Verizon Maryland, Incorporated v. Core Communications, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1839
VERIZON MARYLAND, INCORPORATED,
Plaintiff - Appellee,
v.
CORE COMMUNICATIONS, INCORPORATED,
Defendant – Appellant,
and
MARYLAND PUBLIC SERVICE COMMISSION; STEVEN B. LARSEN, In
His Official Capacity as Chairman of the Maryland Public
Service Commission; HAROLD D. WILLIAMS, In His Official
Capacity as Commissioner of the Maryland Public Service
Commission; ALLEN M. FREIFELD, In His Official Capacity as
Commissioner of the Maryland Public Service Commission;
SUSANNE BROGAN, In Her Official Capacity as Commissioner of
the Maryland Public Service Commission; LAWRENCE BRENNER,
In His Official Capacity as Commissioner of the Maryland
Public Service Commission,
Defendants.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. J. Frederick Motz, District Judge.
(1:08-cv-00503-JFM)
Argued: September 22, 2010 Decided: December 16, 2010
Before WILKINSON, KING, and GREGORY, Circuit Judges.
Reversed and remanded by unpublished opinion. Judge Gregory
wrote the opinion, in which Judge Wilkinson and Judge King
joined.
ARGUED: Michael Brian Hazzard, ARENT FOX, LLP, Washington, D.C.,
for Appellant. Joseph Ruggiero, VERIZON COMMUNICATIONS INC.,
Arlington, Virginia, for Appellee. ON BRIEF: Joseph P. Bowser,
ARENT FOX, LLP, Washington, D.C., for Appellant. Ann N.
Sagerson, VERIZON, Arlington, Virginia; Scott H. Angstreich,
KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, PLLC, Washington,
D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
GREGORY, Circuit Judge:
The Telecommunications Act of 1996 (hereinafter “the Act”)
was designed to enable new Local Exchange Carriers (hereinafter
“LECs”) to enter local telephone markets with ease and to reduce
monopoly control of these markets and increase competition among
providers. Verizon Communications Inc v. FCC, 535 U.S. 467, 489
(2002); 47 U.S.C. §§ 251 et seq. Here, we must consider two
questions that arise from interpreting the Act and the rules
promulgated by the Federal Communications Commission
(hereinafter “FCC”) including (1) what type of connectivity an
InterConnection Agreement (hereinafter “ICA”) between an
existing or Incumbent LEC (hereinafter “ILEC”) and a new or
Competitive LEC (hereinafter “CLEC”) required and (2) whether
the district court erred in finding that the loop connection
requested by a CLEC was of a lesser quality than the InterOffice
Facilities (hereinafter “IOF”) interconnection proposed by an
ILEC and therefore not in compliance with the ICA.
We find that the ILEC, Verizon Maryland, Inc. (hereinafter
“Verizon”), violated the rules as promulgated by the FCC when it
refused to provide the CLEC, Core Communications, Inc.
(hereinafter “Core”), with the technically feasible,
non-discriminatory interconnection that Core had requested.
Therefore, we reverse the district court’s grant of summary
judgment and find that, as a matter of law, Verizon breached the
3
ICA. The case is remanded to the district court for proceedings
consistent with our ruling.
I.
This appeal arises from a decision by the district court
overturning the Maryland Public Service Commission (hereinafter
“the Commission”). The district court found that Verizon did
not violate its duty under the Act or ICA when it declined to
provide Core with the requested interconnection.
A. The Telecommunications Act of 1996
Under the provisions of the Act, all telecommunications
carriers, both ILECs and CLECs, are obligated to interconnect
their networks “directly or indirectly with the facilities and
equipment of other telecommunications carriers.” 47 U.S.C.
§ 251(a). In other words, the Act creates a framework for the
development of facilities-based competition in which ILECs are
required to interconnect their networks with the networks of
requesting CLECs. This interconnection ensures that consumers
of local telephone service may communicate with consumers who
are served by a different LEC. The Act also imposes a specific
interconnection duty on ILECs. ILECs must permit CLECs to
interconnect directly to their network as long as they meet
certain requirements. 47 U.S.C. § 251(c)(2).
