Core Communications v. Verizon Pennsylvania, Inc.

Decision Date09 May 2007
Docket NumberNo. 06-2419.,06-2419.
Citation485 F.3d 757
PartiesCORE COMMUNICATIONS, INC., Appellant v. VERIZON PENNSYLVANIA, INC.
CourtU.S. Court of Appeals — Third Circuit

Before SMITH and FISHER, Circuit Judges, and DIAMOND,* District Judge.

OPINION OF THE COURT

FISHER, Circuit Judge.

This appeal involves the question of whether a federal district court, in the first instance, may hear disputes concerning the breach of an interconnection agreement formed and approved pursuant to the Federal Telecommunications Act of 1996, Pub.L. No. 104-404, 110 Stat. 56 (1996) ("Telecommunications Act" or "Act"). The United States District Court for the Eastern District of Pennsylvania held that the Act prevents parties from taking such claims to federal court until they have been litigated before a state commission. Core Communications, Inc. ("Core"), argues that the District Court erred by misapplying Chevron deference to graft onto the Act an exhaustion requirement for enforcement actions when Congress did not provide for one. For the reasons that follow, we will affirm the judgment of the District Court dismissing Count III of Core's complaint without prejudice, vacate the dismissal of the remaining counts, and remand for further proceedings consistent with this opinion.

I.

The dispute in this case centers on the duties an incumbent provider of telecommunications services owes with respect to new entrants who wish to compete with the incumbent in a particular local market, and how those duties are enforced. Such questions are governed by the Telecommunications Act of 1996, which was enacted "to promote competition and reduce regulation in order to secure lower prices and higher quality service for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." Preamble, Telecommunications Act of 1996, Pub.L. No. 104-404, 110 Stat. 56 (1996). "As the legislative history explains, the Act creates `a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition.'" Puerto Rico Tel. Co. v. Telecomms. Regulatory Bd., 189 F.3d 1, 7-8 (1st Cir.1999) (quoting H.R. Conf. Rep. No. 104-458, at 113 (1996), U.S. Code Cong & Admin News 1996, pp. 124, 124).

To achieve these goals, the Act provides that various responsibilities are to be divided between the state and federal governments, making it "an exercise in what has been termed cooperative federalism." Id. at 8. That is, "Congress enlisted the aid of state public utility commissions to ensure that local competition was implemented fairly and with due regard to the local conditions and the particular historical circumstances of local regulation under the prior regime." Global Naps, Inc. v. Mass. Dept. of Telecomm. and Energy, 427 F.3d 34, 46 (1st Cir.2005) (quoting Peter W. Huber et al., Federal Telecommunications Law § 3.3.4 (2d ed.1999)) (internal quotation marks omitted). The "intended effect" of such a regime was to "leav[e] state commissions free, where warranted, to reflect the policy choices made by their states." Id.

There are two sections of the Act that are at issue in this case: §§ 251 and 252. Section 251 requires companies that traditionally provide local phone service — known as incumbent local exchange carriers ("ILECs") — to interconnect their networks with the networks of competitors — known as competing local exchange carriers ("CLECs"). 47 U.S.C. § 251(c)(2). Specifically, the Act charges ILECs with:

The duty to provide, for the facilities and equipment of any requesting telecommunications carrier, interconnection with the local exchange carrier's network —

(A) for the transmission and routing of telephone exchange service and exchange access;

(B) at any technically feasible point within the carrier's network;

(C) that is at least equal in quality to that provided by the local exchange carrier to itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection; and

(D) on rates, terms, and conditions that are just, reasonable, and nondiscriminatory, in accordance with the terms and conditions of the agreement and the requirements of this section and section 252 of this title.

Id. § 251(c)(2). It also requires ILECs to lease portions of their existing networks to their competitors and to permit the "physical collocation of [CLEC] equipment necessary for interconnection or access to unbundled network elements" at the ILEC's premises. Id. § 251(c)(3), (6). Without these requirements, new entrants could not afford to build the large and expensive communications grids that incumbents have developed through years in the market.

