Verizon Maryland, Inc. v. Global Naps, Inc. , 377 F.3d 355 ( 2004 )

Volume 1 of 2
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
VERIZON MARYLAND, INCORPORATED, 
Plaintiff-Appellant,
v.
GLOBAL NAPS, INCORPORATED; THE
PUBLIC SERVICE COMMISSION OF
MARYLAND; TCG-MARYLAND,
Defendants-Appellees,
UNITED STATES OF AMERICA,
Intervenor/Defendant-Appellee,
and
MCIMETRO ACCESS TRANSMISSION
SERVICES, LLC; AMERICAN
COMMUNICATIONS SERVICES OF
MARYLAND, INCORPORATED, d/b/a
 No. 03-1448
E.Spire Communications,
Incorporated; MARYLAND OFFICE OF
PEOPLE’S COUNSEL; MCI WORLDCOM
COMMUNICATIONS, INCORPORATED,
formerly known as MFS Intelenet
of Maryland, Incorporated; RCN
TELECOM COMMUNICATIONS, LLC;
GLENN F. IVEY, in his official
capacity as Chairman of the Public
Service Commission of Maryland;
CLAUDE M. LIGON, in his official
capacity as Commissioner of the
Public Service Commission of
Maryland;

2 VERIZON MARYLAND v. GLOBAL NAPS
E. MASON HENDRICKSON, in his 
official capacity as Commissioner
of the Public Service Commission
of Maryland; SUSAN BROGAN, in her
official capacity as Commissioner
of the Public Service Commission
of Maryland; CATHERINE I. RILEY, in
her official capacity as
Commissioner of the Public Service
Commission of Maryland; CORE
COMMUNICATIONS, INCORPORATED; J.
JOSEPH CURRAN, III, in his official 
capacity as Commissioner of the
Public Service Commission of
Maryland; GAIL C. MCDONALD, in
her official capacity as
Commissioner of the Public Service
Commission of Maryland; RONALD
A. GUNS, in his official capacity as
Commissioner of the Public Service
Commission of Maryland; HAROLD
WILLIAMS,
Defendants.

VERIZON MARYLAND, INCORPORATED, 
Plaintiff-Appellee,
v.
THE PUBLIC SERVICE COMMISSION OF  No. 03-1449
MARYLAND; CATHERINE I. RILEY, in
her official capacity as
Commissioner of the Public Service
Commission of Maryland;

VERIZON MARYLAND v. GLOBAL NAPS 3
J. JOSEPH CURRAN, III, in his official 
capacity as Commissioner of the
Public Service Commission of
Maryland; GAIL C. MCDONALD, in
her official capacity as
Commissioner of the Public Service
Commission of Maryland; RONALD
A. GUNS, in his official capacity as
Commissioner of the Public Service
Commission of Maryland; HAROLD
WILLIAMS,
Defendants-Appellants,
GLOBAL NAPS, INCORPORATED; TCG-
MARYLAND,
Defendants-Appellees,
UNITED STATES OF AMERICA, 
Intervenor/Defendant-Appellee,
and
MCIMETRO ACCESS TRANSMISSION
SERVICES, LLC; AMERICAN
COMMUNICATIONS SERVICES OF
MARYLAND, INCORPORATED, d/b/a
E.Spire Communications,
Incorporated; MARYLAND OFFICE OF
PEOPLE’S COUNSEL; MCI WORLDCOM
COMMUNICATIONS, INCORPORATED,
formerly known as MFS Intelenet
of Maryland, Incorporated; RCN
TELECOM SERVICES OF MARYLAND,
INCORPORATED; STARPOWER
COMMUNICATIONS, LLC;

4 VERIZON MARYLAND v. GLOBAL NAPS
GLENN F. IVEY, in his official 
capacity as Chairman of the Public
Service Commission of Maryland;
CLAUDE M. LIGON, in his official
capacity as Commissioner of the
Public Service Commission of
Maryland; E. MASON HENDRICKSON,
in his official capacity as 
Commissioner of the Public Service
Commission of Maryland; SUSAN
BROGAN, in her official capacity as
Commissioner of the Public Service
Commission of Maryland; CORE
COMMUNICATIONS, INCORPORATED,
Defendants.

Appeals from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, Senior District Judge.
(CA-99-2061-S)
Argued: December 4, 2003
Decided: August 2, 2004
Before NIEMEYER, MICHAEL, and GREGORY, Circuit Judges.
Reversed and remanded in part, affirmed in part, and dismissed in
part by published opinion. Judge Michael wrote the opinion, in which
Judge Gregory joined. Judge Niemeyer wrote a separate opinion, con-
curring in part and dissenting in part.
COUNSEL
ARGUED: Aaron M. Panner, KELLOGG, HUBER, HANSEN,
TODD & EVANS, P.L.L.C., Washington, D.C., for Appellant. Susan
VERIZON MARYLAND v. GLOBAL NAPS 5
Stevens Miller, General Counsel, PUBLIC SERVICE COMMISSION
OF MARYLAND, Baltimore, Maryland; Charles Wylie Scarborough,
Appellate Staff, Civil Division, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C.; Donald Beaton Verrilli, Jr., JEN-
NER & BLOCK, L.L.C., Chicago, Illinois, for Appellees. ON
BRIEF: Mark L. Evans, Sean A. Lev, KELLOGG, HUBER, HAN-
SEN, TODD & EVANS, P.L.L.C., Washington, D.C.; James P. Gar-
land, MILES & STOCKBRIDGE, P.C., Baltimore, Maryland; David
A. Hill, Vice President and General Counsel, VERIZON MARY-
LAND INC., Baltimore, Maryland, for Appellant. Gregory G. Katsas,
Acting Assistant Attorney General, Thomas M. DiBiagio, United
States Attorney, Mark B. Stern, Appellate Staff, Civil Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C.; John J. Hamill, John R. Harrington, Steven J. Winger, JENNER
& BLOCK, L.L.C., Chicago, Illinois; William Single, IV, MCI,
Washington, D.C.; Russell M. Blau, Michael W. Fleming,
SWIDLER, BERLIN, SHEREFF, FRIEDMAN, L.L.P., Washington,
D.C.; James R.J. Scheltema, Director, Regulatory Affairs, GLOBAL
NAPS, INC., Pensacola, Florida; William J. Rooney, GLOBAL
NAPS, INC., Quincy, Massachusetts; Matthew W. Nayden, OBER,
KALER, GRIMES & SHRIVER, Baltimore, Maryland; Michael A.
McRae, AT&T, Oakton, Virginia, for Appellees.
OPINION
MICHAEL, Circuit Judge:
This case arises from the regulatory scheme created by the Tele-
communications Act of 1996 (1996 Act or Act), Pub. L. 104-104, 110
Stat. 56, to promote competition in local telephone markets. It is now
before us for the second time after a remand by the Supreme Court.
The main question today is this: whether a federal court has jurisdic-
tion over a local carrier’s claim that a state utility commission misin-
terpreted interconnection agreement provisions on reciprocal
compensation that are based on federal law. We hold that there is fed-
eral question jurisdiction under 28 U.S.C. § 1331. We also hold that
the state utility commission had the authority under federal law to
impose reciprocal compensation terms in arbitration proceedings. We
6 VERIZON MARYLAND v. GLOBAL NAPS
reject the state commissioners’ arguments that the regulatory scheme
in the 1996 Act violates the Tenth Amendment, that the incumbent
local carrier’s amended complaint fails to state a claim, and that the
action was not filed on a timely basis. The case will be remanded for
further proceedings on the incumbent local carrier’s contract misinter-
pretation claim.
I.
A.
Before the Telecommunications Act of 1996 came along, telephone
service in a local calling area was provided by a single local exchange
carrier (local carrier), operating as a state-licensed monopoly. The
1996 Act ended the monopoly system and opened local telephone
markets to competition. Congress, of course, recognized that a new
carrier would not be able to break into a local market if it had to bear
the prohibitive costs of building an entire telephone network. See MCI
Telecomm. Corp. v. Bell Atl.-Pa., 271 F.3d 491, 498 (3d Cir. 2001).
Section 251 of the Act therefore requires an incumbent local carrier
to share its network and services, on reasonable rates and terms, with
a competing carrier seeking to enter a local telephone market. 47
U.S.C. § 251.
A competing carrier may enter a local market by interconnecting
with the network of the incumbent local carrier. Interconnection
allows "for the transmission and routing of telephone exchange ser-
vice and exchange access." Id. § 251(c)(2)(A). The duty to intercon-
nect is coupled with other duties set forth in § 251, including the
"duty [of all local carriers] to establish reciprocal compensation
arrangements for the transport and termination" of telephone calls. Id.
§ 251(b)(5). The FCC by regulation has limited the reciprocal com-
pensation requirement to local traffic. 47 C.F.R. § 51.701(a) (1996).
Thus, when a customer of local carrier A places a call to a customer
of local carrier B in the same local exchange area, carrier A pays car-
rier B for completing the call, usually on a per-minute basis; when the
direction is reversed, carrier B pays carrier A for completing the call.
The terms under which two competing local carriers interconnect
their networks and provide for reciprocal compensation are set forth
VERIZON MARYLAND v. GLOBAL NAPS 7
in an interconnection agreement. The Act requires both parties to
negotiate in good faith in an effort to reach agreement. 47 U.S.C.
§ 251(c)(1). If the parties fail to reach agreement, § 252 allows the
state utility commission to resolve disputed issues through compul-
sory arbitration. Id. § 252(c)(1). The resulting agreement, whether
arrived at through negotiation or arbitration, must be submitted to the
state commission for approval. Id. § 252(e). (If a state commission
fails to assume this role, the FCC must step in and fill it. Id.
§ 252(e)(5).) Any party aggrieved by a state commission’s determina-
tion under § 252 of the Act may bring an action in federal district
court "to determine whether the [interconnection] agreement . . .
meets the requirements" of § 251 and § 252 of the Act. Id.
§ 252(e)(6).
B.
When the Act went into effect in 1996, Verizon (then called Bell
Atlantic Maryland, Inc.) was providing local telephone service in
Maryland. As the incumbent local carrier, Verizon proceeded to nego-
tiate an interconnection agreement with a competing local carrier,
MFS Intelenet of Maryland, Inc. (We will refer to MFS Intelenet in
the name of its successor, MCI WorldCom, Inc. (MCI).) The agree-
ment, signed in July 1996 and approved by the Maryland Public Ser-
vice Commission (PSC) in October 1996, required the payment of
reciprocal compensation "for transport and termination of Local Traf-
fic." J.A. 76. After Verizon and MCI negotiated their interconnection
agreement, Verizon entered into substantively identical agreements
with certain other competing local carriers. The later interconnection
agreements were also approved by the PSC.
A dispute soon arose between Verizon and MCI over whether Veri-
zon had to pay MCI reciprocal compensation for calls Verizon cus-
tomers made to the local numbers of internet service providers (ISPs)
that were MCI customers. Verizon claimed that these ISP-bound calls
are not local traffic because ISPs connect their calls to distant internet
websites. The issue comes up for a simple reason: ISP-bound traffic
goes in one direction; the customers call the ISPs, but the ISPs do not
call back. This means that the reciprocal compensation for these calls
also flows in one direction, to the local carriers completing the calls
to the ISPs. This situation, Verizon says, has provided a windfall for
8 VERIZON MARYLAND v. GLOBAL NAPS
competing local carriers that focus on serving ISPs for the purpose of
collecting reciprocal compensation on this one-directional traffic.
In April 1997 Verizon stopped paying MCI reciprocal compensa-
tion for local exchange calls to ISPs served by MCI. No reciprocal
compensation was due, Verizon said, because the 1996 Act and the
interconnection agreement treat these ISP-bound calls as non-local. In
May 1997 MCI filed a complaint with the Maryland PSC, alleging
that Verizon’s refusal to pay reciprocal compensation violated the
1996 Act and the interconnection agreement. The PSC ruled against
Verizon in September 1997, holding that ISP-bound calls are local
and ordering Verizon to pay reciprocal compensation to MCI on these
calls. The PSC noted that it would reconsider its order if the FCC,
which was considering how to treat ISP-bound calls, issued a decision
that resolved the issue. Before any word came from the FCC, the PSC
considered the issue a second time when Verizon in late 1998 refused
to sign an interconnection agreement with Sprint Communications
Company, LP (Sprint) unless it provided that ISP-bound traffic did
not require the payment of reciprocal compensation. Sprint, invoking
§ 252(b)(1) of the Act, petitioned the PSC to arbitrate this issue, and
the PSC again concluded that these calls are local and subject to
reciprocal compensation.
In February 1999 the FCC issued a ruling that classified ISP-bound
calls as non-local calls that do not qualify for reciprocal compensation
under § 251(b)(5). In the Matter of Implementation of the Local Com-
petition Provisions in the Telecommun. Act of 1996, 14 F.C.C.R. 3689
(1999) (ISP Order No. 1), vacated, Bell Atl. Tel. Cos. v. FCC, 206
F.3d 1 (D.C. Cir. 2000). In reaching this decision, the FCC looked at
the starting and ending points of the calls and concluded that they ter-
minate not with the ISP, but at the websites eventually accessed by
the internet user. ISP Order No. 1 at ¶ 12. The Commission said,
however, that "pending adoption of [an FCC] rule establishing an
appropriate interstate compensation mechanism," it had "no reason to
interfere with state commission findings as to whether reciprocal
compensation provisions of interconnection agreements apply to ISP-
bound traffic." Id. at ¶ 21. Likewise, the FCC said, when the parties
could not voluntarily agree on a compensation mechanism for ISP-
bound traffic, state commissions "may determine in their arbitration
VERIZON MARYLAND v. GLOBAL NAPS 9
proceedings at this point that reciprocal compensation should be paid
for this traffic." Id. at ¶ 25 (emphasis added).
Verizon immediately petitioned the Maryland PSC to reconsider its
earlier orders, arguing that the FCC’s ISP Order No. 1 meant that
Verizon no longer had to pay reciprocal compensation for ISP-bound
calls. The PSC denied Verizon relief in an order issued on June 11,
1999. In reaffirming its decision interpreting the Verizon-MCI agree-
ment, the PSC noted that ISP Order No. 1 did not prohibit it from
ordering reciprocal compensation under the terms of a negotiated
interconnection agreement. In reaffirming its order in the Sprint-
Verizon arbitration, the PSC noted that the FCC was allowing state
commissions, in arbitration proceedings, to require reciprocal com-
pensation on ISP-bound calls as an "‘interim inter-carrier compensa-
tion rule’ pending completion of FCC rulemaking on this issue." J.A.
58 (quoting ISP Order No. 1 at ¶ 27). Later, on February 10, 2000,
in an arbitration proceeding between MCI and Verizon, the PSC
(relying on its June 11, 1999, order) imposed terms requiring the pay-
ment of reciprocal compensation on ISP-bound traffic.
In March 2000 the D.C. Circuit vacated ISP Order No. 1 and
rejected the FCC’s end-to-end analysis as a basis for classifying the
calls. Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000). On
remand in April 2001, the FCC, using a different reason, again
exempted ISP-bound calls from reciprocal compensation. In the Mat-
ter of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, Intercarrier Compensation for ISP-
Bound Traffic, 16 F.C.C.R. 9151, ¶ 31 (2001) (ISP Order No. 2). This
time the FCC determined that ISP-bound traffic was a form of "infor-
mation access" that qualified under § 251(g) for an exemption from
§ 251(b)(5)’s reciprocal compensation obligation. Recognizing, how-
ever, that some form of compensation for delivering ISP-bound calls
was necessary, the FCC established a new payment system for these
calls, a "bill-and-keep" system, under which each carrier recovers its
costs from its own customers. The new system was to take effect on
June 14, 2001, and was to be implemented only as existing intercon-
nection agreements expire. The FCC did not disturb state commission
decisions issued before June 14, 2001, that required reciprocal com-
pensation for ISP-bound traffic. Id. at ¶ 82. When ISP Order No. 2
was challenged in the D.C. Circuit, the court held that § 251(g) did
10 VERIZON MARYLAND v. GLOBAL NAPS
not provide a basis for the FCC’s decision. Without vacating the
FCC’s order, the court remanded the case to allow the agency to come
up with a sustainable basis for the new compensation system. See
WorldCom, Inc. v. FCC, 288 F.3d 429 (D.C. Cir. 2002).
