTE Cor-
poration forming Verizon]." Cavalier complains that Verizon's billing
"burdened Cavalier with voluminous paper bills that Verizon
refuse[d] to provide in electronic format, [leaving] Cavalier unaware
of how much it truly owe[d] and thus unable to plan its financing reli-
ably, and serv[ing] as a pretense for Verizon to deny and threaten to
deny the continued provision of services."
The complaint asserts that Verizon served approximately 90% of
the relevant market — i.e., local telecommunications service in the
Richmond, Tidewater, and Northern Virginia geographical areas —
and that through the seven categories of activities alleged in the com-
plaint, Verizon monopolized or attempted to monopolize the relevant
market, in violation of § 2 of the Sherman Act and the analogous Vir-
ginia statute:
Verizon has attempted to, and has, maintained its monopoly
power in the relevant product and geographic markets
through a series of exclusionary acts, each of which is aimed
at either reducing or eliminating Cavalier's ability to reach
end users, or raising the costs to Cavalier of competing with
Verizon.
The complaint also alleges that Verizon's activities violated the
Lanham Act, the Communications Act of 1934, the Merger Order
between Bell Atlantic Corporation and GTE Corporation forming
Verizon as approved by the FCC, and the Uniform Trade Secrets Act.
It also alleges that Verizon's conduct amounted to tortious interfer-
ence with contract, tortious interference with prospective economic
advantage, intentional or negligent misrepresentation, and breach of
contract, all under Virginia law. Cavalier demanded $135 million in
treble damages, $500 million in punitive damages, injunctive relief,
and attorneys fees and costs.
Shortly after commencing this action, Cavalier filed a motion for
a temporary restraining order and a preliminary injunction, which the
district court denied. Verizon then filed a motion to dismiss the com-
plaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6),
which the district court granted by order dated March 27, 2002, rely-
8
ing on Rule 12(b)(6) to dismiss Cavalier's federal claims and Rule
12(b)(1) to dismiss its state-law claims. In disposing of the claims
asserted under the Sherman Act and the analogous Virginia statute,
the district court stated:
It is evident that Cavalier is not asserting a monopolization
claim under the Sherman Act, but rather is detailing alleged
violations of duties imposed upon Verizon by the 1996
[Telecommunications] Act. Often the issue is not whether
Verizon is providing the facility or service as directed by the
1996 Act, but whether Verizon is providing the facility or
service to Cavalier in a manner that fits within the standard
of reasonableness established by the 1996 Act. Regardless
of whether such factual allegations have merit, they do not
state a claim for monopolization.
From the district court's order, Cavalier filed this appeal, initially
challenging all of the rulings made by the district court in dismissing
the complaint. Prior to oral argument, however, Cavalier limited its
appeal to the contention that its complaint states viable claims of
monopolization and attempted monopolization under federal and
State law,* abandoning its appeal of all other issues.
II
Cavalier contends that when the district court found that Cavalier's
allegations amounted to ostensible violations of the Telecommunica-
tions Act of 1996, it erred in failing to analyze whether the same alle-
gations also stated claims under the Sherman Act, particularly when
the court recognized that the antitrust claims were not precluded
through any implied repeal of, or immunity from, the antitrust laws.
Cavalier challenges as error the district court's conclusion that Cava-
____________________________________________________________
*
While Cavalier brought its monopolization and attempted monopoli-
zation claims under both federal and State antitrust laws, Va. Code
§ 59.1-9.6,-9.12, there does not seem to be any dispute between the par-
ties that disposition under the federal law also justifies a similar disposi-
tion under the State statute. See Oksanen v. Page Memorial Hosp., 945
F.2d 696, 710 (4th Cir. 1991) (noting that Virginia follows federal law
on antitrust issues).
9
lier "cannot state a claim under § 2 of the Sherman Act if it alleges
violations of affirmative duties created by the 1996 Act." Cavalier
maintains to the contrary that even if conduct violates the Telecom-
munications Act, it can also violate § 2 of the Sherman Act:
[I]f Verizon's alleged conduct consisted of exclusionary acts
sufficient to state a claim for violation of § 2 of the Sherman
Act, and the 1996 [Telecommunications] Act also happens
to regulate some (or even all) of that conduct, then that anti-
competitive conduct would almost certainly also violate
affirmative, pro-competitive duties under the 1996 Act.
Cavalier maintains that the district court, by failing to recognize this,
improperly immunized Verizon from antitrust liability based on the
Telecommunications Act. When conducting the antitrust analysis,
Cavalier states that it met its burden by alleging (1) a relevant market,
(2) anticompetitive conduct by Verizon aimed at maintaining Veri-
zon's "near-complete monopoly of that relevant market," and (3) anti-
competitive effects that included driving or attempting to drive
Cavalier out of business and depriving consumers of lower prices,
better services, and innovation.
Verizon contends that the allegations of Cavalier's complaint set
forth "only complaints about Verizon's implementation of its regula-
tory duties to help Cavalier," imposed by the Telecommunications
Act. It asserts that without the 1996 Act, Cavalier could not demand
such "affirmative-assistance duties." Verizon notes that under estab-
lished antitrust principles, a lawful monopolist has no general duty to
help its competitors, even though it can be prohibited from active,
unjust impairment of a competitor's efforts to challenge the monop-
oly. Accordingly, it concludes that the affirmative-assistance duties
set forth in the Telecommunications Act exist "outside the parameters
of pre-existing antitrust law" and that alleged breaches of those duties,
while ostensibly constituting violations of the Telecommunications
Act, do not constitute violations of the Sherman Act.
