Court Opinion

ID: 3025303
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:33:27.128699+00
Date Added: 2024-06-11T11:47:44.844837
License: Public Domain

United States Court of Appeals
                                FOR THE EIGHTH CIRCUIT
                                      ___________

                                      No. 99-3952
                                      ___________

Southwestern Bell Telephone               *
Company,                                  *
                                          *
               Appellant,                 *
                                          *
United States; Federal                    *
Communications Commission,                *
                                          *
               Intervenors on Appeal,     *
                                          *
       v.                                 *
                                          *
Connect Communications                    *
Corporation; Arkansas Public Service      *
Commission; Jim Von Gremp, in his         *   Appeal from the United States
official capacity as Chairman of the      *   District Court for the
Arkansas Public Service Commission;       *   Eastern District of Arkansas.
Sam I. Bratton, Jr., in his official      *
capacity as Commissioner of the           *
Arkansas Public Service Commission;       *
Betty C. Dickey, in her official          *
capacity as Commissioner of the           *
Arkansas Public Service Commission,       *
                                          *
               Appellees.                 *
                                          *
-----------------------------             *
                                          *
MCI Worldcom, Inc.,                       *
                                          *
       Amicus on Behalf of Appellee.      *
                                      ___________

                               Submitted: June 13, 2000
                                   Filed: September 12, 2000
                                    ___________

Before BOWMAN, MORRIS SHEPPARD ARNOLD, and BYE, Circuit Judges.
                         ___________

BOWMAN, Circuit Judge.

       The Telecommunications Act of 1996, among other things, aims to jump-start
competition in the market for local telephone service. See AT&T Corp. v. Iowa Utils.
Bd., 525 U.S. 366, 371 (1999). One way Congress, through the Act, attempted to
move toward this goal is by requiring the incumbent owner of a local telephone
network to provide network access to its would-be competitors. See 47 U.S.C.
§ 251(c)(2) (Supp. III 1997). The Act describes a process for establishing the price and
other terms for the provision of network access. Specifically, the incumbent is required
to negotiate in good faith with its competitor, and, if the parties fail to reach a deal on
their own, they submit open questions for arbitration by the relevant state commission.
See id. §§ 251(c)(1), 252(a), (b). States, if they wish, may opt out, leaving the Federal
Communications Commission (FCC) to arbitrate in their stead. See id. § 252(e)(5).

       All such network access agreements, however reached, must be approved by the
state commission or, in its absence, by the FCC. See id. § 252(e)(1), (5). The state
commission must ensure that the agreement is consistent with certain requirements of
the Act, but may also enforce requirements of state law such as intrastate service
quality standards. See id. § 252(e)(2), (3). A party aggrieved by a "determination" of
a state commission under § 252 may bring an action in federal district court. Id.
§ 252(e)(6). State courts do not have jurisdiction to review decisions of state
commissions "approving or rejecting an agreement" under § 252. Id. § 252(e)(4).

                                            -2-
       In this case, Connect Communications Corporation wanted access to the local
telephone network of incumbent Southwestern Bell Telephone Company. Connect and
Southwestern Bell reached an agreement on their own—arbitration was not required.
They submitted their agreement to the Arkansas Public Service Commission, which
approved it. Neither side sought review in the federal courts (or elsewhere). Under the
terms of the agreement, Southwestern Bell allows Connect to interconnect with
Southwestern Bell's network so that Connect can sell local telephone service. In line
with statutory requirements, see id. § 251(b)(5), the agreement requires reciprocal
compensation for "local traffic." When a Southwestern Bell customer places a local
call to a Connect customer, the caller is using part of Connect's network, and
Southwestern Bell must compensate Connect for that usage. The rates of compensation
are established in the agreement between Connect and Southwestern Bell.

        A dispute between Southwestern Bell and Connect arose from the reciprocal
compensation arrangement. Several of Connect's customers are internet service
providers (ISPs). The ISPs, as relevant here, provide modem-based internet access to
their customers. The ISPs' customers, through their computers, place telephone calls
to their ISPs, which connect the customers to the internet. These internet-connecting
calls tend to be longer than average local calls and many of the ISPs' customers get
their local telephone service from Southwestern Bell. Thus, if these internet-connecting
calls are "local traffic," then Southwestern Bell must pay reciprocal compensation to
Connect. If the calls are not "local traffic," then reciprocal compensation is not
required. This is the heart of the dispute between Connect and Southwestern Bell, but,
as we shall see, it is not the issue we are called upon to decide.

