## United States Court of Appeals
FOR THE EIGHTH CIRCUIT

________________ No. 05-3698

________________ Connect Communications Corporation, Appellant,

v. Southwestern Bell Telephone, L.P., formerly known as Southwestern Bell Telephone Company; Arkansas Public Service Commission; Sandra L. Hochstetter, in her official capacity as Chairman of the Arkansas Public Service Commission; Daryl E. Bassett, in his official capacity as Commissioner of the Arkansas Public Service Commission; Randy Bynum, in his official capacity as Commissioner of the Arkansas Public Service Commission, Appellees. *
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* Appeal from the United States District Court for the Eastern District of Arkansas.

________________ Submitted: May 17, 2006 Filed: October 27, 2006

________________ Before BYE, HANSEN, and BENTON, Circuit Judges.

________________1 The Honorable J. Leon Holmes, Chief J udge, United States District Court for the Eastern District of Arkansas.

-2- HANSEN, Circuit Judge.

This case involves telephone calls pl aced from Southwestern Bell Telephone Company (SWBT) telephone customers to the individual customer's internet service provider (ISP), where the ISP is a tele phone customer of a different telephone company, Connect Communications Corporation (Connect). All the involved telephone customers are located within the same local exchange area. After the Arkansas Public Service Commission (APSC) approved an Interconnection Agreement between Connect and SWBT, the parties disputed whether these ISPbound calls were local calls, which would s ubject them to reciprocal compensation under the Interconnection Agreement, or whether the calls were non-local. After years of litigation and several decisions at various administrative and judicial levels, the APSC determined that the ISP-bound calls were not local calls under the Interconnection Agreement. The district court 1 found that determination not to be arbitrary or capricious and upheld the APSC 's decision. Connect appeals, and we affirm.

I. Background

This litigation began in 1998, shortly af ter SWBT and Connect had entered into an Interconnection Agreement on June 23, 1997. SWBT, as an incumbent local exchange carrier (ILEC), had a duty to ne gotiate and enter into an interconnection agreement with Connect, a competitive lo cal exchange carrier (CLEC), under the Telecommunications Act of 1996 (the Act). See 47 U.S.C. § 251(c)(1), (2). Rather than negotiate an interconnection agreemen t of its own with SWBT, Connect chose to adopt the interconnection agreement pr eviously negotiated by SWBT with Brooks Fiber Communications of Arkansas, Inc. (Brooks Fiber) in August 1996, a procedure-3- allowed under the Act. See 47 U.S.C. § 252(I); 47 C.F.R. § 51.809. The APSC approved the SWBT-Connect Interconnecti on Agreement on October 24, 1997, and neither party sought review of the Interconn ection Agreement in federal district court pursuant to 47 U.S.C. § 252(e)(6).

The Interconnection Agreement divides the telecommunications traffic between the two telephone companies into four categories: local traffic, through-put traffic, intraLATA interexchange traffic, and interLATA interexchange tr affic. (Appellant's Add. at 48.) The Interconnection Agreemen t classifies "[c]alls originated by one Party's end users and terminated to the other Party's end users . . . as local traffic . . . if the call originates and terminates in the same SWBT exchange area" (id. ) and provides for reciprocal compensation for the termination of local traffic (id. at 49). Although the Interconnection Agreement does not define "terminate," it does define "terminating traffic" as "a voice-grade sw itched telecommunications service which is delivered to an end-user(s) as a result of another end user's attempt to establish communications between the parties." (Id. at 57.)

At the time that SWBT and Connect we re entering into the Interconnection Agreement, the FCC had not determined whether traffic transmitted to ISPs was subject to reciprocal compen sation as local traffic under the Act or not. In an FCC Order issued on May 16, 1997, the FCC not ed that since an earlier ruling in 1983, ISPs had not been required to pay inters tate access charges and were allowed to purchase services from ILECs under the same in trastate tariffs available to end users. See In the Matter of Access Charge Reform Price Cap Performance Review for Local Exchange Carriers Transport Rate Struct ure and Pricing End User Common Line Charges , 12 F.C.C.R. 15982, 16132-33 (FCC May 16, 1997) (hereinafter 1997 FCC Order). The FCC concluded in the 1997 FCC Order "that the existing pricing structure for ISPs should remain in place." Id. at 16133. Thus, for tariff purposes, calls placed to ISPs were treatedas local calls. At that tim e, there was debate in the industry about whether ISPs acted more like end users, such that a call to an ISP is-4- terminated at the ISP's server, or morelike interexchange carriers, providing a connection to the Internet. See id. at 16275 (discussing AOL's and PacTel's opposing arguments).

In 1999, the FCC determined that ISP-bound traffic was "largely interstate," but that this conclusion "does not in itself de termine whether reciprocal compensation is due in any particular instance." See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 , 14 F.C.C.R. 3689, 3690 (FCC Feb. 26, 1999) (ISP Declaratory Ruling). The FCC recognized that prior to this time, it had consistently treated e nhanced service provider (ESP) traffic as local for purposes of interstate access charges de spite its interstate character, and that parties may have agreed, or state commissi ons may have mandated, that reciprocal compensation applied to ISP-bound traffic. Thus, the FCC "conclude[d] that parties should be bound by their existing interconnecti on agreements, as interpreted by state commissions." Id. The FCC noted that in interpreting prior interconnection agreements, state commissions should consider all of the relevant facts, including the parties' negotiations in light of the FCC' s "longstanding policy of treating this traffic as local, and the conduct of the parties pursuant to those agreements." Id. at 3704.

