Volume 1 of 2

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

VERIZON MARYLAND, INCORPORATED, 

Plaintiff-Appellant,

v.

GLOBAL NAPS, INCORPORATED; THE

PUBLIC SERVICE COMMISSION OF

MARYLAND; TCG-MARYLAND,

Defendants-Appellees,

UNITED STATES OF AMERICA,

Intervenor/Defendant-Appellee,

and

MCIMETRO ACCESS TRANSMISSION

SERVICES, LLC; AMERICAN

COMMUNICATIONS SERVICES OF  No. 03-1448 MARYLAND, INCORPORATED, d/b/a

E.Spire Communications,

Incorporated; MARYLAND OFFICE OF

PEOPLE’S COUNSEL; MCI WORLDCOM

COMMUNICATIONS, INCORPORATED,

formerly known as MFS Intelenet

of Maryland, Incorporated; RCN

TELECOM COMMUNICATIONS, LLC;

GLENN F. IVEY, in his official

capacity as Chairman of the Public

Service Commission of Maryland;

CLAUDE M. LIGON, in his official

capacity as Commissioner of the

Public Service Commission of

Maryland; 
E. MASON HENDRICKSON, in his 

official capacity as Commissioner

of the Public Service Commission

of Maryland; SUSAN BROGAN, in her

official capacity as Commissioner

of the Public Service Commission

of Maryland; CATHERINE I. RILEY, in

her official capacity as

Commissioner of the Public Service

Commission of Maryland; CORE

COMMUNICATIONS, INCORPORATED; J.

JOSEPH CURRAN, III, in his official 

capacity as Commissioner of the

Public Service Commission of

Maryland; GAIL C. MCDONALD, in

her official capacity as

Commissioner of the Public Service

Commission of Maryland; RONALD

A. GUNS, in his official capacity as

Commissioner of the Public Service

Commission of Maryland; HAROLD

WILLIAMS,

Defendants. 

VERIZON MARYLAND, INCORPORATED, 

Plaintiff-Appellee,

v.

THE PUBLIC SERVICE COMMISSION OF  No. 03-1449

MARYLAND; CATHERINE I. RILEY, in

her official capacity as

Commissioner of the Public Service

Commission of Maryland; 

2 VERIZON MARYLAND v. GLOBAL NAPS
J. JOSEPH CURRAN, III, in his official 

capacity as Commissioner of the

Public Service Commission of

Maryland; GAIL C. MCDONALD, in

her official capacity as

Commissioner of the Public Service

Commission of Maryland; RONALD

A. GUNS, in his official capacity as

Commissioner of the Public Service

Commission of Maryland; HAROLD

WILLIAMS,

Defendants-Appellants,

GLOBAL NAPS, INCORPORATED; TCGMARYLAND,

Defendants-Appellees,

UNITED STATES OF AMERICA, 

Intervenor/Defendant-Appellee,

and

MCIMETRO ACCESS TRANSMISSION

SERVICES, LLC; AMERICAN

COMMUNICATIONS SERVICES OF

MARYLAND, INCORPORATED, d/b/a

E.Spire Communications,

Incorporated; MARYLAND OFFICE OF

PEOPLE’S COUNSEL; MCI WORLDCOM

COMMUNICATIONS, INCORPORATED,

formerly known as MFS Intelenet

of Maryland, Incorporated; RCN

TELECOM SERVICES OF MARYLAND,

INCORPORATED; STARPOWER

COMMUNICATIONS, LLC; 

VERIZON MARYLAND v. GLOBAL NAPS 3
GLENN F. IVEY, in his official 

capacity as Chairman of the Public

Service Commission of Maryland;

CLAUDE M. LIGON, in his official

capacity as Commissioner of the

Public Service Commission of

Maryland; E. MASON HENDRICKSON,

in his official capacity as 

Commissioner of the Public Service

Commission of Maryland; SUSAN

BROGAN, in her official capacity as

Commissioner of the Public Service

Commission of Maryland; CORE

COMMUNICATIONS, INCORPORATED,

Defendants. 

Appeals from the United States District Court

for the District of Maryland, at Baltimore.

Frederic N. Smalkin, Senior District Judge.

(CA-99-2061-S)

Argued: December 4, 2003

Decided: August 2, 2004

Before NIEMEYER, MICHAEL, and GREGORY, Circuit Judges.

Reversed and remanded in part, affirmed in part, and dismissed in

part by published opinion. Judge Michael wrote the opinion, in which

Judge Gregory joined. Judge Niemeyer wrote a separate opinion, concurring in part and dissenting in part. 

COUNSEL

ARGUED: Aaron M. Panner, KELLOGG, HUBER, HANSEN,

TODD & EVANS, P.L.L.C., Washington, D.C., for Appellant. Susan

4 VERIZON MARYLAND v. GLOBAL NAPS
Stevens Miller, General Counsel, PUBLIC SERVICE COMMISSION

OF MARYLAND, Baltimore, Maryland; Charles Wylie Scarborough,

Appellate Staff, Civil Division, UNITED STATES DEPARTMENT

OF JUSTICE, Washington, D.C.; Donald Beaton Verrilli, Jr., JENNER & BLOCK, L.L.C., Chicago, Illinois, for Appellees. ON

BRIEF: Mark L. Evans, Sean A. Lev, KELLOGG, HUBER, HANSEN, TODD & EVANS, P.L.L.C., Washington, D.C.; James P. Garland, MILES & STOCKBRIDGE, P.C., Baltimore, Maryland; David

A. Hill, Vice President and General Counsel, VERIZON MARYLAND INC., Baltimore, Maryland, for Appellant. Gregory G. Katsas,

Acting Assistant Attorney General, Thomas M. DiBiagio, United

States Attorney, Mark B. Stern, Appellate Staff, Civil Division,

UNITED STATES DEPARTMENT OF JUSTICE, Washington,

D.C.; John J. Hamill, John R. Harrington, Steven J. Winger, JENNER

& BLOCK, L.L.C., Chicago, Illinois; William Single, IV, MCI,

Washington, D.C.; Russell M. Blau, Michael W. Fleming,

SWIDLER, BERLIN, SHEREFF, FRIEDMAN, L.L.P., Washington,

D.C.; James R.J. Scheltema, Director, Regulatory Affairs, GLOBAL

NAPS, INC., Pensacola, Florida; William J. Rooney, GLOBAL

NAPS, INC., Quincy, Massachusetts; Matthew W. Nayden, OBER,

KALER, GRIMES & SHRIVER, Baltimore, Maryland; Michael A.

McRae, AT&T, Oakton, Virginia, for Appellees. 

OPINION

MICHAEL, Circuit Judge: 

This case arises from the regulatory scheme created by the Telecommunications Act of 1996 (1996 Act or Act), Pub. L. 104-104, 110

Stat. 56, to promote competition in local telephone markets. It is now

before us for the second time after a remand by the Supreme Court.

The main question today is this: whether a federal court has jurisdiction over a local carrier’s claim that a state utility commission misinterpreted interconnection agreement provisions on reciprocal

compensation that are based on federal law. We hold that there is federal question jurisdiction under 28 U.S.C. § 1331. We also hold that

the state utility commission had the authority under federal law to

impose reciprocal compensation terms in arbitration proceedings. We

VERIZON MARYLAND v. GLOBAL NAPS 5
reject the state commissioners’ arguments that the regulatory scheme

in the 1996 Act violates the Tenth Amendment, that the incumbent

local carrier’s amended complaint fails to state a claim, and that the

action was not filed on a timely basis. The case will be remanded for

further proceedings on the incumbent local carrier’s contract misinterpretation claim. 

I.

A.

Before the Telecommunications Act of 1996 came along, telephone

service in a local calling area was provided by a single local exchange

carrier (local carrier), operating as a state-licensed monopoly. The

1996 Act ended the monopoly system and opened local telephone

markets to competition. Congress, of course, recognized that a new

carrier would not be able to break into a local market if it had to bear

the prohibitive costs of building an entire telephone network. See MCI

Telecomm. Corp. v. Bell Atl.-Pa., 271 F.3d 491, 498 (3d Cir. 2001).

Section 251 of the Act therefore requires an incumbent local carrier

to share its network and services, on reasonable rates and terms, with

a competing carrier seeking to enter a local telephone market. 47

U.S.C. § 251. 

A competing carrier may enter a local market by interconnecting

with the network of the incumbent local carrier. Interconnection

allows "for the transmission and routing of telephone exchange service and exchange access." Id. § 251(c)(2)(A). The duty to interconnect is coupled with other duties set forth in § 251, including the

"duty [of all local carriers] to establish reciprocal compensation

arrangements for the transport and termination" of telephone calls. Id.

§ 251(b)(5). The FCC by regulation has limited the reciprocal compensation requirement to local traffic. 47 C.F.R. § 51.701(a) (1996).

Thus, when a customer of local carrier A places a call to a customer

of local carrier B in the same local exchange area, carrier A pays carrier B for completing the call, usually on a per-minute basis; when the

direction is reversed, carrier B pays carrier A for completing the call.

The terms under which two competing local carriers interconnect

their networks and provide for reciprocal compensation are set forth

6 VERIZON MARYLAND v. GLOBAL NAPS
in an interconnection agreement. The Act requires both parties to

negotiate in good faith in an effort to reach agreement. 47 U.S.C.

§ 251(c)(1). If the parties fail to reach agreement, § 252 allows the

state utility commission to resolve disputed issues through compulsory arbitration. Id. § 252(c)(1). The resulting agreement, whether

arrived at through negotiation or arbitration, must be submitted to the

state commission for approval. Id. § 252(e). (If a state commission

fails to assume this role, the FCC must step in and fill it. Id.

§ 252(e)(5).) Any party aggrieved by a state commission’s determination under § 252 of the Act may bring an action in federal district

court "to determine whether the [interconnection] agreement . . .

meets the requirements" of § 251 and § 252 of the Act. Id.

§ 252(e)(6). 

B.

When the Act went into effect in 1996, Verizon (then called Bell

Atlantic Maryland, Inc.) was providing local telephone service in

Maryland. As the incumbent local carrier, Verizon proceeded to negotiate an interconnection agreement with a competing local carrier,

MFS Intelenet of Maryland, Inc. (We will refer to MFS Intelenet in

the name of its successor, MCI WorldCom, Inc. (MCI).) The agreement, signed in July 1996 and approved by the Maryland Public Service Commission (PSC) in October 1996, required the payment of

reciprocal compensation "for transport and termination of Local Traffic." J.A. 76. After Verizon and MCI negotiated their interconnection

agreement, Verizon entered into substantively identical agreements

with certain other competing local carriers. The later interconnection

agreements were also approved by the PSC. 

A dispute soon arose between Verizon and MCI over whether Verizon had to pay MCI reciprocal compensation for calls Verizon customers made to the local numbers of internet service providers (ISPs)

that were MCI customers. Verizon claimed that these ISP-bound calls

are not local traffic because ISPs connect their calls to distant internet

websites. The issue comes up for a simple reason: ISP-bound traffic

goes in one direction; the customers call the ISPs, but the ISPs do not

call back. This means that the reciprocal compensation for these calls

also flows in one direction, to the local carriers completing the calls

to the ISPs. This situation, Verizon says, has provided a windfall for

VERIZON MARYLAND v. GLOBAL NAPS 7
competing local carriers that focus on serving ISPs for the purpose of

collecting reciprocal compensation on this one-directional traffic. 

In April 1997 Verizon stopped paying MCI reciprocal compensation for local exchange calls to ISPs served by MCI. No reciprocal

compensation was due, Verizon said, because the 1996 Act and the

interconnection agreement treat these ISP-bound calls as non-local. In

May 1997 MCI filed a complaint with the Maryland PSC, alleging

that Verizon’s refusal to pay reciprocal compensation violated the

1996 Act and the interconnection agreement. The PSC ruled against

Verizon in September 1997, holding that ISP-bound calls are local

and ordering Verizon to pay reciprocal compensation to MCI on these

calls. The PSC noted that it would reconsider its order if the FCC,

which was considering how to treat ISP-bound calls, issued a decision

that resolved the issue. Before any word came from the FCC, the PSC

considered the issue a second time when Verizon in late 1998 refused

to sign an interconnection agreement with Sprint Communications

Company, LP (Sprint) unless it provided that ISP-bound traffic did

not require the payment of reciprocal compensation. Sprint, invoking

§ 252(b)(1) of the Act, petitioned the PSC to arbitrate this issue, and

the PSC again concluded that these calls are local and subject to

reciprocal compensation. 

In February 1999 the FCC issued a ruling that classified ISP-bound

calls as non-local calls that do not qualify for reciprocal compensation

under § 251(b)(5). In the Matter of Implementation of the Local Competition Provisions in the Telecommun. Act of 1996, 14 F.C.C.R. 3689

(1999) (ISP Order No. 1), vacated, Bell Atl. Tel. Cos. v. FCC, 206

F.3d 1 (D.C. Cir. 2000). In reaching this decision, the FCC looked at

the starting and ending points of the calls and concluded that they terminate not with the ISP, but at the websites eventually accessed by

the internet user. ISP Order No. 1 at ¶ 12. The Commission said,

however, that "pending adoption of [an FCC] rule establishing an

appropriate interstate compensation mechanism," it had "no reason to

interfere with state commission findings as to whether reciprocal

compensation provisions of interconnection agreements apply to ISPbound traffic." Id. at ¶ 21. Likewise, the FCC said, when the parties

could not voluntarily agree on a compensation mechanism for ISPbound traffic, state commissions "may determine in their arbitration

8 VERIZON MARYLAND v. GLOBAL NAPS
proceedings at this point that reciprocal compensation should be paid

for this traffic." Id. at ¶ 25 (emphasis added). 

Verizon immediately petitioned the Maryland PSC to reconsider its

earlier orders, arguing that the FCC’s ISP Order No. 1 meant that

Verizon no longer had to pay reciprocal compensation for ISP-bound

calls. The PSC denied Verizon relief in an order issued on June 11,

1999. In reaffirming its decision interpreting the Verizon-MCI agreement, the PSC noted that ISP Order No. 1 did not prohibit it from

ordering reciprocal compensation under the terms of a negotiated

interconnection agreement. In reaffirming its order in the SprintVerizon arbitration, the PSC noted that the FCC was allowing state

commissions, in arbitration proceedings, to require reciprocal compensation on ISP-bound calls as an "‘interim inter-carrier compensation rule’ pending completion of FCC rulemaking on this issue." J.A.

58 (quoting ISP Order No. 1 at ¶ 27). Later, on February 10, 2000,

in an arbitration proceeding between MCI and Verizon, the PSC

(relying on its June 11, 1999, order) imposed terms requiring the payment of reciprocal compensation on ISP-bound traffic. 

In March 2000 the D.C. Circuit vacated ISP Order No. 1 and

rejected the FCC’s end-to-end analysis as a basis for classifying the

calls. Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000). On

remand in April 2001, the FCC, using a different reason, again

exempted ISP-bound calls from reciprocal compensation. In the Matter of Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996, Intercarrier Compensation for ISPBound Traffic, 16 F.C.C.R. 9151, ¶ 31 (2001) (ISP Order No. 2). This

time the FCC determined that ISP-bound traffic was a form of "information access" that qualified under § 251(g) for an exemption from

§ 251(b)(5)’s reciprocal compensation obligation. Recognizing, however, that some form of compensation for delivering ISP-bound calls

was necessary, the FCC established a new payment system for these

calls, a "bill-and-keep" system, under which each carrier recovers its

costs from its own customers. The new system was to take effect on

June 14, 2001, and was to be implemented only as existing interconnection agreements expire. The FCC did not disturb state commission

decisions issued before June 14, 2001, that required reciprocal compensation for ISP-bound traffic. Id. at ¶ 82. When ISP Order No. 2

was challenged in the D.C. Circuit, the court held that § 251(g) did

VERIZON MARYLAND v. GLOBAL NAPS 9
not provide a basis for the FCC’s decision. Without vacating the

FCC’s order, the court remanded the case to allow the agency to come

up with a sustainable basis for the new compensation system. See

WorldCom, Inc. v. FCC, 288 F.3d 429 (D.C. Cir. 2002). 

