Court Opinion

ID: 3039122
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:00:05.540708+00
Date Added: 2024-06-11T10:52:53.844484
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                  ___________

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

Qwest Corporation, a Colorado           *
corporation, *
                                         *
              Plaintiff-Appellee/        *
              Cross-Appellant,           *
                                         *
       v.                                *
                                         *
The Minnesota Public Utilities           *
Commission; R. Marshall Johnson, in *
his official capacity as a member of the *
Minnesota Public Utilities Commission; *
Leroy Koppendrayer, in his official      *
capacity as a member of the Minnesota *      Appeals from the United States
Public Utilities Commission; Phyllis     *   District Court for the
Reha, in her official capacity as a      *   District of Minnesota.
member of the Minnesota Public           *
Utilities Commission; Gregory Scott,     *
in his official capacity as a member of *
the Minnesota Public Utilities           *
Commission;                              *
                                         *
              Defendants-Appellants/     *
              Cross-Appellees,           *
                                         *
CLEC Coalition; AT&T Communi-            *
cations of the Midwest, Inc.,            *
                                         *
       Intervenors Below-Appellants/     *
       Cross-Appellees.                  *

                                  ___________
                              Submitted: September 12, 2005
                                 Filed: November 1, 2005
                                  ___________

Before RILEY, LAY, and FAGG, Circuit Judges.
                             ___________

LAY, Circuit Judge.

      Minnesota Public Utilities Commission and Intervenors CLEC Coalition and
AT&T Communications of the Midwest, Inc. (collectively, “MPUC” or
“Commission”) appeal the district court’s1 decision that MPUC lacks the authority
under Minnesota law to order Qwest Corporation (“Qwest”) to comply with restitution
for competitive local exchange carriers that were not parties to unfiled interconnection
agreements. Qwest cross-appeals, challenging the decision affirming the Liability
Order and Penalty Orders’ $25.95 million penalty. We conclude that MPUC lacks the
authority to order restitution under Minnesota law. However, we find that MPUC
properly ordered the $25.95 million penalty. Therefore, we affirm.

                                           I.

       MPUC issued a liability order and two penalty orders against Qwest for alleged
violations of the 1996 Telecommunications Act (“Act”). The Act was intended to
create competition between carriers in local telecommunication service markets,
which had been traditionally dominated by a single monopoly carrier. Incumbent
local exchange carriers (“ILECs”), such as Qwest, own the network infrastructure
necessary to provide local telephone service. The Act allows competitive local
exchange carriers (“CLECs”) to access this infrastructure by entering into agreements
with an ILEC. Interconnection agreements (“ICAs”) between an ILEC and CLECs

      1
        The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.

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must be submitted to the MPUC for approval. 47 U.S.C. § 252(a), (e). The terms of
these ICAs must be made available to other CLECs that are not parties to the original
agreement. See id. § 252(i). Non-party CLECs can then opt in and incorporate the
provisions of the original agreement in their entirety into their own ICAs. 47 C.F.R.
§ 51.809(a).

       On February 14, 2002, the Minnesota Department of Commerce filed a
complaint against Qwest alleging that Qwest had formed secret ICAs with CLECs that
were not properly submitted to MPUC. The complaint asserted that Qwest’s failure
to disclose discriminated against other non-party CLECs because these CLECs were
not given access to the terms contained in the secret ICAs. On March 12, 2002, the
Commission referred the case for contested case proceedings before an administrative
law judge (“ALJ”).

        On November 1, 2002, MPUC issued a liability order adopting the ALJ’s
findings that Qwest knowingly and intentionally violated §§ 251 and 252 of the Act
by failing to file twelve ICAs. The unfiled ICAs included six agreements with
Eschelon Telecom, Inc., three with McLeodUSA Telecommunications Service, Inc.,
and one each with Covad Communications Company, USLink, Inc., and a group of
ten smaller CLECs. MPUC found that Qwest “knowingly and intentionally” violated
both federal and state law by failing to file the twelve ICAs, thereby creating
discriminatory conditions on resale and infringing state anti-discrimination statutes.
The MPUC imposed a $25.95 million penalty against Qwest and granted restitutional
relief for the injured CLECs based upon its interpretation of state statutes.