Meanwhile, in July 1999 Verizon filed this action in federal court
to review the Maryland PSC’s June 11, 1999, order that required
Verizon to pay reciprocal compensation to competing local carriers
for delivering ISP-bound traffic. Named as defendants were the PSC,
its individual commissioners in their official capacities, MCI, and
other competing local carriers. District court jurisdiction was invoked
under 47 U.S.C. § 252(e)(6) and 28 U.S.C. § 1331. Verizon sought
declaratory and injunctive relief, alleging that the PSC’s order vio-
lated the 1996 Act, the FCC’s (not yet vacated) ISP Order No. 1, and
the interconnection agreement. (Like the parties, we refer to "inter-
connection agreement" in the singular because the agreements
between Verizon and the competing carriers have substantially similar
terms.) The district court dismissed the action, and we affirmed on the
ground that neither 47 U.S.C. § 252(e)(6) nor 28 U.S.C. § 1331 pro-
vides a basis for federal jurisdiction. Bell Atlantic Md., Inc. v. MCI
WorldCom, Inc., 240 F.3d 279 (4th Cir. 2001). The Supreme Court
took the case and vacated our decision. Verizon Md. Inc. v. Pub. Serv.
Comm’n of Md., 535 U.S. 635 (2002). The Court concluded that Veri-
zon’s claim that the PSC’s order was barred by federal law fell within
§ 1331’s "general grant of jurisdiction." Id. at 643. Although the
Court declined to reach the issue of whether § 252(e)(6) provided an
alternative basis of jurisdiction, it emphasized that "nothing in 47
U.S.C. § 252(e)(6) purports to strip [§ 1331] jurisdiction." Id. Section
252(e)(6), the Court said, "does not even mention subject-matter juris-
diction, but reads like the conferral of a private right of action." Id.
at 644. The case was sent back to us.
Following our remand to district court, Verizon filed an amended
complaint that, among other changes in parties, dropped the PSC as
a defendant and substituted as defendants new PSC commissioners
for their predecessors. Count I alleged that the PSC’s June 11, 1999,
order classifying ISP-bound calls as local traffic violated "federal law
and . . . the language of [the interconnection] agreement[]." J.A. 40.
Count II alleged that the PSC lacked the authority to require recipro-
cal compensation in arbitration proceedings. The district court pro-
VERIZON MARYLAND v. GLOBAL NAPS 11
ceeded by first denying the PSC commissioners’ motion to dismiss
made on the grounds (1) that the 1996 Act violates the Tenth Amend-
ment and (2) that Verizon’s amended complaint did not state a claim.
See Verizon Md. Inc. v. RCN Telecom Servs. of Md. Inc., 232 F. Supp.
2d 539 (D. Md. 2002). The district court then decided the parties’
cross-motions for summary judgment. See Verizon Md. Inc. v. RCN
Telecom Servs. of Md. Inc., 248 F. Supp. 2d 468 (D. Md. 2003). In
its summary judgment decision the district court recognized its juris-
diction over Count II of Verizon’s amended complaint, which it
regarded as a "garden-variety federal preemption claim," and held that
federal law did not prohibit the PSC from imposing reciprocal com-
pensation terms in an arbitration proceeding. Id. at 476, 486-87. The
Court therefore awarded summary judgment on Count II to the defen-
dants (the competing carriers and the PSC commissioners). Id.
On Count I the district court first determined that Verizon was
actually asserting two distinct claims: first, that the PSC’s interpreta-
tion of the interconnection agreement violated federal law; and sec-
ond, that the PSC’s interpretation violated the parties’ intent as
reflected in the agreement. The court took jurisdiction over the first
claim and awarded summary judgment to the defendants. Then, the
court held that neither § 252(e)(6) nor § 1331 supported jurisdiction
over the remaining claim, which it construed as a contract misinter-
pretation claim arising under state law. Id. at 487. The court declined
to exercise supplemental jurisdiction over this claim and dismissed it.
See 28 U.S.C. § 1367(a). Verizon and the PSC commissioners appeal.
II.
Verizon appeals two issues from the district court’s summary judg-
ment order. First, Verizon argues that the district court erred in hold-
ing that there is no federal jurisdiction over its claim that the PSC
misinterpreted the interconnection agreement. Second, Verizon chal-
lenges the district court’s determination that federal law did not pro-
hibit the PSC from imposing reciprocal compensation terms in
arbitration proceedings. We consider each issue in turn.
12 VERIZON MARYLAND v. GLOBAL NAPS
A.
1.
The district courts have original jurisdiction in all "civil actions
arising under the Constitution, laws, or treaties of the United States."
28 U.S.C. § 1331. There is no "single, precise definition" of what it
means for an action to "arise under" federal law. Merrell Dow Pharm.
Inc. v. Thompson, 478 U.S. 804, 808 (1986) (quoting Franchise Tax
Bd. of Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 8 (1983)).
The Supreme Court has recognized § 1331 jurisdiction in a variety of
cases, such as (1) when a federal right or immunity forms an essential
element of the plaintiff’s claim, Gully v. First Nat’l Bank in Meridian,
299 U.S. 109, 112 (1936); (2) when a plaintiff’s "right to relief
depends upon the construction or application" of federal law, and the
federal nature of the claim "rests upon a reasonable foundation,"
Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 199 (1921); (3)
when "federal law creates the cause of action," Merrell Dow, 478 U.S.
at 808; and (4) when "the plaintiff’s right to relief necessarily depends
on resolution of a substantial question of federal law," Franchise Tax
Board, 463 U.S. at 28. One commentator has suggested that the vari-
ous Supreme Court statements boil down to the principle that federal
jurisdiction exists when a plaintiff has "a substantial claim founded
‘directly’ upon federal law." Paul J. Mishkin, "The Federal ‘Question’
in the District Courts," 53 Colum. L. Rev. 157, 165 (1953). See also
Int’l Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272
F.3d 912, 915 (7th Cir. 2001) (stating that "Professor Mishkin’s
appraisal remains apt"). The Supreme Court has shied away from a
rigid test for § 1331 jurisdiction because "the phrase ‘arising under’
masks a welter of issues regarding the interrelation of federal and
state authority and the proper management of the federal judicial sys-
tem." Merrell Dow, 478 U.S. at 808 (quoting Franchise Tax Bd., 463
U.S. at 8). For example, when a federal court "explor[es] the outer
reaches of § 1331," it must make "sensitive judgments about congres-
sional intent, judicial power, and the federal system." Merrell Dow,
478 U.S. at 810. See also Ormet Corp. v. Ohio Power Co., 98 F.3d
799, 806-07 (4th Cir. 1996).
In all events, the question of whether a claim arises under federal
law begins with a look at "the face of the plaintiff’s properly pleaded
VERIZON MARYLAND v. GLOBAL NAPS 13
complaint." Caterpillar v. Williams, 482 U.S. 386, 392 (1987). In this
case, we also consider whether the claim involves an agreement and
duties that are creations of federal law and whether the purpose of the
underlying statute (the 1996 Act) is best served by the exercise of fed-
eral judicial power. These considerations lead us to conclude, as we
explain below, that Verizon’s contract interpretation claim arises
under federal law within the meaning of § 1331.
We turn first to Verizon’s amended complaint, which challenges
the PSC’s determinations that Verizon must pay reciprocal compensa-
tion on ISP-bound traffic. Count I alleges that the "PSC’s decision
that Internet communications constitute ‘local traffic’ within the
meaning of the [interconnection] Agreement is inconsistent with fed-
eral law and the language of [the] agreement[]." J.A. 40. As the dis-
trict court reasonably determined, Verizon is asserting two distinct
claims in Count I: first, that the PSC’s interpretation of the intercon-
nection agreement violated federal law; and second, that the PSC mis-
interpreted the language of the agreement. The district court erred,
however, in concluding that the second of these claims — alleging
misinterpretation of the agreement — was an ordinary state-law con-
tract claim.
Verizon begins the central allegations of its amended complaint by
stating that the purpose of the interconnection agreement is "[t]o
implement the substantive duties" imposed by the 1996 Act, including
"the dut[y] to establish reciprocal compensation arrangements for
local traffic." J.A. 35. Pertinent pages of the agreement are attached
to Verizon’s amended complaint and are therefore a part of that
pleading. See Fed. R. Civ. P. 10(c). The agreement contains key pro-
visions on reciprocal compensation that refer directly to federal law.
To begin with, the agreement provides that "‘Reciprocal Compensa-
tion’ is As Described in the Act, and refers to the payment arrange-
ments that recover costs incurred for the transport and termination of
Local Traffic originating on one Party’s network and terminating on
the other Party’s network." J.A. 73 (emphasis added). "As Described
in the Act" means "as described in or required by the Act and as from
time to time interpreted in the duly authorized rules and regulations
of the FCC or the [PSC]." J.A. 67. Finally, the interconnection agree-
ment defines "Local Traffic" in a manner that corresponds to the then-
existing FCC regulation, 47 C.F.R. § 51.701(b)(1)(1996): local traffic
14 VERIZON MARYLAND v. GLOBAL NAPS
is that originating on one party’s network and terminating on anoth-
er’s "within a given local calling area," based on the "actual originat-
ing and terminating points of the complete end-to-end call." J.A. 71,
77. Thus, according to Verizon’s complaint, whether it must pay
reciprocal compensation on ISP-bound traffic under the terms of the
agreement depends in substantial measure upon the requirements of
the Act and the FCC’s regulations and interpretations. On its face,
then, Verizon’s contract claim is tied directly to federal law, and its
asserted basis in federal law is not "insubstantial [or] frivolous." Steel
Co. v. Citizens for Better Environment, 523 U.S. 83, 89 (1998).
Whether Verizon’s contract claim is substantially federal also
depends on the nature and purpose of the contract, an interconnection
agreement. Here, we are guided by International Association of
Machinists v. Central Airlines, Inc., 372 U.S. 682 (1963), which held
that a suit to enforce a contract required by the Railway Labor Act
raised a federal question under 28 U.S.C. § 1331. Section 204 of the
Railway Labor Act required every airline and its employees (through
their union) to establish a board of adjustment to decide employee
grievances. The statutory duty to create the board was implemented
by contract. When the union and several employees sued an airline in
federal court to enforce the award of an adjustment board, the Fifth
Circuit affirmed the dismissal of the complaint, saying that the "suit
was nothing more than a state-created action to construe a contract."
Id. at 684 (internal quotation marks omitted). The Supreme Court
reversed. The Court explained that "[i]f these contracts [creating the
adjustment boards] are to serve their function under [the Railway
Labor Act], their validity, interpretation, and enforceability cannot be
left to the laws of the many States." Id. at 691 (emphasis added).
Because both the contract and the adjustment board it established "are
creations of federal law" and are "therefore governed and enforceable
by federal law," the district court had jurisdiction over the enforce-
ment action under § 1331. Id. at 692.
An interconnection agreement is likewise a "creation of federal
law," specifically, the 1996 Act. As one court has said, interconnec-
tion agreements are the "tools through which [the 1996 Act] is [imple-
mented and] enforced." BellSouth Telecomms., Inc. v. MCIMetro
Access Transmission Servs., Inc., 317 F.3d 1270, 1278 (11th Cir.
2003) (en banc). The Act requires an incumbent local carrier and its
VERIZON MARYLAND v. GLOBAL NAPS 15
aspiring competitor to enter into an interconnection agreement that
sets forth the "terms and conditions . . . to fulfill the duties" mandated
by § 251(b) and § 251(c) of the Act. 47 U.S.C. § 251(c)(1). One duty
mandated by § 251(b) is at issue here, the "duty [of local carriers] to
establish reciprocal compensation arrangements for the transport and
termination" of calls. Id. § 251(b)(5). If the parties enter into an agree-
ment by voluntary negotiation, they may agree "without regard to the
standards set forth" in § 251(b) and § 251(c). Id. § 252(a)(1). They
must still, however, spell out how they will fulfill the duties imposed
by § 251. See id. § 251(c)(1). When an agreement, like the one volun-
tarily negotiated by Verizon and MCI, is submitted to the state com-
mission for approval, the commission may reject it only if it
discriminates against a carrier not a party, or it is not consistent with
"the public interest, convenience, and necessity." Id. § 252(e)(2)(A).
Once the agreement is approved, the 1996 Act requires the parties to
abide by its terms. See §§ 251(b)-(c).
Interconnection agreements are thus the vehicles chosen by Con-
gress to implement the duties imposed in § 251. They are, in short,
federally mandated agreements, and "[t]o the extent [an agreement]
imposes a duty consistent with the Act . . . that duty is a federal
requirement." Central Airlines, 372 U.S. at 695. The contractual duty
at issue in this case — to pay reciprocal compensation "for transport
and termination of Local Traffic" — is a duty imposed by the 1996
Act. The scope of this duty is at the heart of Verizon’s contract claim,
and the resolution of that claim depends on the interpretation and
application of federal law. Smith v. Kansas City Title & Trust Co.,
255 U.S. at 199; Ormet, 98 F.3d at 807.
Finally, we recognize that "[t]he determination of whether a federal
issue is sufficiently substantial should be informed by . . . whether the
[exercise] of federal judicial power is both appropriate and prag-
matic." Ormet, 98 F.3d at 807. See also, Merrell Dow, 808 U.S. at
808-09. This area of consideration takes us to the basic purpose of the
1996 Act. As the Supreme Court said, the Act took "the regulation of
local [telephone service] away from the States" and established "a
new federal regime" designed to promote competition. AT&T Corp.
v. Iowa Utils. Bd., 525 U.S. 366, 378 n.6 (1999) (emphasis in origi-
nal). State utility commissions have a role in this regime, but that role
is subject to federal oversight. Here, the PSC interpreted an intercon-
16 VERIZON MARYLAND v. GLOBAL NAPS
nection agreement mandated by the Act. Because the agreement and
the specific duty (reciprocal compensation) it incorporates have a
direct connection to the Act, the purpose of the Act is best served by
subjecting the PSC’s contract interpretation decision to federal review
in the district court. See BellSouth Telcomms., Inc. v. MCIMetro
Access Trans. Servs., Inc., 317 F.3d 1270, 1278 (11th Cir. 2003) (en
banc).
2.
The dissent argues that there is no § 1331 jurisdiction over Veri-
zon’s contract interpretation claim because "[t]he federal interest in
the content of local carriers’ voluntarily negotiated reciprocal-
compensation terms is negligible." Post at 63. The interest is negligi-
ble, the dissent says, because there is "authority to negotiate terms
without regard to" the standards mentioned in 47 U.S.C. § 251(b) and
(c). Post at 59. This line of argument, we respectfully suggest, over-
looks how important reciprocal compensation is to the Act’s central
purpose of promoting competition in local telephone markets. The
Act imposes five duties on "[e]ach local carrier," and one of these
duties is "to establish reciprocal compensation arrangements for the
transport and termination of" local traffic. 47 U.S.C. § 251(b)(5). The
fulfillment of this duty is essential to the Act’s pro-competitive
design, which requires local carriers to complete calls for each other.
Thus, even when the "reciprocal compensation arrangements" are
spelled out in an interconnection agreement that is voluntarily negoti-
ated, there is a substantial federal interest in those arrangements.
