Court Opinion

ID: 2976182
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:47:42.616843+00
Date Added: 2024-06-11T11:44:00.395102
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                                Pursuant to Sixth Circuit Rule 206
                                      File Name: 08a0072p.06

                    UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT
                                    _________________

                                                            X
                                                             -
 QUICK COMMUNICATIONS, INC., dba Quick Connect
                                                             -
 USA,
                                                             -
                              Plaintiff-Appellant,
                                                             -
                                                                 No. 06-2103

                                                             ,
              v.                                              >
                                                             -
                                                             -
                                                             -
 MICHIGAN BELL TELEPHONE COMPANY; J. PETER

                                                             -
 LARK, Chairman; ROBERT B. NELSON,

                                                             -
 Commissioner; LAURA CHAPPELLE, Commissioner,
                                                             -
 in their official capacities as Commissioners of the
                                                             -
 Michigan Public Service Commission,
                                   Defendants-Appellees. -
                                                             -
                                                             -
                                                            N
                             Appeal from the United States District Court
                            for the Eastern District of Michigan at Detroit.
                        No. 05-72396—Marianne O. Battani, District Judge.
                                  Argued: September 14, 2007
                            Decided and Filed: February 13, 2008
                     Before: MARTIN, GUY, and CLAY, Circuit Judges.
                                      _________________
                                           COUNSEL
ARGUED: Norman C. Witte, WHITE LAW OFFICES, Lansing, Michigan, for Appellant. William
J. Champion, III, DICKINSON WRIGHT, Ann Arbor, Michigan, Michael A. Nickerson, OFFICE
OF THE ATTORNEY GENERAL, Lansing, Michigan, for Appellees. ON BRIEF: Norman C.
Witte, WHITE LAW OFFICES, Lansing, Michigan, Gary L. Field, LAW OFFICE OF GARY L.
FIELD, Lansing, Michigan, for Appellant. William J. Champion, III, DICKINSON WRIGHT, Ann
Arbor, Michigan, Jeffery V. Stuckey, DICKINSON WRIGHT, Lansing, Michigan, Michael A.
Nickerson, OFFICE OF THE ATTORNEY GENERAL, Lansing, Michigan, Craig A. Anderson,
MICHIGAN BELL TELEPHONE COMPANY, Detroit, Michigan, Lisa M. Bruno, Detroit,
Michigan, for Appellees.

                                                1
No. 06-2103          Quick Communications v. Michigan Bell                                   Page 2
                     Telephone Co., et al.

                                       _________________
                                           OPINION
                                       _________________
       BOYCE F. MARTIN, JR., Circuit Judge. The Michigan Public Services Commission
ordered Quick Communications Incorporated and Michigan Bell Telephone Company (d/b/a AT&T)
to amend their interconnection agreement to conform with the Commission’s most recently approved
service rates. Quick brought suit seeking declaratory and injunctive relief, arguing that the
Telecommunications Act of 1996, the terms of the interconnection agreement, the Sierra-Mobile
doctrine, and the Contract Clause of the United States Constitution prohibited the Commission’s
action. The district court granted defendants’ motion for summary judgment on all of Quick’s
claims. Quick now appeals.
                                                 I.
        The Federal Telecommunications Act of 1996, 47 U.S.C. § 151 et seq. (1996), was intended
to deregulate the telecommunications industry and spur competition. Under the Act, there are two
types of service providers relevant to this action: (1) Incumbent Local Exchange Carriers (“ILECs”),
and (2) Competitive Local Exchange Carriers (“CLECs”). ILECs are entities such as the defendant,
AT&T, that held a monopoly on local telephone service. ILECs control the last mile through which
every CLEC must access its customers. The Act mandates that ILECs provide access to its network
to competitors (CLECs) through interconnection agreements. The ILECs are allowed to charge
reasonable and nondiscriminatory rates for this access. 47 U.S.C. § 252(d). Those rates are
established by state public utilities commissions — here, the Michigan Public Service Commission
— through a cost methodology known as the Total Service Long Run Incremental Cost
(“TELRIC”).
       In order for the Commission to establish proper TELRIC rates, they require AT&T to
conduct cost studies, 47 U.S.C. § 252(c)(2), which the Commission must approve. On August 30,
2002, AT&T filed an application with the Commission seeking a determination of its costs to
provide services. AT&T’s application claimed that its then-current costs were significantly higher
than those previously set by the Commission, and it sought a new determination.
        On September 16, 2002, the Commission dismissed AT&T’s application and ordered AT&T
to submit a new application with revised cost studies. Accordingly, on May 2, 2003, AT&T
submitted its new application with a revised cost study. The Commission issued a notice directing
any interested parties that wished to participate in the proceedings to file a “notice of intent to
participate.” Quick never filed a notice.
        On September 21, 2004, after a year and a half of extensive proceedings including expert
testimony, exhibits, public comments and briefs, the Commission issued an order approving, subject
to certain modifications, AT&T’s cost studies. On November 5, 2004, AT&T filed its proposed
pricing schedule in compliance with the Commission’s September 21 Order. Quick, along with
other CLECs had 45 days to submit comments, and AT&T had 21 days to respond to those
comments. On December 20, 2004, Quick filed objections to the Commission’s order requiring the
new pricing schedule be incorporated into existing interconnection agreements. Quick argued that
incorporation of the new approved rates in its existing interconnection agreement required further
negotiation. On January 25, 2005, the Commission rejected Quick’s and the other CLECs’
objections, stating the because it had “substantially revised the costs proposed by AT&T . . . there
[was] no basis for further dispute resolution, negotiation, or delay.” The January 25 Order also
required AT&T to “true-up” all charges billed under its interconnection agreements retroactive to
No. 06-2103          Quick Communications v. Michigan Bell                                  Page 3
                     Telephone Co., et al.

