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MCI TELECOMMUNICATIONS CORP. v. NEW YORK TELEPHONE

United States District Court, Northern District of New York


March 7, 2001

MCI TELECOMMUNICATIONS CORPORATION, A DELAWARE CORPORATION, AND MCIMETRO ACCESS TRANSMISSION SERVICES, INC., A DELAWARE CORPORATION, PLAINTIFFS,
V.
NEW YORK TELEPHONE COMPANY D/B/A BELL ATLANTIC-NEW YORK, A NEW YORK CORPORATION; THE NEW YORK PUBLIC SERVICE COMMISSION; AND JOHN F. O'MARA, THOMAS J. DUNLEAVY, MAUREEN 0. HELMER, AND JAMES D. BENNETT IN THEIR OFFICIAL CAPACITIES AS MEMBERS OF THE NEW YORK PUBLIC SERVICE COMMISSION, DEFENDANTS. UNITED STATES OF AMERICA, INTERVENOR.

The opinion of the court was delivered by: Kahn, District Judge.

    MEMORANDUM — DECISION AND ORDER

Presently before the Court is a motion for summary judgment by plaintiffs MCI Telecommunications Corporation and MCIMetro Access Transmission Services, Inc. (collectively "MCI"), a motion for summary judgment by defendant New York Telephone Company d/b/a Bell Atlantic-New York ("Bell-Atlantic"), a motion for summary judgment by defendants the New York State Public Service Commission, John F. O'Mara, Thomas J. Dunleavy, Maureen o. Helmer, and James D. Bennett (collectively "Public Service Commission"), and a cross-motion for summary judgment by defendant Public Service Commission based upon its affirmative defenses. For the following reasons MCI's motion is DENIED in part and held in ABEYANCE in part, Bell-Atlantic's cross motion is DENIED, and the Public Service Commission's motion is GRANTED in part and held in ABEYANCE in part, and its cross motion based upon its affirmative defenses is DENIED.

I. BACKGROUND

A. Statutory Background

The current set of summary judgment motions arise out of Congress' enactment of the Telecommunications Act of 1996 ("the Act" or "the 1996 Act"). See 47 U.S.C. § 251-261. Congress enacted the 1996 Act, in part, to stimulate competition in the market for local telephone service. See H.R.Rep. No. 104-204 at 89 (1995); AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). Prior to the 1996 Act, local telephone service throughout the country was typically considered a natural monopoly. See AT & T Corp., 525 U.S. at 371, 119 S.Ct. 721.

This natural monopoly existed because states typically granted exclusive franchises in each local service area to local exchange carriers ("LECs" or "LEC"), which owned, among other things, the local loops (wires connecting telephones to switches), the switches (equipment directing calls to their destinations), and the transport trunks (wires carrying calls between switches) that make up a local exchange network. See id. To end this monopoly, the Act prohibited states from enforcing laws that impede competition in the local phone service market and placed a variety of duties on incumbent LECs designed to induce new entrants to enter the local phone service market. See id. Among other things, the Act required LECs to share their network with competitor local exchange carriers ("CLECs or CLEC"). See 47 U.S.C. § 251(c)(2).

When a CLEC seeks to gain access to the LEC's existing network, the LEC and CLEC have the option of negotiating access without regard to the duties imposed on the LEC by the Act. See 47 U.S.C. § 252(a)(1); AT & T Corp., 525 U.S. at 371-72, 119 S.Ct. 721. If, however, negotiations between the LEC and CLEC fail, either party can petition the state commission that regulates local phone service, in this case the New York State Public Service Commission, to arbitrate disputed matters and issue an agreement between the LEC and CLEC that incorporates both the parties' negotiated terms and the commission's adjudicated terms. See 47 U.S.C. § 252(c). In any case where a state commission makes a determination regarding disputed issues between an LEC and CLEC, either party may challenge that decision "in an appropriate Federal district court to determine whether the agreement [issued] meets the requirements" of the 1996 Act. 47 U.S.C. § 252(e)(6).

In the instant suit, MCI, the CLEC, and Bell-Atlantic, the LEC, conducted lengthy voluntary negotiations designed to allow MCI competitive access to Bell-Atlantic's network. After these negotiations failed, MCI filed a compulsory arbitration petition pursuant to 47 U.S.C. § 252(b) and a petition for mediation of various technical issues with the New York State Public Service Commission. Upon the New York State Public Service Commission's resolution of the various outstanding matters between MCI and Bell-Atlantic and issuance of an interconnection agreement (the "Interconnection Agreement") incorporating its arbitration and mediation decisions, both parties appealed to this Court pursuant to 47 U.S.C § 252(e)(6).

B. Proceedings Before the New York State Public Service Commission

MCI and Bell-Atlantic-specific arbitration proceedings were conducted before Administrative Law Judge Eleanor Stein from August 26, 1996, the date of MCI's petitions, until October 1, 1997, the date that the New York State Public Service Commission approved the executed Interconnection Agreement between MCI and Bell-Atlantic incorporating Judge Stein's rulings.*fn1 While the MCI and Bell-Atlantic-specific arbitration proceedings were proceeding before Judge Stein, the New York State Public Service Commission also conducted proceedings before Administrative Law Judge Joel A. Linsider (the "Linsider Proceedings") designed to set permanent rates for all new entrants into the local telephone service provider market.