       At some point in 1998, Southwestern Bell informed Connect that it did not
consider the internet-connecting calls to be "local traffic" within the meaning of their
agreement, and it would not pay Connect further reciprocal compensation based on
those calls. In June 1998, Connect filed a complaint with the Arkansas Public Service
Commission seeking a declaration that the internet-connecting calls were "local traffic"

                                          -3-
and an order requiring Southwestern Bell to compensate Connect for the calls. The
Commission determined that it had jurisdiction and ultimately determined that the
internet-connecting calls were "local traffic."

       Southwestern Bell filed suit in federal court challenging the Commission's
decision. Southwestern Bell named Connect as a defendant, and also named the
Arkansas Public Service Commission as well as the individual Commissioners who
make up the Commission. (For ease of reference, we shall refer to the Arkansas state
defendants collectively as "the Commission.") The Commission and Connect moved
to dismiss for lack of subject-matter jurisdiction. The District Court granted the
motions, concluding that the "the plain language of the Telecommunications Act clearly
grants federal courts jurisdiction only to determine if the [interconnection] agreement
meets the requirements of federal law . . . [and therefore] does not confer upon federal
courts jurisdiction to review a State Commission's order interpreting and enforcing an
interconnection agreement." Southwestern Bell Tel. Co. v. Connect Communications
Corp., No. LR-C-99-197, at 10 (E.D. Ark. Sept. 22, 1999). This appeal followed. The
United States and the FCC appear on appeal as intervenors, and MCI Worldcom, Inc.
appears as amicus curiae.

                                           I.

       It is axiomatic that the federal courts lack plenary jurisdiction. See Godfrey v.
Pulitzer Publ'g Co., 161 F.3d 1137, 1141 (8th Cir. 1998). The inferior federal courts
may only exercise jurisdiction where Congress sees fit to allow it. Here, there are two
alleged statutory grounds for jurisdiction: 47 U.S.C. § 252(e)(6), part of the
Telecommunications Act of 1996, and 28 U.S.C. § 1331 (1994), the "federal question"
jurisdiction statute. Because we find that § 252(e)(6) provides jurisdiction here, we do
not reach the argument based on § 1331.

                                          -4-
       We begin, of course, with the text of § 252(e)(6). "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 agreement or statement meets the requirements of section 251
of this title and this section [252]." 47 U.S.C. § 252(e)(6). Connect and the
Commission contend that this language grants federal courts jurisdiction to review
commission decisions rejecting or approving interconnection agreements, but not
interpreting or enforcing them. Essentially, they assert two independent arguments
supporting this conclusion. First, they claim that commission decisions interpreting or
enforcing interconnection agreements do not involve a "determination" under § 252.
Second, they contend that interpretation and enforcement determinations do not present
questions about whether "the agreement or statement meets the requirements" of §§ 251
and 252.1 We address these contentions in turn.

                                          A.

      The Act provides that an interconnection agreement, reached either by
negotiation or arbitration, must be submitted to the state commission for approval. See
47 U.S.C. § 252(e)(1). This grant of power to state commissions necessarily includes
the power to enforce the interconnection agreement. See Southwestern Bell Tel. Co.
v. Public Util. Comm'n, 208 F.3d 475, 479-80 (5th Cir. 2000) (citing Iowa Utils. Bd.

      1
         We have previously reached the conclusion that "enforcement decisions of state
commissions would . . . be subject to federal district court review under subsection
252(e)(6)." Iowa Utils. Bd. v. FCC, 120 F.3d 753, 804 n.24 (8th Cir. 1997). This
statement would appear to control the instant case. However, the Supreme Court
partially reversed our judgment, see AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366
(1999), and our statement about jurisdiction was probably dicta anyway. Therefore,
we address the matter anew and fully consider the arguments of the Commission and
Connect.
                                          -5-
v. FCC, 120 F.3d 753, 804 (8th Cir. 1997), aff'd in part, rev'd in part on other grounds
sub nom. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999)).

