Verizon North, Inc. v. Strand, 01-1013.

Decision Date07 November 2002
Docket NumberNo. 01-1013.,01-1013.
Citation309 F.3d 935
PartiesVERIZON NORTH, INC., Plaintiff-Appellee, v. John G. STRAND, Chairman; John C. Shea, Commissioner; and David A. Svanda, Commissioner, Defendants-Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

Gerald Masoudi (argued), Christopher Landau, Patrick F. Philbin (briefed), Kirkland & Ellis, Washington, DC, for Plaintiff-Appellee.

David A. Voges, Assistant Attorney General (argued and briefed), Henry J. Boynton, Assistant Attorney General (briefed), Lansing, MI, for Defendants-Appellants.

Darryl M. Bradford (briefed), Sona Rewari (briefed), John R. Harrington, Jenner & Block, Chicago, IL, Brian J. Leske (argued and briefed), Washington, DC, for Amicus Curiae MCI.

Darryl M. Bradford (briefed), John R. Harrington, Jenner & Block, Chicago, IL, David L. Lawson (briefed), Jennifer M. Rubin (briefed), Sidley, Austin, Brown & Wood, Washington, DC, for Amicus Curiae AT & T Communications of Michigan, Inc. Darryl M. Bradford (briefed), John R. Harrington, Jenner & Block, Chicago, IL, Leland R. Rosier (briefed), Clark Hill, Okemos, MI, for Amici Curiae McLeod USA Telecommunications Services, Inc. and Association of Communication Enterprises.

Darryl M. Bradford (briefed), John R. Harrington, Jenner & Block, Chicago, IL, Brian J. Leske (argued and briefed), Washington, DC, for Amicus Curiae MCI Merto Access Transmission Services, Inc.

John E. Muench, Mayer, Brown, Rowe & Maw, Chicago, IL, Amicus Curiae Michigan Bell Telephone Co. dba Ameritech Michigan.

Before BOGGS, NORRIS, and BATCHELDER, Circuit Judges.

OPINION

BOGGS, Circuit Judge.

Commissioners John G. Strand, John C. Shea, and David A. Svanda of the Michigan Public Service Commission (the "MPSC") appeal from the district court's grant of a declaratory judgment in favor of Verizon North, Inc. ("Verizon")1 in Verizon's suit challenging a February 25, 1998 order of the MPSC (the "February 25 order" or the "order"). Verizon, an incumbent local telecommunications carrier in Michigan, alleged that the order conflicted with, and was preempted by, the federal Telecommunications Act of 1996 (the "FTA" or the "Act"), Pub.L. No. 104-104, 56 Stat. 110 (1996) (codified in various sections of 47 U.S.C.) to the extent that it required incumbents to offer network elements and services to competitors through published tariffs and to combine unbundled network elements for competitors. The district court agreed and granted injunctive relief from both aspects of the order. For the reasons set forth below, we affirm the district court's judgment with respect to the tariff requirement, but vacate the judgment with respect to the bundling requirement.

I

This is the second time that this case has reached this court. In our first decision, issued on April 20, 2000, we explained the history and substance of the action brought by Verizon (which at the time was still GTE):

[In December 1996,] the MPSC initiated... state law proceedings against GTE and other incumbent [Local Exchange Carriers, or "LECs"] in order to establish terms of interconnection to Michigan local exchange networks generally.... In connection with these general interconnection proceedings, the MPSC required GTE and Ameritech, as Michigan LECs, to file with the Commission "Total Service Long Run Incremental Cost" (TSLRIC) studies for both regulated and non-regulated telecommunications services. In addition, the MPSC directed GTE to publish tariffs in which GTE would offer to sell its network elements and wholesale services to any interested party at rates predetermined by the Commission. GTE responded to the Commission's order by filing a petition for rehearing in which GTE challenged the MPSC's rates for unbundled loops as confiscatory in violation of the FTA. The MPSC denied GTE's petition for rehearing, and GTE appealed the MPSC's order to the Michigan Court of Appeals. On December 30, 1997, the court affirmed the MSPC's order, and the MPSC proceeded to use GTE's and Ameritech's TSLRIC studies to determine prices for new entrants' access to bundled and unbundled network elements and basic local exchange services throughout Michigan.