Judge Linsider's findings were ultimately incorporated into Judge Stein's rulings. MCI's and Bell-Atlantic's summary judgment papers challenge portions of both Judge Stein's and Judge Linsider's rulings and argue that they violate various provisions of the 1996 Act. The Public Service Commission's motion and cross motion both argue that MCI's and Bell-Atlantic's challenges to its rulings have no merit and, in any event, that the Eleventh and Tenth Amendment of the United States Constitution divest this Court of jurisdiction from adjudicating the merits of MCI's and Bell-Atlantic's claims.*fn2 The Court will address each of these arguments in turn.

II. DISCUSSION

A. Standard for Dismissal for Lack of Subject Matter Jurisdiction

A court may dismiss a case for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) when it lacks the constitutional or statutory power to adjudicate the case. See Fed R. Civ. P. 12(b)(1). In fact, because federal courts are courts of limited jurisdiction and can adjudicate "only those cases within the bounds of Article III of the United States Constitution and Congressional enactments stemming therefrom," Walsh v. McGee, 899 F. Supp. 1232, 1236 (S.D.N.Y. 1995), whenever "it appears by suggestion of the parties or otherwise" that this Court lacks jurisdiction of the subject matter it must affirmatively dismiss the action, Fed.R.Civ.P. 12(h)(3).

As such, the burden of proving that a federal court has subject matter jurisdiction over an action rests upon the party attempting to invoke the court's jurisdiction, see Thomson v. Gaskill, 315 U.S. 442, 446, 62 S.Ct. 673, 86 L.Ed. 951 (1942), and no presumption of truth attaches to the non-moving party's allegations, see Brown v. American Legion Cortland City Post, 64 F. Supp.2d 96, 97 (N.D.N.Y. 1999). Moreover, because a dismissal under Fed R. Civ. P. 12(b)(1) is not a dismissal on the merits and is without res judicata effect on the underlying merits of the claims, when a court dismisses a case pursuant to 12(b)(1) it is precluded from exercising supplemental jurisdiction over related state claims. See Gushing v. Moore, 970 F.2d 1103, 1106 (2d Cir. 1992).

1. Public Service Commission's Eleventh Amendment Claim

a. State Sovereign Immunity Generally

The Eleventh Amendment to the United States Constitution declares that "[t]he judicial power of the United States shall not be construed to extend to any suit in law or equity commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend. XI. It has been interpreted to prevent federal courts from exercising jurisdiction over suits brought by citizens of a state against the state or the state's agencies. See Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, 506 U.S. 139, 144, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993); Edelman v. Jordan, 415 U.S. 651, 652-53, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); Hans v. Louisiana, 134 U.S. 1, 1011, 10 S.Ct. 504, 33 L.Ed. 842 (1890). Additionally, when a state is not named explicitly in a suit but is the real party in interest, the Eleventh Amendment bars a federal court from exercising jurisdiction over the suit. See Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984). Finally, the Eleventh Amendment bars Congress from utilizing its Article I powers, and in particular the Commerce Clause, to abrogate a state's sovereign immunity. See Seminole Tribe v. Florida, 517 U.S. 44, 72, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996).

Eleventh Amendment immunity is, however, subject to limitations. See College Savings Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 670, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999). For example, Congress may authorize a private party to sue a nonconsenting state in federal court pursuant to its powers to enforce the Fourteenth Amendment. See Kimel v. Florida Bd. of Regents, 528 U.S. 62, 80, 120 S.Ct. 631, 145 L.Ed.2d 522 (2000); College Savings Bank, 527 U.S. at 670, 119 S.Ct. 2219. A state may also consent to suit and thereby subject itself to the jurisdiction of a federal court. See Clark v. Barnard, 108 U.S. 436, 447-48, 2 S.Ct. 878, 27 L.Ed. 780 (1883). Additionally, a party may sue state officials in their individual capacity in federal court for prospective injunctive relief to stop the state official from violating federal law. See Ex parte Young, 209 U.S. 123, 156, 28 S.Ct. 441, 52 L.Ed. 714 (1908)

b. Waiver of Sovereign Immunity

The Public Service Commission argues that the Eleventh Amendment bars a telecommunications carrier from utilizing 47 U.S.C. § 252(e)(6) to bring suit against it in federal district court. Specifically, the Public Service Commission argues that, because the Telecommunications Act of 1996 was passed pursuant to Congress' powers under the Commerce Clause, Congress lacked the power to abrogate its sovereign immunity. See U.S. Const. art I, § 8, cl. 3; see also U.S. Const. amend XI. Moreover, the Public Service Commission asserts that it did not voluntary waive its sovereign immunity. In response, the United States of America, MCI, and Bell-Atlantic argue that the Public Service Commission waived its Eleventh Amendment immunity because it voluntarily accepted and performed its assigned role under the 1996 Act.