4
B. The Interconnection Agreement
In 1999, Core was beginning to enter the local Baltimore
telephone market. By statute, Core was entitled to connectivity
with the existing incumbent network that was (1) “technically
feasible”; (2) at least equal in quality to that provided by the
ILEC to “itself or to any subsidiary, affiliate, or any other
party to which the carrier provides interconnection;” and (3)
“on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory.” 47 U.S.C. § 251(c)(2)(B)-(D). In order to
expedite negotiations, Core adopted an existing ICA between
Verizon, the ILEC in the region, and American Communications
Services, Inc. 1 pursuant to 47 U.S.C. § 252(i). The adoption of
this agreement was approved by the Commission on September 15,
1999. The agreement stated that Verizon would provide
interconnection “in accordance with the performance standards
set forth in Section 47 U.S.C. § 251 (c) of the Act and the FCC
regulations.” J.A. 55.
Under 47 U.S.C. § 252(a)(1), ILECs and CLECs are free to
negotiate binding ICAs “without regard to” the baseline
interconnection performance standards set forth in the Act and
1
American Communications Services, Inc. was another CLEC
who was attempting to enter the telephone market in Baltimore.
They had previously negotiated with Verizon to form the ICA
which Core later adopted.
5
the corresponding FCC regulations. See 47 U.S.C. §§ 251(b)-(c);
47 C.F.R. §§ 51.305, 51.311, 51.313; Verizon Md., Inc. v. Global
NAPS, Inc., 377 F.3d 355, 390 (4th Cir. 2004). In such
circumstances, the generally applicable performance standards
will only apply to the extent that the parties have not
contracted around them.
All ICAs must be presented to the Commission for approval
even when they have been negotiated by the parties. 47 U.S.C.
§ 252(e)(1)-(2). Commissions have also been vested with the
authority to implement and enforce these agreements. Core
Commc’n Inc. v. Verizon Pa., Inc., 493 F. 3d 333, 335 (3d Cir.
2007). According to the Commission, delays in interconnection
are very costly to a new provider because it “cannot operate and
earn revenue while it continues to incur expenses.” J.A. 276-
77. Delays can benefit the ILEC by reducing the chances that
the CLEC is successful.
In the summer of 1999, Core initiated contact with Verizon
regarding interconnection. On July 27, 1999, Core sent a letter
to Verizon requesting an activation date of September 10, 1999.
Core calculated this date based on section 4.4.4 of the ICA,
which states that interconnection will not occur earlier than
forty-five days after the receipt of a request for
interconnection by Core. Also, as required by the ICA, Core
provided Verizon with forecasts of Core’s technical
6
requirements. The letter stated, “[p]lease confirm in writing
if the requested interconnection activation date is acceptable,
or, if it is not acceptable, please propose an alternate date,
together with an explanation why such alternate date is
appropriate.” J.A. 132-33. Verizon did not respond in writing.
At a meeting on August 11, 1999, the parties agreed to use
the “entrance facility” method of interconnection. J.A. 88.
Entrance facilities are dedicated transmission facilities that
connect ILEC and CLEC locations. Verizon describes four major
steps for provisioning initial interconnection with Core using
the entrance facility method: (1) constructing the physical
interoffice facility between Verizon’s and Core’s networks; (2)
provisioning transport circuits from Verizon’s to Core’s Wire
Center; (3) provisioning transport circuit; and (4) establishing
interconnection trunks between Verizon’s switch and Core’s
switch.
Core requested interconnection with Verizon at its Wire
Center on the tenth floor of the Court Square building in
Baltimore, Maryland. That floor of the building was “on-net”
with Verizon, meaning that it was physically connected to
Verizon’s central network through fiber feeder cables and an
OC-12 multiplexer (hereinafter “OC-12 MUX”). Verizon had turned
on an OC-12 Loop Ring at the building in June 1999, meaning that
physical construction was complete, the optical signals were
7
transmitting, and the ring was service-ready. At some point,
however, the OC-12 Mux was disconnected from the OC-12 Loop
Ring.