Moreover, in this case the interconnection agreement incorporates key
provisions of federal law in delineating the compensation arrange-
ments or duties.1
1
We do not miss the point of the dissent’s argument against § 1331
jurisdiction, which is that the parties’ latitude to negotiate reciprocal
compensation terms means that there is no federal interest in the determi-
nation "whether [they] reached agreement on treating [ISP-bound] calls
as local calls eligible for reciprocal compensation." Post at 59-60 n.9.
The dissent’s focus is much too narrow. The jurisdictional analysis must
take into account the broader federal interest; it must recognize that the
interconnection agreement and the duties specified therein, including the
duty to arrange for reciprocal compensation, have the imprimatur of fed-
eral law. See Central Airlines, 372 U.S. at 692. Even though the Act
allows flexibility in the contractual terms negotiated for carrying out the
reciprocal compensation duty, the duty is still a key federal requirement.
VERIZON MARYLAND v. GLOBAL NAPS 17
The dissent relies on Jackson Transit Authority v. Local Division
1285, Amalgamated Transit Union, 457 U.S. 15 (1982), to support its
argument that Verizon’s contract misinterpretation claim cannot be
brought in federal court. Jackson Transit is readily distinguishable.
That case involves § 13(c) of the Urban Mass Transportation Act of
1964 (UMTA), 78 Stat. 307 (codified as amended, 49 U.S.C.
§§ 5301-5338), which requires a state or local government to make
arrangements to preserve the existing collective bargaining rights of
transit workers before the governmental body may receive federal
monies to acquire a privately owned transit company. When a transit
union sued a city in federal court for breach of a § 13(c) agreement,
the Supreme Court held there was no federal question jurisdiction.
The Court began its analysis by noting that "labor relationships
between local governments and their employees are the subject of a
longstanding statutory exemption from the National Labor Relations
Act." Jackson Transit, 457 U.S. at 23. And, after considering the leg-
islative history of § 13(c), the Court concluded that "Congress
intended those contracts [between transit workers and local govern-
ments] to be governed by state law applied in state courts." Id. at 29.
This holding sets Jackson Transit apart from the 1996 Act and this
case. Unlike § 13(c) of the UMTA, which did not "substitute a federal
law of collective bargaining for state labor law," id. at 28, the Tele-
communications Act of 1996 removed the regulation of local tele-
phone markets "from the States’ exclusive control" and substituted a
federally prescribed regulatory program. Iowa Utils. Bd., 525 U.S. at
381 n.8. Again, federally mandated duties, including the duty to pay
reciprocal compensation, are the backbone of the new program. As a
result, when there is a claim that a state utility commission has misin-
terpreted an interconnection agreement provision that implements a
duty imposed by the Act, review should be available under § 1331 in
district court. We are not saying that every dispute about a term in an
interconnection agreement belongs in federal court, but when the con-
tractual dispute (like the one here) involves one of the 1996 Act’s
essential duties, there is a federal question.
3.
In sum, because (1) Verizon’s complaint alleges that the PSC mis-
interpreted interconnection agreement provisions that incorporate fed-
eral law, (2) the agreement interpreted is federally mandated, (3) the
18 VERIZON MARYLAND v. GLOBAL NAPS
contractual duty at issue is imposed by federal law, and (4) the pur-
pose of the 1996 Act is best served by allowing review of the PSC’s
order in the district court, we hold that Verizon’s contract claim in
Count I raises a substantial question of federal law. The claim there-
fore arises under federal law, conferring jurisdiction in the district
court under 28 U.S.C. § 1331.2
B.
Verizon next challenges the district court’s grant of summary judg-
ment to the defendants on Count II, which alleges that "the PSC’s
decision to require reciprocal compensation for [ISP-bound] traffic in
instances [that is, in arbitration proceedings] where the parties could
not agree on the rules governing compensation for such traffic vio-
lates federal law." J.A. 40. We affirm because the 1996 Act authorizes
the PSC to arbitrate open issues on reciprocal compensation, and the
FCC has declared that state commissions had the authority to require
reciprocal compensation for ISP-bound traffic in arbitrations con-
ducted during the time frame involved in this case.
First of all, the Act expressly authorizes state commissions to
impose reciprocal compensation requirements in § 252 arbitration
proceedings. In resolving "any open issues" between parties negotiat-
ing an interconnection agreement, a state commission must ensure
that the resolution meets the requirements of § 251. 47 U.S.C.
§§ 252(b)(1), 252(c)(1). Section 251(b)(5), of course, imposes the
requirement "to establish reciprocal compensation arrangements."
One arbitration order that Verizon complains about is the PSC’s
Sprint-Verizon order of February 9, 1999, that imposed terms requir-
ing Verizon to pay reciprocal compensation for ISP-bound calls. At
the time the PSC issued the Sprint-Verizon order, the FCC was treat-
ing ISP-bound calls "as though [they] were local," J.A. 49, and the
PSC therefore concluded that these calls were subject to reciprocal
compensation from Verizon. The PSC reconsidered this decision after
the FCC, on February 26, 1999, issued its ISP Order No. 1, classify-
ing ISP-bound calls as non-local. In the order issued on June 11,
2
Because there is § 1331 jurisdiction, we decline to decide whether
jurisdiction could be grounded independently on 47 U.S.C. § 252(e)(6).
VERIZON MARYLAND v. GLOBAL NAPS 19
1999, the PSC concluded that it was not required to alter its prior arbi-
tration decision because the FCC had explicitly provided in ISP Order
No. 1 that state commissions may "‘determine in their arbitration pro-
ceedings at this point that reciprocal compensation should be paid for
[ISP-bound] traffic.’" J.A. 57 (citing ISP Order No. 1 at ¶ 25). State
commissions were to have this leeway pending completion of FCC
rulemaking on the issue. The PSC thus decided that Verizon must
continue to pay reciprocal compensation under its arbitrated agree-
ment as an interim compensation mechanism. The PSC relied on this
same reasoning on February 10, 2000, when it imposed terms requir-
ing reciprocal compensation on ISP-bound traffic in a Verizon-MCI
arbitration.
The FCC’s ISP Order No. 1 was, of course, vacated by the D.C.
Circuit on March 24, 2000. Bell Atlantic Tel. Cos. v. FCC, 206 F.3d
1 (D.C. Cir. 2000). Thereafter, on April 27, 2001, the FCC issued its
ISP Order No. 2, which remains in force because the D.C. Circuit did
not vacate the order when it remanded the case for further consider-
ation by the FCC. 16 F.C.C.R. 9151 (2001), remanded, WorldCom,
Inc. v. FCC, 288 F.3d 429 (D.C. Cir. 2002). In ISP Order No. 2 the
FCC adopted a new compensation regime (bill-and-keep) to govern
ISP-bound calls and announced that it was stripping state commis-
sions of any authority to formulate the compensation regime for such
calls. See ISP Order No. 2 at ¶¶ 77-82. At the same time, the FCC
explained that its order did not "preempt any state commission deci-
sion regarding compensation for ISP-bound traffic for the period
prior to the effective date [June 14, 2001] of the interim regime we
adopt here." Id. at ¶ 82 (emphasis added). The FCC’s ISP Order No.
2 thus expressly preserves the arbitration decisions here because they
were issued before June 14, 2001.
As we said when this case was here the first time: "[i]t is hard to
conceive how the Public Service Commission can be said to have per-
petrated [in arbitration proceedings] an ongoing violation of federal
law by following the dictates of the federal agency authorized to
implement that law, especially when the charging party relies on the
federal agency’s interpretation as authoritative." Bell Atlantic Md.,
240 F.3d at 296. We affirm the district court’s grant of summary judg-
ment on Count II.
20 VERIZON MARYLAND v. GLOBAL NAPS
III.
The PSC commissioners (PSC) raise three issues on cross-appeal
stemming from the district court’s denial of their motion to dismiss
Verizon’s amended complaint.
A.
The PSC first argues that Congress, in violation of the Tenth
Amendment, "has commandeered State officials to administer its fed-
eral program regulating local telephone service." PSC’s Opening Br.
at 15. The PSC acknowledges that states are not required to assume
the regulatory responsibilities set forth in § 252 of the Act, but it
points out that states must either undertake those responsibilities or
relinquish the authority to regulate to the FCC. This choice, contends
the PSC, amounts to unconstitutional coercion. We disagree.
When Congress brought the regulation of competition in local tele-
phone markets under federal control in the 1996 Act, it could have
placed regulatory authority exclusively with the FCC. But Congress
chose a different course, giving states the option to participate in the
federally prescribed regulatory scheme. That approach is permissible
under the Tenth Amendment as the Supreme Court made clear in
Hodel v. Virginia Surface Mining and Reclamation Association, Inc.,
452 U.S. 264, 289 (1981) (upholding the Surface Mining Control and
Reclamation Act, a federal statute prescribing "federal minimum stan-
dards governing surface coal mining, which a State may either imple-
ment itself or else yield to a federal administered regulatory
program."). Congress, of course, may not "compel the states to enact
or administer a federal regulatory program." New York v. United
States, 505 U.S. 144, 188 (1992). Here, however, Congress has sim-
ply required states to choose between regulating pursuant to federal
standards or allowing the FCC to take over. As the district court said,
"[t]he choice that § 252 offers may be (somewhat) unsavory [to the
states], yet it remains a real choice." Verizon Md. Inc., 232 F. Supp. 2d
at 558. In short, the Act is consistent with the Tenth Amendment.
B.
The PSC next contends that the district court erred when it refused
to dismiss Count I of Verizon’s complaint for failure to state a claim
VERIZON MARYLAND v. GLOBAL NAPS 21
upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The
PSC is not making a true failure to state a claim argument. It begins
by saying that because § 252(e)(6) fails to provide an express cause
of action for review of a state commission’s interpretation of an inter-
connection agreement, there is no federal jurisdiction over Count I. It
then says that because there is no cause of action implied in
§ 252(e)(6), see Cort v. Ash, 422 U.S. 66 (1975), Count I does not
state a claim. The PSC is committing the common error of confusing
the jurisdictional issue with the issue of whether a claim is stated. See
Montana-Dakota Utilities Co. v. Northwestern Public Serv. Co., 341
U.S. 246, 249 (1951) ("As frequently happens where jurisdiction
depends on subject matter, the question whether jurisdiction exists has
been confused with the question whether the complaint states a cause
of action.").
Count I states a claim upon which relief can be granted: it alleges
that the PSC misinterpreted the federally mandated interconnection
agreement, and Verizon seeks declaratory and injunctive relief to cor-
rect the alleged misinterpretation. Because we have held in part II.A
that there is federal question jurisdiction over this claim under § 1331,
we need not inquire into whether § 252(e)(6) provides a cause of
action. See Verizon, 535 U.S. at 644. When a "case’s resolution
depends on resolution of a federal question sufficiently substantial to
arise under federal law within the meaning of 28 U.S.C. § 1331,"
there is § 1331 jurisdiction even though the relevant statute does not
explicitly or implicitly provide for a cause of action. Ormet, 98 F.3d
at 806. See also Central Airlines, 372 U.S. 682. We therefore reject
the PSC’s argument that Count I’s contract misinterpretation allega-
tions do not state a claim.
C.
Finally, the PSC argues that Verizon did not file its complaint
within the period prescribed in the applicable statute of limitations.
The PSC did not raise a limitations defense by way of answer or
motion in district court. One defendant, Core Communications, Inc.,
did move to dismiss Verizon’s complaint on statute of limitations
grounds, and the district court concluded after full briefing that "Veri-
zon’s claim against Core [was] timely." Verizon Md. Inc., 232
F. Supp. at 554. In these circumstances the PSC’s failure to assert a
22 VERIZON MARYLAND v. GLOBAL NAPS
limitations defense in district court leads us to conclude that the issue
is waived for this appeal. See Peterson v. Airline Pilots Ass’n, Inter’l,
759 F.2d 1161, 1164 (4th Cir. 1985); Fed. R. Civ. P. 8(c). The PSC’s
cross-appeal is therefore dismissed with respect to the statute of limi-
tations issue.
IV.
To sum up, in Verizon’s appeal we reverse the district court’s sum-
mary judgment order to the extent it holds there is no federal question
jurisdiction over Verizon’s contract misinterpretation claim, and we
affirm that order to the extent it holds the PSC had the authority under
federal law to impose reciprocal compensation terms in arbitration
proceedings. In the PSC commissioners’ cross-appeal we affirm the
district court’s order denying their motion to dismiss Verizon’s
amended complaint on Tenth Amendment grounds and for failure to
state a claim, and we dismiss the commissioners’ cross-appeal on the
issue that Verizon’s action is barred by the statute of limitations. The
case is remanded for further proceedings on Verizon’s contract misin-
terpretation claim.
REVERSED AND REMANDED IN PART,
AFFIRMED IN PART, and
DISMISSED IN PART
VERIZON MARYLAND v. GLOBAL NAPS 23
Volume 2 of 2
VERIZON MARYLAND v. GLOBAL NAPS 27
NIEMEYER, Circuit Judge, concurring in part and dissenting in part:
We are considering in this appeal only Verizon’s claim that a fed-
eral court should review the Maryland Public Service Commission’s
order construing, under principles of Maryland contract law, the spe-
cific terms of a privately negotiated interconnection agreement
between Verizon and MCI.1 The district court ruled that this was a
State law claim for which it did not have federal jurisdiction and dis-
missed the claim.
Expanding substantially the scope of federal jurisdiction under 28
U.S.C. § 1331, the majority reverses the district court and holds for
the first time that because the negotiated agreement in this case was
mandated by the Telecommunications Act of 1996 — even though the
contractual terms construed by the Maryland Public Service Commis-
sion were not so mandated — Verizon’s claim that the Commission
misinterpreted the agreement "arises under" federal law within the
meaning of § 1331.
Because this unprecedented holding opens federal courts to State
law contract claims, without regard to whether federal or State law is
called upon to resolve the claims, I disagree with the majority’s deci-
sion, and therefore I dissent. Having considered the Telecommunica-
tions Act of 1996 ("the 1996 Act") and the Communications Act of
1934 ("the 1934 Act") (both Acts allocating adjudicatory responsibil-
ity between federal and State governments for the regulation of tele-
communications) and 28 U.S.C. § 1331 (conferring jurisdiction on
district courts for cases arising under federal law), I conclude that
Verizon’s claim that the Maryland Public Service Commission misin-
terpreted the language of the interconnection agreement under princi-
1
The parties to the interconnection agreement, dated July 16, 1996,
were Bell Atlantic-Maryland, Inc. and MFS Intelenet of Maryland, Inc.,
and by subsequent mergers and name changes, their interests are now
represented by Verizon Maryland, Inc., MCI WorldCom Communica-
tions, Inc., and MCIMetro Access Transmission Services LLC. For con-
venience, I refer to the contracting parties as "Verizon" and "MCI." I also
include in these designations the other local carriers who entered into
contracts similar to the one between Verizon and MCI and whose con-
tracts are also at issue in this case.
28 VERIZON MARYLAND v. GLOBAL NAPS
ples of Maryland contract law was properly dismissed by the district
court as a State law claim for which the district court had no jurisdic-
tion. I do not, however, disagree with the conclusion that the district
court had § 1331 jurisdiction to consider the different claim that the
Maryland Public Service Commission’s interpretation of the agree-
ment actually violated the 1996 Act, which is not before us on appeal.
In determining that Verizon’s misinterpretation claim does not
present a question of federal law, I conclude (1) that § 252(e)(6) of
the 1996 Act does not provide federal-court review of the Maryland
Public Service Commission’s decisions interpreting interconnection
agreements and therefore the 1996 Act and the 1934 Act defer review
of such State-law decisions to State courts; and (2) that the Maryland
Public Service Commission’s interpretation, under principles of
Maryland contract law, of negotiated language in the parties’ inter-
connection agreement does not present a federal question reviewable
in federal court under 28 U.S.C. § 1331, even though the agreement
was mandated by the 1996 Act.
