Court Opinion

ID: 2975323
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:32:27.675045+00
Date Added: 2024-06-11T11:43:55.433733
License: Public Domain

File Name: 07a0370n.06
                                 Filed: May 31, 2007
                    NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

                                             No. 06-1144

                            UNITED STATES COURT OF APPEALS
                                 FOR THE SIXTH CIRCUIT

LUCRE, INC.,

          Plaintiff-Appellant,

v.                                                          ON APPEAL FROM THE
                                                            UNITED STATES DISTRICT
MICHIGAN BELL TELEPHONE CO., d/b/a SBC                      COURT FOR THE WESTERN
MICHIGAN,                                                   DISTRICT OF MICHIGAN

          Defendant-Appellee.

                                                       /

Before:          MARTIN, NORRIS, and GIBBONS, Circuit Judges.

                                              OPINION

          BOYCE F. MARTIN, JR., Circuit Judge. Plaintiff Lucre, Inc. filed suit in the district court

to challenge the decisions of the Michigan Public Service Commission dismissing its complaint and

denying its motion to reopen and enlarge the record. Lucre had submitted a claim to the Commission

against defendant SBC Michigan, alleging that SBC breached the parties’ interconnection agreement.

Before the district court, Lucre alleged that the Commission’s decision on the merits was arbitrary

and capricious, and that the Commission’s denial of its request to reopen the record amounted to a

due process deprivation in violation of the Fourteenth Amendment. The district court denied both

of Lucre’s claims, and Lucre now appeals.

                                                  I.
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 2

       The newcomer to Telecommunications Act jurisprudence might wonder why an appeal from

a state agency can be brought in federal court. We have previously explained this unique procedural

mechanism, and have little reason to plow the field anew:

       To deregulate the telephone industry, Congress enacted the Telecommunications Act
       of 1996, codified in 47 U.S.C. Section 251 et seq. The Act has been called one of the
       most ambitious regulatory programs operating under “cooperative federalism,” and
       creates a regulatory framework that gives authority to state and federal entities in
       fostering competition in local telephone markets. We have often reiterated the Act’s
       purposes, which are ending local telephone company monopolies and promoting
       competition in local telephone markets. E.g., Mich. Bell Tel. Co. v. Strand, 305 F.3d
       580, 582 (6th Cir. 2002).

       The Act encourages competitive local telephone markets by imposing several duties
       on incumbent local exchange carriers, the telephone companies holding monopolies
       in local markets prior to the Act’s implementation. The incumbent must negotiate or
       arbitrate agreements with competing local carriers, the new entrants into the
       deregulated market, by providing one of three methods of competition: 1) the
       incumbent carrier must provide interconnection to its network to a competing carrier
       that builds or has its own network, 47 U.S.C. § 251(c)(2); (2) the incumbent carrier
       must provide access to its network elements on an “unbundled basis” to a competing
       carrier wishing to lease all or part of the incumbent's network, rather than build its
       own, 47 U.S.C. § 251(c)(3); and (3) the incumbent must sell its retail services at
       wholesale prices to a competing carrier that will resell the services at retail prices. 47
       U.S.C. § 251(c)(4).
       Interconnection agreements set forth terms, rates, and conditions of the arrangements
       between the incumbent local exchange carrier and a competing local exchange
       carrier. The Act provides for arbitration of an agreement, review of arbitrated or
       negotiated agreements, and judicial review of agreements. State utility commissions
       review and give final approval to interconnection agreements. 47 U.S.C. § 252(e)(1);
       § 252(e)(2)(A); Verizon Md. v. Pub. Serv. Comm’n, 535 U.S. 635, 122 S. Ct. 1753,
       1756, 152 L. Ed. 2d 871, 878 (2002). A party aggrieved by a commission decision
       may bring suit in federal district court to review whether the agreement or statement
       of terms complies with the Act. 47 U.S.C. § 252 (e)(6); Verizon Md., 122 S. Ct. at
       1758.
Mich. Bell Tel. Co. v. MCI Metro Access Transmission Servs., 323 F.3d 348, 353 (6th Cir. 2003).

