Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-03368/USCOURTS-ca8-04-03368-0/pdf.json

Nature of Suit Code: 950
Nature of Suit: Contitutionality of State Statutes
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

Nos. 04-3368, 04-3408, and 04-3510

___________

Qwest Corporation, a Colorado *

corporation, *

*

Plaintiff-Appellee/ *

Cross-Appellant, *

*

v. *

*

The Minnesota Public Utilities *

Commission; R. Marshall Johnson, in *

his official capacity as a member of the *

Minnesota Public Utilities Commission; *

Leroy Koppendrayer, in his official *

capacity as a member of the Minnesota * Appeals from the United States

Public Utilities Commission; Phyllis * District Court for the

Reha, in her official capacity as a * District of Minnesota.

member of the Minnesota Public *

Utilities Commission; Gregory Scott, *

in his official capacity as a member of *

the Minnesota Public Utilities *

Commission; *

*

Defendants-Appellants/ *

Cross-Appellees, *

*

CLEC Coalition; AT&T Communi- *

cations of the Midwest, Inc., *

*

Intervenors Below-Appellants/ *

Cross-Appellees. *

___________

Appellate Case: 04-3368 Page: 1 Date Filed: 11/01/2005 Entry ID: 1969580
1

The Honorable Ann D. Montgomery, United States District Judge for the

District of Minnesota.

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Submitted: September 12, 2005

Filed: November 1, 2005

___________

Before RILEY, LAY, and FAGG, Circuit Judges.

___________

LAY, Circuit Judge.

Minnesota Public Utilities Commission and Intervenors CLEC Coalition and

AT&T Communications of the Midwest, Inc. (collectively, “MPUC” or

“Commission”) appeal the district court’s1

 decision that MPUC lacks the authority

under Minnesota law to order Qwest Corporation (“Qwest”) to comply with restitution

for competitive local exchange carriers that were not parties to unfiled interconnection

agreements. Qwest cross-appeals, challenging the decision affirming the Liability

Order and Penalty Orders’ $25.95 million penalty. We conclude that MPUC lacks the

authority to order restitution under Minnesota law. However, we find that MPUC

properly ordered the $25.95 million penalty. Therefore, we affirm.

I.

MPUC issued a liability order and two penalty orders against Qwest for alleged

violations of the 1996 Telecommunications Act (“Act”). The Act was intended to

create competition between carriers in local telecommunication service markets,

which had been traditionally dominated by a single monopoly carrier. Incumbent

local exchange carriers (“ILECs”), such as Qwest, own the network infrastructure

necessary to provide local telephone service. The Act allows competitive local

exchange carriers (“CLECs”) to access this infrastructure by entering into agreements

with an ILEC. Interconnection agreements (“ICAs”) between an ILEC and CLECs

Appellate Case: 04-3368 Page: 2 Date Filed: 11/01/2005 Entry ID: 1969580
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must be submitted to the MPUC for approval. 47 U.S.C. § 252(a), (e). The terms of

these ICAs must be made available to other CLECs that are not parties to the original

agreement. See id. § 252(i). Non-party CLECs can then opt in and incorporate the

provisions of the original agreement in their entirety into their own ICAs. 47 C.F.R.

§ 51.809(a).

On February 14, 2002, the Minnesota Department of Commerce filed a

complaint against Qwest alleging that Qwest had formed secret ICAs with CLECs that

were not properly submitted to MPUC. The complaint asserted that Qwest’s failure

to disclose discriminated against other non-party CLECs because these CLECs were

not given access to the terms contained in the secret ICAs. On March 12, 2002, the

Commission referred the case for contested case proceedings before an administrative

law judge (“ALJ”). 

On November 1, 2002, MPUC issued a liability order adopting the ALJ’s

findings that Qwest knowingly and intentionally violated §§ 251 and 252 of the Act

by failing to file twelve ICAs. The unfiled ICAs included six agreements with

Eschelon Telecom, Inc., three with McLeodUSA Telecommunications Service, Inc.,

and one each with Covad Communications Company, USLink, Inc., and a group of

ten smaller CLECs. MPUC found that Qwest “knowingly and intentionally” violated

both federal and state law by failing to file the twelve ICAs, thereby creating

discriminatory conditions on resale and infringing state anti-discrimination statutes.

