## F I L E D United States Court of Appeals Tenth Circuit 

### DEC 21 2004 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

E.SPIRE COMMUNICATIONS, INC.; ACSI LOCAL SWITCHED SERVICES, INC., doing business as e.spire Communications, Plaintiff - Appellant,

v. No. 03-2161 NEW MEXICO PUBLIC REGULATION COMMISSION; LYNDA LOVEJOY; DAVID W. KING; HERB H. HUGHES; JEROME D. BLOCK; E. SHIRLEY BACA, Commissioners of the New Mexico Public Regulation Commission; QWEST CORPORATION, Defendants - Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW MEXICO (D.C. No. CIV-02-495-LCS/RLP)

David M. Kaufman of David M. Kaufman P.C., Santa Fe , New Mexico, for Plaintiff-Appellant. Margaret Caffey-Moquin, Associate General Counsel ( James C. Martin, General Counsel, with her on the brief), Santa Fe, New Mexi co, for Defendant-Appellee New Mexico Public Regulation Commission and its Com missioners. Mary Rose Hughes of Perkins Coie LLP, Washington, D .C. (Stephen S. Hamilton of Montgomery & Andrews, P.A., Santa Fe, New Mexico , with her on the brief), for Defendant-Appellee Qwest Corporation.-2-

Before HARTZ, McKAY, and O’BRIEN, Circuit Judges.

McKAY , Circuit Judge.

This case arose pursuant to the Telecommunications Act of 1996 (the “Act”), codified at 47 U.S.C. § 151, et seq . The district court’s opinion provides a good history of the telecommunications industry a nd a detailed description of the instant dispute which will not be repeated at l ength here. The relevant facts are as follows. In 1996, Appellant e.spire Communications, Inc.’s p redecessor, American Communications Services, Inc., (“ACSI”), requested interconnection, service, and unbundled network elements from U.S. West, Appellee Qwest’s predecessor. When the parties were unable to negotiate all of th e terms of the Interconnection Agreement (“IA”), ACSI petitioned the New Mexico St ate Corporation Commission (“NMSCC”), Appellee New Mexico Public Re gulation Commission’s (“NMPRC”) predecessor, to arbitrate the unresolved issues. On December 6, 1996, NMSCC issued its findings of f act and conclusions of law on the arbitration. At paragraph 80, NMSCC stated that “[t]he prices established in this arbitration are interim prices and will be in effect pending completion of the Commission’s costing docket.” Ap lt. App., Vol. III, at C43.1 The Cost Docket Order noted that in a number of arb itrations, including

the U.S. West/ACSI arbitration, the Commission had “established interim prices for interconnection, unbundled network elements, tr ansport and termination.” Aplt. App., Vol. III, at C93. It then stated that it was establishing “permanent prices for interconnection, unbundled network eleme nts, and transport and termination.” Id. at C93-94. -3- On March 3, 1997, NMSCC issued an order resolving amotion for clarification filed by the parties and ordered the parties to pre pare and file an IA consistent with the Arbitration Order. ACSI and U.S. West fil ed the IA on March 10, 1997, which NMSCC approved on April 9, 1997. The IA set the call termination rate at .0029585 per Minute of Use (“MOU”) for large metrop olitan areas but did not specifically state whether the rate was permanent o r interim. On March 17, 1998, ACSI filed a complaint with NMPR C, f/k/a NMSCC, alleging that U.S. West had failed to pay reciproca l compensation to ACSI for terminated calls to Internet Service Providers (“IS Ps”) pursuant to the IA at the IA approved rate of .0029585 per MOU. U.S. West as serted that it was not obligated to pay reciprocal compensation and, in th e alternative, that, if it was so obligated, any payment should be at the rate establ ished by NMPRC in its Cost Docket Order 1 (.0011083 per MOU) because the IA rates were inter im. NMPRC agreed with ACSI that reciprocal compensation was r equired but stated that the rates in the IA were interim. Since the Cost Docke t rate was established in August 1998, NMPRC decided that the lower rate esta blished in the Cost Docket-4-