The requirements for alleging a monopolization claim are well
known. Section 2 of the Sherman Act provides in relevant part:
Every person who shall monopolize, or attempt to monopo-
lize . . . any part of the trade or commerce among the several
10
States, or with foreign nations, shall be deemed guilty of a
felony.
15 U.S.C. § 2. The Clayton Act makes this provision enforceable by
"any person . . . injured in his business or property by reason of any-
thing forbidden in the antitrust laws." 15 U.S.C. § 15. To state a
monopolization claim under § 2, a plaintiff must allege (1) that the
defendant possesses monopoly power in the relevant market and (2)
that the defendant willfully acquired or maintained that power "as dis-
tinguished from growth or development as a consequence of a supe-
rior product, business acumen, or historic accident." Eastman Kodak
Co. v. Image Technical Servs., Inc., 504 U.S. 451, 481 (1992) (quot-
ing United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)).
Conduct that merely has the consequence of shutting out competition
does not rise to the level of anticompetitive behavior subject to anti-
trust liability; the monopolist must have acted with the intent to pre-
vent competitors from entering the market. See Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585, 602 (1985) (noting that
intent is a necessary element of claims under § 2); Otter Tail Power
Co. v. United States, 410 U.S. 366, 377 (1973) ("Use of monopoly
power ``to destroy threatened competition' is a violation of the
``attempt to monopolize' clause of § 2 of the Sherman Act").
Cavalier's complaint, contending that Verizon, as a monopolist,
deliberately attempted to exclude Cavalier from the relevant market,
does conclusorily allege all of the required elements of a monopoliza-
tion claim under § 2 of the Sherman Act. But the breaches of duties
on which those allegations depend and which the complaint attributes
to Verizon require us to determine, by looking at the complaint in its
entirety, whether the complaint's allegations advance a legal theory
on which antitrust relief can be granted. See Fed. R. Civ. P. 12(b)(6);
Goldwasser v. Ameritech Corp., 222 F.3d 390, 401 (7th Cir. 2000).
Both parties recognize that Cavalier's allegations state breaches of
duties imposed by the Telecommunications Act and by the intercon-
nection agreement. That Act required Verizon to surrender its thereto-
fore legal monopoly and to lease its facilities to carriers such as
Cavalier who wished to compete in the market. Accordingly, Cavalier
entered into competition with Verizon by entering into an intercon-
nection agreement with it as mandated by the Telecommunications
11
Act. All of the untoward conduct attributed to Verizon in the com-
plaint arises from duties imposed on Verizon by the Telecommunica-
tions Act. Thus, for example, Cavalier alleges that Verizon delayed
the provision of trunk lines, provided inadequate trunk lines, charged
Cavalier too much for collocation, delayed the provision of colloca-
tion space and made collocation arrangements unnecessarily complex,
made procedures for obtaining last-mile facilities overly complex,
which delayed Cavalier's access to such facilities, provided inferior
facilities, delayed Cavalier's network building, and submitted overly
complex and even erroneous bills to Cavalier. All of these alleged
failures are failures in the performance of duties set forth in the inter-
connection agreement, and, as that agreement provides, Verizon
would not have entered into such an agreement except as required by
the Telecommunications Act.
Cavalier alleges that the motives behind Verizon's breaches of its
duties under the 1996 Act were to exclude Cavalier as a competitor
and to preserve the monopoly that Verizon had enjoyed before 1996,
in violation of the Sherman Act. To determine whether these allega-
tions are sufficient to state an antitrust claim, it is necessary to review
the role and scope of the Telecommunications Act and its special rela-
tionship to the Sherman Act.
The Telecommunications Act amended the Communications Act of
1934, ch. 652, 48 Stat. 1064 (1934) (codified at 47 U.S.C. § 151 et
seq.). Even before the enactment of the Communications Act of 1934,
Verizon's ancestor, the American Telephone and Telegraph Company
("AT&T"), operated as a natural monopoly. By 1934, AT&T owned
80% of the local telephone lines and services in the United States.
Goldwasser, 222 F.3d at 392. When Congress passed the Communi-
cations Act in 1934, it established the Federal Communications Com-
mission ("FCC") and imposed a scheme that divided regulation of
AT&T and others on the basis of intrastate and interstate services.
The Communications Act vested the FCC with authority previously
exercised by the Interstate Commerce Commission over interstate
matters and left intrastate matters to State public utility commissions.
47 U.S.C. § 152 (granting the FCC authority to regulate "interstate
and foreign communication by wire or radio" but preventing it from
regulating "intrastate communication service"); see also Bell Atlantic
Md., Inc. v. MCI WorldCom, Inc., 240 F.3d 279, 299 (4th Cir. 2001),
12
vacated on other grounds sub nom. Verizon Md., Inc. v. Pub. Serv.
Comm'n, 535 U.S. 635 (2002). The Communications Act, however,
did not break up the natural monopoly held by AT&T through its
"Bell System." Rather, it regulated AT&T in its interstate services by
requiring it to provide services at "just and reasonable" rates. 47
U.S.C. § 201. The Act permitted duplication of services and competi-
tion only when "public convenience and necessity require[d]" it. Id.§ 214(a).