Meanwhile, in July 1999 Verizon filed this action in federal court

to review the Maryland PSC’s June 11, 1999, order that required

Verizon to pay reciprocal compensation to competing local carriers

for delivering ISP-bound traffic. Named as defendants were the PSC,

its individual commissioners in their official capacities, MCI, and

other competing local carriers. District court jurisdiction was invoked

under 47 U.S.C. § 252(e)(6) and 28 U.S.C. § 1331. Verizon sought

declaratory and injunctive relief, alleging that the PSC’s order violated the 1996 Act, the FCC’s (not yet vacated) ISP Order No. 1, and

the interconnection agreement. (Like the parties, we refer to "interconnection agreement" in the singular because the agreements

between Verizon and the competing carriers have substantially similar

terms.) The district court dismissed the action, and we affirmed on the

ground that neither 47 U.S.C. § 252(e)(6) nor 28 U.S.C. § 1331 provides a basis for federal jurisdiction. Bell Atlantic Md., Inc. v. MCI

WorldCom, Inc., 240 F.3d 279 (4th Cir. 2001). The Supreme Court

took the case and vacated our decision. Verizon Md. Inc. v. Pub. Serv.

Comm’n of Md., 535 U.S. 635 (2002). The Court concluded that Verizon’s claim that the PSC’s order was barred by federal law fell within

§ 1331’s "general grant of jurisdiction." Id. at 643. Although the

Court declined to reach the issue of whether § 252(e)(6) provided an

alternative basis of jurisdiction, it emphasized that "nothing in 47

U.S.C. § 252(e)(6) purports to strip [§ 1331] jurisdiction." Id. Section

252(e)(6), the Court said, "does not even mention subject-matter jurisdiction, but reads like the conferral of a private right of action." Id.

at 644. The case was sent back to us. 

Following our remand to district court, Verizon filed an amended

complaint that, among other changes in parties, dropped the PSC as

a defendant and substituted as defendants new PSC commissioners

for their predecessors. Count I alleged that the PSC’s June 11, 1999,

order classifying ISP-bound calls as local traffic violated "federal law

and . . . the language of [the interconnection] agreement[]." J.A. 40.

Count II alleged that the PSC lacked the authority to require reciprocal compensation in arbitration proceedings. The district court pro10 VERIZON MARYLAND v. GLOBAL NAPS
ceeded by first denying the PSC commissioners’ motion to dismiss

made on the grounds (1) that the 1996 Act violates the Tenth Amendment and (2) that Verizon’s amended complaint did not state a claim.

See Verizon Md. Inc. v. RCN Telecom Servs. of Md. Inc., 232 F. Supp.

2d 539 (D. Md. 2002). The district court then decided the parties’

cross-motions for summary judgment. See Verizon Md. Inc. v. RCN

Telecom Servs. of Md. Inc., 248 F. Supp. 2d 468 (D. Md. 2003). In

its summary judgment decision the district court recognized its jurisdiction over Count II of Verizon’s amended complaint, which it

regarded as a "garden-variety federal preemption claim," and held that

federal law did not prohibit the PSC from imposing reciprocal compensation terms in an arbitration proceeding. Id. at 476, 486-87. The

Court therefore awarded summary judgment on Count II to the defendants (the competing carriers and the PSC commissioners). Id.

On Count I the district court first determined that Verizon was

actually asserting two distinct claims: first, that the PSC’s interpretation of the interconnection agreement violated federal law; and second, that the PSC’s interpretation violated the parties’ intent as

reflected in the agreement. The court took jurisdiction over the first

claim and awarded summary judgment to the defendants. Then, the

court held that neither § 252(e)(6) nor § 1331 supported jurisdiction

over the remaining claim, which it construed as a contract misinterpretation claim arising under state law. Id. at 487. The court declined

to exercise supplemental jurisdiction over this claim and dismissed it.

See 28 U.S.C. § 1367(a). Verizon and the PSC commissioners appeal.

II.

Verizon appeals two issues from the district court’s summary judgment order. First, Verizon argues that the district court erred in holding that there is no federal jurisdiction over its claim that the PSC

misinterpreted the interconnection agreement. Second, Verizon challenges the district court’s determination that federal law did not prohibit the PSC from imposing reciprocal compensation terms in

arbitration proceedings. We consider each issue in turn. 

VERIZON MARYLAND v. GLOBAL NAPS 11
A.

1.

The district courts have original jurisdiction in all "civil actions

arising under the Constitution, laws, or treaties of the United States."

28 U.S.C. § 1331. There is no "single, precise definition" of what it

means for an action to "arise under" federal law. Merrell Dow Pharm.

Inc. v. Thompson, 478 U.S. 804, 808 (1986) (quoting Franchise Tax

Bd. of Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 8 (1983)).

The Supreme Court has recognized § 1331 jurisdiction in a variety of

cases, such as (1) when a federal right or immunity forms an essential

element of the plaintiff’s claim, Gully v. First Nat’l Bank in Meridian,

299 U.S. 109, 112 (1936); (2) when a plaintiff’s "right to relief

depends upon the construction or application" of federal law, and the

federal nature of the claim "rests upon a reasonable foundation,"

Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 199 (1921); (3)

when "federal law creates the cause of action," Merrell Dow, 478 U.S.

at 808; and (4) when "the plaintiff’s right to relief necessarily depends

on resolution of a substantial question of federal law," Franchise Tax

Board, 463 U.S. at 28. One commentator has suggested that the various Supreme Court statements boil down to the principle that federal

jurisdiction exists when a plaintiff has "a substantial claim founded

‘directly’ upon federal law." Paul J. Mishkin, "The Federal ‘Question’

in the District Courts," 53 Colum. L. Rev. 157, 165 (1953). See also

Int’l Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272

F.3d 912, 915 (7th Cir. 2001) (stating that "Professor Mishkin’s

appraisal remains apt"). The Supreme Court has shied away from a

rigid test for § 1331 jurisdiction because "the phrase ‘arising under’

masks a welter of issues regarding the interrelation of federal and

state authority and the proper management of the federal judicial system." Merrell Dow, 478 U.S. at 808 (quoting Franchise Tax Bd., 463

U.S. at 8). For example, when a federal court "explor[es] the outer

reaches of § 1331," it must make "sensitive judgments about congressional intent, judicial power, and the federal system." Merrell Dow,

478 U.S. at 810. See also Ormet Corp. v. Ohio Power Co., 98 F.3d

799, 806-07 (4th Cir. 1996). 

In all events, the question of whether a claim arises under federal

law begins with a look at "the face of the plaintiff’s properly pleaded

12 VERIZON MARYLAND v. GLOBAL NAPS
complaint." Caterpillar v. Williams, 482 U.S. 386, 392 (1987). In this

case, we also consider whether the claim involves an agreement and

duties that are creations of federal law and whether the purpose of the

underlying statute (the 1996 Act) is best served by the exercise of federal judicial power. These considerations lead us to conclude, as we

explain below, that Verizon’s contract interpretation claim arises

under federal law within the meaning of § 1331. 

We turn first to Verizon’s amended complaint, which challenges

the PSC’s determinations that Verizon must pay reciprocal compensation on ISP-bound traffic. Count I alleges that the "PSC’s decision

that Internet communications constitute ‘local traffic’ within the

meaning of the [interconnection] Agreement is inconsistent with federal law and the language of [the] agreement[]." J.A. 40. As the district court reasonably determined, Verizon is asserting two distinct

claims in Count I: first, that the PSC’s interpretation of the interconnection agreement violated federal law; and second, that the PSC misinterpreted the language of the agreement. The district court erred,

however, in concluding that the second of these claims — alleging

misinterpretation of the agreement — was an ordinary state-law contract claim. 

Verizon begins the central allegations of its amended complaint by

stating that the purpose of the interconnection agreement is "[t]o

implement the substantive duties" imposed by the 1996 Act, including

"the dut[y] to establish reciprocal compensation arrangements for

local traffic." J.A. 35. Pertinent pages of the agreement are attached

to Verizon’s amended complaint and are therefore a part of that

pleading. See Fed. R. Civ. P. 10(c). The agreement contains key provisions on reciprocal compensation that refer directly to federal law.

To begin with, the agreement provides that "‘Reciprocal Compensation’ is As Described in the Act, and refers to the payment arrangements that recover costs incurred for the transport and termination of

Local Traffic originating on one Party’s network and terminating on

the other Party’s network." J.A. 73 (emphasis added). "As Described

in the Act" means "as described in or required by the Act and as from

time to time interpreted in the duly authorized rules and regulations

of the FCC or the [PSC]." J.A. 67. Finally, the interconnection agreement defines "Local Traffic" in a manner that corresponds to the thenexisting FCC regulation, 47 C.F.R. § 51.701(b)(1)(1996): local traffic

VERIZON MARYLAND v. GLOBAL NAPS 13
is that originating on one party’s network and terminating on another’s "within a given local calling area," based on the "actual originating and terminating points of the complete end-to-end call." J.A. 71,

77. Thus, according to Verizon’s complaint, whether it must pay

reciprocal compensation on ISP-bound traffic under the terms of the

agreement depends in substantial measure upon the requirements of

the Act and the FCC’s regulations and interpretations. On its face,

then, Verizon’s contract claim is tied directly to federal law, and its

asserted basis in federal law is not "insubstantial [or] frivolous." Steel

Co. v. Citizens for Better Environment, 523 U.S. 83, 89 (1998). 

Whether Verizon’s contract claim is substantially federal also

depends on the nature and purpose of the contract, an interconnection

agreement. Here, we are guided by International Association of

Machinists v. Central Airlines, Inc., 372 U.S. 682 (1963), which held

that a suit to enforce a contract required by the Railway Labor Act

raised a federal question under 28 U.S.C. § 1331. Section 204 of the

Railway Labor Act required every airline and its employees (through

their union) to establish a board of adjustment to decide employee

grievances. The statutory duty to create the board was implemented

by contract. When the union and several employees sued an airline in

federal court to enforce the award of an adjustment board, the Fifth

Circuit affirmed the dismissal of the complaint, saying that the "suit

was nothing more than a state-created action to construe a contract."

Id. at 684 (internal quotation marks omitted). The Supreme Court

reversed. The Court explained that "[i]f these contracts [creating the

adjustment boards] are to serve their function under [the Railway

Labor Act], their validity, interpretation, and enforceability cannot be

left to the laws of the many States." Id. at 691 (emphasis added).

Because both the contract and the adjustment board it established "are

creations of federal law" and are "therefore governed and enforceable

by federal law," the district court had jurisdiction over the enforcement action under § 1331. Id. at 692. 

An interconnection agreement is likewise a "creation of federal

law," specifically, the 1996 Act. As one court has said, interconnection agreements are the "tools through which [the 1996 Act] is [implemented and] enforced." BellSouth Telecomms., Inc. v. MCIMetro

Access Transmission Servs., Inc., 317 F.3d 1270, 1278 (11th Cir.

2003) (en banc). The Act requires an incumbent local carrier and its

14 VERIZON MARYLAND v. GLOBAL NAPS
aspiring competitor to enter into an interconnection agreement that

sets forth the "terms and conditions . . . to fulfill the duties" mandated

by § 251(b) and § 251(c) of the Act. 47 U.S.C. § 251(c)(1). One duty

mandated by § 251(b) is at issue here, the "duty [of local carriers] to

establish reciprocal compensation arrangements for the transport and

termination" of calls. Id. § 251(b)(5). If the parties enter into an agreement by voluntary negotiation, they may agree "without regard to the

standards set forth" in § 251(b) and § 251(c). Id. § 252(a)(1). They

must still, however, spell out how they will fulfill the duties imposed

by § 251. See id. § 251(c)(1). When an agreement, like the one voluntarily negotiated by Verizon and MCI, is submitted to the state commission for approval, the commission may reject it only if it

discriminates against a carrier not a party, or it is not consistent with

"the public interest, convenience, and necessity." Id. § 252(e)(2)(A).

Once the agreement is approved, the 1996 Act requires the parties to

abide by its terms. See §§ 251(b)-(c). 

Interconnection agreements are thus the vehicles chosen by Congress to implement the duties imposed in § 251. They are, in short,

federally mandated agreements, and "[t]o the extent [an agreement]

imposes a duty consistent with the Act . . . that duty is a federal

requirement." Central Airlines, 372 U.S. at 695. The contractual duty

at issue in this case — to pay reciprocal compensation "for transport

and termination of Local Traffic" — is a duty imposed by the 1996

Act. The scope of this duty is at the heart of Verizon’s contract claim,

and the resolution of that claim depends on the interpretation and

application of federal law. Smith v. Kansas City Title & Trust Co.,

255 U.S. at 199; Ormet, 98 F.3d at 807. 

Finally, we recognize that "[t]he determination of whether a federal

issue is sufficiently substantial should be informed by . . . whether the

[exercise] of federal judicial power is both appropriate and pragmatic." Ormet, 98 F.3d at 807. See also, Merrell Dow, 808 U.S. at

808-09. This area of consideration takes us to the basic purpose of the

1996 Act. As the Supreme Court said, the Act took "the regulation of

local [telephone service] away from the States" and established "a

new federal regime" designed to promote competition. AT&T Corp.

v. Iowa Utils. Bd., 525 U.S. 366, 378 n.6 (1999) (emphasis in original). State utility commissions have a role in this regime, but that role

is subject to federal oversight. Here, the PSC interpreted an interconVERIZON MARYLAND v. GLOBAL NAPS 15
nection agreement mandated by the Act. Because the agreement and

the specific duty (reciprocal compensation) it incorporates have a

direct connection to the Act, the purpose of the Act is best served by

subjecting the PSC’s contract interpretation decision to federal review

in the district court. See BellSouth Telcomms., Inc. v. MCIMetro

Access Trans. Servs., Inc., 317 F.3d 1270, 1278 (11th Cir. 2003) (en

banc). 

2.

The dissent argues that there is no § 1331 jurisdiction over Verizon’s contract interpretation claim because "[t]he federal interest in

the content of local carriers’ voluntarily negotiated reciprocalcompensation terms is negligible." Post at 63. The interest is negligible, the dissent says, because there is "authority to negotiate terms

without regard to" the standards mentioned in 47 U.S.C. § 251(b) and

(c). Post at 59. This line of argument, we respectfully suggest, overlooks how important reciprocal compensation is to the Act’s central

purpose of promoting competition in local telephone markets. The

Act imposes five duties on "[e]ach local carrier," and one of these

duties is "to establish reciprocal compensation arrangements for the

transport and termination of" local traffic. 47 U.S.C. § 251(b)(5). The

fulfillment of this duty is essential to the Act’s pro-competitive

design, which requires local carriers to complete calls for each other.

Thus, even when the "reciprocal compensation arrangements" are

spelled out in an interconnection agreement that is voluntarily negotiated, there is a substantial federal interest in those arrangements.

