Global Naps, Inc. v. Verizon New England, Inc.

• Decision Date: 18 August 2006
• Docket Number: C.A. No. 02-11501-MLW.
• Citation: 447 F.Supp.2d 39
• Parties: GLOBAL NAPS, INC., Plaintiff, v. VERIZON NEW ENGLAND, INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

447 F.Supp.2d 39

GLOBAL NAPS, INC., Plaintiff, v. VERIZON NEW ENGLAND, INC., et al., Defendants.

C.A. No. 02-11501-MLW.

United States District Court, D. Massachusetts.

August 18, 2006.

Cameron F. Kerry, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, Boston, MA, Jeffrey C. Melick, Global Naps, Inc., Norwood, MA, for Plaintiff.

Bruce P. Beausejour, Verizon Communications Inc., Daniel J. Hammond, Attorney General's Office, Boston, MA, Keefe B. Clemons, Verizon Communications Inc., New York, NY, Scott H. Angstreich, Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC, Washington, DC, for Defendants.

MEMORANDUM AND ORDER

WOLF, District Judge.

I. SUMMARY

Global NAPs, Inc. has sued Verizon New England Inc. ("Verizon"), the Massachusetts Department of Telecommunications and Energy (the "DTE" or the "Department") and the Commissioners of the DTE in an attempt to reverse an Order of the DTE interpreting and approving an interconnection agreement between Global NAPs and Verizon because the DTE has construed that agreement as not requiring Verizon to make certain payments to Global NAPs.

In 2004, this court decided, as a matter of first impression, that a prior decision of the Rhode Island Public Utilities Commission (the "RIPUC") interpreting the identical language in another interconnection agreement between Global NAPs and Verizon was entitled to preclusive effect pursuant to the Full Faith and Credit Clause of the United States Constitution. Global NAPs, Inc. v. Verizon New England, Inc., 332 F.Supp.2d 341 (D.Mass.2004). This court, therefore, remanded this matter to the DTE, which had interpreted the meaning and effect of that language differently than the RIPUC. Id.

The parties appealed that decision. The First Circuit recognized that "[t]his case raises a new issue of importance under the Telecommunications Act," and determined that it had jurisdiction to decide the parties' cross-appeals. Global Naps, Inc. v. Massachusetts Department of Telecommunications and Energy, 427 F.3d 34-35,41-3 (1st Cir.2005). It then found that the Full Faith and Credit Clause did not require that the RIPUC's interpretation of the disputed language be given preclusive effect. Id. at 43-49. Therefore, this court's decision was reversed and the case was remanded for further proceedings.¹

After additional briefing, a lengthy hearing was conducted on August 10, 2006. The parties filed supplementary memoranda the next day.

For the reasons described in detail in this Memorandum, the decision of the DTE is being affirmed. This case presents a question of contract interpretation. It is, therefore, governed by state law. The DTE did not make any error of law in interpreting the interconnection agreement. Therefore, its interpretation of that contract must be upheld unless the DTE's decision was not based on substantial evidence, but rather was arbitrary and capricious. The DTE's decision is supported by substantial evidence and represents a reasonable interpretation of the interconnection agreement. In addition, the arguments that Global NAPs raised for the first time after remand are not properly before the court and, in any event, are without merit. Therefore, judgment is being entered for the DTE and Verizon.

II. FACTS

The relevant facts are described in detail in this court's decision in Global NAPs, 332 F.Supp.2d at 346-59. They are summarized as follows.

In essence, this dispute concerns the amount of compensation that one telephone company, Verizon, owes another, Global NAPs, for calls made by Verizon customers, to their Internet Service Providers ("ISPs"), which were completed by Global NAPs.

As the communications industry has evolved, traditional regional monopolies like Verizon's predecessors (known as "incumbent local exchange carriers" or "ILECs") have entered into contractual agreements with newer, "competing local exchange carriers" ("CLECs") such as Global NAPs because the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56, imposed a duty on ILECs and CLECs to interconnect. These "interconnection agreements" generally define when "reciprocal compensation" is payable to a company that completed a call from a company whose customer initiated the call. Such calls are most frequently to ISPs and are known as "ISP Traffic" or "ISP-bound traffic."

Global NAPs and Verizon first began doing business with each other in Massachusetts in 1997, pursuant to an interconnection agreement whose meaning was litigated in Global Naps, Inc. v. Verizon-Massachusetts, Inc., 226 F.Supp.2d 279 (D.Mass.2002). In that case, Judge Reginald Lindsay remanded the matter to the DTE. Id. at 281. The Massachusetts Supreme Judicial Court affirmed the DTE's decision after remand in MCI WorldCom Communications, Inc. v. Department of Telecommunications and Energy, 442 Mass. 103, 810 N.E.2d 802 (2004).