The MPUC imposed a $25.95 million penalty against Qwest and granted restitutional

relief for the injured CLECs based upon its interpretation of state statutes.

Qwest brought suit in district court, challenging the liability order and the

penalty order. The district court vacated the order for restitutional relief, holding that

MPUC lacked either the express or implied authority under Minnesota law to grant

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restitution. However, the district court upheld the $25.95 million penalty, finding that

it was valid under Minn. Stat. § 237.462.

Title 47 U.S.C. § 252(e)(6) provides for federal court review of state

commission decisions. Our sister circuits have held that federal courts review state

commission orders under the Act de novo. Mich. Bell Tel. Co. v. MFS Intelenet of

Mich., Inc., 339 F.3d 428, 433 (6th Cir. 2003); S.W. Bell Tel. Co. v. Apple, 309 F.3d

713, 717 (10th Cir. 2002); MCI Telecomm. Corp. v. Bell Atlantic Pa., 271 F.3d 491,

517 (3d Cir. 2001); S.W. Bell Tel. Co. v. Pub. Util. Comm’n, 208 F.3d 475, 482 (5th

Cir. 2000); GTE S., Inc. v. Morrison, 199 F.3d 733, 742 (4th Cir. 1999). Here, we

adopt that standard. This court has supplemental jurisdiction over state law claims

under 28 U.S.C. § 1367. Although the arbitrary and capricious standard applies when

reviewing a state commission’s findings of fact, Mich. Bell, 339 F.3d at 433; S.W.

Bell, 208 F.3d at 482; US West Communications, Inc. v. Hamilton, 224 F.3d 1049,

1052 (9th Cir. 2000), whether an agency acts within its statutory authority is a

question of law to be reviewed de novo. In re Qwest’s Wholesale Serv. Quality

Standards, 702 N.W.2d 246, 259 (Minn. 2005) (hereinafter “Qwest’s Wholesale”).

II.

MPUC asserts that it has statutory authority to order restitution under Minn.

Stat. §§ 237.081, 237.461, 237.462, and 237.763. MPUC, “being a creature of statute,

has only those powers given to it by the legislature.” Peoples Natural Gas Co. v.

Minnesota Pub. Util. Comm’n, 369 N.W.2d 530, 534 (Minn. 1985) (internal quotation

omitted). MPUC may not impose restitutional remedies absent express or implied

statutory authority. A review of the statutory language and applicable Minnesota case

law shows that MPUC has neither. Nothing in the statutory language expressly grants

MPUC the authority to order restitution. Moreover, Minnesota case law supports the

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MPUC also relies upon Minn. Stat. § 237.763, which discusses exemptions for

alternative regulation plans but retains MPUC’s authority under § 237.081 “to issue

appropriate orders.” Minn. Stat. § 237.763. Other than referring to § 237.081, this

statute gives MPUC no additional support for its assertion of authority and we find it

to be inapplicable.

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conclusion that we should not find implied statutory authority to order restitution,

absent a clear grant of authority by the legislature.

MPUC argues that it has express authority to order restitutional relief under

Minn. Stat. § 237.081, which authorizes MPUC to “make an order respecting [an

unreasonable, insufficient, or unjustly discriminatory] . . . act, omission, practice, or

service that is just and reasonable” and to “establish just and reasonable rates and

prices.” Minn. Stat. § 237.081, subd. 4. MPUC also claims the authority to order

restitution is encompassed within Minn. Stat. §§ 237.461 and 237.462.2

 Section

237.461 is a competitive enforcement statute that permits MPUC to seek criminal

prosecution, recover civil penalties, compel performance, or take “other appropriate

action.” Minn. Stat. § 237.461, subd. 1. Section 237.462 is also an enforcement

statute which states that “[t]he imposition of administrative penalties in accordance

with this section is in addition to all other remedies available under statutory or

common law. The payment of a penalty does not preclude the use of other

enforcement provisions . . . .” Minn. Stat. § 237.462, subd. 9. MPUC asserts that this

statutory framework supports a finding that MPUC possesses the express or implied

authority to order restitution in this case. 

