Covad Communications Co. v. Bellsouth Corp.

• Decision Date: 25 June 2004
• Docket Number: No. 01-16064.,01-16064.
• Citation: 374 F.3d 1044
• Parties: COVAD COMMUNICATIONS COMPANY, Dieca Communications, Inc., d.b.a. Covad Communications Company, Plaintiffs-Appellants, v. BELLSOUTH CORPORATION, BellSouth Telecommunications, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

374 F.3d 1044

COVAD COMMUNICATIONS COMPANY, Dieca Communications, Inc., d.b.a. Covad Communications Company, Plaintiffs-Appellants, v. BELLSOUTH CORPORATION, BellSouth Telecommunications, Inc., Defendants-Appellees.

No. 01-16064.

United States Court of Appeals, Eleventh Circuit.

June 25, 2004.

Kimberly L. Myers, Tony G. Powers, Rogers & Hardin, LLP, Atlanta, GA, Michael

J. Guzman, Washington, DC, for Plaintiffs-Appellants.

A. Stephens Clay, IV, James F. Bogan, III, Kilpatrick & Cody, J. Henry Walker, Ashley B. Watson, Marc William Franklin Galonsky, Marc Gary, BellSouth Corp., Atlanta, GA, Jeffrey W. Sarles, Stephen Michael Shapiro, Mayer, Brown, Rowe & Maw, Chicago, IL, Michael K. Kellogg, Aaron M. Panner, Mark C. Hansen, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC, for Defendants-Appellees.

Richard G. Taranto, Farr & Taranto, Washington, DC, for Amicus Curiae Verizon Communications, Inc.

Appeal from the United States District Court for the Northern District of Georgia.

ON REMAND FROM THE SUPREME COURT OF THE UNITED STATES

Before BARKETT and MARCUS, Circuit Judges, and HIGHSMITH^*, District Judge.

BARKETT, Circuit Judge:

After our decision in this case was issued on August 2, 2002, Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir.2002), the Supreme Court vacated our judgment and remanded for further consideration in light of its recent decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004). Having carefully reviewed this opinion, we find that Trinko's interpretation of Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985), the leading case finding liability under § 2 of the Sherman Act for refusal to cooperate with a rival, now forecloses several (but not all) of Covad's claims. Other claims are now barred by our recent en banc decision in BellSouth Telecommunications, Inc. v. MCImetro Access Transmission Services, Inc., 317 F.3d 1270 (11th Cir.2003) ("MCIMetro II").

This suit was brought by Covad, a DSL internet service provider, against BellSouth, a regional telephone service provider that also sells DSL service. Covad and BellSouth entered into an interconnection agreement pursuant to the 1996 Federal Telecommunications Act ("FTCA") to allow Covad to provide DSL service over BellSouth's existing telephone lines. Covad alleged that BellSouth had engaged in exclusionary conduct that violated the Sherman Antitrust Act, the FTCA, and various state anti-monopoly statutes. Covad also made various state breach of contract and tortious interference with business relations claims.¹

On BellSouth's 12(b)(6) motion to dismiss for failure to state a claim, the trial judge threw out all of the counts relating to the Sherman Act except for two, allowing Covad to proceed with its allegations of predatory advertising and monopoly leveraging. The district court also allowed Covad's counts under state antitrust law and state law for tortious interference with business relations.² All other causes of action, the district court found, addressed conduct implicated by the FTCA, and as such failed to state claims under the Sherman Act.

On appeal, we held first that the FTCA's savings clause,³ as well as evidence of congressional and executive intent, unambiguously showed that there was no plain repugnancy between the FTCA and the Sherman Act, and thus that there could be no implied repeal of or immunity from the antitrust laws.

Second, in reviewing the district court's ruling that Covad had failed to state an antitrust claim, we found that Covad's causes of action under the Sherman Act fell into three kinds of alleged anticompetitive conduct: denial of the use of "essential facilities" (the network of phone lines); a refusal to deal; and price squeezing.⁴ The first two categories of conduct (essential facilities and refusal to deal) relied on the same set of alleged facts: sometimes an outright denial of access to BellSouth's network and facilities, sometimes a denial of access on reasonable terms, with monopolistic intent. We concluded that, on a motion to dismiss, Covad had pleaded facts sufficient to meet the "exceedingly low" threshold for stating an antitrust claim with respect to all three categories of conduct. Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A., 711 F.2d 989, 995 (11th Cir.1983). We also reversed the district court's dismissal of Covad's breach of contract, FTCA, and tortious interference with business relations claims.⁵ We now revisit Covad's claims in light of Trinko.

