Verizon Maryland, Incorporated v. Core Communications, Incorpora, No. 09-1839 (4th Cir. 2010)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-1839 VERIZON MARYLAND, INCORPORATED, Plaintiff - Appellee, v. CORE COMMUNICATIONS, INCORPORATED, Defendant Appellant, and MARYLAND PUBLIC SERVICE COMMISSION; STEVEN B. LARSEN, In His Official Capacity as Chairman of the Maryland Public Service Commission; HAROLD D. WILLIAMS, In His Official Capacity as Commissioner of the Maryland Public Service Commission; ALLEN M. FREIFELD, In His Official Capacity as Commissioner of the Maryland Public Service Commission; SUSANNE BROGAN, In Her Official Capacity as Commissioner of the Maryland Public Service Commission; LAWRENCE BRENNER, In His Official Capacity as Commissioner of the Maryland Public Service Commission, Defendants. Appeal from the United States District Court for the District of Maryland, at Baltimore. J. Frederick Motz, District Judge. (1:08-cv-00503-JFM) Argued: September 22, 2010 Decided: December 16, 2010 Before WILKINSON, KING, and GREGORY, Circuit Judges. Reversed and remanded by unpublished opinion. Judge Gregory wrote the opinion, in which Judge Wilkinson and Judge King joined. ARGUED: Michael Brian Hazzard, ARENT FOX, LLP, Washington, D.C., for Appellant. Joseph Ruggiero, VERIZON COMMUNICATIONS INC., Arlington, Virginia, for Appellee. ON BRIEF: Joseph P. Bowser, ARENT FOX, LLP, Washington, D.C., for Appellant. Ann N. Sagerson, VERIZON, Arlington, Virginia; Scott H. Angstreich, KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, PLLC, Washington, D.C., for Appellee. Unpublished opinions are not binding precedent in this circuit. 2 GREGORY, Circuit Judge: The Telecommunications Act of 1996 (hereinafter the Act ) was designed to enable new Local Exchange Carriers (hereinafter LECs ) to enter local telephone markets with ease and to reduce monopoly control of these markets and increase competition among Verizon Communications Inc v. FCC, 535 U.S. 467, 489 providers. (2002); 47 U.S.C. §§ 251 et seq. Here, we must consider two questions that arise from interpreting the Act and the rules promulgated by the Federal Communications Commission (hereinafter FCC ) including (1) what type of connectivity an InterConnection existing or Agreement Incumbent (hereinafter LEC (hereinafter ICA ) ILEC ) between and a an new or Competitive LEC (hereinafter CLEC ) required and (2) whether the district court erred in finding that the loop connection requested by a CLEC was of a lesser quality than the InterOffice Facilities (hereinafter IOF ) interconnection proposed by an ILEC and therefore not in compliance with the ICA. We find that the ILEC, Verizon Maryland, Inc. (hereinafter Verizon ), violated the rules as promulgated by the FCC when it refused to provide (hereinafter Core ), non-discriminatory Therefore, we the CLEC, with Core the interconnection reverse the district Communications, technically that Core court s had grant Inc. feasible, requested. of summary judgment and find that, as a matter of law, Verizon breached the 3 ICA. The case is remanded to the district court for proceedings consistent with our ruling. I. This appeal arises from a decision by the district court overturning the Maryland Public Service Commission (hereinafter the Commission ). The district court found that Verizon did not violate its duty under the Act or ICA when it declined to provide Core with the requested interconnection. A. The Telecommunications Act of 1996 Under the provisions of the Act, all telecommunications carriers, both ILECs and CLECs, are obligated to interconnect their networks directly or indirectly with the facilities and equipment § 251(a). of other telecommunications carriers. 47 U.S.C. In other words, the Act creates a framework for the development of facilities-based competition in which ILECs are required to interconnect their networks with the networks of requesting CLECs. This interconnection ensures that consumers of local telephone service may communicate with consumers who are served by a different LEC. interconnection interconnect duty directly certain requirements. on to The Act also imposes a specific ILECs. ILECs their network must as 47 U.S.C. § 251(c)(2). 4 permit long as CLECs they to meet B. The Interconnection Agreement In 1999, Core was beginning to enter the local Baltimore telephone market. By statute, Core was entitled to connectivity with the existing incumbent network that was (1) technically feasible ; (2) at least equal in quality to that provided by the ILEC to itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection; and (3) on rates, terms, and conditions that are just, reasonable, and nondiscriminatory. expedite 47 U.S.C. § 251(c)(2)(B)-(D). negotiations, Core adopted an existing In order to ICA between Verizon, the ILEC in the region, and American Communications Services, Inc. 1 pursuant to 47 U.S.C. § 252(i). The adoption of this agreement was approved by the Commission on September 15, 1999. The interconnection agreement in stated accordance that with Verizon the would performance provide standards set forth in Section 47 U.S.C. § 251 (c) of the Act and the FCC regulations. J.A. 55. Under 47 U.S.C. § 252(a)(1), ILECs and CLECs are free to negotiate binding ICAs without regard to the baseline interconnection performance standards set forth in the Act and 1 American Communications Services, Inc. was another CLEC who was attempting to enter the telephone market in Baltimore. They had previously negotiated with Verizon to form the ICA which Core later adopted. 