On February 25, 1998, in the course of the state proceedings against GTE and Ameritech, the MPSC issued the order contested in this appeal. In the February 25 order, the MPSC used GTE's TSLRIC studies to establish the rates at which GTE would be compelled to sell unbundled network elements to its competitors. In addition, the order stated that the FTA requirement that GTE allow competitors to access pieces, or unbundled elements, of GTE's local network did not preclude GTE's competitors from requesting access to pre-assembled, fully operational local service platforms. Upon receiving the order, GTE sued the MPSC in the district court, alleging that the Commission, acting pursuant to Michigan law, violated the FTA when it issued the February 25 order: (1) directing GTE to provide competitors with access to pre-assembled, fully operational service platforms; and (2) requiring GTE to publish tariffs offering to sell elements of its network at rates predetermined by the Commission.

GTE North, Inc. v. Strand, 209 F.3d 909, 913-14 (6th Cir.2000) ("Verizon I").

In that first decision, this court reviewed the district court's dismissal of the case for lack of subject matter jurisdiction. The district court had held that it lacked jurisdiction in the case, because § 252(e)(6) of the Act (47 U.S.C. § 252(e)(6)) gives federal courts jurisdiction to review state commission orders approving or rejecting final interconnection agreements and the February 25 order was not such an order. This court determined that the limitation on federal review set forth in § 252(e)(6) did not apply and held that, since the action presents a potential instance of federal preemption, the district court had jurisdiction to review the order under its general federal question jurisdiction (28 U.S.C. § 1331). See Verizon I, 209 F.3d at 915-20. Further, this court held that Verizon's suit against the individual commissioners in their official capacity, which seeks only prospective injunctive relief, is appropriate under Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908).2 See Verizon I, 209 F.3d at 922. Accordingly, this court remanded the case to the district court for consideration of the merits.

On remand, the district court granted Verizon's motion for summary judgment and struck down both challenged portions of the MPSC order, holding that they conflicted with and were preempted by the FTA. First, the court held that the tariff requirement was invalid, because it would allow competitors to circumvent the negotiation and arbitration process set out in § 252 of the Act. Verizon North, Inc. v. Strand, 140 F.Supp.2d 803, 809-10 (W.D.Mich.2000). Second, the court held that requiring incumbents to combine previously unbundled network elements at competitors' request violated the plain language of the Act, which requires incumbents to provide competitors access to network elements "in a manner that allows requesting carriers to combine such elements." Verizon North, Inc., 140 F.Supp.2d at 810 (quoting 47 U.S.C. § 251(c)(3) (emphasis added)). The MPSC filed a timely appeal from both holdings.

II The Tariff Requirement

Congress passed the FTA in order to end local telecommunications monopolies and engender competition in local telecommunications markets. To attain these goals, the Act imposes various requirements on incumbent telecommunications providers. The requirements include the duty to: (1) permit competitors who have built their own telecommunications networks to interconnect with the incumbent's network "for the transmission and routing" of traffic between the networks, 47 U.S.C. § 251(c)(2); (2) permit competitors to lease elements of the incumbent's network in order to allow the competitors to provide retail services through such a network, id. at § 251(c)(3); and (3) permit competitors to purchase telecommunications services at wholesale prices in order to allow the competitors to resell those services to retail customers, id. at § 251(c)(4).

In order to facilitate this interconnection, leasing, and wholesaling, Congress designed a comprehensive system, under which requesting competitors and incumbent providers are to enter into interconnection agreements setting forth the terms and conditions of their business relationship. Id. at §§ 251(c)(1), 252. First, the Act explains that, "[u]pon receiving a request for interconnection, services, or network elements ... an incumbent local exchange carrier may negotiate and enter into a binding agreement with the requesting telecommunications carrier...." Id. at § 252(a)(1). In this regard, the FTA places on incumbents the duty to "negotiate in good faith the terms and conditions of such agreements." Id. at § 251(c)(1). However, either party to the negotiation may ask the relevant state commission to mediate any unresolved issues. Id. at § 252(a)(2). If negotiation between the incumbent and the competitor does not produce an agreement, the FTA provides that either party can, during a specific time period, ask the state commission to undertake binding arbitration of any open issues, and the FTA provides specific guidelines for such arbitration. Id. at § 252(b)-(d).

Once an interconnection agreement is reached, either through negotiation or arbitration, the FTA requires the relevant state commission to approve or reject the agreement, and it provides specific guidelines for the approval process. Id. at § 252(e). If the state commission does not act within a prescribed time period, the FTA provides for the Federal Communications Commission (FCC) to decide, which action preempts the state commission. Id. at § 252(e)(5). If the state commission makes a determination on the proposed interconnection agreement within the required time, the FTA provides that a...

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