GTE S. v. Morrison

• Decision Date: 08 June 1999
• Docket Number: No. 98-1887,CA-97-493,98-1887
• Citation: 199 F.3d 733
• Parties: (4th Cir. 1999) GTE SOUTH, INCORPORATED, Plaintiff-Appellant, and UNITED STATES OF AMERICA, Intervenor-Plaintiff, v. THEODORE V. MORRISON, JR.; HULLIHEN W. MOORE; I. CLINTON MILLER, in their official capacities as Commissioners of the Virginia State Corporation Commission; COX FIBERNET COMMERCIAL SERVICES, INCORPORATED; AT&T COMMUNICATIONS OF VIRGINIA, INCORPORATED; MCI TELECOMMUNICATIONS CORPORATION; MCIMETRO ACCESS TRANSMISSION SERVICES OF VIRGINIA, INCORPORATED, Defendants-Appellees, and ATTORNEY GENERAL OF THE COMMONWEALTH OF VIRGINIA, Intervenor-Defendant. (). . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 733

199 F.3d 733 (4th Cir. 1999)

GTE SOUTH, INCORPORATED, Plaintiff-Appellant, and UNITED STATES OF AMERICA, Intervenor-Plaintiff, v. THEODORE V. MORRISON, JR.; HULLIHEN W. MOORE; I. CLINTON MILLER, in their official capacities as Commissioners of the Virginia State Corporation Commission; COX FIBERNET COMMERCIAL SERVICES, INCORPORATED; AT&T COMMUNICATIONS OF VIRGINIA, INCORPORATED; MCI TELECOMMUNICATIONS CORPORATION; MCIMETRO ACCESS TRANSMISSION SERVICES OF VIRGINIA, INCORPORATED, Defendants-Appellees, and ATTORNEY GENERAL OF THE COMMONWEALTH OF VIRGINIA, Intervenor-Defendant.

No. 98-1887 (CA-97-493).

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: June 8, 1999.

Decided: December 15, 1999.

Appeal from the United States District Court for the Eastern District of Virginia, at Richmond.

James R. Spencer, District Judge.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL ARGUED: Steven Gill Bradbury, KIRKLAND & ELLIS, Washington, D.C., for Appellant. Donald Beaton Verrilli, Jr., JENNER & BLOCK, Washington, D.C.; Robert A. Dybing, SHUFORD, RUBIN & GIBNEY, Richmond, Virginia, for Appellees. ON BRIEF: Paul T. Cappuccio, Brett M. Kavanaugh, Patrick F. Philbin, Theodore W. Ullyot, KIRKLAND & ELLIS, Washington, D.C.; William P. Barr, Ward W. Wueste, Jr., M. Edward Whelan, III, GTE SERVICE CORPORATION, Washington, D.C.; Richard D. Gary, Edward J. Fuhr, Paul E. Mirengoff, Robert R. Merhige, IV, Richard B. Harper, HUNTON & WILLIAMS, Richmond, Virginia, for Appellant. Maureen F. Del Duca, Jodie L. Kelley, JENNER & BLOCK, Washington, D.C.; Thomas F. O'Neil, III, William Single, IV, Matthew B. Pachman, MCI WORLDCOM, INC., Washington, D.C.; John A. Gibney, Jr., SHUFORD, RUBIN & GIBNEY, Richmond, Virginia; James C. Dimitri, William H. Chambliss, STATE CORPORATION COMMISSION, Richmond, Virginia; Michael W. Smith, E. Ford Stephens,CHRISTIAN & BARTON, L.L.P., Richmond, Virginia; John J. Langhauser, Wilma R. McCarey, AT&T COMMUNICATIONS OF VIRGINIA, INC., Oakton, Virginia; James C. Roberts, George A. Somerville, Dabney J. Carr, IV, MAYS & VALENTINE, L.L.P., Richmond, Virginia; David Carpenter, David Lawson, SIDLEY & AUSTIN, Washington, D.C., for Appellees. Stephen W. Preston, Acting Assistant Attorney General, Helen F. Fahey, United States Attorney, Mark B. Stern, Susan L. Pacholski, Appellate Staff, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Christopher J. Wright, General Counsel, John E. Ingle, Deputy Associate General Counsel, Stewart A. Block, Brian M. Hoffstadt, FEDERAL COMMUNICATIONS COMMISSION, Washington, D.C., for Amicus Curiae.

Before MICHAEL, Circuit Judge; Malcolm J. HOWARD, United States District Judge for the Eastern District of North Carolina, sitting by designation; and Jerome B. FRIEDMAN, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge Michael wrote the opinion, in which Judge Howard and Judge Friedman joined.

OPINION

MICHAEL, Circuit Judge:

The Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56, codified at 47 U.S.C. § 251 et seq. (sometimes, the Act), requires local telephone companies, heretofore monopolies, to make their facilities and services available to would-be competitors at negotiated prices or, if negotiations fail, at prices to be set in arbitration proceedings before state utility commissions. The Act gives federal district courts jurisdiction to review state commission determinations. Here, the Virginia State Corporation Commission (the SCC) determined prices in arbitration proceedings brought by new entrants into Virginia's local telephone markets, Cox Fibernet Commercial Services, Inc. (Cox), MCI Telecommunications Corporation and MCImetro Access Transmission Services of Virginia, Inc. (collectively, MCI), and AT&T Communications of Virginia, Inc. (AT&T), against the incumbent company, GTE South Incorporated (GTE). After the SCC arbitration GTE sued Cox, AT&T, MCI, and the SCC commissioners in district court alleging that the SCC's pricing decisions failed to meet the requirements of the Act. The district court granted summary judgment for the defendants (the new entrants and the commissioners), thus upholding the SCC's arbitration decisions. GTE appeals, and we affirm.