November 6, 2004, the effective date of the new approved rates. On February 25, 2005, Quick and
other CLECs petitioned for a rehearing, and on May 17, 2005, the Commission denied the petition.
                                                II.
         On June 25, 2005, after the Commission denied its petition for rehearing, Quick filed suit
seeking declaratory and injunctive relief to prevent the pricing amendment to its interconnection
agreement with AT&T from going into effect. Quick claimed the January 25, 2005 order violated
its interconnection agreement with AT&T, the federal Telecommunications Act, the Sierra-Mobile
doctrine, and the Contract Clause of the United States Constitution.
       On July 19, 2006, the district court granted summary judgment in favor of AT&T and the
Commission on all of Quick’s claims. The district court held that (1) Quick had failed to show that
the implementation ordered by the Commission was barred by the Telecommunications Act; (2) the
Commission’s order did not violate the terms of the interconnection agreement; (3) the Sierra-
Mobile doctrine was not implicated; and (4) the Contract Clause was not violated.
       Quick appeals the district court’s grant of summary judgment.
                                               III.
        We must decide whether the Commission’s order to amend the Quick/AT&T interconnection
agreement violated not only the agreement, but the Federal Telecommunications Act, the Sierra-
Mobile doctrine, and the Contract Clause of the United States Constitution. The applicable standard
of review is more complex than the simple de novo standard that typically governs our review of
summary judgment. When a district court’s decision on summary judgment is the result of a review
of a state administrative body’s ruling, de novo review requires that the proper standard of review
of the underlying state administrative ruling be applied. Mich. Bell Tel. Co. v. MFS Intelenet of
Mich., Inc., 339 F.3d 428, 433 (6th Cir. 2003).
       AT&T argues that we should apply the de novo standard to our review of whether the
Commission’s actions complied with the Telecommunications Act, but must apply the more
deferential “arbitrary-and-capricious” standard to our review of the Commission’s analysis of the
interconnection agreement. This is incorrect. Because the Telecommunications Act governs the
Commission’s interpretation of the interconnection agreement, de novo review applies to the
question of whether the Commission’s order violated the Telecommunications Act, and the arbitrary
and capricious standard applies to the Commission’s determinations of fact and state law. Id.
1.     Does the Telecommunications Act allow the Commission to override terms of
interconnection agreements when implementing new rate changes?
       In its summary judgment order, the district court laid out the following background:
               The Telecommunications Act of 1996 (the “Act”), 47 U.S.C. § 252(d), is
       designed to promote competition in the previously monopoly-driven local telephone
       service market. See Verizon Comm., Inc. v. FCC, 535 U.S. 467, 475-76 (2002). To
       achieve its goal the Act requires the incumbent local telephone service provider,
       AT&T Michigan in this case, to allow new market entrants to interconnect with and
       access the incumbent’s network for a fair price. 47 U.S.C. § 251(c). Specifically,
       incumbent local exchange carriers must allow competing carriers to use their
       networks, a practice known as “unbundling.” See 47 U.S.C. § 251(c)(3).
No. 06-2103           Quick Communications v. Michigan Bell                                   Page 4
                      Telephone Co., et al.