      Qwest brought suit in district court, challenging the liability order and the
penalty order. The district court vacated the order for restitutional relief, holding that
MPUC lacked either the express or implied authority under Minnesota law to grant

                                           -3-
restitution. However, the district court upheld the $25.95 million penalty, finding that
it was valid under Minn. Stat. § 237.462.

       Title 47 U.S.C. § 252(e)(6) provides for federal court review of state
commission decisions. Our sister circuits have held that federal courts review state
commission orders under the Act de novo. Mich. Bell Tel. Co. v. MFS Intelenet of
Mich., Inc., 339 F.3d 428, 433 (6th Cir. 2003); S.W. Bell Tel. Co. v. Apple, 309 F.3d
713, 717 (10th Cir. 2002); MCI Telecomm. Corp. v. Bell Atlantic Pa., 271 F.3d 491,
517 (3d Cir. 2001); S.W. Bell Tel. Co. v. Pub. Util. Comm’n, 208 F.3d 475, 482 (5th
Cir. 2000); GTE S., Inc. v. Morrison, 199 F.3d 733, 742 (4th Cir. 1999). Here, we
adopt that standard. This court has supplemental jurisdiction over state law claims
under 28 U.S.C. § 1367. Although the arbitrary and capricious standard applies when
reviewing a state commission’s findings of fact, Mich. Bell, 339 F.3d at 433; S.W.
Bell, 208 F.3d at 482; US West Communications, Inc. v. Hamilton, 224 F.3d 1049,
1052 (9th Cir. 2000), whether an agency acts within its statutory authority is a
question of law to be reviewed de novo. In re Qwest’s Wholesale Serv. Quality
Standards, 702 N.W.2d 246, 259 (Minn. 2005) (hereinafter “Qwest’s Wholesale”).

                                          II.

       MPUC asserts that it has statutory authority to order restitution under Minn.
Stat. §§ 237.081, 237.461, 237.462, and 237.763. MPUC, “being a creature of statute,
has only those powers given to it by the legislature.” Peoples Natural Gas Co. v.
Minnesota Pub. Util. Comm’n, 369 N.W.2d 530, 534 (Minn. 1985) (internal quotation
omitted). MPUC may not impose restitutional remedies absent express or implied
statutory authority. A review of the statutory language and applicable Minnesota case
law shows that MPUC has neither. Nothing in the statutory language expressly grants
MPUC the authority to order restitution. Moreover, Minnesota case law supports the

                                          -4-
conclusion that we should not find implied statutory authority to order restitution,
absent a clear grant of authority by the legislature.

       MPUC argues that it has express authority to order restitutional relief under
Minn. Stat. § 237.081, which authorizes MPUC to “make an order respecting [an
unreasonable, insufficient, or unjustly discriminatory] . . . act, omission, practice, or
service that is just and reasonable” and to “establish just and reasonable rates and
prices.” Minn. Stat. § 237.081, subd. 4. MPUC also claims the authority to order
restitution is encompassed within Minn. Stat. §§ 237.461 and 237.462.2 Section
237.461 is a competitive enforcement statute that permits MPUC to seek criminal
prosecution, recover civil penalties, compel performance, or take “other appropriate
action.” Minn. Stat. § 237.461, subd. 1. Section 237.462 is also an enforcement
statute which states that “[t]he imposition of administrative penalties in accordance
with this section is in addition to all other remedies available under statutory or
common law. The payment of a penalty does not preclude the use of other
enforcement provisions . . . .” Minn. Stat. § 237.462, subd. 9. MPUC asserts that this
statutory framework supports a finding that MPUC possesses the express or implied
authority to order restitution in this case.

       While we agree that these statutes give MPUC broad statutory authority to
regulate the telecommunications market in Minnesota, none of them vest MPUC with
the express authority to order remedial relief. We therefore agree with the district
court that because none of these statutes expressly refer to remedial/restitutional relief,

      2
        MPUC also relies upon Minn. Stat. § 237.763, which discusses exemptions for
alternative regulation plans but retains MPUC’s authority under § 237.081 “to issue
appropriate orders.” Minn. Stat. § 237.763. Other than referring to § 237.081, this
statute gives MPUC no additional support for its assertion of authority and we find it
to be inapplicable.