The Court disagrees with the Public Service Commission's argument that it did not waive its sovereign immunity by arbitrating the MCI and Bell-Atlantic dispute. Supreme Court jurisprudence has "long recognized that a State's sovereign immunity is a personal privilege which it may waive at [its] pleasure." College Sav. Bank, 527 U.S. at 675, 119 S.Ct. 2219 (quoting Clark, 108 U.S. at 447,, 2 S.Ct. 878). Generally, a court will conclude that a state has waived its sovereign immunity if the state voluntarily invokes its jurisdiction, See Gunter v. Atlantic Coast Line R.R. Co., 200 U.S. 273, 284, 26 S.Ct. 252, 50 L.Ed. 477 (1906). Alternatively, waiver will be found if the state clearly declares that it intends to submit itself to the court's jurisdiction. See College Sav. Bank, 527 U.S. at 675-76, 119 S.Ct. 2219 (quoting Great Northern Life Ins. Co. v. Read, 322 U.S. 47, 54, 64 S.Ct. 873, 88 L.Ed. 1121 (1944)).

Recently, the Supreme Court overruled as "ill conceived" the notion that a state can constructively waive its sovereign immunity by its "mere presence in a field subject to congressional regulation." See College Sav. Bank, 527 U.S. at 680, 119 S.Ct. 2219. Ruling that such participation is "very far from concluding that the State made an `altogether voluntary' decision to waive its immunity" the Court concluded that a state waives its sovereign immunity by engaging in activity subject to congressional regulation if (1) Congress clearly and unambiguously puts the state on notice that the state's conduct subjects it to federal suits brought by individuals; (2) the state may refuse from participating in the particular activity without otherwise excluding itself from conduct that is lawfully within its powers; and (3) the state elects to engage in the conduct after it receives notice that such conduct subjects it to suit. Id. at 675-87, 119 S.Ct. 2219; see also, AT&T Comms. v. BellSouth Telecomms., 238 F.3d 636, 644 (5th Cir. 2001).

Although no court in this Circuit has addressed the issue of whether a state commission waives its sovereign immunity by arbitrating disputes under the 1996 Act, at least 14 district courts and three of the four circuit courts to address this issue have concluded that a state commission's participation in the arbitration scheme established under the Act effectuates a nonverbal voluntary waiver of the state commission's Eleventh Amendment immunity under College Savings Bank. See AT & T Comms., 238 F.3d at 645; MCI Telecomms. Corp. v. Illinois Bell Tel. Co., 222 F.3d 323, 344 (7th Cir. 2000); MCI Telecomms. Corp. v. Public Serv. Comm'n, 216 F.3d 929, 939 (10th Cir. 2000); Bell Atlantic-Pennsylvania, Inc. v. Pennsylvania Pub. Util. Comm'n, 107 F. Supp.2d 653, 662 (E.D.Pa. 2000); Bell Atlantic-Delaware, Inc. v. McMahon, 80 F. Supp.2d 218, 233 (Del. 2000); Bell Atlantic-Delaware, Inc. v. Global Naps South, 77 F. Supp.2d 492, 500 (Del. 1999); AT&T Comms. of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F. Supp.2d 932, 947 (W.D.Mo. 1999) (rev'd, in part, on other grounds); Indiana Bell Tel. Co. v. Smithville Tel. Co., Inc., 31 F. Supp.2d 628, 637 (S.D.Ind. 1998); Michigan Bell Tel. Co., 16 F. Supp.2d at 825; MCI Telecomms. Corp. v. BellSouth Telecomms., Inc., 9 F. Supp.2d 766, 770 (E.D.Ky. 1998); Indiana Bell Tel. Co., Inc. v. McCarty, 30 F. Supp.2d 1100, 1106 (S.D.Ind. 1998); MCI Telecomms. Corp. v. Illinois Bel Tel. Co., No. 97 CV 2225, 1998 WL 156678, at *7 (N.D.Ill. Mar. 31, 1998); AT&T Comms., Inc. v. Michigan Bell Tel. Co., 60 F. Supp.2d 636, 641 (E.D.Mich. 1998); US West Comms., Inc. v. MFS Intelenet, Inc., 35 F. Supp.2d 1221, 1230 (Or. 1998); US West Comms., Inc. v. TCG Oregon, 35 F. Supp.2d 1237, 1245 (Or. 1998); BellSouth Telecomms., Inc. v. Tennessee Regulatory Auth., No. 3:97-0523, 1998 WL 1109434, at *8 (M.D.Tenn. Jan. 27, 1998); US West Comms., Inc. v. Public Serv. Comm'n of Utah, 991 F. Supp. 1299, 1302 (Utah 1998).

The underlying rationale for each of these opinions is that the Act does not mandate that a state commission participate in the arbitration process. If a state chooses not to participate in the Act, the Federal Communications Commission ("FCC") assumes the role of the state commission. See 47 U.S.C. § 252(e)(5). However, if a state does choose to participate, the Act expressly provides that any aggrieved party to a state commission's determination may bring suit in an appropriate Federal district court. See 47 U.S.C. § 252(e)(6).