      The parties all agree that state commissions have this enforcement power, and
the only dispute concerns its source. The FCC interprets § 252 to provide state
commissions with enforcement power and, indeed, enforcement responsibility. See
Starpower Communications, LLC, No. FCC 00-216, 2000 WL 767701, ¶¶ 5-6 (FCC
June 14, 2000) (opinion and order). We must defer to the FCC's view so long as it is
a reasonable interpretation of an ambiguous statute. See Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984).

       While the arguments of the Commission and Connect 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 law2 alone cannot be the source. "[T]he question . . . is not whether the
Federal Government has taken the regulation of local telecommunications competition
away from the States. With regard to the matters addressed by the 1996 Act, it
unquestionably has." AT&T Corp., 525 U.S. at 379 n.6. The new regime for

       2
       This contention is implied but not expressly argued by Connect and the
Commission. In its decision in this case, the Arkansas Public Service Commission
reached the conclusion that § 252 provided the Commission with jurisdiction to enforce
the interconnection agreement. Later, another party filed a complaint with the
Commission against Southwestern Bell, claiming, much like Connect had, that
Southwestern Bell had breached an interconnection agreement by not providing
reciprocal compensation for internet-connecting calls. In a proceeding delegated to an
administrative law judge, the general staff of the Commission moved to dismiss the
complaint for lack of jurisdiction, primarily based on the District Court's decision in this
case. The Administrative Law Judge determined that state law, not federal law,
provided the Commission with jurisdiction. See American Communications Servs. v.
Southwestern Bell Tel. Co., No. 00-071-C, Order No. 2, at 3-6 (Ark. Public Service
Commission June 12, 2000). For the reasons expressed in the text, we do not agree.
                                            -6-
regulating competition in this industry is federal in nature, see id., and while Congress
has chosen to retain a significant role for the state commissions, the scope of that role
is measured by federal, not state law. Therefore, while the grant of state commission
enforcement power in § 252 is implicit rather than express, we can reach no conclusion
but to agree with the FCC's determination that the state commissions' power to enforce
interconnection agreements springs from § 252.

       With this conclusion in mind, it is plain that the jurisdictional grant in § 252(e)(6)
includes review of enforcement determinations. The jurisdictional provision extends
to "any case" where the state commission makes a "determination" under § 252. As
we have explained, the state commission's power to enforce a federally-mandated
interconnection agreement arises from § 252, and thus a state commission's decision
enforcing the agreement is a "determination" under that section. Both of the federal
courts of appeals to address the issue directly have reached the same conclusion. See
MCI Telecomms. Corp. v. Illinois Bell Tel. Co., 2000 WL 1010863, at *12 (7th Cir.
July 24, 2000); Southwestern Bell, 208 F.3d at 480-81.

                                             B.

       We next address the second argument against jurisdiction, which was relied upon
by the District Court in its Order of Dismissal. After noting that "[g]enerally, contract
interpretation and enforcement is an issue of common law that properly belongs in the
jurisdiction of state courts," the District Court quoted § 252(e)(6) for the proposition
that federal jurisdiction only exists "'to determine whether the agreement or statement
meets the requirements of section 251 and this section.'" Connect Communications
Corp., No. LR-C-99-197, at 9-10 (quoting 47 U.S.C. § 252(e)(6)) (emphasis added by
District Court). Thus, the District Court said:

       [T]he plain language of the Telecommunications Act clearly grants federal
       courts jurisdiction only to determine if the agreement meets the

                                             -7-
      requirements of federal law, i.e.[,] sections 251 and 252 of the
      Telecommunications Act. For these reasons, the Court concludes that the
      plain language of [the] Act does not confer upon federal courts
      jurisdiction to review a State Commission's order interpreting and
      enforcing an interconnection agreement.

Id. at 10 (footnote omitted). Ultimately, the District Court ruled that the statute "does
not give the federal district courts jurisdiction to review a state commission's
interpretation and enforcement of a privately negotiated interconnection agreement
because that is a matter of state contract law that should properly be reviewed by a
state court." Id. at 12.