               Sections 251 and 252 of the Act create a process for creating and modifying
       the contracts of “interconnection agreements” that govern the relationship of ILECs
       and CLECs. See Ill. Bell Tel. Co. v. Worldcom Techs., Inc., 179 F.3d 566 (7th Cir.
       1999) (describing the procedure by which interconnection agreements are reached).
       The interconnection agreement lays out in specific detail what access to network
       elements the new entrant wishes to purchase from the incumbent, the price to be
       paid, and other parameters of their relationship. The interconnection agreements are
       then subject to “state commission approval, FCC oversight, and federal judicial
       review.” Verizon North, Inc. v. Strand, 309 F.3d 935, 941 (6th Cir. 2002) (“Verizon
       I”). The duty of the state commissions is to uphold the Act and the FCC regulations
       promulgated under it. To achieve that end, the commissions ensure that the
       interconnection agreements work to foster competition and benefit the public,
       without discriminating against others seeking to enter the market. See 47 U.S.C.
       § 252(c)(1).
JA 192-93.
        Quick does not dispute that the Commission has the power to set TELRIC-based rates and
to require parties to amend their interconnection agreements to incorporate the new prices. Quick
argues that federal law does not give the Commission the authority to override the interconnection
agreements when implementing the new rates.
         Our decision in Verizon North Inc. v. Strand, 367 F.3d 577, 585-86 (6th Cir. 2004) (“Verizon
II”), illuminates the primacy that interconnection agreements are given under the Act. In Verizon
II, the Commission ordered an ILEC to publish its wholesale prices for services, so that any party
could choose to purchase a service without entering into an interconnection agreement with the
ILEC. Id. at 583-84. This Court reversed the Commission, and held that such an order eviscerates
any incentive to engage in private negotiation, which is the centerpiece of the Act. Id. By
sidestepping Congress’s chosen mechanism for increasing competition in the local
telecommunications market — the private and voluntary mutual negotiation of interconnection
agreements — the Commission upset the intricate balance between competitors and incumbents.
Id. at 586. Ultimately, Verizon II teaches that a Commission may not constructively “[permit] the
institution of an interconnection agreement by fiat.” Id. at 585.
        However, the over-arching purpose of the Telecommunications Act is to end local telephone
company monopolies and promote competition in local telephone markets. Mich. Bell Tele. Co. v.
MCIMetro Access Transmission Serv., 323 F.3d 348, 351-52 (6th Cir. 2003). In Michigan Bell
Telephone, there was an interconnection agreement between the ILEC and the CLEC. The CLEC
began purchasing services pursuant to terms the ILEC had published in its state-law-mandated tariff
instead of pursuant to the terms of the interconnection agreement. This Court upheld the
Commission’s determination that the CLEC may purchase services pursuant to the tariffs instead
of pursuant to the terms of the interconnection agreement. This Court reasoned that because the
state-law imposed tariff requirement pre-dated the interconnection agreement, and because
purchasing services pursuant to the tariff bolstered the Act’s purpose of increasing competition, the
Commission’s determination was not in error. Id.
        Taking these governing, and sometimes conflicting, principles into account, we believe that
while the terms of the interconnection agreement may govern the parties’ relationship, “[t]he
Commission can enforce state law regulations, even where those regulations differ from the terms
of the Act or an interconnection agreement, as long as the regulations do not interfere with the
ability of new entrants to obtain services,” or reduce or cut-off competition. Id. at 359.
No. 06-2103           Quick Communications v. Michigan Bell                                       Page 5
                      Telephone Co., et al.