The one circuit to conclude otherwise rested its decision on the fact that constructive waivers of sovereign immunity are disfavored and that Congress was not "unmistakably clear and unequivocal in its intent" to condition a states' participation in the 1996 Act's regulatory scheme as a waiver of its immunity. Bell Atlantic Maryland Inc. v. MCI Worldcom, Inc., 240 F.3d 279, 291 (4th Cir. 2001). The Fourth Circuit's decision ignored the fact that College Savings Bank did not absolutely prohibit courts from concluding that a state's voluntary participation in a regulatory scheme may sometimes effectuate a waiver of that state's sovereign immunity. Instead, the Fourth Circuit's opinion reduced the first prong of the three prong waiver test expressed in College Savings Bank to a cursory examination of whether the 1996 Act invoked the words "State[s] shall not be immune under the Eleventh Amendment . . . from suit in Federal Court." Bell Atlantic Maryland, Inc., 240 F.3d at 291.

Not only does such a reading of College Savings Bank and the Eleventh Amendment destroy the underlying purpose of the 1996 Act, it creates an untenable distinction whereby the waiver language contained in 47 U.S.C. § 252(e)(6) stating that an aggrieved party may challenge a decision of the state commission "in an appropriate Federal district court" somehow fails to put States on notice that their choice to arbitrate disputes under the Act subjects them to suit in federal district court. 47 U.S.C. § 252(e)(6). In comparison, when Congress declares, in a statute like 42 U.S.C. § 2000d-7(a)(1), that "[a] State shall not be immune under the Eleventh Amendment of the Constitution of the United States from suit in Federal court," a state is placed on notice that its sovereign immunity is waived even though the waiver language of both 47 U.S.C. § 252(e)(6) and 42 U.S.C. § 2000d-7(a)(1) unambiguously purport to subject states to suit in federal court. See 42 U.S.C. § 2000d-7(a)(1); see also Bell Atlantic Maryland, Inc. 240 F.3d at 291.

Resting a sovereign immunity waiver decision on this kind of technicality without examining the statute in context eviscerates Congress' ability to cope with the delicate and complex task of promoting increased competition in the local telephone service provider market. As Justice Scalia noted when examining the 1996 Act in AT & T Corp. v. Iowa Utilities Bd., "if the federal courts believe a state commission is not regulating in accordance with federal policy they may bring it to heel." Iowa Utilities Bd., 525 U.S. at 379 n. 6, 119 S.Ct. 721. This Court's decision to follow the majority of other Courts that have addressed this issue allows it do just that — bring the Public Service Commission to heel if it does not regulate in accordance with the federal policies expressed by the 1996 Act.

Accordingly, this Court holds that Congress clearly and unambiguously put the Public Service Commission on notice that participation in the Act's arbitration scheme subjected it to federal suit. The Public Service Commission could have refused to participate in the Act without otherwise excluding itself from conduct lawfully within its powers.*fn3 Despite this fact, the Public Service Commission chose to participate in the arbitration process established under the Act. As a result, the Public Service Commission waived its Eleventh Amendment immunity as to arbitration determinations made pursuant to the 1996 Act. Consequently, the Court denies the Public Service Commission's cross-motion to dismiss for lack of jurisdiction based upon sovereign immunity.*fn4

2. Public Service Commission's Tenth Amendment Claim

a. Tenth Amendment Generally

The Tenth Amendment provides that "[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the state respectively, or to the people." U.S. Const. amend. X. It assures that the system of dual sovereignty inherent in the constitutional structure remains intact "by reserving to the states or the people the powers not delegated by the Constitution to the United States." Petersburg Cellular v. Board of Supervisors of Nottoway, 205 F.3d 688, 700 (4th Cir. 2000) (citing Printz v. United States, 521 U.S. 898, 91819, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997)). Accordingly, the "Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress' instructions." New York v. United States, 505 U.S. 144, 162, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992).

b. Tenth Amendment's Application to the Arbitration Provisions of the 1996 Act

The Public Service Commission's Tenth Amendment argument rests upon the premise that the 1996 Act compels it to implement a federal program in violation of its inherent right to remain independent and sovereign from the federal government. See, e.g., Printz, 521 U.S. at 92425, 117 S.Ct. 2365. In essence, the Public Service Commission asserts that the Act requires it to function as a "bureaucratic puppet of the Federal Government or to abandon regulation of an entire field traditionally reserved" to it. Federal Energy Regulatory Comm'n v. Mississippi, 456 U.S. 742, 783, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982). The Court disagrees.

Congress simply offered the State, consistent with the Tenth Amendment, "the choice of regulating the activity according to federal standards or having state law pre-empted by federal regulation." New York, 505 U.S. at 167, 112 S.Ct. 2408. As Congress, pursuant to its inherent powers under the Commerce Clause, was well within its Constitutional right to preempt the Public Service Commission from regulating telecommunications matters that were traditionally reserved to it, the Act's arbitration provisions could not violate the Tenth Amendment. See Cellular Phone Taskforce v. Federal Telecommunications Industry, 205 F.3d 82, 96 (2d Cir. 2000) (citing City of New York v. Federal Comms. Comm'n, 486 U.S. 57, 63-64, 108 S.Ct. 1637, 100 L.Ed.2d 48 (1988); Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698700, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984)). Moreover, the Act's arbitration provisions in no way commandeer the Public Service Commission, but, as already held, offers it or the State a voluntary choice to either participate in the scheme it establishes or reject any such participation. Under these circumstances, the Court concludes that the Tenth Amendment does not preclude it from exercising jurisdiction over MCI's and Bell-Atlantic's claims and now turns to the merits of those claims. See Michigan Bell Tel. Co., 202 F.3d at 208; see also MCI Telecomms., 9 F. Supp.2d at 772; AT & T Comms., 60 F. Supp.2d at 640.

