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

• Decision Date: 16 October 2007
• Docket Number: No. 06-2701.,06-2701.
• Citation: 505 F.3d 43
• Parties: GLOBAL NAPS, INC., Plaintiff, Appellant, v. VERIZON NEW ENGLAND, INC., d/b/a Verizon Massachusetts; Massachusetts Department of Telecommunications and Energy; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre K. Manning, in her capacity as Commissioner; Eugene J. Sullivan, Jr., in his capacity as Commissioner, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

505 F.3d 43

GLOBAL NAPS, INC., Plaintiff, Appellant, v. VERIZON NEW ENGLAND, INC., d/b/a Verizon Massachusetts; Massachusetts Department of Telecommunications and Energy; Paul B. Vasington, in his capacity as Commissioner; James Connelly, in his capacity as Commissioner; W. Robert Keating, in his capacity as Commissioner; Deirdre K. Manning, in her capacity as Commissioner; Eugene J. Sullivan, Jr., in his capacity as Commissioner, Defendants, Appellees.

No. 06-2701.

United States Court of Appeals, First Circuit.

Heard August 2, 2007.

Decided October 16, 2007.

Glenn B. Manishin with whom William J. Rooney and Jeffrey C. Melick were on brief for appellant.

Scott H. Angstreich with whom Michael E. Joffre, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Bruce P. Beausejour, Verizon New England, Inc., and Keefe B. Clemons, Verizon, were on brief for appellee Verizon New England, Inc.

Daniel J. Hammond, Assistant Attorney General, with whom Martha Coakley, Attorney General, was on brief for appellee Massachusetts Department of Telecommunications and Energy.

Before BOUDIN, Chief Judge, TORRUELLA and HOWARD, Circuit Judges.

BOUDIN, Chief Judge.

The present appeal concerns the interpretation of an interconnection agreement between Verizon New England, Inc. and Global NAPs, Inc. Verizon is an established telephone company, largely the descendant of Bell operating companies in New England and the mid-Atlantic states; Global NAPs is a competing carrier that shares Verizon's facilities in the course of providing its own services to customers.

The agreement between the two is governed primarily by the Telecommunications Act of 1996 ("1996 Act").¹ The statute provides for such agreements, either negotiated or by arbitration, and divides authority over the process between federal and state regulators. The provision most pertinent in this case requires, among other things, that the agreement set "reciprocal compensation arrangements for the transport and termination of telecommunications." 47 U.S.C. § 251(b)(5).

Once a new competitor is established in territory where it and Verizon both have customers, a compensation problem exists wherever a local call originates with a customer of one of the two companies and ends with a customer of the other. The originating carrier gets revenue from its customer, whether on a per call basis or under some other payment plan; the terminating carrier gets no revenue associated with the call even though its facilities are being used to complete it. Reciprocal compensation paid to the destination carrier is one means of addressing this issue.

Where such an agreement is in force, Verizon would pay Global NAPs a negotiated fee for completing a Global NAPs' customer's call. Conversely, Global NAPs would pay Verizon when a Global NAPs customer places a local call to a Verizon customer. The expectation is that the call volume between the two carriers will be roughly balanced so that neither company will be heavily in debt to the other as a result of such payments. New England Tel. & Tel. Co. v. Conversent Commc'ns of R.I., L.L.C., 178 F.Supp.2d 81, 85 (D.R.I. 2001).

This balance has been disturbed by the rise in internet usage and thus in telephone calls placed to internet service providers ("ISPs") by customers who establish a "dial-up" internet connection. Such calls are primarily one-way and also tend on average to last longer than voice calls. Some new competitors have heavily solicited customers who are ISPs (e.g., by offering free service, or in some cases even paying ISPs to use their services) in order to collect large amounts of reciprocal compensation for terminating calls. See Global NAPs, Inc., 444 F.3d at 64.

Reciprocal compensation required by section 251(b)(5) applies only to local calls,² and in February 1999, the FCC determined that the ISP-directed calls to establish internet connections were not local calls under section 251(b)(5). Internet Traffic Order ¶ 1, 14 F.C.C.R. 3689, 3689-90 (1999). Although this order was vacated by an initial remand, Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 3 (D.C.Cir.2000), the FCC then reaffirmed its position, ISP Remand Order ¶¶ 77-88, 16 F.C.C.R. 9151, 9186-93 (2001). The D.C. Circuit again remanded for further proceedings, WorldCom, Inc. v. FCC, 288 F.3d 429 (D.C.Cir. 2002), cert. denied, 538 U.S. 1012, 123 S.Ct. 1927, 155 L.Ed.2d 848 (2003), but has left the FCC ruling in force. See Global NAPs, 444 F.3d at 65.