       A review of the Commission’s January 25 Order reveals that after a two-year proceeding,
the Commission approved cost-based rates in its September 21, 2004 Order. Between September
21, 2004 and January 25, 2005, Quick and other CLECs filed multiple objections to the September
Order establishing new rates. This long process resulted in the January 25 Order requiring the
implementation of the new Commission-approved rates. The Order specifically rejected Quick and
the other CLECs’ argument that the Commission’s finding of new TELRIC rates requires each
CLEC to renegotiate its interconnection agreement with AT&T pursuant to the terms of those
agreements. As the district court correctly found, this was well within the Commission’s authority:
       Neither the Act nor case law interpreting the Act precludes the Commissioner’s
       conduct. . . . The FCC has ruled that states may set TELRIC-based prices in a
       consolidated proceeding, then replace the rates set in prior arbitrations, and apply the
       results of the consolidated proceeding in subsequent arbitrations . . . . The Act itself
       contains no language mandating a particular implementation procedure for rate
       revision. Nor does the Act contain any restraint on a state commission’s authority
       to require parties to amend their interconnection agreement to incorporate new or
       revised pricing information.
JA 193-94.
        We agree with the district court. The Commission’s order enforced state and federal law
requiring TELRIC-compliant rates be used, and did not interfere with the ability of new market
entrants to obtain services, nor did it impair competition. Thus, under Michigan Bell Telephone, we
find that the Commission was within its authority to order immediate amendments to the
interconnection agreement regarding the new rates. Because we find that the Commission acted
within its authority when it required immediate amendments to the interconnection agreement, it is
not necessary for us to determine if the interconnection agreement was violated by the
Commission’s January 25 order. Instead we turn to the other two questions presented.
2.      Did the Commission’s order violate the Sierra-Mobile doctrine?
        Quick argues that the Commission’s order violated the Sierra-Mobile doctrine established
in United Gas Pipe line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956), and Federal Power
Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956). The Sierra-Mobile doctrine
prohibits an agency from allowing regulatees to unilaterally abrogate their private contract by
altering their terms. The district court, relying on Bellsouth Telecomm., Inc. v. Miss. Pub. Serv.
Comm’n, 368 F. Supp. 2d 557, 565 n.9 (S.D. Miss. 2005), held that interconnection agreements under
the Telecommunications Act are atypical contracts which are the result of state and federal
regulations, and thus the Sierra-Mobile doctrine is not applicable. We agree. In this case, AT&T
did not unilaterally do anything, let alone unilaterally abrogate the interconnection agreement with
Quick. Rather, the Commission ordered Quick and AT&T to amend their interconnection agreement
pricing index to conform to the January 25 Order. Such action on the part of the Commission is not
in violation of the Sierra-Mobile doctrine.
3.      Did the Commission’s order violate the Contract Clause of the Constitution?
       Article 1, § 10, of the United States Constitution provides: “No State shall . . . pass any . . .
Law impairing the Obligation of Contracts . . . .” Quick must “demonstrate that a ‘change in state
law has operated as a substantial impairment of a contractual relationship.’” Mascio v. Pub.
Employees Ret. Sys. of Ohio, 160 F.3d 310, 313 (6th Cir. 1998) (quoting Gen. Motors Corp. v.
Romein, 503 U.S. 181 186 (1992)). The district court held that Quick had failed to advance any
argument that the impairment was substantial.
No. 06-2103          Quick Communications v. Michigan Bell                                   Page 6
                     Telephone Co., et al.

         We agree with the district court that the Contract Clause was not implicated by the
Commission’s January 25 Order. Interconnection agreements are quasi-governmental agreements
used to accomplish the goal of the Telecommunications Act by fostering competition in local
telecommunications markets. As we held earlier, the Commission has the authority under the Act
to approve rates and terms of interconnection agreements in order to advance the goal of greater
competition. By law, Quick was required to abide by the new TELRIC rates as determined by the
Commission. Requiring Quick and AT&T to implement those new rates immediately rather than
allowing both parties to negotiate how to implement the new rates was not a change in state law that
operated as a substantial impairment to AT&T and Quick’s contractual relationship, rather, the
Commission’s order merely enforced existing state and federal law. Accordingly, we AFFIRM the
district court’s decision that the Commission’s January 25 Order did not violate the Contracts
Clause.
                                                IV.
        The MPSC had the authority to implement new TELRIC rates. Requiring Quick and AT&T
to amend their interconnection agreement to conform to those new rates was within the
Commission’s authority and was not a violation of the Federal Telecommunications Act, the Sierra-
Mobile doctrine, or the Contracts Clause of the Constitution. Accordingly, we AFFIRM the district
court’s grant of summary judgment in favor of AT&T.