D. Standard and Scope of Review

The 1996 Act does not provide a legal standard that federal courts should utilize when reviewing the decision of a state commission. See Bell-Atlantic Delaware, 77 F. Supp.2d at 502. Under general administrative law principles, a court is usually confined to the administrative record when Congress does not set forth the standards or procedures for the Court to use when reviewing an administrative proceeding. See id; see also United States v. Carlo Bianchi & Co., 373 U.S. 709, 715, 83 S.Ct. 1409, 10 L.Ed.2d 652 (1963). Following this guideline and the lead of other courts to address this issue, this Court agrees that it is limited to the record created by the state utility commission when reviewing disputes related to interconnection agreements issued under 47 U.S.C. § 252(e)(6). See Bell-Atlantic Delaware, 77 F. Supp.2d at 502; Illinois Bell Telephone Co. v. WorldCom Techs., Inc., No. 98 C 1925, 1998 WL 419493, at *2 (N.D.Ill. July 23, 1998); US West Comms., Inc., 31 F. Supp.2d at 843.

When evaluating the record, the Court reviews the Public Service Commission's findings of fact under the arbitrary and capricious standard. See AT&T Comms. of Southwest Inc., 86 F. Supp.2d at 944; US West Comms., Inc. v. Hix, 986 F. Supp. 13, 19 (Colo. 1997). When applying the arbitrary and capricious standard, courts

consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. . . . Although this inquiry into facts is to be searching and careful, the ultimate standard of review is a narrow one. The Court is not empowered to substitute its judgment for that of the agency.

Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971) (citations omitted). In light of the highly technical and specific idiosyncracies in an incumbent carrier's local network, this highly deferential standard of review is particularly appropriate when reviewing findings of fact made by an agency enforcing the 1996 Act. See AT&T Comms. of the Southwest, Inc., 86 F. Supp.2d at 944.

Questions of law relating to an agency's interpretation of the 1996 Act are reviewed de-novo and are not entitled to the deference accorded federal agencies under the Supreme Court's holding in Chevron U.S.A., Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The deference accorded federal agencies under Chevron is based upon the federal agency's expertise and familiarity "with the subject matter of its mandate and the need for coherent and uniform construction of a federal law nationwide." Orthopaedic Hosp. v. Belshe, 103 F.3d 1491, 1495-96 (9th Cir. 1997) (quoting Turner v. Perales, 869 F.2d 140, 141 (2d Cir. 1989)). Those considerations are not applicable to a state agency's interpretation of federal law. See Turner, 869 F.2d at 141.

1. MCI's Claims Against Bell Atlantic and the Public Service Commission*fn5

a. The Public Service Commission's Setting of Switching Rates

Under the 1996 Act, a state commission setting rates for a competitor's access to network elements from the incumbent LEC must set those rates in a just, reasonable, and non-discriminatory manner "based on the cost" of providing the network element. 47 U.S.C. § 251(c)(3), 252(d)(1). In rejecting, the Federal Communications Commission's interpretation of these provisions as mandating that rates be set on a forward looking basis approximating the incremental cost of providing the element at issue using the most efficient technology, the Eighth Circuit held that

[a]t bottom, however, Congress has made it clear that it is the cost of providing the actual facilities and equipment that will be used by the competitor (and not some state of the art presently available technology ideally configured but neither deployed by the ILEC nor to be used by the competitor) which must be ascertained and determined.

Iowa Utils. Bd. v. Federal Comms. Comm'n, 219 F.3d 744, 751 (8th Cir. 2000) (overruling, in part, In re Implementation of the Local Competition Provisions in the Telecomms. Act of 1996, First Report and Order, 11 F.C.C.R. 15499, ¶¶ 677-78, 85-89, 99-103 (1996) ("F.C.C. Implementation Ruling")) (emphasis added). As such, any Public Service Commission determination not based on the cost of providing the actual facilities and equipment used by the competitor violates the 1996 Act and is invalid.

MCI argues that the rates the Public Service Commission set for use of New York Telephone's switches*fn6 are not based on cost as required by 47 U.S.C. § 252(d)(1). In particular, MCI claims that the Public Service Commission failed to account for the fact that Bell-Atlantic received "mega discounts" from switch vendors in 1994. MCI alleges that the Public Service Commission accepted Bell-Atlantic's explanation that the discounts received resulted from the company's one-time, large-scale conversion from analog to digital switches without taking intoa account the fact that purchasers like Bell-Atlantic regularly receive large discounts off the list price of switching equipment. Thus, MCI believes that the Public Service Commission should have set access rates applicable to switching equipment in light of this one-time discount as it best reflects large scale discounts that Bell-Atlantic regularly receives when purchasing switching equipment.

