Global Naps v. Mass. Dept. of Telecomm. and Energy

• Decision Date: 18 October 2005
• Docket Number: No. 04-2397.,No. 04-2334.,No. 04-2313.,04-2313.,04-2334.,04-2397.
• Citation: 427 F.3d 34
• Parties: GLOBAL NAPS, INC., Plaintiff, Appellee/Cross-Appellant, v. MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre K. Manning, in her capacity as Commissioner; Eugene J. Sullivan, in his capacity as Commissioner; and Verizon New England, Inc., Defendants, Appellants/Cross-Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 34

427 F.3d 34

GLOBAL NAPS, INC., Plaintiff, Appellee/Cross-Appellant, v. MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre K. Manning, in her capacity as Commissioner; Eugene J. Sullivan, in his capacity as Commissioner; and Verizon New England, Inc., Defendants, Appellants/Cross-Appellees.

No. 04-2313.

No. 04-2334.

No. 04-2397.

United States Court of Appeals, First Circuit.

Heard September 16, 2005.

Decided October 18, 2005.

Daniel J. Hammond, Assistant Attorney General, with whom Thomas F. Reilly, Attorney General, was on brief, for Massachusetts Department of Telecommunications and Energy and Paul B. Vasington, James Connelly, W. Robert Keating, Deirdre K. Manning, and Eugene J. Sullivan, in their official capacities as Commissioners.

Scott H. Angstreich, with whom Bruce P. Beausejour, Keefe B. Clemons, Sean A. Lev, and Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., were on brief, for Verizon New England, Inc.

William J. Rooney, Jr., with whom Jeffrey C. Melick was on brief, for Global NAPs, Inc.

Before LYNCH and HOWARD, Circuit Judges, and RESTANI,^* Judge.

LYNCH, Circuit Judge.

This case raises a new issue of importance under the Telecommunications Act of 1996 (TCA), Pub.L. No. 104-104, 110 Stat. 56 (codified as amended in scattered sections of 47 U.S.C.). The question is whether the doctrine of issue preclusion applies so as to bind one state's commission to apply the findings and conclusions of another state's commission in disputes between the same parties about the interpretation of identical contract language contained in different state interconnection agreements.

The district court concluded that the Full Faith and Credit Clause compelled application of the doctrine. Its order bound the Massachusetts Department of Telecommunications and Energy (DTE), which was interpreting a Massachusetts interconnection agreement between Global NAPs, Inc. (Global) and Verizon New England, Inc. (Verizon), to follow the earlier decision of the Rhode Island Public Utility Commission (RIPUC) as to the effect of a prior order by the Federal Communications Commission (FCC) on the parties' Rhode Island interconnection agreement. On de novo review, we reverse. The district court's reasoning is contrary to the language of and policies behind the TCA.

Underlying this legal issue is the question of whether Verizon owes an estimated $30 to $50 million in payments to Global as "reciprocal compensation" for calls placed by Verizon's customers to Global's customers connected through an internet service provider (ISP) in Massachusetts during the period from July 24, 2000 to June 14, 2001.

The DTE ruled on June 24, 2002 that Verizon did not owe the reciprocal compensation sought. On Global's federal court challenge to the DTE order, the court vacated and remanded the DTE order, ruling that the DTE could not base its decision on an interpretation of the interconnection agreement that was contrary to the interpretation reached by the RIPUC on that point; its remand, however, also allowed that differences between Massachusetts and Rhode Island law might lead the DTE to a different ultimate outcome as to payment of reciprocal compensation. Global NAPs, Inc. v. Verizon New Eng., Inc. (Global NAPs II), 332 F.Supp.2d 341, 374-75 (D.Mass.2004). Verizon and the DTE took this interlocutory appeal. We reverse and remand to the district court for further proceedings consistent with this opinion.¹

I.

The TCA was enacted to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers." 110 Stat. at 56. One of the overriding aims of the TCA was to introduce competition into the market for local telephone service, which previously had been monopolized by state-regulated entities created after the break up of the American Telephone and Telegraph Company (AT & T). See Verizon Commc'ns. Inc. v. FCC, 535 U.S. 467, 475-76, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002). Under the TCA, incumbent local exchange carriers (ILECs) — that is, the former local phone monopolies — must allow competitive local exchange carriers (CLECs) to interconnect with their phone networks. See 47 U.S.C. § 251(c). Interconnection allows customers of CLECs to receive calls from, and place calls to, customers of ILECs.