Moreover, in this case the interconnection agreement incorporates key

provisions of federal law in delineating the compensation arrangements or duties.1

1We do not miss the point of the dissent’s argument against § 1331

jurisdiction, which is that the parties’ latitude to negotiate reciprocal

compensation terms means that there is no federal interest in the determination "whether [they] reached agreement on treating [ISP-bound] calls

as local calls eligible for reciprocal compensation." Post at 59-60 n.9.

The dissent’s focus is much too narrow. The jurisdictional analysis must

take into account the broader federal interest; it must recognize that the

interconnection agreement and the duties specified therein, including the

duty to arrange for reciprocal compensation, have the imprimatur of federal law. See Central Airlines, 372 U.S. at 692. Even though the Act

allows flexibility in the contractual terms negotiated for carrying out the

reciprocal compensation duty, the duty is still a key federal requirement.

16 VERIZON MARYLAND v. GLOBAL NAPS
The dissent relies on Jackson Transit Authority v. Local Division

1285, Amalgamated Transit Union, 457 U.S. 15 (1982), to support its

argument that Verizon’s contract misinterpretation claim cannot be

brought in federal court. Jackson Transit is readily distinguishable.

That case involves § 13(c) of the Urban Mass Transportation Act of

1964 (UMTA), 78 Stat. 307 (codified as amended, 49 U.S.C.

§§ 5301-5338), which requires a state or local government to make

arrangements to preserve the existing collective bargaining rights of

transit workers before the governmental body may receive federal

monies to acquire a privately owned transit company. When a transit

union sued a city in federal court for breach of a § 13(c) agreement,

the Supreme Court held there was no federal question jurisdiction.

The Court began its analysis by noting that "labor relationships

between local governments and their employees are the subject of a

longstanding statutory exemption from the National Labor Relations

Act." Jackson Transit, 457 U.S. at 23. And, after considering the legislative history of § 13(c), the Court concluded that "Congress

intended those contracts [between transit workers and local governments] to be governed by state law applied in state courts." Id. at 29.

This holding sets Jackson Transit apart from the 1996 Act and this

case. Unlike § 13(c) of the UMTA, which did not "substitute a federal

law of collective bargaining for state labor law," id. at 28, the Telecommunications Act of 1996 removed the regulation of local telephone markets "from the States’ exclusive control" and substituted a

federally prescribed regulatory program. Iowa Utils. Bd., 525 U.S. at

381 n.8. Again, federally mandated duties, including the duty to pay

reciprocal compensation, are the backbone of the new program. As a

result, when there is a claim that a state utility commission has misinterpreted an interconnection agreement provision that implements a

duty imposed by the Act, review should be available under § 1331 in

district court. We are not saying that every dispute about a term in an

interconnection agreement belongs in federal court, but when the contractual dispute (like the one here) involves one of the 1996 Act’s

essential duties, there is a federal question. 

3.

In sum, because (1) Verizon’s complaint alleges that the PSC misinterpreted interconnection agreement provisions that incorporate federal law, (2) the agreement interpreted is federally mandated, (3) the

VERIZON MARYLAND v. GLOBAL NAPS 17
contractual duty at issue is imposed by federal law, and (4) the purpose of the 1996 Act is best served by allowing review of the PSC’s

order in the district court, we hold that Verizon’s contract claim in

Count I raises a substantial question of federal law. The claim therefore arises under federal law, conferring jurisdiction in the district

court under 28 U.S.C. § 1331.2

B.

Verizon next challenges the district court’s grant of summary judgment to the defendants on Count II, which alleges that "the PSC’s

decision to require reciprocal compensation for [ISP-bound] traffic in

instances [that is, in arbitration proceedings] where the parties could

not agree on the rules governing compensation for such traffic violates federal law." J.A. 40. We affirm because the 1996 Act authorizes

the PSC to arbitrate open issues on reciprocal compensation, and the

FCC has declared that state commissions had the authority to require

reciprocal compensation for ISP-bound traffic in arbitrations conducted during the time frame involved in this case. 

First of all, the Act expressly authorizes state commissions to

impose reciprocal compensation requirements in § 252 arbitration

proceedings. In resolving "any open issues" between parties negotiating an interconnection agreement, a state commission must ensure

that the resolution meets the requirements of § 251. 47 U.S.C.

§§ 252(b)(1), 252(c)(1). Section 251(b)(5), of course, imposes the

requirement "to establish reciprocal compensation arrangements." 

One arbitration order that Verizon complains about is the PSC’s

Sprint-Verizon order of February 9, 1999, that imposed terms requiring Verizon to pay reciprocal compensation for ISP-bound calls. At

the time the PSC issued the Sprint-Verizon order, the FCC was treating ISP-bound calls "as though [they] were local," J.A. 49, and the

PSC therefore concluded that these calls were subject to reciprocal

compensation from Verizon. The PSC reconsidered this decision after

the FCC, on February 26, 1999, issued its ISP Order No. 1, classifying ISP-bound calls as non-local. In the order issued on June 11,

2Because there is § 1331 jurisdiction, we decline to decide whether

jurisdiction could be grounded independently on 47 U.S.C. § 252(e)(6).

18 VERIZON MARYLAND v. GLOBAL NAPS
1999, the PSC concluded that it was not required to alter its prior arbitration decision because the FCC had explicitly provided in ISP Order

No. 1 that state commissions may "‘determine in their arbitration proceedings at this point that reciprocal compensation should be paid for

[ISP-bound] traffic.’" J.A. 57 (citing ISP Order No. 1 at ¶ 25). State

commissions were to have this leeway pending completion of FCC

rulemaking on the issue. The PSC thus decided that Verizon must

continue to pay reciprocal compensation under its arbitrated agreement as an interim compensation mechanism. The PSC relied on this

same reasoning on February 10, 2000, when it imposed terms requiring reciprocal compensation on ISP-bound traffic in a Verizon-MCI

arbitration. 

The FCC’s ISP Order No. 1 was, of course, vacated by the D.C.

Circuit on March 24, 2000. Bell Atlantic Tel. Cos. v. FCC, 206 F.3d

1 (D.C. Cir. 2000). Thereafter, on April 27, 2001, the FCC issued its

ISP Order No. 2, which remains in force because the D.C. Circuit did

not vacate the order when it remanded the case for further consideration by the FCC. 16 F.C.C.R. 9151 (2001), remanded, WorldCom,

Inc. v. FCC, 288 F.3d 429 (D.C. Cir. 2002). In ISP Order No. 2 the

FCC adopted a new compensation regime (bill-and-keep) to govern

ISP-bound calls and announced that it was stripping state commissions of any authority to formulate the compensation regime for such

calls. See ISP Order No. 2 at ¶¶ 77-82. At the same time, the FCC

explained that its order did not "preempt any state commission decision regarding compensation for ISP-bound traffic for the period

prior to the effective date [June 14, 2001] of the interim regime we

adopt here." Id. at ¶ 82 (emphasis added). The FCC’s ISP Order No.

2 thus expressly preserves the arbitration decisions here because they

were issued before June 14, 2001. 

As we said when this case was here the first time: "[i]t is hard to

conceive how the Public Service Commission can be said to have perpetrated [in arbitration proceedings] an ongoing violation of federal

law by following the dictates of the federal agency authorized to

implement that law, especially when the charging party relies on the

federal agency’s interpretation as authoritative." Bell Atlantic Md.,

240 F.3d at 296. We affirm the district court’s grant of summary judgment on Count II. 

VERIZON MARYLAND v. GLOBAL NAPS 19
III.

The PSC commissioners (PSC) raise three issues on cross-appeal

stemming from the district court’s denial of their motion to dismiss

Verizon’s amended complaint.

A.

The PSC first argues that Congress, in violation of the Tenth

Amendment, "has commandeered State officials to administer its federal program regulating local telephone service." PSC’s Opening Br.

at 15. The PSC acknowledges that states are not required to assume

the regulatory responsibilities set forth in § 252 of the Act, but it

points out that states must either undertake those responsibilities or

relinquish the authority to regulate to the FCC. This choice, contends

the PSC, amounts to unconstitutional coercion. We disagree. 

When Congress brought the regulation of competition in local telephone markets under federal control in the 1996 Act, it could have

placed regulatory authority exclusively with the FCC. But Congress

chose a different course, giving states the option to participate in the

federally prescribed regulatory scheme. That approach is permissible

under the Tenth Amendment as the Supreme Court made clear in

Hodel v. Virginia Surface Mining and Reclamation Association, Inc.,

452 U.S. 264, 289 (1981) (upholding the Surface Mining Control and

Reclamation Act, a federal statute prescribing "federal minimum standards governing surface coal mining, which a State may either implement itself or else yield to a federal administered regulatory

program."). Congress, of course, may not "compel the states to enact

or administer a federal regulatory program." New York v. United

States, 505 U.S. 144, 188 (1992). Here, however, Congress has simply required states to choose between regulating pursuant to federal

standards or allowing the FCC to take over. As the district court said,

"[t]he choice that § 252 offers may be (somewhat) unsavory [to the

states], yet it remains a real choice." Verizon Md. Inc., 232 F.Supp.2d

at 558. In short, the Act is consistent with the Tenth Amendment. 

B.

The PSC next contends that the district court erred when it refused

to dismiss Count I of Verizon’s complaint for failure to state a claim

20 VERIZON MARYLAND v. GLOBAL NAPS
upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The

PSC is not making a true failure to state a claim argument. It begins

by saying that because § 252(e)(6) fails to provide an express cause

of action for review of a state commission’s interpretation of an interconnection agreement, there is no federal jurisdiction over Count I. It

then says that because there is no cause of action implied in

§ 252(e)(6), see Cort v. Ash, 422 U.S. 66 (1975), Count I does not

state a claim. The PSC is committing the common error of confusing

the jurisdictional issue with the issue of whether a claim is stated. See

Montana-Dakota Utilities Co. v. Northwestern Public Serv. Co., 341

U.S. 246, 249 (1951) ("As frequently happens where jurisdiction

depends on subject matter, the question whether jurisdiction exists has

been confused with the question whether the complaint states a cause

of action."). 

Count I states a claim upon which relief can be granted: it alleges

that the PSC misinterpreted the federally mandated interconnection

agreement, and Verizon seeks declaratory and injunctive relief to correct the alleged misinterpretation. Because we have held in part II.A

that there is federal question jurisdiction over this claim under § 1331,

we need not inquire into whether § 252(e)(6) provides a cause of

action. See Verizon, 535 U.S. at 644. When a "case’s resolution

depends on resolution of a federal question sufficiently substantial to

arise under federal law within the meaning of 28 U.S.C. § 1331,"

there is § 1331 jurisdiction even though the relevant statute does not

explicitly or implicitly provide for a cause of action. Ormet, 98 F.3d

at 806. See also Central Airlines, 372 U.S. 682. We therefore reject

the PSC’s argument that Count I’s contract misinterpretation allegations do not state a claim. 

C.

Finally, the PSC argues that Verizon did not file its complaint

within the period prescribed in the applicable statute of limitations.

The PSC did not raise a limitations defense by way of answer or

motion in district court. One defendant, Core Communications, Inc.,

did move to dismiss Verizon’s complaint on statute of limitations

grounds, and the district court concluded after full briefing that "Verizon’s claim against Core [was] timely." Verizon Md. Inc., 232

F. Supp. at 554. In these circumstances the PSC’s failure to assert a

VERIZON MARYLAND v. GLOBAL NAPS 21
limitations defense in district court leads us to conclude that the issue

is waived for this appeal. See Peterson v. Airline Pilots Ass’n, Inter’l,

759 F.2d 1161, 1164 (4th Cir. 1985); Fed. R. Civ. P. 8(c). The PSC’s

cross-appeal is therefore dismissed with respect to the statute of limitations issue. 

IV.

To sum up, in Verizon’s appeal we reverse the district court’s summary judgment order to the extent it holds there is no federal question

jurisdiction over Verizon’s contract misinterpretation claim, and we

affirm that order to the extent it holds the PSC had the authority under

federal law to impose reciprocal compensation terms in arbitration

proceedings. In the PSC commissioners’ cross-appeal we affirm the

district court’s order denying their motion to dismiss Verizon’s

amended complaint on Tenth Amendment grounds and for failure to

state a claim, and we dismiss the commissioners’ cross-appeal on the

issue that Verizon’s action is barred by the statute of limitations. The

case is remanded for further proceedings on Verizon’s contract misinterpretation claim. 

REVERSED AND REMANDED IN PART,

AFFIRMED IN PART, and

DISMISSED IN PART

22 VERIZON MARYLAND v. GLOBAL NAPS
Volume 2 of 2

VERIZON MARYLAND v. GLOBAL NAPS 23
NIEMEYER, Circuit Judge, concurring in part and dissenting in part:

We are considering in this appeal only Verizon’s claim that a federal court should review the Maryland Public Service Commission’s

order construing, under principles of Maryland contract law, the specific terms of a privately negotiated interconnection agreement

between Verizon and MCI.1 The district court ruled that this was a

State law claim for which it did not have federal jurisdiction and dismissed the claim. 

Expanding substantially the scope of federal jurisdiction under 28

U.S.C. § 1331, the majority reverses the district court and holds for

the first time that because the negotiated agreement in this case was

mandated by the Telecommunications Act of 1996 — even though the

contractual terms construed by the Maryland Public Service Commission were not so mandated — Verizon’s claim that the Commission

misinterpreted the agreement "arises under" federal law within the

meaning of § 1331. 

Because this unprecedented holding opens federal courts to State

law contract claims, without regard to whether federal or State law is

called upon to resolve the claims, I disagree with the majority’s decision, and therefore I dissent. Having considered the Telecommunications Act of 1996 ("the 1996 Act") and the Communications Act of

1934 ("the 1934 Act") (both Acts allocating adjudicatory responsibility between federal and State governments for the regulation of telecommunications) and 28 U.S.C. § 1331 (conferring jurisdiction on

district courts for cases arising under federal law), I conclude that

Verizon’s claim that the Maryland Public Service Commission misinterpreted the language of the interconnection agreement under princi1The parties to the interconnection agreement, dated July 16, 1996,

were Bell Atlantic-Maryland, Inc. and MFS Intelenet of Maryland, Inc.,

and by subsequent mergers and name changes, their interests are now

represented by Verizon Maryland, Inc., MCI WorldCom Communications, Inc., and MCIMetro Access Transmission Services LLC. For convenience, I refer to the contracting parties as "Verizon" and "MCI." I also

include in these designations the other local carriers who entered into

contracts similar to the one between Verizon and MCI and whose contracts are also at issue in this case. 

VERIZON MARYLAND v. GLOBAL NAPS 27
ples of Maryland contract law was properly dismissed by the district

court as a State law claim for which the district court had no jurisdiction. I do not, however, disagree with the conclusion that the district

court had § 1331 jurisdiction to consider the different claim that the

Maryland Public Service Commission’s interpretation of the agreement actually violated the 1996 Act, which is not before us on appeal.

In determining that Verizon’s misinterpretation claim does not

present a question of federal law, I conclude (1) that § 252(e)(6) of

the 1996 Act does not provide federal-court review of the Maryland

Public Service Commission’s decisions interpreting interconnection

agreements and therefore the 1996 Act and the 1934 Act defer review

of such State-law decisions to State courts; and (2) that the Maryland

Public Service Commission’s interpretation, under principles of

Maryland contract law, of negotiated language in the parties’ interconnection agreement does not present a federal question reviewable

in federal court under 28 U.S.C. § 1331, even though the agreement

was mandated by the 1996 Act. 

