Core Communications v. Verizon Pennsylvania

• Decision Date: 21 March 2006
• Docket Number: No. Civ.A. 04-4513.,Civ.A. 04-4513.
• Citation: 423 F.Supp.2d 493
• Parties: CORE COMMUNICATIONS, INC. v. VERIZON PENNSYLVANIA, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

423 F.Supp.2d 493

CORE COMMUNICATIONS, INC. v. VERIZON PENNSYLVANIA, INC.

No. Civ.A. 04-4513.

United States District Court, E.D. Pennsylvania.

March 21, 2006.

Barry W. Krengel, Dolchin Slotkin and Todd P.C., Philadelphia, PA, Cathy Ringer, Deborah Israel, Louis Rouleau, Michael B. Hazzard, Washington, DC, for Plaintiffs.

Joseph M. Ruggiero, Leigh A. Hyer, Verizon Communications, General Counsel, Arlington, VA, Richard P. Limburg, H. David Seidman, Obermayer Rebmann Maxwell & Hippel LLP, William B. Petersen, Verison Communications, Philadelphia, PA, for Defendants.

MEMORANDUM AND ORDER

SAVAGE, District Judge.

This case raises the question: does the Congressional grant of authority to a state commission to approve an interconnection agreement between incumbent and competing carriers in the intrastate telephone market, pursuant to § 252 of the Telecommunications Act of 1996, implicitly extend to the interpretation and enforcement of an agreement it has approved? The Supreme Court has not decided the issue. Nor has the Third Circuit Court of Appeals. The Fourth, Fifth, Sixth, Seventh, Eighth, Tenth and Eleventh Circuits have determined that a state commission does have the authority to interpret and enforce interconnection agreements it has approved pursuant to 47 U.S.C. § 252 (" § 252").¹ No circuit court has held to the contrary.

Core Communications, Inc., ("Core") brought this action against Verizon Pennsylvania, Inc. ("Verizon"), alleging violations of the Communications Act of 1934 ("1934 Act") and the Telecommunications Act of 1996 ("TCA"), breach of contract and fraud, arising out of Verizon's alleged breach of an interconnection agreement that had been approved by the Pennsylvania Utility Commission ("PUC") pursuant to the TCA. Verizon has moved to dismiss the complaint, contending that the district court Les not have subject matter jurisdiction because jurisdiction to interpret and enforce interconnection agreements lies with the Pennsylvania Utility Commission. Core, on the other hand, argues that there is both federal question and diversity jurisdiction. At the center of the jurisdictional dispute is the tension created by the TCA's cooperative federalism approach.²

Looking at the purpose of the TCA and the language of § 252(e)(6), I conclude that the TCA does not divest the district court of subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1332 because the complaint states violations of federal law raising federal questions, and the parties are diverse and the jurisdictional amount is satisfied. However, Chevron deference requires that I adhere to the Federal Communication Commission's ("FCC") ruling that the state commission has the authority, in the first instance, to interpret and enforce interconnection agreements that it has approved. Therefore, even though doing so will delay final adjudication of the dispute which could ultimately be decided in the district court, I must grant Verizon's motion to dismiss.

Interconnection Agreements

In the wake of the break up of telephone giant Bell System, local telephone service was monopolized by companies granted exclusive franchises by the states. In 1996, when it enacted the TCA, amending the 1934 Act, Congress opened the door to competition in the local telephone market and took away the states' ability to grant exclusive franchises to local carriers. To foster competition, Congress imposed a duty upon a local exchange carrier ("LEC") to share its network with competitors. 47 U.S.C. §§ 251(c), (d). Sharing can be accomplished, as was done here, by the requesting carrier interconnecting its own facilities with the incumbent's network.³ 47 U.S.C. § 251(c)(2). A carrier seeking entry into a local market can elect to enter into an interconnection agreement that incorporates the terms of existing agreements between the incumbent carrier and other local competitive carriers, known as the "opt in" method, 47 U.S.C. § 252(i); or, it may negotiate its own deal. 47 U.S.C. § 252(a). The carriers have a duty to negotiate an agreement in good faith to accomplish the requesting carrier's access to the local market. 47 U.S.C. §§ 251(c)(1), 252(a). If the parties are unable to reach an agreement, they can arbitrate the terms and conditions before the appropriate state commission. 47 U.S.C. § 252(b). Once an interconnection agreement is reached, it must be approved by the state commission. 47 U.S.C. § 252(e).

Core and Verizon provide telecommunication services to customers in Pennsylvania. The Verizon companies own the local telephone infrastructure in the Northeast and Mid-Atlantic regions of the United States, including Pennsylvania, which had been constructed and maintained by their predecessor companies for decades.