In the ISP Remand Order, the FCC adopted an interim intercarrier compensation scheme, which became the sole vehicle for such compensation as of June 14, 2001, to address the imbalance caused by ISP traffic.³ Nevertheless, prior to this point the FCC had left it open to interconnecting parties to agree to treat the traffic as subject to reciprocal compensation, even though not required by section 251. The central question in this case is whether the current Massachusetts agreement between Verizon and Global NAPs requires compensation during the interim period between the start of the current 1998 agreement and the effective date of the FCC's interim plan. Some history helps to frame the question.

In 1999, while Verizon and Global NAPs were operating under a prior 1997 agreement in Massachusetts, the Massachusetts Department of Telecommunications and Energy ("DTE") ruled that Global NAPs was not entitled to reciprocal compensation for ISP-bound calls under the agreement. MCI WorldCom, Inc. v. New England Tel. & Tel. Co., D.T.E. 97-116-C, 1999 WL 634357, at *15 (Mass.D.T.E. May 26, 1999). Global NAPs responded by notifying Verizon that it intended to adopt for use in Massachusetts an interconnection agreement that it had negotiated with Verizon in 1998 for use in Rhode Island.

Recognizing that the nature of the ISP calls under section 251(b) of the 1996 Act was at the time in dispute, the 1998 Rhode Island agreement stated in section 5.7.2.3 (emphasis added):

The Parties stipulate that they disagree as to whether traffic that originates on one Party's network and is transmitted to an Internet Service Provider ("ISP") connected to the other Party's network ("ISP Traffic") constitutes Local Traffic as defined herein, and the charges to be assessed in connection with such traffic. The issue of whether such traffic constitutes Local Traffic on which reciprocal compensation must be paid pursuant to the 1996 Act is presently before the FCC in CCB/CPD 97-30 and may be before a court of competent jurisdiction. The Parties agree that the decision of the FCC in that proceeding, or as [sic] such court, shall determine whether such traffic is Local Traffic (as defined herein) and the charges to be assessed in connection with ISP Traffic. If the FCC or such court determines that ISP Traffic is Local Traffic, as defined herein, or otherwise determines that ISP Traffic is subject to reciprocal compensation, it shall be compensated as Local Traffic under this Agreement unless another compensation scheme is required under such FCC or court determination. Until resolution of this issue, [Verizon] agrees to pay [Global NAPs] Reciprocal Compensation for ISP Traffic (without conceding that ISP Traffic constitutes Local Traffic or precluding [Verizon's] ability to seek appropriate court review of this issue) pursuant to the Commission's Order in Case 97-C-1275, dated March 19, 1998, as such Order may be modified, changed or reversed.

Verizon objected to the adoption of the Rhode Island agreement in Massachusetts but, on a complaint by Global NAPs, the FCC held that Verizon was bound, under a commitment Verizon had made in exchange for the FCC's approval of the Bell Atlantic-GTE merger, to permit Global NAPs to adopt the entire Rhode Island agreement for use in Massachusetts, thereby superseding the 1997 agreement. Global NAPs, Inc. v. Verizon Commc'ns, 17 F.C.C.R. 4031, 4036 (2002).

Verizon then submitted the Rhode Island agreement to DTE for approval in Massachusetts but also asked DTE to determine whether under the newly adopted agreement the ISP calls were "local" and Verizon therefore owed reciprocal compensation to Global NAPs for ISP calls delivered in Massachusetts between July 24, 2000 (the effective date of the agreement in Massachusetts) and June 14, 2001 (when the FCC adopted its own currently effective interim method of compensation in the ISP Remand Order, 16 F.C.C.R. 9151 (2001)).

DTE responded that the FCC's 1999 Internet Traffic Order had ended Verizon's obligation under the terms of section 5.7.2.3 (block quoted above). As already noted, the FCC had there held that ISP calls were not local calls triggering reciprocal compensation. This FCC ruling, DTE held, comprised "the decision of the FCC in that proceeding" anticipated by section 5.7.2.3. DTE then affirmed the 1998 agreement (so construed) as applying in Massachusetts. Adoption of Interconnection Agreement, D.T.E. No. 02-21, 2002 Mass. PUC Lexis 35, at *25 (Mass. D.T.E. June 24, 2002).

Global NAPs in turn sought judicial review in the federal district court in Massachusetts. 47 U.S.C. § 252(e)(6). On cross motions for summary judgment, the district court ultimately upheld DTE's interpretation of the newly approved agreement as reasonable, giving deference to the agency's interpretation. Global NAPs Inc. v. Verizon New England, Inc., 447 F.Supp.2d 39, 41 (D.Mass.2006).⁴ Global NAPs now appeals to us.

Global NAPs' first argument is that under Massachusetts law the district court should have read the 1998 agreement de novo and not given DTE the benefit of the arbitrary and capricious standard. In federal practice, a regulatory agency gets some deference not only as to determinations of fact and policy, see Associated Fisheries of Me., Inc. v. Daley, 127 F.3d 104, 109 (1st Cir.1997), but also in construing its own statute, Chevron U.S.A., Inc. v. Natural. Res. Def. Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), and tariffs or...