Following a lawsuit commenced by the United States against
AT&T, which alleged that AT&T violated the antitrust laws, Judge
Harold Greene of the United States District Court for the District of
Columbia approved a settlement in 1982 through a consent decree
that broke up AT&T and required it to divest itself of, among other
things, the Bell operating companies that were providing local ser-
vices. United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982). By
then, AT&T had become the largest corporation in the world "by any
reckoning." Id. at 151-52. Under the consent decree, "long-distance
service" or interstate service was opened up to competition, but local
service remained in the hands of regional Bell operating companies
subject to regulation as natural monopolies by State utility commis-
sions.
The government's suit against AT&T was legitimized by Judge
Greene's rulings that anticompetitive conduct attributed to AT&T in
both interstate and local markets was not immunized or protected by
either the Communications Act of 1934 or by State law except to the
extent that those laws expressly authorized and pervasively regulated
the anticompetitive conduct. See id. at 154-59; United States v. AT&T,
461 F. Supp. 1314, 1320-24 (D.D.C. 1978). Finding nothing to that
effect in either the Communications Act or State law as to AT&T's
interstate conduct, Judge Greene permitted the government to pro-
ceed on its Sherman Act claims against AT&T. But the companies,
including Verizon, that were spun off as the product of AT&T's
break-up were permitted to continue to operate in local markets under
monopoly franchises conferred by State utility commissions, and they
were not subject to the antitrust laws regarding their regulated con-
duct.
That all changed with the enactment of the Telecommunications
Act of 1996 and with Virginia's repeal of its monopoly grant to Veri-
13
zon earlier the same year. With the passage of the Telecommunica-
tions Act, Congress made local-services markets open to competition
as had been the case for long-distance services pursuant to the AT&T
consent decree. The stated purpose of the Act was to "promote com-
petition and reduce regulation in order to secure lower prices and
higher quality services for American telecommunications consumers
and encourage the rapid deployment of new telecommunications tech-
nologies." Telecommunications Act of 1996, Pub. L. No. 104-104,
110 Stat. 56, 56 (1996). Congress sought to "provide for a pro-
competitive, de-regulatory national policy framework designed to
accelerate rapidly private sector deployment of advanced telecommu-
nications and information technologies and services to all Americans
by opening all telecommunications markets to competition." H.R.
Conf. Rep. No. 104-458, at 1 (1996); S. Conf. Rep. No. 104-230, at
1 (1996) (emphasis added).
To further its local-competition goal, the Telecommunications Act
imposes duties on incumbent local exchange carriers or ILECs to pro-
vide access to their facilities and equipment to competing carriers. 47
U.S.C. § 251. More particularly, in § 251(a) and (b), the 1996 Act
imposes on every telecommunications carrier an affirmative duty to
interconnect with other carriers, to follow stated rules regarding
resale, and to provide nondiscriminatory access to telephone numbers
and operator services, telephone poles, ducts, conduits, and rights-of-
way. Id. § 251(a), (b). Under § 251(c), the incumbent local exchange
carrier bears additional duties, including the duty to negotiate inter-
connection agreements with any new carrier so requesting, to provide
access to its network elements on an unbundled basis, to offer its
retail telecommunications services for resale at wholesale rates, and
to provide for collocation. Id. § 251(c). Section 252 governs negotia-
tion and arbitration of interconnection agreements. Id. § 252. Agree-
ments voluntarily made may be entered into without regard to the
specific duties imposed by § 251(b) and (c). Section 252 identifies the
procedure for agreements reached through mandatory arbitration,
which are not exempted from the requirements outlined in § 251. In
short, §§ 251 and 252 of the 1996 Act imposed commands on incum-
bent local exchange carriers to interconnect with and assist new
would-be competitors — obligations that telecommunications carriers
did not previously have and would not have had under a free-market
regime. Within two years after the 1996 Act's enactment, approxi-
14
mately 5,400 agreements were reached under § 252. See United States
Telephone Association, Competition in the Local Loop, at
http://www.usta.org/blileyft.html (Dec. 10, 1998).
Through the Telecommunications Act, Congress also substantially
altered oversight responsibility previously exercised by the FCC and
by State commissions. Compared to its authority under the Communi-
cations Act of 1934, the FCC was given a much stronger role under
the 1996 Act in regulating the telecommunications industry. Its new
role also released the District of Columbia District Court from over-
sight responsibilities under the 1982 consent decree. And although
States continue to play an important role in local markets, the FCC
has the responsibility of coordinating the national telecommunications
market and thus is given the authority to control a significant part of
the telecommunications scheme. In furtherance of the new role of the
FCC, the Telecommunications Act granted the FCC authority, after
notice and comment, to preempt the laws of any States that prohibited
competition in local telecommunications services markets, bringing
under federal control much of the transition from regulated local
monopolies to free-market industry. See 47 U.S.C. § 253(d).
Thus, although "deregulatory in tone," the 1996 Act is nonetheless
still "regulatory in effect." Peter W. Huber et al., Federal Telecommu-
nications Law 210 (2d ed. 1999). Congress "broadly extended its law
into the field of intrastate telecommunications," even though in a few
areas such as interconnection agreements, it left control with State
regulatory commissions rather than subjecting the field to complete
federal control or releasing the industry to the invisible hand of the
free market. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 385 n.10
(1999). Although the 1996 Act removed "pillars of traditional regula-
tion" associated with protected monopolies, the Act imposes other
requirements — "some 100 pages of impenetrably dense and convo-
luted prose" — to transition the industry from monopolies to competi-
tion. See Huber et al., supra, at 53-54. "The sheer volume of
regulation has increased dramatically," placing the industry "at the
high-water mark of regulation." Id. at 1, 5.