I.

The breakup of AT&T in the early 1980s brought competition to the long distance telephone market. The local market, however, has been a different story. Until the passage of the 1996 Act, state utility commissions continued to regulate local telephone service as a natural monopoly. Commissions typically granted a single company, called a local exchange carrier (LEC), an exclusive franchise to provide telephone service in a designated area. Under this protection the LEC built a local network -made up of elements such as loops (wires), switches, and transmission facilities -that connects telephones in the local calling area to each other and to long distance carriers.

The 1996 Act brought sweeping changes. It ended the monopolies that incumbent LECs held over local telephone service by preempting state laws that had protected the LECs from competition. See 47 U.S.C. § 253. Congress recognized, however, that removing the legal barriers to entry would not be enough, given current technology, to make local telephone markets competitive. In other words, it is economically impractical to duplicate the incumbent LEC's local network infrastructure. To get around this problem, the Act allows potential competitors, called competing local exchange carriers (CLECs), to enter the local telephone market by using the incumbent LEC's network or services in three ways. First, a CLEC may build its own network and "interconnect" with the network of an incumbent. See id. § 251(c)(2). Second, a CLEC may lease elements (loops, switches, etc.) of an incumbent LEC's network "on an unbundled basis." See id. § 251(c)(3). Third, a CLEC may buy an incumbent LEC's retail services "at wholesale rates" and then resell those services to customers under its (the CLEC's) brand. See id. § 251(c)(4).

The Act details procedures for allowing a CLEC access to the incumbent LEC's facilities and services. The CLEC first makes a request to the incumbent for interconnection or for access to its network or services. Thereafter, both parties must negotiate in good faith in an effort to reach agreement on terms and conditions (including price) of access. See id. §§ 251(c)(1), 252(a)(1). If negotiations fail -it is hard to see how they would not -either party may petition the state utility commission to arbitrate open issues.See id. § 252(b).¹ The terms imposed by the state commission in arbitration must "meet the requirements of section 251 . . . including the regulations prescribed by the [FCC] pursuant to section 251." Id. § 252(c)(1). The Act includes general standards for a state commission to use in arbitrating open price (or rate) issues. See id. §§ 251(c), 252(d). Finally, the Act authorizes any party aggrieved by the arbitration decision of a state commission to bring an action in federal district court to determine whether the arbitration decision "meets the requirements of" §§ 251 and 252. See id. § 252(e)(6).

We digress for a moment to discuss the issuance and status of the FCC rules. The Act directed the FCC to "establish regulations to implement the requirements" of § 251, that is, the requirements to advance local competition. Id. § 251(d)(1). On August 8, 1996, the FCC issued an order and rules implementing the local competition provisions of the Act. See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 F.C.C.R. 15499 (1996) (First Report and Order). Included were rules to be used by state commissions in determining the price new entrants would be charged for interconnection, access to unbundled network elements, and retail services bought for resale.

A number of interested parties, mainly incumbent LECs and state utility commissions, filed petitions for review in several circuits challenging the FCC's rules, especially those relating to pricing. The petitions were consolidated and assigned to the Eighth Circuit by the panel on multidistrict litigation. See 28 U.S.C. § 2112(a). On September 27, 1996, three days before the FCC's rules were scheduled to go into effect, the Eighth Circuit entered a temporary stay of the rules, see Iowa Utils. Bd. v. FCC, 96 F.3d 1116, 1118 (8th Cir. 1996), and later entered a stay of the pricing rules pending final decision, see Iowa Utils. Bd. v. FCC, 109 F.3d 418, 427 (8th Cir. 1996). Ultimately, in July 1997 the Eighth Circuit vacated the pricing rules, holding that the FCC lacked jurisdiction to promulgate them. See Iowa Utils. Bd. v. FCC, 120 F.3d 753, 800 (8th Cir. 1997), aff'd in part, rev'd in part sub nom. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 119 S. Ct. 721 (1999). The Eighth Circuit said that §§ 252(c)(2) and (d) of the Act give state utility commissions exclusive authority to make pricing decisions under §§ 251 and 252, thereby depriving the FCC of any rulemaking power in that area. See Iowa Utils. Bd., 120 F.3d at 793-800. The Supreme Court disagreed. On January 25, 1999, the Court held that the FCC had jurisdiction to issue rules implementing the pricing provisions of the Act. See AT&T Corp. v. Iowa Utils. Bd., 119 S. Ct. at 733 ("[T]he Commission has jurisdiction to design a pricing methodology"). In other words, the FCC is empowered to issue "rules to guide the statecommission judgments." Id. Although the Court validated FCC rulemaking, the case was remanded for the Eighth Circuit to consider substantive challenges to the rules. See id. at 119 S. Ct. at 738. Nevertheless, the pricing rules took effect when the Supreme Court reversed the Eighth Circuit's judgment of vacatur.

We now turn to this case. After the passage of the 1996 Act, several...