Verizon New England Inc. v. RI PUC

• Decision Date: 20 May 2003
• Docket Number: No. 2002-161-M.P.,2002-161-M.P.
• Citation: 822 A.2d 187
• Parties: VERIZON NEW ENGLAND INC., d/b/a Verizon Rhode Island v. RHODE ISLAND PUBLIC UTILITIES COMMISSION et al.
• Court: Rhode Island Supreme Court

822 A.2d 187

VERIZON NEW ENGLAND INC., d/b/a Verizon Rhode Island v. RHODE ISLAND PUBLIC UTILITIES COMMISSION et al.

No. 2002-161-M.P.

Supreme Court of Rhode Island.

May 20, 2003.

Present: WILLIAMS, C.J., FLANDERS, and GOLDBERG, JJ.

Cameron F. Kerry, Boston, MA, Keefe Bryant Clemons/Peter J. McGinn, Steven M. Richard, Craig L. Eaton, Providence, for Plaintiff.

Leo J. Wold, Cranston, Paul J. Roberti, Providence, for Defendant.

OPINION

WILLIAMS, Chief Justice.

In its petition for writ of certiorari, Verizon New England Inc., d/b/a Verizon Rhode Island (Verizon) asserts that the respondent, Rhode Island Public Utilities Commission (PUC), exceeded its authority by ordering Verizon to make voice messaging service (VMS)¹ available to local competitors at wholesale prices under the Telecommunications Act of 1996 (the act). See 47 U.S.C. § 251(c)(4)(A) (2001). The intervenor, Alticomm, Inc. (Alticomm), a Verizon competitor, initiated this proceeding at the PUC and we permitted Alticomm to intervene before this Court. Because the PUC's order exceeded its authority under G.L.1956 § 39-1-1(c), we grant Verizon's petition for certiorari and quash the PUC's order.

I Facts and Travel

On January 10, 1997, pursuant to the act, the PUC initiated its rule-making process by issuing a Notice of Inquiry that sought to determine the types of services that should be offered for resale. Section 251(c)(4)(A) of 47 U.S.C. requires an incumbent local exchange carrier (ILEC), in this case Verizon, to resell "telecommunication services" to competitors at wholesale rates.

The act is an updated version of the Communications Act of 1934, which sought to prevent telecommunications conglomerates from monopolizing the interstate telecommunications market. See Southwestern Bell Telephone Co. v. Apple, 309 F.3d 713, 715 (10th Cir.2002)

. Congress addressed local telecommunication monopolies in the act, thereby expanding its reach into the local markets. Verizon Maryland Inc. v. Public Service Commission of Maryland, 535 U.S. 635, 638, 122 S.Ct. 1753, 1756, 152 L.Ed.2d 871, 877 (2002). "In passing the [a]ct, Congress was faced with reconciling such competing interests as federal uniformity and state autonomy, and it struck a compromise." Southwestern Bell Telephone Co. v. Connect Communications Corp., 225 F.3d 942, 948 (8th Cir.2000).

In the Notice of Inquiry, the PUC found that it had enabling authority to promulgate regulations concerning local anticompetitive measures, including resale requirements under state law, specifically title 39 of the Rhode Island General Laws, entitled "Public Utilities and Carriers." However, we note that the PUC never cited a section under that title. The PUC then directed all telecommunications carriers subject to the act to provide responsive comments.

One year after the PUC released its Notice of Inquiry, the PUC issued Order 15511 and promulgated corresponding regulations. Order 15511 was based solely on the implementation of the act, again with no specific reference to state law. The PUC concluded that all retail services provided by Verizon "shall be presumptively available to competitive local exchange carriers" (CLEC), in this case Alticomm, at a discount from the retail or tariffed rate.² Regulations Regarding "Avoided Cost" for Development of "Wholesale" Discounts from Retail Rates, Docket No. 2518, p. 2 (R.I. PUC March 1, 1998).

Three years after the regulations took effect, Alticomm filed a petition with the PUC requesting that it direct Verizon to resell its VMS to Alticomm at a discounted rate pursuant to Order 15511 and the regulations. Alticomm, formerly known as Eastern Telephone, is a Massachusetts corporation seeking to provide a "comprehensive package of local resale telecommunication services to residential customers in Rhode Island."

In a Report and Order released on March 11, 2002, the PUC denied Verizon's motion to dismiss and granted Alticomm's original petition. See In re the Petition of Eastern Telephone, Inc., Report and Order, No. 3333 (R.I. PUC March 11, 2002) (hereafter Report and Order). The PUC found that Alticomm's inability to resell VMS prevented it from obtaining 20 percent of its potential customers and that it would not be cost-effective for Alticomm to provide VMS independently. See id. at 10. Relying upon the premise that the provisions of title 39 of the General Laws must be "interpreted and construed liberally," the PUC announced its authority to broadly interpret the term "communication." Based on that authority, the PUC determined that "communication" was synonymous with "telephone service" under title 39, asserting that the Legislature intended such an interpretation. See id. at 7. As a result, the PUC concluded that it had the broad statutory authority to require Verizon to resell VMS at a discount as a matter of policy because the requirement would not significantly harm Verizon. See id. at 10-11. Accordingly, the PUC ordered Verizon to make its VMS available to Alticomm for resale at wholesale rates. See id. at 12.