Order applied to minutes terminated during and afte r September 1998. The Final Order was entered on March 5, 2002. e.spire, f/k/a ACSI, filed the current complaint in the district court on May 2, 2002, seeking review of NMPRC’s Final Order pursuant to 47 U.S.C. § 252(e)(6) and 28 U.S.C. § 1331. e.spire alleged that NMPRC violated the Act by failing to enforce the unambiguous language of t he IA which allegedly set permanent rates for call termination. e.spire furt her claimed that its equal protection and due process rights were violated and that its property had been taken without payment of just compensation. e.spir e also asserted a claim for damages against NMPRC pursuant to 42 U.S.C. § 1983 for deprivation of “rights, privileges and immunities secured to it under the D ue Process Clause and the Equal Protection Clause of the United States Consti tution.” Aplt. App., Vol. I, at
A66. The district court agreed with NMPRC and Qwest, f/k/a U.S. West, and affirmed NMPRC’s Final Order in the underlying admi nistrative complaint proceeding. The district court also granted partia l summary judgment dismissing e.spire’s causes of action for deprivation of due p rocess, equal protection, unlawful taking, and damages pursuant to 42 U.S.C. § 1983. e.spire appeals to this court. The issues on appeal are 1) whether the district co urt correctly decided that-5-

NMPRC was not arbitrary and capricious in exercisin g its continuing jurisdiction to interpret and enforce the IA between e.spire and Qwest; 2) whether the district court was correct in granting summary judgment to Appellees on e.spire’s constitutional and 42 U.S.C. § 1983 claims; and 3) whether the district court was correct in denying e.spire’s request for leave to a mend its amended complaint to include a claim for impairment of contract. We review de novo the district court’s grant of summary judgment app lying the same legal standards as the district court. Ah rens v. Ford Motor Co. , 340 F.3d 1142, 1145 (10th Cir. 2003); Steele v. Thiokol Corp

. , 241 F.3d 1248, 1252 (10th Cir. 2001). We review de novo whether the state commission properly interpreted and applied the Act and its regulations. Southwest ern Bell Tel. Co. v. Apple , 309 F.3d 713, 717 (10th Cir. 2002). Once we determine that the state commission properly interpreted the Act and its regulations, w e apply an arbitrary and capricious standard to review the commission’s appl ication of that law to the facts of the case. Id. The parties agree that they are bound by a partiall y negotiated, partially arbitrated IA. The crux of the dispute is whether a specific term–the call termination rate for calls to ISPs–was arbitrated o r negotiated. e.spire contends that the rate was negotiated while Appellees argue that the rate was arbitrated. e.spire further argues that NMPRC incorrectly interpreted the IA and decided that-6-

the (allegedly negotiated) call termination rate se t forth therein was interim instead of permanent. Because this query involves determinations of fact and because there is no meritorious argument that NMPRC incorrectly interpreted and applied the Act itself, we apply an arbitrary and c apricious standard of review.
See id. Therefore, the specific question on appeal is whe ther NMPRC was arbitrary and capricious in its factual findings an d resultant interpretation of the IA. Based on this deferential standard of review a nd the record on appeal, we hold that NMPRC was not arbitrary and capricious in its determination that the rate set forth in the IA was interim. Section 252 of the Act expressly gives state commis sions the authority to approve or reject interconnection agreements, but i t does not specifically address the interpretation and enforcement of interconnecti on agreements after their initial approval. See 47 U.S.C. §§ 252(a)(2), (b)(1), (e)(1). However, “[t]his grant to the state commissions to approve or rejectand mediate or arbitrate interconnection agreements necessarily implies the authority to interpret and enforce specific provisions contained in those agre ements.” Southwestern Bell Tel. Co. v. Brooks Fiber Communications of Okla., I nc. , 235 F.3d 493, 497 (10th Cir. 2000); see also BellSouth Telecomm., Inc. v. MCIMetro Access Trans mission Servs., Inc. , 317 F.3d 1270, 1274 (11th Cir. 2003). The Act gi ves state commissions the power to arbitrate contested terms. Accordingly, NMPRC had-7-