While we agree that these statutes give MPUC broad statutory authority to

regulate the telecommunications market in Minnesota, none of them vest MPUC with

the express authority to order remedial relief. We therefore agree with the district

court that because none of these statutes expressly refer to remedial/restitutional relief,

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the relevant inquiry is whether MPUC has the implied authority to order restitution.

We conclude that no such authority exists.

In Peoples Natural Gas, the Minnesota Supreme Court observed that, “[w]hile

express statutory authority need not be given a cramped reading, any enlargement of

express powers by implication must be fairly drawn and fairly evident from the

agency objectives and powers expressly given by the legislature.” 369 N.W.2d at 534.

The Minnesota court then held that MPUC lacked the implied authority under Minn.

Stat. §§ 216B.03 and 216B.08 to order a public utility to refund revenues collected

from its customers in violation of a MPUC order, rejecting MPUC’s argument that the

Commission’s duty to assure rates that are “just and reasonable” vested MPUC with

the authority to order a refund. Id. at 534-36.

In holding that MPUC lacked this authority, the Minnesota Supreme Court

observed that “[i]t is of some significance that the legislature has not seen fit expressly

to grant refund powers to the Commission, although it could have done so and in one

instance has at least recognized its use.” Id. The court was reluctant to interpret the

statute as providing implied authority of this kind because “this is not the kind of

agency authority that can or should be implied in the absence of more explicit

legislative action. It is not enough that the power to order refunds would be useful to

the Commission as an enforcement measure.” Id. at 535. 

The same holds true in this case. MPUC attempts to distinguish Peoples

Natural Gas by asserting that the statutory framework has changed significantly since

this decision. However, MPUC claims authority under statutory language that is quite

similar to that construed by the Minnesota Supreme Court in Peoples Natural Gas.

Given the Minnesota court’s reluctance to infer authority to grant refund powers in

Peoples Natural Gas, we conclude the power to make orders or set rates that are “just

and reasonable” or to take “appropriate” action is not a grant of authority to order

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3

MPUC and the Intervenors object to the district court’s reliance on New Ulm.

MPUC attempts to distinguish New Ulm on the grounds that there was a statutory

violation in the present case, and therefore an equitable remedy under § 237.081 is

appropriate. However, we do not read New Ulm to stand for the proposition that

§ 237.081 authorizes equitable remedies whenever a statutory violation has occurred.

A violation of § 237.16, subd. 5, itself justifies the suspension or revocation of an

offending utility’s license. Minn. Stat. § 237.16, subd. 5. Therefore, the New Ulm

court was merely stating that, absent a violation of § 237.16, subd. 5, preventing a

utility from providing service would not be appropriate. In re New Ulm, 399 N.W.2d

at 122. The district court correctly read New Ulm to hold that § 237.081 does not

grant MPUC the authority to impose equitable remedies. 

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restitution. The Minnesota legislature has had twenty years to respond to Peoples

Natural Gas, yet “the legislature has not seen fit expressly to grant [restitution] powers

to the Commission.” Peoples Natural Gas, 369 N.W.2d at 534.

Moreover, in In re New Ulm Telecom, Inc., 399 N.W.2d 111 (Minn. Ct. App.

1987), a Minnesota Court of Appeals panel applied Peoples Natural Gas to uphold a

Commission decision that it lacked the authority under § 237.081, subd. 4, to estop

a utility from providing service absent a finding of inadequate service under § 237.16,

subd. 5. Id. at 122.3

 The court noted that merely because a statute has “references to

the words ‘fair,’ ‘just,’ and ‘reasonable,’ nothing in the statutory scheme suggests that

the Commission may act as a court of equity.” Id. As discussed above, the same is

true in this case. The statutory language is too vague to support a conclusion that

MPUC has the implied authority to order restitution. 

We are also not convinced by MPUC’s argument that In re Minnegasco, 565

N.W.2d 706 (Minn. 1997) and the unpublished In re the Members of MIPA, No. C0-

97-606, 1997 WL 793132 (Minn. Ct. App. Dec. 30, 1997) support its assertion that

the Commission had implied authority to order restitution in this case. In Minnegasco,

the Minnesota Supreme Court held that MPUC had the implied authority under Minn.