Verizon claims that on August 11, 1999, it estimated that
connection would take between four to six months. In an effort
to speed things along, Core asked that Verizon expedite the
interconnection process by using the existing OC-12 Loop Ring
and OC-12 Mux for interconnection, as this would eliminate the
need for Verizon to build new facilities. It also requested an
interconnection activation date of September 18, 1999. Verizon
agreed that using the existing OC-12 Loop Ring would be
technically feasible, but would not commit to Core’s proposal at
the August 11 meeting until it first checked with other
departments. The record indicates that the OC-12 Loop Ring had
the capacity sufficient to support Core’s initial request.
On August 15, 1999, Verizon informed Core that the OC-12
Mux had been “assigned” to some “customer of record,” the
identity of whom Verizon would not disclose. Thus, Verizon
claimed that the OC-12 Mux was unavailable for interconnection.
Later, Verizon admitted that Core was the customer of record for
the OC-12 Mux. However, Verizon claims that Core was assigned
to the OC-12 Mux in a retail capacity as a “customer” rather
than as a “carrier.”
8
On August 31, 1999, Verizon informed Core that, as a matter
of policy, it would not use the OC-12 Loop Ring for
interconnection, whether or not it was technically feasible.
Verizon further explained on September 7, 1999, that it had
previously classified the existing OC-12 Mux as a “customer”
facility, rather than a “carrier” facility and that the OC-12
Mux would need to be “reinventoried” as a “carrier” facility in
order to use it for interconnection. Instead of using the
existing facilities, Verizon stated that it would need to
physically detach the OC-12 Mux from the OC-12 Loop Ring,
construct a new OC-12 ring interoffice facility ring (“New OC-12
IOF Ring”), and insert the multiplexer into the new ring before
subsequent steps in the interconnection process could take
place.
Core met with Verizon again on September 9, 1999, to
express its desire to use the OC-12 Loop Ring for
interconnection. As a result of the meeting, Verizon informed
Core that it would complete construction of the New OC-12 IOF
Ring and establish connection to the Wire Center by November 16,
1999. Core responded on September 24, 1999, that the November
16 date was not acceptable, and that Verizon had not yet
articulated a reasonable justification for refusing to use the
existing OC-12 Loop Ring for interconnection.
9
The new OC-12 IOF Ring was completed sometime between
November 16, 1999 and November 30, 1999. Once the new OC-12 IOF
Ring was “turned up,” the parties were able to coordinate
subsequent steps in the interconnection process by December 23,
1999, just over four months after the initial meeting between
Core and Verizon.
C. The Maryland Public Service Commission
On October 9, 1999, Core filed a complaint with the
Commission alleging that Verizon was unlawfully “refusing to
provide interconnectedness” and demanding that Verizon connect
immediately. Core amended its complaint on January 18, 2001,
alleging that Verizon (1) breached the ICA “by failing to
provide interconnection within the requested 45-day interval,
and by refusing to negotiate an alternative interval,” J.A. 296;
(2) breached its agreement by not providing Core with the same
terms it provides to others, J.A. 298 2; (3) refused to provide
interconnection “at a technically feasible point”, J.A. 302; (4)
“impos[ed] unjust and unreasonable terms and conditions on the
interconnection process” J.A. 304; and (5) “breached its duty of
good faith and fair dealing under the Interconnection Agreement
2
At oral argument, counsel for Core represented that loop
connection is used in ten percent of these types of
interconnections between Verizon and CLECs.
10
with Core by refusing to provide interconnection within a
commercially reasonable time.” J.A. 305. On March 25, 2002,
count one was dismissed by the Commission and is not at issue in
this matter.
On August 8, 2003, the hearing examiner, assigned by the
Commission, entered a proposed order finding that Verizon had
breached section 27.1 of the ICA and a duty of fair dealing and
good faith under Maryland contract law. The hearing examiner
made a factual finding that “Verizon did not provide
interconnection to Core in as timely a fashion as it reasonably
would have provided interconnection to any of its own
customers.” J.A. 116. Specifically, the Commission found that
“it is undisputed that capacity was available and connection
technically feasible” and that Verizon denied access to this
connection in bad faith. J.A. 124.