The D.C. Circuit vacated portions of the FCC's ISP Declaratory Ruling, concluding that the FCC did not adequately explain its reliance on an "end to end" jurisdictional analysis to support its conclusion that ISP-bound traffic was not local and thus not subject to reciprocal compensation. See Bell Atlantic Tel. Cos. v. FCC , 206 F.3d 1, 6-7 (D.C. Cir. 2000). On rema nd from the D.C. Circu it, the FCC again concluded that ISP-bound calls were not subject to reciprocal compensation, though under a different rationale. This time, the FCC concluded that Congress excluded traffic listed in 47 U.S.C. § 251(g) from telecommunications traffic subject to reciprocal compensation. One of the items included in § 251(g) is "information access," which the FCC determinedincluded ISP-bound traffic. See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act-5- of 1996 , 16 F.C.C.R. 9151, 9153 (FCC Apr. 27, 2001) (Remand Order). Again, the FCC reiterated that its orde r applied prospectively only to renegotiated or expiring interconnection agreements; "[i]t does not alte r existing contractual obligations." Id. at 9189.

Once again, on appeal the D.C. Circuit re manded the case back to the FCC. See WorldCom, Inc. v. FCC , 288 F.3d 429, 430 (D.C. Cir. 2002). The court found the FCC's reliance on § 251(g) misplaced, as that section was merely a transitional device to preserve the status quo until the FCC coul d adopt rules to implement the Act. Id. The court did not vacate the FCC order, how ever, noting that there could be other legal bases to support the F CC's rule; it "simply remand[ed] the case to the [FCC] for further proceedings." Id. at 434.

Turning back to the case at hand, SW BT informed Connect in March 1998 that it would not compensate Connect for susp ected ISP-bound traffic as a local call under the Interconnection Agreement's reciprocal compensation arrangement. On June 5, 1998, Connect filed a complaint with the APSC seeking a declaration that the ISPbound traffic was subject to the reciprocal compensation provisions for local traffic under the Interconnection Agreement. Th e APSC issued its order on December 31, 1998, and, relying heavily on FCC decisions a nd the district court’s analysis in Sw. Bell Tel. Co. v. Pub. Util. Comm’n of Tex. , No. MO 98 CA043 (W.D. Tex. June 16, 1998), aff'd , 208 F.3d 475 (5th Cir. 2000), determined that a call from a SWBT customer to an ISP served by Connect withinthe same local calling area is a local call subject to reciprocal compensation. (J .A. at 90, 95-96, APSC Order #6.) The APSC also noted that twenty-three state commissions had found similar ISP-bound traffic to be local. (Id. at 90.) SWBT challenged that decision by filing suit in federal district court, naming Connect and the A PSC as defendants and seeking injunctive relief to prohibit enforcement of the APSC Order #6. The district court determined that it lacked jurisdiction to review a state commission’s order interpreting and enforcing an interconnection agreement b ecause the Telecommunications Act grants2 This decision was issued by the district court prior to the D.C. Circuit's WorldCom opinion holding that § 251 was a transitional provision and did not control the issue.

-6- federal district courts jurisdiction onl y to determine whether interconnection agreements meet the requirements of fe deral law. Sw. Bell Tel. Co. v. Connect Commc'ns Corp. , 72 F. Supp. 2d 1043, (E.D. Ark. 1999) (SWBT I). On appeal, a panel of this court reversed the district c ourt, holding that the claim raised substantial federal law questions. Sw. Bell Te l. Co. v. Connect Commc'ns Corp. , 225 F.3d 942, 948 (8th Cir. 2000) (SWBT II). The panel did not reach the merits of the federal law claim, but remanded to the district court to address these issues. Id. at 949.