To implement these new duties, the Act relies on a system of private negotiations, followed by arbitration, if necessary, both under the supervision of state commissions. All of these steps to attain an interconnection agreement may be followed by federal court review, if it is sought by the parties. The process commences when an ILEC receives a "request for interconnection" from another telecommunications company. Id. § 252(a)(1). The Act then requires the ILEC to "negotiate in good faith in accordance with section 252 . . . the particular terms and conditions of agreements to fulfill" its substantive duties under the Act. Id. § 252(c)(1). A requesting carrier may also choose to adopt all of the terms and conditions of an existing state commission-approved agreement that the incumbent has with another carrier. Id. § 252(i).

To deal with problems that may arise during the negotiation period, the Act provides that, if the parties are unable to agree, either party may petition the state commission to arbitrate "open issues." Id. § 252(b)(1). As a final procedural safeguard, all interconnection agreements must be submitted to the state commission for approval. Id. § 252(e)(1). The commission's "determinations" with respect to the agreements are subject to review in federal court. Id. § 252(e)(6).

Pursuant to the Act, Core entered into an interconnection agreement with Verizon Pennsylvania, Inc.'s ("Verizon") predecessor in interest on March 31, 2000. Rather than negotiating from scratch, Core opted into the existing agreement between Verizon's predecessor (Bell Atlantic-Pennsylvania, Inc.) and MCImetro Access Transmission Services, Inc.

Between the fall of 2000 and October 2002, Core requested interconnection to various markets in Pennsylvania. Core alleges that Verizon deliberately and unjustifiably refused to interconnect with Core at technically feasible points in a timely manner. Rather than using existing facilities with spare capacity to interconnect, Verizon cited its internal policy of requiring the construction of new, dedicated facilities to interconnect with Core. No technical or business justification was given explaining the need for this requirement. Core claims that Verizon intentionally took these steps in order to maintain its competitive advantage in Pennsylvania markets and to intimidate and financially harm Core.

On September 24, 2004, Core filed the complaint underlying this action in the United States District Court for the Eastern District of Pennsylvania. It alleged that Verizon's conduct violated the Telecommunications Act, as amended, including §§ 201 and 202 (Count I), and § 251 (Count II), constituted a material breach of the interconnection agreement (Count III), and was tortious under Pennsylvania's common law for intentional non-disclosure and fraudulent concealment (Count IV).

On November 4, 2004, Verizon filed a motion to dismiss, seeking the dismissal of Counts I, II, and IV for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), and Count III for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(1). On March 21, 2006, the District Court dismissed Core's complaint in its entirety without prejudice. It reasoned that, although it had federal question and diversity jurisdiction over the action under 28 U.S.C. §§ 1331 and 1332, Chevron deference required that it adhere to the FCC's ruling in In re Starpower Communications, LLC, 15 F.C.C.R. 11277 (2000). Under that decision, the District Court concluded that § 252 of the Act imposed "an intermediate step before getting to federal court, not unlike an exhaustion of remedies requirement," with respect to interconnection agreement-related claims. See Core Commc'ns, Inc. v. Verizon Pa., Inc., 423 F.Supp.2d 493, 500 (E.D.Pa.2006). That is, it concluded that Core must seek review by the Pennsylvania Public Utility Commission ("PA PUC") of its claim that the approved interconnection agreement had been breached before resorting to the federal courts.

On April 5, 2006, Core filed a motion for reconsideration or amended judgment. Following this motion, Core and Verizon entered into a tolling agreement that tolled the statute of limitations on Core's claims until forty-five days after the entry of an order resolving or otherwise disposing of an appeal to this Court from the District Court's decision. In accordance with that agreement, Core filed a praecipe to withdraw its motion for reconsideration or amended judgment on April 19, 2006. In the wake of this agreement,...

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