5 the corresponding FCC regulations. See 47 U.S.C. §§ 251(b)-(c); 47 C.F.R. §§ 51.305, 51.311, 51.313; Verizon Md., Inc. v. Global Inc., NAPS, 377 circumstances, will only F.3d the apply 355, 390 generally to the (4th Cir. applicable extent that 2004). performance the parties In such standards have not contracted around them. All ICAs must be presented to the Commission for approval even when they have been negotiated by the parties. § 252(e)(1)-(2). authority to 47 U.S.C. Commissions have also been vested with the implement and enforce these agreements. Core Commc n Inc. v. Verizon Pa., Inc., 493 F. 3d 333, 335 (3d Cir. 2007). According to the Commission, delays in interconnection are very costly to a new provider because it cannot operate and earn revenue while it continues to incur expenses. 77. J.A. 276- Delays can benefit the ILEC by reducing the chances that the CLEC is successful. In the summer of 1999, Core initiated contact with Verizon regarding interconnection. On July 27, 1999, Core sent a letter to Verizon requesting an activation date of September 10, 1999. Core calculated this date based on section 4.4.4 of the ICA, which states that interconnection will not occur earlier than forty-five days after interconnection by Core. provided Verizon with the receipt of a request for Also, as required by the ICA, Core forecasts 6 of Core s technical requirements. The letter stated, [p]lease confirm in writing if the requested interconnection activation date is acceptable, or, if it is not acceptable, please propose an alternate date, together with appropriate. an explanation J.A. 132-33. why such alternate date is Verizon did not respond in writing. At a meeting on August 11, 1999, the parties agreed to use the entrance facility method of interconnection. J.A. 88. Entrance facilities are dedicated transmission facilities that connect ILEC and CLEC locations. Verizon describes four major steps for provisioning initial interconnection with Core using the entrance facility method: (1) constructing the physical interoffice facility between Verizon s and Core s networks; (2) provisioning transport circuits from Verizon s to Core s Wire Center; (3) provisioning transport circuit; and (4) establishing interconnection trunks between Verizon s switch and Core s switch. Core Center requested on the interconnection tenth Baltimore, Maryland. with Verizon, meaning floor of the with Verizon Court Square at its Wire building in That floor of the building was on-net that it was physically connected to Verizon s central network through fiber feeder cables and an OC-12 multiplexer (hereinafter OC-12 MUX ). Verizon had turned on an OC-12 Loop Ring at the building in June 1999, meaning that physical construction was complete, 7 the optical signals were transmitting, and the ring was service-ready. At some point, however, the the OC-12 Mux was disconnected from OC-12 Loop Ring. Verizon claims that on August 11, 1999, it estimated that connection would take between four to six months. In an effort to expedite speed things along, Core asked that Verizon the interconnection process by using the existing OC-12 Loop Ring and OC-12 Mux for interconnection, as this would eliminate the need for Verizon to build new facilities. It also requested an interconnection activation date of September 18, 1999. agreed that using the existing OC-12 Loop Ring Verizon would be technically feasible, but would not commit to Core s proposal at the August 11 departments. meeting until it first checked with other The record indicates that the OC-12 Loop Ring had the capacity sufficient to support Core s initial request. On August 15, 1999, Verizon informed Core that the OC-12 Mux had identity been of assigned whom Verizon to some would not customer disclose. of record, Thus, the Verizon claimed that the OC-12 Mux was unavailable for interconnection. Later, Verizon admitted that Core was the customer of record for the OC-12 Mux. However, Verizon claims that Core was assigned to the OC-12 Mux in a retail capacity as a customer rather than as a carrier. 8 On August 31, 1999, Verizon informed Core that, as a matter of policy, it would not interconnection, whether or Verizon explained further use not on the it OC-12 was September Loop Ring technically 7, 1999, for feasible. that it had previously classified the existing OC-12 Mux as a customer facility, rather than a carrier facility and that the OC-12 Mux would need to be reinventoried as a carrier facility in order to use existing it for facilities, physically detach interconnection. Verizon the stated OC-12 Mux Instead that from it the of using would OC-12 the need Loop to Ring, construct a new OC-12 ring interoffice facility ring ( New OC-12 IOF Ring ), and insert the multiplexer into the new ring before subsequent steps in the interconnection process could take place. Core express met its with desire interconnection. Verizon to again use on the September OC-12 9, Loop 1999, Ring to for As a result of the meeting, Verizon informed Core that it would complete construction of the New OC-12 IOF Ring and establish connection to the Wire Center by November 16, 1999. 16 Core responded on September 24, 1999, that the November date was not acceptable, and that Verizon had not yet articulated a reasonable justification for refusing to use the existing OC-12 Loop Ring for interconnection. 