I. Trinko

We begin by noting that the Court in Trinko approved our view that the FTCA savings clause barred a finding of implied antitrust immunity. Trinko, 124 S.Ct. at 878. Thus, it is now clear that the FTCA and the Sherman Act were expressly intended to coexist. Emphasizing that the FTCA also does not create new claims that go beyond existing antitrust standards, id., the Court then proceeded to consider whether the conduct of which Trinko complained violated the Sherman Act.

Trinko originated in a complaint brought by AT&T and other competitive local exchange carriers ("CLECs") before the New York Public Service Commission ("PSC") and the Federal Communications Commission ("FCC"). The complaint alleged that Verizon, the incumbent LEC in New York state, had failed to fulfill its obligations under 47 U.S.C. § 251(c)(3) to provide access to Verizon's operations support systems ("OSS"), one of several "unbundled network elements." OSS access allows a CLEC to relay orders for service through an electronic interface with Verizon's ordering system, thus enabling a CLEC to fill its customers' orders. Trinko alleged that Verizon had delayed the filling of, or neglected to fill at all, CLEC customer orders. The FCC and the New York PSC opened parallel investigations of Verizon that led to a series of PSC orders and an FCC consent decree. The day after Verizon entered its consent decree with the FCC, one of AT&T's customers, the Trinko law firm, brought a claim under § 2 of the Sherman Act. Trinko argued that Verizon's failure to fulfill its § 251(c)(3) obligations was part of an anti-competitive scheme to discourage customers from becoming or remaining clients of CLECs. Such conduct, Trinko alleged, constituted a refusal to deal with rival firms under § 2 of the Sherman Act. As the Supreme Court describes it, Trinko's complaint set forth only a single example of the alleged failure to provide adequate access: the discriminatory handling of CLEC customer orders that led to the PSC and FCC investigations.

The Court held, first, that Trinko failed to state a recognized Sherman Act claim under existing refusal-to-deal precedents. Trinko, 124 S.Ct. at 880. The Court found that Verizon's failure to provide OSS assistance to AT&T did not amount to an effort at monopolization. Rejecting Trinko's reliance on Aspen, the Court noted that Aspen was "at or near the outer boundary of § 2 liability." Id. at 879. The case before the Court involved none of the Aspen indicators of anticompetitive conduct and so did not fit within Aspen's "limited exception." Id. at 880.

In particular, the Court observed that Aspen involved a unilateral termination of a "voluntary (and thus presumably profitable) course of dealing." Id. (emphasis in original). But Trinko's complaint, the Court noted, "does not allege that Verizon voluntarily engaged in a course of dealing with its rivals, or would ever have done so absent statutory compulsion." Thus, Verizon's "prior conduct sheds no light upon the motivation of its refusal to deal." Id. Furthermore, the two cases differed in terms of pricing behavior. In Aspen the defendant's rejection of an offer to sell its services to a competitor "even if compensated at retail price," id. (emphasis in original), could support the requisite inference of monopolistic intent. By contrast, Verizon's reluctance to interconnect at the cost-based rate of compensation under § 251(c)(3) is a neutral fact that does not support an inference of monopolistic intent. Id.

More fundamentally, the Court found that Aspen involved a defendant whose failure to sell even at retail cost to a competitor was a failure to sell otherwise publicly marketed services. In the case before it, the Trinko Court noted, "the services allegedly withheld are not otherwise marketed or available to the public." Id. at 880. The FTCA had created a "brand new" sharing obligation: "the wholesale market for leasing network elements." Id. (quoting Verizon Communications v. FCC, 535 U.S. 467, 528, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002)).

In support of its § 2 claims, Trinko also argued that Bell Atlantic failed to provide AT&T with access to its "essential facilities." The Trinko Court rejected this argument to the extent that it was distinct from Trinko's general § 2 argument. Trinko, 124 S.Ct. at 881. Despite having been invoked by some lower courts, observed Justice Scalia, this doctrine has never been recognized by the Supreme Court as established law, and in any case AT&T was not in fact deprived of such access. Id. at 880-81 (relying on P. Areeda & H. Hovenkamp, Antitrust Law (2003 Supp.), for the proposition that essential facilities claims should be denied where a state or federal agency has the power to compel and regulate sharing).

In the final part of its opinion, the Court observed that the FTCA created a broad and detailed regulatory environment that effectively abrogated the need for antitrust scrutiny in the case before it. The PSC and FCC investigations, orders, and consent decree in Trinko showed that the FTCA's distinctive regulatory regime was working just as Congress intended it to. The Court stated that federal courts are ill-equipped to handle cases alleging violations of 251(c)(3) duties to provide access because such allegations involve complex and...