On February 26, 2004, the Commission issued an order
affirming the proposed order of the hearing examiner. On July
9, 2004, the Commission denied a motion by Verizon for
reconsideration.
On February 25, 2008, Verizon filed a complaint in the
District Court of Maryland seeking review of the Commission’s
finding. On March 30, 2009, the district court granted
Verizon’s motion for summary judgment thereby overturning the
decisions of the Commission. The district court concluded that
11
Verizon had no duty to provide the lesser quality
interconnection requested by Core since the ICA required Verizon
to provide Core with a connection of equal quality to that which
it provides “itself or to any subsidiary, affiliate, or any
other party to which the carrier provides interconnection.”
The district court found as a factual matter that the
interconnection requested by Core was of lesser quality than the
connectivity Verizon provided between carrier switching offices.
Furthermore, the district court concluded that in order to
determine Verizon’s obligation pursuant to the ICA, one measures
the quality of connection it provides between the carrier
switching-offices, not between a carrier switching-office and an
end-user. Thus, the district court held that Verizon would have
been in violation of the ICA if it provided the interconnection
requested by Core since it was not of equal quality to that
provided between carrier switching-offices, which Verizon
asserts would have effectively modified the ICA. 3 The district
court also vacated the Commission’s finding that Verizon
breached its duty of good faith and fair dealing.
3
It is worth noting that the record does not reflect that
Verizon raised any concern about whether the loop connection
quality would be in violation of the ICA until the litigation
had commenced.
12
II.
We review de novo the district court’s grant of summary
judgment. See Garofolo v. Donald B. Heslep Assocs., Inc., 405
F.3d 194, 198 (4th Cir. 2005). Absent a statutory command,
general standards for judicial review of agency action apply. A
“state agency’s interpretation of federal statutes is not
entitled to the deference afforded a federal agency’s
interpretation of its own statutes. . .” GTE South, Inc. v.
Morrison, 199 F.3d 733, 745 (4th Cir. Va. 1999) (citation
omitted). Thus, we review de novo the Commission’s
interpretation of the Act. Nonetheless, “an order of a state
commission may deserve a measure of respect in view of the
commission’s experience, expertise, and the role that Congress
has given it in the Telecommunications Act.” BellSouth
Telecomms., Inc. v. Sanford, 494 F.3d 439, 447 (4th Cir. 2007).
Turning to the standard for our review of the Commission’s
fact-finding, we note first that the Act does not require us to
sit as a “super” public utilities commission. Morrison at 745.
Therefore, we review the fact finding of the state agency under
the substantial evidence standard. Morrison at 745 (citation
omitted). In applying the substantial evidence standard, a
“court is not free to substitute its judgment for the agency
. . . it must uphold a decision that has ‘substantial support in
the record as a whole’ even if it might have decided differently
13
as an original matter.” AT&T Wireless PCS, Inc. v. City Council
of City of Virginia Beach, 155 F.3d 423, 430 (4th Cir. 1998).
There is no meaningful difference between the “arbitrary and
capricious” standard and substantial evidence standard with
respect to fact finding. Morrison at 745 n.5.
III.
The Act of 1996 was designed to enable new telephone
companies to enter into local markets with ease and to reduce
monopoly control. Verizon Communications Inc v. FCC, 535 U.S.
467, 489 (2002); 47 U.S.C. §§ 251 et seq. The Supreme Court has
provided the Circuit Courts with guidance about the purpose of
the Act: “The 1996 Act both prohibits state and local
regulation that impedes the provision of ‘telecommunications
service,’ § 253(a), and obligates incumbent carriers to allow
competitors to enter their local markets, 47 U.S.C. § 251(c).”
Verizon at 492. Additionally, the Act is designed to “address[]
the practical difficulties of fostering local competition.” Id.Core argues that the district court’s order should be
overturned for several reasons. First, Core asserts that the
district court erred when it found that the Commission
misconstrued federal law by requiring that Verizon provide
interconnection over loop facilities. Instead Core argues that
once a CLEC has requested a form of interconnection that is
14
available at any technically feasible point within the ILEC’s
network, then the ILEC must provide that form of interconnection
on a non-discriminatory basis. Second, Core argues that the
district court had no factual basis upon which to find that the
requested interconnection was of lesser quality. Furthermore,
Core maintains that if it requested a specific method of
interconnection, then the court is in no position to dictate
which kind of interconnection satisfies Core’s needs. Lastly,
Core contends that the court erred in finding that Verizon had
not breached its duty of good faith and fair dealing.