I concur in Parts II.B., III.A., and III.C. of the majority opinion.
I. Regulatory Scheme
The question in this case is not whether Verizon can obtain review
of an order of the Maryland Public Service Commission ("PSC") that
allegedly misinterprets Verizon’s negotiated interconnection agree-
ment. Rather, the question is whether such review is to be conducted
in State court, under the traditional avenues established by State law
for review of PSC orders, or in federal court, under the Telecommuni-
cations Act of 1996 or under 28 U.S.C. § 1331. While Congress
clearly could have preempted all telecommunications issues under its
commerce power and in the interest of national uniformity, it elected
not to do so. Rather, it opted to enact a carefully allocated system of
cooperative federalism to retain the resources and expertise of State
public service commissions and State courts in the regulation of local
telecommunications carriers and their services. It is thus essential to
understand the manner in which Congress divided responsibility
under the 1934 and 1996 Acts to decide the issues in this case. There-
fore, before I address the specific issues in this case, I will outline the
regulatory scheme enacted by Congress.
VERIZON MARYLAND v. GLOBAL NAPS 29
Prior to enactment of the Communications Act of 1934, 48 Stat.
1064, the States recognized that telephone service was a natural
monopoly, and they generally regulated that service through State
public utility commissions. The 1934 Act continued treating tele-
phone service as a natural monopoly, but it divided regulatory respon-
sibility between the Federal Communications Commission ("FCC"),
which was designated to regulate interstate, long-distance service, and
State public utility commissions, which were designated to regulate
intrastate service. See, e.g., 47 U.S.C. § 152(a), (b); Louisiana Pub.
Serv. Comm’n v. FCC, 476 U.S. 355, 360 (1986). Indeed, 47 U.S.C.
§ 410 created a joint federal-state board to resolve disputes over regu-
latory jurisdiction.
The Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56 (1996) (codified at 47 U.S.C. §§ 151-614), which is at issue
in this case, did not supplant the 1934 Act. And importantly, it did
not repeal either § 152 or § 410, which divided responsibility between
the States and the federal government. Rather, the 1996 Act amended
the 1934 Act, leaving much of the 1934 Act’s structure in place. In
amending the 1934 Act with the 1996 Act, however, Congress aban-
doned its hands-off approach to intrastate commerce and undertook
to impose competition in both interstate and intrastate service. More-
over, Congress sought to facilitate the convergence of technologies in
telephone service, broadcast (radio and television) service, cable ser-
vice, satellite service, and other miscellaneous transmission services.
Thus, by enacting the 1996 Act, Congress intended "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." Pub. L. No. 104-104, 110 stat. 56, 56 (1996). But even
while pursuing these federal purposes, Congress left in place many of
the traditional functions of State public utility commissions.
To continue to employ the resources and expertise of State public
utility commissions, Congress elected not to raze the pre-1996 statu-
tory structure created by the 1934 Act and build an entirely new statu-
tory system. Rather, the 1996 Act partially flooded the existing
statutory terrain with specific preempting federal requirements, care-
fully leaving numerous islands of State responsibility. With respect to
some of these State islands, the 1996 Act mandates that State com-
30 VERIZON MARYLAND v. GLOBAL NAPS
missions apply federal law within their existing State procedural
structures. Thus, for example, State commissions are required to
apply federal requirements in arbitrating and approving federally
mandated interconnection agreements. See 47 U.S.C. § 252(c), (e).
With respect to other State islands, the Act actually conscripts State
governmental agencies for federal purposes. See, e.g., id. § 251(f)
(mandating that State commissions conduct inquiries to determine
whether to terminate rural telephone company exemptions); id.
§ 332(c)(7) (requiring local zoning boards to apply certain procedures
in approving the siting of telecommunications towers and facilities).
Still other areas that, before 1996, were left to the States are com-
pletely inundated by federal preemption, such as in the area of satel-
lite service. See, e.g., id. § 303(v). In some instances, preemption in
the 1996 Act is deferred and conditional, to be effected on a case-by-
case basis. See, e.g., id. § 252(e)(5) (directing the FCC to issue an
order "preempting the State commission’s jurisdiction" of a proceed-
ing if the State commission "fails to act to carry out its responsibility
under [§ 252]"); id. § 253(d) (directing the FCC to "preempt the
enforcement" of any State statute or regulation that has the effect of
denying a carrier the ability to provide any interstate or intrastate tele-
communications service).
No generalization can therefore be made about where, as between
federal and State agencies, responsibility lies for decisions. The areas
of responsibility are a patchwork, and the dividing lines are somewhat
murky, prompting one authority to observe:
In a mandatory if pro-forma gesture to the states, the Act
declares that it does not implicitly preempt any state or local
law. In 280 plus pages of text, however, implicit repeals are
hardly needed. There is plenty of explicit language to con-
strue, and abundant ambiguity about just who’s in charge,
on which issues. The new legislation’s division of legal
authority between federal and state regulators will likely be
litigated for many years to come.
Peter W. Huber, et al., The Telecommunications Act of 1996 § 1.2.12
(1996). What is certain is that, under the 1996 Act, Congress intended
to divide responsibility between the federal government and the
States, and unless it expressly provided for federal responsibility, it
VERIZON MARYLAND v. GLOBAL NAPS 31
left pre-1996 Act assignments of responsibility in place, such as by
retaining 47 U.S.C. §§ 152 and 410. In § 601(c)(1) of the 1996 Act,
Congress makes this point explicit:
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.
Pub. L. No. 104-104, 110 Stat. 56, 143 (1996) (codified at 47 U.S.C.
§ 152 note).
To promote competition in local telephone service, the 1996 Act
requires incumbent local exchange carriers ("ILECs") to provide
would-be competing local exchange carriers ("CLECs") access to
their facilities on reasonable and nondiscriminatory terms, and the
incumbent carrier must "establish reciprocal compensation agree-
ments [with competing carriers] for the transport and termination of
telecommunications." 47 U.S.C. § 251(b). Through these reciprocal
compensation arrangements, local carriers compensate each other for
intercarrier calls. Thus, if a caller subscribing to local carrier A calls
a subscriber to local carrier B, then local carrier B will be entitled to
a share of the revenues collected from carrier A’s subscriber. In pro-
viding access to its facilities, an ILEC has the duty to negotiate in
good faith to provide interconnection on reasonable and nondiscrimi-
natory terms. Id. § 251(c)(1)-(2).
The 1996 Act permits an ILEC and a CLEC voluntarily to negoti-
ate an interconnection agreement "without regard to the standards set
forth in subsections (b) and (c) of section 251." Id. § 252(a)(1). If the
parties, however, choose not to negotiate their own terms or are
unable to do so, the 1996 Act provides for binding arbitration admin-
istered by the applicable State public utility commission. Id. § 252(b).
An ILEC may also file with a State commission a "statement of gen-
erally available terms," which any CLEC may adopt. See id. § 252(f).
Any interconnection agreement, whether negotiated or adopted by
arbitration, must, under the 1996 Act, be "submitted for approval to
the State Commission," which shall "approve or reject the agreement,
with written findings as to any deficiencies." Id. § 252(e)(1). For vol-
32 VERIZON MARYLAND v. GLOBAL NAPS
untarily negotiated agreements, a State commission may only reject
the agreement if it discriminates against other carriers or if it is "not
consistent with the public interest, convenience, and necessity." Id.
§ 252(e)(2)(A). A State commission may reject an arbitrated agree-
ment if it does not meet the requirements of § 251 or the pricing stan-
dards set forth in § 252(d). Id. § 252(e)(2)(B). A State commission
retains authority to enforce existing, or to impose additional, State
regulations for local telecommunications, provided they are not
inconsistent with the 1996 Act. Id. § 261(b), (c). Finally, if a "State
commission fails to act to carry out its responsibility" under § 252, the
FCC must issue a preemption order and thereby assume the responsi-
bility of the State commission "with respect to the proceeding or mat-
ter." Id. § 252(e)(5).
In connection with all State commission decisions to enforce exist-
ing, or to impose additional, regulations of local telecommunications,
existing State law for judicial review is left in place. The 1996 Act,
however, designates specific State commission decisions for review
in federal court:
In any case in which a State commission makes a determina-
tion under this section, any party aggrieved by such determi-
nation may bring an action in an appropriate Federal district
court to determine whether the agreement or statement [of
generally available terms] meets the requirements of section
251 of this title and this section.
Id. § 252(e)(6). And Congress made this limited federal review exclu-
sive, providing that "[n]o State court shall have jurisdiction to review
the action of a State commission in approving or rejecting an agree-
ment under this section." Id. § 252(e)(4). Unless a State commission
decision falls within the scope of § 252(e)(6), however, the 1996 Act
leaves review in State court as provided by State law.
Against this regulatory scheme, we must determine in this appeal
whether the decision of the Maryland Public Service Commission
construing the terms of Verizon’s voluntarily negotiated interconnec-
tion agreement with MCI is reviewable in State court pursuant to the
generally available State law review procedures or in federal court
VERIZON MARYLAND v. GLOBAL NAPS 33
under either § 252(e)(6) of the 1996 Act or 28 U.S.C. § 1331. This
issue is presented in the following context.
II. Facts and Procedural History
Following enactment of the 1996 Act, Verizon and MCI voluntar-
ily negotiated an interconnection agreement by which MCI was given
access to Verizon’s local facilities and by which reciprocal compensa-
tion was established. The agreement, dated July 16, 1996, was sub-
mitted to the Maryland Public Service Commission, which approved
it by order dated October 9, 1996. Thereafter, other CLECs entered
into similar agreements with Verizon, and the PSC also approved
each of these agreements. The agreements provided for reciprocal
compensation to "recover costs incurred for the transport and termina-
tion of Local Traffic originating on one Party’s network and terminat-
ing on the other Party’s network." As used in the agreements, "Local
Traffic" referred to "traffic that is originated by a Customer of one
Party on that Party’s network and terminates to a Customer of the
other Party on that other Party’s network, within a given local calling
area, or expanded . . . service area."
Nine months after entering into its agreement with MCI, Verizon
wrote MCI a letter stating that it intended to discontinue payments of
reciprocal compensation for local exchange traffic terminating with
Internet service providers ("ISPs"). Verizon claimed that local
exchange traffic delivered to ISPs was ineligible for reciprocal com-
pensation because ISP traffic was interstate and not within the terms
of the agreement. In response to Verizon’s letter, MCI filed a com-
plaint with the PSC, requesting that the commission interpret the con-
tract between Verizon and MCI, which the PSC had earlier approved,
and declare that the reciprocal compensation provisions were applica-
ble to ISP-bound telephone calls. MCI contended that when an ISP
purchases local exchange service from MCI and receives calls that
originate from users of Verizon, the calls are "local traffic" as used
in the interconnection agreement.
On September 11, 1997, the Public Service Commission issued a
letter order in which it concluded (1) that the issue raised by MCI’s
complaint was "resolvable pursuant to the terms of the [Verizon-MCI]
Interconnection Agreement" and (2) that MCI was entitled to recipro-
34 VERIZON MARYLAND v. GLOBAL NAPS
cal compensation for the ISP-bound calls. Invoking State law for
review of PSC decisions, Verizon appealed the PSC’s decision to the
Circuit Court for Montgomery County, Maryland, and that court
affirmed the PSC order. Verizon did not appeal that decision.
About a year later, the FCC issued a ruling (which was later
vacated by the D.C. Circuit) declaring that ISP-bound traffic was not
local traffic.2 In response to that ruling, Verizon filed a second com-
plaint with the PSC challenging the PSC’s earlier ruling that, under
the terms of the contract between Verizon and MCI, the parties were
entitled to reciprocal compensation for ISP-bound traffic. The PSC
issued a second order, adhering to its first order and concluding as a
matter of State contract law that the Verizon-MCI agreement called
for ISP-bound calls to be treated as local traffic and therefore were
subject to reciprocal compensation. Specifically, the PSC stated: "At
the time the interconnection agreement was entered into, ISP traffic
was treated as local in virtually every respect by all industry partici-
pants" and that, given this fact, Verizon "had an obligation to negate
such local treatment in the interconnection agreements it entered into
by specifically excluding ISP traffic from the definition of local traf-
fic subject to the payment of reciprocal compensation." Because Veri-
zon did not exclude ISP traffic from the definition of local traffic,
2
The FCC’s order, In the Matter of Implementation of the Local Com-
petition Provisions in the Telecommunications Act of 1996, Intercarrier
Compensation for ISP-bound Traffic, 14 FCC Rcd. 3689 (1999) ("1999
ISP Ruling"), was vacated by the D.C. Circuit in Bell Atlantic Telephone
Companies v. FCC, 206 F.3d 1 (D.C. Cir. 2000). On remand, the FCC
"reaffirmed [its] previous conclusion that traffic delivered to an ISP is
predominately interstate access traffic" but modified its analysis to rely
on § 251(g). In re Implementation of the Local Competition Provision in
the Telecommunications Act of 1996, 16 FCC Rcd. 9151, 9153 (2001).
The D.C. Circuit, however, found that reliance on § 251(g) was pre-
cluded "[b]ecause that section is worded simply as a transitional device,
preserving various [local carrier] duties that antedated the 1996 Act until
such time as the [FCC] should adopt new rules pursuant to the Act."
WorldCom, Inc. v. FCC, 288 F.3d 429, 430 (D.C. Cir. 2001). The D.C.
Circuit remanded, without vacating, the order "[b]ecause there may well
be other legal bases for adopting the rules chosen by the [FCC]" for com-
pensating ISP-bound calls. Id.
VERIZON MARYLAND v. GLOBAL NAPS 35
according to the PSC, the term "local traffic" included ISP-bound traf-
fic.
Instead of seeking review of the PSC’s second order in State court,
as it had done with the first, Verizon commenced this action in the
district court, contending that the PSC’s ruling violated both the terms
of the negotiated agreement and federal law, specifically the 1996 Act
and the FCC ruling on ISP-bound traffic. The district court dismissed
the action for lack of jurisdiction, Bell Atl. Md., Inc. v. MFS Intelenet,
Inc., Civil No. S-99-2061 (D. Md. October 20, 1999), and we
affirmed, Bell Atl. Md., Inc. v. MCI WorldCom, Inc., 240 F.3d 279
(4th Cir. 2001). The Supreme Court, however, vacated our decision,
concluding that the district court had jurisdiction under 28 U.S.C.
§ 1331 at least to the extent that Verizon’s claim was that the PSC’s
order violated federal law. Verizon Md., Inc. v. Pub. Serv. Comm’n
of Md., 535 U.S. 635, 648 (2002). The Supreme Court stated that
because the complaint charged that the PSC "violated the [1996] Act
and the FCC ruling when it ordered payment of reciprocal compensa-
tion for ISP bound calls," and resolution of that question arose under
federal law, the district court had § 1331 jurisdiction to resolve that
question. Id. at 642. Rejecting the argument that § 252(e)(6) of the
1996 Act limits federal jurisdiction to claims defined in that section,
the Court concluded that while § 252(e)(6) might not confer jurisdic-
tion to hear cases beyond those stated in § 252, it does not divest the
jurisdiction of actions not specified in § 252 that otherwise might
arise under federal law and for which § 1331 provides subject matter
jurisdiction. Id. In reaching this conclusion, the Court made it clear
that federal jurisdiction exists because "resolution of Verizon’s claim
turns on whether the [1996] Act, or an FCC ruling issued thereunder,
precludes the [Maryland] Commission from ordering payment of
reciprocal compensation." Id. at 643.