On remand, the district court discusse d the FCC orders that had been issued since the case at bar was orig inally before the district court, namely the FCC's 1999 ISP Declaratory Order and the FCC's 2001 Rem and Order. These were contrary to the FCC’s earlier position, which treated ISP traffic as local for tariff purposes, and which was the most current FCC pronouncement at the time that the APSC first issued its determination that the ISP traffic at issue here was subject to reciprocal compensation. The district court noted that the FCC has now taken the position that ISP traffic is "information access" within the meaning of 47 U.S.C. § 251(g), and that Congress intended to exclude traffic listed in § 251(g) from the reciprocal compensation requirements of § 251(b)(5). 2The district court noted, however, that the FCC Remand Order allowed the paymen t of reciprocal compensation for ISPbound traffic to the extent provided for in an existing interconnection agreement. Finding that the APSC based its prior ruli ng on federal regulati ons and FCC rulings, which turned out to be incorrect according to the latest FCC rulings, but that the APSC failed to interpret the Interconnection Agreement pursu ant to state contract law, the district court remanded the case to the A PSC "for reconsideration in light of the FCC Remand Order and the statements made herein." (J.A. at 113.).3 Following the APSC's first order, SWBT began paying reciprocal compensation to Connect for ISP-bound traffic. SWBT filed a separate claim alleging that Connect was creating fictitious local call activity by using a Lucent Max device to provide broadband internet service to its customers. The APSC issued Order #11, in which it ordered Connect to make an accounting of the reciprocal compensation that Connect received from SWBT based on calls made using the Lucent Max device, reasoning that whether the calls created fraudulent fictitious local call activity, as alleged by SWBT, or were legitimate ISP-bound traffic, they would not be subject to reciprocal compensation based on Order #10. In Order #12, the APSC denied Connect's motion to reconsider Order #11, noting that it would need to revisit the issue only if it was ultimately determin ed that the ISP-bound traffic was indeed subject to reciprocal compensation. Th e district court construed its judgment as disposing of the entire case. Because we affirm the district court's decision upholding the APSC's conclusion that the ISP-bound tr affic is not subject to reciprocal compensation, we need not address Orders #11 or #12.

-7- On remand from the district court, th e APSC issued Order #10, in which it considered the existing recordand determined that the Interconnection Agreement was ambiguous as to whether the parties intended for ISP-bound calls to be subject to reciprocal compensation. Applying Arkans as contract law and looking for the intent of the parties, the APSC de termined that SWBT clearly did not intend to subject ISPbound traffic to reciprocal compensation wh en it entered into the Interconnection Agreement; that the record l acked any evidence of Connect 's intent one way or the other regarding this specific traffic when it entered into the Interconnection Agreement; and that ISP-bound traffic was gene rally accepted in the industry as being "jurisdictionally interstate." The APSC then considered the FCC Remand Order, as it was directed to do by the district court, which, according to the APSC, "clearly designates ISP-bound traffic as in terstate." (Appellant's A dd. at 29.) Based on all of these considerations, the APSC determined that the Interconnection Agreement did not require payment of reciprocal compensation for ISP-bound traffic. 3

This time, Connect challenged the agen cy decision by bringing a complaint in federal district court, seeking a declarat ory ruling that the APSC Order #10 misapplied-8- federal law, violated the district court mandate, violated Arkansas law, and was arbitrary and capricious. Ruling from the bench, the district court found a latent ambiguity in the Interconnection Agreemen t and determined that the APSC did not act arbitrarily or capriciously in finding an ambiguity in the agr eement. The district court then determined, based on the original record before the APSC, that the APSC's determination that the parties did not in tend to subject ISP-bound traffic to reciprocal compensation was likewise not arbitrary or capricious. The court entered judgment in favor of SWBT on September 2, 2005.

Connect appeals, arguing that the Inte rconnection Agreement is not ambiguous, and even if it is, the ambiguity should be resolved in its favor.

II. Standard of Review

The district court had jurisdiction over Connect's complaint seeking declaratory relief against the APSC's decision as a mi sapplication of federal law pursuant to 28 U.S.C. § 1331. See Verizon Md. Inc. v. Pub. Serv. Comm'n of Md. , 535 U.S. 635, 643-44 (2002). It also had supplemental jurisd iction to review the agency's state law determinations. 28 U.S.C. § 1367(a); Qwest Corp. v. Minn. Pub. Utils. Comm'n , 427 F.3d 1061, 1064 (8th Cir. 2005) (Qwest v. MPUC ) (exercising supplemental jurisdiction over a claim that the MPUC act ed beyond its statutory authority); Sw. Bell Tel. Co. v. Brooks Fiber Commc'ns of Okla., Inc. , 235 F.3d 493, 498 (10th Cir. 2000) (exercising supplemental jurisdiction over st ate law claims in action seeking review of Oklahoma Corporation Commission's inte rpretation of interconnection agreement) (hereinafter Brooks Fiber ). We review the district court's grant of summary judgment de novo, applying the same standard used by the district court. Bockelman v. MCI Worldcom, Inc. , 403 F.3d 528, 531 (8th Cir. 2005).

We review the APSC's decision for comp liance with federal law de novo. See Qwest v. MPUC , 427 F.3d at 1064. Although federal law plays a large role in this4 Even this conclusion is far from clear. The district court found the ambiguity to be latent, meaning that the ambiguity "arises from undisclosed facts or uncertainties of the written instrument." Jet Asphalt & Ro ck Co., Inc. v. Angelo Iafrate Constr., LLC , 431 F.3d 613, 617 (8th Cir. 2005) (applyi ng Arkansas law) (internal marks omitted). With respect, we conclude that th e Supreme Court of Arkansas has not been entirely consistent in its characterization of latent ambiguities as a legal or factual determination. CompareCountryside Cas. Co. v. Grant , 601 S.W.2d 875, 877 (Ark. 1980) ("[W]e view the trial court's finding of latent ambiguity . . . as primarily [a] question[] of fact, [and] we shall not re verse the trial court unless its judgment is clearly erroneous."), withC. & A. Constr. Co., Inc. v. Benning Constr. Co. , 509 S.W.2d 302, 303 (Ark. 1974) ("[A ] latent ambiguity arises from undisclosed facts or uncertainties of the written instrument. Ho wever, the initial de termination of the existence of an ambiguity rests with the court." (internal citations omitted)); seealso Nichols v. Farmers Ins. Co. , 128 S.W.3d 1, 4 (Ark. Ct. App. 2003) ("[W]here the . . . ambiguity may be resolved by reviewing the language of the contract itself, it is the trial court's duty to make such a determin ation as a matter of law. . . . [W]here the parties go beyond the contract and submit dis puted extrinsic evidence . . ., this is a question of fact for the jury." (internal c itations omitted)). The APSC did not clarify whether it found the ambiguity to be patent or latent, though it appears from its reasoning that it found it to be a latent ambiguity.