In addition MCI alleges that the Public Service Commission compounded the switching rate problem by adopting rates for installation and power equipment ("loading factors") based on a percentage of the already inflated switching price. In response, Bell-Atlantic and the Public Service Commission counter that the megadiscounts that MCI would like to have incorporated into the switch rate fees were one-time deductions that Bell-Atlantic was not likely to receive again. They were therefore not costs, as specified by the 1996 Act, that the Public Service Commission was required to take into account when determining the proper switch rates to charge MCI. Furthermore, because the switch rates were proper, both Bell-Atlantic and the Public Service Commission argue that the loading factors, based on these rates, were proper as well.

This Court disagrees with MCI. Especially relevant is the fact that the Public Service Commission analyzed actual investment amounts for thirty three switches installed between 1993 and 1994. After averaging the installed switch investments, the Public Service Commission "adjusted that switch cost downward to reflect the declining per-line price of switches within the industry generally." Opinion and Order Setting Rates for First Group of Network Elements, Op. No. 97-2, Case Nos. 95-C-0657, 94-C-0095, and 97-C-1174, at 85 (N.Y.P.S.C. Apr. 1, 1997) ("Network Element Opinion"). Such an approach, not only complies with the recently overturned F.C.C. Implementation Ruling but also complies with the Eighth Circuit's decision overturning that ruling.

As discussed, the Eighth Circuit requires state commissions to base their rate making decisions on the actual costs the incumbent local service provider incurred when establishing its network. See Iowa Utils. Bd., 219 F.3d at 751. This does not, however, mean that a state commission must incorporate "historic" data or that it cannot use a forward looking methodology when making price determinations. Rather, price determinations made on forward-looking costs calculations cannot be based on the forward looking costs of an "idealized network," but must be based on the incremental costs that an incumbent local service provider actually incurs or will incur. Southwestern Bell Tel. Co. v. Missouri Pub. Serv. Comm'n, 236 F.3d 922, 924 (8th Cir. 2001); see also Iowa Utils. Bd., 219 F.3d at 752-53.

When making the determination not to include the large one-time discounts Bell-Atlantic received when switching from analog to digital switches, the Public Service Commission utilized actual switching cost data from Bell-Atlantic that it felt better reflected the cost of providing those switches. It did not rely on the hypothesized costs of an idealized switching network nor did it unreasonably fail to include these discounts into its cost model. See AT&T Corp. v. Federal Comms. Comm'n, 220 F.3d 607, 617 (D.C.Cir. 2000). Under these circumstances, this Court cannot conclude that the Public Service Commission made an arbitrary and capricious factual determination by failing to incorporate into its switching rate model the one time discount Bell-Atlantic received when converting from analog to digital switches.*fn7 Accordingly, MCI's motion for summary judgment on this point is denied and the Public Service Commission's motion on this point is granted.

b. MCI's Claim That the Public Service Commission Should not Have Granted Bell-Atlantic Reciprocal Access to its Poles, Ducts, Conduits, and Rights of Way

MCI also challenges a portion of the Interconnection Agreement that grants Bell-Atlantic reciprocal access to its poles, ducts, conduits, and rights of way.*fn8 Although, there is no doubt that incumbent local service providers like Bell-Atlantic must provide competitors like MCI with access to their poles, ducts, conduits, and rights-of-way, there is considerable controversy about whether competitors must make their poles, ducts, conduits, and rights-of-way accessible to the incumbent local provider. See 47 U.S.C. § 251(b)(4); US West Comms., Inc. v. Hamilton, 224 F.3d 1049, 1052 (9th Cir. 2000).

Under 47 U.S.C. § 224, utilities are required to provide any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or controlled by it. See 47 U.S.C. § 224(f)(1). The definition of telecommunications carrier under 47 U.S.C. § 224(a)(5) does not include incumbent LECs. See 47 U.S.C. § 224(a)(5). Reading these provisions together appears to confirm that competitors are not required to provide incumbents with access rights to their poles, ducts, conduits, and rights-of-way. Consequently, MCI argues that the Public Service Commission exceeded its authority under the 1996 Act when it ordered MCI to provide Bell-Atlantic with reciprocal access to its poles, ducts, conduits, and rights-of-way.

The Court rejects MCI's construction of 47 U.S.C. § 224. Under 47 U.S.C. § 224(c)(1), States that regulate access to poles, ducts, conduits, and rights of way can preempt the access requirements found in 47 U.S.C. § 224(f)(1) as long as the State certifies to the Federal Communications Commission that, in so regulating such access, it has the authority to consider and does consider the interests of the subscribers of the services offered and the consumers of the utility. See 47 U.S.C. § 224(c). The Public Service Commission has long exercised its statutory right to regulate these access issues and has provided proper certification to the Federal Communications Commission stating that it regulates these matters. See States that have Certified that they Regulate Pole Attachments, 7 F.C.C.R. 1498, 1498 (1992). As such, it is neither bound by the F.C.C. Implementation Ruling mandating that reciprocal access not be given to incumbent local service providers nor does its decision violate section 224 of the 1996 Act. This Court therefore affirms the Public Service Commission's decision to grant Bell-Atlantic reciprocal access to MCI's poles, ducts, conduits, and rights-of-way, denies MCI's summary judgment motion challenging this decision, and grants the Public Service Commission's summary judgment motion defending this decision.