The Supreme Court expressly did not decide whether § 252(e)(6)
conferred jurisdiction for review of a State commission decision
interpreting or enforcing an interconnection agreement. See 535 U.S.
at 642 ("Whether the text of § 252(e)(6) can be so construed is a ques-
tion we need not decide"). The Court also did not address whether
§ 1331 would encompass Verizon’s claim for review of the PSC’s
decision based on its alleged misinterpretation of the interconnection
agreement. See id. at 642-44; see also id. at 650 n.4 (Souter, J., con-
36 VERIZON MARYLAND v. GLOBAL NAPS
curring) ("Whether the interpretation of a reciprocal-compensation
provision in a privately negotiated interconnection agreement presents
a federal issue is a different question which neither the Court nor I
address at the present").
On remand from the Supreme Court, the district court relied on
§ 1331 jurisdiction to resolve Verizon’s claim that the 1996 Act and
FCC ruling precluded the PSC from ordering reciprocal compensa-
tion, entering summary judgment for the PSC on the merits. The court
observed that this claim was a "garden-variety federal-preemption
claim[]" over which it had jurisdiction under § 1331. Verizon Md.,
Inc. v. RCN Telecom Servs,, Inc., 248 F. Supp. 2d 468, 476-77 (D.
Md. 2003). On Verizon’s claim that the PSC misinterpreted the con-
tract according to its own terms, however, the district court held that
§ 252(e)(6) did not create a cause of action over which the federal
courts have jurisdiction. The court concluded that Verizon’s misinter-
pretation claim was a "garden-variety contract claim" and that "any
question of federal law [was] remote and contingent." Id. at 477, 482.
Accordingly, it concluded that the claim did not "arise under" federal
law as used in 28 U.S.C. § 1331. Having concluded that the contract
misinterpretation claim was a State law claim, the district court
declined to exercise supplemental jurisdiction under 28 U.S.C.
§ 1367(a) and dismissed the claim without prejudice. Id. at 482-83.
The majority opinion now reverses this latter ruling of the district
court, concluding that Verizon’s misinterpretation claim arises under
federal law within the meaning of § 1331. I disagree with that conclu-
sion, and accordingly I respectfully dissent.
III. Authority under Section 252(e)(6)
The PSC interpreted the language of the Verizon-MCI contract
under Maryland contract law and concluded that when the parties
agreed to reciprocal compensation for local traffic, they agreed to
reciprocal compensation for ISP-bound traffic. The PSC found that a
telephone call to an ISP was a local call and had always been treated
as a local call by the parties, by the PSC, and by the FCC. If Verizon
did not intend to include ISP-bound calls in the contract for reciprocal
compensation, the PSC reasoned, it should have excluded ISP-bound
calls from the definition of local calls because it was an accepted
VERIZON MARYLAND v. GLOBAL NAPS 37
industry custom at the time of the agreement to treat ISP-bound calls
as local calls.
When Verizon challenged this interpretation in the district court,
the court concluded that the issue was a garden-variety contract issue
governed by Maryland law and that review of the PSC’s order in this
regard must proceed from the Commission to State court, not to fed-
eral court, consistent with the overall regulatory scheme of the 1996
Act described above. I agree with the district court, and I base my
conclusion on two propositions: (1) the misinterpretation claim does
not fall within the scope of 47 U.S.C. § 252(e)(6), and therefore fed-
eral jurisdiction is not authorized by that provision; and (2) apart from
§ 252(e)(6), a contract interpretation claim for an interconnection
agreement, even though entered into under the mandate of the 1996
Act, does not "arise under federal law," as that phrase is used in 28
U.S.C. § 1331. I address the first point in this Part III, and the second
in Part IV.
Verizon contends that its complaint falls within the scope of
§ 252(e)(6) and that therefore it has stated a federal claim cognizable
by a federal district court under both that section and under 28 U.S.C.
§ 1331 (conferring federal-question jurisdiction). While Verizon
acknowledges that the express language of § 252(e)(6) limits federal
court review under that section to State commission "determinations"
to "approve or reject" interconnection agreements, see 47 U.S.C.
§ 252(e)(1), (6), Verizon argues that § 252(e)(6) impliedly confers
authority on federal courts to review State commission decisions
interpreting and enforcing such agreements. Thus, it claims that when
a State commission misinterprets the language of a negotiated inter-
connection agreement that it had earlier approved, the State commis-
sion, in misinterpreting the interconnection agreement, makes a
"determination" as used in § 252, which may be reviewed in federal
court pursuant to § 252(e)(6). For support, Verizon relies on decisions
from other circuits and an FCC order that in turn relied on other cir-
cuits’ decisions, even though we have concluded otherwise, holding
that the language of § 252(e)(6) does not authorize review of State
commission determinations interpreting and enforcing interconnec-
tion agreements. See Bell Atl.-Md., Inc. v. MCI WorldCom, Inc., 240
F.3d 279, 302-03 (4th Cir. 2001), vacated on other grounds, Verizon
Md., Inc. v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 648 (2002).
38 VERIZON MARYLAND v. GLOBAL NAPS
In reviewing our decision, the Supreme Court in Verizon left open
this issue on the scope of § 252(e)(6). But the Court did observe that
the State commission determination at issue in this case "is neither the
approval or disapproval of a negotiated agreement nor the approval
or disapproval of a statement of generally available terms," as speci-
fied in § 252. 535 U.S. at 641 (emphasis added). In response to Veri-
zon’s argument that a determination on the interpretation and
enforcement of an interconnection agreement is "implicitly encom-
pass[ed]" in § 252, the Court stated that that "is a question we need
not decide." Id. at 641-42. It limited its holding on review to conclud-
ing that § 252 did not divest the district court of jurisdiction under
§ 1331 to review the PSC’s order "for compliance with federal law."
Id. at 642.
For the reasons we gave in Bell Atlantic-Maryland, I thus adhere
to the plain meaning of the text of § 252(e)(6) and conclude that,
except for the limited "determinations" covered by § 252(e)(6),
review of State commission orders are left to review by State courts
— an avenue explicitly left in place by the 1996 Act.
Section 252(e)(6) of Title 47 provides in relevant part:
In any case in which a State commission makes a determina-
tion under this section [§ 252], any party aggrieved by such
determination may bring an action in an appropriate Federal
district court to determine whether the [interconnection]
agreement . . . meets the requirements of section 251 and
this section [§ 252].
Because it is clear that this section provides for direct federal court
review of State commission "determination[s]" made "under this sec-
tion [§ 252]," we need only identify what determinations a State com-
mission is authorized to make under § 252 to ascertain the scope of
§ 252(e)(6)’s review provision.
Section 251 of Title 47 lifts monopolistic barriers against insurgent
or competing telecommunications carriers by mandating interconnec-
tion agreements among local carriers and by imposing a duty on carri-
ers to agree to terms that promote seamless service to consumers.
Section 251 also directs the FCC to promulgate regulations to imple-
VERIZON MARYLAND v. GLOBAL NAPS 39
ment the section, at the same time commanding it to preserve State
regulations that are consistent with § 251. See 47 U.S.C. § 251(d)(3).
Section 252, entitled "Procedures for negotiation, arbitration, and
approval of agreements," creates the procedural framework for imple-
menting the commands of § 251. Section 252 defines two separate
courses leading to the formation of interconnection agreements —
one by negotiation and the other by compulsory arbitration. Agree-
ments arrived at through negotiation must be submitted to the State
commission, which "shall approve or reject the agreement, with writ-
ten findings as to any deficiencies." Id. § 252(e)(1); see id. § 252(a).
But the State commission may only reject a negotiated agreement if
it finds either that (1) the agreement discriminates against a nonparty
telecommunications carrier or that (2) the agreement "is not consistent
with the public interest, convenience, and necessity." Id.
§ 252(e)(2)(A). Section 252(e) also permits State commissions to
impose State-law requirements in their reviews of interconnection
agreements. See id. § 252(e)(3). Any party "aggrieved" by a State
commission’s determination approving or rejecting a negotiated
agreement may "bring an action in an appropriate Federal district
court" to test the agreement against the requirements of §§ 251 and
252. Id. § 252(e)(6). And § 252(e)(4) makes this limited federal
review exclusive, stating that "[n]o State court shall have jurisdiction
to review the action of a State commission in approving or rejecting
an agreement under this section [§ 252]."
If an agreement cannot be reached through negotiation under
§ 252(a), a party may petition the State commission for compulsory
arbitration, setting forth the specific issues upon which agreement
cannot be reached. The State commission is directed to arbitrate and
resolve the disputed issues, including those raised in the response to
the arbitration petition. See id. § 252(b)(4). In conducting the arbitra-
tion, the State commission is required (1) to ensure compliance with
§ 251, (2) to establish rates for interconnection services according to
standards in § 252(d), and (3) to provide a schedule for implementa-
tion of the interconnection agreement. See id. § 252(c). Once the dis-
puted issues are thus resolved through compulsory arbitration, the
entire agreement is submitted to the State commission for approval or
rejection. But unlike an agreement (or portions of an agreement)
reached through negotiation, where the grounds for rejection by the
40 VERIZON MARYLAND v. GLOBAL NAPS
State commission are limited to discrimination and inconsistency with
the public interest, convenience, and necessity, an arbitrated agree-
ment is reviewed by the State commission for compliance with the
more comprehensive requirements of § 251 (establishing multiple
interconnection requirements) and § 252(d) (establishing pricing stan-
dards). That is, arbitrated portions of an agreement are reviewed for
compliance with § 252(c)’s standards for arbitrating open terms. See
id. § 252(e)(2)(B). Finally, as with the State commission’s determina-
tion approving or rejecting a negotiated agreement, any party "ag-
grieved" by the State commission’s determination approving or
rejecting an arbitrated agreement may bring an action in an appropri-
ate federal district court, again "to determine whether the agreement
. . . meets the requirements" of §§ 251 and 252. 47 U.S.C. § 252(e)(6).
In sum, § 252(e)(6)’s provision for review of State commission
"determination[s] under this section" extends only to determinations
to approve or reject negotiated or arbitrated interconnection agree-
ments. The 1996 Act is silent with respect to the administration and
enforcement of such approved interconnection agreements. Given the
division of responsibility for local telecommunications regulation
made under the 1996 Act, including the requirement of § 601(c)(1)
(47 U.S.C. § 152 note) that federal responsibility be expressly pro-
vided for, this silence indicates that States are left with the responsi-
bility of reviewing their own commissions’ decisions administering
and enforcing interconnection agreements. The States’ authority to
enforce interconnection agreements stems from the division of
responsibility under the 1934 Act, the residual authority under the
1996 Act, and the States’ general authority to enforce binding agree-
ments. Because that enforcement authority does not derive from
§ 252, a State commission’s interpretation or enforcement of an inter-
connection agreement is not performed under § 252. Consequently,
§ 252(e)(6)’s review provision does not apply to State commission
decisions enforcing interconnection agreements.
In this case, Verizon challenges the PSC’s order interpreting and
enforcing interconnection agreements that the PSC previously
approved. Verizon does not now challenge any determination made
by the PSC under § 252 to approve the agreements. The PSC’s
authority to interpret and enforce agreements derives from preexisting
VERIZON MARYLAND v. GLOBAL NAPS 41
3
Maryland law left in place by the 1996 Act. Because the PSC’s order
was not a "determination" under § 252, Verizon’s challenge to that
order does not fall within the scope of federal jurisdiction conferred
by § 252(e)(6). For the same reason, Verizon may not rely on that
section to assert federal question jurisdiction under § 1331.
In support of its position, Verizon points out that the six other cir-
cuits to have addressed the source of State commissions’ authority to
enforce interconnection agreements have concluded that it is § 252
that grants such authority and therefore that such enforcement deter-
minations are reviewable in federal court under § 252(e)(6). Further,
Verizon also points out that the FCC has construed § 252 to include
the enforcement of interconnection agreements among State commis-
sion responsibilities under the 1996 Act. See In the Matter of Star-
power Communications, LLC Petition for Preemption of Jurisdiction
of the Virginia State Corp. Comm’n Pursuant to Section 252(e)(5) of
the Telecommunications Act of 1996, 15 FCC Rcd. 11,277 (2000)
(Memorandum Opinion and Order) ("Starpower Communications").
To begin with, it is certainly not the number of opinions from other
circuits that merits our attention, but rather the persuasiveness of their
reasoning. Respectfully, I conclude that none of those opinions has
adequately considered the text of the 1996 Act and its relationship to
the 1934 Act. Those deficiencies remain, no matter how often the
opinions cite one another as persuasive authority.
In concluding that State commissions’ authority to enforce inter-
connection agreements derives from § 252, these other circuits rely
almost exclusively on one or both of the following arguments: (1)
3
Maryland law appears to confer to the PSC the authority to enforce
interconnection agreements, see Md. Code Ann., Pub. Util. Cos. § 2-
113(a)(1)(ii) ("The Commission shall . . . enforce compliance with the
requirements of law by public service companies . . . ."); id. § 2-
112(b)(2) ("The Commission has the implied and incidental powers
needed or proper to carry out its functions under this article"); id. § 2-
112(c) ("The powers of the Commission shall be construed liberally").
Whether Maryland law does in fact confer such authority to the PSC is
not before us. I assume that the PSC did have authority under State law
to enforce the interconnection agreements for purposes of my analysis.
42 VERIZON MARYLAND v. GLOBAL NAPS
inherent in State commission authority to approve or reject agree-
ments under § 252 is the authority to interpret and enforce those
agreements; and (2) the FCC has concluded that State commission
responsibilities under § 252 include enforcement of agreements, and
that interpretation merits deference under Chevron U.S.A., Inc. v. Nat-
ural Resources Defense Council, Inc., 467 U.S. 837 (1984). Neither
argument, however, withstands close analysis.
The first argument ("inherent" authority) was initially articulated
by the Eighth Circuit in Iowa Utilities Board v. FCC, 120 F.3d 753,
804 (8th Cir. 1997), rev’d in part sub nom. AT&T Corp. v. Iowa Utili-
ties Board, 525 U.S. 366 (1999) (emphasis added), where the court
stated, "We believe that the state commissions’ plenary authority to
accept or reject [interconnection] agreements necessarily carries with
it the authority to enforce the provisions of agreements that the state
commissions have approved." Although that statement was the extent
of the court’s analysis of the issue and the statement appeared in a
section of analysis that the Supreme Court later held was not ripe for
review, AT&T, 525 U.S. at 386, five circuits have cited Iowa Utilities
Board and adopted the same or a substantially similar statement with-
out providing any further analysis. See BellSouth Telecomms., Inc. v.
MCIMetro Access Transmission Servs., Inc., 317 F.3d 1270, 1274,
1276 (11th Cir. 2003) (en banc) ("common sense reading");4 S.W. Bell
4
The Eleventh Circuit also finds support for its position in the contrast-
ing language used in §§ 252(e)(4) and (e)(6). It finds instructive that
Congress referred to "determination[s]" in (e)(6)’s grant of federal
review, yet (e)(4) abrogated State court jurisdiction to reviewing state
court actions "approving or rejecting" agreements under § 252. Accord-
ing to the court, "use of the word ‘determination’ in section 252(e)(6)
rather than a specific reference to the approval or rejection of agreements
leads us to believe that Congress did not intend to limit state commis-
sions’ authority to the mere approval and rejection of agreements." Bell-
South, 317 F.3d at 1277. But § 252(e)(6) is a procedural provision
referring to review of State commission determinations made pursuant to
authority enumerated elsewhere in § 252, and "[o]ne can hardly conclude
. . . that because the ‘approve or reject’ language is found in sections
252(e)(1) and 252(e)(4) but not section 252(e)(6), this somehow means
that state commissions must undertake additional responsibilities besides
that which is expressly enumerated in section 252(e)(1)." Id. at 1300 n.27
VERIZON MARYLAND v. GLOBAL NAPS 43
Tel. Co. v. Brooks Fiber Communications of Okl., Inc., 235 F.3d 493,
496-97 (10th Cir. 2000) ("necessarily implies"); S.W. Bell Tel. Co. v.
