Worldnet v. Puerto Rico Telephone Co.

• Decision Date: 11 May 2007
• Docket Number: No. 06-1565.,No. 06-1564.,No. 06-1566.,No. 06-1563.,06-1563.,06-1564.,06-1565.,06-1566.
• Citation: 497 F.3d 1
• Parties: WORLDNET TELECOMMUNICATIONS, INC., Plaintiff, Appellee, v. PUERTO RICO TELEPHONE COMPANY; Telecommunications Regulatory Board of Puerto Rico; Miguel Reyes-Dávila, in his official capacity as member; Vicente Aguirre-Iturrino, in his official capacity as member; Nixyvette Santini-Hernández, in her official capacity as member, Defendants, Appellants. Puerto Rico Telephone Company, Plaintiff, Appellant/Cross-Appellee, v. Telecommunications Regulatory Board of Puerto Rico; Miguel Reyes-Dávila, in his official capacity as member; Vicente Aguirre Iturrino, in his official capacity as member; Nixyvette Santini-Hernández, in her official capacity as member, Defendants, Appellees/Cross-Appellants.
• Court: U.S. Court of Appeals — First Circuit

497 F.3d 1

WORLDNET TELECOMMUNICATIONS, INC., Plaintiff, Appellee, v. PUERTO RICO TELEPHONE COMPANY; Telecommunications Regulatory Board of Puerto Rico; Miguel Reyes-Dávila, in his official capacity as member; Vicente Aguirre-Iturrino, in his official capacity as member; Nixyvette Santini-Hernández, in her official capacity as member, Defendants, Appellants.

Puerto Rico Telephone Company, Plaintiff, Appellant/Cross-Appellee, v. Telecommunications Regulatory Board of Puerto Rico; Miguel Reyes-Dávila, in his official capacity as member; Vicente Aguirre Iturrino, in his official capacity as member; Nixyvette Santini-Hernández, in her official capacity as member, Defendants, Appellees/Cross-Appellants.

No. 06-1563.

No. 06-1564.

No. 06-1565.

No. 06-1566.

United States Court of Appeals, First Circuit.

Heard January 11, 2007.

Decided May 11, 2007.

Joshua S. Turner with whom John E. Barry, John W. Kuzin, Wiley Rein & Fielding LLP, Ricardo L. Ortiz-Colón, Luis A. Oliver and Fiddler, González & Rodríguez, P.S.C. were on brief for Puerto Rico Telephone Company.

Robert F. Reklaitis with whom Leslie Paul Machado was on consolidated brief for Telecommunications Regulatory Board of Puerto Rico and Its Individual Members on liquidated damages issue.

Robert F. Reklaitis with whom Leslie Paul Machado was on consolidated brief for Telecommunications Regulatory Board of Puerto Rico and Its Individual Members on performance standards issue.

R. Bruce Beckner with whom Fleischman and Walsh, L.L.P., Frank A. Rullán and GrayRobinson, P.A. were on consolidated brief for WorldNet Communications, Inc.

Before BOUDIN, Chief Judge, LIPEZ, Circuit Judge, and SHADUR,^* Senior District Judge.

BOUDIN, Chief Judge.

Seeking to spur competition in the telecommunications industry, Congress a decade ago passed the Telecommunications Act of 1996 ("the Act").¹ The Act not only permitted competitors to operate their own local exchange networks in competition with the local telephone company, 47 U.S.C. § 253(a), (d) (2000), but also obliged the local incumbent to assist new entrants in several respects, id. § 251(b)-(c). Pertinently, section 251 places on incumbent carriers a duty to provide competitors the ability to

interconnect[ ] with the [incumbent] carrier's network—(A) for the transmission and routing of telephone exchange service and exchange access; (B) at any technically feasible point within the carrier's network; (C) that is at least equal in quality to that provided by the local exchange carrier to itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection; and (D) on rates, terms, and conditions that are just, reasonable, and nondiscriminatory. . . .

47 U.S.C. § 251(c)(2).

Interconnection allows customers of the competitor to "place calls to, and to receive calls from, customers on the incumbent's network." Huber et al., Federal Telecommunications Law 54 (2d ed.1999). Incumbent carriers must negotiate interconnection terms with competitors in good faith (e.g., facilities, timing), 47 U.S.C. § 251(c)(1), and if negotiations fail, either party "may petition a State commission to arbitrate any open issues." Id. § 252(b)(1).

WorldNet Telecommunications, Inc. ("WorldNet"), sought to enter the Puerto Rico market in competition with the local incumbent, the Puerto Rico Telephone Company ("PRT"). The local regulatory authority in Puerto Rico is the Telecommunications Regulatory Board of Puerto Rico ("the Board"). In 2003, after the requisite period of negotiation, WorldNet petitioned the Board for arbitration to resolve 355 issues relating to an interconnection agreement it sought with PRT.

