Opinion ID: 2230356
Heading Depth: 1
Heading Rank: 3

Heading: Consistency with the Provisions of the Act

Text: Qwest also argues that the Act was intended to reduce regulation and that the fixed minimum performance standards are inconsistent with that goal, and are therefore preempted as inconsistent with the Act. While Qwest is correct that one of the Act's goals was to reduce regulation, 47 U.S.C. §§ 253(b) and 261(c) expressly preserve the states' authority to impose regulations to ensure quality and further competition. Therefore, state regulation designed to ensure quality and further competition, such as the MPUC order, is not inconsistent with the Act's goal of reducing regulation. Qwest also argues that the Act allows state regulators to require no more than parity between the incumbent carrier's wholesale and retail services. Citing the Eighth Circuit decision in Iowa Utilities, Qwest argues that [p]lainly, the Act does not require [an incumbent carrier] to provide its competitors with superior quality interconnection. Iowa Utils. Bd. v. F.C.C., 120 F.3d 753, 812 (8th Cir.1997), aff'd in part, rev'd in part, and rem'd sub nom., AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). We disagree. What the Act requires is that incumbent carriers provide CLECs interconnection that is at least equal in quality to that provided to their subsidiaries and retail customers. 47 U.S.C. § 251(c)(2)(C) (2000). [3] By its interpretation of the phrase at least equal in quality, Qwest would essentially make parity between wholesale and retail services not the floor (as in at least equal in quality), but the ceiling (as in no more than equal in quality), for the interconnection services provided by an incumbent carrier to CLECs. That interpretation is inconsistent with the Eighth Circuit's holding in Iowa Utilities. Under Iowa Utilities, the phrase at least equal in quality establishes a floor below which the quality of the interconnection may not go. 120 F.2d at 812 (emphasis added). Other federal courts have reached conclusions that are consistent with that holding. See, e.g., Ind. Bell Tel. Co. v. McCarty, 362 F.3d 378, 393 (7th Cir.2004) (holding that the phrase at least equal contemplates that something more than equal is allowable, rather than preempted); MCI Telecommunications Corp. v. N.Y. Tel. Co., 134 F.Supp.2d 490, 506 (N.D.N.Y.2001) (finding that the state commission acted lawfully in ordering an incumbent carrier to restore services to a CLEC at a higher level before implementing similar services to all CLECs); AT&T Communications of Southern States, Inc. v. GTE Florida, Inc., 123 F.Supp.2d 1318, 1329 (N.D.Fla.2000) (concluding that the state commission could require an incumbent carrier to provide a certain number of portability solutions to a CLEC, even though the incumbent carrier does not provide the same services to its own subsidiaries). To the extent that the Iowa Utilities decision precludes requiring more than parity, as argued by Qwest, it is distinguishable in several respects. In Iowa Utilities, the court ultimately struck down the FCC regulation at issue because it required the incumbent carrier to provide the CLECs superior quality services whenever requested by the CLECs. 219 F.3d at 758. Here, rather than empowering the CLECs to dictate the quality of service that the incumbent carrier must provide to them, the MPUC made that determination in adopting the fixed minimum performance standards that require Qwest to provide wholesale services that are of measurable, predictable, and consistent quality. Second, the requirement struck down in Iowa Utilities was imposed by the FCC, whose authority under the Act is not necessarily identical to that of state regulators. Finally, given the  at least equal in quality wording of the statute, we find the decisions of other federal courts cited above that rejected a strict parity rule more persuasive. The dissent would hold that imposition of minimum performance standards is preempted because it frustrates the goals of the Act to foster competition and reduce regulation. In our view, the dissent's emphasis on the deregulatory purpose and market-based approach of the Act goes too far. Although the commentator cited by the dissent would prefer more complete deregulation, he acknowledges that is not what Congress enacted. Adam Thierer, Four More Years ... of the Status Quo? How Simple Principles Can Lead Us out of the Regulatory Wilderness, 57 Fed. Comm. L.J. 215, 216 (Mar.2005). In fact, rather than faulting the failure of the courts to find preemption, as implied by the dissent, the commentator urges Congress to enact more complete preemption: The only way [the patchwork of policies] will end is by federal lawmakers taking the same difficult step they had to take when deregulating airlines, trucking, railroads, and banking: preemption. They must get serious about the national policy framework mentioned in the preamble of the Telcom Act by comprehensively preempting state and local regulation in this sector. Id. at 219 (emphasis added). Indeed, if more complete preemption is desirable or necessary to achieve the Act's goals, as the author recognizes, Congress must make that determination. Not this court. Nor can we agree with the dissent's characterization of the impact of the minimum service standards in this case. First, the dissent notes that the Act provides