ii. Bell-Atlantic's Cross-Claims Against MCI and the Public Service Commission

a. The Public Service Commission's Decision to Allow MCI Access to Bell-Atlantic's Property for the Collocation of Remote Switching Modules

The 1996 Act mandates that incumbent local service providers "permit physical collocation of equipment necessary for interconnection or access to unbundled network elements." 47 U.S.C. § 251(c)(6). Relying on a subsequently overruled construction of 47 U.S.C. § 251(c)(6) promulgated by the Federal Communications Commission that equated the term "necessary" as synonymous, in part, with "useful," the Public Service Commission ordered Bell-Atlantic to provide MCI with access to its property for the collocation of remote switching modules ("RSMs"). See Opinion and Order Resolving Arbitration Issues, Op. No. 96-33, Case No. 96-C-0787, at 16-17 (N.Y.P.S.C. Dec. 23, 1996) ("Arbitration Order"); see also GTE Service Corp. v. Federal Comms. Comm'n,
205 F.3d 416, 424 (D.C.Cir. 2000).*fn9 The principle issue Bell-Atlantic raises is whether the Public Commission's reliance on this overruled interpretation of 47 U.S.C. § 251(c)(6) can withstand scrutiny.

In overruling the Federal Communications Commission's interpretation of the term necessary in § 251(c)(6) as synonymous with used or useful, the District of Columbia Circuit held that the plain language of the statute "requires LECs to provide collocation of competitors' equipment that is directly related to and thus necessary, required, or indispensable to interconnections or access to unbundled network elements." Id. at 424 (internal quotations omitted). Anything more demands a better explanation and "makes no sense in light of what the statute itself says." Id. Since the Public Service Commission relied on a discredited construction of § 251(c)(6), it did not conduct a factual inquiry into whether RSMs are directly related to and thus necessary, required, or indispensable to interconnections or access to unbundled network elements nor did it provide any further explanation as to why collocation of RSMs might otherwise fall under § 251(c)(6).

On its face, the Public Service Commission's decision to utilize such a broad construction of the term "necessary" contained § 251(c)(6) violates that portion of the Act. This is especially true in light of the interpretation given it by the District of Columbia Circuit and the fact that normally, "[a] judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction." Rivers v. Roadway Express, Inc., 511 U.S. 298, 312-13, 114 S.Ct. 1510, 128 L.Ed.2d 274 (1994). However, in addition to interpreting the 1996 Act, the District of Columbia Circuit also remanded to the Federal Communications Commission for further explanation the issue of whether collocation of equipment not directly related to, necessary, required, or indispensable to interconnections or access to unbundled elements is allowable under § 251(c)(6).

Thus, this Court is left with two anomalies. First, factually, it is quite possible, contrary to Bell-Atlantic's assertion, that RSMs might be necessary, required, or indispensable to provide competitors with interconnections or access to unbundled elements. Second, even if RSM collocation is not necessary, required, or indispensable for interconnection or access to unbundled element access, the Public Service Commission's decision to allow such collocation might still fall under the protection of § 251(c)(6) when the Federal Communications Commission reinterprets it in light of the District of Columbia's remand. Given these uncertainties, and the fact that the Court is no position to conduct the factual inquiry necessary to definitively resolve whether collocation of RSMs is allowable under the newly enunciated § 251(c)(6) standards issued by the District of Columbia Circuit, both Bell-Atlantic's and the Public Service Commission's motions for summary judgment on this point is denied and the matter is remanded to the Public Service Commission to conduct further proceedings consistent with this opinion.*fn10

Bell-Atlantic also alleges that the Public Service Commission's collocation decision effected an unconstitutional taking of its property without just compensation in violation of the Fifth Amendment. See U.S. Const. amend. V. A regulatory taking claim against a state is not ripe until (1) the state agency imposing the allegedly confiscatory regulation takes final action against the plaintiffs property and (2) the plaintiff has pursued all available remedies under state law. See Williamson County Regional Planning Comm'n v. Hamilton Bank, 473 U.S. 172, 186-97, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985); US West Comms. v. MFS Intelenet, Inc., 193 F.3d 1112, 1126 (9th Cir. 1999). Because the collocation rates approved in the Interconnection Agreement were based upon tariff rates existing at the time of the arbitration and were set on a temporary basis, "subject to refunds and reparations," Bell-Atlantic may receive retroactive compensation over the collocation period. Arbitration Order, at 18.