                                           -5-
the relevant inquiry is whether MPUC has the implied authority to order restitution.
We conclude that no such authority exists.

       In Peoples Natural Gas, the Minnesota Supreme Court observed that, “[w]hile
express statutory authority need not be given a cramped reading, any enlargement of
express powers by implication must be fairly drawn and fairly evident from the
agency objectives and powers expressly given by the legislature.” 369 N.W.2d at 534.
The Minnesota court then held that MPUC lacked the implied authority under Minn.
Stat. §§ 216B.03 and 216B.08 to order a public utility to refund revenues collected
from its customers in violation of a MPUC order, rejecting MPUC’s argument that the
Commission’s duty to assure rates that are “just and reasonable” vested MPUC with
the authority to order a refund. Id. at 534-36.

       In holding that MPUC lacked this authority, the Minnesota Supreme Court
observed that “[i]t is of some significance that the legislature has not seen fit expressly
to grant refund powers to the Commission, although it could have done so and in one
instance has at least recognized its use.” Id. The court was reluctant to interpret the
statute as providing implied authority of this kind because “this is not the kind of
agency authority that can or should be implied in the absence of more explicit
legislative action. It is not enough that the power to order refunds would be useful to
the Commission as an enforcement measure.” Id. at 535.

       The same holds true in this case. MPUC attempts to distinguish Peoples
Natural Gas by asserting that the statutory framework has changed significantly since
this decision. However, MPUC claims authority under statutory language that is quite
similar to that construed by the Minnesota Supreme Court in Peoples Natural Gas.
Given the Minnesota court’s reluctance to infer authority to grant refund powers in
Peoples Natural Gas, we conclude the power to make orders or set rates that are “just
and reasonable” or to take “appropriate” action is not a grant of authority to order

                                           -6-
restitution. The Minnesota legislature has had twenty years to respond to Peoples
Natural Gas, yet “the legislature has not seen fit expressly to grant [restitution] powers
to the Commission.” Peoples Natural Gas, 369 N.W.2d at 534.

        Moreover, in In re New Ulm Telecom, Inc., 399 N.W.2d 111 (Minn. Ct. App.
1987), a Minnesota Court of Appeals panel applied Peoples Natural Gas to uphold a
Commission decision that it lacked the authority under § 237.081, subd. 4, to estop
a utility from providing service absent a finding of inadequate service under § 237.16,
subd. 5. Id. at 122.3 The court noted that merely because a statute has “references to
the words ‘fair,’ ‘just,’ and ‘reasonable,’ nothing in the statutory scheme suggests that
the Commission may act as a court of equity.” Id. As discussed above, the same is
true in this case. The statutory language is too vague to support a conclusion that
MPUC has the implied authority to order restitution.

      We are also not convinced by MPUC’s argument that In re Minnegasco, 565
N.W.2d 706 (Minn. 1997) and the unpublished In re the Members of MIPA, No. C0-
97-606, 1997 WL 793132 (Minn. Ct. App. Dec. 30, 1997) support its assertion that
the Commission had implied authority to order restitution in this case. In Minnegasco,
the Minnesota Supreme Court held that MPUC had the implied authority under Minn.

      3
         MPUC and the Intervenors object to the district court’s reliance on New Ulm.
MPUC attempts to distinguish New Ulm on the grounds that there was a statutory
violation in the present case, and therefore an equitable remedy under § 237.081 is
appropriate. However, we do not read New Ulm to stand for the proposition that
§ 237.081 authorizes equitable remedies whenever a statutory violation has occurred.
A violation of § 237.16, subd. 5, itself justifies the suspension or revocation of an
offending utility’s license. Minn. Stat. § 237.16, subd. 5. Therefore, the New Ulm
court was merely stating that, absent a violation of § 237.16, subd. 5, preventing a
utility from providing service would not be appropriate. In re New Ulm, 399 N.W.2d
at 122. The district court correctly read New Ulm to hold that § 237.081 does not
grant MPUC the authority to impose equitable remedies.