I concur in Parts II.B., III.A., and III.C. of the majority opinion. 

I. Regulatory Scheme

The question in this case is not whether Verizon can obtain review

of an order of the Maryland Public Service Commission ("PSC") that

allegedly misinterprets Verizon’s negotiated interconnection agreement. Rather, the question is whether such review is to be conducted

in State court, under the traditional avenues established by State law

for review of PSC orders, or in federal court, under the Telecommunications Act of 1996 or under 28 U.S.C. § 1331. While Congress

clearly could have preempted all telecommunications issues under its

commerce power and in the interest of national uniformity, it elected

not to do so. Rather, it opted to enact a carefully allocated system of

cooperative federalism to retain the resources and expertise of State

public service commissions and State courts in the regulation of local

telecommunications carriers and their services. It is thus essential to

understand the manner in which Congress divided responsibility

under the 1934 and 1996 Acts to decide the issues in this case. Therefore, before I address the specific issues in this case, I will outline the

regulatory scheme enacted by Congress. 

28 VERIZON MARYLAND v. GLOBAL NAPS
Prior to enactment of the Communications Act of 1934, 48 Stat.

1064, the States recognized that telephone service was a natural

monopoly, and they generally regulated that service through State

public utility commissions. The 1934 Act continued treating telephone service as a natural monopoly, but it divided regulatory responsibility between the Federal Communications Commission ("FCC"),

which was designated to regulate interstate, long-distance service, and

State public utility commissions, which were designated to regulate

intrastate service. See, e.g., 47 U.S.C. § 152(a), (b); Louisiana Pub.

Serv. Comm’n v. FCC, 476 U.S. 355, 360 (1986). Indeed, 47 U.S.C.

§ 410 created a joint federal-state board to resolve disputes over regulatory jurisdiction. 

The Telecommunications Act of 1996, Pub. L. No. 104-104, 110

Stat. 56 (1996) (codified at 47 U.S.C. §§ 151-614), which is at issue

in this case, did not supplant the 1934 Act. And importantly, it did

not repeal either § 152 or § 410, which divided responsibility between

the States and the federal government. Rather, the 1996 Act amended

the 1934 Act, leaving much of the 1934 Act’s structure in place. In

amending the 1934 Act with the 1996 Act, however, Congress abandoned its hands-off approach to intrastate commerce and undertook

to impose competition in both interstate and intrastate service. Moreover, Congress sought to facilitate the convergence of technologies in

telephone service, broadcast (radio and television) service, cable service, satellite service, and other miscellaneous transmission services.

Thus, by enacting the 1996 Act, Congress intended "to promote competition and reduce regulation in order to secure lower prices and

higher quality services for American telecommunications consumers

and encourage the rapid deployment of new telecommunications technologies." Pub. L. No. 104-104, 110 stat. 56, 56 (1996). But even

while pursuing these federal purposes, Congress left in place many of

the traditional functions of State public utility commissions. 

To continue to employ the resources and expertise of State public

utility commissions, Congress elected not to raze the pre-1996 statutory structure created by the 1934 Act and build an entirely new statutory system. Rather, the 1996 Act partially flooded the existing

statutory terrain with specific preempting federal requirements, carefully leaving numerous islands of State responsibility. With respect to

some of these State islands, the 1996 Act mandates that State comVERIZON MARYLAND v. GLOBAL NAPS 29
missions apply federal law within their existing State procedural

structures. Thus, for example, State commissions are required to

apply federal requirements in arbitrating and approving federally

mandated interconnection agreements. See 47 U.S.C. § 252(c), (e).

With respect to other State islands, the Act actually conscripts State

governmental agencies for federal purposes. See, e.g., id. § 251(f)

(mandating that State commissions conduct inquiries to determine

whether to terminate rural telephone company exemptions); id.

§ 332(c)(7) (requiring local zoning boards to apply certain procedures

in approving the siting of telecommunications towers and facilities).

Still other areas that, before 1996, were left to the States are completely inundated by federal preemption, such as in the area of satellite service. See, e.g., id. § 303(v). In some instances, preemption in

the 1996 Act is deferred and conditional, to be effected on a case-bycase basis. See, e.g., id. § 252(e)(5) (directing the FCC to issue an

order "preempting the State commission’s jurisdiction" of a proceeding if the State commission "fails to act to carry out its responsibility

under [§ 252]"); id. § 253(d) (directing the FCC to "preempt the

enforcement" of any State statute or regulation that has the effect of

denying a carrier the ability to provide any interstate or intrastate telecommunications service). 

No generalization can therefore be made about where, as between

federal and State agencies, responsibility lies for decisions. The areas

of responsibility are a patchwork, and the dividing lines are somewhat

murky, prompting one authority to observe:

In a mandatory if pro-forma gesture to the states, the Act

declares that it does not implicitly preempt any state or local

law. In 280 plus pages of text, however, implicit repeals are

hardly needed. There is plenty of explicit language to construe, and abundant ambiguity about just who’s in charge,

on which issues. The new legislation’s division of legal

authority between federal and state regulators will likely be

litigated for many years to come. 

Peter W. Huber, et al., The Telecommunications Act of 1996 § 1.2.12

(1996). What is certain is that, under the 1996 Act, Congress intended

to divide responsibility between the federal government and the

States, and unless it expressly provided for federal responsibility, it

30 VERIZON MARYLAND v. GLOBAL NAPS
left pre-1996 Act assignments of responsibility in place, such as by

retaining 47 U.S.C. §§ 152 and 410. In § 601(c)(1) of the 1996 Act,

Congress makes this point explicit:

This Act and the amendments made by this Act shall not be

construed to modify, impair, or supersede Federal, State, or

local law unless expressly so provided in such Act or

amendments. 

Pub. L. No. 104-104, 110 Stat. 56, 143 (1996) (codified at 47 U.S.C.

§ 152 note). 

To promote competition in local telephone service, the 1996 Act

requires incumbent local exchange carriers ("ILECs") to provide

would-be competing local exchange carriers ("CLECs") access to

their facilities on reasonable and nondiscriminatory terms, and the

incumbent carrier must "establish reciprocal compensation agreements [with competing carriers] for the transport and termination of

telecommunications." 47 U.S.C. § 251(b). Through these reciprocal

compensation arrangements, local carriers compensate each other for

intercarrier calls. Thus, if a caller subscribing to local carrier A calls

a subscriber to local carrier B, then local carrier B will be entitled to

a share of the revenues collected from carrier A’s subscriber. In providing access to its facilities, an ILEC has the duty to negotiate in

good faith to provide interconnection on reasonable and nondiscriminatory terms. Id. § 251(c)(1)-(2). 

The 1996 Act permits an ILEC and a CLEC voluntarily to negotiate an interconnection agreement "without regard to the standards set

forth in subsections (b) and (c) of section 251." Id. § 252(a)(1). If the

parties, however, choose not to negotiate their own terms or are

unable to do so, the 1996 Act provides for binding arbitration administered by the applicable State public utility commission. Id. § 252(b).

An ILEC may also file with a State commission a "statement of generally available terms," which any CLEC may adopt. See id. § 252(f).

Any interconnection agreement, whether negotiated or adopted by

arbitration, must, under the 1996 Act, be "submitted for approval to

the State Commission," which shall "approve or reject the agreement,

with written findings as to any deficiencies." Id. § 252(e)(1). For volVERIZON MARYLAND v. GLOBAL NAPS 31
untarily negotiated agreements, a State commission may only reject

the agreement if it discriminates against other carriers or if it is "not

consistent with the public interest, convenience, and necessity." Id.

§ 252(e)(2)(A). A State commission may reject an arbitrated agreement if it does not meet the requirements of § 251 or the pricing standards set forth in § 252(d). Id. § 252(e)(2)(B). A State commission

retains authority to enforce existing, or to impose additional, State

regulations for local telecommunications, provided they are not

inconsistent with the 1996 Act. Id. § 261(b), (c). Finally, if a "State

commission fails to act to carry out its responsibility" under § 252, the

FCC must issue a preemption order and thereby assume the responsibility of the State commission "with respect to the proceeding or matter." Id. § 252(e)(5). 

In connection with all State commission decisions to enforce existing, or to impose additional, regulations of local telecommunications,

existing State law for judicial review is left in place. The 1996 Act,

however, designates specific State commission decisions for review

in federal court:

In any case in which a State commission makes a determination under this section, any party aggrieved by such determination may bring an action in an appropriate Federal district

court to determine whether the agreement or statement [of

generally available terms] meets the requirements of section

251 of this title and this section. 

Id. § 252(e)(6). And Congress made this limited federal review exclusive, providing that "[n]o State court shall have jurisdiction to review

the action of a State commission in approving or rejecting an agreement under this section." Id. § 252(e)(4). Unless a State commission

decision falls within the scope of § 252(e)(6), however, the 1996 Act

leaves review in State court as provided by State law. 

Against this regulatory scheme, we must determine in this appeal

whether the decision of the Maryland Public Service Commission

construing the terms of Verizon’s voluntarily negotiated interconnection agreement with MCI is reviewable in State court pursuant to the

generally available State law review procedures or in federal court

32 VERIZON MARYLAND v. GLOBAL NAPS
under either § 252(e)(6) of the 1996 Act or 28 U.S.C. § 1331. This

issue is presented in the following context. 

II. Facts and Procedural History

Following enactment of the 1996 Act, Verizon and MCI voluntarily negotiated an interconnection agreement by which MCI was given

access to Verizon’s local facilities and by which reciprocal compensation was established. The agreement, dated July 16, 1996, was submitted to the Maryland Public Service Commission, which approved

it by order dated October 9, 1996. Thereafter, other CLECs entered

into similar agreements with Verizon, and the PSC also approved

each of these agreements. The agreements provided for reciprocal

compensation to "recover costs incurred for the transport and termination of Local Traffic originating on one Party’s network and terminating on the other Party’s network." As used in the agreements, "Local

Traffic" referred to "traffic that is originated by a Customer of one

Party on that Party’s network and terminates to a Customer of the

other Party on that other Party’s network, within a given local calling

area, or expanded . . . service area." 

Nine months after entering into its agreement with MCI, Verizon

wrote MCI a letter stating that it intended to discontinue payments of

reciprocal compensation for local exchange traffic terminating with

Internet service providers ("ISPs"). Verizon claimed that local

exchange traffic delivered to ISPs was ineligible for reciprocal compensation because ISP traffic was interstate and not within the terms

of the agreement. In response to Verizon’s letter, MCI filed a complaint with the PSC, requesting that the commission interpret the contract between Verizon and MCI, which the PSC had earlier approved,

and declare that the reciprocal compensation provisions were applicable to ISP-bound telephone calls. MCI contended that when an ISP

purchases local exchange service from MCI and receives calls that

originate from users of Verizon, the calls are "local traffic" as used

in the interconnection agreement. 

On September 11, 1997, the Public Service Commission issued a

letter order in which it concluded (1) that the issue raised by MCI’s

complaint was "resolvable pursuant to the terms of the [Verizon-MCI]

Interconnection Agreement" and (2) that MCI was entitled to reciproVERIZON MARYLAND v. GLOBAL NAPS 33
cal compensation for the ISP-bound calls. Invoking State law for

review of PSC decisions, Verizon appealed the PSC’s decision to the

Circuit Court for Montgomery County, Maryland, and that court

affirmed the PSC order. Verizon did not appeal that decision. 

About a year later, the FCC issued a ruling (which was later

vacated by the D.C. Circuit) declaring that ISP-bound traffic was not

local traffic.2 In response to that ruling, Verizon filed a second complaint with the PSC challenging the PSC’s earlier ruling that, under

the terms of the contract between Verizon and MCI, the parties were

entitled to reciprocal compensation for ISP-bound traffic. The PSC

issued a second order, adhering to its first order and concluding as a

matter of State contract law that the Verizon-MCI agreement called

for ISP-bound calls to be treated as local traffic and therefore were

subject to reciprocal compensation. Specifically, the PSC stated: "At

the time the interconnection agreement was entered into, ISP traffic

was treated as local in virtually every respect by all industry participants" and that, given this fact, Verizon "had an obligation to negate

such local treatment in the interconnection agreements it entered into

by specifically excluding ISP traffic from the definition of local traffic subject to the payment of reciprocal compensation." Because Verizon did not exclude ISP traffic from the definition of local traffic,

2The FCC’s order, In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Intercarrier

Compensation for ISP-bound Traffic, 14 FCC Rcd. 3689 (1999) ("1999

ISP Ruling"), was vacated by the D.C. Circuit in Bell Atlantic Telephone

Companies v. FCC, 206 F.3d 1 (D.C. Cir. 2000). On remand, the FCC

"reaffirmed [its] previous conclusion that traffic delivered to an ISP is

predominately interstate access traffic" but modified its analysis to rely

on § 251(g). In re Implementation of the Local Competition Provision in

the Telecommunications Act of 1996, 16 FCC Rcd. 9151, 9153 (2001).

The D.C. Circuit, however, found that reliance on § 251(g) was precluded "[b]ecause that section is worded simply as a transitional device,

preserving various [local carrier] duties that antedated the 1996 Act until

such time as the [FCC] should adopt new rules pursuant to the Act."

WorldCom, Inc. v. FCC, 288 F.3d 429, 430 (D.C. Cir. 2001). The D.C.

Circuit remanded, without vacating, the order "[b]ecause there may well

be other legal bases for adopting the rules chosen by the [FCC]" for compensating ISP-bound calls. Id.

34 VERIZON MARYLAND v. GLOBAL NAPS
according to the PSC, the term "local traffic" included ISP-bound traffic. 

Instead of seeking review of the PSC’s second order in State court,

as it had done with the first, Verizon commenced this action in the

district court, contending that the PSC’s ruling violated both the terms

of the negotiated agreement and federal law, specifically the 1996 Act

and the FCC ruling on ISP-bound traffic. The district court dismissed

the action for lack of jurisdiction, Bell Atl. Md., Inc. v. MFS Intelenet,

Inc., Civil No. S-99-2061 (D. Md. October 20, 1999), and we

affirmed, Bell Atl. Md., Inc. v. MCI WorldCom, Inc., 240 F.3d 279

(4th Cir. 2001). The Supreme Court, however, vacated our decision,

concluding that the district court had jurisdiction under 28 U.S.C.

§ 1331 at least to the extent that Verizon’s claim was that the PSC’s

order violated federal law. Verizon Md., Inc. v. Pub. Serv. Comm’n

of Md., 535 U.S. 635, 648 (2002). The Supreme Court stated that

because the complaint charged that the PSC "violated the [1996] Act

and the FCC ruling when it ordered payment of reciprocal compensation for ISP bound calls," and resolution of that question arose under

federal law, the district court had § 1331 jurisdiction to resolve that

question. Id. at 642. Rejecting the argument that § 252(e)(6) of the

1996 Act limits federal jurisdiction to claims defined in that section,

the Court concluded that while § 252(e)(6) might not confer jurisdiction to hear cases beyond those stated in § 252, it does not divest the

jurisdiction of actions not specified in § 252 that otherwise might

arise under federal law and for which § 1331 provides subject matter

jurisdiction. Id. In reaching this conclusion, the Court made it clear

that federal jurisdiction exists because "resolution of Verizon’s claim

turns on whether the [1996] Act, or an FCC ruling issued thereunder,

precludes the [Maryland] Commission from ordering payment of

reciprocal compensation." Id. at 643. 