These issues included the performance standards to which PRT would be held— for example, the time within which PRT must enter WorldNet service orders or make line repairs for it—and a liquidated damages schedule requested by WorldNet to back up the standards. The Board appointed an arbitrator, who held a three-day hearing and issued an order adopting (among other things) WorldNet's proposed performance standards as well as its proposed liquidated damages schedule for non-performance.

The parties amended their interconnection agreement to match the arbitrator's order and, as required by the statute, 47 U.S.C. § 252(e)(1), submitted the agreement to the Board for approval. Before the Board, PRT challenged the terms imposed by the arbitrator, including the performance standards and the liquidated damages amounts. The Board ultimately upheld the standards but modified the arbitrator's order to allow PRT to ramp-up its performance more slowly over the duration of the three-year agreement: after an implementation period of six months during which the performance standards would not be in effect, PRT would have to maintain compliance for successive 10 month periods at an 85 percent level, then 90 percent and then 95 percent.²

As for liquidated damages, the Board said that the amounts endorsed by the arbitrator were unreasonable because they were intended to punish PRT, not to compensate WorldNet for actual damages. Finding that the record lacked evidence as to WorldNet's predicted actual damages from PRT's failure to comply with the various performance standards, the Board set aside the liquidated damages remedy in its entirety. It concluded that other means, such as the Board's power to fine PRT for breaches, provided PRT with a sufficient incentive to perform.

PRT and WorldNet each sought federal district court review, 47 U.S.C. § 252(e)(6): PRT alleged that the Board's performance standards impermissibly required PRT to provide WorldNet with better service than it provided to its own customers; and WorldNet challenged the Board's rejection of its liquidated damages proposal. The district court (adopting the magistrate judge's recommendation) affirmed the Board as to the performance standards, but remanded the liquidated damages issue for further consideration by the Board.

PRT now seeks review of the Board's performance standards ruling, and PRT and the Board both seek review on the liquidated damages issue. In light of the district court's remand to the Board for further proceedings, we face at the outset the question whether the district court's action constitutes a "final decision"—a jurisdictional requirement for us, 28 U.S.C. § 1291 (2000), subject to various exceptions.

"Finality" is not a self-defining label but a bundle of rules and policies, framed by judges, to implement a concept.³ The problem is especially complicated where the district court is itself reviewing an agency. If the district court had affirmed the Board outright, the judgment would clearly be final; it would also be final if the court had remanded with directions to reach a specified result, since deferring review would serve no practical purpose. Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945).

By contrast, where a remand by the district court leaves the agency with latitude for action, a court of appeals will ordinarily defer review of the remand order since the ultimate outcome is uncertain. Global Naps, Inc. v. Mass. Dep't of Telecomm. & Energy, 427 F.3d 34, 41 (1st Cir.2005). But our decisions have made prudential exceptions—pertinently, where deferral would compromise the agency's ability to ever get effective review of a district court remand order with which it disagrees.⁴

This is not a risk if the district court tells the agency to better explain its position or address a missed issue. But if the remand requires the agency to take action under a legal standard with which it disagrees, the agency may be compelled to enter a new order and—on further judicial review—may be forced to defend its new order as a proper application of a mandate that the agency opposes and that it has never had an opportunity to challenge on appeal. Global Naps, 427 F.3d at 42-43.

In this case, the district court altered the legal template by telling the Board that it could not reject liquidated damages solely on the basis that they exceeded WorldNet's actual damages. This in turn sets the stage for the likely adoption of liquidated damages exceeding WorldNet's costs—which is just what the agency opposes. Immediate review is justified in this case not merely for the sake of efficiency but because the Board could otherwise be compromised on a later appeal because its own decision would rest on a position that it opposes.

Turning to the merits, we start with the district court's remand on the liquidated damages issue. Where as here judicial review is based on the agency record, we apply to the agency ordinary review standards, accepting the district court decision merely as it may be persuasive. Assoc. Fisheries of Me., Inc. v. Daley, 127 F.3d 104, 109 (1st Cir.1997).

The ordinary standards for reviewing agency decisions are deferential (in varying degrees) as to matters of fact, policy and application of general standards, but de novo as to questions of law, Global Naps, Inc. v. Verizon New England, Inc., 396 F.3d 16, 23 n. 8 (1st Cir.), cert. denied, 544 U.S. 1061, 125 S.Ct. 2522, 161 L.Ed.2d 1110 (2005), save that an agency also receives deference in interpreting its own statute. Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Where a statute prescribes a different review standard, it governs.

Here, a further wrinkle exists because the Board is itself engaged in reviewing an arbitrator's decision and, under the Act, may reject an arbitrated agreement (or part of an agreement) only if the agreement prescribed by the arbitrator (1) does not hold the carriers to their obligations under section 251 (primarily interconnection obligations) or (2) fails to meet the pricing standards of section 252(d), see 47 U.S.C. § 252(e)(2)(B)—with the further qualification that

nothing in this section shall prohibit a State commission from establishing or...