In October 1998, the DTE issued an Order requiring the payment of reciprocal compensation for ISP traffic. This decision was based on the DTE's understanding that the Federal Communications Commission (the "FCC") had held that such calls were local traffic for which reciprocal compensation had to be paid.

In July 1998, Global NAPs and Verizon negotiated interconnection agreements to govern their relationships in several other states including Rhode Island. On October 1, 1998, the RIPUC approved that agreement (the "Rhode Island Agreement").

Section 5.7.2.3 of the Rhode Island Agreement is central to this case. It is set forth fully in § III, infra. In essence, it provided that Verizon would pay Global NAPs reciprocal compensation for ISP traffic initiated by Verizon customers in Rhode Island until the FCC or a court of competent jurisdiction resolved the question of whether such traffic was local traffic for which reciprocal compensation was due.

On February 26, 1999, the FCC issued an Internet Traffic Order (the "ITO") that essentially held that under the Telecommunications Act ISP traffic was not local traffic subject to the reciprocal compensation, but that interconnection agreements, equitable considerations, or state law or policy might nevertheless require the payment of reciprocal compensation. Thus, while the ITO did not mandate the payments of reciprocal compensation, the FCC acknowledged the possibility that state commissions might do so as a matter of state law or policy.

As a result of the ITO, Verizon stopped paying Global NAPs reciprocal compensation under the Rhode Island Agreement. Global NAPs filed a complaint with the RIPUC. On November 16, 1999, the RIPUC issued a decision holding that: (1) under § 5.7.2.3 of the Rhode Island Agreement Verizon was obligated to pay Global NAPs reciprocal compensation until the FCC or a court first resolved the issue of whether such compensation was due; and (2) that the ITO had not resolved the issue within the meaning of the Rhode Island Agreement because the FCC left open the possibility that a state commission would require reciprocal compensation and the RIPUC had not decided whether to do so.

As a result of the February 26, 1999 ITO, the DTE reevaluated its October 1998 decision that ISP traffic constituted local traffic for which reciprocal compensation had to be paid. In May 1999, while not interpreting the contract provisions at issue in the present case, the DTE held that as of February 26, 1999, the date of the ITO, companies in Massachusetts were no longer required to pay reciprocal compensation for ISP traffic.

While the various battles over reciprocal compensation were being fought, Verizon's predecessor companies were pursuing the merger that would result in the new company called Verizon. As a condition of approval of the merger by the FCC on June 16, 2000, CLECs such as Global NAPs were given the right to "opt in" to any interconnection agreement Verizon had entered into. This provision gave Global NAPs the right to adopt the terms of the Rhode Island Agreement for the purposes of determining whether it was entitled to reciprocal compensation for ISP traffic in Massachusetts. In ordering Verizon to permit Global NAPs to adopt the Rhode Island Agreement in Massachusetts and Virginia, the FCC stated that, "only the relevant state commission may ultimately decide whether particular terms of the agreement should be adopted in that state and, if so, what those terms mean." Global NAPs, Inc. v. Verizon New England, Inc. and Verizon Virginia, Inc., 17 FCC Red 4031, 4039 (February 28, 2002).

The ITO was appealed. On March 24, 2000, the Court of Appeals for the D.C. Circuit vacated the ITO for want of reasoned decisionmaking and remanded the matter to the FCC.

Based on the D.C. Circuit's decision, Global NAPs asked the DTE to reconsider its May 1999 Order and to reinstate the requirement of reciprocal compensation for ISP traffic. On July 11, 2000, the DTE declined to do so.

On April 27, 2001, the FCC issued its Order on Remand. It again found that ISP traffic was interstate rather than local, and not subject to reciprocal compensation.

The FCC's April 27, 2001 Order on Remand was appealed. On May 3, 2002, the D.C. Circuit remanded, but did not vacate, the FCC's Order on Remand for further consideration by the FCC. The decision to deny reciprocal compensation was deemed by the FCC to remain in effect.

After the Order on Remand, Verizon again stopped paying reciprocal compensation in Rhode Island. On January 29, 2002, the RIPUC found that the Order on Remand resolved the issue of reciprocal compensation. It rejected Global NAPs' argument that the issue was not resolved because the parties had not as of that time had an opportunity to appeal the Order on Remand.

The original interconnection agreement for Massachusetts between Global NAPs and Verizon expired on May 8, 2000. After the DTE denied Global NAPs' request to reinstate the requirement of reciprocal compensation in Massachusetts, Global NAPs opted into the Rhode Island Agreement for Massachusetts, including §...