                                           -7-
Stat. chapter 216B to order a recoupment remedy to compensate a utility for losses
resulting from an error made by MPUC. Minnegasco, 565 N.W.2d at 713. The
Minnesota Court of Appeals relied upon and broadened the scope of Minnegasco in
its unpublished MIPA opinion, where it held that MPUC had the implied authority to
order refunds under Minn. Stat. § 237.081. MIPA, 1997 WL 793132, at *3.

       However, these cases do not support MPUC’s position. Minnegasco does not
provide MPUC with the broad authority to grant equitable relief. Rather, Minnegasco
has a limited holding that MPUC has the implied authority to order a recoupment
remedy to correct its own mistake. Minnegasco, 565 N.W.2d at 711-13. Furthermore,
the court in Minnegasco was interpreting “statutory ambiguity” as to whether a utility
could get retroactive relief after a judicial decision striking down a MPUC order. Id.
at 711-12. In this case, we have no statutory ambiguity because there is a complete
absence of statutory language supporting MPUC’s position. “We have no ambiguous
language to construe, unless perhaps the ambiguity of silence. Consequently, we must
look at the necessity and logic of the situation.” Peoples Natural Gas, 369 N.W.2d at
534. As for MIPA, as an unpublished order, it is not controlling.4 See Minn. Stat. §
 80A.08, subd. 3; see also Vlahos v. R&I Constr. of Bloomington, Inc., 676 N.W.2d
672, 676 n.3 (Minn. 2004) (discouraging reliance on unpublished opinions as
authority).

      Moreover, a recent opinion by the Minnesota Supreme Court clearly supports
the conclusion that MPUC lacks the authority it asserts in this case. In Qwest’s
Wholesale, supra, the court held that MPUC does not have the express or implied
authority under Minnesota state law to order self-executing penalties. Qwest’s
Wholesale, 702 N.W.2d at 262. “Historically, we have been reluctant to find implied

      4
       Furthermore, the MIPA decision fails to adequately address how Minnegasco’s
limited holding can be expanded to assert refund authority.

                                         -8-
statutory authority in the context of the MPUC’s remedial power. As a general rule,
we resolve any doubt about the existence of an agency’s authority against the exercise
of such authority.” Id. at 259 (citations omitted).

       In Qwest’s Wholesale, like the present case, MPUC relied in part upon its
express authority to ensure “just and reasonable rates” under Minn. Stat. § 237.081,
subd. 4, and Minnegasco to support its assertion of implied authority. Id. at 260-61.
The court rejected these arguments, relying upon Peoples Natural Gas and
distinguishing Minnegasco. Specifically, the Minnesota court observed:

             [W]e must look closely at the statutory scheme created by
             the legislature. Doing so, we see no language from which
             the authority for the MPUC to impose the self-executing
             payments can be fairly drawn. The problem we face is that,
             if nothing more than a broad grant of authority were
             needed to show that implied authority could be fairly drawn
             from the statutory scheme, the implied authority would be
             present in all cases in which the agency had a broad grant
             of authority. We declined to adopt such a sweeping rule in
             Peoples Natural Gas. In that case, noting that we had “no
             ambiguous language to construe, unless perhaps the
             ambiguity of silence,” we indicated that “we must look at
             the necessity and logic of the situation.” As in Peoples
             Natural Gas, we think it significant here that the legislature
             did not expressly provide for remedial authority with
             respect to wholesale service quality standards even though
             it could have done so . . . . We also think it significant that
             the legislature has expressly provided the MPUC the
             authority to issue administrative penalties for violation of
             certain MPUC rules and orders.

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

                                          -9-
       The court distinguished Minnegasco on several grounds. Most importantly for
our purposes, the statutory language at issue in Qwest’s Wholesale was not
ambiguous. Rather, it was silent. Therefore, the court found that the statutory
framework in Qwest’s Wholesale was closer to Peoples Natural Gas than Minnegasco.
Id. As discussed above, the same is true here. MPUC asserts authority under
statutory language that is not ambiguous, but rather fails to address any power to order
restitution or remedial measures at all.5

      We therefore hold that MPUC lacks the statutory authority to order restitution
and the restitutional remedies in the Penalty Orders are invalid.6

                                          III.