the inherent authority to interpret and enforce the IA that it had previously approved. We agree with the district court that “[t]he Interc onnection Agreement did not arise in a vacuum; it was but one step in a complex and on-going regulatory process.” Aplt. App., Vol I., at A37 (E.spire v. B aca , 269 F. Supp. 2d. 1310, 1329 (D.N.M. 2003)). An interconnection agreement is not an ordinary private contract. It is a document resulting from arbitrat ion authorized and required by federal law which cannot be viewed in isolation. A n interconnection agreement is not to be construed as a traditional contract but a s an instrument arising within the context of ongoing federal and state regulation. V erizon Maryland, Inc. v. RCN Telecom Servs., Inc. , 232 F. Supp. 2d 539, 552 n.5 (D. Md. 2002) (“[A]n interconnection agreement is part and parcel of the federal regulatory scheme and bears no resemblance to an ordinary, run-of-the-mil l private contract.”). It is counterintuitive to require a state commission to i nterpret such a document without the benefit of the circumstances giving ris e to the agreement. e.spire asserts that NMPRC did not merely interpretthe IA; instead, it modified the IA’s terms. e.spire’s argument is bas ically that NMPRC ignored the plain unambiguous language of the IA and improperlymodified the IA to reflect its interpretation of extrinsic evidence. This att empt by e.spire to characterize NMPRC’s ruling as a modification of the IA instead of an interpretation is-8-

mistaken. NMPRC did not attempt to modify the IA. Instead, NMPRC construed the IA as consistent with its own Arbitration Orderwhich specified the terms which were arbitrated. NMPRC gave effect to all of the IA’s terms within the intent of all of NMPRC’s prior orders. The prior o rders are part and parcel of the IA, and the IA cannot be severed from the circumsta nces that gave rise to it. The IA, the Arbitration Order, and the other docume nts that were before NMPRC involving the ISP call termination rate are n ot a model of clarity. NMPRC, acting in its unique area of expertise, sift ed through these documents and other evidence and made a determination that th e IA call termination rate for ISPs was 1) arbitrated, not negotiated, and 2) inte nded to be interim in effect until the Cost Docket rate was established. At the heartof these determinations were a string of factual findings in support of this concl usion. NMPRC first found that e.spire had brought the rate -setting issue before the NMPRC for arbitration which NMPRC resolved by arbitration. Aplt. App., Vol. III, at 158-59, 187; Aplt. App., Vol. I., at A36 (E .spire v. Baca , 269 F. Supp. 2d. 1310, 1328 (D.N.M. 2003) (“A de novo review of the record and actions of the NMPRC establishes that e.spire brought the rate-setting issue before the NMPRC for arbitration and that the NMPRC resolved this is sue by arbitration.”)). In support of this factual finding, NMPRC noted that e .spire’s Petition for Arbitration showed that it asked for the arbitratio n of “issues concerning-9-

compensation for the transport and termination of t raffic exchanged between the parties.” Aplt. App., Vol. IV, at D84-85, 87. The Hearing Examiner noted that e.spire’s post- (arbitration) hearing brief “made i t clear that the Commission needed to conduct an investigation into cost/price issues, and that there was no prior negotiated agreement on a specific terminatio n rate.” Aplt. App., Vol. III, at 187-88. The above record support belies e.spire ’s argument that the rates were negotiated and set before arbitration commenced. NMPRC’s second finding was that the IA call termination rate for ISPs was intended to be interim and only in effect until the Cost Docket rate was established. In support of this finding, NMPRC not ed that the Arbitration Order directed the parties to set interim rates and told them how to calculate the rates. Aplt. App., Vol. III, at C50; Vol. I, at A308-11. It noted that, at paragraph 80, NMSCC had stated that “[t]he prices established in this arbitration are interim prices and will be in effect pending completion of the Commission’s costing docket.” Aplt. App., Vol. III, at C43. The Arbitr ation Order reserved certain issues, including the establishment of permanent pr ices, for resolution in the Cost Docket proceeding. See id. The Cost Docket Order further noted that in a number of arbitrations, including the U.S. West/ACS I arbitration, the Commission had “established interim prices for interconnection , unbundled network elements, transport and termination.” Aplt. App., Vol. III, at C93-94. It then stated that it-10-

