Verizon Maryland, Incorporated v. Core Communications, Incorpora

Filing

UNPUBLISHED AUTHORED OPINION filed. Originating case number: 1:08-cv-00503-JFM. Copies to all parties and the district court/agency. [998486318] [09-1839]

Verizon Maryland, Incorporated v. Core Communications, Incorpora

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-1839 VERIZON MARYLAND, INCORPORATED, Plaintiff - Appellee, v. CORE COMMUNICATIONS, INCORPORATED,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.

Dockets.Justia.com

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Reversed and remanded by unpublished opinion.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 Unpublished opinions are not binding precedent in this circuit.

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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 Here, we must consider two

(2002); 47 U.S.C. §§ 251 et seq.

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 existing or Agreement LEC (hereinafter (hereinafter "ICA") "ILEC") between and a new an or

Incumbent

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 "Core"), the CLEC, with Core the Communications, technically Core had Inc.

(hereinafter

feasible, requested. of summary

non-discriminatory Therefore, we

interconnection the district

that

reverse

court's

grant

judgment and find that, as a matter of law, Verizon breached the 3

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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 § 251(a). of other telecommunications carriers." 47 U.S.C.

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. interconnection interconnect duty on to ILECs. their The Act also imposes a specific ILECs network must as permit as CLECs they to

directly

long

meet

certain requirements.

47 U.S.C. § 251(c)(2). 4

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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." expedite 47 U.S.C. § 251(c)(2)(B)-(D). Core adopted an existing In order to ICA between

negotiations,

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 "in stated that with Verizon would provide standards

interconnection

accordance

the

performance

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

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.

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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, will only

the

generally to the

applicable that

performance the parties

standards have not

apply

extent

contracted around them. All ICAs must be presented to the Commission for approval even when they have been negotiated by the parties. § 252(e)(1)-(2). authority to 47 U.S.C.

Commissions have also been vested with the and enforce these agreements. Core

implement

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." 77. J.A. 276-

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. provided Verizon with

Also, as required by the ICA, Core forecasts 6 of Core's technical

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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 switch. Core Center on requested the tenth interconnection floor of the with Court Verizon Square at its Wire in trunks between Verizon's switch and Core's

building

Baltimore, Maryland. with Verizon, meaning

That floor of the building was "on-net" 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, 7 the optical signals were

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transmitting, and the ring was service-ready. however, Ring. the OC-12 Mux was disconnected from

At some point, the OC-12 Loop

Verizon claims that on August 11, 1999, it estimated that connection would take between four to six months. to speed things along, Core asked that Verizon In an effort 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 Verizon would be

interconnection activation date of September 18, 1999. agreed that using the existing OC-12 Loop Ring

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 of "assigned" Verizon to some not "customer disclose. of record," Thus, the

identity

whom

would

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."

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On August 31, 1999, Verizon informed Core that, as a matter of policy, it would whether explained not or on use not the it was OC-12 Loop Ring for

interconnection, Verizon further

technically 7, 1999,

feasible. it had

September

that

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. Verizon OC-12 stated Mux Instead that the it of would using need the to

existing physically

facilities, detach the

from

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 place. Core express met its with desire Verizon to again use on September OC-12 9, 1999, Ring to for steps in the interconnection process could take

the

Loop

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. 16 Core responded on September 24, 1999, that the November was not acceptable, and that Verizon had not yet

date

articulated a reasonable justification for refusing to use the existing OC-12 Loop Ring for interconnection.

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The

new

OC-12

IOF

Ring

was

completed

sometime

between

November 16, 1999 and November 30, 1999. Ring was "turned up," the parties

Once the new OC-12 IOF able to coordinate

were

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, that Core Verizon filed was a complaint with the to

Commission

alleging

unlawfully

"refusing

provide interconnectedness" and demanding that Verizon connect immediately. alleging provide that Core amended its complaint on January 18, 2001, Verizon (1) breached the the ICA "by failing to

interconnection

within

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 At oral argument, counsel for Core represented that loop connection is used in ten percent of these types of interconnections between Verizon and CLECs.
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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. made a factual finding that The hearing examiner did not provide

"Verizon

interconnection to Core in as timely a fashion as it reasonably would have provided J.A. 116. interconnection to any of its own

customers."

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. On February 26, J.A. 124. 2004, the Commission issued an order

affirming the proposed order of the hearing examiner. 9, 2004, the Commission denied a motion by

On July for

Verizon

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

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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 court also vacated the Commission's finding

The district that Verizon

breached its duty of good faith and fair dealing.

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.

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II. We review de novo the district court's grant of summary judgment. See Garofolo v. Donald B. Heslep Assocs., Inc., 405 Absent a statutory command, A not

F.3d 194, 198 (4th Cir. 2005).

general standards for judicial review of agency action apply. "state entitled agency's to interpretation deference of federal a statutes federal is

the

afforded

agency's

interpretation of its own statutes. . ." Morrison, omitted). 199 F.3d Thus, 733, we 745 (4th de Cir.

GTE South, Inc. v. Va. 1999) the (citation

review

novo

Commission's

interpretation of the Act. commission may deserve a

Nonetheless, "an order of a state 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. omitted). In applying the Morrison at 745 (citation evidence standard, a

substantial

"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

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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. The Supreme Court has

467, 489 (2002); 47 U.S.C. §§ 251 et seq.

provided the Circuit Courts with guidance about the purpose of the Act: "The that 1996 impedes Act the both prohibits of state and local

regulation

provision

`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[] Id. be

the practical difficulties of fostering local competition." Core argues that the district court's order

should

overturned for several reasons. district court erred when law by it

First, Core asserts that the found that that the Commission provide

misconstrued

federal

requiring

Verizon

interconnection over loop facilities.

Instead Core argues that

once a CLEC has requested a form of interconnection that is 14

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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 Core interconnection that if was it of lesser a quality. specific Furthermore, method of

maintains

requested

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 foundation obligation argues since to it that found to the that the Commission's Verizon had to opinion an lacked

affirmative the

offer

amend

contract

authorize

manner of interconnection Core sought. require Verizon to alter its contract.

In effect, this would 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

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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. and The Act requires be that interconnection "any it of

facilities

equipment carrier"

provided so long

for as

requesting three

telecommunications requirements.

meets

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). dispute.

The first and third requirements are not in

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. pertinent parts,

The rules promulgated by the FCC provide, in that Verizon is required to provide

interconnection at "a level of quality that is equal to that

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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 that the rules reflect a clear and

unequivocal

intention

requesting

telecommunications

carrier is to play a significant role in determining the type and quality of interconnection it received from the ILEC. Commission, implementation which of the is Act responsible throughout for the overseeing state of The the

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' 114. He ICA did on not to permit state loop that

interconnection."

J.A.

went

"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

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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 Even though this incident

Loop Ring proposed by Core here.

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 Its

might find itself in a more favorable litigating position. 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

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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 Verizon. performance standards, by design, favor Core, not

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 argues to facilitate the market in

entry.").

For

example,

Verizon

that

"equal

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

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.

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requests interconnection of superior or lesser quality than an incumbent LEC currently provides, the incumbent LEC is obligated to provide the requested In interconnection re Implementation arrangement of the if

technically

feasible."

Local

Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd. 15,499, 15,615 (1996) (emphasis added). did not need to contractually bind itself to While Verizon 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 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. 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 In its opinion, the district with this decision including a determination of

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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. was disputed. favor of the The record reveals that this fact

Therefore we find that, construing all facts in 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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