9 The new OC-12 IOF Ring was completed November 16, 1999 and November 30, 1999. Ring was turned up, the parties sometime between Once the new OC-12 IOF were able to coordinate subsequent steps in the interconnection process by December 23, 1999, just over four months after the initial meeting between Core and Verizon. C. The Maryland Public Service Commission On October Commission 9, alleging 1999, that Core filed Verizon was a complaint unlawfully with refusing the to provide interconnectedness and demanding that Verizon connect immediately. alleging provide that Core amended its complaint on January 18, 2001, Verizon interconnection (1) breached within the the ICA requested by failing 45-day to interval, and by refusing to negotiate an alternative interval, J.A. 296; (2) breached its agreement by not providing Core with the same terms it provides to others, J.A. 298 2; (3) refused to provide interconnection at a technically feasible point , J.A. 302; (4) impos[ed] unjust and unreasonable terms and conditions on the interconnection process J.A. 304; and (5) breached its duty of good faith and fair dealing under the Interconnection Agreement 2 At oral argument, counsel for Core represented that loop connection is used in ten percent of these types of interconnections between Verizon and CLECs. 10 with Core by refusing to provide commercially reasonable time. interconnection J.A. 305. within a On March 25, 2002, count one was dismissed by the Commission and is not at issue in this matter. On August 8, 2003, the hearing examiner, assigned by the Commission, entered a proposed order finding that Verizon had breached section 27.1 of the ICA and a duty of fair dealing and good faith under Maryland contract law. made a factual finding that The hearing examiner Verizon did not provide interconnection to Core in as timely a fashion as it reasonably would have customers. provided interconnection J.A. 116. to any of its own Specifically, the Commission found that it is undisputed that capacity was available and connection technically feasible and that Verizon denied access to this connection in bad faith. On February 26, J.A. 124. 2004, the Commission issued an affirming the proposed order of the hearing examiner. 9, 2004, the Commission denied a motion by order On July Verizon for reconsideration. On February 25, 2008, Verizon filed a complaint in the District Court of Maryland seeking review of the Commission s finding. On March 30, 2009, the district court granted Verizon s motion for summary judgment thereby overturning the decisions of the Commission. The district court concluded that 11 Verizon had no duty to provide the lesser quality interconnection requested by Core since the ICA required Verizon to provide Core with a connection of equal quality to that which it provides itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection. The district court found as a factual matter that the interconnection requested by Core was of lesser quality than the connectivity Verizon provided between carrier switching offices. Furthermore, the district court concluded that in order to determine Verizon s obligation pursuant to the ICA, one measures the quality of connection it provides between the carrier switching-offices, not between a carrier switching-office and an end-user. Thus, the district court held that Verizon would have been in violation of the ICA if it provided the interconnection requested by Core since it was not of equal quality to that provided between carrier switching-offices, asserts would have effectively modified the ICA. 3 court also vacated the Commission s finding which Verizon The district that Verizon breached its duty of good faith and fair dealing. 3 It is worth noting that the record does not reflect that Verizon raised any concern about whether the loop connection quality would be in violation of the ICA until the litigation had commenced. 12 II. We review de novo the district court s grant of summary judgment. See Garofolo v. Donald B. Heslep Assocs., Inc., 405 F.3d 194, 198 (4th Cir. 2005). Absent a statutory command, general standards for judicial review of agency action apply. state agency s interpretation to deference entitled the of federal afforded a interpretation of its own statutes. . . Morrison, 199 omitted). F.3d Thus, 733, 745 we review interpretation of the Act. commission may deserve (4th a Cir. de statutes is federal A not agency s GTE South, Inc. v. Va. novo 1999) the (citation Commission s Nonetheless, an order of a state measure of respect in view of the commission s experience, expertise, and the role that Congress has given it in the Telecommunications Act. BellSouth Telecomms., Inc. v. Sanford, 494 F.3d 439, 447 (4th Cir. 2007). Turning to the standard for our review of the Commission s fact-finding, we note first that the Act does not require us to sit as a super public utilities commission. Morrison at 745. Therefore, we review the fact finding of the state agency under the substantial evidence standard. omitted). In applying the Morrison at 745 (citation substantial evidence standard, a court is not free to substitute its judgment for the agency . . . it must uphold a decision that has substantial support in the record as a whole even if it might have decided differently 13 AT&T Wireless