-9- dispute, the ultimate issue in this cas e--interpretation of the Interconnection Agreement--is a state law issue. See Sw. Bell Tel. Co. v. P ub. Util. Comm'n of Tex. , 208 F.3d 475, 485 (5th Cir. 2000) ("[T]he agreements themselves and state law principles govern the questions of interpre tation of the contracts and enforcement of their provisions."). Although the parties ag ree that we review the APSC's factual findings related to any state law issues unde r an arbitrary and capricious standard, see id. , they dispute the level of deference owed to the APSC's application of state law. The APSC determined that the Interc onnection Agreement was ambiguous, which generally is a legal conclu sion under Arkansas law. See Hisaw v. State Farm Mut. Auto. Ins. Co. , 122 S.W.3d 1, 8 (Ark. 2003). 4 Connect urges a de novo review of that determination, while SWBT argues for an arbitrary and capricious review.-10- In our prior panel opinion in this case, we noted that "[w]ith regard to purely state law issues, the stat e commissions may have the final say." SWBT II , 225 F.3d at 948 (citing P.R. Tel. Co. v. Telecomms. Regulatory Bd. , 189 F.3d 1, 13-15 (1st Cir. 1999) (holding that § 252(e)(6) does not conferjurisdiction on federal courts to review state agency action for compliance with state law)). Sin ce that time, several circuits have addressed the issue and have determined that federa l courts can review state commission determinations of state law, giving deference to the state agency's expertise in making state law determinations. See Global NAPs, Inc. v. Verizon New Eng., Inc. , 454 F.3d 91, 96 (2d Cir. 2006) ("[W]e review the Board's decisions as congruent with state law under the arbitrar y-and-capricious standard."); Sw. Bell Tel. Co. , 208 F.3d at 482 (reviewing the state agency's "state law determinations . . . under the more deferential arbitrary-and-capricious standard"); Mich. Bell Tel. Co. v. MFS Intelenet of Mich., Inc. , 339 F.3d 428, 433 (6th Cir. 2003) (noting "the inherent logic of . . . allowing state agencies wider defere nce in state law determinations"); US West Commc'ns v. MFS Intelenet, Inc. , 193 F.3d 1112, 1117 (9th Cir. 1999) ("[We] consider[] all other issues under an arbitrary and capricious standard"), cert. denied , 530 U.S. 1284 (2000); Brooks Fiber , 235 F.3d at 498 (reviewing all state law determinations made by a state agency under arbitrary and capricious standard).

In this circuit, we recently held that "in recognition of the state commission's superior technical expertise, we review its factual dete rminations under the arbitrary and capricious standard." Qwest Corp. v. Koppendrayer , 436 F.3d 859, 863 (8th Cir. 2006). We were not called upon, and therefore did not decide , what level of deference was owed to the state commi ssion's determinations of st ate law. Connect relies on our statement in Qwest v. MPUC that "whether an agency acts within its statutory authority is a question of law [we review ] de novo," 427 F.3d at 1064, to urge us to apply de novo review to APSC's application of Arkansas law.

We believe that the de novo sta ndard applied in Qwest v. MPUC does not compel a similar review of the APSC's review of the state law issues in this case. In-11- Qwest v. MPUC , we were reviewing the agency's actions for consistency with its authority to act under state law. It would not have made sense to gi ve deference to the agency's legal conclusions when the lega l conclusions being ch allenged involved the agency's own authority under state law even to act.

Nevertheless, we need not wade through th is standard of review quagmire, for regardless of the standard applied, we believe that the Interconnection Agreement contains a latent ambiguity as discu ssed more fully below, and we proceed to determine whether the APSC acted arb itrarily or capriciously in settling the ambiguity. See Starpower Commc'ns, LLC v. FCC , 334 F.3d 1150, 1155 (D.C. Cir. 2003) (declining to settle a dispute over the proper standard of review "because the contracts are so far from clearly unambiguous that we would resolve this issue in the same manner regardless whether we owe the Commission any deference").

