Cavalier Telephone v. Verizon Virginia

• Decision Date: 20 May 2003
• Docket Number: No. 02-1337.,02-1337.
• Citation: 330 F.3d 176
• Parties: CAVALIER TELEPHONE, LLC, Plaintiff-Appellant, v. VERIZON VIRGINIA, INCORPORATED, Defendant-Appellee, Integrity Telecontent, Movant. Covad Communications Company; AT & T Corporation; Association for Local Telecommunications Services, Amici Supporting Appellant. United States Telecom Association; BellSouth Corporation; SBC Communications, Incorporated, Amici Supporting Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

330 F.3d 176

CAVALIER TELEPHONE, LLC, Plaintiff-Appellant, v. VERIZON VIRGINIA, INCORPORATED, Defendant-Appellee, Integrity Telecontent, Movant.

Covad Communications Company; AT & T Corporation; Association for Local Telecommunications Services, Amici Supporting Appellant.

United States Telecom Association; BellSouth Corporation; SBC Communications, Incorporated, Amici Supporting Appellee.

No. 02-1337.

United States Court of Appeals, Fourth Circuit.

Argued: January 23, 2003.

Decided: May 20, 2003.

ARGUED: David William Carpenter, Sidley & Austin, Chicago, Illinois, for Appellant. Richard Gary Taranto, Farr & Taranto, Washington, D.C., for Appellee. ON BRIEF: Stephen T. Perkins, Alan M. Shoer, Donald F. Lynch, III, Cavalier Telephone, Richmond, Virginia, for Appellant. John Thorne, Christopher M. Arfaa, Verizon, Arlington, Virginia; Anne Marie Whittemore, Richard Cullen, Robert Michael Tyler, McGuirewoods, L.L.P., Richmond, Virginia; Mark C. Hansen, Aaron M. Panner, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, D.C.; Andrew Gerald McBride, Wiley, Rein & Fielding, L.L.P., Washington, D.C., for Appellee. Margaret A. Robbins, Antony Richard Petrilla, Covad Communications Company, Washington, D.C., for Amicus Curiae Covad. Jonathan M. Askin, Association for Local Telecommunications Services, Washington, D.C.; David L. Lawson, Ryan D. Nelson, Sidley, Austin, Brown & Wood, L.L.P., Washington, D.C.; Mark C. Rosenblum, Lawrence J. Lafaro, AT & T Corporation, Basking Ridge, New Jersey, for Amici Curiae AT & T, et al. Lawrence E. Sarjeant, Indra Sehdev Chalk, Robin E. Tuttle, United States Telecom Association, Washington, D.C.; James F. Rill, Scott E. Flick, Howrey, Simon, Arnold & White, L.L.P., Washington, D.C.; Sanford M. Litvack, Dewey Ballantine, L.L.P., New York, New York; James R. Young, Hunton & Williams, McLean, Virginia; Kimberly A. Newman Hunton & Williams, Washington, D.C., for Amicus Curiae U.S. Telecom. Michael W. McConnell, Salt Lake City, Utah; Marc Gary, J. Henry Walker, Marc W.F. Galonsky, BellSouth Corporation, Atlanta, Georgia; Stephen M. Shapiro, Jeffrey W. Sarles, Mayer, Brown, Rowe & Maw, Chicago, Illinois; James D. Ellis, William M. Schur, SBC Communications, Inc., San Antonio, Texas, for Amici Curiae BellSouth, et al.

Before WIDENER and NIEMEYER, Circuit Judges, and GREENBERG, Senior Circuit Judge of the United States Court of Appeals for the Third Circuit, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER joined. Senior Judge GREENBERG wrote a dissenting opinion.

OPINION

NIEMEYER, Circuit Judge:

This appeal presents the question of whether the allegations of the complaint in this case, which state ostensible violations of §§ 251 and 252 of the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (1996) (codified at 47 U.S.C. § 151 et seq.), state a claim of a monopolization violation of § 2 of the Sherman Act, 15 U.S.C. § 2.

Cavalier Telephone, LLC ("Cavalier") entered the local telecommunications service business pursuant to an interconnection agreement with Verizon Virginia, Incorporated ("Verizon"), an incumbent provider of telecommunications services in central and northeastern Virginia. The agreement made Verizon's lines and facilities available for use by Cavalier, as mandated by the Telecommunications Act. Problems in the implementation of the interconnection agreement, which Cavalier contends were deliberately created by Verizon to exclude Cavalier as a competitor, prompted Cavalier to file this action, alleging, among other things, that Verizon monopolized or attempted to monopolize the relevant telecommunications market, in violation of § 2 of the Sherman Act.

The district court granted Verizon's motion to dismiss the antitrust claims under Federal Rule of Civil Procedure 12(b)(6), concluding that Cavalier's allegations "merely represent violations of the 1996 [Telecommunications] Act dressed up in antitrust garb." For the reasons that follow, we affirm.