The Supreme Court expressly did not decide whether § 252(e)(6)

conferred jurisdiction for review of a State commission decision

interpreting or enforcing an interconnection agreement. See 535 U.S.

at 642 ("Whether the text of § 252(e)(6) can be so construed is a question we need not decide"). The Court also did not address whether

§ 1331 would encompass Verizon’s claim for review of the PSC’s

decision based on its alleged misinterpretation of the interconnection

agreement. See id. at 642-44; see also id. at 650 n.4 (Souter, J., conVERIZON MARYLAND v. GLOBAL NAPS 35
curring) ("Whether the interpretation of a reciprocal-compensation

provision in a privately negotiated interconnection agreement presents

a federal issue is a different question which neither the Court nor I

address at the present"). 

On remand from the Supreme Court, the district court relied on

§ 1331 jurisdiction to resolve Verizon’s claim that the 1996 Act and

FCC ruling precluded the PSC from ordering reciprocal compensation, entering summary judgment for the PSC on the merits. The court

observed that this claim was a "garden-variety federal-preemption

claim[]" over which it had jurisdiction under § 1331. Verizon Md.,

Inc. v. RCN Telecom Servs,, Inc., 248 F. Supp. 2d 468, 476-77 (D.

Md. 2003). On Verizon’s claim that the PSC misinterpreted the contract according to its own terms, however, the district court held that

§ 252(e)(6) did not create a cause of action over which the federal

courts have jurisdiction. The court concluded that Verizon’s misinterpretation claim was a "garden-variety contract claim" and that "any

question of federal law [was] remote and contingent." Id. at 477, 482.

Accordingly, it concluded that the claim did not "arise under" federal

law as used in 28 U.S.C. § 1331. Having concluded that the contract

misinterpretation claim was a State law claim, the district court

declined to exercise supplemental jurisdiction under 28 U.S.C.

§ 1367(a) and dismissed the claim without prejudice. Id. at 482-83. 

The majority opinion now reverses this latter ruling of the district

court, concluding that Verizon’s misinterpretation claim arises under

federal law within the meaning of § 1331. I disagree with that conclusion, and accordingly I respectfully dissent. 

III. Authority under Section 252(e)(6)

The PSC interpreted the language of the Verizon-MCI contract

under Maryland contract law and concluded that when the parties

agreed to reciprocal compensation for local traffic, they agreed to

reciprocal compensation for ISP-bound traffic. The PSC found that a

telephone call to an ISP was a local call and had always been treated

as a local call by the parties, by the PSC, and by the FCC. If Verizon

did not intend to include ISP-bound calls in the contract for reciprocal

compensation, the PSC reasoned, it should have excluded ISP-bound

calls from the definition of local calls because it was an accepted

36 VERIZON MARYLAND v. GLOBAL NAPS
industry custom at the time of the agreement to treat ISP-bound calls

as local calls. 

When Verizon challenged this interpretation in the district court,

the court concluded that the issue was a garden-variety contract issue

governed by Maryland law and that review of the PSC’s order in this

regard must proceed from the Commission to State court, not to federal court, consistent with the overall regulatory scheme of the 1996

Act described above. I agree with the district court, and I base my

conclusion on two propositions: (1) the misinterpretation claim does

not fall within the scope of 47 U.S.C. § 252(e)(6), and therefore federal jurisdiction is not authorized by that provision; and (2) apart from

§ 252(e)(6), a contract interpretation claim for an interconnection

agreement, even though entered into under the mandate of the 1996

Act, does not "arise under federal law," as that phrase is used in 28

U.S.C. § 1331. I address the first point in this Part III, and the second

in Part IV. 

Verizon contends that its complaint falls within the scope of

§ 252(e)(6) and that therefore it has stated a federal claim cognizable

by a federal district court under both that section and under 28 U.S.C.

§ 1331 (conferring federal-question jurisdiction). While Verizon

acknowledges that the express language of § 252(e)(6) limits federal

court review under that section to State commission "determinations"

to "approve or reject" interconnection agreements, see 47 U.S.C.

§ 252(e)(1), (6), Verizon argues that § 252(e)(6) impliedly confers

authority on federal courts to review State commission decisions

interpreting and enforcing such agreements. Thus, it claims that when

a State commission misinterprets the language of a negotiated interconnection agreement that it had earlier approved, the State commission, in misinterpreting the interconnection agreement, makes a

"determination" as used in § 252, which may be reviewed in federal

court pursuant to § 252(e)(6). For support, Verizon relies on decisions

from other circuits and an FCC order that in turn relied on other circuits’ decisions, even though we have concluded otherwise, holding

that the language of § 252(e)(6) does not authorize review of State

commission determinations interpreting and enforcing interconnection agreements. See Bell Atl.-Md., Inc. v. MCI WorldCom, Inc., 240

F.3d 279, 302-03 (4th Cir. 2001), vacated on other grounds, Verizon

Md., Inc. v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 648 (2002). 

VERIZON MARYLAND v. GLOBAL NAPS 37
In reviewing our decision, the Supreme Court in Verizon left open

this issue on the scope of § 252(e)(6). But the Court did observe that

the State commission determination at issue in this case "is neither the

approval or disapproval of a negotiated agreement nor the approval

or disapproval of a statement of generally available terms," as specified in § 252. 535 U.S. at 641 (emphasis added). In response to Verizon’s argument that a determination on the interpretation and

enforcement of an interconnection agreement is "implicitly encompass[ed]" in § 252, the Court stated that that "is a question we need

not decide." Id. at 641-42. It limited its holding on review to concluding that § 252 did not divest the district court of jurisdiction under

§ 1331 to review the PSC’s order "for compliance with federal law."

Id. at 642. 

For the reasons we gave in Bell Atlantic-Maryland, I thus adhere

to the plain meaning of the text of § 252(e)(6) and conclude that,

except for the limited "determinations" covered by § 252(e)(6),

review of State commission orders are left to review by State courts

— an avenue explicitly left in place by the 1996 Act. 

Section 252(e)(6) of Title 47 provides in relevant part: 

In any case in which a State commission makes a determination under this section [§ 252], any party aggrieved by such

determination may bring an action in an appropriate Federal

district court to determine whether the [interconnection]

agreement . . . meets the requirements of section 251 and

this section [§ 252]. 

Because it is clear that this section provides for direct federal court

review of State commission "determination[s]" made "under this section [§ 252]," we need only identify what determinations a State commission is authorized to make under § 252 to ascertain the scope of

§ 252(e)(6)’s review provision. 

Section 251 of Title 47 lifts monopolistic barriers against insurgent

or competing telecommunications carriers by mandating interconnection agreements among local carriers and by imposing a duty on carriers to agree to terms that promote seamless service to consumers.

Section 251 also directs the FCC to promulgate regulations to imple38 VERIZON MARYLAND v. GLOBAL NAPS
ment the section, at the same time commanding it to preserve State

regulations that are consistent with § 251. See 47 U.S.C. § 251(d)(3).

Section 252, entitled "Procedures for negotiation, arbitration, and

approval of agreements," creates the procedural framework for implementing the commands of § 251. Section 252 defines two separate

courses leading to the formation of interconnection agreements —

one by negotiation and the other by compulsory arbitration. Agreements arrived at through negotiation must be submitted to the State

commission, which "shall approve or reject the agreement, with written findings as to any deficiencies." Id. § 252(e)(1); see id. § 252(a).

But the State commission may only reject a negotiated agreement if

it finds either that (1) the agreement discriminates against a nonparty

telecommunications carrier or that (2) the agreement "is not consistent

with the public interest, convenience, and necessity." Id.

§ 252(e)(2)(A). Section 252(e) also permits State commissions to

impose State-law requirements in their reviews of interconnection

agreements. See id. § 252(e)(3). Any party "aggrieved" by a State

commission’s determination approving or rejecting a negotiated

agreement may "bring an action in an appropriate Federal district

court" to test the agreement against the requirements of §§ 251 and

252. Id. § 252(e)(6). And § 252(e)(4) makes this limited federal

review exclusive, stating that "[n]o State court shall have jurisdiction

to review the action of a State commission in approving or rejecting

an agreement under this section [§ 252]." 

If an agreement cannot be reached through negotiation under

§ 252(a), a party may petition the State commission for compulsory

arbitration, setting forth the specific issues upon which agreement

cannot be reached. The State commission is directed to arbitrate and

resolve the disputed issues, including those raised in the response to

the arbitration petition. See id. § 252(b)(4). In conducting the arbitration, the State commission is required (1) to ensure compliance with

§ 251, (2) to establish rates for interconnection services according to

standards in § 252(d), and (3) to provide a schedule for implementation of the interconnection agreement. See id. § 252(c). Once the disputed issues are thus resolved through compulsory arbitration, the

entire agreement is submitted to the State commission for approval or

rejection. But unlike an agreement (or portions of an agreement)

reached through negotiation, where the grounds for rejection by the

VERIZON MARYLAND v. GLOBAL NAPS 39
State commission are limited to discrimination and inconsistency with

the public interest, convenience, and necessity, an arbitrated agreement is reviewed by the State commission for compliance with the

more comprehensive requirements of § 251 (establishing multiple

interconnection requirements) and § 252(d) (establishing pricing standards). That is, arbitrated portions of an agreement are reviewed for

compliance with § 252(c)’s standards for arbitrating open terms. See

id. § 252(e)(2)(B). Finally, as with the State commission’s determination approving or rejecting a negotiated agreement, any party "aggrieved" by the State commission’s determination approving or

rejecting an arbitrated agreement may bring an action in an appropriate federal district court, again "to determine whether the agreement

. . . meets the requirements" of §§ 251 and 252. 47 U.S.C. § 252(e)(6).

In sum, § 252(e)(6)’s provision for review of State commission

"determination[s] under this section" extends only to determinations

to approve or reject negotiated or arbitrated interconnection agreements. The 1996 Act is silent with respect to the administration and

enforcement of such approved interconnection agreements. Given the

division of responsibility for local telecommunications regulation

made under the 1996 Act, including the requirement of § 601(c)(1)

(47 U.S.C. § 152 note) that federal responsibility be expressly provided for, this silence indicates that States are left with the responsibility of reviewing their own commissions’ decisions administering

and enforcing interconnection agreements. The States’ authority to

enforce interconnection agreements stems from the division of

responsibility under the 1934 Act, the residual authority under the

1996 Act, and the States’ general authority to enforce binding agreements. Because that enforcement authority does not derive from

§ 252, a State commission’s interpretation or enforcement of an interconnection agreement is not performed under § 252. Consequently,

§ 252(e)(6)’s review provision does not apply to State commission

decisions enforcing interconnection agreements. 

In this case, Verizon challenges the PSC’s order interpreting and

enforcing interconnection agreements that the PSC previously

approved. Verizon does not now challenge any determination made

by the PSC under § 252 to approve the agreements. The PSC’s

authority to interpret and enforce agreements derives from preexisting

40 VERIZON MARYLAND v. GLOBAL NAPS
Maryland law left in place by the 1996 Act.3

 Because the PSC’s order

was not a "determination" under § 252, Verizon’s challenge to that

order does not fall within the scope of federal jurisdiction conferred

by § 252(e)(6). For the same reason, Verizon may not rely on that

section to assert federal question jurisdiction under § 1331. 

In support of its position, Verizon points out that the six other circuits to have addressed the source of State commissions’ authority to

enforce interconnection agreements have concluded that it is § 252

that grants such authority and therefore that such enforcement determinations are reviewable in federal court under § 252(e)(6). Further,

Verizon also points out that the FCC has construed § 252 to include

the enforcement of interconnection agreements among State commission responsibilities under the 1996 Act. See In the Matter of Starpower Communications, LLC Petition for Preemption of Jurisdiction

of the Virginia State Corp. Comm’n Pursuant to Section 252(e)(5) of

the Telecommunications Act of 1996, 15 FCC Rcd. 11,277 (2000)

(Memorandum Opinion and Order) ("Starpower Communications").

To begin with, it is certainly not the number of opinions from other

circuits that merits our attention, but rather the persuasiveness of their

reasoning. Respectfully, I conclude that none of those opinions has

adequately considered the text of the 1996 Act and its relationship to

the 1934 Act. Those deficiencies remain, no matter how often the

opinions cite one another as persuasive authority. 

In concluding that State commissions’ authority to enforce interconnection agreements derives from § 252, these other circuits rely

almost exclusively on one or both of the following arguments: (1)

3Maryland law appears to confer to the PSC the authority to enforce

interconnection agreements, see Md. Code Ann., Pub. Util. Cos. § 2-

113(a)(1)(ii) ("The Commission shall . . . enforce compliance with the

requirements of law by public service companies . . . ."); id. § 2-

112(b)(2) ("The Commission has the implied and incidental powers

needed or proper to carry out its functions under this article"); id. § 2-

112(c) ("The powers of the Commission shall be construed liberally").

Whether Maryland law does in fact confer such authority to the PSC is

not before us. I assume that the PSC did have authority under State law

to enforce the interconnection agreements for purposes of my analysis.

VERIZON MARYLAND v. GLOBAL NAPS 41
inherent in State commission authority to approve or reject agreements under § 252 is the authority to interpret and enforce those

agreements; and (2) the FCC has concluded that State commission

responsibilities under § 252 include enforcement of agreements, and

that interpretation merits deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Neither

argument, however, withstands close analysis. 

The first argument ("inherent" authority) was initially articulated

by the Eighth Circuit in Iowa Utilities Board v. FCC, 120 F.3d 753,

804 (8th Cir. 1997), rev’d in part sub nom. AT&T Corp. v. Iowa Utilities Board, 525 U.S. 366 (1999) (emphasis added), where the court

stated, "We believe that the state commissions’ plenary authority to

accept or reject [interconnection] agreements necessarily carries with

it the authority to enforce the provisions of agreements that the state

commissions have approved." Although that statement was the extent

of the court’s analysis of the issue and the statement appeared in a

section of analysis that the Supreme Court later held was not ripe for

review, AT&T, 525 U.S. at 386, five circuits have cited Iowa Utilities

Board and adopted the same or a substantially similar statement without providing any further analysis. See BellSouth Telecomms., Inc. v.

MCIMetro Access Transmission Servs., Inc., 317 F.3d 1270, 1274,

1276 (11th Cir. 2003) (en banc) ("common sense reading");4S.W. Bell

4The Eleventh Circuit also finds support for its position in the contrasting language used in §§ 252(e)(4) and (e)(6). It finds instructive that

Congress referred to "determination[s]" in (e)(6)’s grant of federal

review, yet (e)(4) abrogated State court jurisdiction to reviewing state

court actions "approving or rejecting" agreements under § 252. According to the court, "use of the word ‘determination’ in section 252(e)(6)

rather than a specific reference to the approval or rejection of agreements

leads us to believe that Congress did not intend to limit state commissions’ authority to the mere approval and rejection of agreements." BellSouth, 317 F.3d at 1277. But § 252(e)(6) is a procedural provision

referring to review of State commission determinations made pursuant to

authority enumerated elsewhere in § 252, and "[o]ne can hardly conclude

. . . that because the ‘approve or reject’ language is found in sections

252(e)(1) and 252(e)(4) but not section 252(e)(6), this somehow means

that state commissions must undertake additional responsibilities besides

that which is expressly enumerated in section 252(e)(1)." Id. at 1300 n.27

42 VERIZON MARYLAND v. GLOBAL NAPS
Tel. Co. v. Brooks Fiber Communications of Okl., Inc., 235 F.3d 493,

496-97 (10th Cir. 2000) ("necessarily implies"); S.W. Bell Tel. Co. v.