III. Is the Interconnection Agreement Ambiguous?

"[A] latent ambiguity arises when th e contract on its face appears clear and unambiguous, but collateral facts exist that make the contract's meaning uncertain." Norman v. Norman , 970 S.W.2d 270, 274 (Ark. 1998); see also Coble v. Sexton , 27 S.W.3d 759, 761 (Ark. Ct. App. 2000) ("[A] latent ambiguity arises from undisclosed facts or uncertainties of the written instrument."); Richard A. Lord, 11 Williston on Contracts, § 33:40 (4th ed. 1999) (A latent ambiguity is one which "appear[s] only as the result of extrinsic or co llateral evidence showing that a word, thought to have but one meaning, actually has two or more meanings."). For example, a contract may include a clear description of the property to which it pertains, but extrinsic evidence reveals that the description applie s to more than one estate. See Norman , 970 S.W.2d at 274; see also Abbott v. Abbott , 90 S.W.3d 10, 15-16 (Ark. Ct. App. 2002) (finding a latent ambiguity in a divorce decree thatreferred to "retirement" when husband's employer had three types of retirement plan s, and it was unclear to which plan the decree referred); Barry v. Barry , 78 F.3d 375, 382 (8th Cir. 1996) (finding a latent-12- ambiguity in the meaning of the term "sale" in the context of selling shares of stock back to a corporation where the parties di sputed whether a sale required an actual transfer of control, and both partie s' interpretations were plausible).

In this case, the Interconnection Agreemen t is clear on its face that local traffic is subject to reciprocal compensation. Anambiguity arises, howev er, when the parties try to define local traffic to either includeor exclude ISP-bound traffic. Similar to the interconnection agreements at issue in Starpower , "[t]he ambiguity in the [ConnectSWBT] agreement[] arises from the hybrid nature of a call to an ISP and the failure of the parties expressly to state whethe r ISP-bound traffic should be treated as local or non-local." Starpower Commc'ns , 334 F.3d at 1155. The Interconnection Agreement does not address ISP-bound tr affic at all. It defines "local traffic" as traffic originating and terminating within the same SWBT exchange area. Connect claims that ISP-bound traffic clearly falls within this definition of local traffic because the call terminates at the ISP provider's locati on within SWBT's exchange area. SWBT counters that the calls do not "terminate" at the ISP provider's location at all, but continue on to the internet websites ultimately accessed by the calling party's computer. This dispute is not resolved by the Interconnection Agreement, which does not define the term "terminating." Although the Interconnection Agreement does define "terminating traffic" as "a voice-grade switched communications service which is delivered to an end-user(s) as a result of another end user's attempt to establish communications between the parties" (Appellant's Add. at 57), that definition likewise does not address the issues raised by ISP-bound calls. The parties legitimately dispute whether the end user initiating the call is attempting to establish communications with the ISP-provider, which is within the local ex change area, or with the world wide web, which clearly is not.

Although the terms "local traffic" and "t erminating traffic" are defined in the Agreement, once extrinsic ev idence of the nature of ISP- bound calls is considered, it becomes unclear whether ISP-bound traffic "terminates" within the local calling area-13- as contemplated by the Interconnection Ag reement. Given the dispute within the industry at the time and both parties' plausible interpretations of where traffic terminates in an ISP-bound call, we conclude that the Interconnection Agreement contains a latent ambiguity that mu st be resolved by extrinsic evidence.

IV. Is the APSC's Decision Arbitrary and Capricious?

Having determined that the Interconnection Agreement contains a latent ambiguity, we must determine then whether the APSC acted arbitrarily or capriciously in finding that the parties' intent was to treat the ISP-bound traffic as non-local and thus not subject to reciprocal compensation. SeeQwest v. MPUC , 427 F.3d at 1064 (reviewing state agency fact determinati ons under arbitrary and capricious standard). This "scope of review 'is narrow and a court is not to substitute its judgment for that of the agency.'" In re: Core Commc'ns, Inc. , 455 F.3d 267, 277 (D.C. Cir. 2006) (quoting Cellular Telecomms. & Internet Ass'n v. FCC , 330 F.3d 502, 507 (D.C. Cir. 2003), which applied the arbitrary and caprici ous standard to the FCC's order denying a petition for forbearance). "The [state] ag ency must, however, 'examine the relevant data and articulate a satisfactory explan ation for its action including a rational connection between the facts f ound and the choice made.'" Id. (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983)).

Under Arkansas law, "the polestar of c ontractual construction is to determine and enforce the intent of the parties . . . at the time the c ontract was made." Taylor v. Hinkle , No. 04-471, 2004 WL 2904681, at *7 (Ark. Dec. 16, 2004) (internal citations omitted); seealso Moss v. Allstate Ins. Co. , 776 S.W.2d 831, 834 (Ark. Ct. App. 1989). "[C]ourts may consider and accord c onsiderable weight to the construction of an ambiguous [contract] by the parties themselves, evidenced by subsequent statements, acts, and conduct." Bishop v. City of Fayetteville , 97 S.W.3d 913, 919 (Ark. Ct. App. 2003); see also Taylor , 2004 WL 2904681 at *8 (considering subsequent conduct of parties in ascertaining parties' intent in entering into a contract).-14- The APSC also had "an obligation to in terpret the Agreement within the bounds of existing federal law." Brooks Fiber , 235 F.3d at 499. "[T]he present telecommunications landscape makes clear that existing interconnection agreements 'requiring payment of reciprocal compensation for calls to ISPs do not conflict with §§ 251 and 252 of the Act or with the FCC's regulations or rulings.'" Mich. Bell Tel. Co. , 339 F.3d at 436 (quoting Sw. Bell Tel. Co. , 208 F.3d at 483).