was establishing “permanent prices for interconnect ion, unbundled network elements, and transport and termination.” Id. at C94. Relying on the above record support, NMPRC was not clearly erroneous in construing the IA to include the costing docket studies referred to in the Arbit ration Order. e.spire tries to hang its argument on the absence o f a footnote in the IA. Specifically, there is a footnote in the IA which s tates that the rates for unbundled loops are interim, but no similar footnote appears on the call termination rate page. However, NMPRC determined that its placementof Finding 80 at the end of Section B (“[t]he prices established in this arb itration are interim prices and will be in effect pending completion of the Commiss ion’s costing docket”) was not intended to limit its effect to unbundled loop rates. Aplt. App., Vol. III, at C43, C159. An additional footnote would have made the IA more clear. But, the absence of a footnote does not automatically renderit unclear. We are reluctant to hold that the absence of a footnote renders all of the other record evidence meaningless. The absence of a footnote cannot control prior rele vant language in the agreement. The Arbitration Order expressly setaside pricing elements in the IA as being interim and subject to the costing dock et. Since by its express terms the Arbitration Order applies to all prices establi shed in the arbitration, call termination rates must be similarly treated. NMPRC was authorized to establish prices for call t ermination and to make-11-

those rates interim. The IA’s silence on whether t he specific rates were interim or permanent should not be construed contrary to the i ntent of NMPRC. Although the IA does not specify within its four corners that the call termination rates are interim, it also does not expressly state that they are permanent. It would be inconsistent with the IA and the circumstances lead ing up to the agreement to hold that NMPRC could not construe the IA in a mann er consistent with its own intent because of the lack of a clarifying footnote in the IA itself. We hold that the rates for call termination were es tablished in the arbitration and that NMPRC’s determination that tho se rates were interim was not arbitrary and capricious. We are in no way implyin g that parties cannot negotiate agreements. We simply hold that the call terminati on rate for ISPs in this particular case was arbitrated, not negotiated. The district court did not err in its grant of summ ary judgment to Appellees on e.spire’s constitutional and 42 U.S.C. § 1983 cl aims. e.spire first argues that “[t]he imposition of the costing docket rate . . . was arbitrary and capricious discrimination without rational justification in vi olation of e.spire’s rights to equal protection and substantive due process under the United States and New Mexico Constitutions.” Aplt. App., Vol. I, at A17. The Equal Protection Clause provides that “[n]o state shall . . . deny to any p erson within its jurisdiction the equal protection of the laws. U.S. Const. amend. X IV, § 1. The New Mexico-12-

Constitution also provides that no “person [shall] be denied equal protection of the laws.” N.M. Const. art. II, § 18. Equal prote ction of the laws “is essentially a direction that all persons similarly situated shoul d be treated alike.” City of Cleburne v. Cleburne Living Ctr. , 473 U.S. 432, 439 (1985). Since e.spire does not assert that it is a member of a suspect class o r was denied a fundamental right, the state regulation need only be rationally relate d to a legitimate government purpose. Save Palisade Fruit Lands v. Todd , 279 F.3d 1204, 1213 (10th Cir. 2002). Therefore, NMPRC’s imposition of the costin g docket rate “need only bear a rational relation to some legitimate end to satisfy the Equal Protection Clause.” Id. at 1213 (quoting Kinnel v. Graves , 265 F.3d 1125, 1128 (10th Cir. 2001) (internal quotations omitted)). The imposition of the costing docket rate was ratio nally related to a legitimate end. The Act requires that state commis sions set just and reasonable rates that are non-discriminatory and cost-based. See 47 U.S.C. § 252(d). e.spire has failed to demonstrate that the imposition of th e costing docket rate was discriminatory. The rates set were applied across the board to all of the interconnection agreements which had been arbitrate d prior to the Cost Docket Order. Aplt. App., Vol. III, at C93-94, ¶¶ 13-14. Additionally, the rates were based on forward-looking cost studies in which e.sp ire participated. Id. at C23 ¶
21 ; Vol. I, at A28. We agree with the district court t hat “[t]he imposition of the-13-