       We disagree. The allegations in this case demonstrate that a state commission's
enforcement proceeding can raise federal law claims. Southwestern Bell and Connect
reached an interconnection agreement without arbitration, and the Arkansas
Commission approved it. Both Southwestern Bell and Connect were satisfied with the
agreement, so neither sought federal review. But when the terms of the agreement were
fleshed out with actual experience, the parties found themselves at odds over an issue
that the plain language of the agreement arguably does not resolve: are internet-
connecting calls local traffic? Connect sought action from the Commission, which it
received, in the form of a clarification of the interconnection agreement, that internet-
connecting calls are indeed local traffic. Notably, Connect did not simply file a breach
of contract action in state court. Likewise, the substance of Southwestern Bell's
complaint is that the Commission's determination is contrary to federal law.

        The issue at the very center of this case—whether internet-connecting calls are
local traffic—has been the subject of an FCC ruling. See Implementation of the Local
Competition Provisions in the Local Telecommunications Act of 1996, Intercarrier
Compensation for ISP-Bound Traffic, 14 F.C.C.R. 3689 (1999). Southwestern Bell
argued to the District Court that the Commission's actions were contrary to the FCC
ruling. In response, the District Court determined that Southwestern Bell
                                           -8-
"misconstrued" the FCC ruling and that Southwestern Bell's argument had "no merit."
Connect Communications Corp., No. LR-C-99-197, at 13-14. Subsequently, the D.C.
Circuit vacated the FCC ruling and remanded it to the FCC for further proceedings.
See Bell Atl. Tel. Co. v. FCC, 206 F.3d 1 (D.C. Cir. 2000). We believe the FCC ruling
and its subsequent judicial review demonstrate that there are substantial federal-law
questions underlying the dispute in this case. Perhaps the District Court was correct
in concluding that the FCC ruling supported the Commission's determination, a question
we do not reach, but if so, that would support judgment for Connect and the
Commission on the merits, not dismissal for lack of jurisdiction.

       In addition, the Commission's own order confirms that substantial federal-law
issues are raised by this case. The Commission quoted at length from a federal district
court opinion, which in turn analyzed federal statutes and FCC materials. The
Commission made no reference to state contract-law principles. Indeed, it made no
reference to state contract law at all. Thus, the Commission's argument now that this
case is simply a matter of state contract law does not ring true.

       Subsection 252(e)(6)'s reference to §§ 251 and 252 does not counsel against
federal court review for compliance with federal law. In its grant of authority to state
commissions, § 252 does not confine state commissions to analysis of a few narrow
technical points, but allows consideration of such open-ended factors as "the public
interest, convenience, and necessity." 47 U.S.C. § 252(e)(2)(A)(ii). Compliance with
federal law is surely among these considerations. It therefore follows that § 252(e)(6)'s
grant of jurisdiction to the federal courts to review for compliance with §§ 251 and 252
includes the power to ensure that the state commission's enforcement actions are
consistent with federal law.

      Our conclusion that federal courts have jurisdiction to review federal-law issues
reached in these state-commission enforcement proceedings is consistent with the
scheme of cooperative federalism embodied in the Telecommunications Act. In passing

                                           -9-
the Act, Congress was faced with reconciling such competing interests as federal
uniformity and state autonomy, and it struck a compromise. With regard to purely state
law issues, the state commissions may have the final say. See Puerto Rico Tel. Co. v.
Telecommunications Regulatory Bd., 189 F.3d 1, 13-15 (1st Cir. 1999). As the
Supreme Court put it, however, "there is no doubt . . . that if the federal courts believe
a state commission is not regulating in accordance with federal policy they may bring
it to heel." AT&T Corp., 525 U.S. at 379 n.6. Thus, we read § 252(e)(6), as a part of
the Telecommunications Act, to include the grant of jurisdiction to review state
commission enforcement proceedings for compliance with federal law.

        For the reasons above, we cannot agree with the District Court that
determinations of state commissions interpreting and enforcing interconnection
agreements necessarily raise only questions of state contract law. Southwestern Bell
has alleged that the Commission's determination that internet-connecting calls are "local
traffic" violated federal law, and it is entitled to the District Court's consideration of
that claim on the merits.