On March 31, 2000, acting pursuant to the TCA, Core and Bell Atlantic-Pennsylvania, Inc., Verizon's predecessor, entered into an "opt in" interconnection agreement, adopting the terms of Verizon's agreements with two other competitors in the market. The agreement was subsequently approved by the PUC.

Core claims that after PUC approval, Verizon imposed unnecessary prerequisites to interconnection for the purpose of delaying and impeding Core's entry into the market, and increasing Core's costs. As a result, so Core alleges, it sustained unnecessary costs, and loss of revenue and customers. Core contends that Verizon breached the agreement, which incorporates the duties mandated by the TCA; failed to perform its statutory duty of good faith consistent with the intent of the TCA; and, violated several provisions of both the TCA and the 1934 Act.

Core's complaint contains four counts. The first two aver that Verizon's practices violated the 1934 Act, 47 U.S.C. §§ 201 and 202, and the Telecommunications Act of 1996, 47 U.S.C. § 251 and § 252, respectively. The remaining counts raise state law causes of action for breach of contract and fraud. Core invokes federal question jurisdiction over the statutory claims, and diversity subject matter and supplemental jurisdiction over the contract and fraud causes of action.

Federal Subject Matter Jurisdiction

The jurisdictional inquiry starts with the complaint. Club Comanche, Inc. v. Gov't of V.I., 278 F.3d 250, 259 (3d Cir.2002). On the face of its complaint, Core alleges, in addition to state law claims, specific violations of federal law. It claims that Verizon did not act in good faith as mandated by the TCA, violated the interconnection parity rule imposed by the FCC, engaged in discriminatory pricing in violation of both the 1934 Act and the TCA, thus frustrating the TCA's mandate.

The TCA imposes certain obligations upon carriers to carry out Congress' purpose to promote competition in the local telephone market. 47 U.S.C. § 251. To implement those duties, Congress mandated interconnection agreements. Consequently, whether a party has violated any duty imposed by the TCA requires a determination under federal law. Verizon Md., Inc. v. Global Naps, Inc. 377 F.3d 355, 364 (4th Cir.2004) (Verizon Md. II). Thus, according to Core's complaint, Verizon's conduct strikes at the heart of the TCA.

Federal question jurisdiction in this context is informed by the Supreme Court's analysis in International Assoc. of Machinists v. Central Airlines, Inc. 372 U.S. 682, 691, 83 S.Ct. 956, 10 L.Ed.2d 67 (1963). See, e.g., Verizon Md. II, 377 F.3d at 364 (citing Central Airlines). There the Supreme Court considered whether an action to enforce an arbitration award of a board established pursuant to a labor contract as required under the Railway Act presented a federal question subject to the district court's jurisdiction. It held that it is "federal law which must determine whether the contractual arrangements made by the parties are sufficient to discharge the mandate of [the Railway Labor Act] and are consistent with the Act and its purposes. It is federal law which would determine whether a [contract under the Act] is valid and enforceable according to its terms." Central Airlines, 372 U.S. at 691, 83 S.Ct. 956. Like the federally mandated collective bargaining agreement in that case, an interconnection agreement prescribed by the TCA is a creation of federal law and any action implicating that agreement raises a federal question. Verizon Md. II, 377 F.3d at 364.

The Supreme Court has declared that § 252 does not supplant § 1331 jurisdiction. Verizon Md., Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002) (Verizon Md. I). It did not decide, however, the issue of whether § 252 implicitly granted state commissions authority to interpret and enforce interconnection agreements because none of the parties had contended otherwise. Id. at 641-42, 122 S.Ct. 1753. Yet, its analysis of the federal court's jurisdiction under § 1331 to review a state commission's order for compliance with federal law informs how the issue may be decided.

Where the right to recover depends on the construction given the federal law in question, and the claim is substantial and not frivolous nor immaterial, federal courts have jurisdiction under § 1331. Verizon Md. I, 535 U.S. at 643, 122 S.Ct. 1753. Applying this principle to the case before it, the Court found that because Verizon's claim called for an interpretation of the TCA and the FCC's ruling issued pursuant to the TCA, it fell within § 1331's general grant of jurisdiction. Id.

The posture of Verizon Md. I was distinctly different from this case because there the state commission had already made a determination which was under judicial review. Id. at 642 n. 2, 122 S.Ct. 1753. The parties did not contend that the state commission had lacked the authority to initially interpret and enforce the agreement at issue. Id. at 642 n. 2, 122 S.Ct. 1753. The question before the Supreme Court was whether a district court had jurisdiction to decide a challenge that a state commission's determination violated federal law. Id. at 641-42, 122 S.Ct....