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4

Furthermore, the MIPA decision fails to adequately address how Minnegasco’s

limited holding can be expanded to assert refund authority. 

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Stat. chapter 216B to order a recoupment remedy to compensate a utility for losses

resulting from an error made by MPUC. Minnegasco, 565 N.W.2d at 713. The

Minnesota Court of Appeals relied upon and broadened the scope of Minnegasco in

its unpublished MIPA opinion, where it held that MPUC had the implied authority to

order refunds under Minn. Stat. § 237.081. MIPA, 1997 WL 793132, at *3. 

However, these cases do not support MPUC’s position. Minnegasco does not

provide MPUC with the broad authority to grant equitable relief. Rather, Minnegasco

has a limited holding that MPUC has the implied authority to order a recoupment

remedy to correct its own mistake. Minnegasco, 565 N.W.2d at 711-13. Furthermore,

the court in Minnegasco was interpreting “statutory ambiguity” as to whether a utility

could get retroactive relief after a judicial decision striking down a MPUC order. Id.

at 711-12. In this case, we have no statutory ambiguity because there is a complete

absence of statutory language supporting MPUC’s position. “We have no ambiguous

language to construe, unless perhaps the ambiguity of silence. Consequently, we must

look at the necessity and logic of the situation.” Peoples Natural Gas, 369 N.W.2d at

534. As for MIPA, as an unpublished order, it is not controlling.4

 See Minn. Stat. §

 80A.08, subd. 3; see also Vlahos v. R&I Constr. of Bloomington, Inc., 676 N.W.2d

672, 676 n.3 (Minn. 2004) (discouraging reliance on unpublished opinions as

authority).

Moreover, a recent opinion by the Minnesota Supreme Court clearly supports

the conclusion that MPUC lacks the authority it asserts in this case. In Qwest’s

Wholesale, supra, the court held that MPUC does not have the express or implied

authority under Minnesota state law to order self-executing penalties. Qwest’s

Wholesale, 702 N.W.2d at 262. “Historically, we have been reluctant to find implied

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statutory authority in the context of the MPUC’s remedial power. As a general rule,

we resolve any doubt about the existence of an agency’s authority against the exercise

of such authority.” Id. at 259 (citations omitted). 

In Qwest’s Wholesale, like the present case, MPUC relied in part upon its

express authority to ensure “just and reasonable rates” under Minn. Stat. § 237.081,

subd. 4, and Minnegasco to support its assertion of implied authority. Id. at 260-61.

The court rejected these arguments, relying upon Peoples Natural Gas and

distinguishing Minnegasco. Specifically, the Minnesota court observed:

[W]e must look closely at the statutory scheme created by

the legislature. Doing so, we see no language from which

the authority for the MPUC to impose the self-executing

payments can be fairly drawn. The problem we face is that,

if nothing more than a broad grant of authority were

needed to show that implied authority could be fairly drawn

from the statutory scheme, the implied authority would be

present in all cases in which the agency had a broad grant

of authority. We declined to adopt such a sweeping rule in

Peoples Natural Gas. In that case, noting that we had “no

ambiguous language to construe, unless perhaps the

ambiguity of silence,” we indicated that “we must look at

the necessity and logic of the situation.” As in Peoples

Natural Gas, we think it significant here that the legislature

did not expressly provide for remedial authority with

respect to wholesale service quality standards even though

it could have done so . . . . We also think it significant that

the legislature has expressly provided the MPUC the

authority to issue administrative penalties for violation of

certain MPUC rules and orders.

Id. at 261 (emphasis added) (internal citations omitted).

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5

In addition, the court distinguished Minnegasco on the grounds that it involved

the correction of an unlawful MPUC order. See Qwest’s Wholesale, 702 N.W.2d at

261-62. This supports our conclusion that the holding of Minnegasco is limited to

correcting MPUC error and does not sustain MPUC’s assertion of implied power to

order restitution in this case. 

6

Because we affirm the district court on this issue, we decline to address

Qwest’s other arguments in opposition to the order for restitution.