Connect Communications Corp., 225 F.3d 942, 946 & n.1 (8th Cir.

2000) ("address[ing] the matter anew" given the Supreme Court’s partial reversal of Iowa Utilities Board, then concluding that § 252 "necessarily includes the power to enforce [an] interconnection

agreement," citing the Fifth Circuit citing Iowa Utilities Board); MCI

Telecomms. Corp. v. Ill. Bell Tel. Co., 222 F.3d 323, 338 (7th Cir.

2000) ("necessarily includes"); S.W. Bell Tel. Co. v. Pub. Util.

Comm’n of Tex., 208 F.3d 475, 479-80 (5th Cir. 2000) ("necessarily

carries with it"). Finding implied authority, however, conflicts

directly with § 601(c)(1) of the 1996 Act: "This Act and the amendments made by the Act shall not be construed to modify, impair, or

supersede Federal, State, or local law unless expressly so provided in

such Act or Amendments." 47 U.S.C. § 152 note (emphasis added).

In the Fifth Circuit’s opinion (subsequently cited as support in the

Seventh, Eighth, Tenth, and Eleventh Circuits’ opinions), the court

expressed concern that "[u]nder such a narrow construction, [State]

commission jurisdiction would not extend to interpreting or enforcing

a previously approved contract." Pub. Util. Comm’n of Tex., 208 F.3d

at 479. In rejecting that perceived outcome, the court noted that the

FCC "plainly expects" State commissions to enforce previously

approved interconnection agreements. Id. at 480 (citing the 1999 ISP

Ruling, 14 FCC Rcd. at 3703-04, ¶¶ 21, 22, 24, vacated and

remanded on other grounds, Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1

(D.C. Cir. 2000)). The Fifth Circuit clearly did not contemplate the

possibility that State commissions could have authority to enforce

interconnection agreements based on residual authority left to the

states under the 1996 Act — i.e., the interpretation of the 1996 and

1934 Acts advanced in Part I of this opinion and elsewhere. In fact,

none of the circuits considering the source of State commission

(Tjoflat, J., dissenting). Further, the Eleventh Circuit makes this argument in the context of its discussion of the FCC’s Starpower Communications decision and Chevron deference, see id. at 1277 (emphasis

added) ("It is reasonable to read the grant of authority in 252(e) as

encompassing the interpretation of agreements, not just their approval or

rejection"), and I conclude that Chevron deference is not due, see infra.

VERIZON MARYLAND v. GLOBAL NAPS 43
authority address, let alone refute, the view that the source of that

authority stems from the States’ residual authority under the 1996 Act.5

Under this interpretation, State commissions would have authority to

enforce interconnection agreements. Therefore, one can avoid the

strained construction of § 252 as "necessarily" implying State commissions’ authority to enforce interconnection agreements by recognizing the source of such authority in previously established State

law. 

The more fundamental problem with these opinions’ conclusory

statements that § 252 authority to enforce interconnection agreements

"necessarily" follows from § 252 authority to approve or reject them

is that the contention is clearly false. Logic certainly does not require

that the power to make enforcement decisions be conferred by the

same statutory provision authorizing approval or rejection determinations, nor that approval and enforcement authority be vested in the

same governmental entity. Under its commerce power, Congress

could have completely preempted State regulation of local telecommunications participation. Cf. FERC v. Mississippi, 456 U.S. 742, 764

(1982). Congress could have vested approval and enforcement authority with the FCC, or Congress could have split authority between the

FCC and the federal courts. And, provided it was not commandeering

State agencies, Congress could have vested authority to approve and

enforce agreements with State public utility commissions or, for that

matter, with State boards of cosmetology. Or, as the 1996 Act in fact

provides, State commissions could have been invested with authority

to approve or reject interconnection agreements, while leaving for the

States the decision whether to vest enforcement authority with State

commissions or with State trial courts directly (or elsewhere). Thus,

although vesting enforcement authority in the same governmental

entity that approves interconnection agreements (or conferring such

5For example, the Eighth Circuit’s analysis noted that "[w]hile the

arguments of the [appellees] appear to reject the proposition that the state

commissions’ power to enforce federally-mandated interconnection

agreements comes from § 252, they suggest no likely alternative. Arkansas law alone cannot be the source." Connect Communications, 225 F.3d

at 946. In answer, it is State law plus residual authority under the 1996

Act that constitute the sources of State commission authority to enforce

interconnection agreements. 

44 VERIZON MARYLAND v. GLOBAL NAPS
authority by the same statutory provisions) might be one obvious

approach, it is certainly not an inevitable or "necessary" arrangement,

nor one that "necessarily follows" in a logical sense from vesting

approval authority in State commissions through § 252. To the contrary, when considering Congress’ purpose of retaining in the overall

regulatory scheme the resources and expertise of State commissions

and their reviewing courts, it would be more logical to leave authority

to administer and enforce local service contracts in State commissions

and courts under preestablished State law. This would leave State

commissions to function in their traditional role of administering and

enforcing agreements relating to local telephone service, while retaining for federal review only decisions governing the formation of interconnection agreements. 

The other justification for the conclusion that it is § 252 that vests

State commissions with enforcement authority is that the FCC has so

concluded and that its decision merits Chevron deference. Five other

circuits make this argument. See Mich. Bell Tel. Co. v. MCIMetro

Access Transmission Servs., Inc., 323 F.3d 348, 356 (6th Cir. 2003);

BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Servs.,

Inc., 317 F.3d 1270, 1276-77 (11th Cir. 2003) (en banc); S.W. Bell

Tel. Co. v. Brooks Fiber Communications of Okl., Inc., 235 F.3d 493,

497 (10th Cir. 2000); S.W. Bell Tel. Co. v. Connect Communications

Corp., 225 F.3d 942, 946-47 (8th Cir. 2000); S.W. Bell Tel. Co. v.

Pub. Util. Comm’n of Tex., 208 F.3d 475, 480 (5th Cir. 2000); see

also Ill. Bell Tel. Co. v. WorldCom Techs., Inc., 179 F.3d 566, 573

(7th Cir. 1999) ("[T]he [Illinois Commerce] Commission was doing

what it is charged with doing in the [1996] Act and in the FCC ruling

[i.e., 1999 ISP Ruling]. It was determining what the parties intended

under the [interconnection] agreements"). But, as with the "inherent

authority" argument, this argument lacks analysis and is unpersuasive

for several reasons. 

In its 2000 opinion in Starpower Communications, the FCC

addressed a request for preemption of the Virginia State Corporation

Commission, which declined jurisdiction over a reciprocal compensation dispute concerning the interpretation of an interconnection agreement. 15 FCC Rcd. at 11,277-78, ¶¶ 1, 4. Under § 252(e)(5), the FCC

must preempt a State commission’s jurisdiction over a matter if the

State commission "fails to carry out its responsibility" under § 252.

VERIZON MARYLAND v. GLOBAL NAPS 45
In the course of its opinion, the FCC concluded that the interpretation

and enforcement of previously approved interconnection agreements

are within State commissions’ § 252 responsibilities. Id. at 11,279-80,

¶ 6. The entirety of the FCC’s analysis is as follows:

In reaching this conclusion, we find federal court precedent

to be instructive. Specifically, at least two federal courts of

appeal have held that inherent in state commissions’ express

authority to mediate, arbitrate, and approve interconnection

agreements under section 252 is the authority to interpret

and enforce previously approved agreements. These court

opinions implicitly recognize that, due to its role in the

approval process, a state commission is well-suited to

address disputes arising from interconnection agreements. 

Id. (footnote omitted). The two circuit court opinions cited by the

FCC as "instructive" are Southwestern Bell Telephone Co. v. Public

Utility Commission of Texas, 208 F.3d 475 (5th Cir. 2000), and Illinois Bell Telephone Co. v. WorldCom Technologies, Inc., 179 F.3d

566 (7th Cir. 1999). 

As an initial matter, the FCC’s statement that State commissions

are well suited to enforce interconnection agreements given the State

commissions’ role in the approval process does not advance the ball.

It must be conceded that both before and after enactment of the 1996

Act, State commissions have been not only "well-suited to address"

disputes relating to local service agreements, they have done so and

continue to do so. State commissions would be equally well suited to

enforce interconnection agreements whether the source of that authority is the 1996 Act or residual authority under the 1996 Act (i.e.,

stemming from the 1934 Act), and the FCC’s observation adds nothing to the argument that it is § 252 of the 1996 Act that confers such

authority. 

Further, not only does Starpower Communications fail to analyze

the text of § 252 for itself, it also adopts the "inherent-authority" view

based on the strength of two circuit court opinions that themselves

failed to analyze § 252. The Seventh Circuit made only scattered references supporting such a view in a case only indirectly raising the

issue, see Ill. Bell, 179 F.3d at 573-74, and the Fifth Circuit, as dis46 VERIZON MARYLAND v. GLOBAL NAPS
cussed above, stated its conclusory view without contemplating the

possibility that residual authority under the 1996 Act vested States

with enforcement authority, see Pub. Util. Comm’n of Tex., 208 F.3d

at 479-80. Those decisions were also based, in part, on deference to

the FCC’s 1999 ISP Ruling, in which the FCC indicated in dictum

that it expected that State commissions would resolve interconnection

disputes. 14 FCC Rcd. at 3703-06, ¶¶ 21, 22, 24, 26; Pub. Util.

Comm’n of Tex., 208 F.3d at 480; Ill. Bell, 179 F.3d at 572-74. The

1999 ISP Ruling, however, was later vacated by the D.C. Circuit. See

Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 6-9 (D.C. Cir. 2000) (vacating

based on the FCC’s failure to explain why the analysis the FCC used

to determine that ISP calls are jurisdictionally mixed was appropriate

under the 1996 Act or FCC regulations). Further, the 1999 ISP Ruling

revealed only an expectation that State commissions would enforce

interconnection agreements, and in only one passing reference did the

FCC link that expectation to § 252. See 14 FCC Rcd. at 3705-06, ¶ 26

("In the absence of a federal rule [addressing reciprocal compensation

for ISP-bound traffic], state commissions . . . have had to fulfill their

statutory obligation under section 252 to resolve interconnection disputes between incumbent LECs and CLECs"). 

In short, Chevron deference is not due to the FCC’s conclusion in

Starpower Communications when it was reached without analyzing

§ 252 and when it is only based on the persuasiveness of two circuit

court opinions that themselves did not analyze § 252 and that relied

in part on dicta in a vacated 1999 FCC ruling that also did not analyze

§ 252. 

In addition, Chevron deference is not required when the ultimate

question is about federal jurisdiction. Analogous to our obligation to

inquire sua sponte whenever federal jurisdiction is in doubt, see Mt.

Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278

(1977), a federal court must interpret statutory grants of jurisdiction

for itself. See Murphy Exploration & Prod. Co. v. U.S. Dep’t of the

Interior, 252 F.3d 473, 478 (D.C. Cir. 2001) ("Chevron does not

apply to statutes that . . . confer jurisdiction on the federal courts. It

is well established that ‘[i]nterpreting statutes granting jurisdiction to

Article III courts is exclusively the province of the courts’" (quoting

Ramey v. Bowsher, 9 F.3d 133, 136 n.7 (D.C. Cir. 1993))); see also

BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Servs.,

VERIZON MARYLAND v. GLOBAL NAPS 47
Inc., 317 F.3d 1270, 1304-05 (11th Cir. 2003) (Tjoflat, J., dissenting)

(explaining why Starpower Communications does not merit Chevron

deference); Lopez-Elias v. Reno, 209 F.3d 788, 791 (5th Cir. 2000)

(finding deference to an INS construction of a jurisdictional statute

inappropriate because "the determination of our jurisdiction is exclusively for the court to decide"). 

Finally, Chevron deference is not applicable unless the statute construed by the agency is silent or ambiguous. Chevron, 467 U.S. at

842-43. Section 252 is not ambiguous. It confers authority on State

public commissions to make specific determinations, and those determinations are reviewable in federal court. Otherwise the 1996 Act

leaves State commissions the authority they had under the 1934 Act,

including the authority to resolve disputes under telecommunications

agreements. Because the 1996 Act does not explicitly confer authority

on State commissions to interpret and enforce previously approved

interconnection agreements, § 601(c)(1) of the 1996 Act mandates

that the 1934 Act’s allocation of such authority to the States remain

unmodified. Thus, State law remains the source of State commission

authority to enforce local telecommunications agreements and of

State court authority to review them. There is no ambiguity. Section

252 has nothing to do with the allocation of enforcement authority for

disputes over interconnection agreements. And if I needed to reach

Chevron’s step two — whether the agency’s interpretation is based on

a permissible reading of the statute — I would conclude that the

FCC’s interpretation is not a permissible reading of the statute. In

fact, Starpower Communications does not qualify as a "reading" of

the statute at all. The FCC simply cited two circuit court opinions,

which themselves failed to analyze § 252, and simply stated ipse dixit

that State commissions have "inherent" authority to enforce interconnection agreements based on their approval authority — contrary to

§ 601(c)(1)’s requirement of express modification of existing law.

Although it might be a reasonable alternative to vest State commissions with enforcement authority, that conclusion is not a reasonable

interpretation of § 252. See also BellSouth, 317 F.3d at 1305 (Tjoflat,

J., dissenting) ("I do not think the Chevron Court intended that litigants be able to ‘launder’ circuit court opinions through federal agencies and thereby make those opinions binding on other circuits, even

if the agency offers no analysis of its own" (footnotes omitted)). 

48 VERIZON MARYLAND v. GLOBAL NAPS
In addition to concluding that State commission enforcement decisions are not "determinations" that are reviewable in federal court

under § 252(e)(6), I also conclude that Verizon’s complaint does not

properly invoke § 252 because, when it challenges the PSC’s "misinterpretation" of Verizon’s negotiated agreement, it is not contending

that the agreement fails to meet the requirements of §§ 251 and 252,

which is the defined scope of § 252(e)(6). A plain reading of

§ 252(e)(6) indicates a limited scope of review. The relevant portion

reads in full:

In any case in which a State commission makes a determination under this section, any party aggrieved by such determination may bring an action in an appropriate Federal district

court to determine whether the agreement or statement

meets the requirements of section 251 of this title and this

section. 

47 U.S.C. § 252(e)(6) (emphasis added). That is, even if a State commission enforcement decision could be included as a § 252 "determination," § 252(e)(6) provides for federal court review to determine

whether the agreement as construed by the State commission violates

the requirements of §§ 251 and 252. Section 252(e)(6) does not, in

other words, encompass other challenges to a State commission interpretation — such as a claim that a State commission improperly

applied State contract law in interpreting the agreement. 

The First and Seventh Circuits have adopted this straightforward

reading of the text. See P.R. Tel. Co. v. Telecomms. Regulatory Bd.

of Puerto Rico, 189 F.3d 1, 13-15 (1st Cir. 1999); MCI Telecomms.

Corp. v. Illinois Commerce Comm’n, 183 F.3d 558, 564 (7th Cir.

1999), reh’g on other grounds, 222 F.3d 323 (7th Cir. 2000); Ill. Bell

Tel. Co. v. WorldCom Techs., Inc., 179 F.3d 566, 571 (7th Cir. 1999),

cert. dismissed sub nom. Mathias v. WorldCom Techs., Inc., 535 U.S.