       We now turn to Qwest’s objections to the $25.95 million penalty imposed by
MPUC. Qwest makes three arguments challenging the legality of the $25.95 million
penalty: (1) that MPUC violated Minnesota law by failing to follow the requisite
statutory factors; (2) that the penalty violated the fair notice doctrine because there
was no standard for filing ICAs at the time of the relevant agreements; and (3) that the
penalty violates the Excessive Fines Clause. As discussed below, we conclude that
each of these arguments must fail.

      5
       In addition, the court distinguished Minnegasco on the grounds that it involved
the correction of an unlawful MPUC order. See Qwest’s Wholesale, 702 N.W.2d at
261-62. This supports our conclusion that the holding of Minnegasco is limited to
correcting MPUC error and does not sustain MPUC’s assertion of implied power to
order restitution in this case.
      6
      Because we affirm the district court on this issue, we decline to address
Qwest’s other arguments in opposition to the order for restitution.

                                         -10-
      A. State Statutory Factors

       MPUC has the authority to order monetary penalties for violation of the Act
under Minn. Stat. § 237.462. Section 237.462, subd. 2, sets out nine factors that the
MPUC must consider in setting the penalty amount: (1) the willfulness or intent of the
violation; (2) the gravity of the violation, including the harm to customers or
competitors; (3) the history of past violations; (4) the number of violations; (5) the
economic benefit gained by the person committing the violation; (6) any corrective
action taken or planned by the person committing the violation; (7) the annual revenue
and assets of the company committing the violation; (8) the financial ability of the
company to pay the penalty; and (9) other factors that justice may require. See Minn.
Stat. § 237.462, subd. 2.

       Qwest argues that MPUC did not calculate the penalty amount in accordance
with these statutory factors. Rather, Qwest’s position is that MPUC crafted the large
penalty to coerce Qwest to agree to the restitution in return for a suspension of the
penalty. Qwest contends that the discussion of the statutory factors in the Penalty
Orders is merely an attempt by MPUC to justify the penalty amount after it had
already been arbitrarily set.

       We agree that the transcripts of MPUC hearings do suggest that MPUC
intended the penalty to act in part as an incentive for Qwest to comply with the
restitutional remedies. However, this motivation does not necessarily make the
penalty improper. Our only concern is whether MPUC properly considered the
statutory factors as required by law, and whether MPUC’s findings are arbitrary and
capricious. If the penalty amount is justified by MPUC’s consideration of the
statutory factors, we need not delve into any further analysis regarding motivation.

                                        -11-
       MPUC extensively analyzed the § 237.462 statutory factors in the Penalty
Orders. The written orders show a considered analysis of both the facts and the
statutory framework. There was sufficient evidence to support the Commission’s
findings that Qwest willfully violated both federal and state law, thereby impeding fair
competition in Minnesota and profiting in the process. The Commission’s actions
were not arbitrary and capricious. We therefore conclude that the district court
correctly held that the MPUC Penalty Order of $25.95 million dollars does not violate
state law.

      B. Fair Notice Doctrine

       Qwest also argues that the penalty violates the fair notice doctrine. Under the
fair notice doctrine, “application of a rule may be successfully challenged if it does
not give fair warning that the allegedly violative conduct was prohibited.” United
States v. Chrysler Corp., 158 F.3d 1350, 1355 (D.C. Cir. 1998). The Act does not
expressly define “interconnection agreement,” and Qwest claims there was no
standard for filing ICAs at the time the agreements at issue were created. Therefore,
Qwest argues it did not know which agreements should have been filed under 47
U.S.C. § 252.

       This argument fails for several reasons, all pointing to the conclusion that
Qwest had ample notice that it was required to file the agreements at issue with
MPUC for approval. First, Qwest admits that it had fair notice that the agreements
containing favorable rates were subject to the filing requirement, yet it failed to file
these agreements with MPUC. Failure to comply with known standards does nothing
to bolster Qwest’s argument that it lacked notice.