The APSC determined that the partie s did not intend to treat ISP-bound traffic as local traffic based on evidence of SWBT 's intentions and actions around the time of the contract and the lack of any evid ence about Connect's intent, since it merely adopted another parties' agreement and offe red no evidence of its intent at the time it adopted the Interconnection Agreement. Th e APSC also relied on the fact that "ISPbound traffic was generally accepted in the industry as being jurisdictionally interstate." (Appellant's Add. at 28-29. ) Since 1983, the FCC has recognized that ISP-bound traffic is under its jurisdiction as inte rstate traffic, but exempted the traffic from access charges generally applicable to in terstate traffic. Both sides use these FCC findings to support their positions: SWBT says the traffic is clearly interstate or the FCC would not have had jurisdicti on to exempt it from access charges, while Connect argues that because it is treated as local traffic for purposes of access charges, it should be treated as local traffic for purposes of reciprocal compensation.

It is clear from the record that during the time that Connect and SWBT negotiated and entered into the Interconnec tion Agreement at issue here, there was significant debate in the industry about whether or not ISP-bound traffic was to be treated as local traffic for purposes of r eciprocal compensation. In June 1997, SWBT sent letters to CLECs with which it ha d interconnection agreements, explaining its position that the access charge exemption issued by the FCC did not change the jurisdictional nature of ISP-bound traffic as interstate tra ffic, and that SWBT did not believe that ISP-bound traffic was subject to reciprocal compensation under local interconnection agreements. (SeeJ.A. at 449-50 (copy of June 9, 1997, letter to Time-15- Warner Communications).) During the sa me time frame, the Association for Local Telecommunications sought an expedited letter clarification from the Common Carrier Bureau to the effect thatthe FCC's Local Competition Order did not "alter[] the [FCC's] long standing rule that calls to an Information Service Provider ("ISP") made from within a local calling area must be tr eated as local calls by any and all LECs involved in carrying those calls." (Id. at 610-13 (copy of June 20, 1997, Request for Expedited Letter Clarification).)

Considering the parties' actions following implementation of the Interconnection Agreement, the evidence re veals that SWBT never paid reciprocal compensation to Connect for ISP-bound tra ffic under the Interconnection Agreement, even prior to the time SWBT notified Conn ect of its position regarding the traffic, until it was ordered to do so by the APSC in Order #6. (Id. at 197, testimony of Paul L. Cooper.) L. Bruce Sparling, who ne gotiated interconnection agreements for SWBT, including the Interconnection Agreemen t with Connect, testified that at the time that SWBT entered into the Interco nnection Agreement with Connect, SWBT did not intend reciprocal compensation to appl y to the traffic now at issue. (Id. at 324, Rebuttal Testimony of L. Bruce Sparling.) Mr. Sparling also testified that SWBT would not have agreed to pay recipro cal compensation for ISP-bound traffic at the time of negotiations even if Connect ha d requested it because SWBT considered internet traffic to be jurisdictionally in terstate, and SWBT was already losing the access charge revenue pursuant to the FCC's exemption. (Id. at 326.) Connect offered no evidence about its intentions at the time it entered into the Interconnection Agreement. Its evidence revolved around the issue of whether ISP-bound traffic in fact terminated at the ISP's serverwithin the local area.

If this were all there was to the APSC's resolution of the ambiguity in the agreement, we would easily uphold its decisi on as not arbitrary or capricious. Given the evidence about the intent of the parties, their subs equent actions, and the ongoing debate within the industry at the time th e Interconnection Agreement was adopted, we-16- cannot say that the APSC's decision that th e parties did not intend to apply reciprocal compensation to ISP-bound traffic was arbitr ary or capricious. The APSC did more than consider the events surrounding adop tion of the Interconnection Agreement, however. It also considered (and understandably so given the district court's remand order) the FCC's Remand Order, which, acco rding to the APSC, "clearly designates ISP-bound traffic as interstate." (Appellant 's Add. at 29.) The FCC Remand Order was issued in 2001, long after the parties entered into the Interconnection Agreement. Because we are focused on the parties' inte ntions at the time of contracting in 1997, "the ISP Remand Order result should have no bearing on the present dispute that predates that ruling." Mich. Bell Tel. Co. , 339 F.3d at 435.

While the district court's reliance on the irrelevant ISP Remand Order gives us pause, it does not render the APSC's decision arbitrary and capricious in this case. At most, it reinforces the ongoing debate withinthe industry about the nature of these calls. In the ISP Remand Order, the FCC conti nued to reinforce, as it had in earlier rulings, that parties should be bound by their existing interconnection agreements as interpreted by state commissions. Although its rationale in the ISP Remand Order was different under the Act than previous orders, it had already concluded in 1997 that ISP-bound traffic was jurisdictionally interstate. Given the evidence favoring SWBT's position at the time of contracting, and the l ack of evidence of Connect's intent, the APSC's consideration of the subsequent FCC order did not make its determination arbitrary and capricious.