682 (2002). Concluding that "[s]ection 252(e)(6) does not confer

authority on federal courts to review the actions of state commissions

for compliance with state law," the First Circuit noted that "[i]f Congress intended federal courts’ review to encompass any kind of

alleged legal flaw in a state commission’s determination, then there

would have been little need to include the language ‘meets the

VERIZON MARYLAND v. GLOBAL NAPS 49
requirements of section 251 . . . and [section 252].’"6 P.R. Tel., 189

F.3d at 13, 14 (quoting 47 U.S.C. § 252(e)(6)) (alterations in original). After discussing how the 1996 Act "exemplifies a cooperative

federalism," the court observed that "[i]t would be ‘surpassing

strange’ to preserve state authority in this fashion and then to put federal courts in the position of overruling a state agency on a pure issue

of state law." Id. at 14-15 (quoting AT&T Corp. v. Iowa Utils. Bd.,

525 U.S. 366, 378 n.6 (1999)). The First Circuit acknowledged that

it is "perfectly conceivable" that a State commission interpretation of

an interconnection agreement based on State law could conflict with

§ 251 or § 252, and, if so, that decision would be reviewable in federal court. Id. at 15. 

The Seventh Circuit also interprets the language of § 252(e)(6) to

mean what it says. Under § 252(e)(6), the Court has held, "federal

courts may review a state commission’s actions with respect to an

agreement only for compliance with the requirements of § 251 and

§ 252 of the Telecommunications Act, and not for compliance with

state law." MCI, 183 F.3d at 564; see also Ill. Bell, 179 F.3d at 571.

In contrast, "[a] decision ‘interpreting’ an agreement contrary to its

terms creates a different kind of problem — one under the law of contracts, and therefore one for which a state forum can supply a remedy." Ill. Bell Tel. Co. v. WorldCom Techs., Inc., No. 98-3150, 1999

U.S. App. LEXIS 20635, at *1 (7th Cir. Aug. 19, 1999) (unpublished

amendment to Ill. Bell, 179 F.3d at 574). 

Verizon critiques the Seventh Circuit’s interpretation of the scope

of review under § 252(e)(6) (and simply ignores the First Circuit’s

interpretation) by insisting that the Fifth, Sixth, Eighth, Ninth, and

Tenth Circuits have rejected the Seventh Circuit’s view.7 The Eighth

6The First Circuit also concluded that it lacked jurisdiction under

§ 252(e)(6) because there was an insufficient nexus between the State

Board’s order and the interconnection agreement, concluding that the

order was therefore not a "determination" under § 252. P.R. Tel., 189

F.3d at 9-13. The court’s analysis of the scope of review represented an

alternative ground for finding that the district court lacked jurisdiction.

7Verizon also unpersuasively suggests that the Seventh Circuit’s holding in Illinois Bell is "of dubious authority even in that circuit" because

of the "plain implication" of scattered language in a later decision that

addressed an entirely different question (i.e., State commission immunity

under the Eleventh Amendment). See MCI Telecomms. Corp. v. Ill. Bell

Tel. Co., 222 F.3d 323 (7th Cir. 2000). 

50 VERIZON MARYLAND v. GLOBAL NAPS
Circuit, however, concluded that jurisdiction was proper because the

claim alleged violations of federal law, and the court even stated that

"[w]ith regard to purely state law issues, the state commissions may

have the final say." S.W. Bell Tel. Co. v. Connect Communications

Corp., 225 F.3d 942, 948 (8th Cir. 2000). And the Tenth Circuit,

although observing that "it would be a waste of judicial resources to

limit the court’s consideration to federal issues only," concluded that

the district court could review State law issues through the exercise

of supplemental jurisdiction. S.W. Bell Tel. Co. v. Brooks Fiber Communications of Okla., Inc., 235 F.3d 493, 498 (10th Cir. 2000). The

Ninth Circuit offered no analysis at all, simply declaring that it would

review de novo a State commission’s interpretation of an interconnection agreement for compliance with federal law and would consider

all other issues under an arbitrary-and-capricious standard. See US

West Communications v. MFS Intelenet, Inc., 193 F.3d 1112, 1117

(9th Cir. 1999). 

The Fifth and Sixth Circuits acknowledged the issue but in the end

concluded without analysis that § 252(e)(6) grants federal courts

jurisdiction to review commission determinations for compliance with

State law. The Fifth Circuit acknowledged a circuit split, described

the Seventh and Ninth Circuits’ competing views, and then simply

stated that "[w]e find [the Ninth Circuit’s] approach appropriate."

S.W. Bell Tel. Co. v. Pub. Util. Comm’n of Tex., 208 F.3d 475, 481-

82 (5th Cir. 2000). The Sixth Circuit acknowledged that § 252(e)(6)

allows for federal court review for compliance with §§ 251 and 252,

and then, after concluding that a State commission’s interpretation of

an interconnection agreement is a § 252 determination, the court drew

the following conclusion without analysis: "Given that federal courts

may review state commission determinations, we join our sister circuits and hold that federal courts have jurisdiction under Section 252

to review state commission interpretations for compliance with state

law." Mich. Bell Tel. Co. v. MCIMetro Access Transmission Servs.,

Inc., 323 F.3d 348, 356-57 (6th Cir. 2003). 

Neither Verizon nor the opinions it cites offers any legitimate reason why the scope of federal-court review under § 252(e)(6) is

broader than as plainly defined in the text. Thus, I agree with the First

and Seventh Circuits that the scope of review under § 252(e)(6) is

limited to compliance with §§ 251 and 252. This construction is yet

VERIZON MARYLAND v. GLOBAL NAPS 51
another reason to conclude that a § 252 determination refers to State

commissions’ approval or rejection decisions — which are subject to

§§ 251 and 252 — not to enforcement decisions that raise State law

issues. 

In short, Verizon seeks review of the Maryland Public Service

Commission’s decision that allegedly misinterprets, under State contract law, the language of a negotiated agreement. This claim does not

concern a § 252 determination, and therefore the decision is not

reviewable in federal court under § 252(e)(6). Moreover, in alleging

that the PSC misinterpreted the terms of the negotiated agreement,

Verizon does not contend that this misinterpretation violates § 251 or

§ 252. Accordingly, for this reason also, its claim does not fall within

the scope of review permitted under § 252(e)(6). The district court

correctly concluded that the misinterpretation claim is not a federal

claim for which federal jurisdiction under § 252(e)(6) is available. Of

course, under this construction of § 252, Maryland State courts

remain available to review the PSC’s orders, as Verizon recognized

when it pursued this course the first time it sought review of the

PSC’s interpretation of its interconnection agreement. 

IV. Section 1331 Jurisdiction

Verizon also contends that its claim that the PSC misinterpreted

Verizon’s negotiated agreement with MCI raises a federal question

for which the district court had jurisdiction under 28 U.S.C. § 1331

(providing federal district courts with "original jurisdiction of all civil

actions arising under the Constitution, laws, or treaties of the United

States"). In deciding this issue against Verizon, the district court recognized that Verizon was making two distinct claims challenging the

PSC’s order: (1) that the PSC’s order "violates the 1996 Act and FCC

rulings issued thereunder by requiring payment of reciprocal compensation for ISP-bound calls"; and (2) that the order "violates the 1996

Act and FCC rulings issued thereunder by misinterpreting the terms

of its agreements with [MCI] to require payment of reciprocal compensation for ISP-bound calls." Verizon Md., 248 F. Supp. 2d at 476

(emphasis added). The district court understood that it had jurisdiction

under § 1331 to decide the first claim, and it granted summary judgment to PSC on the merits of that claim. On the second claim, however, the court declined to exercise supplemental jurisdiction,

52 VERIZON MARYLAND v. GLOBAL NAPS
concluding that the claim arose under State contract law, not federal

law. Id. at 487-88. 

These rulings by the district court were, I submit, completely consistent with both the Supreme Court’s earlier decision in this case and

with the "arising under" jurisprudence of § 1331. 

While the Supreme Court earlier in this case decided that Verizon’s

claim that the PSC’s order did not comply with federal law fell within

the district court’s § 1331 jurisdiction, the Court did not decide

whether Verizon’s claim that the PSC misinterpreted the terms of its

interconnection agreement fell under § 1331 jurisdiction. As the

Supreme Court stated:

[T]he district court has jurisdiction if the right of the petitioners to recover under their complaint will be sustained if

the Constitution and laws of the United States are given one

construction and will be defeated if they are given another,

unless the claim clearly appears to be immaterial and made

solely for the purpose of obtaining jurisdiction or where

such a claim is wholly insubstantial and frivolous. Here,

resolution of Verizon’s claim turns on whether the [1996]

Act, or an FCC ruling issued thereunder, precludes the

[Maryland] Commission from ordering payment of reciprocal compensation, and there is no suggestion that Verizon’s

claim is immaterial or wholly insubstantial and frivolous. 

Verizon’s claim thus falls within 28 U.S.C. § 1331’s general grant of jurisdiction. 

Verizon, 535 U.S. at 643 (internal quotation marks and citations omitted) (emphasis added). In linking § 1331 jurisdiction to Verizon’s

claim that the PSC order violated federal law, the Court chose not to

address whether § 1331 would also encompass a claim that a State

commission misinterpreted an interconnection agreement in an

enforcement dispute. See id. at 642-44; see also id. at 650 n.4 (Souter,

J., concurring) ("Whether the interpretation of a reciprocalcompensation provision in a privately negotiated interconnection

agreement presents a federal issue is a different question which neither the Court nor I address at the present"). 

VERIZON MARYLAND v. GLOBAL NAPS 53
Verizon does not argue that the Supreme Court in Verizon ruled

that its misinterpretation claim arises under federal law. Rather, Verizon argues that its misinterpretation claim arises under federal law

based on the general "arising under" jurisprudence of § 1331, advancing three arguments. First, it contends that a State commission exercises federal power when enforcing interconnection agreements and

that there is a presumption of federal review where an agency wields

federal authority in a manner contrary to federal law, such as by misinterpreting an interconnection agreement. Second, it contends that

because § 252(a)(1) grants local telecommunications carriers the right

to enter into "binding" interconnection agreements, federal law is violated when the State commission imposes obligations inconsistent

with the stated terms of an agreement. Third, it contends that "interconnection agreements are the product of federal legal coercion

designed to implement federal statutory obligations" and therefore

"any claim based on a 1996 Act interconnection agreement arises

under federal law." I address these points in order. 

A

Verizon contends first that the PSC’s authority to adjudicate the

meaning of the contractual language in the interconnection agreement

derives from federal law and that its "claim that the state commission

misinterpreted the agreement thus constitutes a claim that an agency

has wielded federal authority in a manner that is not in accordance

with law." As fully articulated in Part I (discussing the division of

federal and State responsibility under the 1996 Act), I reject the premise of Verizon’s argument. The PSC’s authority to adjudicate the case

stems from State law, not federal law (i.e., from residual State authority under the 1996 Act). Further, Verizon concedes that review of

enforcement decisions is available in State courts (which is in fact the

course that Verizon took in response to the PSC’s September 1997

order), a fact the Supreme Court also recognized. See Verizon, 535

U.S. at 643 (observing that "here the elimination of federal districtcourt review would not amount to the elimination of all review").

Thus, even if State commissions acted as "federalized" agencies when

enforcing interconnection agreements, Verizon’s citation to cases

such as Bowen v. Michigan Academy of Family Physicians, 476 U.S.

667, 670 (1986), for the proposition that there is a "strong presump54 VERIZON MARYLAND v. GLOBAL NAPS
tion" that "Congress intends judicial review of administrative action"

is inapt. 

B

Verizon contends next that, by "requiring Verizon to pay reciprocal

compensation on ISP-bound traffic, the PSC acted contrary to the

terms of the governing interconnection agreement" and that under the

1996 Act, "a state commission is not permitted to impose obligations

inconsistent with [an agreement’s] terms." One is tempted to dismiss

out-of-hand an argument that federal law is somehow violated when

an agency acting in an adjudicatory capacity misinterprets the terms

of an agreement between private parties. Yet Verizon characterizes

this argument as its "fundamental claim." 

Verizon develops this argument as follows. Under § 252(a)(1), an

incumbent local carrier "may negotiate and enter into a binding agreement with [a] requesting telecommunications carrier or carriers without regard to the standards set forth in subsections (b) and (c) of

section 251 of this title." Verizon contends that "[b]ecause federal law

dictates that [duly approved] interconnection agreements . . . are binding, a state commission is not permitted to impose obligations inconsistent with their terms." (Emphasis added). When a State commission

misconstrues the terms of a negotiated agreement, Verizon insists, it

imposes contrary terms in violation of parties’ rights under

§ 252(a)(1). According to Verizon, "[i]t is, in part, the commissions’

lack of power to impose such obligations that gives force to section

252(a)(1)." Verizon contends that its claim therefore arises under federal law because "the PSC’s interpretation violates Verizon’s federally protected right to enter into ‘binding agreement[s]’" (alteration in

original). 

Verizon makes much of § 252(a)(1)’s reference to "binding agreements," discovering a federally protected "right," but that language

hardly represents Congressional intent to federalize all disputes over

the terms of an interconnection agreement. The language signifies

nothing more than that interconnection agreements, once approved by

State Commissions, are binding contracts and that the parties are obligated to perform under the terms of the agreement as interpreted by

State commissions (or State courts). Because § 252(a)(1) explicitly

VERIZON MARYLAND v. GLOBAL NAPS 55
permits parties to negotiate terms without regard to §§ 251(b) and (c),

Verizon’s argument amounts to a claim that a State commission’s

misinterpretation of terms voluntarily negotiated without regard to

federal law somehow violates federal law. Like the district court, I

reject Verizon’s "read[ing of] the 1996 Act to create a federal cause

of action whenever a state commission (mis)determines what parties

intended under their interconnection agreements." Verizon Md., 248

F. Supp. 2d at 477. 

C

Finally, Verizon contends that "any claim based on a 1996 Act

interconnection agreement arises under federal law" (emphasis added)

because "interconnection agreements are the product of federal legal

coercion designed to implement federal statutory obligations" and any

approved agreements must be made available, under § 252(i), on the

same terms to other requesting local carriers. Although conceding that

the 1996 Act grants local carriers "limited flexibility" with respect to

the terms of reciprocal compensation arrangements, Verizon insists

that federal law is the source of the reciprocal compensation provisions. Under its interpretation, § 1331 is satisfied in the same way that

the Supreme Court found jurisdiction in International Association of

Machinists v. Central Airlines, Inc., 372 U.S. 682 (1963).8

In the typical analysis under § 1331, the inquiry is whether "a wellpleaded complaint establishes either [1] that federal law creates the

cause of action or [2] that the plaintiff’s right to relief necessarily

depends on resolution of a substantial question of federal law." Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal.,

463 U.S. 1, 27-28 (1983). In those cases where the federal question

8Verizon also contends that § 1331 is satisfied because interconnection

agreements "serve essentially the same function as, and evince the central attributes of, federal tariffs," which do present claims arising under

federal law. See Thurston Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460

U.S. 533, 534 (1983) (per curiam). Unlike federal tariffs for interstate

telephone services, which carriers formerly had to file with the FCC,

interconnection agreements apply primarily within a single State and are

approved by State commissions, and there is no need for national uniformity in treatment. The analogy fails. 

56 VERIZON MARYLAND v. GLOBAL NAPS
is an element of a State cause of action, "determinations about federal

jurisdiction require sensitive judgments about congressional intent,

judicial power, and the federal system." Merrell Dow Pharms., Inc.

v. Thompson, 478 U.S. 804, 810 (1986). "[T]he mere presence of a

federal issue in a state cause of action does not automatically confer

federal-question jurisdiction," but rather the inquiry must assess "the

nature of the federal interest at stake." Id. at 813, 814 n.12; see also

Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 807 (4th Cir. 1996).