                                         -12-
       As for the filing requirements of which Qwest claims ignorance, there are
several sources that provide notice as to the breadth of “interconnection agreements.”
Section 271(c)(2) has an extensive “competitive checklist” that specifies what ILECs
must include in ICAs in order to receive authority to provide interLATA long distance
service. See 47 U.S.C. § 271(c)(2). As part of this checklist, § 271(c)(2) references
§ 251(c), which requires ILECs to provide CLECs with interconnection and
unbundled access, “on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory, in accordance with . . . section 252 of this title.” See 47 U.S.C.
§ 251(c)(2)-(c)(3). In addition, the Federal Communications Commission has broadly
interpreted the Act’s filing requirement to include any agreements concerning rates,
terms, and conditions an ILEC makes available to other CLECs. See In re
Implementation of the Local Competition Provisions in the Telecommunications Act
of 1996, 11 F.C.C.R. 15,499 ¶ 167 (1996).

       Moreover, Qwest’s own broad definition of “interconnection agreement” in its
Statement of Generally Available Terms suggests that Qwest’s arguments about the
above sources’ failure to explicitly define which “business-to-business arrangements”
constitute terms of interconnection are without merit. Terms regarding dispute
resolution, escalation, on-site support, and quarterly meetings have a commonsense
relevance to interconnection and unbundled access. As noted by the United States
Supreme Court (albeit in the context of the filed-rate doctrine), “[r]ates . . . do not
exist in isolation. They have meaning only when one knows the services to which
they are attached.” American Tel. & Tel. Co. v. Cent. Office Tel., Inc., 524 U.S. 214,
223 (1998). The same is true here. Qwest had ample knowledge that the above terms
were relevant to the value of its services to CLECs and should have been filed with
MPUC. Therefore, the fair notice doctrine does not apply.

      C. Excessive Fines Clause

                                         -13-
      Finally, Qwest argues that the penalty violates the Excessive Fines Clause
of the Eighth Amendment. See U.S. Const. amend. VIII, cl. 2. The Eighth
Amendment’s prohibition of excessive fines applies to the states through the Due
Process Clause of the Fourteenth Amendment. Cooper Indus., Inc. v. Leatherman
Tool Group, Inc., 532 U.S. 424, 433-34 (2001). A penalty violates the Excessive
Fines Clause if it is “grossly disproportional” to the gravity of the offense. See United
States v. Bajakajian, 524 U.S. 321, 334 (1998). Two considerations in the “grossly
disproportional” analysis are legislative intent and the gravity of the offense relative
to the fine. Id. at 336-37.

       The Minnesota legislature empowered MPUC with several ways to penalize
ILECs that fail to comply with the reporting requirements. See, e.g., Minn. Stat.
§§ 237.462, subd. 2; 237.16, subd. 5. Relevant to our current discussion, under
§ 237.462 MPUC may impose a penalty of up to $10,000 a day per violation. Minn.
Stat. § 237.462, subd. 2. MPUC imposed a penalty of $10,000 per day for two of the
most egregious violations, and $2,500 per day for the other ten. These amounts are
well within the statutory limits and are consistent with the general statutory scheme.

       The penalty amount is also not excessive in light of the gravity of the harm
caused by Qwest’s failure to file. Millions of dollars are at stake in ICAs. Qwest’s
failure to file these agreements violated both federal and state law. This failure
affected the state regulatory body, the competitive environment in Minnesota, and
CLECs that were not parties to these agreements. Therefore, the penalty is not grossly
disproportional to the harm caused by Qwest’s actions.

      Qwest’s attempt to frame its infractions as mere “filing offenses” under
Bajakajian fails. In Bajakajian, the offense was solely a failure to report the
transportation of money outside the United States, with no relation to other illegal

                                          -14-
activities, and the defendant was not a money launderer, drug trafficker, or tax evader,
the type of individual the statute was designed to punish. Bajakajian, 524 U.S. at 337-
38. Furthermore, the defendant’s failure to provide information only affected the
United States, and in a relatively minimal way. Id. at 339. In the present case,
Qwest’s failure to report affected the rights of many CLECs operating in Minnesota,
and MPUC ordered the penalty under a statute expressly designed to address the
present situation. Given the millions at stake in the telecommunications industry and
the legislative decision to punish anti-competitive behavior, the penalty in this case
is not in violation of the Excessive Fines Clause.

                                          IV.

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

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