Connect Communications Corp., 225 F.3d 942, 946 & n.1 (8th Cir.
2000) ("address[ing] the matter anew" given the Supreme Court’s par-
tial reversal of Iowa Utilities Board, then concluding that § 252 "nec-
essarily includes the power to enforce [an] interconnection
agreement," citing the Fifth Circuit citing Iowa Utilities Board); MCI
Telecomms. Corp. v. Ill. Bell Tel. Co., 222 F.3d 323, 338 (7th Cir.
2000) ("necessarily includes"); S.W. Bell Tel. Co. v. Pub. Util.
Comm’n of Tex., 208 F.3d 475, 479-80 (5th Cir. 2000) ("necessarily
carries with it"). Finding implied authority, however, conflicts
directly with § 601(c)(1) of the 1996 Act: "This Act and the amend-
ments made by the Act shall not be construed to modify, impair, or
supersede Federal, State, or local law unless expressly so provided in
such Act or Amendments." 47 U.S.C. § 152 note (emphasis added).
In the Fifth Circuit’s opinion (subsequently cited as support in the
Seventh, Eighth, Tenth, and Eleventh Circuits’ opinions), the court
expressed concern that "[u]nder such a narrow construction, [State]
commission jurisdiction would not extend to interpreting or enforcing
a previously approved contract." Pub. Util. Comm’n of Tex., 208 F.3d
at 479. In rejecting that perceived outcome, the court noted that the
FCC "plainly expects" State commissions to enforce previously
approved interconnection agreements. Id. at 480 (citing the 1999 ISP
Ruling, 14 FCC Rcd. at 3703-04, ¶¶ 21, 22, 24, vacated and
remanded on other grounds, Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1
(D.C. Cir. 2000)). The Fifth Circuit clearly did not contemplate the
possibility that State commissions could have authority to enforce
interconnection agreements based on residual authority left to the
states under the 1996 Act — i.e., the interpretation of the 1996 and
1934 Acts advanced in Part I of this opinion and elsewhere. In fact,
none of the circuits considering the source of State commission
(Tjoflat, J., dissenting). Further, the Eleventh Circuit makes this argu-
ment in the context of its discussion of the FCC’s Starpower Communi-
cations decision and Chevron deference, see id. at 1277 (emphasis
added) ("It is reasonable to read the grant of authority in 252(e) as
encompassing the interpretation of agreements, not just their approval or
rejection"), and I conclude that Chevron deference is not due, see infra.
44 VERIZON MARYLAND v. GLOBAL NAPS
authority address, let alone refute, the view that the source of that
authority stems from the States’ residual authority under the 1996 Act.5
Under this interpretation, State commissions would have authority to
enforce interconnection agreements. Therefore, one can avoid the
strained construction of § 252 as "necessarily" implying State com-
missions’ authority to enforce interconnection agreements by recog-
nizing the source of such authority in previously established State
law.
The more fundamental problem with these opinions’ conclusory
statements that § 252 authority to enforce interconnection agreements
"necessarily" follows from § 252 authority to approve or reject them
is that the contention is clearly false. Logic certainly does not require
that the power to make enforcement decisions be conferred by the
same statutory provision authorizing approval or rejection determina-
tions, nor that approval and enforcement authority be vested in the
same governmental entity. Under its commerce power, Congress
could have completely preempted State regulation of local telecom-
munications participation. Cf. FERC v. Mississippi, 456 U.S. 742, 764
(1982). Congress could have vested approval and enforcement author-
ity with the FCC, or Congress could have split authority between the
FCC and the federal courts. And, provided it was not commandeering
State agencies, Congress could have vested authority to approve and
enforce agreements with State public utility commissions or, for that
matter, with State boards of cosmetology. Or, as the 1996 Act in fact
provides, State commissions could have been invested with authority
to approve or reject interconnection agreements, while leaving for the
States the decision whether to vest enforcement authority with State
commissions or with State trial courts directly (or elsewhere). Thus,
although vesting enforcement authority in the same governmental
entity that approves interconnection agreements (or conferring such
5
For example, the Eighth Circuit’s analysis noted that "[w]hile the
arguments of the [appellees] appear to reject the proposition that the state
commissions’ power to enforce federally-mandated interconnection
agreements comes from § 252, they suggest no likely alternative. Arkan-
sas law alone cannot be the source." Connect Communications, 225 F.3d
at 946. In answer, it is State law plus residual authority under the 1996
Act that constitute the sources of State commission authority to enforce
interconnection agreements.
VERIZON MARYLAND v. GLOBAL NAPS 45
authority by the same statutory provisions) might be one obvious
approach, it is certainly not an inevitable or "necessary" arrangement,
nor one that "necessarily follows" in a logical sense from vesting
approval authority in State commissions through § 252. To the con-
trary, when considering Congress’ purpose of retaining in the overall
regulatory scheme the resources and expertise of State commissions
and their reviewing courts, it would be more logical to leave authority
to administer and enforce local service contracts in State commissions
and courts under preestablished State law. This would leave State
commissions to function in their traditional role of administering and
enforcing agreements relating to local telephone service, while retain-
ing for federal review only decisions governing the formation of inter-
connection agreements.
The other justification for the conclusion that it is § 252 that vests
State commissions with enforcement authority is that the FCC has so
concluded and that its decision merits Chevron deference. Five other
circuits make this argument. See Mich. Bell Tel. Co. v. MCIMetro
Access Transmission Servs., Inc., 323 F.3d 348, 356 (6th Cir. 2003);
BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Servs.,
Inc., 317 F.3d 1270, 1276-77 (11th Cir. 2003) (en banc); S.W. Bell
Tel. Co. v. Brooks Fiber Communications of Okl., Inc., 235 F.3d 493,
497 (10th Cir. 2000); S.W. Bell Tel. Co. v. Connect Communications
Corp., 225 F.3d 942, 946-47 (8th Cir. 2000); S.W. Bell Tel. Co. v.
Pub. Util. Comm’n of Tex., 208 F.3d 475, 480 (5th Cir. 2000); see
also Ill. Bell Tel. Co. v. WorldCom Techs., Inc., 179 F.3d 566, 573
(7th Cir. 1999) ("[T]he [Illinois Commerce] Commission was doing
what it is charged with doing in the [1996] Act and in the FCC ruling
[i.e., 1999 ISP Ruling]. It was determining what the parties intended
under the [interconnection] agreements"). But, as with the "inherent
authority" argument, this argument lacks analysis and is unpersuasive
for several reasons.
In its 2000 opinion in Starpower Communications, the FCC
addressed a request for preemption of the Virginia State Corporation
Commission, which declined jurisdiction over a reciprocal compensa-
tion dispute concerning the interpretation of an interconnection agree-
ment. 15 FCC Rcd. at 11,277-78, ¶¶ 1, 4. Under § 252(e)(5), the FCC
must preempt a State commission’s jurisdiction over a matter if the
State commission "fails to carry out its responsibility" under § 252.
46 VERIZON MARYLAND v. GLOBAL NAPS
In the course of its opinion, the FCC concluded that the interpretation
and enforcement of previously approved interconnection agreements
are within State commissions’ § 252 responsibilities. Id. at 11,279-80,
¶ 6. The entirety of the FCC’s analysis is as follows:
In reaching this conclusion, we find federal court precedent
to be instructive. Specifically, at least two federal courts of
appeal have held that inherent in state commissions’ express
authority to mediate, arbitrate, and approve interconnection
agreements under section 252 is the authority to interpret
and enforce previously approved agreements. These court
opinions implicitly recognize that, due to its role in the
approval process, a state commission is well-suited to
address disputes arising from interconnection agreements.
Id. (footnote omitted). The two circuit court opinions cited by the
FCC as "instructive" are Southwestern Bell Telephone Co. v. Public
Utility Commission of Texas, 208 F.3d 475 (5th Cir. 2000), and Illi-
nois Bell Telephone Co. v. WorldCom Technologies, Inc., 179 F.3d
566 (7th Cir. 1999).
As an initial matter, the FCC’s statement that State commissions
are well suited to enforce interconnection agreements given the State
commissions’ role in the approval process does not advance the ball.
It must be conceded that both before and after enactment of the 1996
Act, State commissions have been not only "well-suited to address"
disputes relating to local service agreements, they have done so and
continue to do so. State commissions would be equally well suited to
enforce interconnection agreements whether the source of that author-
ity is the 1996 Act or residual authority under the 1996 Act (i.e.,
stemming from the 1934 Act), and the FCC’s observation adds noth-
ing to the argument that it is § 252 of the 1996 Act that confers such
authority.
Further, not only does Starpower Communications fail to analyze
the text of § 252 for itself, it also adopts the "inherent-authority" view
based on the strength of two circuit court opinions that themselves
failed to analyze § 252. The Seventh Circuit made only scattered ref-
erences supporting such a view in a case only indirectly raising the
issue, see Ill. Bell, 179 F.3d at 573-74, and the Fifth Circuit, as dis-
VERIZON MARYLAND v. GLOBAL NAPS 47
cussed above, stated its conclusory view without contemplating the
possibility that residual authority under the 1996 Act vested States
with enforcement authority, see Pub. Util. Comm’n of Tex., 208 F.3d
at 479-80. Those decisions were also based, in part, on deference to
the FCC’s 1999 ISP Ruling, in which the FCC indicated in dictum
that it expected that State commissions would resolve interconnection
disputes. 14 FCC Rcd. at 3703-06, ¶¶ 21, 22, 24, 26; Pub. Util.
Comm’n of Tex., 208 F.3d at 480; Ill. Bell, 179 F.3d at 572-74. The
1999 ISP Ruling, however, was later vacated by the D.C. Circuit. See
Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 6-9 (D.C. Cir. 2000) (vacating
based on the FCC’s failure to explain why the analysis the FCC used
to determine that ISP calls are jurisdictionally mixed was appropriate
under the 1996 Act or FCC regulations). Further, the 1999 ISP Ruling
revealed only an expectation that State commissions would enforce
interconnection agreements, and in only one passing reference did the
FCC link that expectation to § 252. See 14 FCC Rcd. at 3705-06, ¶ 26
("In the absence of a federal rule [addressing reciprocal compensation
for ISP-bound traffic], state commissions . . . have had to fulfill their
statutory obligation under section 252 to resolve interconnection dis-
putes between incumbent LECs and CLECs").
In short, Chevron deference is not due to the FCC’s conclusion in
Starpower Communications when it was reached without analyzing
§ 252 and when it is only based on the persuasiveness of two circuit
court opinions that themselves did not analyze § 252 and that relied
in part on dicta in a vacated 1999 FCC ruling that also did not analyze
§ 252.
In addition, Chevron deference is not required when the ultimate
question is about federal jurisdiction. Analogous to our obligation to
inquire sua sponte whenever federal jurisdiction is in doubt, see Mt.
Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278
(1977), a federal court must interpret statutory grants of jurisdiction
for itself. See Murphy Exploration & Prod. Co. v. U.S. Dep’t of the
Interior, 252 F.3d 473, 478 (D.C. Cir. 2001) ("Chevron does not
apply to statutes that . . . confer jurisdiction on the federal courts. It
is well established that ‘[i]nterpreting statutes granting jurisdiction to
Article III courts is exclusively the province of the courts’" (quoting
Ramey v. Bowsher, 9 F.3d 133, 136 n.7 (D.C. Cir. 1993))); see also
BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Servs.,
48 VERIZON MARYLAND v. GLOBAL NAPS
Inc., 317 F.3d 1270, 1304-05 (11th Cir. 2003) (Tjoflat, J., dissenting)
(explaining why Starpower Communications does not merit Chevron
deference); Lopez-Elias v. Reno, 209 F.3d 788, 791 (5th Cir. 2000)
(finding deference to an INS construction of a jurisdictional statute
inappropriate because "the determination of our jurisdiction is exclu-
sively for the court to decide").
Finally, Chevron deference is not applicable unless the statute con-
strued by the agency is silent or ambiguous. Chevron, 467 U.S. at
842-43. Section 252 is not ambiguous. It confers authority on State
public commissions to make specific determinations, and those deter-
minations are reviewable in federal court. Otherwise the 1996 Act
leaves State commissions the authority they had under the 1934 Act,
including the authority to resolve disputes under telecommunications
agreements. Because the 1996 Act does not explicitly confer authority
on State commissions to interpret and enforce previously approved
interconnection agreements, § 601(c)(1) of the 1996 Act mandates
that the 1934 Act’s allocation of such authority to the States remain
unmodified. Thus, State law remains the source of State commission
authority to enforce local telecommunications agreements and of
State court authority to review them. There is no ambiguity. Section
252 has nothing to do with the allocation of enforcement authority for
disputes over interconnection agreements. And if I needed to reach
Chevron’s step two — whether the agency’s interpretation is based on
a permissible reading of the statute — I would conclude that the
FCC’s interpretation is not a permissible reading of the statute. In
fact, Starpower Communications does not qualify as a "reading" of
the statute at all. The FCC simply cited two circuit court opinions,
which themselves failed to analyze § 252, and simply stated ipse dixit
that State commissions have "inherent" authority to enforce intercon-
nection agreements based on their approval authority — contrary to
§ 601(c)(1)’s requirement of express modification of existing law.
Although it might be a reasonable alternative to vest State commis-
sions with enforcement authority, that conclusion is not a reasonable
interpretation of § 252. See also BellSouth, 317 F.3d at 1305 (Tjoflat,
J., dissenting) ("I do not think the Chevron Court intended that liti-
gants be able to ‘launder’ circuit court opinions through federal agen-
cies and thereby make those opinions binding on other circuits, even
if the agency offers no analysis of its own" (footnotes omitted)).
VERIZON MARYLAND v. GLOBAL NAPS 49
In addition to concluding that State commission enforcement deci-
sions are not "determinations" that are reviewable in federal court
under § 252(e)(6), I also conclude that Verizon’s complaint does not
properly invoke § 252 because, when it challenges the PSC’s "misin-
terpretation" of Verizon’s negotiated agreement, it is not contending
that the agreement fails to meet the requirements of §§ 251 and 252,
which is the defined scope of § 252(e)(6). A plain reading of
§ 252(e)(6) indicates a limited scope of review. The relevant portion
reads in full:
In any case in which a State commission makes a determina-
tion under this section, any party aggrieved by such determi-
nation may bring an action in an appropriate Federal district
court to determine whether the agreement or statement
meets the requirements of section 251 of this title and this
section.
47 U.S.C. § 252(e)(6) (emphasis added). That is, even if a State com-
mission enforcement decision could be included as a § 252 "determi-
nation," § 252(e)(6) provides for federal court review to determine
whether the agreement as construed by the State commission violates
the requirements of §§ 251 and 252. Section 252(e)(6) does not, in
other words, encompass other challenges to a State commission inter-
pretation — such as a claim that a State commission improperly
applied State contract law in interpreting the agreement.
The First and Seventh Circuits have adopted this straightforward
reading of the text. See P.R. Tel. Co. v. Telecomms. Regulatory Bd.
of Puerto Rico, 189 F.3d 1, 13-15 (1st Cir. 1999); MCI Telecomms.
Corp. v. Illinois Commerce Comm’n, 183 F.3d 558, 564 (7th Cir.
1999), reh’g on other grounds, 222 F.3d 323 (7th Cir. 2000); Ill. Bell
Tel. Co. v. WorldCom Techs., Inc., 179 F.3d 566, 571 (7th Cir. 1999),
cert. dismissed sub nom. Mathias v. WorldCom Techs., Inc., 535 U.S.