       Under this somewhat complex framework, the federal courts employ a hybrid standard of
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 3

review, depending upon the issue presented in an appeal from a state agency decision. On the one

hand, this Court reviews state agency interpretations of the Telecommunications Act de novo,

“according little deference to the Commission’s interpretation of the Act.” Id. at 354. On the other

hand, state agency findings of fact are reviewed under the arbitrary and capricious standard, which

this Court has described as “the most deferential standard of judicial review of agency action,

upholding those outcomes supported by a reasoned explanation, based upon the evidence in the

record as a whole.” Id. Adding another unique ingredient to the mix, the federal courts have

supplemental jurisdiction “to review state commission interpretations for compliance with state law,”

when the state law questions share a common nucleus of operative fact with the claims brought

under the Act. Id. at 357. Unlike a state agency’s interpretation of the Act, this Court “give[s]

deference to a state commission’s resolution of state law issues and applies an arbitrary and

capricious standard in our review.” Id.

       In this case, we have jurisdiction to review the state agency’s decisions as set forth in MCI

Metro. The issue on appeal turns primarily on interpretation of the interconnection agreement under

Michigan law, however, calling for review of the Commission’s decision under the arbitrary and

capricious standard. The parties agree that Lucre’s constitutional due process claim is subject to de

novo review. See Coalition for Fair & Equitable Regulation of Docks v. FERC, 297 F.3d 771, 778

(8th Cir. 2002).

                                                 II.

       The following factual background is taken from the district court’s opinion:
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 4

       Pursuant to the Telecommunications Act of 1996, specifically 47 U.S.C. § 252(a),
       Plaintiff and Defendant Michigan Bell Telephone Company (“Michigan Bell”)
       executed an interconnection agreement, wherein Plaintiff contracted to connect its
       telecommunications network to Defendant Michigan Bell’s local exchange network.
       The interconnection agreement was approved in May 1999, and actual network
       linkage began in June 1999. Plaintiff and Defendant Michigan Bell interconnected
       their networks through a joint Synchronous Optical Network (“SONET”) ring.1 The
       parties’ dispute began over multiplexing fees.2
       Section 3.2.4 of the interconnection agreement provides:
               Based on the physical architecture and Reciprocal Compensation
               arrangements that the Parties agree to in this Agreement, each Party
               shall be responsible for establishing and maintaining certain physical
               facilities and logical trunking necessary for Interconnection. Each
               Party shall provide, at its own expense, the physical facilities and
               logical trunking on its side of the common physical meet point with
               respect to each Interconnection which provides for the transmission,
               routing and termination of Telephone Exchange Service traffic and
               Exchange Access traffic to their respective Customers. Such facilities
               and logical trunking shall be provided on a basis consistent with the
               standards set forth in this Agreement. Lucre may purchase such
               facilities from Ameritech at the rates set forth at Item V of the Pricing
               Schedule. Any Interoffice Transmission Facilities purchased by Lucre
               from Ameritech for such transmission shall be at the rates for
               Dedicated Interoffice Transmission Facilities.
       According to Plaintiff, it discovered that it had inadvertently failed to bill Defendant
       Michigan Bell for multiplexing services. Predictably, Defendant Michigan Bell
       denied owing Plaintiff for multiplexing. Plaintiff’s administrative complaint sought
       recovery of these fees.

       1
         A SONET is a standard protocol for transmitting calls over fiber optic cable on one network
or transmitting calls over fiber optic cable between two different networks. A SONET passes light
back and forth over fiber cable in lockstep with a master clock so transmissions will arrive and
depart neither lost nor jumbled. Harry Newton, NEWTON’S TELECOM DICTIONARY 736 (2003).
       2
         Multiplexing describes the process whereby multiple signals are transmitted over a single
line or separating multiple signals from a single line to multiple lines. Newton, supra note 1 at 527.
In the context of this case, Plaintiff seeks to charge Defendant Michigan Bell for calls that originate
on Defendant Michigan Bell’s network and terminate on Plaintiff’s network.
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 5

       Although Plaintiff’s administrative complaint contained several counts, the parties
       mediated the dispute and the Commission perceived only one issue before it: whether
       Plaintiff could charge Defendant Michigan Bell for multiplexing telephone calls
       during the course of Plaintiff and Michigan Bell’s interconnection agreement. The
       Commission ordered that Plaintiff could not charge for multiplexing. The
       Commission also subsequently denied Plaintiff’s petition for rehearing and
       reopening.
D. Ct. Op. at 1-3.