The PUC, however, was not writing on a clean slate. The Federal Communications Commission (FCC) already had addressed the resale of VMS and determined that VMS is an information service, not a telecommunication service as defined in the act, and therefore need not be resold at a discounted rate under the act.³See 47 C.F.R. § 64.2003 (2002). The PUC acknowledged its deviation from the federal rule but stated that "there are instances in which this Commission will exercise its independent state law authority and not automatically follow the example of the FCC." Report and Order, at 9.

Verizon timely petitioned this Court for a writ of certiorari to review the PUC's Report and Order. At the same time, Verizon filed a motion with the PUC to stay its order, which the PUC denied. Thereafter, we granted Verizon's motion to stay the Report and Order pending the outcome of the petition for certiorari. Subsequently, Alticomm moved to intervene and we granted that motion.

The issues before this Court revolve only around the authority of the PUC to direct Verizon to offer VMS to Alticomm at a discounted rate. Verizon contends that: (1) the PUC's attempt to regulate VMS is preempted by federal law, (2) if there is no preemption, the PUC had no authority under state law to require Verizon to resell VMS at wholesale rates, (3) if authorized, the regulation is not competitively neutral and, therefore, is in violation of the act, and (4) the record does not support the PUC's conclusion.

The PUC first points out that in Verizon's brief to the PUC, it conceded that preemption by federal law was not an issue. In its reply brief, Verizon responded that the preemption argument did not exist until the PUC issued its order, and only then could Verizon argue that federal law preempted the PUC's action. Regardless, questions of preemption by federal law are dispositive questions of law and, thus, cannot be waived. See Taj Mahal Travel, Inc. v. Delta Airlines, Inc., 164 F.3d 186, 190 (3d Cir.1998)

(citing Lambert v. Genesee Hosp., 10 F.3d 46, 56 (2d Cir.1993)).

Focusing on the substantive arguments, the PUC avers that its broad authority to regulate the telecommunications industry encompasses "the power to regulate the `reasonableness' of the `facilities and accommodations' and `rates, tariffs, tolls and charges' of `telephone and telegraph public utilities.'" The PUC also cites §§ 39-1-1(c), 39-1-38 and G.L.1956 § 39-2-1, which grant it broad authority to regulate utilities and rates, as well as G.L.1956 § 39-3-7 that requires the PUC to determine the character of each kind of service furnished by each public utility.⁴ Furthermore, the PUC points to arecent opinion of the Vermont Supreme Court that addressed this very issue, and found no federal preemption. The Vermont Supreme Court affirmed, as a matter of state law, Vermont's regulatory commission's order directing Verizon to make VMS available at a discounted rate as a matter of state law. See In re Petition of Verizon New England, 173 Vt. 327, 795 A.2d 1196 (2002)

.

II Standard of Review

The Legislature set out a very clear standard of review for this Court in reviewing a PUC decision. See G.L.1956 § 39-5-3. This Court must accept the PUC's findings of fact as "prima facie true" and a PUC order made in its discretion "shall not be reversed unless the [PUC] exceeded its authority or acted illegally, arbitrarily, or unreasonably." Id. This Court may reverse, affirm or remand the judgments or orders of the PUC "as law or equity shall require." Section 39-5-4.

III Preemption

The Supremacy Clause of the United States Constitution, Article VI, clause 2, preempts or invalidates state law that interferes or conflicts with any federal law. The preemption doctrine encompasses three types of preemption: (1) express preemption, (2) field preemption, and (3) conflict preemption. See Shaw v. Delta Airlines, Inc., 463 U.S. 85, 95-96, 103 S.Ct. 2890, 2899-900, 77 L.Ed.2d 490, 500-01 (1983)

. To determine whether the preemption doctrine invalidates the PUC's conclusion in this matter we must examine both federal law and the PUC's order.

A finding of express preemption involves two steps: (1) that the statute expressly provide that it shall supersede related state law, and (2) that the state enactment falls within the class of law that Congress intended to preempt. See Gade v. National Solid Waste Management Association, 505 U.S. 88, 95-97, 112 S.Ct. 2374, 2382, 120 L.Ed. 2d 73, 83 (1992). The act contains no express preemption provision under this analysis and thus does not expressly preempt the PUC's interpretation of its regulation under state law.

The two remaining types of preemption reflect the congressional intent to preempt state laws based upon "the federal statute's `structure and purpose.'" Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 31, 116 S.Ct. 1103, 1108, 134 L.Ed.2d 237, 244 (1996)...