Verizon argues that the Commission’s opinion lacked
foundation since it found that Verizon had an affirmative
obligation to offer to amend the contract to authorize the
manner of interconnection Core sought. In effect, this would
require Verizon to alter its contract. Furthermore, Verizon
argues that any amendment to the ICA must be in writing pursuant
to provisions contained in the ICA. Therefore, Verizon reasons
that it only had an obligation to provide the same method of
interconnection it provides other CLECs and that the ICA could
not be modified without written notice signed by all parties.
In order to make a determination about what type of
interconnection Verizon had a duty to provide to Core, it is
necessary to examine the contract between the parties: the ICA.
The ICA provides that the ILEC will provide interconnection
15
in accordance with the performance standards set forth
in Section 251(c) of the Act and the FCC Regulations,
in particular the rules set forth in 47 Code of
Federal regulations §§ 51.305(a)(3) to (a)(5),
51.311(A) to (c), and 51.313(b).
ICA, J.A. 57. The Act requires that interconnection of
facilities and equipment be provided for “any requesting
telecommunications carrier” so long as it meets three
requirements. 47 U.S.C. § 251(c). It must be (1) “at any
technically feasible point within the carrier’s network,” (2) at
least equal in quality to that provided by the ILEC to itself or
to any subsidiary, affiliate, or any other party to which the
carrier provides interconnection, and (3) “on rates, terms, and
conditions that are just, reasonable, and nondiscriminatory.”
47 U.S.C. § 251(c). The first and third requirements are not in
dispute. Thus, this Court’s decision turns on interpreting what
the Act meant when it prescribed interconnections between ILECs
and CLECs “at least equal in quality” to the interconnection
provided by an ILEC to “any subsidiary, affiliate, or any other
party.” 47 U.S.C. § 251(c).
The FCC rules, as adopted by the ICA, are instructive in
determining whether interconnection through a loop facility
satisfied the ICA. The rules promulgated by the FCC provide, in
pertinent parts, that Verizon is required to provide
interconnection at “a level of quality that is equal to that
16
which the ILEC provides itself, a subsidiary, an affiliate, or
any other party.” 47 C.F.R. § 51.305(a)(3). Furthermore,
[t]his obligation is not limited to a consideration of
service quality as perceived by end users, and
includes, but is not limited to, service quality as
perceived by the requesting telecommunications
carrier.
Id. (emphasis added). These rules reflect a clear and
unequivocal intention that the requesting telecommunications
carrier is to play a significant role in determining the type
and quality of interconnection it received from the ILEC. The
Commission, which is responsible for overseeing the
implementation of the Act throughout the state of Maryland,
agrees with this interpretation.
Furthermore, Verizon had provided this kind of
interconnection in the past. The Commission’s finding is that
Verizon has provided interconnection to other CLECs, and even
Core, over high-capacity loop facilities just like the existing
OC-12 Loop Ring and OC-12 Mux. The hearing examiner found that
“despite having interconnected with Core over the common loop in
other locations, in Baltimore Verizon resisted Core’s requests
on the grounds that the parties’ ICA did not permit loop
interconnection.” J.A. 114. He went on to state that
“Verizon’s ability to interconnect with Core via the common loop
outside Maryland, e.g., in New Jersey, Pennsylvania, West
Virginia, Illinois and Massachusetts, is clear indication that
17
such connection should be possible in Maryland.” Id. Thus,
Core’s request to interconnection through the OC-12 Loop Ring
was not out of the ordinary.
Moreover, the record contains the declaration of Todd
Lesser, President of North Country Communications, also a CLEC.