Consistent with its pro-competitive purpose and with the findings
made by Judge Greene about the applicability of the antitrust laws to
15
AT&T, the Telecommunications Act provides that telecommunica-
tions companies continue to be subject to the antitrust laws:
[N]othing in this Act or the amendments made by this Act,
shall be construed to modify, impair, or supersede the appli-
cability of any of the antitrust laws.
§ 601(b)(1), 110 Stat. at 143 (codified at 47 U.S.C. § 152 note). In a
similar vein, the general savings clause states that "this Act and the
amendments made by this Act shall not be construed to modify,
impair, or supersede Federal, State, or local law unless expressly so
provided in such Act or amendments." Id. § 601(c)(1). Consistent
with these provisions, the FCC explained in adopting regulations
implementing §§ 251 and 252 of the 1996 Act that "nothing in sec-
tions 251 or 252 or our implementing regulations is intended to limit
the ability of persons to seek relief under the antitrust laws, other stat-
utes, or common law." In re Implementation of the Local Competition
Provisions in the Telecommunications Act of 1996, 11 F.C.C.R.
15499 at ¶ 129.
The parties to this case do not dispute the general principle that
they are subject both to the regulation of the Telecommunications Act
and to the applicable principles of existing antitrust laws. See Law
Offices of Curtis V. Trinko, L.L.P. v. Bell Atlantic Corp., 305 F.3d 89,
109 (2d Cir. 2002) ("The savings clause unambiguously establishes
that there is no ``plain repugnancy' between the Telecommunications
Act and the antitrust statutes"), cert. granted, 71 U.S.L.W. 3571-72
(Mar. 10, 2003) (No. 02-682); Covad Communications Co. v. Bell-
South Corp., 299 F.3d 1272, 1280 (11th Cir. 2002) ("It is clear that
plain repugnancy cannot be found between the 1996 Act and the anti-
trust laws in view of the 1996 Act's express language reserving the
applicability of the antitrust laws"); Goldwasser v. Ameritech Corp.,
222 F.3d 390, 401 (7th Cir. 2000) ("Our principal holding is thus not
that the 1996 Act confers implied immunity on behavior that would
otherwise violate the antitrust law. Such a conclusion would be trou-
blesome at best given the antitrust savings clause in the statute"). But
simply noting the conclusion that companies subject to regulation
under the Telecommunications Act are not thereby immunized from
the antitrust laws does not address the special relationship between
the laws that is necessary to understand in order to resolve the issue
16
presented in this case — whether the particular allegations in Cava-
lier's complaint state a monopolization claim when that claim is based
on duties imposed by the Telecommunications Act. Stated otherwise,
while the provisions of the Telecommunications Act do not limit the
applicability of the antitrust laws to Verizon, we must still determine
whether violations of §§ 251 and 252 of the Telecommunications Act
as alleged in the complaint before us support a claim under the anti-
trust laws.
We begin the analysis by noting that the process for fostering com-
petition changed dramatically with the enactment of the Telecommu-
nications Act. We observe that even though the antitrust laws'
applicability is preserved and their purpose of promoting competition
is similar to the Telecommunications Act's purpose of creating com-
petition in local telecommunications markets, Congress adopted inde-
pendent methods for giving effect to the two laws' purposes, and the
difference in those methods is material to reaching the appropriate
disposition of this case.
When enacting the Telecommunications Act, Congress could well
have elected to rely only on the antitrust laws to create competition
in local telecommunications markets by simply implementing the
Supremacy Clause to preempt State laws that granted exclusive fran-
chises in local markets. But foreseeing the inefficiency of that
approach, Congress opted to take the proactive approach of creating
new duties under the Telecommunications Act. By "jump-starting"
and "accelerating" the creation of competition in the local markets
through enactment of §§ 251 and 252 of the Telecommunications Act,
Congress imposed more dramatic obligations on the local monopolies
than would have been imposed simply by subjecting them to preexist-
ing antitrust liability. This was necessary because the antitrust laws
alone do not require legitimate monopolies to give up their monopo-
lies or to help competitors. Even under the essential facilities doctrine
applied in Otter Tail, 410 U.S. 366, a legal monopoly cannot be
forced to get into a business it was not traditionally in simply to
respond favorably to a new competitor's demand for use of its facili-
ties. In Otter Tail, the utility was in the business of wheeling power
and selling electricity at wholesale, and its refusal to engage in such
business with municipalities that posed a competitive threat to the
utility was found to be an improper maintenance of monopoly power.
17
Id. at 370, 377-79. But if a company such as Verizon, which was a
longstanding legal monopoly, were asked to share its office space and
to rent its telephone lines and other facilities to a competitor when it
was not already in the business of renting office space, lines, or facili-
ties, it could have legally refused the request to expand into such a
business without violating § 2 of the Sherman Act. See Goldwasser,
222 F.3d at 400 ("These are precisely the kinds of affirmative duties
to help one's competitors that we have already noted do not exist
under unadorned antitrust laws"); Abcor Corp. v. AM Int'l, Inc., 916
F.2d 924, 929 (4th Cir. 1990) (observing that a lawful monopolist
generally has no duty to help its competitors).
