Verizon Maryland Inc. v. Rcn Telecom Services

• Decision Date: 19 November 2002
• Docket Number: No. CIV.S-99-2061.,CIV.S-99-2061.
• Citation: 232 F.Supp.2d 539
• Parties: VERIZON MARYLAND INC., f/k/a BELL ATLANTIC-MARYLAND, INC. Plaintiff, v. RCN TELECOM SERVICES, INC., f/k/a RCN TELECOM SERVICES OF MARYLAND INC., et al., Defendants.
• Court: U.S. District Court — District of Maryland

232 F.Supp.2d 539

VERIZON MARYLAND INC., f/k/a BELL ATLANTIC-MARYLAND, INC. Plaintiff, v. RCN TELECOM SERVICES, INC., f/k/a RCN TELECOM SERVICES OF MARYLAND INC., et al., Defendants.

No. CIV.S-99-2061.

United States District Court, D. Maryland, Northern Division.

November 19, 2002.

COPYRIGHT MATERIAL OMITTED

James P. Garland, Miles and Stockbridge PC, Baltimore, MD, Mark L. Evans, Sean A. Lev, Aaron M. Panner, Kellogg Huber Hansen Todd and Evans LLC, Washington, DC, for Plaintiff.

John R. Harrington, Darryl M. Bradford, Jenner and Block, Chicago, IL, Jodie L. Kelley, Elena Nicole Broder-Feldman, Jenner and Block, Washington, DC, Glen Keith Allen, Piper Rudnick LLP, Baltimore, MD, Michael L. Shor, Robin L. Redfield, Richard M. Rindler, Swidler Berlin Shereff Friedman LLP, Washington, DC, Matthew W. Nayden, Kelly Culp Hoelzer, Ober Kaler Grimes and Shriver, Baltimore, MD, Michael Albert McRae, Oakton, VA, Susan Stevens Miller, Maryland Public Service Commission, Baltimore, MD, Kaye A. Allison, Office of the United States Attorney, Baltimore, MD, Theodore C. Hirt, David T. Zaring, U.S. Department of Justice Civil Division Federal Programs Branch, Washington, DC, Rachel J. Hines, United States Department of Justice, Washington, DC, Michael J. Travieso, Theresa V. Czarski, Maryland Peoples Counsel, Baltimore, MD, David A. Konuch, Kelley Drye and Warren LLP, Washington, DC, Ira T. Kasdan, Kelley Drye and Warren LLP, Vienna, VA, James R. J. Scheltema, Glbal NAPs Inc., Columbia, MD, for Defendants.

MEMORANDUM OPINION

SMALKIN, Chief Judge.

The plaintiff, Verizon Maryland Inc. ("Verizon"), formerly known as Bell Atlantic-Maryland, Inc., filed an amended complaint against the defendants alleging that the Public Service Commission of Maryland ("PSC") issued certain orders that violate the Telecommunications Act of 1996 ("the 1996 Act"), Pub.L. 104-104, 110 Stat. 56 (codified as amended in scattered sections of 47 U.S.C.). Now before the Court are the motions to dismiss of: (1) Catherine I. Riley, Claude M. Ligon, J. Joseph Curran III, Gail C. McDonald, and Ronald Guns, all in their official capacities as members of the PSC (collectively, "the commissioners"); (2) Global NAPS, Inc. ("Global"); and (3) Core Communications, Inc. ("Core"). Also before the Court is the alternative motion of Core to be dropped as a defendant under Federal Rule of Procedure 21. MCI WorldCom Communications, Inc. ("WorldCom"), has intervened to defend the actions of the PSC. The United States of America has also intervened, filing an opposition to the commissioners' motion to dismiss, and asking the Court to reject the commissioners' assertion of sovereign immunity and to defend the constitutionality of the 1996 Act. The issues have been fully briefed by the parties, and no oral hearing is necessary. Local Rule 105.6 (D.Md.).

BACKGROUND

Congress enacted the 1996 Act to promote competition in local telecommunications markets. See AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). Toward that end, the 1996 Act imposes various obligations on incumbent local-exchange carriers ("ILECs"), including a duty to share their networks with competing local-exchange carriers ("CLECs"). See 47 U.S.C. § 251(c). When a CLEC seeks access to the market, the ILEC must "provide ... interconnection with" its network. Id. § 251(c)(2). The carriers must then "establish reciprocal compensation arrangements for the transport and termination of telecommunications." Id. § 251(b)(5).

An ILEC "may negotiate and enter into a binding agreement" with a CLEC to fulfill the duties imposed by § 251(b) and (c), but "without regard to the standards set forth in" those provisions. Id. § 252(a)(1). The parties must negotiate in good faith. Id. § 251(c)(1). If private negotiations fail, either party may petition the relevant state commission to arbitrate open issues. Id. § 252(b). The state commission, if it wishes, may opt out, leaving the Federal Communications Commission ("FCC") to arbitrate in its stead. Id. § 252(e)(5).