for negotiation of interconnection agreements between CLECs and incumbent carriers and concludes that imposition of the minimum standards alters the baseline of interconnection negotiations and fundamentally changes the Act's process of initiating new market entries. But here, Qwest agreed to bypass the negotiation stage when it agreed to participate in an expedited proceeding before the MPUC to set permanent wholesale service quality standards in exchange for approval of the merger between Qwest and US West. Second, the dissent also concludes that Qwest is burdened with fixed performance standards its competitors can ignore. On the contrary, the minimum performance standards apply only to services that Qwest's competitors must rely on Qwest, as the incumbent carrier, to provide. It is because of that dependence of competitors on Qwest in these particularly sensitive service areas that the MPUC found minimum standards necessary to ensure fair competition. Third, despite the emphasis on the argument that the standards require Qwest to provide higher quality service to its competitors, it is noteworthy that the MPUC found that the minimum service standards imposed largely coincide[ ] with service quality standards arising from other documents, primarily the standards for interconnection agreements with CLECs set in the 1996 arbitration and upheld by the federal district court and the standards for service to Qwest's own customer set in its AFOR plan. The dissent also concludes that the minimum service standards conflict with the competitively neutral language of section 253(b) of the Act. The dissent states that [i]f the requirement of competitive neutrality is to have any meaning, it cannot merely be that a state regulation be designed to increase competition. We agree that not every regulation designed to increase competition would be permissible. But we do not agree with the dissent's conclusion that state regulations must not handicap or help the parties in the new competitive market the Act aims to construct. Congress expressly preserved the states' authority to impose requirements necessary to further competition. The dissent's restrictive view reads that authorization out of the Act. At worst, the confluence of these phrases creates ambiguity regarding the scope of preemption  or conversely the role preserved for the states. In this situation, finding preemption is disfavored: Where, as here, the field which Congress is said to have pre-empted has been traditionally occupied by the States, we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress. This assumption provides assurance that the federal-state balance, will not be disturbed unintentionally by Congress or unnecessarily by the courts. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977) (citations omitted). We must also note that the cases cited by the dissent do not hold that limited regulation such as that imposed by the MPUC intended to level the playing field, and thus ensure quality and enhance competition, is preempted. As explained, the court in TCG struck down a fee imposed on CLECs but not the incumbent carrier. Similarly, the FCC order relied on in US West Communications v. M.F.S. Intelenet, Inc., 193 F.3d 1112 (9th Cir.1999), involved a mechanism that required new entrants to bear all the costs of number portability. Thus, in both circumstances addressing competitive neutrality there was an extra burden imposed on the new entrants to the market, favoring the incumbent carriers, rather than leveling the playing field. In Cablevision of Boston, Inc. v. Public Improvement Commission of Boston, 184 F.3d 88, 105 (1st Cir.1999), the court held that the competitively neutral language in a different provision of the Act (concerning regulation of rights-of-way) did not  require local authorities to purposefully seek out opportunities to level the telecommunications playing field. (Emphasis added.) Failing to find an affirmative obligation to level the playing field is not the equivalent of ruling that such regulation is prohibited. The court went on to explain: If, however, a local authority decides to regulate for its own reasons   , § 253(c) would require that it do so in a way that avoids creating unnecessary competitive inequities among telecommunications providers. Id. The regulation here is consistent with that view. In essence, the MPUC found that mandating no more than parity in the six sensitive service areas would create unnecessary competitive inequities favoring the incumbent provider and therefore imposed minimum service standards to avoid those inequities. We conclude that the Act does not by its express terms or implication entirely preempt the states from regulating local telecommunications services. Rather, we conclude that the express provisions of the Act preserve a role for the states that includes ensuring adequate quality and fostering competition, if done within the parameters prescribed in the Act. Further, we conclude that the fixed minimum performance standards required by the MPUC are within the proper scope of the state's authority because they are necessary to achieve the dual purposes of ensuring quality service and fostering competition, and they are competitively neutral and consistent with the Act. Accordingly, we hold that the wholesale service quality standards adopted by the MPUC are not preempted by the Act.