Finally, we recognize that the Oklahoma Corporation Commission (OCC) determined that the Brooks Fiber Interc onnection Agreement that was adopted by Connect required SWBT to pay reciprocal compensati on to Brooks Fiber for ISPbound traffic, and that the Tenth Circuit uphe ld that decision under an arbitrary and capricious review. See Brooks Fiber , 235 F.3d at 498, 501. The fact that the Tenth Circuit upheld the OCC's ruling that the identical agreement between SWBT and Brooks Fiber requires reciprocal compen sation does not make the APSC's contrary-17- decision in this case arbitrary or capricious. See Global NAPs, Inc. v. Mass. Dep't of Telecomms. & Energy , 427 F.3d 34, 48 (1st Cir. 2005) (recognizing that state commissions are not bound by decisions reach ed by other state commissions, even in construing similar or identical terms). The interpretation of interconnection agreements rightly belongs to the state commissions, and we will not overturn one in favor of another without the showing of an arbitrary or capricious decision. Reasoned decisions reaching opposite conclusions do not ipso facto prove that either is arbitrary or capricious.

V. Conclusion

The APSC's decision is not arbitrary and capricious, and the district court's judgment is affirmed.

BYE, Circuit Judge, dissenting.

Because the Arkansas Public Servi ce Commission (APSC) did not determine the existence of a latent ambiguity in th e Interconnection Agreement at issue, I do not believe its decision is entitled to any de ference under an arbitrary-and-capricious standard of review. Further, I cannot detect a latent ambiguity in the Interconnection Agreement, and therefore do not believe th e APSC's decision can stand even under the more deferential arbitrary-and-capricious st andard. For those reasons, I would reverse the district court's judgment, and respectfully dissent.

The Court states: "The APSC did not clarify whether it found the ambiguity to be patent or latent, though it appears from its reasoning that it found it to be a latent ambiguity." Ante at 9 n.4. I cannot draw the same conclusion as to the APSC's reasoning. Rather, it seems clear the notion of a latent ambiguity was only interjected into this case by the district court as an after-the-fact attempt to justify the APSC's-18- flawed and conclusory reasoning finding an ambiguity in the Interconnection Agreement.

The following is the sum and substance of the APSC's reasoning to support its determination the Interconnection Agreement was ambiguous:

Although both Connect and SWBT argue that there is no ambiguity in their Interconnection Agreement, the parties interpret the contract to reach diametrically opposed results. This fact, coupled with a comparison of the Interconnection Agr eement at issue in this docket and the contracts reviewed in Starpower v. FCC , [334 F.3d 1150 (D.C. Cir. 2003),] together with the D.C. Circuit' s holding that the contracts in that case were clearly ambiguous, support the conclusion that the ConnectSWBT Interconnection Agreement at issue is ambiguous.
Appellant's Add. at 23-24.

Thus, the APSC gave two "reasons" for its decision. The first was the agreement must be ambiguous simply because "the parties interpret the contract to reach diametrically opposed results." Th is reasoning is obviously arbitrary and capricious. Such a rule would mean ambigu ity turns on the parties' arguments rather than a contract's terms, thereby rendering everydisputed contract ambiguous. This makes no sense.

Second, the APSC relied upon the D.C . Circuit's interpretation of an interconnection agreement in St arpower Commc'ns, LLC v. FCC , 334 F.3d 1150 (D.C. Cir. 2003). A mere cursory examination of Starpowerreveals the arbitrary and capricious nature of the APSC's reasoning. In Starpower , the FCC issued an order indicating interconnection agreements between Starpower and Verizon Virginia, Inc., were unambiguous, and thus Verizon did not have to pay Starpower for ISP-bound traffic as local traffic under the agreement. Focusing on the agreement's use of the-19- phrase "end-to-end," the D.C. Circuit disagr eed, concluding the parties' agreements

were
models of ambiguity with respect to reciprocal compensation for ISPbound traffic. Certain terms, such as "local traffic" and "terminate," could readily support an interpretati on that would require Verizon and Starpower to compensate each othe r for ISP-bound traffic. At the same time, the term "end-to-end" in § 5.7.5 of the 1998 Agreement and in §§ 4.1 and 4.2 of the 1999 agreement implies that the Commission's jurisdictional end-to-end analysis controls, so that reciprocal compensation is not due. Thus, the agreements are susceptible to two meanings, and the Commission erred in holding the agreements unambiguously exclude ISP-bound traffic. Starpower , 334 F.3d at 1157.

The D.C. Circuit focused exclusively upon the agreement's use of the term "end-to-end" as the language which created an ambiguity. Starpowerhas absolutely no bearing on the interconnection agreement at issue in this case, because nowhere does this agreement use the term "end-to-end, " or anywhere else incorporate the FCC's jurisdictional end-to-end analysis for determin ing the interstate or local nature of a given call.

Because both "reasons" given by the APSC for finding an ambiguity in the agreement are fundamentally flawed, I see no reason to pay its d ecision any deference whatsoever.