Thus, the Public Service Commission has not taken final action on the allegedly confiscatory taking and Bell-Atlantic's claim is not ripe. See U.S. West Comms., 193 F.3d at 1126. Additionally, New York state law provides a remedy for takings that Bell-Atlantic must pursue before bringing an action under the Fifth Amendment in federal court. Accordingly, this Court dismisses Bell-Atlantic's takings claim without prejudice.

b. The Public Service Commission's Decision to Require Bell-Atlantic to Restore MCI's Service

The 1996 Act requires an LEC to provide service to competitors "that is at least equal in quality to that provided by the [LEC] to itself or any subsidiary, affiliate or other party to which the carrier provides interconnection." 47 U.S.C. § 251(c)(2)(C). While the phrase "at least equal in quality" leaves open the possibility that incumbent LECs may agree to provide interconnections that are superior in quality to that provided to itself and others, it establishes a "floor below which the quality of the interconnection may not go." Iowa Utils. Bd. v. Federal Comms. Commission, 120 F.3d 753, 812 (8th Cir. 1997) (rev'd sub nom. on other grounds AT & T Corp., 525 U.S. at 397, 119 S.Ct. 721). Consequently, it is not impermissible for the Public Service Commission to set quality guidelines that are superior to those that the incumbent LEC provides itself. Rather, the Public Service Commission has discretion to order an incumbent LEC to offer superior quality to competitors as long as any such order is non-discriminatory and otherwise complies with the terms of the 1996 Act.

Utilizing this portion of the statute, the Public Service Commission ordered Bell-Atlantic to restore MCI's service in the event of an emergency network outage within one hour except in the case of a force majeure event affecting an entire exchange. For non-emergency network outages occurring between 8 a.m. and 6 p.m., the Public Service Commission utilized a formula requiring Bell-Atlantic, in part, to restore, within four hours of referral, ninety percent of all outages requiring a technician's visit to the premises. For outages not requiring a technician's visit, the Public Service Commission ordered Bell-Atlantic to restore service within two hours of referral eight-five percent of the time.

Bell-Atlantic alleges that the Public Service Commission unlawfully provided preferential treatment to MCI in computing these service restoration requirements.*fn11 In particular, Bell-Atlantic points to the service restoration contained 16 N.Y.C.R.R. § 603.12. Under these regulations, Bell-Atlantic has to restore service, in part, within twenty four hours of notification of a particular problem. See 16 N.Y.C.R.R. § 603.12. Bell-Atlantic argues that since the Public Service Commission allegedly adopted these standards for all other competitors seeking access to its network, they should also apply to MCI.

This Court disagrees with Bell — Atlantic's assertion. Specifically, the Public Service Commission did not adopt the standards contained in 16 N.Y.C.R.R. § 603.12 for all other competitors seeking to remedy a service outage. See Order Approving Interim Guidelines for Carrier-to-Carrier Performance Standards and Results, Case No. 97-C-0139 (N.Y.P.S.C. Mar. 16, 1998). Rather, the Public Service Commission adopted the standards set forth in 16 N.Y.C.R.R. § 603.12 on an interim basis as part of a large scale study to determine if formal carrier-to-carrier to rules are needed. See id. at 1. The study itself declares that its carrier-to-carrier guidelines only apply during the data gathering portion of the proceeding and "are not meant to replace or supersede interconnection agreements among carriers." Id. Thus, any competitor that negotiated and arbitrated an interconnection agreement prior to the institution of the study is bound by that specific agreement's terms and any competitor negotiating an agreement during the term's study is required to use the study's terms as a starting point for negotiation.

Notably, the initial Arbitration Order at issue in this case specifically held that the creation of industry-wide carrier standards would affect the quality of service provisions in the Bell-Atlantic and MCI interconnection agreement and supersede them. See Arbitration Order at 7. Given this result and the fact that no industry-wide quality of service standards, to this Court's knowledge, exist, the Court concludes that the quality of service provisions contained in the Bell-Atlantic and MCI interconnection agreement, negotiated prior to the start of the carrier-to-carrier study and containing different quality of service standards than the study's standards, does not violate the parity and non-discrimination requirements contained in 47 U.S.C. § 251(c).*fn12 As a result, the Court grants the Public Service Commission summary judgment on this point and denies Bell-Atlantic's motion for summary judgment.

III. CONCLUSION

Accordingly, it is hereby

ORDERED that MCI's motion for summary judgment is DENIED in part and held in ABEYANCE in part; and it is further

ORDERED that Bell-Atlantic's motion for summary judgment is DENIED; and it is further

ORDERED that Bell-Atlantic's Fifth Amendment claim is DISMISSED without prejudice; and it is further

ORDERED that the Public Service Commission's cross-motion for summary judgment based upon its affirmative defenses is DENIED; and it is further

ORDERED that the Public Service Commission's alternative motion for summary judgment is GRANTED in Part and held in ABEYANCE in part; and it is further

ORDERED that those portions of MCI's and the Public Service Commission's motions for summary judgment pertaining to Count Five of MCI's complaint (Dark Fiber) are held in ABEYANCE for an unspecified amount of time not to exceed two months from the date of this opinion or, in the alternative, until such time that the Court, on its own prerogative, concludes that a decision is warranted; and it is further

ORDERED that outstanding issues related to Bell-Atlantic's remote switching collocation claim are REMANDED to the Public Service Commission for additional proceedings consisted with the terms of this opinion; and it is further

ORDERED that the Clerk of the Court serve a copy of this Order on all parties by regular mail.

IT IS SO ORDERED.


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