This typical analysis under § 1331 does not, however, readily apply

to this case. Although the 1996 Act does not include an express private right of action for the enforcement of interconnection agreements

(as opposed to § 252(e)(6)’s limited right of action for review of

§ 252 determinations for compliance with §§ 251 and 252), Congress

no doubt expected that interconnection agreements would be enforceable by private action. As the Supreme Court stated in an analogous

context, "[t]he issue, then, is not whether Congress intended [parties]

to be able to bring contract actions for breaches of the . . . contracts,

but whether Congress intended such contract actions to set forth federal, rather than state, claims." Jackson Transit Auth. v. Local Div.

1285, Amalgamated Transit Union, 457 U.S. 15, 21 (1982). 

In support of its argument that enforcement of a federally mandated

agreement arises under federal law, Verizon contends that this case

is "indistinguishable" from International Association of Machinists v.

Central Airlines, Inc., 372 U.S. 682 (1963), which Verizon characterizes as holding that "disputes regarding federally mandated contracts

arise under federal law." Central Airlines, however, is readily distinguishable, and its holding is far narrower than Verizon suggests. 

Central Airlines held that "a suit to enforce an award of an airline

system board of adjustment [created pursuant to § 204 of the Railway

Labor Act] is a suit arising under the laws of the United States under

28 U.S.C. § 1331." 372 U.S. at 684-85, 696; see also Jackson Transit,

457 U.S. at 22 (Central Airlines "held that a union had a federal cause

of action to enforce an award of an airline adjustment board included

in a collective-bargaining contract pursuant to § 204 of the Railway

Labor Act"). Under § 204 of the Railway Labor Act, 45 U.S.C. § 184,

airline carriers and their employees (through their unions) have a duty

to establish a board of adjustment by contract to handle grievances

VERIZON MARYLAND v. GLOBAL NAPS 57
covered by a collective bargaining agreement. In Central Airlines,

after the employer refused to honor an award of a contractually established system board, the union sued the employer in federal court to

enforce the award. 

In addressing whether the suit arose under § 1331, the Central Airlines Court concluded that "[t]he contracts and the adjustment boards

for which they provide are creations of federal law and bound to the

statute and its policy." 372 U.S. at 692. A § 204 contract "is a federal

contract and is therefore governed and enforceable by federal law, in

the federal courts." Id. According to the Court, it is

federal law which must determine whether the contractual

arrangements made by the parties are sufficient to discharge

the mandate of § 204 and are consistent with the Act and its

purposes. It is federal law which would determine whether

a § 204 contract is valid and enforceable according to its

terms. If these contracts are to serve this function under

§ 204, their validity, interpretation, and enforceability cannot be left to the laws of the many States, for it would be

fatal to the goals of the Act if a contractual provision contrary to the federal command were nevertheless enforced

under state law or if a contract were struck down even

though in furtherance of the federal scheme. 

Id. at 691 (emphasis added). The Court emphasized the need for uniformity in the enforcement of a national policy based on the subject

matter of interstate air commerce. Id. at 691-92 & nn. 15-16. Thus,

whether contracts created pursuant to the provisions of § 204 were

federal contracts enforceable in federal court was to be determined in

light of the Act and its purposes. Reviewing the Act and its purposes,

the Court "conclude[d] that when Congress ordered the establishment

of system boards to hear and decide airline contract disputes, it

intended the Board to be and to act as a public agency, not as a private

go-between; its awards to have legal effect, not merely that of private

advice." Id. at 695 (internal quotation marks and citation omitted).

Consistent with the policy of a unified national labor law, the union’s

complaint to enforce an adjustment board award was held to arise

under federal law. Id. at 695-96. 

58 VERIZON MARYLAND v. GLOBAL NAPS
But enforcement of privately negotiated interconnection agreements, even though mandated by the Telecommunications Act of

1996, represents a totally different policy, and such contracts are

unlike the collective bargaining contracts involved in Central Airlines. First, interconnection agreements are required for the purpose

of introducing competition into local communications markets, and

their mandate was part of a cooperative federalism scheme created by

the 1996 Act. Moreover, the policy of the 1996 Act is to prefer private contract and deregulation — purposes totally different from

those of the Railway Labor Act. 

Even though the 1996 Act compels the formation of interconnection agreements, local carriers may voluntarily agree to terms "without regard to the standards set forth in subsections (b) and (c) of

section 251." 47 U.S.C. § 252(a)(1). Thus, the dispute in this case

(i.e., whether reciprocal compensation is due according to the terms

of the interconnection agreement) does not directly raise an issue of

federal law. In fact, given the authority to negotiate terms without

regard to federal law, the reciprocal-compensation terms do not raise

an issue of federal law in any meaningful way. Indeed, the district

court so held in its summary judgment ruling, which Verizon did not

appeal. Also, whereas the Court in Central Airlines emphasized the

importance of uniformity on an issue with a strong and longstanding

federal interest (i.e., labor relations affecting interstate transportation),

there is no comparable interest with respect to the content of local carriers’ reciprocal-compensation provisions. The federal interest is in

the formation of interconnection agreements in furtherance of the goal

of promoting competition in local telecommunications; any federal

interest in private parties’ reciprocal-compensation terms is negligible.9

9

In response to my observation that the federal interest is negligible,

the majority states that a substantial federal interest exists with respect

to reciprocal-compensation arrangements and that I have overlooked how

important such arrangements are to the federal interest of promoting

local competition. Ante at 16. This response, however, misses my point

altogether. Even though interconnection agreements and reciprocalcompensation arrangements are important to fulfilling the federal interest

in promoting local competition, the content of those arrangements is not,

and 47 U.S.C. § 252(a)(1) makes this explicit. Specifically, as relevant

to this dispute, the question of whether ISP-bound calls are compensable

VERIZON MARYLAND v. GLOBAL NAPS 59
At bottom, Central Airlines hardly stands for the proposition

advanced by Verizon that all disputes concerning federally mandated

contracts arise under federal law. 

More analogous to the present case is Jackson Transit Authority v.

Local Division 1285, Amalgamated Transit Union, 457 U.S. 15

(1982). In that case, the Supreme Court considered whether § 13(c)

of the Urban Mass Transportation Act of 1964, 78 Stat. 307 (codified

as amended at 49 U.S.C. §§ 5301-5338), permitted a union to sue in

federal court for alleged breaches of agreements mandated by that

Act. Under that Act, a State or local government seeking federal

financial assistance for the acquisition of a privately owned transit

company was required to make arrangements to preserve the private

transit workers’ collective bargaining rights. 457 U.S. at 16. Section

13(c) required the U.S. Secretary of Labor to certify that "fair and

equitable" arrangements had been made, including steps to ensure the

"preservation of benefits under existing collective-bargaining agreements and the continuation of collective-bargaining rights." Id. at 17-

18 (internal quotation marks omitted). Thus, when the union sued the

City of Jackson, Tennessee, for breach of a mandated § 13(c) agreement that had been approved by the Secretary of Labor, the union

invoked federal question jurisdiction to file suit in federal court. The

under the Verizon-MCI agreement concerns no federal interest. At the

time the parties were negotiating the agreement in this case, neither the

federal statute nor any federal regulation addressed ISP-bound calls, and

the parties were free to negotiate any provision defining how such ISPbound calls were to be treated. In addition, the contractual interpretation

question here does not even relate to whether reciprocal compensation

for ISP-bound calls would better promote the federal interest. Rather, it

reduces simply to whether the parties reached agreement on treating

those calls as local calls eligible for reciprocal compensation. The PSC,

applying principles of Maryland contract law, construed the parties’

negotiated agreement and found that the parties indeed agreed to treat

ISP-bound calls as local calls. The PSC’s action thus implicated state

contract law, not any federal interest identified by the majority. 

In missing my point, the majority, I respectfully submit, continues to

advance its underlying thesis that avoids the more particularized analysis

necessary to determine when the interpretation of a federally mandated

contract implicates § 1331 jurisdiction and when it does not. 

60 VERIZON MARYLAND v. GLOBAL NAPS
Supreme Court, reversing the court of appeals, held that the district

court did not have federal question jurisdiction. 

The Supreme Court observed that cases such as Central Airlines

"demonstrate that suits to enforce contracts contemplated by federal

statutes may set forth federal claims and that private parties in appropriate cases may sue in federal court to enforce contractual rights created by federal statutes," but that "the critical factor is the

congressional intent behind the particular provision at issue." Id. at 22

(emphases added). Suits alleging breaches of agreements that are

"creations of federal law" will state federal claims only if "the rights

and duties contained in those contracts [are] federal in nature." Id. at

23 (internal quotation marks omitted). Acknowledging that § 13(c)

explicitly specifies protective provisions that any such arrangements

must include, the Supreme Court nevertheless held that, according to

the legislative history, Congress intended that State law govern the

labor relations between local governments and transit workers and

that § 13(c) not disturb the statutory exemption from the National

Labor Relations Act that applied to local governments and their

employees. Id. at 23-28. Based on the legislative history, the Court

also rejected the "anomalous" "possibility that Congress might have

intended a federal court to hear the union’s claims, but to apply state

law." Id. at 28 n.11. 

Like the statutory provisions at issue in Jackson Transit, the 1996

Act reveals a congressional intent that alleged breaches of the federally contemplated agreements be heard by State courts applying State

law. The Court in Jackson Transit reached that conclusion even

though the alleged breach concerned the very rights protected by federal law (i.e., the guarantee of collective bargaining rights). By contrast, the dispute in this case concerns contract terms agreed to

without regard to federal law requirements. See 47 U.S.C.

§ 252(a)(1). Moreover, the cooperative-federalism scheme created by

the 1996 Act reveals congressional intent to limit federal reach into

areas traditionally regulated by states. 

Although the 1996 Act dramatically changed the regulation of local

telecommunications, Congress did so in a way that carefully circumscribed federal regulation of this traditionally State-regulated area.

See Part I, ante. The 1996 Act amended the 1934 Act, but left in place

VERIZON MARYLAND v. GLOBAL NAPS 61
much of the structure of the 1934 Act. The 1996 Act, for example,

did not repeal 47 U.S.C. § 152, which divides responsibility for regulation of interstate and intrastate telecommunications between the

FCC and the States, respectively. And § 601(c)(1) of the 1996 Act

provides that the Act "shall not be construed to modify, impair, or

supersede Federal, State, or local law unless expressly so provided in

such Act or amendments." 47 U.S.C. § 152 note (emphasis added).

The Supreme Court has observed that, because the 1996 Act has

extended federal regulation into local competition, § 152 "may have

less practical effect." AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366,

381 n.8 (1999). But, the Court added, "[i]nsofar as Congress has

remained silent, . . . § 152(b) continues to function." Id. The 1996 Act

also explicitly preserves State authority to enforce existing, and

impose additional, State regulations on local carriers provided that the

regulations are not inconsistent with the 1996 Act. 47 U.S.C. § 261.

The local-competition provisions themselves emphasize that State

commissions retain authority to impose competitively neutral State

law requirements. Id. § 252(d)(3). The 1996 Act, therefore, evinces

congressional intent to take away as little State authority as possible

in its effort to promote local competition in telephone service. 

Despite the 1996 Act’s carefully circumscribed role for federal regulation of local telecommunications, Verizon contends that all disputes concerning interconnection agreements may be brought in

federal court. If Verizon’s argument is accepted, a dispute concerning

terms that have nothing to do with federal law or regulations could

nevertheless be brought in federal court. Competitively neutral terms

imposed by State law, pursuant to § 252(d)(3), for example, would

arise under federal law and could be brought before federal courts

applying State law. Even a dispute over the date reciprocalcompensation payments are due, according to Verizon’s argument,

would raise a federal question. I agree with the First Circuit that "[i]t

would be ‘surpassing strange’ to preserve state authority in this fashion [under the 1996 Act] and then to put federal courts in the position

of overruling a state agency on a pure issue of state law." P.R. Tel.

Co. v. Telecomms. Regulatory Bd. of Puerto Rico, 189 F.3d 1, 15 (1st

Cir. 1999) (quoting AT&T, 525 U.S. at 378 n.6). 

The same is true for terms in a voluntarily negotiated interconnection agreement generally, especially given that the 1996 Act permits

62 VERIZON MARYLAND v. GLOBAL NAPS
local carriers to agree to terms "without regard to the standards set

forth in subsections (b) and (c) of section 251." 47 U.S.C. § 252(a)(1).10

The federal interest in promoting local competition is focused on the

formation of interconnection agreements that comply with §§ 251 and

252. Thus, Congress designed the provisions of §§ 251 and 252 to

enlist State commissions to mediate, arbitrate, and approve or reject

interconnection agreements. Section 252(e)(6) provides for federal

review of those determinations to ensure compliance with §§ 251 and

252. The 1996 Act, however, is completely silent about the enforcement of interconnection agreements, which, based on the Act’s

cooperative-federalism scheme, indicates that such disputes are to be

resolved by the States. Once approved, interconnection agreements

are binding agreements with contractual rights and duties to be

enforced according to State contract law in State commissions and

courts. The federal interest in the content of local carriers’ voluntarily

negotiated reciprocal-compensation terms is negligible. Congress did

not intend for disputes over the interpretation of voluntarily negotiated interconnection agreements to be heard in federal courts. 

Finally, although its briefs submitted on this appeal do not directly

present the argument (other than through a few scattered and incomplete references), one could read Verizon’s scattered references as

arguing, as it did below and as the majority does, that the parties

intended that the reciprocal compensation arrangements in the interconnection agreements "track" federal law and that, therefore, § 1331

is satisfied. As an initial matter, the agreement certainly does not

expressly indicate an intention to track federal law, and whether the

parties did in fact intend to track federal law would be resolved by

principles of Maryland contract law. Further, that private parties gratuitously incorporate federal law into an agreement does not change

the fact that the terms are privately negotiated, and federal law exerts

no independent force over the parties. Even if the parties agreed to

track federal law, that gratuitous incorporation of federal law would

10The majority finds it significant that § 251(b) imposes a duty on local

carriers to establish reciprocal-compensation terms. Ante at 14-15. Verizon’s complaint, however, is not that no reciprocal-compensation terms

have been agreed to, but that the PSC misinterpreted the agreed-upon

terms — which, under § 252(a)(1), the parties could negotiate without

regard to federal standards. 

VERIZON MARYLAND v. GLOBAL NAPS 63
not create jurisdiction under § 1331. See Mabe v. G.C. Servs. Ltd.

P’ship, 32 F.3d 86, 88 n.2 (4th Cir. 1994) ("A private contract cannot

create federal question jurisdiction simply by reciting a federal statutory standard"); Oliver v. Trunkline Gas Co., 796 F.2d 86, 89-90 (5th

Cir. 1986) ("[W]e are aware of no case in which any court, let alone

the Supreme Court, has held that a private contract can give rise to

federal-question jurisdiction simply by ‘incorporating’ some federal

regulatory standard that would not have been binding on the parties

by its own force"). 

Accordingly, Verizon’s claim that the PSC misinterpreted the privately negotiated reciprocal-compensation terms of its interconnection agreements does not present a federal question for purposes of

jurisdiction under § 1331. 

V. Conclusion

For the foregoing reasons, I would affirm the district court’s judgment across the board, and therefore I dissent from the majority’s

conclusion that when a State commission interprets a negotiated interconnection agreement under principles of State contract law, a claim

challenging that interpretation arises under federal law.

64 VERIZON MARYLAND v. GLOBAL NAPS