                                           II.

       We do not reach the merits of Southwestern Bell's federal-law claim. We also
decline to reach the question of whether the Eleventh Amendment gives the Arkansas
Public Service Commission, or the Commissioners, immunity from this suit. The
District Court should have the opportunity to decide those questions in the first
instance. We simply hold that the District Court has jurisdiction to hear Southwestern
Bell's federal-law claim.

      For the reasons stated, we reverse.

                                           -10-
MORRIS SHEPPARD ARNOLD, Circuit Judge, dissenting.

       The court quite rightly begins its consideration of this case with the observation
that federal courts are courts of limited jurisdiction and may adjudicate only such cases
as Congress, in the exercise of its constitutional authority, assigns to them. I
respectfully dissent, however, from the court's conclusion that there is federal
jurisdiction in the present circumstances.

       The court rests its view that a federal court may entertain this case on 47 U.S.C.
§ 252(e)(6), which confers jurisdiction "[i]n any case in which a State commission
makes a determination under this section." The "determination" referred to here must
surely be one made with respect to whether a negotiated agreement ought to be
approved. Since that issue, as everyone recognizes, is not involved in this case, federal
courts simply have no jurisdiction in the matter.

       The court finds federal jurisdiction because it believes that state public service
commissions necessarily have jurisdiction to enforce the agreements that it approves.
I doubt that. There is nothing in the statute that so provides, and, indeed, the Arkansas
Public Service Commission believes, and for good reason, that federal law does not
give it such jurisdiction. Even if it did, a state public service commission's order
involving the enforcement of an approved agreement would still not be reviewable by
a federal court, because it would not be the kind of "determination" to which 47 U.S.C.
§ 252(e)(6) applies. That section quite plainly refers only to determinations of whether
to approve a negotiated agreement. There is, I recognize, language to the contrary in
Iowa Utilities Board v. Federal Communications Commission, 120 F.3d 753, 804 n.24
(8th Cir. 1997), aff'd in part, rev'd in part, AT&T Corp. v. Iowa Utilities Board, 525
U.S. 366 (1999), but I believe that that language is only dictum.

                                          -11-
        Nor, as I see it, is this a case that arises "under the ... laws ... of the United
States," so as to be actionable in federal courts under our general federal-question
jurisdiction. See 28 U.S.C. § 1331. What federal law does here is give the parties the
authority to contract. That does not mean that federal law gives the right of action in
case of a breach; presumably, state law does that. This case therefore does not arise
under federal law. Even if it could be said that federal claims in the circumstances of
this case would not be "wholly insubstantial and frivolous," Bell v. Hood, 327 U.S.
678, 682-83 (1946), so that, strictly speaking, there is federal jurisdiction to hear the
matter, the action would still have to be dismissed for failure to state a claim on which
relief could be granted. See, e.g., Jackson Transit Authority v. Local Division 1285,
Amalgamated Transit Union, 457 U.S. 15, 21 n.6 (1982). What law supplies the rule
of decision in deciding how to interpret the relevant agreement would be a question for
the state courts or agencies in which this action belongs to decide. It might well be
state law or it might be federal common law, but in any case the principles would likely
be the same, or virtually identical, because of the general uniformity of the contract
principles applied throughout the country in state and federal courts alike.

        The court points out that federal law may be dispositive of the claim before us,
but the mere fact that a federal-law question has to be decided in the course of an
adjudication is hardly enough to make a case a federal one under 28 U.S.C. § 1331.
Federal questions arise all the time in state court proceedings, but, ordinarily, such
questions are determined in the state courts with the ultimate possibility of review in
the Supreme Court. That is what the Supremacy Clause, see U.S. Constitution, art. VI,
cl. 2, is all about. If every person who disagrees with a state agency's determination
of federal law had a claim in federal court, we would be dealing with little else.

       In short, I believe that the district court got it right, and I would affirm on the
basis of its well-reasoned opinion.

      I therefore respectfully dissent.

                                           -12-
A true copy.

      Attest:

         CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                           -13-