       In affirming the Commission’s decision, the district court agreed that the contract is

ambiguous with regard to payment for multiplexing services, despite Lucre’s argument that the plain

language of the agreement provided for billing of such services. For this reason, it rejected the

plaintiff’s argument that the Commission’s decision was arbitrary and capricious for looking beyond

the plain meaning of the agreement, as Michigan law endorses such an approach to interpreting an

ambiguous contract. Even though Lucre posited a potentially reasonable interpretation of the

contract’s application to multiplexing fees, given the facial ambiguity, the past practices of the

parties, and the meaning ascribed to certain terms by the parties in other portions of the agreement,

the district court determined that the Commission’s decision was reasonable and affirmed it

accordingly.

       The district court also denied Lucre’s due process claim, ruling that it had articulated no

protectable property or liberty interest and that its opportunity to be heard was adequate nonetheless.

A. Does the plain language of the interconnection agreement cover billing for multiplexing
                                        services?
       Lucre continues to argue on appeal that the Commission and the district court ignored the

“plain meaning” of the agreement, which it contends provides for billing for multiplexing. In ruling
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 6

that the plain language of the interconnection agreement did not provide for multiplexing fees, the

Commission and the district court focused primarily on section 3.2.4, quoted above, as supporting

SBC Michigan’s position. That section provides in pertinent part that “each Party shall be

responsible for establishing and maintaining certain physical facilities and logical trunking necessary

for Interconnection,” and that “each Party shall provide, at its own expense, the physical facilities

and logical trunking necessary on its side of the common physical meet point with respect to each

Interconnection which provides for the transmission, routing, and termination of Telephone

Exchange Service traffic and Exchange Access traffic to their respective Customers.”

        The meaning of these provisions does not jump off the page to the non-telecommunications

expert, underscoring the wisdom of the policy that requires federal courts to defer to the expertise

of state commissions in these types of cases. The Commission concluded that multiplexing services

“are essential for the proper transportation and delivery of a usable signal to customers,” and that

multiplexing services were “necessary in order to complete calls on their respective sides of the joint

SONET ring.” This conclusion, and the ruling that Lucre had to pay for multiplexing services itself,

is certainly not contravened by the plain meaning of the agreement, as Lucre contends. It in fact

appears to be supported by this contractual language and is not, at a minimum, an arbitrary and

capricious decision.

        Lucre points to additional portions of the agreement on appeal, contending that they provide

support for its position on multiplexing fees. First, it points to Recital E at the very beginning of the

100-plus page agreement, which provides that “[t]he Parties are entering into this Agreement to set

forth the respective obligations of the Parties and the terms and conditions under which the Parties
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 7

will interconnect their networks and facilities and provide to each other Telecommunications

Services as required by the Act as set forth herein.” This vague statement of purpose does nothing

to counter the proposition that both parties might be responsible for their own multiplexing fees and

is irrelevant to the specific issue challenged by Lucre here.

        Next, Lucre points to section XXVII.1 of the agreement, which provides that “[e]ach party

will bill all applicable charges, at the rates set forth herein, in the Pricing Schedule and as set forth

in applicable tarriffs or contracts referenced herein, for the services provided by that Party to the

other Party . . . .”    Again, this extremely generalized statement does not indicate whether

multiplexing is an applicable charge or a service provided by Lucre to SBC Michigan. Although

Lucre asks us to find that it would be covered by such a definition, such a ruling would amount to

a substitution of our judgment for the expertise of the Commission. The language of the statute and

its cooperative federalism approach simply do not support such a reading with that level of

specificity.

        Finally, Lucre points to a pricing schedule, appended to the agreement, which references

multiplexing. According to SBC, this schedule is merely a list of prices, and does not amount to an

authorization to bill. Moreover, this schedule does not appear to provide for rates at which Lucre

can bill SBC. To the contrary, the schedule is referenced in section 3.2.4 (the section relied upon

by the Commission) which states that “Lucre can purchase such facilities from Ameritech at the rates

set forth at Item V of the Pricing Schedule.” Based on the manner in which it is referenced in the

main body of the agreement, the schedule appears to us to have nothing to do with Lucre’s billing

of SBC.
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 8

       In short, Lucre points to nothing in the plain language of the agreement that undermines the

holdings of the Commission or the district court. We therefore affirm those decisions with respect

to the issue of billing for multiplexing services.