PCS, Inc. v. City Council as an original matter. of City of Virginia Beach, 155 F.3d 423, 430 (4th Cir. 1998). There is no meaningful difference between the arbitrary and capricious standard and substantial evidence standard with Morrison at 745 n.5. respect to fact finding. III. The Act of 1996 was designed to enable new telephone companies to enter into local markets with ease and to reduce monopoly control. Verizon Communications Inc v. FCC, 535 U.S. 467, 489 (2002); 47 U.S.C. §§ 251 et seq. The Supreme Court has provided the Circuit Courts with guidance about the purpose of the Act: regulation The that 1996 Act impedes both the prohibits provision of state and local telecommunications service, § 253(a), and obligates incumbent carriers to allow competitors to enter their local markets, 47 U.S.C. § 251(c). Verizon at 492. Additionally, the Act is designed to address[] the practical difficulties of fostering local competition. Core argues that the district overturned for several reasons. district court misconstrued erred federal when law by it court s order Id. should be First, Core asserts that the found that requiring that interconnection over loop facilities. the Commission Verizon provide Instead Core argues that once a CLEC has requested a form of interconnection that is 14 available at any technically feasible point within the ILEC s network, then the ILEC must provide that form of interconnection on a non-discriminatory basis. Second, Core argues that the district court had no factual basis upon which to find that the requested Core interconnection maintains that was if it of lesser requested quality. a Furthermore, specific method of interconnection, then the court is in no position to dictate which kind of interconnection satisfies Core s needs. Lastly, Core contends that the court erred in finding that Verizon had not breached its duty of good faith and fair dealing. Verizon argues foundation since obligation to it offer that the found that to amend Commission s Verizon the had contract manner of interconnection Core sought. require Verizon to alter its contract. opinion to an lacked affirmative authorize the In effect, this would Furthermore, Verizon argues that any amendment to the ICA must be in writing pursuant to provisions contained in the ICA. Therefore, Verizon reasons that it only had an obligation to provide the same method of interconnection it provides other CLECs and that the ICA could not be modified without written notice signed by all parties. In order to make a determination about what type of interconnection Verizon had a duty to provide to Core, it is necessary to examine the contract between the parties: the ICA. The ICA provides that the ILEC will provide interconnection 15 in accordance with the performance standards set forth in Section 251(c) of the Act and the FCC Regulations, in particular the rules set forth in 47 Code of Federal regulations §§ 51.305(a)(3) to (a)(5), 51.311(A) to (c), and 51.313(b). ICA, J.A. 57. facilities and The requires equipment telecommunications requirements. Act be carrier that provided so long 47 U.S.C. § 251(c). interconnection for as any it of requesting meets three It must be (1) at any technically feasible point within the carrier s network, (2) at least equal in quality to that provided by the ILEC to itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection, and (3) on rates, terms, and conditions that are 47 U.S.C. § 251(c). dispute. just, reasonable, and nondiscriminatory. The first and third requirements are not in Thus, this Court s decision turns on interpreting what the Act meant when it prescribed interconnections between ILECs and CLECs at least equal in quality to the interconnection provided by an ILEC to any subsidiary, affiliate, or any other party. 47 U.S.C. § 251(c). The FCC rules, as adopted by the ICA, are instructive in determining whether interconnection through a loop facility satisfied the ICA. The rules promulgated by the FCC provide, in pertinent that parts, Verizon is required to provide interconnection at a level of quality that is equal to that 16 which the ILEC provides itself, a subsidiary, an affiliate, or any other party. 47 C.F.R. § 51.305(a)(3). Furthermore, [t]his obligation is not limited to a consideration of service quality as perceived by end users, and includes, but is not limited to, service quality as perceived by the requesting telecommunications carrier. Id. (emphasis unequivocal added). intention These that rules the reflect requesting a clear and telecommunications carrier is to play a significant role in determining the type and quality of interconnection it received from the ILEC. The Commission, the implementation which of is the responsible Act throughout for the overseeing state of Maryland, agrees with this interpretation. Furthermore, Verizon had interconnection in the past. provided this kind of The Commission s finding is that Verizon has provided interconnection to other CLECs, and even Core, over high-capacity loop facilities just like the existing OC-12 Loop Ring and OC-12 Mux. The hearing examiner found that despite having interconnected with Core over the common loop in other locations, in Baltimore Verizon resisted Core s requests on the grounds that interconnection. the J.A. parties 114. ICA He did went on not to permit loop state that Verizon s ability to interconnect with Core via the common loop outside