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The court distinguished Minnegasco on several grounds. Most importantly for

our purposes, the statutory language at issue in Qwest’s Wholesale was not

ambiguous. Rather, it was silent. Therefore, the court found that the statutory

framework in Qwest’s Wholesale was closer to Peoples Natural Gas than Minnegasco.

Id. As discussed above, the same is true here. MPUC asserts authority under

statutory language that is not ambiguous, but rather fails to address any power to order

restitution or remedial measures at all.5

We therefore hold that MPUC lacks the statutory authority to order restitution

and the restitutional remedies in the Penalty Orders are invalid.6

III.

We now turn to Qwest’s objections to the $25.95 million penalty imposed by

MPUC. Qwest makes three arguments challenging the legality of the $25.95 million

penalty: (1) that MPUC violated Minnesota law by failing to follow the requisite

statutory factors; (2) that the penalty violated the fair notice doctrine because there

was no standard for filing ICAs at the time of the relevant agreements; and (3) that the

penalty violates the Excessive Fines Clause. As discussed below, we conclude that

each of these arguments must fail. 

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A. State Statutory Factors

MPUC has the authority to order monetary penalties for violation of the Act

under Minn. Stat. § 237.462. Section 237.462, subd. 2, sets out nine factors that the

MPUC must consider in setting the penalty amount: (1) the willfulness or intent of the

violation; (2) the gravity of the violation, including the harm to customers or

competitors; (3) the history of past violations; (4) the number of violations; (5) the

economic benefit gained by the person committing the violation; (6) any corrective

action taken or planned by the person committing the violation; (7) the annual revenue

and assets of the company committing the violation; (8) the financial ability of the

company to pay the penalty; and (9) other factors that justice may require. See Minn.

Stat. § 237.462, subd. 2.

Qwest argues that MPUC did not calculate the penalty amount in accordance

with these statutory factors. Rather, Qwest’s position is that MPUC crafted the large

penalty to coerce Qwest to agree to the restitution in return for a suspension of the

penalty. Qwest contends that the discussion of the statutory factors in the Penalty

Orders is merely an attempt by MPUC to justify the penalty amount after it had

already been arbitrarily set.

We agree that the transcripts of MPUC hearings do suggest that MPUC

intended the penalty to act in part as an incentive for Qwest to comply with the

restitutional remedies. However, this motivation does not necessarily make the

penalty improper. Our only concern is whether MPUC properly considered the

statutory factors as required by law, and whether MPUC’s findings are arbitrary and

capricious. If the penalty amount is justified by MPUC’s consideration of the

statutory factors, we need not delve into any further analysis regarding motivation.

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MPUC extensively analyzed the § 237.462 statutory factors in the Penalty

Orders. The written orders show a considered analysis of both the facts and the

statutory framework. There was sufficient evidence to support the Commission’s

findings that Qwest willfully violated both federal and state law, thereby impeding fair

competition in Minnesota and profiting in the process. The Commission’s actions

were not arbitrary and capricious. We therefore conclude that the district court

correctly held that the MPUC Penalty Order of $25.95 million dollars does not violate

state law.

B. Fair Notice Doctrine

Qwest also argues that the penalty violates the fair notice doctrine. Under the

fair notice doctrine, “application of a rule may be successfully challenged if it does

not give fair warning that the allegedly violative conduct was prohibited.” United

States v. Chrysler Corp., 158 F.3d 1350, 1355 (D.C. Cir. 1998). The Act does not

expressly define “interconnection agreement,” and Qwest claims there was no

standard for filing ICAs at the time the agreements at issue were created. Therefore,

Qwest argues it did not know which agreements should have been filed under 47

U.S.C. § 252.

This argument fails for several reasons, all pointing to the conclusion that

Qwest had ample notice that it was required to file the agreements at issue with

MPUC for approval. First, Qwest admits that it had fair notice that the agreements

containing favorable rates were subject to the filing requirement, yet it failed to file

these agreements with MPUC. Failure to comply with known standards does nothing

to bolster Qwest’s argument that it lacked notice. 

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As for the filing requirements of which Qwest claims ignorance, there are

several sources that provide notice as to the breadth of “interconnection agreements.”