682 (2002). Concluding that "[s]ection 252(e)(6) does not confer
authority on federal courts to review the actions of state commissions
for compliance with state law," the First Circuit noted that "[i]f Con-
gress intended federal courts’ review to encompass any kind of
alleged legal flaw in a state commission’s determination, then there
would have been little need to include the language ‘meets the
50 VERIZON MARYLAND v. GLOBAL NAPS
requirements of section 251 . . . and [section 252].’"6 P.R. Tel., 189
F.3d at 13, 14 (quoting 47 U.S.C. § 252(e)(6)) (alterations in origi-
nal). After discussing how the 1996 Act "exemplifies a cooperative
federalism," the court observed that "[i]t would be ‘surpassing
strange’ to preserve state authority in this fashion and then to put fed-
eral courts in the position of overruling a state agency on a pure issue
of state law." Id. at 14-15 (quoting AT&T Corp. v. Iowa Utils. Bd.,
525 U.S. 366, 378 n.6 (1999)). The First Circuit acknowledged that
it is "perfectly conceivable" that a State commission interpretation of
an interconnection agreement based on State law could conflict with
§ 251 or § 252, and, if so, that decision would be reviewable in fed-
eral court. Id. at 15.
The Seventh Circuit also interprets the language of § 252(e)(6) to
mean what it says. Under § 252(e)(6), the Court has held, "federal
courts may review a state commission’s actions with respect to an
agreement only for compliance with the requirements of § 251 and
§ 252 of the Telecommunications Act, and not for compliance with
state law." MCI, 183 F.3d at 564; see also Ill. Bell, 179 F.3d at 571.
In contrast, "[a] decision ‘interpreting’ an agreement contrary to its
terms creates a different kind of problem — one under the law of con-
tracts, and therefore one for which a state forum can supply a rem-
edy." Ill. Bell Tel. Co. v. WorldCom Techs., Inc., No. 98-3150, 1999
U.S. App. LEXIS 20635, at *1 (7th Cir. Aug. 19, 1999) (unpublished
amendment to Ill. Bell, 179 F.3d at 574).
Verizon critiques the Seventh Circuit’s interpretation of the scope
of review under § 252(e)(6) (and simply ignores the First Circuit’s
interpretation) by insisting that the Fifth, Sixth, Eighth, Ninth, and
Tenth Circuits have rejected the Seventh Circuit’s view.7 The Eighth
6
The First Circuit also concluded that it lacked jurisdiction under
§ 252(e)(6) because there was an insufficient nexus between the State
Board’s order and the interconnection agreement, concluding that the
order was therefore not a "determination" under § 252. P.R. Tel., 189
F.3d at 9-13. The court’s analysis of the scope of review represented an
alternative ground for finding that the district court lacked jurisdiction.
7
Verizon also unpersuasively suggests that the Seventh Circuit’s hold-
ing in Illinois Bell is "of dubious authority even in that circuit" because
of the "plain implication" of scattered language in a later decision that
addressed an entirely different question (i.e., State commission immunity
under the Eleventh Amendment). See MCI Telecomms. Corp. v. Ill. Bell
Tel. Co., 222 F.3d 323 (7th Cir. 2000).
VERIZON MARYLAND v. GLOBAL NAPS 51
Circuit, however, concluded that jurisdiction was proper because the
claim alleged violations of federal law, and the court even stated that
"[w]ith regard to purely state law issues, the state commissions may
have the final say." S.W. Bell Tel. Co. v. Connect Communications
Corp., 225 F.3d 942, 948 (8th Cir. 2000). And the Tenth Circuit,
although observing that "it would be a waste of judicial resources to
limit the court’s consideration to federal issues only," concluded that
the district court could review State law issues through the exercise
of supplemental jurisdiction. S.W. Bell Tel. Co. v. Brooks Fiber Com-
munications of Okla., Inc., 235 F.3d 493, 498 (10th Cir. 2000). The
Ninth Circuit offered no analysis at all, simply declaring that it would
review de novo a State commission’s interpretation of an interconnec-
tion agreement for compliance with federal law and would consider
all other issues under an arbitrary-and-capricious standard. See US
West Communications v. MFS Intelenet, Inc., 193 F.3d 1112, 1117
(9th Cir. 1999).
The Fifth and Sixth Circuits acknowledged the issue but in the end
concluded without analysis that § 252(e)(6) grants federal courts
jurisdiction to review commission determinations for compliance with
State law. The Fifth Circuit acknowledged a circuit split, described
the Seventh and Ninth Circuits’ competing views, and then simply
stated that "[w]e find [the Ninth Circuit’s] approach appropriate."
S.W. Bell Tel. Co. v. Pub. Util. Comm’n of Tex., 208 F.3d 475, 481-
82 (5th Cir. 2000). The Sixth Circuit acknowledged that § 252(e)(6)
allows for federal court review for compliance with §§ 251 and 252,
and then, after concluding that a State commission’s interpretation of
an interconnection agreement is a § 252 determination, the court drew
the following conclusion without analysis: "Given that federal courts
may review state commission determinations, we join our sister cir-
cuits and hold that federal courts have jurisdiction under Section 252
to review state commission interpretations for compliance with state
law." Mich. Bell Tel. Co. v. MCIMetro Access Transmission Servs.,
Inc., 323 F.3d 348, 356-57 (6th Cir. 2003).
Neither Verizon nor the opinions it cites offers any legitimate rea-
son why the scope of federal-court review under § 252(e)(6) is
broader than as plainly defined in the text. Thus, I agree with the First
and Seventh Circuits that the scope of review under § 252(e)(6) is
limited to compliance with §§ 251 and 252. This construction is yet
52 VERIZON MARYLAND v. GLOBAL NAPS
another reason to conclude that a § 252 determination refers to State
commissions’ approval or rejection decisions — which are subject to
§§ 251 and 252 — not to enforcement decisions that raise State law
issues.
In short, Verizon seeks review of the Maryland Public Service
Commission’s decision that allegedly misinterprets, under State con-
tract law, the language of a negotiated agreement. This claim does not
concern a § 252 determination, and therefore the decision is not
reviewable in federal court under § 252(e)(6). Moreover, in alleging
that the PSC misinterpreted the terms of the negotiated agreement,
Verizon does not contend that this misinterpretation violates § 251 or
§ 252. Accordingly, for this reason also, its claim does not fall within
the scope of review permitted under § 252(e)(6). The district court
correctly concluded that the misinterpretation claim is not a federal
claim for which federal jurisdiction under § 252(e)(6) is available. Of
course, under this construction of § 252, Maryland State courts
remain available to review the PSC’s orders, as Verizon recognized
when it pursued this course the first time it sought review of the
PSC’s interpretation of its interconnection agreement.
IV. Section 1331 Jurisdiction
Verizon also contends that its claim that the PSC misinterpreted
Verizon’s negotiated agreement with MCI raises a federal question
for which the district court had jurisdiction under 28 U.S.C. § 1331
(providing federal district courts with "original jurisdiction of all civil
actions arising under the Constitution, laws, or treaties of the United
States"). In deciding this issue against Verizon, the district court rec-
ognized that Verizon was making two distinct claims challenging the
PSC’s order: (1) that the PSC’s order "violates the 1996 Act and FCC
rulings issued thereunder by requiring payment of reciprocal compen-
sation for ISP-bound calls"; and (2) that the order "violates the 1996
Act and FCC rulings issued thereunder by misinterpreting the terms
of its agreements with [MCI] to require payment of reciprocal com-
pensation for ISP-bound calls." Verizon Md., 248 F. Supp. 2d at 476
(emphasis added). The district court understood that it had jurisdiction
under § 1331 to decide the first claim, and it granted summary judg-
ment to PSC on the merits of that claim. On the second claim, how-
ever, the court declined to exercise supplemental jurisdiction,
VERIZON MARYLAND v. GLOBAL NAPS 53
concluding that the claim arose under State contract law, not federal
law. Id. at 487-88.
These rulings by the district court were, I submit, completely con-
sistent with both the Supreme Court’s earlier decision in this case and
with the "arising under" jurisprudence of § 1331.
While the Supreme Court earlier in this case decided that Verizon’s
claim that the PSC’s order did not comply with federal law fell within
the district court’s § 1331 jurisdiction, the Court did not decide
whether Verizon’s claim that the PSC misinterpreted the terms of its
interconnection agreement fell under § 1331 jurisdiction. As the
Supreme Court stated:
[T]he district court has jurisdiction if the right of the peti-
tioners to recover under their complaint will be sustained if
the Constitution and laws of the United States are given one
construction and will be defeated if they are given another,
unless the claim clearly appears to be immaterial and made
solely for the purpose of obtaining jurisdiction or where
such a claim is wholly insubstantial and frivolous. Here,
resolution of Verizon’s claim turns on whether the [1996]
Act, or an FCC ruling issued thereunder, precludes the
[Maryland] Commission from ordering payment of recipro-
cal compensation, and there is no suggestion that Verizon’s
claim is immaterial or wholly insubstantial and frivolous.
Verizon’s claim thus falls within 28 U.S.C. § 1331’s gen-
eral grant of jurisdiction.
Verizon, 535 U.S. at 643 (internal quotation marks and citations omit-
ted) (emphasis added). In linking § 1331 jurisdiction to Verizon’s
claim that the PSC order violated federal law, the Court chose not to
address whether § 1331 would also encompass a claim that a State
commission misinterpreted an interconnection agreement in an
enforcement dispute. See id. at 642-44; see also id. at 650 n.4 (Souter,
J., concurring) ("Whether the interpretation of a reciprocal-
compensation provision in a privately negotiated interconnection
agreement presents a federal issue is a different question which nei-
ther the Court nor I address at the present").
54 VERIZON MARYLAND v. GLOBAL NAPS
Verizon does not argue that the Supreme Court in Verizon ruled
that its misinterpretation claim arises under federal law. Rather, Veri-
zon argues that its misinterpretation claim arises under federal law
based on the general "arising under" jurisprudence of § 1331, advanc-
ing three arguments. First, it contends that a State commission exer-
cises federal power when enforcing interconnection agreements and
that there is a presumption of federal review where an agency wields
federal authority in a manner contrary to federal law, such as by mis-
interpreting an interconnection agreement. Second, it contends that
because § 252(a)(1) grants local telecommunications carriers the right
to enter into "binding" interconnection agreements, federal law is vio-
lated when the State commission imposes obligations inconsistent
with the stated terms of an agreement. Third, it contends that "inter-
connection agreements are the product of federal legal coercion
designed to implement federal statutory obligations" and therefore
"any claim based on a 1996 Act interconnection agreement arises
under federal law." I address these points in order.
A
Verizon contends first that the PSC’s authority to adjudicate the
meaning of the contractual language in the interconnection agreement
derives from federal law and that its "claim that the state commission
misinterpreted the agreement thus constitutes a claim that an agency
has wielded federal authority in a manner that is not in accordance
with law." As fully articulated in Part I (discussing the division of
federal and State responsibility under the 1996 Act), I reject the prem-
ise of Verizon’s argument. The PSC’s authority to adjudicate the case
stems from State law, not federal law (i.e., from residual State author-
ity under the 1996 Act). Further, Verizon concedes that review of
enforcement decisions is available in State courts (which is in fact the
course that Verizon took in response to the PSC’s September 1997
order), a fact the Supreme Court also recognized. See Verizon, 535
U.S. at 643 (observing that "here the elimination of federal district-
court review would not amount to the elimination of all review").
Thus, even if State commissions acted as "federalized" agencies when
enforcing interconnection agreements, Verizon’s citation to cases
such as Bowen v. Michigan Academy of Family Physicians, 476 U.S.
667, 670 (1986), for the proposition that there is a "strong presump-
VERIZON MARYLAND v. GLOBAL NAPS 55
tion" that "Congress intends judicial review of administrative action"
is inapt.
B
Verizon contends next that, by "requiring Verizon to pay reciprocal
compensation on ISP-bound traffic, the PSC acted contrary to the
terms of the governing interconnection agreement" and that under the
1996 Act, "a state commission is not permitted to impose obligations
inconsistent with [an agreement’s] terms." One is tempted to dismiss
out-of-hand an argument that federal law is somehow violated when
an agency acting in an adjudicatory capacity misinterprets the terms
of an agreement between private parties. Yet Verizon characterizes
this argument as its "fundamental claim."
Verizon develops this argument as follows. Under § 252(a)(1), an
incumbent local carrier "may negotiate and enter into a binding agree-
ment with [a] requesting telecommunications carrier or carriers with-
out regard to the standards set forth in subsections (b) and (c) of
section 251 of this title." Verizon contends that "[b]ecause federal law
dictates that [duly approved] interconnection agreements . . . are bind-
ing, a state commission is not permitted to impose obligations incon-
sistent with their terms." (Emphasis added). When a State commission
misconstrues the terms of a negotiated agreement, Verizon insists, it
imposes contrary terms in violation of parties’ rights under
§ 252(a)(1). According to Verizon, "[i]t is, in part, the commissions’
lack of power to impose such obligations that gives force to section
252(a)(1)." Verizon contends that its claim therefore arises under fed-
eral law because "the PSC’s interpretation violates Verizon’s feder-
ally protected right to enter into ‘binding agreement[s]’" (alteration in
original).
Verizon makes much of § 252(a)(1)’s reference to "binding agree-
ments," discovering a federally protected "right," but that language
hardly represents Congressional intent to federalize all disputes over
the terms of an interconnection agreement. The language signifies
nothing more than that interconnection agreements, once approved by
State Commissions, are binding contracts and that the parties are obli-
gated to perform under the terms of the agreement as interpreted by
State commissions (or State courts). Because § 252(a)(1) explicitly
56 VERIZON MARYLAND v. GLOBAL NAPS
permits parties to negotiate terms without regard to §§ 251(b) and (c),
Verizon’s argument amounts to a claim that a State commission’s
misinterpretation of terms voluntarily negotiated without regard to
federal law somehow violates federal law. Like the district court, I
reject Verizon’s "read[ing of] the 1996 Act to create a federal cause
of action whenever a state commission (mis)determines what parties
intended under their interconnection agreements." Verizon Md., 248
F. Supp. 2d at 477.
C
Finally, Verizon contends that "any claim based on a 1996 Act
interconnection agreement arises under federal law" (emphasis added)
because "interconnection agreements are the product of federal legal
coercion designed to implement federal statutory obligations" and any
approved agreements must be made available, under § 252(i), on the
same terms to other requesting local carriers. Although conceding that
the 1996 Act grants local carriers "limited flexibility" with respect to
the terms of reciprocal compensation arrangements, Verizon insists
that federal law is the source of the reciprocal compensation provi-
sions. Under its interpretation, § 1331 is satisfied in the same way that
the Supreme Court found jurisdiction in International Association of
Machinists v. Central Airlines, Inc., 372 U.S. 682 (1963).8
In the typical analysis under § 1331, the inquiry is whether "a well-
pleaded complaint establishes either [1] that federal law creates the
cause of action or [2] that the plaintiff’s right to relief necessarily
depends on resolution of a substantial question of federal law." Fran-
chise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal.,
463 U.S. 1, 27-28 (1983). In those cases where the federal question
8
Verizon also contends that § 1331 is satisfied because interconnection
agreements "serve essentially the same function as, and evince the cen-
tral attributes of, federal tariffs," which do present claims arising under
federal law. See Thurston Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460
U.S. 533, 534 (1983) (per curiam). Unlike federal tariffs for interstate
telephone services, which carriers formerly had to file with the FCC,
interconnection agreements apply primarily within a single State and are
approved by State commissions, and there is no need for national unifor-
mity in treatment. The analogy fails.
VERIZON MARYLAND v. GLOBAL NAPS 57
is an element of a State cause of action, "determinations about federal
jurisdiction require sensitive judgments about congressional intent,
judicial power, and the federal system." Merrell Dow Pharms., Inc.
v. Thompson, 478 U.S. 804, 810 (1986). "[T]he mere presence of a
federal issue in a state cause of action does not automatically confer
federal-question jurisdiction," but rather the inquiry must assess "the
nature of the federal interest at stake." Id. at 813, 814 n.12; see also
Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 807 (4th Cir. 1996).