The TCA imposes a number of duties on local exchange carriers. See id. §§ 251-52. Most important, for present purposes, is the duty of all local exchange carriers, whether incumbent or competitive, "to establish reciprocal compensation arrangements for the transport and termination of telecommunications." Id. § 251(b)(5). As between two local exchange carriers, a "reciprocal compensation arrangement" is "one in which each of the two carriers receives compensation from the other carrier for the transport and termination on each carrier's network facilities of telecommunications traffic that originates on the network facilities of the other carrier." 47 C.F.R. § 51.701. For example, generally when a customer of local exchange carrier A calls a customer of local exchange carrier B — so that B must complete the call — A must share with B some of the revenues it receives from its customer to compensate B for use of its facilities. See Ill. Bell Tel. Co. v. WorldCom Techs., Inc., 157 F.3d 500, 501 (7th Cir.1998). The FCC has ruled that the reciprocal compensation obligations under § 251(b)(5) only extend to traffic that begins and terminates within a local area. See Local Competition Provisions in the Telecomms. Act of 1996, 11 F.C.C.R. 15499, 16012-13, 16015-16, 1996 WL 452885 (1996) (subsequent history omitted); Pac. Bell v. Pac-West Telecomm Inc., 325 F.3d 1114, 1120 (9th Cir.2003).

The TCA requires ILECs to negotiate interconnection agreements with CLECs to provide the terms of interconnection and "fulfill the duties" enumerated in § 251, including the duty to establish reciprocal compensation arrangements. 47 U.S.C. § 251(c)(1). These agreements can be concluded through voluntary negotiation or mediation, id. § 252(a), or if these methods fail, through compulsory arbitration, id. § 252(b). Alternatively, a CLEC has the option of adopting one of the ILEC's interconnection agreements that had been previously approved within that state. Id. § 252(i). Once the parties finalize their interconnection agreement, it must be submitted to the relevant state's commission for approval. Id. § 252(e).

A long-running battle has ensued over whether ISP-bound traffic is "local telecommunications traffic" subject to reciprocal compensation within the meaning of the TCA. See, e.g., Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 2-3 (D.C.Cir.2000). The debate centers around the question of whether ISP traffic "terminates" at an ISP when a user in one state dials into a local ISP and visits a website hosted on a server in another state. The issue could be argued both ways. One could consider such calls to terminate at the ISP, with communications between the ISP and the out-of-state website considered a separate transaction unrelated to the call. Alternatively, one might consider the call to have terminated in the state where the web server is located. See id. at 5. Generally, CLECs like Global tend to have more ISP customers than do ILECs like Verizon. Since ISPs receive calls that are generally much longer than voice calls, and do not place calls of their own, carriers with more ISP customers will be net beneficiaries of a reciprocal compensation scheme that includes ISP traffic. CLECs and ILECs, then, have opposing interests. See id. at 3.

In 1998, Global and Verizon began negotiations for an interconnection agreement in Rhode Island. Global NAPs II, 332 F.Supp.2d at 350. Rather than submitting their dispute over reciprocal compensation for ISP traffic to arbitration, Verizon and Global agreed to the following compromise provision, § 5.7.2.3, the language of which is at the heart of the present dispute:

The Parties ... disagree as to whether ... "ISP Traffic" ... constitutes Local Traffic as defined herein, and the charges to be assessed in connection with such traffic. The issue of whether such traffic constitutes Local Traffic on which reciprocal compensation mus[t] be paid pursuant to the [TCA] is presently before the FCC in CCB/CPD 97-30 and may be before a court of competent jurisdiction. The Parties agree that the decision of the FCC in that proceeding, or [of] such court, shall determine whether such traffic is Local Traffic (as defined herein) and the charges to be assessed in connection with ISP Traffic. If the FCC or such court determines that ISP Traffic is Local Traffic, as defined herein, or otherwise determines that ISP Traffic is subject to reciprocal compensation, it shall be compensated as Local Traffic under this Agreement unless another compensation scheme is required under such FCC or court determination. Until resolution of this issue, [Verizon] agrees to pay GNAPS Reciprocal Compensation for ISP traffic .... (emphasis added)

Contemporaneous interconnection agreements between Global and Verizon in New York, Maine, New Hampshire, and Vermont contained an identical provision. The Massachusetts interconnection agreement in effect between the parties at this time did not contain this provision.

On February 26, 1999, the FCC issued its ruling in Docket No. CCB/CPD 97-30, the proceeding specifically referred to in § 5.7.2.3.² In this decision, the FCC concluded that ISP-bound traffic is "largely interstate" and thus did not fall under the reciprocal compensation duties imposed by 47 U.S.C. § 251. Local Competition Provisions in the Telecomms. Act (Internet Traffic Order), 14 F.C.C.R. 3689, 3705-06, 1999 WL 98037 (1999). The FCC suggested that its decision "might cause some state commissions...