Section 271(c)(2) has an extensive “competitive checklist” that specifies what ILECs

must include in ICAs in order to receive authority to provide interLATA long distance

service. See 47 U.S.C. § 271(c)(2). As part of this checklist, § 271(c)(2) references

§ 251(c), which requires ILECs to provide CLECs with interconnection and

unbundled access, “on rates, terms, and conditions that are just, reasonable, and

nondiscriminatory, in accordance with . . . section 252 of this title.” See 47 U.S.C.

§ 251(c)(2)-(c)(3). In addition, the Federal Communications Commission has broadly

interpreted the Act’s filing requirement to include any agreements concerning rates,

terms, and conditions an ILEC makes available to other CLECs. See In re

Implementation of the Local Competition Provisions in the Telecommunications Act

of 1996, 11 F.C.C.R. 15,499 ¶ 167 (1996). 

Moreover, Qwest’s own broad definition of “interconnection agreement” in its

Statement of Generally Available Terms suggests that Qwest’s arguments about the

above sources’ failure to explicitly define which “business-to-business arrangements”

constitute terms of interconnection are without merit. Terms regarding dispute

resolution, escalation, on-site support, and quarterly meetings have a commonsense

relevance to interconnection and unbundled access. As noted by the United States

Supreme Court (albeit in the context of the filed-rate doctrine), “[r]ates . . . do not

exist in isolation. They have meaning only when one knows the services to which

they are attached.” American Tel. & Tel. Co. v. Cent. Office Tel., Inc., 524 U.S. 214,

223 (1998). The same is true here. Qwest had ample knowledge that the above terms

were relevant to the value of its services to CLECs and should have been filed with

MPUC. Therefore, the fair notice doctrine does not apply.

C. Excessive Fines Clause

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Finally, Qwest argues that the penalty violates the Excessive Fines Clause 

of the Eighth Amendment. See U.S. Const. amend. VIII, cl. 2. The Eighth

Amendment’s prohibition of excessive fines applies to the states through the Due

Process Clause of the Fourteenth Amendment. Cooper Indus., Inc. v. Leatherman

Tool Group, Inc., 532 U.S. 424, 433-34 (2001). A penalty violates the Excessive

Fines Clause if it is “grossly disproportional” to the gravity of the offense. See United

States v. Bajakajian, 524 U.S. 321, 334 (1998). Two considerations in the “grossly

disproportional” analysis are legislative intent and the gravity of the offense relative

to the fine. Id. at 336-37. 

The Minnesota legislature empowered MPUC with several ways to penalize

ILECs that fail to comply with the reporting requirements. See, e.g., Minn. Stat.

§§ 237.462, subd. 2; 237.16, subd. 5. Relevant to our current discussion, under

§ 237.462 MPUC may impose a penalty of up to $10,000 a day per violation. Minn.

Stat. § 237.462, subd. 2. MPUC imposed a penalty of $10,000 per day for two of the

most egregious violations, and $2,500 per day for the other ten. These amounts are

well within the statutory limits and are consistent with the general statutory scheme.

The penalty amount is also not excessive in light of the gravity of the harm

caused by Qwest’s failure to file. Millions of dollars are at stake in ICAs. Qwest’s

failure to file these agreements violated both federal and state law. This failure

affected the state regulatory body, the competitive environment in Minnesota, and

CLECs that were not parties to these agreements. Therefore, the penalty is not grossly

disproportional to the harm caused by Qwest’s actions. 

Qwest’s attempt to frame its infractions as mere “filing offenses” under

Bajakajian fails. In Bajakajian, the offense was solely a failure to report the

transportation of money outside the United States, with no relation to other illegal

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activities, and the defendant was not a money launderer, drug trafficker, or tax evader,

the type of individual the statute was designed to punish. Bajakajian, 524 U.S. at 337-

38. Furthermore, the defendant’s failure to provide information only affected the

United States, and in a relatively minimal way. Id. at 339. In the present case,

Qwest’s failure to report affected the rights of many CLECs operating in Minnesota,

and MPUC ordered the penalty under a statute expressly designed to address the

present situation. Given the millions at stake in the telecommunications industry and

the legislative decision to punish anti-competitive behavior, the penalty in this case

is not in violation of the Excessive Fines Clause.

IV.

For the foregoing reasons, we affirm the decision of the district court.

______________________________

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