Once it is recognized that the creation of competition in local mar-
kets through enforcement of the antitrust laws could be slow and inef-
ficient, then Congress' adoption of the Telecommunications Act as a
parallel but distinctly different approach to jump-start and accelerate
competition can be understood. As a leading backer of the Telecom-
munications Act in the Senate stated, the enactment of the Telecom-
munications Act "is kind of almost a jump-start . . . this legislation
says you will not control much of anything. You will have to allow
for nondiscriminatory access on an unbundled basis to the network
functions and services of the Bell operating companies network that
is at least equal in type, quality, and price to the access [a] Bell oper-
ating company affords to itself." Verizon Communications, Inc. v.
FCC, 535 U.S. 467, 488 (2002) (quoting the remarks of Senator
Breaux, 141 Cong. Rec. 15572 (1995)); see also Goldwasser, 222
F.3d at 399 ("[I]n an effort to jump-start the development of competi-
tive local markets, [Congress] imposed a host of special duties on
[incumbent local exchange carriers]"). And similarly, the Conference
Reports explained that enactment of the Telecommunications Act was
intended to "accelerate" competition in local markets. See H.R. Conf.
Rep. No. 104-458, at 1; S. Conf. Rep. No. 104-230, at 1.
In furtherance of its intent to jump-start or accelerate competition
in local markets through means independent of the antitrust laws,
Congress enacted §§ 251 and 252 of the Telecommunications Act to
impose entirely new duties, which were in addition to the duties
imposed by § 2 of the Sherman Act. See Verizon Communications,
535 U.S. at 528 ("The wholesale market for leasing network elements
is something brand new" under the Telecommunications Act). Under
18
§§ 251 and 252 of the Telecommunications Act, an incumbent tele-
communications carrier must assist a competitor's entry into the mar-
ket by entering into an interconnection agreement, reselling service,
and making facilities available. See 47 U.S.C. § 251(c); Verizon Com-
munications, Inc., 535 U.S. at 491-92. These obligations exceed the
duties imposed by the antitrust laws, and failure to fulfill them would
not have supplied the foundations of a monopoly claim. See Gold-
wasser, 222 F.3d at 400 ("A complaint like this one, which takes the
form ``X is a monopolist; X didn't help its competitors enter the mar-
ket so that they could challenge its monopoly; the prices I must pay
X are therefore still too high' does not state a claim under Section 2").
Moreover, even though duties imposed by law might serve to support
a monopoly claim where the duties were violated with anticompeti-
tive intent, we conclude, as explained below, that the special, indeed
idiosyncratic, relationship between the Telecommunications Act and
the Sherman Act prevents the Sherman Act from taking on the role
of enforcing duties imposed for the first time by the Telecommunica-
tions Act.
That it was Congress' design to rely on the Telecommunications
Act and the Sherman Act enforced independently is revealed in two
ways. First, the Telecommunications Act stated explicitly that even
though antitrust laws would remain applicable, the Telecommunica-
tions Act was not altering preexisting antitrust laws. See § 601(b)(1),
110 Stat. at 143 ("[N]othing in this Act . . . shall be construed to mod-
ify, impair, or supersede the applicability of any of the antitrust laws")
(emphasis added). This may be understood to mean that just as Con-
gress did not intend that the Telecommunications Act would immu-
nize conduct illegal under the antitrust laws, it also did not intend to
have the duties imposed by the Telecommunications Act modify or
expand the scope of the Sherman Act. Legislative history confirms
this concept that the Telecommunications Act was intended to pre-
serve the role of the antitrust laws as they stood at the time of the
1996 Act's enactment. See, e.g., 142 Cong. Rec. S687 (daily ed. Feb.
1, 1996) (statement of Sen. Pressler) ("This bill does not affect our
antitrust laws. The antitrust laws stay in place"); 141 Cong. Rec.
S8154 (daily ed. June 12, 1995) (statement of Sen. Hollings)
("Section 2 of the Sherman Antitrust Act is untouched, absolutely
untouched"); 141 Cong. Rec. S8152 (daily ed. June 12, 1995) (state-
ment of Sen. Breaux) ("No one can say that this bill somehow guts
19
the Department of Justice's role in enforcing antitrust laws, because
it makes no changes in that"). Thus, it appears that Congress wished
to have both acts further competition in local telecommunications ser-
vices markets through independent means. Stated otherwise, Congress
intended that even as it imposed new duties through enactment of the
Telecommunications Act that would fall outside the parameters of the
antitrust laws, it intended that the duties imposed by the antitrust laws
would be left "untouched."
Second, the procedures and remedies used to enforce each law are
distinct. The Telecommunications Act provides for State regulatory
commission approval of interconnection agreements and ongoing
supervision of the obligations imposed by the agreements. See Bell
Atlantic Md., 240 F.3d at 299-301. If Congress did not intend to rely
on those procedures independently, it would not have inserted the
entirely new scheme of §§ 251 and 252. It would have simply relied
on the antitrust laws' enforcement in federal district courts under the
Clayton Act, which authorizes treble damages and attorneys fees to
private litigants. See 15 U.S.C. § 15. Instead, in enacting the Tele-
communications Act, Congress was imposing new duties precisely
focused to break up local monopolies, and its selection of duties, cou-
pled with the remedial procedures of the Telecommunications Act,
was to be in addition to duties imposed and remedies afforded by the
Sherman Act. See Goldwasser, 222 F.3d at 400 ("The 1996 Act in
fact has an elaborate enforcement structure that Congress created for
purposes of managing the transition from the former regulated world
to the hoped-for competitive markets of the future").