We now turn to the issue of the MPUC's authority under Minnesota law to require that Qwest make self-executing payments to the CLECs if Qwest fails to meet the wholesale service quality standards. In its order, the MPUC found that the payments were necessary to enforce the standards and that the CLECs were likely to suffer damages if Qwest did not meet the standards. Qwest challenges the MPUC's authority to impose the self-executing payments as an enforcement mechanism or, as argued by the CLECs, for liquidated damages. [4] The question presented is one of first impression. Qwest contends that the MPUC's only possible source for authority to order the self-executing payments comes from the MPUC's authority to impose administrative penalties under Minn.Stat. § 237.462 (2004), [5] which authorizes the MPUC to penalize knowing and intentional violations of a commission order. According to Qwest, section 237.462 does not authorize, either explicitly or implicitly, the type of payments in question here because as self-executing payments they require no showing of a knowing or intentional violation of a commission order before the payments are imposed. Qwest further argues that the MPUC order also circumvents the limitations on an agency's authority to levy penalties under Minn.Stat. § 14.045, subd. 1 (2004), [6] which places limits on an agency's ability to levy a fine or penalty. In response, the CLECs and the MPUC contend that neither section 237.462 nor section 14.045 is applicable to the self-executing payments because the payments are an enforcement mechanism, not a fine or penalty. They argue that the MPUC's authority to impose the payments is fairly implied by the language authorizing the MPUC to ensure high-quality telecommunications service under Minn.Stat. §§ 216A.05, subd. 1; 237.06; 237.081, subd. 4; 237.011; and 237.16, subd. 8 (2004). [7] They further argue that the required payments are necessary to give effect to the wholesale service quality standards. In addition, the CLECs contend that the payments should be viewed as permissible liquidated damages because the payments will compensate the CLECs for any economic loss resulting from quality-sensitive customers losing confidence in the CLECs' ability to provide consistent service because of Qwest's failure to comply with the wholesale service quality standards. Whether an agency acts within its statutory authority is a question of law to be reviewed de novo. St. Otto's Home v. Minn. Dep't of Human Servs., 437 N.W.2d 35, 39-40 (Minn.1989). The MPUC, being a creature of statute, has only those powers given to it by the legislature. Peoples Natural Gas Co. v. Minn. Pub. Utils. Comm'n, 369 N.W.2d 530, 534 (Minn.1985). While express statutory authority need not be given a cramped reading, any enlargement of express powers by implication must be fairly drawn and fairly evident from the agency objectives and powers expressly given by the legislature. Id. (emphasis added). Neither an agency nor the courts may enlarge the agency's powers beyond that which was contemplated by the legislative body. Id. Historically, we have been reluctant to find implied statutory authority in the context of the MPUC's remedial power. In re Northern States Power Co., 414 N.W.2d 383, 387 (Minn.1987). As a general rule, we resolve any doubt about the existence of an agency's authority against the exercise of such authority. Id. In Peoples Natural Gas, the MPUC ordered a public utility to refund charges collected under rates that the MPUC previously declared discriminatory. 369 N.W.2d at 532-33. The MPUC argued that it had implied authority to refund in order to effectively correct overcharges or other unreasonable rates. Id. at 534. Recognizing that ratemaking was a complicated process, we nonetheless concluded that it was not enough that the power to order refunds would be useful to the [MPUC] as an enforcement measure. Id. at 535. We held that the MPUC did not have either express or implied authority to order a refund of past revenue collections. Id. at 535-36; see also N. States Power Co., 414 N.W.2d at 387-88 (holding that the MPUC had no implied authority to dismiss a ratemaking proceeding in its entirety as the result of deliberations tainted by the MPUC's conflict of interest). In In re Minnegasco, 565 N.W.2d 706 (Minn.1997), we noted an exception to the general rule. In that ratemaking case, we held that the MPUC had the implied authority to impose a recoupment remedy to compensate a public utility for losses caused by an invalid commission order. Id. at 711. We based our decision on the statutory language and our earlier decision in Northwestern