rate set by the Costing Docket was rationally relat ed to the legitimate state interests in setting just and reasonable rates and ensuring greater competition in the local telephone services market.” Aplt. App., Vol. I, at A28. The district court also did not err in its determin ation that e.spire’s substantive due process rights were not violated. “The Fourteenth Amendment proscribes a state from, among other things, depriv ing a party of ‘property without due process of law.’” Hyde Park Co. v. San ta Fe City Council , 226 F.3d 1207, 1210 (10th Cir. 2000) (quoting U.S. Const. am end. XIV, § 1). The New Mexico Constitution similarly provides that “[n]o p erson shall be deprived of life, liberty, or property without due process of law.” N.M. Const. art. II, § 18. “Property,” as it relates to the Due Process Clause , is a “legitimate claim of entitlement” to some benefit. Board of Regents of State Colleges v. Roth , 408 U.S. 564, 577 (1972). A unilateral expectation that the rate stated in the IA was permanent does not constitute a protectable property right. See Hyde Park , 226 F.3d at1210 (“An abstract need for, or unilateral e xpectation of, a benefit does not constitute ‘property.’”). e.spire did not establish a protectable property in terest and therefore cannot survive rational basis review. See id. Additionally, e.spire’s assertion that its due proc ess rights were violated when NMPRC refused to enforce the terms of the IA i s not supported by the facts. As discussed above, NMPRC did enforce the terms of the IA. It determined that2 “Private property shall not be taken or damaged forpublic use without just

compensation.” N.M. Const. art. II, § 20. -14- the rate stated in the IA was interim, only in effe ct until the permanent cost docketing rate was established. The replacement of the interim rate with the permanent rate did not change the terms of the IA. e.spire’s assertion of an unconstitutional taking o f property without just compensation in violation of the Fifth and Fourteen th Amendments and New Mexico Constitution art. II, §§ 18 and 20 2 must similarly fail. In order to prevail on a takings claim, e.spire must establish 1) that it had a protectable property interest and 2) that the governmental action is a t aking without just compensation. Puerto Rico Tel. Co. v. Telecomm. Regulatory Bd. of Puerto Rico , 189 F.3d 1, 16 (1st Cir. 1999). e.spire cannot meet the first requirement thus rend ering the second element moot. A unilateral expectation thatthe rate stated in the IA was permanent does not constitute a protectable property right. e.spire voluntarily submitted the issue of the call termination rate to be determined by NMPRC in binding arbitration. See Connolly v. Pension Benefit Guarantee Corp. , 475 U.S. 211, 227 (1986). Additionally, as discussed above, the ISP call termination rate that e.spire relied on was interim, not permanent. e.spire could not have had a protectable property interest in the interim call t ermination rate remaining permanent. “e.spire does not have a property rightin [the] application of the-15-

interim rate for an indefinite period, [and therefo re] it cannot assert a viable takings claim under the Fifth Amendment.” Aplt. Ap p., Vol. I, at A30-31 (E.spire
v. Baca , 269 F. Supp. 2d. 1310, 1325 (D.N.M. 2003)). We need not address whether e.spire is entitled to bring a 42 U.S.C. § 1983 claim for damages based on deprivations under the A ct because, as discussed above, none of e.spire’s Constitutional claims are viable in this case. Since e.spire has failed to establish the violation of a federally protected right, the § 1983 cause of action must fail. See Crown Point I, LLC v. Intermountain Rural Elec. Ass’n , 319 F.3d 1211, 1216 (10th Cir. 2003) (“In order t o prevail on its 42 U.S.C. § 1983 claim, plaintiff must demonstrate that it suffered a deprivation of a federally protected right.”). The district court did not abuse its discretion in denying e.spire’s request for leave to amend its amended complaint to include a claim for impairment of contract. “A court properly may deny a motion for leave to amend as futile when the proposed amended complaint would be subject to dismissal for any reason, including that the amendment would not survive a mo tion for summary judgment.” Bauchman for Bauchman v. West High Sch. , 132 F.3d 542, 562 (10th Cir. 1997); see also Wilson v. American Trans Air, Inc. , 874 F.2d 386, 392 (7th Cir. 1989). We agree with the district court that “NMPRC’s modi fication of the call-16-

termination rate was consistent with the Interconne ction Agreement and authorized by law.” Aplt. App., Vol I., at A38 (E. spire v. Baca , 269 F. Supp. 2d. 1310, 1329 (D.N.M. 2003). Therefore, an impairmentof contract claim would not survive a motion to dismiss or for summary judgment

. AFFIRMED

.