We must remain clear, however, that even as we conclude that the
Telecommunications Act and the Sherman Act impose independently
enforceable duties, we do not conclude that every complaint that
states violations of §§ 251 and 252 of the Telecommunications Act
cannot for that reason alone also state a claim for violations of the
Sherman Act. In circumstances where facts state a claim under both
statutes construed independently of each other, they may give rise to
relief under each act.
Moreover, our rationale should not be taken so broadly as to pre-
clude a monopolization claim built on conduct made illegal by stat-
utes other than the Telecommunications Act. Rather, we conclude
20
only that a natural monopolist's legal refusal to deal is not made an
illegal refusal to deal under the antitrust laws when Congress requires
the monopolist to deal with competitors through duties imposed by
the Telecommunications Act. The special relationship between the
Telecommunications Act and the antitrust laws, acting in parallel but
through distinct schemes to promote the general goal of competition,
supports this conclusion.
Were we to conclude otherwise, every violation of§§ 251 and 252
of the Telecommunications Act could be asserted as a violation of the
Sherman Act merely by alleging that the conduct was undertaken with
an intent to monopolize, and the intent element would be supplied by
noting that the defendant simply resisted compliance with the Tele-
communications Act, which is aimed at breaking up monopolies. In
such a case, the procedures and remedies specified by Congress for
violations of the Telecommunications Act would become subservient
to, indeed overrun by, the Sherman Act. This result would be directly
contrary to Congress' choice of furthering competition through newly
crafted affirmative duties and procedures, which were in addition to
and beyond the duties imposed under § 2 of the Sherman Act.
Enforcement under the Sherman Act would effectively collapse
enforcement of the Telecommunications Act, leaving only one effec-
tive means — the treble-damages suit.
For all of these reasons, we conclude that the Sherman Act contin-
ues to apply in its own traditional domain, applying as it did before
the Telecommunications Act, and the Telecommunications Act
imposes new duties that may be enforced in accordance with its own
provisions but not under the Sherman Act unless the conduct other-
wise would have supported a claim under the Sherman Act absent the
authority of the Telecommunications Act. See Goldwasser, 222 F.3d
at 401. But see Trinko, 305 F.3d at 107-13 (permitting antitrust claims
to proceed by applying general antitrust principles); Covad, 299 F.3d
at 1285-92 (same).
Thus, when we focus on the conduct alleged by Cavalier in the
complaint before us to determine whether it amounts to breaches of
duties imposed for the first time and only by the Telecommunications
Act, we conclude that the conduct alleged would not, independent of
the Telecommunications Act, violate duties imposed under the Sher-
21
man Act. When Virginia lifted its ban on competition in the local tele-
communications industry, Verizon would not have been obligated to
rent its facilities and provide access to its elements to competitors to
enable them to enter the market, and a complaint that alleges that it
had a duty to do so under the antitrust laws would fail to state a claim
upon which relief could be granted. Although the Telecommunica-
tions Act did impose these obligations on Verizon, Cavalier's
recourse is to the procedures and remedies afforded by the Telecom-
munications Act, not to those afforded by the antitrust laws.
Because we find that Cavalier's complaint alleges only breaches of
duties that did not exist prior to the enactment of the Telecommunica-
tions Act and would not have supported a claim of monopolization or
attempted monopolization, it has failed to state a claim under § 2 of
the Sherman Act, and the State analogue, upon which relief can be
granted. We therefore hold that the district court properly granted
Verizon's motion to dismiss this action pursuant to Rule 12(b)(6), and
we affirm the judgment of the district court.
AFFIRMED
GREENBERG, Senior Circuit Judge, dissenting:
As I would find that Cavalier's complaint adequately states a claim
for relief under the essential facilities doctrine, I respectfully dissent.
As a preliminary matter, I point out that I agree wholeheartedly
with the majority's analysis of the relationship between the Sherman
Act and the Telecommunications Act. In particular, I support its con-
clusion that "the provisions of the Telecommunications Act do not
limit the applicability of the antitrust laws to Verizon." Maj. Op. at
17. Furthermore, I agree both that "the special, indeed idiosyncratic,
relationship between the Telecommunications Act and the Sherman
Act prevents the Sherman Act from taking on the role of enforcing
duties imposed for the first time by the Telecommunications Act," id.
at 19, and that "[i]n circumstances where facts state a claim under
both statutes construed independently of each other, they may give
rise to the relief under each act," id. at 20.
22
I differ with the majority, therefore, only with regard to my under-
standing of how a complaint alleging violations of the Sherman Act
under an essential facilities theory should be dealt with on a motion
under Fed. R. Civ. P. 12(b)(6). I cannot agree with the assertion that
"[a]ll of the untoward conduct attributed to Verizon in the complaint
arises from duties imposed on Verizon by the Telecommunications
Act." Id. at 12 (emphasis in original); see also id. at 17 ("[W]e must
still determine whether violations of §§ 251 and 252 of the Telecom-
munications Act as alleged in the complaint before us support a claim
under the antitrust laws.") (emphasis added). In my view, this reading
of the complaint is too narrow given that a complaint should not be
dismissed under Rule 12(b)(6) unless it appears certain that the plain-
tiff can prove no set of facts which would support its claim and entitle
it to relief. See, e.g., Franks v. Ross, 313 F.3d 184, 192 (4th Cir.