Maryland, e.g., in New Jersey, Pennsylvania, West Virginia, Illinois and Massachusetts, is clear indication that 17 such connection should be possible in Maryland. Id. Thus, Core s request to interconnection through the OC-12 Loop Ring was not out of the ordinary. Moreover, the record contains the declaration of Todd Lesser, President of North Country Communications, also a CLEC. Lesser states that Verizon agreed to provide interconnection to North Country Communications in Charleston, West Virginia over a shared retail ring dedicated ring. in July 2001 until Verizon completed a The retail ring is the equivalent to the OC-12 Loop Ring proposed by Core here. Even though this incident occurred after the initial dispute between Core and Verizon, it demonstrates that Verizon has provided other CLECs with interconnection through loop facilities, at least on a temporary basis. Clearly, Verizon could have provided interconnection with Core through the OC-12 Loop Ring. If Verizon had negotiated a separate ICA with Core, might find itself in a more favorable litigating position. problem, however, is that it did not do so. it Its At no point does the ICA explicitly foreclose the use of loop interconnection or override the baseline performance standards governing ICAs. To the contrary, Section 27.1 of the ICA quite plainly states that Verizon shall provide the Interconnection and unbundled Network Elements contemplated hereunder in accordance with the performance standards set forth in Section 251(c) of the Act and 18 the FCC Regulations. Or, as the district court put it, the ICA between Verizon and Core expressly incorporates the statute and regulations. Verizon Md. Inc. v. Core Commc ns, 631 F. Supp. 2d 690, 699-700 (D. Md. 2009). 4 These performance standards, by design, favor Core, not See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 Verizon. (1999) ( The Telecommunications Act of 1996 . . . fundamentally restructures local telephone markets. . . . [I]ncumbent LECs are subject to entry. ). a host For of duties example, intended Verizon argues to facilitate that the market equal in quality requirement set forth in 47 U.S.C. § 251(c)(2) did not compel Verizon to use loop facilities when interconnecting with Core. But the FCC s order implementing 47 U.S.C. § 251(c)(2) makes clear that the statute requires Verizon to provide loop interconnection if Core requests it: 4 [T]o the extent a carrier Verizon argues that Section 27.1 does not incorporate all of the performance standards set forth in the statute and regulations because it states that Verizon shall be deemed to meet such performance standards if it complies with certain time intervals for installation and repairs. In Verizon s view, those time intervals are the only performance standards contemplated by the contract. Verizon is incorrect. However, the contract makes clear that the term performance standards refers to the requirements of § 251 and the corresponding regulations. See Core Commc ns, 631 F. Supp. 2d at 699-700. And while the parties determined that compliance with the time intervals would obviate the need to comply with the statute and regulations, they just as clearly agreed that the statute and regulations would apply in the absence of such compliance. 19 requests interconnection of superior or lesser quality than an incumbent LEC currently provides, the incumbent LEC is obligated to provide technically the requested feasible. In interconnection re arrangement Implementation of the if Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd. 15,499, 15,615 (1996) (emphasis added). While Verizon did the not need to contractually bind itself to baseline interconnection performance standards, it elected to do so and must live with the results. Therefore, we find that Verizon had a duty to provide Core with the requested interconnection and therefore breached its contract. The district court s grant of summary judgment is reversed and this matter is remanded for further proceedings consistent with this decision including a determination of damages. Additionally, this Court notes that the district court s finding that the loop facility was lesser in quality to the other potential methods of interconnection (like IOF) was not based on evidence in the record. In its opinion, the district court notes that Core asserts that Verizon has not established that it provides a lesser quality of service to its retail customers . . . No factual findings were made before the Commission on this issue. I note that a letter was written by [the Commission] in another proceeding accepts Verizon s assertion that loop facilities are of lesser quality than IOF facilities. 20 J.A. 380 n. 5. We find that this is not sufficient evidence upon which to base a finding that the loop connection was of a lesser quality than the IOFs. The record reveals that this fact was disputed. Therefore we find that, construing all facts in favor non-moving of the party, the district court erred in finding that the loop connection was of lesser quality than the other connection proposed by Verizon. Finally, since we find that Verizon breached its contract, we remand the question of whether Verizon also breached an implied duty of good faith and fair dealing to the district court for further consideration. For the reasons explained above, we REVERSE AND REMAND. 21

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