Bell. [8] See Minnegasco, 565 N.W.2d at 711-12. In essence, we held that in the face of ambiguous statutory language and the reversal of an unlawfully deficient rate order, the MPUC had the implied authority to impose a recoupment remedy. See id. We reasoned that if the MPUC did not have implied authority to impose the recoupment remedy, a public utility that ultimately prevailed in appealing a rate order would not have a meaningful remedy. Id. at 713. Applying the above rules, we must determine whether the MPUC's authority to impose the self-executing payments is expressly granted by the statutes and, if not, whether such authority can be fairly implied from the statutory language. The MPUC is correct that it has broad statutory authority to regulate telecommunications services. See Minn.Stat. §§ 216A.05, subd. 1; 237.011. Under that broad authority, the MPUC may adopt rules as necessary to ensure the provision of high-quality telephone services throughout the state, including prescrib[ing] standards for quality of service. Minn.Stat. § 237.16, subd. 8(a)(9). With respect to the MPUC's power to provide remedies for an incumbent carrier's failure to meet standards for quality of retail service, Minn.Stat. § 237.765(a)(5) (2004) expressly authorizes the MPUC to establish appropriate remedies, including penalties and customer-specific adjustments or payments to compensate customers for specific quality of service failures, so as to ensure substantial compliance with the quality of service standards. Nowhere, however, does the statutory scheme expressly give the MPUC the power to provide remedies for failures to meet the wholesale service quality standards. [9] Thus, we must determine whether the MPUC's authority to impose the self-executing payments can be fairly implied from the statutory scheme. In arguing that the authority can be fairly implied from the statutory scheme, the MPUC directs our attention to its statutory authority to ensure high-quality service under Minn.Stat. §§ 237.011(5) and 237.16, subd. 8(a). According to the MPUC, because the legislature could not address every nuance of utility regulation, the legislature has granted the MPUC broad authority. The MPUC further argues that its express authority to ensure just and reasonable rates under Minn.Stat. § 237.081, subd. 4., fairly implies its authority to require an acceptable level of service quality at the prices charged to the customers. The MPUC refers to our decision in Minnegasco as the support for finding implied authority in this case. Likewise, the CLECs argue that the MPUC's express authority to ensure high-quality service fairly implies its authority to establish a compliance mechanism, such as the self-executing payments in question here. The CLECs urge us to follow the federal district court's decision in US West Communications, Inc. v. Garvey, 55 F.Supp.2d 968, 1999 U.S. Dist. LEXIS 22042, at -41 (D.Minn. Mar. 30, 1999), which found that the MPUC had power to require Qwest's predecessor to make remedial payments to CLECs for failure to meet certain wholesale performance standards. As noted, we will not enlarge the MPUC's implied authority beyond that which can be fairly drawn and is fairly evident from the powers expressly granted to the MPUC by the legislature. See Peoples Natural Gas Co., 369 N.W.2d at 534. As a result, we must look closely at the statutory scheme created by the legislature. Doing so, we see no language from which the authority for the MPUC to impose the self-executing payments can be fairly drawn. The problem we face is that, if nothing more than a broad grant of authority were needed to show that implied authority could be fairly drawn from the statutory scheme, the implied authority would be present in all cases in which the agency had a broad grant of authority. We declined to adopt such a sweeping rule in Peoples Natural Gas. See id. at 535. In that case, noting that we had no ambiguous language to construe, unless perhaps the ambiguity of silence, we indicated that we must look at the necessity and logic of the situation. Id. at 534. As in Peoples Natural Gas, we think it significant here that the legislature did not expressly provide for remedial authority with respect to wholesale service quality standards even though it could have done so as it did in the case of quality standards for retail services. See Minn.Stat. § 237.765(a)(5). We also think it significant that the legislature has expressly provided the MPUC the authority to issue administrative penalties for violation of certain MPUC rules and orders. See Minn.Stat. § 237.462. The exception we identified in Minnegasco does not help the MPUC's and the CLECs' cause. Unlike the situation in Minnegasco, in which we identified specific statutory language from which it would be inferred that the MPUC had the implied authority to impose a recoupment remedy, here, as noted above, no such language has been identified. Minnegasco is also distinguishable on its facts. Minnegasco involved a ratemaking case in which we were required to interpret statutory language that was neither entirely clear nor free from all ambiguity. 