2002).
The essential facilities doctrine is a narrow exception to the rule
that a monopolist has no duty to deal with its competitors. See Covad
Communications Corp. v. Bell Atlantic Corp., 201 F. Supp. 2d 123,
131 (D.D.C. 2002) (citing Olympia Equip. Leasing Co. v. W. Union
Telegraph Co., 797 F.2d 370, 376 (7th Cir. 1986)). Although the doc-
trine certainly has its critics, see, e.g., 3A Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶ 771c (2d ed. 2002), there is no denying
that it "has a long and respected history as part of U.S. antitrust law,"
Robert Pitofsky et al., The Essential Facilities Doctrine Under U.S.
Antitrust Law, 70 Antitrust L.J. 443, 445 (2002). To state an essential
facilities claim, a plaintiff must allege: (1) control of the essential
facility by a monopolist; (2) a competitor's inability practically or rea-
sonably to duplicate the essential facility; (3) the denial of the use of
the facility to a competitor; and (4) the feasibility of providing the
facility. Advanced Health-Care Servs., Inc. v. Radford Cmty. Hosp.,
910 F.2d 139, 150-51 (4th Cir. 1990) (citing MCI Communications
Corp. v. Am. Tel. & Telegraph Co., 709 F.2d 1081, 1132-33 (7th Cir.
1983)). As the Court of Appeals for the Eleventh Circuit summarized
the doctrine, "[t]he ``applicable legal standard' is that ``[a]ny company
which controls an ``essential facility' or a ``strategic bottleneck' in the
market violates the antitrust laws if it fails to make access to that
facility available to its competitors on fair and reasonable terms that
do not disadvantage them.'" Covad Communications Co. v. BellSouth
Corp., 299 F.3d 1272, 1287 (11th Cir. 2002) (quoting United States
23
v. AT&T, 524 F. Supp. 1336, 1352-53 (D.D.C. 1981) (emphasis and
second alteration in Covad)). This standard is necessarily factbound,
and cases dismissing essential facilities claims accordingly have been
more common in motions for summary judgment contexts rather than
in motions to dismiss contexts. See id. at 1287 n.13 (citing summary
judgment cases); see also Laurel Sand & Gravel, Inc. v. CSX Transp.,
Inc., 924 F.2d 539, 545 (4th Cir. 1991) (affirming summary judgment
for defendant); Pitofsky et al., supra, at 450 ("Given the stringency
of the widely-adopted requirements set forth in MCI Communica-
tions, U.S. courts rarely find liability under the essential facilities doc-
trine. But even courts rejecting application of the doctrine note that
their analysis is highly fact-specific . . . .").
I believe that the complaint alleges facts that, when all inferences
are drawn in favor of Cavalier, state a viable claim of monopolization
under the essential facilities doctrine. In particular, I would follow the
lead of the Courts of Appeals for the Second and Eleventh Circuits,
which have held that essential facilities claims similar to those here
should survive a motion to dismiss. In so holding, the Court of
Appeals for the Second Circuit stated:
[T]he amended complaint may state a claim under the "es-
sential facilities" doctrine. The plaintiff alleges that access
to the local loop is essential to competing in the local phone
service market, and that creating independent facilities
would be prohibitively expensive. The defendant allegedly
has failed to provide its competitor . . . reasonable access to
these facilities. . . . Although the defendant may ultimately
be able to show that the local loop is not an essential facil-
ity, or that it provided the plaintiff with reasonable access to
the local loop, these are issues that the district court should
consider in the first instance.
Law Offices of Curtis V. Trinko, LLP v. Bell Atlantic Corp., 305 F.3d
89, 108 (2d Cir. 2002) (emphasis omitted), cert. granted, 123 S.Ct.
1480 (Mar. 10, 2003) (No. 02-682). The separate opinion in Trinko
specifically emphasized "the extent to which . . . the procedural pos-
ture of the case may influence the outcome of this appeal." Trinko,
309 F.3d 71, 72 (2d Cir. 2002) (Sack, J., concurring in part and dis-
senting in part). The Court of Appeals for the Eleventh Circuit was
24
even more explicit in rejecting an incumbent local exchange carrier's
("ILEC") factbound arguments for dismissal; indeed, it rejected argu-
ments by the ILEC parallel to those advanced by Verizon here, noting
that "these are arguments that must be addressed at a later stage of the
proceedings, such as summary judgment or trial." Covad, 299 F.3d at
1286.1 I believe that, in holding that the conduct alleged does not vio-
late duties imposed under the Sherman Act, independent of those
under the Telecommunications Act, because Verizon has no antitrust
duty to rent facilities to its competitors, the majority has resolved
questions of fact adversely to Cavalier. In particular, the majority's
implicit holding is that because Verizon traditionally has been in the
business of providing telecommunications services to consumers and
not of renting facilities to competitors, it would have to alter the
nature of its business to make its essential facilities available to Cava-
lier and that any degree of transformation of one's business is per se
not feasible under the fourth prong of the MCI test.