Once an interconnection agreement is in place, whether negotiated, mediated, or arbitrated, the parties must submit it to the state commission for approval or rejection. Id. § 252(e)(1). The state commission must ensure that each agreement is consistent with certain requirements of the 1996 Act, but may also enforce requirements of state law, such as intrastate quality service standards. Id. § 252(e)(2), (3). A state commission may reject a voluntarily negotiated agreement only if it discriminates against a carrier not a party, or if its implementation "is not consistent with the public interest, convenience, and necessity." Id. § 252(e)(2)(A). A party aggrieved by a "determination" of a state commission under § 252 may bring an action in federal district court "to determine whether the agreement ... meets the requirements" of §§ 251 and 252. Id. § 252(e)(6).

In this case, Verizon, the ILEC in Maryland, negotiated an interconnection agreement (the "WorldCom agreement") with MFS Intelenet of Maryland, Inc., later acquired by intervenor WorldCom. The PSC approved the agreement on October 9, 1996. Neither party sought review in federal district court (or elsewhere). The five defendant CLECs — RCN Telecom Services, Inc., Starpower Communications, LLC, TCG-Maryland, Global, and Core — all subsequently entered into voluntary agreements with Verizon in relevant part substantively identical to the WorldCom agreement.¹ The PSC approved them all; no one sought review.

Sometime after the PSC approved the WorldCom agreement, a dispute arose between Verizon and WorldCom over the terms of the reciprocal compensation arrangement. The agreement required reciprocal compensation for "local traffic." Am. Compl., Ex. C, ¶¶ 1.44, 1.61, 5.7. When a Verizon customer would place a local call to a WorldCom customer, the caller would be using part of WorldCom's network, and Verizon would have to compensate WorldCom for such usage. The agreement set the rates of compensation. As it happened, several customers of WorldCom were internet service providers ("ISPs"), offering modem-based internet access to their own customers. The customers of the ISPs, through their computers, placed telephone calls to their ISPs, which then connected them to the internet. Needless to say, these internet-bound calls tended to be longer than average local calls, and many of the ISPs' customers used Verizon as their local telephone service provider. Thus, if this internet-bound traffic were "local," Verizon would have to pay reciprocal compensation to WorldCom; if nonlocal, no reciprocal compensation would be due.

Around April 1997, Verizon informed WorldCom that it would no longer pay reciprocal compensation for telephone calls made by Verizon's customers to ISPs serviced by WorldCom. Verizon claimed that such calls were not "local traffic" because the ISPs were connecting customers to distant websites. WorldCom disputed Verizon's claim and filed a complaint with the PSC. On September 11, 1997, the PSC found in favor of WorldCom, ordering Verizon "to timely forward all future interconnection payments owed [WorldCom] for telephone calls placed to an ISP" and to pay WorldCom any reciprocal compensation that it had withheld pending resolution of the dispute. Am. Compl., Ex. D (the "First WorldCom Order"). Verizon appealed to a Maryland state court, which affirmed the PSC's order.

Subsequently, the FCC issued a ruling that categorized internet-bound calls as nonlocal, but concluded that, absent a federal compensation mechanism, state commissions could construe interconnection agreements as requiring reciprocal compensation. See IN RE IMPLEMENTATION OF THE LOCAL COMPETITION PROVISIONS OF THE TELECOMMUNICATIONS ACT OF 1996, 1999 WL 98037, 14 F.C.C.R. 3689 (1999)(the "ISP Order"), vacated and remanded, Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1 (D.C.Cir. 2000).² Verizon filed a new complaint with the PSC, arguing that the ISP Order dictated that Verizon no longer had to provide reciprocal compensation for internet-bound traffic. In a 3-to-2 decision, the PSC rejected Verizon's argument, concluding as a matter of state contract law that Verizon and WorldCom had agreed to treat internet-bound calls as local traffic, subject to reciprocal compensation. See Am. Compl., Ex. A (the "Second WorldCom Order").

Verizon filed an action in this Court to review the Second WorldCom Order, citing 47 U.S.C. § 252(e)(6) and 28 U.S.C. § 1331 as bases for jurisdiction. The original complaint named as defendants the PSC, its individual members in their official capacities, WorldCom, and five other CLECs. On motion of the PSC, this Court dismissed the complaint, holding that the doctrine of sovereign immunity precluded its exercise of subject-matter jurisdiction under either § 252(e)(6) or § 1331. A divided panel of the Fourth Circuit affirmed. See Bell Atlantic Maryland, Inc. v. MCI Worldcom, Inc., 240 F.3d 279 (4th Cir.2001). Verizon petitioned the Supreme Court for a writ of certiorari.

Soon thereafter, Verizon informed Core that it would no longer pay reciprocal compensation for telephone calls made by Verizon's customers to ISPs serviced by Core. Core, just as WorldCom had before it, filed a complaint with the PSC. On June 13, 2001, the PSC ruled that Verizon must continue to reciprocally compensate Core for internet-bound calls until the PSC approved an amendment to their existing interconnection agreement. See Am. Compl., Ex. J (the "Core Letter Order"). The PSC, therefore, enjoined Verizon "from withholding reciprocal compensation payments" due Core. Id. At the time, Verizon sought no review of the PSC's decision.

On December 12, 2001, the Supreme Court granted certiorari in the matter of the Second WorldCom Order. 534 U.S. 1072 (2001). Then, without dissent, it vacated the judgment of the Fourth Circuit. See Verizon Md., Inc. v. Pub. Serv. Comm'n, 535 U.S. 635, 122 S.Ct. 1753...