                                          B. Due Process

       Lucre also argues that the Commission violated its due process rights by refusing to reopen

the administrative record to allow it to introduce evidence of its own course of performance and of

AT&T Michigan’s invoicing for multiplexing. In denying these requests, the Commission reasoned

that “Lucre should have realized at the time that it filed its complaint that the explanation of its

failure to bill SBC for nearly four years could have a significant effect on the outcome of this

proceeding.”

       Lucre’s due process argument fails at the outset under the state action requirement. In order

to raise a due process claim, a party must have a property or liberty interest of which it is deprived

by state action, as the Fourteenth Amendment “erects no shield against merely private conduct,

however discriminatory or wrongful.” Blum v. Yaretsky, 457 U.S. 991, 1002 (1982) (“[A]ction

inhibited by the first section of the Fourteenth Amendment is only such action as may fairly be said

to be that of the States.”). The only alleged property rights here were Lucre’s rights under the

interconnection agreement, and these rights could only be said to have been “deprived” by SBC

Michigan, not by the Commission. SBC Michigan is a private company rather than a state actor, and

Lucre has not alleged facts that would render it a state actor here. Cf. Wittstock v. Mark A. Van Sile,

Inc., 330 F.3d 899, 902 (6th Cir. 2003) (“A private actor may be considered a person acting under
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 9

color of state law (a state actor) if (1) the deprivation complained of was caused by the exercise of

some right or privilege created by the state and (2) the offending party acted together with or has

obtained significant aid from state officials, or because his conduct is otherwise chargeable to the

State.”). The Supreme Court has also “consistently held that the mere fact that a business is subject

to state regulation does not by itself convert its action into that of the State for purposes of the

Fourteenth Amendment.” Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 52 (1999). Thus, even

assuming that Lucre would have a property right in the interconnection agreement by operation of

Michigan law that provides for the enforcement of contracts,3 the deprivation of that contractual right

by a private entity — i.e. SBC Michigan’s alleged refusal to comply with the contract — simply does

not implicate due process concerns. See also Paul v. Davis, 424 U.S. 693, 710-11 (1976) (liberty

and property “interests attain this constitutional status by virtue of the fact that they have been

initially recognized and protected by state law, and we have repeatedly ruled that the procedural

guarantees of the Fourteenth Amendment apply whenever the State seeks to remove or significantly

alter that protected status.”).

        Perhaps recognizing the futility of its due process claim raised against SBC Michigan, Lucre

turns its guns toward the Commission, which is of course a state actor. It argues that the

Commission deprived it of due process by refusing to reopen the record. Lucre’s “right to be heard”

        3
        See Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 485 (1988) (“A
cause of action is a species of property protected by the Fourteenth Amendment’s Due Process
Clause.”). This rule would only appear to go to a state’s abolition of a cause of action, rather than
conduct by a private party that gives rise to the cause of action, but we need not delve into the
nuances of this distinction to address Lucre’s claim here.
No. 06-1144
Lucre, Inc. v. SBC Michigan
Page 10

by reopening of the record might amount to a “procedural right,” but cannot constitute a property

right. See Richardson v. Township of Brady, 218 F.3d 508, 518 (6th Cir. 2000) (A party “can have

no protected property interest in the procedure itself.”).

        Thus, Lucre’s due process claim is essentially missing a critical link. Although Lucre

articulates a property right that is tied to its claim for breach of contract, this right was denied by a

private actor, not by the state. See, e.g., Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982)

(“[T]he party charged with the deprivation must be a person who may fairly be said to be a state

actor. This may be because he is a state official, because he has acted together with or has obtained

significant aid from state officials, or because his conduct is otherwise chargeable to the State.

Without a limit such as this, private parties could face constitutional litigation whenever they seek

to rely on some state rule governing their interactions with the community surrounding them.”). The

state actor that it does identify — the Commission — cannot be said to have denied it of any property

right. (Not to mention the fact that the Commission is not and never has been named as a party).

Without a connection between the deprivation and the property right in question, Lucre’s due process

claim fails.

                                                  III.

        For the foregoing reasons, we affirm the district court’s dismissal of Lucre’s claims.