I note that this is not a case like that posited in Verizon's brief, see
Br. of Appellee at 32, or the identical argument made by BellSouth
(and rejected by the court) in Covad, see Covad, 299 F.3d at 1286,
however, where a competitor seeks to require the monopolist to "build
new capacity to satisfy a would-be sharer," 3A Areeda &
Hovenkamp, Antitrust Law ¶ 773e, at 210. In such a case, I would,
perhaps, be more willing to say that, as a matter of law, providing
access to the essential facility would not be feasible. Here, however,
Cavalier alleges that Verizon refused to provide Cavalier access to
existing essential facilities, namely, "last-mile" facilities like the local
loop connecting individual homes and businesses to Verizon's central
office, when it could have done so. Compl. at ¶¶ 21, 92, 93. Constru-
____________________________________________________________
1
The ILEC in Covad advanced three main arguments: (1) that the com-
petiting local exchange carrier ("CLEC") complained only about the
terms or quality of access, but did not allege an actual denial of access
to the essential facility; (2) that the CLEC sought "preferential access"
to the local loop, which would require the ILEC to "abandon its facili-
ties"; and (3) that the CLEC was attempting to force the ILEC to con-
struct new facilities or alter the nature of its business and become a renter
of facilities. Covad, 299 F.3d at 1286. Verizon makes precisely these
same three arguments in this case, and the majority accepts the third as
a basis for affirming the dismissal. Maj. Op. at 15.
25
ing these allegations liberally in favor of Cavalier, we should assume
that Verizon need do little more than sign leasing agreements cover-
ing those last-mile facilities implicated when Cavalier woos a new
customer. If more burdensome steps are required, Verizon should
proffer evidence to that effect, but it should do so as an aspect of the
development of a factual record. Furthermore, Cavalier alleges that,
where access to those facilities nominally was granted, Verizon inten-
tionally provided the access in a discriminatory way, for example, by
providing a disproportionate number of nonfunctioning last-mile
facilities to Cavalier customers, resulting in service interruptions that
damaged Cavalier. Id. at ¶¶ 102-05. It alleges that Verizon knowingly
took all of these steps with the intent to maintain its monopoly. Cava-
lier therefore has alleged a relatively straightforward violation of the
essential facilities doctrine. It does not seek preferential access or ask
that Verizon build new capacity, but rather asks that Verizon make
available on reasonable terms the facilities Cavalier requires to be
able to compete.
Admittedly, by reason of the historical fortuity that it until recently
enjoyed a state-sponsored monopoly in the local services market,
Verizon and its predecessors never have had occasion to get into the
business of leasing access to such facilities.2 In the majority's view,
this point is conclusive. Under my understanding of the essential
facilities doctrine, this fact is just one factor to consider in determin-
ing whether Verizon feasibly could have provided such access. Veri-
zon very well may prove that it could not feasibly have provided
the access sought by Cavalier without truly altering the nature of its
business. Cf. Hecht v. Pro-Football, Inc., 570 F.2d 982, 992-93 (D.C.
Cir. 1977) ("[The essential facilities doctrine] must be carefully
delimited: the antitrust laws do not require that an essential facility be
shared if such sharing would be impractical or would inhibit the
defendant's ability to serve its customers adequately."). On the other
hand, Cavalier may be able to show that, although Verizon has not
____________________________________________________________
2
I note that this "fact" has been discussed in the parties' briefs and
effectively has been judicially noticed by the majority, despite the fact
that it is not a part of the complaint or any other part of the record. That
some evidence should be introduced to support the proposition that Veri-
zon has never leased such facilities, at least since 1996, further justifies
letting this case go forward so that a factual record may be developed.
26
been in the habit of leasing access to such facilities, the burden on
Verizon of doing so would be so slight that it could not be said to be
transforming its business by making those facilities available. In other
words, Cavalier may be able to prove that Verizon failed to make last-
mile facilities available to it on fair and reasonable terms even though
doing so would have been perfectly feasible and would not have
required Verizon to alter the nature of its business in any meaningful
way.
Although competition now has replaced sanctioned monopoly in
the industry, Verizon continues to have exclusive control of a facility
crucial to such competition and, taking Cavalier's allegations as true
and drawing all inferences in its favor, refuses to make those facilities
available on fair and reasonable terms even though doing so would
not be burdensome and would not require Verizon to transform its
existing business in any meaningful way. I find no support in the
caselaw for the conclusion that Cavalier could prove no set of facts
consistent with its complaint to demonstrate that Verizon unreason-
ably denied access to such facilities where it feasibly could have pro-
vided it, even if Verizon never has leased such facilities in the past.
Indeed, one of the leading essential facilities cases upheld a jury find-
ing that AT&T, which was also, of course, in the business of provid-
ing telecommunications services, not of leasing facilities, denied MCI
access to essential facilities (in fact, at least in part the same type of
essential facilities involved here, namely the interconnections
between customers' residences and the monopolist's central facilities)
where such access reasonably could have been provided. MCI, 708
F.2d at 1131-33. More importantly, when this court has held that an
essential facilities claim could not succeed because providing access
to the essential facility would have required the monopolist to alter its
business, it has done so on summary judgment proceedings, after
development of a factual record, considering the history of the busi-
ness as part of the feasibility element. See, e.g., Laurel Sand, 924 F.2d
at 545.
For these reasons, even though I largely agree with the majority
opinion, I respectfully dissent as I would reverse the district court's
judgment and remand this case to that court for further proceedings.
27