I

The facts for purposes of this appeal are those alleged in Cavalier's complaint, which we take to be true in deciding whether Cavalier stated a claim under § 2 of the Sherman Act upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6); Estate Constr. Co. v. Miller & Smith Holding Co., 14 F.3d 213, 217-18 (4th Cir. 1994).

Cavalier, a corporation whose principal place of business is in Richmond, Virginia, was formed in 1998 to enter into the business of providing basic telecommunications services to customers in the Richmond, Tidewater, and Northern Virginia areas. Cavalier defines basic telecommunications services to include traditional local telephone service, dial-up Internet access, digital subscriber line (DSL) services, high-capacity voice and data services, voice mail, access to long-distance services, and any other service that could be provided over copper wire and fiber-optic cable linking consumers with the office of a service provider. This portion of a copper wire or fiberoptic network that takes telecommunications services into individual homes and businesses is commonly referred to as the "last mile" of facilities.

Until 1996, the predecessor of Verizon, a company also located in Richmond, was the telecommunications franchisee in the Richmond, Tidewater, and Northern Virginia areas that had been regulated by the Commonwealth of Virginia as a natural monopoly. Verizon owns the last-mile wire and cable facilities in its service area.

In 1996, Congress enacted the Telecommunications Act of 1996 (the "Telecommunications Act" or the "1996 Act") to promote competition in local telecommunications markets. The 1996 Act opens local telecommunications services to competition and requires existing telecommunications service providers, referred to in the Act as incumbent local exchange carriers ("ILECs"), to enter into interconnection agreements that make their facilities available to new entrants in the market, often referred to as competing local exchange carriers ("CLECs"), such as Cavalier. Also in 1996, Virginia lifted its ban on competition in local telecommunications markets, authorizing the State Corporation Commission to grant certificates to applicants proposing to furnish local exchange telephone service in the service territory of another certificate holder. Va.Code § 56-265.4:4.C. The Virginia State Corporation Commission, however, retained continuing supervision over the services provided by existing and competing carriers.

Acting under the authority of the Telecommunications Act, Cavalier leased telecommunications facilities from Verizon by entering into a comprehensive interconnection agreement with Verizon's predecessor dated January 13, 1999, that was approved by the Virginia State Corporation Commission. The interconnection agreement states that Verizon "has undertaken to make such terms and conditions available to Cavalier hereby only because of and, to the extent required by, Section 252(i) of the [Telecommunications] Act," which required Verizon to make interconnections, services, and network elements available to Cavalier to the same extent as provided to another party through another interconnection agreement pursuant to the Telecommunications Act. Through the interconnection agreement, Verizon agreed (1) to resell its telecommunications services to Cavalier; (2) to lease and make available trunks to permit Cavalier to interconnect with Verizon's operations; (3) to allow access to Verizon's network elements; (4) to participate in "collocation," i.e., allowing Cavalier to have a location in Verizon's central offices to house Cavalier's equipment; (5) to allow access to Verizon's equipment; and (6) to facilitate telephone number portability. The agreement also governed the process by which Verizon was to bill Cavalier and made provision for the resolution of disputes.

As enabled by the interconnection agreement, Cavalier acquired customers in the Richmond, Tidewater, and Northern Virginia areas, and by the fall of 2001, it provided services to customers over approximately 100,000 telephone lines through its access to facilities owned by Verizon.

Shortly after the interconnection agreement was approved by the State Corporation Commission, problems in implementation of the agreement developed between Cavalier and Verizon. According to Verizon, after July 2000, Cavalier did not pay "one cent for those lines or for listing services that Verizon has provided, and now owes Verizon approximately $17 million." Verizon acknowledges that some of that amount was disputed but that over $9 million was undisputed. It asserts that even with respect to the $9 million amount due, Cavalier's president "refused to allow any money to be paid to Verizon because doing so would reduce Cavalier's `leverage' in negotiating with Verizon."

But Cavalier's complaint filed in this case, which we must accept as true at this stage, describes a significantly different and larger problem that developed between the parties.

First, Cavalier alleges that Verizon erected obstacles to Cavalier's interconnection with Verizon's network "by delaying the provision of trunks [communication lines linking Cavalier's and Verizon's systems] required for Cavalier to compete and by not establishing adequate trunks to carry telephone traffic between Cavalier's customers and Verizon's customers." Cavalier asserts that the inadequate trunking blocked between 25% and 70% of calls intended for Cavalier's customers and caused "a complete outage for Cavalier in northern Virginia."

Second, as to collocation, Cavalier alleges that Verizon "used its control over the central office to raise Cavalier's costs, delay competition, and blockade entry." Cavalier points to Verizon's initial decision to charge $400,000 for a 10-foot-by-10-foot area for "space preparation" and its subsequent decision to charge only $47,686.20, an amount Cavalier contends was...