565 N.W.2d at 712. In reconsidering the statutory language, we concluded that the MPUC had implied authority to provide for a recoupment remedy. Id. In doing so, we noted that [n]othing in Peoples Natural Gas prevents a reasonable and just interpretation in the face of statutory ambiguity. Minnegasco, 565 N.W.2d at 712 (citing Peoples Natural Gas, 369 N.W.2d at 534). We also noted that, if no recoupment remedy were available, a public utility that prevailed in a rate case would have no remedy to compensate for its lost revenue caused by an unlawful rate order. Minnegasco, 565 N.W.2d at 713. We concluded that the inequity in denying Minnegasco a remedy was unacceptable. Id. In contrast, in this case, like Peoples Natural Gas and unlike Minnegasco, the statutory language being interpreted is not, except in its silence, ambiguous. Also unlike Minnegasco, this case does not involve a utility seeking the recovery of revenue lost as a result of an unlawful rate order. Moreover, the MPUC and the CLECs are not left without any remedy for Qwest's failures to meet the wholesale service quality standards. For example, the MPUC may seek administrative penalties under Minn.Stat. § 237.462. As subdivision 9 of section 237.462 points out, those penalties are in addition to all other remedies available under statutory or common law. Finally, we decline to adopt the reasoning of the federal district court in Garvey. The primary basis for not following the court's reasoning in Garvey is that, while the court in that case cited our decision in Peoples Natural Gas, the court provided no explanation or analysis why Peoples Natural Gas did not control the result. Notably, the same court subsequently reached a different result in Qwest Corp. v. Minnesota Public Utilities Commission, Civ. No. 03-3476 ADM/JSM, slip op. at 8 (D.Minn. Aug. 5, 2004), concluding that the MPUC lacked the authority to impose equitable relief. For the reasons discussed above, we conclude that the MPUC does not have statutory authority, either express or implied, to impose the self-executing payments as an enforcement mechanism and therefore hold that the MPUC exceeded its statutory authority in ordering Qwest to make such payments for failure to comply with the wholesale service quality standards. [10] We also conclude that the CLECs' argument that the payments should be viewed as permissible liquidated damages is unavailing. Generally, liquidated damages are fixed sums payable to a party when actual damages are difficult to ascertain or prove. See Schutt Realty Co. v. Mullowney, 215 Minn. 340, 346, 10 N.W.2d 273, 276 (1943). In this case, nothing in the record indicates that the payments are restricted to compensating the CLECs for difficult-to-ascertain losses that may result if Qwest fails to comply with the wholesale service quality standards. Moreover, it appears that the payments are not so restricted. The parties have, at various times throughout these proceedings, referred to the payments as penalties or penalty payments. Indeed, in its order the MPUC supports its authority to impose the payments with a quote from the federal district court's decision in Garvey, which states: The MPUC's authority to implement performance penalties can be fairly implied from its power `to ensure the provision of high quality telephone services.' 1999 U.S. Dist. LEXIS 22042, at -40 (first emphasis added). Liquidated damages, however, are not penalties. Schutt Realty Co., 215 Minn. at 346, 10 N.W.2d at 276. Because the payments here are not restricted to compensation for losses resulting from Qwest's failure to comply with the standards, they go beyond the scope of permissible liquidated damages. See id.; see also Wis. Bell, Inc. v. Pub. Serv. Comm'n, 267 Wis.2d 193, 670 N.W.2d 97 (2003) (holding that a remedy plan imposed a penalty on the ILEC because the assessment was not tied to any actual damage or harm suffered by the CLECs or their customers). Affirmed in part and reversed in part. ANDERSON, G. BARRY, J., (concurring in part and dissenting in part). BLATZ, C.J., and HANSON, J., took no part in the consideration or decision of this case.