Lesser states that Verizon agreed to provide interconnection to
North Country Communications in Charleston, West Virginia over a
shared retail ring in July 2001 until Verizon completed a
dedicated ring. The retail ring is the equivalent to the OC-12
Loop Ring proposed by Core here. Even though this incident
occurred after the initial dispute between Core and Verizon, it
demonstrates that Verizon has provided other CLECs with
interconnection through loop facilities, at least on a temporary
basis. Clearly, Verizon could have provided interconnection
with Core through the OC-12 Loop Ring.
If Verizon had negotiated a separate ICA with Core, it
might find itself in a more favorable litigating position. Its
problem, however, is that it did not do so. At no point does
the ICA explicitly foreclose the use of loop interconnection or
override the baseline performance standards governing ICAs. To
the contrary, Section 27.1 of the ICA quite plainly states that
Verizon “shall provide the Interconnection and unbundled Network
Elements contemplated hereunder in accordance with the
performance standards set forth in Section 251(c) of the Act and
18
the FCC Regulations.” Or, as the district court put it, “the
ICA between Verizon and Core expressly incorporates the statute
and regulations.” Verizon Md. Inc. v. Core Commc’ns, 631 F.
Supp. 2d 690, 699-700 (D. Md. 2009). 4
These performance standards, by design, favor Core, not
Verizon. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371
(1999) (“The Telecommunications Act of 1996 . . . fundamentally
restructures local telephone markets. . . . [I]ncumbent LECs are
subject to a host of duties intended to facilitate market
entry.”). For example, Verizon argues that the “equal in
quality” requirement set forth in 47 U.S.C. § 251(c)(2) did not
compel Verizon to use loop facilities when interconnecting with
Core. But the FCC’s order implementing 47 U.S.C. § 251(c)(2)
makes clear that the statute requires Verizon to provide loop
interconnection if Core requests it: “[T]o the extent a carrier
4
Verizon argues that Section 27.1 does not incorporate all
of the performance standards set forth in the statute and
regulations because it states that Verizon “shall be deemed to
meet such performance standards” if it complies with certain
time intervals for installation and repairs. In Verizon’s view,
those time intervals are the only “performance standards”
contemplated by the contract. Verizon is incorrect. However,
the contract makes clear that the term “performance standards”
refers to the requirements of § 251 and the corresponding
regulations. See Core Commc’ns, 631 F. Supp. 2d at 699-700.
And while the parties determined that compliance with the time
intervals would obviate the need to comply with the statute and
regulations, they just as clearly agreed that the statute and
regulations would apply in the absence of such compliance.
19
requests interconnection of superior or lesser quality than an
incumbent LEC currently provides, the incumbent LEC is obligated
to provide the requested interconnection arrangement if
technically feasible.” In re Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996, 11
FCC Rcd. 15,499, 15,615 (1996) (emphasis added). While Verizon
did not need to contractually bind itself to the baseline
interconnection performance standards, it elected to do so and
must live with the results.
Therefore, we find that Verizon had a duty to provide Core
with the requested interconnection and therefore breached its
contract. The district court’s grant of summary judgment is
reversed and this matter is remanded for further proceedings
consistent with this decision including a determination of
damages.
Additionally, this Court notes that the district court’s
finding that the loop facility was lesser in quality to the
other potential methods of interconnection (like IOF) was not
based on evidence in the record. In its opinion, the district
court notes that
Core asserts that Verizon has not established that it
provides a lesser quality of service to its retail
customers . . . No factual findings were made before
the Commission on this issue. I note that a letter
was written by [the Commission] in another proceeding
accepts Verizon’s assertion that loop facilities are
of lesser quality than IOF facilities.
20
J.A. 380 n. 5. We find that this is not sufficient evidence
upon which to base a finding that the loop connection was of a
lesser quality than the IOFs. The record reveals that this fact
was disputed. Therefore we find that, construing all facts in
favor of the non-moving party, the district court erred in
finding that the loop connection was of lesser quality than the
other connection proposed by Verizon.
Finally, since we find that Verizon breached its contract,
we remand the question of whether Verizon also breached an
implied duty of good faith and fair dealing to the district
court for further consideration.
For the reasons explained above, we
REVERSE AND REMAND.
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