This typical analysis under § 1331 does not, however, readily apply
to this case. Although the 1996 Act does not include an express pri-
vate right of action for the enforcement of interconnection agreements
(as opposed to § 252(e)(6)’s limited right of action for review of
§ 252 determinations for compliance with §§ 251 and 252), Congress
no doubt expected that interconnection agreements would be enforce-
able by private action. As the Supreme Court stated in an analogous
context, "[t]he issue, then, is not whether Congress intended [parties]
to be able to bring contract actions for breaches of the . . . contracts,
but whether Congress intended such contract actions to set forth fed-
eral, rather than state, claims." Jackson Transit Auth. v. Local Div.
1285, Amalgamated Transit Union, 457 U.S. 15, 21 (1982).
In support of its argument that enforcement of a federally mandated
agreement arises under federal law, Verizon contends that this case
is "indistinguishable" from International Association of Machinists v.
Central Airlines, Inc., 372 U.S. 682 (1963), which Verizon character-
izes as holding that "disputes regarding federally mandated contracts
arise under federal law." Central Airlines, however, is readily distin-
guishable, and its holding is far narrower than Verizon suggests.
Central Airlines held that "a suit to enforce an award of an airline
system board of adjustment [created pursuant to § 204 of the Railway
Labor Act] is a suit arising under the laws of the United States under
28 U.S.C. § 1331." 372 U.S. at 684-85, 696; see also Jackson Transit,
457 U.S. at 22 (Central Airlines "held that a union had a federal cause
of action to enforce an award of an airline adjustment board included
in a collective-bargaining contract pursuant to § 204 of the Railway
Labor Act"). Under § 204 of the Railway Labor Act, 45 U.S.C. § 184,
airline carriers and their employees (through their unions) have a duty
to establish a board of adjustment by contract to handle grievances
58 VERIZON MARYLAND v. GLOBAL NAPS
covered by a collective bargaining agreement. In Central Airlines,
after the employer refused to honor an award of a contractually estab-
lished system board, the union sued the employer in federal court to
enforce the award.
In addressing whether the suit arose under § 1331, the Central Air-
lines Court concluded that "[t]he contracts and the adjustment boards
for which they provide are creations of federal law and bound to the
statute and its policy." 372 U.S. at 692. A § 204 contract "is a federal
contract and is therefore governed and enforceable by federal law, in
the federal courts." Id. According to the Court, it is
federal law which must determine whether the contractual
arrangements made by the parties are sufficient to discharge
the mandate of § 204 and are consistent with the Act and its
purposes. It is federal law which would determine whether
a § 204 contract is valid and enforceable according to its
terms. If these contracts are to serve this function under
§ 204, their validity, interpretation, and enforceability can-
not be left to the laws of the many States, for it would be
fatal to the goals of the Act if a contractual provision con-
trary to the federal command were nevertheless enforced
under state law or if a contract were struck down even
though in furtherance of the federal scheme.
Id. at 691 (emphasis added). The Court emphasized the need for uni-
formity in the enforcement of a national policy based on the subject
matter of interstate air commerce. Id. at 691-92 & nn. 15-16. Thus,
whether contracts created pursuant to the provisions of § 204 were
federal contracts enforceable in federal court was to be determined in
light of the Act and its purposes. Reviewing the Act and its purposes,
the Court "conclude[d] that when Congress ordered the establishment
of system boards to hear and decide airline contract disputes, it
intended the Board to be and to act as a public agency, not as a private
go-between; its awards to have legal effect, not merely that of private
advice." Id. at 695 (internal quotation marks and citation omitted).
Consistent with the policy of a unified national labor law, the union’s
complaint to enforce an adjustment board award was held to arise
under federal law. Id. at 695-96.
VERIZON MARYLAND v. GLOBAL NAPS 59
But enforcement of privately negotiated interconnection agree-
ments, even though mandated by the Telecommunications Act of
1996, represents a totally different policy, and such contracts are
unlike the collective bargaining contracts involved in Central Air-
lines. First, interconnection agreements are required for the purpose
of introducing competition into local communications markets, and
their mandate was part of a cooperative federalism scheme created by
the 1996 Act. Moreover, the policy of the 1996 Act is to prefer pri-
vate contract and deregulation — purposes totally different from
those of the Railway Labor Act.
Even though the 1996 Act compels the formation of interconnec-
tion agreements, local carriers may voluntarily agree to terms "with-
out regard to the standards set forth in subsections (b) and (c) of
section 251." 47 U.S.C. § 252(a)(1). Thus, the dispute in this case
(i.e., whether reciprocal compensation is due according to the terms
of the interconnection agreement) does not directly raise an issue of
federal law. In fact, given the authority to negotiate terms without
regard to federal law, the reciprocal-compensation terms do not raise
an issue of federal law in any meaningful way. Indeed, the district
court so held in its summary judgment ruling, which Verizon did not
appeal. Also, whereas the Court in Central Airlines emphasized the
importance of uniformity on an issue with a strong and longstanding
federal interest (i.e., labor relations affecting interstate transportation),
there is no comparable interest with respect to the content of local car-
riers’ reciprocal-compensation provisions. The federal interest is in
the formation of interconnection agreements in furtherance of the goal
of promoting competition in local telecommunications; any federal
interest in private parties’ reciprocal-compensation terms is negligible.9
9
In response to my observation that the federal interest is negligible,
the majority states that a substantial federal interest exists with respect
to reciprocal-compensation arrangements and that I have overlooked how
important such arrangements are to the federal interest of promoting
local competition. Ante at 16. This response, however, misses my point
altogether. Even though interconnection agreements and reciprocal-
compensation arrangements are important to fulfilling the federal interest
in promoting local competition, the content of those arrangements is not,
and 47 U.S.C. § 252(a)(1) makes this explicit. Specifically, as relevant
to this dispute, the question of whether ISP-bound calls are compensable
60 VERIZON MARYLAND v. GLOBAL NAPS
At bottom, Central Airlines hardly stands for the proposition
advanced by Verizon that all disputes concerning federally mandated
contracts arise under federal law.
More analogous to the present case is Jackson Transit Authority v.
Local Division 1285, Amalgamated Transit Union, 457 U.S. 15
(1982). In that case, the Supreme Court considered whether § 13(c)
of the Urban Mass Transportation Act of 1964, 78 Stat. 307 (codified
as amended at 49 U.S.C. §§ 5301-5338), permitted a union to sue in
federal court for alleged breaches of agreements mandated by that
Act. Under that Act, a State or local government seeking federal
financial assistance for the acquisition of a privately owned transit
company was required to make arrangements to preserve the private
transit workers’ collective bargaining rights. 457 U.S. at 16. Section
13(c) required the U.S. Secretary of Labor to certify that "fair and
equitable" arrangements had been made, including steps to ensure the
"preservation of benefits under existing collective-bargaining agree-
ments and the continuation of collective-bargaining rights." Id. at 17-
18 (internal quotation marks omitted). Thus, when the union sued the
City of Jackson, Tennessee, for breach of a mandated § 13(c) agree-
ment that had been approved by the Secretary of Labor, the union
invoked federal question jurisdiction to file suit in federal court. The
under the Verizon-MCI agreement concerns no federal interest. At the
time the parties were negotiating the agreement in this case, neither the
federal statute nor any federal regulation addressed ISP-bound calls, and
the parties were free to negotiate any provision defining how such ISP-
bound calls were to be treated. In addition, the contractual interpretation
question here does not even relate to whether reciprocal compensation
for ISP-bound calls would better promote the federal interest. Rather, it
reduces simply to whether the parties reached agreement on treating
those calls as local calls eligible for reciprocal compensation. The PSC,
applying principles of Maryland contract law, construed the parties’
negotiated agreement and found that the parties indeed agreed to treat
ISP-bound calls as local calls. The PSC’s action thus implicated state
contract law, not any federal interest identified by the majority.
In missing my point, the majority, I respectfully submit, continues to
advance its underlying thesis that avoids the more particularized analysis
necessary to determine when the interpretation of a federally mandated
contract implicates § 1331 jurisdiction and when it does not.
VERIZON MARYLAND v. GLOBAL NAPS 61
Supreme Court, reversing the court of appeals, held that the district
court did not have federal question jurisdiction.
The Supreme Court observed that cases such as Central Airlines
"demonstrate that suits to enforce contracts contemplated by federal
statutes may set forth federal claims and that private parties in appro-
priate cases may sue in federal court to enforce contractual rights cre-
ated by federal statutes," but that "the critical factor is the
congressional intent behind the particular provision at issue." Id. at 22
(emphases added). Suits alleging breaches of agreements that are
"creations of federal law" will state federal claims only if "the rights
and duties contained in those contracts [are] federal in nature." Id. at
23 (internal quotation marks omitted). Acknowledging that § 13(c)
explicitly specifies protective provisions that any such arrangements
must include, the Supreme Court nevertheless held that, according to
the legislative history, Congress intended that State law govern the
labor relations between local governments and transit workers and
that § 13(c) not disturb the statutory exemption from the National
Labor Relations Act that applied to local governments and their
employees. Id. at 23-28. Based on the legislative history, the Court
also rejected the "anomalous" "possibility that Congress might have
intended a federal court to hear the union’s claims, but to apply state
law." Id. at 28 n.11.
Like the statutory provisions at issue in Jackson Transit, the 1996
Act reveals a congressional intent that alleged breaches of the feder-
ally contemplated agreements be heard by State courts applying State
law. The Court in Jackson Transit reached that conclusion even
though the alleged breach concerned the very rights protected by fed-
eral law (i.e., the guarantee of collective bargaining rights). By con-
trast, the dispute in this case concerns contract terms agreed to
without regard to federal law requirements. See 47 U.S.C.
§ 252(a)(1). Moreover, the cooperative-federalism scheme created by
the 1996 Act reveals congressional intent to limit federal reach into
areas traditionally regulated by states.
Although the 1996 Act dramatically changed the regulation of local
telecommunications, Congress did so in a way that carefully circum-
scribed federal regulation of this traditionally State-regulated area.
See Part I, ante. The 1996 Act amended the 1934 Act, but left in place
62 VERIZON MARYLAND v. GLOBAL NAPS
much of the structure of the 1934 Act. The 1996 Act, for example,
did not repeal 47 U.S.C. § 152, which divides responsibility for regu-
lation of interstate and intrastate telecommunications between the
FCC and the States, respectively. And § 601(c)(1) of the 1996 Act
provides that the Act "shall not be construed to modify, impair, or
supersede Federal, State, or local law unless expressly so provided in
such Act or amendments." 47 U.S.C. § 152 note (emphasis added).
The Supreme Court has observed that, because the 1996 Act has
extended federal regulation into local competition, § 152 "may have
less practical effect." AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366,
381 n.8 (1999). But, the Court added, "[i]nsofar as Congress has
remained silent, . . . § 152(b) continues to function." Id. The 1996 Act
also explicitly preserves State authority to enforce existing, and
impose additional, State regulations on local carriers provided that the
regulations are not inconsistent with the 1996 Act. 47 U.S.C. § 261.
The local-competition provisions themselves emphasize that State
commissions retain authority to impose competitively neutral State
law requirements. Id. § 252(d)(3). The 1996 Act, therefore, evinces
congressional intent to take away as little State authority as possible
in its effort to promote local competition in telephone service.
Despite the 1996 Act’s carefully circumscribed role for federal reg-
ulation of local telecommunications, Verizon contends that all dis-
putes concerning interconnection agreements may be brought in
federal court. If Verizon’s argument is accepted, a dispute concerning
terms that have nothing to do with federal law or regulations could
nevertheless be brought in federal court. Competitively neutral terms
imposed by State law, pursuant to § 252(d)(3), for example, would
arise under federal law and could be brought before federal courts
applying State law. Even a dispute over the date reciprocal-
compensation payments are due, according to Verizon’s argument,
would raise a federal question. I agree with the First Circuit that "[i]t
would be ‘surpassing strange’ to preserve state authority in this fash-
ion [under the 1996 Act] and then to put federal courts in the position
of overruling a state agency on a pure issue of state law." P.R. Tel.
Co. v. Telecomms. Regulatory Bd. of Puerto Rico, 189 F.3d 1, 15 (1st
Cir. 1999) (quoting AT&T, 525 U.S. at 378 n.6).
The same is true for terms in a voluntarily negotiated interconnec-
tion agreement generally, especially given that the 1996 Act permits
VERIZON MARYLAND v. GLOBAL NAPS 63
local carriers to agree to terms "without regard to the standards set
forth in subsections (b) and (c) of section 251." 47 U.S.C. § 252(a)(1).10
The federal interest in promoting local competition is focused on the
formation of interconnection agreements that comply with §§ 251 and
252. Thus, Congress designed the provisions of §§ 251 and 252 to
enlist State commissions to mediate, arbitrate, and approve or reject
interconnection agreements. Section 252(e)(6) provides for federal
review of those determinations to ensure compliance with §§ 251 and
252. The 1996 Act, however, is completely silent about the enforce-
ment of interconnection agreements, which, based on the Act’s
cooperative-federalism scheme, indicates that such disputes are to be
resolved by the States. Once approved, interconnection agreements
are binding agreements with contractual rights and duties to be
enforced according to State contract law in State commissions and
courts. The federal interest in the content of local carriers’ voluntarily
negotiated reciprocal-compensation terms is negligible. Congress did
not intend for disputes over the interpretation of voluntarily negoti-
ated interconnection agreements to be heard in federal courts.
Finally, although its briefs submitted on this appeal do not directly
present the argument (other than through a few scattered and incom-
plete references), one could read Verizon’s scattered references as
arguing, as it did below and as the majority does, that the parties
intended that the reciprocal compensation arrangements in the inter-
connection agreements "track" federal law and that, therefore, § 1331
is satisfied. As an initial matter, the agreement certainly does not
expressly indicate an intention to track federal law, and whether the
parties did in fact intend to track federal law would be resolved by
principles of Maryland contract law. Further, that private parties gra-
tuitously incorporate federal law into an agreement does not change
the fact that the terms are privately negotiated, and federal law exerts
no independent force over the parties. Even if the parties agreed to
track federal law, that gratuitous incorporation of federal law would
10
The majority finds it significant that § 251(b) imposes a duty on local
carriers to establish reciprocal-compensation terms. Ante at 14-15. Veri-
zon’s complaint, however, is not that no reciprocal-compensation terms
have been agreed to, but that the PSC misinterpreted the agreed-upon
terms — which, under § 252(a)(1), the parties could negotiate without
regard to federal standards.
64 VERIZON MARYLAND v. GLOBAL NAPS
not create jurisdiction under § 1331. See Mabe v. G.C. Servs. Ltd.
P’ship, 32 F.3d 86, 88 n.2 (4th Cir. 1994) ("A private contract cannot
create federal question jurisdiction simply by reciting a federal statu-
tory standard"); Oliver v. Trunkline Gas Co., 796 F.2d 86, 89-90 (5th
Cir. 1986) ("[W]e are aware of no case in which any court, let alone
the Supreme Court, has held that a private contract can give rise to
federal-question jurisdiction simply by ‘incorporating’ some federal
regulatory standard that would not have been binding on the parties
by its own force").
Accordingly, Verizon’s claim that the PSC misinterpreted the pri-
vately negotiated reciprocal-compensation terms of its interconnec-
tion agreements does not present a federal question for purposes of
jurisdiction under § 1331.
V. Conclusion
For the foregoing reasons, I would affirm the district court’s judg-
ment across the board, and therefore I dissent from the majority’s
conclusion that when a State commission interprets a negotiated inter-
connection agreement under principles of State contract law, a claim
challenging that interpretation arises under federal law.