Reviewing the APSC's decision de novo, as I believe we should, seeQwest Corp. v. Minn. Pub. Utils. Comm'n , 427 F.3d 1061, 1064 (8th Cir. 2005) (reviewing de novo whether a state agency acts with in its authority in implementing the Telecommunications Act of 1996); see also Western World Ins. Co. v. Branch , 965 S.W.2d 760, 761 (Ark. 1998) (indicating the que stion whether a contract is ambiguous-20- is a question of law), I can find no ambiguity in the interconnection agreement between Southwestern Bell (SWB) and Connect Communications.

Under Arkansas law, the langua ge contained in the contract is the best evidence of the parties' intention. First Nat'l Bank v. Griffin , 832 S.W.2d 816, 818-19 (Ark. 1992). "When contracting parties express their intention in a written instrument in clear and unambiguous language, it is the court's duty to construe the writing in accordance with the plain meaning of th e language employed." Surratt v. Surratt , 148 S.W.3d 761, 768 (Ark. Ct. App. 2004).

Under the plain and unambi guous language of the agreement, calls placed from SWB's customers to internet service providers (ISPs) within the same SWB exchange were defined as local calls for which SWB agreed to pay Connect reciprocal compensation. The contract language de fines traffic as terminating when it is "delivered." See Add. at 57 (defining "Terminating Traffic" as a "telecommunications service which is delivered to an end user(s ) as a result of another end user's attempt to establish communication between the parties. "). It is undisputed the calls at issue were delivered, and therefore terminat ed, to Connect end users (ISPs) at a geographical location within the same local exchange area. SWB clearly agreed to compensate Connect for such calls. SeeAdd. at 49 ("SWBT agrees to compensate CONNECT for the termination of SWBT Local Traffic originated by SWBT end users in the SWBT exchanges described in Appendix DCO and terminating to CONNECT end users.").

"A latent ambiguity arises [only] when the contract on its face appears clear and unambiguous, but collateral facts exist that make the contract's meaning uncertain." Oliver v. Oliver , 19 S.W.3d 630, 633 (Ark. Ct. App. 2000). Here, SWB contends the "hybrid" nature of calls placed to ISPs re nders the agreement's meaning uncertain – that is, although ISP-bound calls may "terminate" at an ISP's geographical location-21- within the same local exchange area, they may proceed fro m there to a website anywhere on the Internet.

I disagree the "hybrid" nature of ISP- bound calls is a collateral fact which renders uncertain the meaning of any of the terms in this particular agreement. The parties specifically chose to define the te rmination of local calls with reference to where they were "delivered ," which undisputedly occurred at a specific geographical location irrespective of whether subsequent to "delivery" the calls continued on into cyberspace via the internet. The partie s further unambiguously agreed that when phone calls were "delivered" within the same local exchange area where they were placed, such calls were local in natureand therefore subject to reciprocal compensation.

The only "collateral" event which occurre d here (which appears to be the real reason SWB suddenly refused to pay C onnect for ISP-bound calls) was the FCC's subsequent ruling that calls placed to ISP pr oviders were interstate in nature. See In re Implementation of the Local Competition Provisions in the Telecomms. Act of 1996, Intercarrier Comp. for ISP-Bound Traffic , 14 F.C.C.R. 3689, 1999 WL 98037 (Feb. 26, 1999) (Reciprocal Compensation Order). The FCC's order was prospective in nature, however, as several courts have since noted. See Global NAPS, Inc. v. FCC , 291 F.3d 832, 834 (D.C. Cir. 2002) ("However, the FCC's Reciprocal Compensation Order left open the possibility that state regulators . . . could continue to treat ISP-bound traffic as local traffic, if interconnection agreements between carriers so provided, whether explicitly or implicitly."); S. New England Tel. Co. v. Conn. Dep't of Pub. Util. Co. , 285 F. Supp. 2d 252, 259 (D. Conn. 2003) ("While classifying the majority of ISP-bound traffic as interstate, the FCC left open the possibility that state regulators could c ontinue to treat ISP-bound traffic as local traffic, if interconnection agreements betw een carriers so provided, whether explicitly or implicitly. The FCC further acknow ledged in its 1999 Ruling that it had historically directed state commissions to treat such calls as 'local.'") (internal citations-22- and quotations omitted); see also Sw. Bell Tel. Co. v. Brooks Fiber Commc'ns of Okla., Inc. , 235 F.3d 493 (10th Cir. 2000) (interpreting the very agreement at issue here and upholding the Oklahoma Corporati on Commission's determination that calls placed to ISPs within the same exchange ar ea were local traffic subject to reciprocal compensation under the agreement).

Thus, even though ISP-bound calls have now been identified as interstate in nature, it is clear parties could choose by contract to identify such calls as local ones subject to reciprocal compen sation. That is exactly what occurred here. The fact SWB now realizes it made a bad business judgment, which led to a written contract entered into in good faith by both parties to it, does not now justify its refusal to pay Connect pursuant to the unambiguous terms of the agreement in controversy.

For the reasons stated, I respectfully dissent.

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