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Michigan Bell Telephone Co. v. Eubanks

United States District Court, W.D. Michigan, Southern Division

July 10, 2017

Michigan Bell Telephone Company, Plaintiff/Cross-Defendant,
Rachel Eubanks, Norman J. Saari, and Sally A. Talberg, Michigan Public Service Commissioners, Defendants/Counter-Defendants, and Sprint Spectrum, L.P., Cross-Defendant/Counter-Plaintiff,


          Paul L. Maloney United States District Judge.

         This matter is before the Court for a review of administrative actions taken by the Michigan Public Service Commission. For the reasons stated below, the Commission's determination must be affirmed in part and reversed and remanded in part.


         Congress enacted the Telecommunications Act of 1996, 47 U.S.C. § 152 et seq., to mandate “that local service, which was previously operated as a monopoly overseen by the several states, be opened to competition.” MCI Telecomm. Corp. v. Bell Atl., 271 F.3d 491, 497 (3d Cir. 2001). Congress required the incumbent local exchange carriers to cooperate with competitive local exchange carriers to allow the CLECs to enter the market, either by connecting their equipment to the ILEC's existing network or by purchasing or leasing existing network elements and services. Id. The ILECs and CLECs, through negotiation or arbitration, enter into “interconnection agreements, ” which set out the appropriate terms, rates, and conditions. Id. Congress directed the Federal Communications Commission (FCC) to promulgate implementing regulations, but gave oversight of the interconnection agreements to the state public-utility commissions. Id.

         A party aggrieved by a determination in an interconnection arbitration may bring an action “in an appropriate Federal district court.” 47 U.S.C. § 252(e)(6). Accordingly, there is “no doubt that federal courts have jurisdiction under § 1331 to entertain” claims that a state commission violated federal law in resolving issues under the Act. Verizon Md., Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 642 (2002).

         “When reviewing state public service commission orders under the Act, this [C]ourt is ‘limited to determining whether the order is consistent with sections 251 and 252 of the Act.'” Mich. Be l Tel. Co. v. MCI Metro Access Transmission Servs., Inc., 323 F.3d 348, 354 (6th Cir. 2003) (quoting Mich. Bell. Tel. Co. v. Strand, 305 F.3d 580, 586 (6th Cir. 2002)). This Court must “review the Commission's interpretation of the Act de novo . . ., according little deference to the Commission's interpretation of the Act.” Id. However, “[w]ith respect to the Commission's findings of fact, [this Court] appl[ies] the arbitrary and capricious standard.” Id. “The arbitrary and capricious standard is 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.


         I. Michigan Bell Telephone's (AT&T Michigan's) Claims

         a. Claims I and II

         The Michigan Public Service Commission (hereinafter the Commission) erred when it prematurely rejected the agreement between Sprint and Michigan Bell Telephone (hereinafter AT&T Michigan), and instead ordered those companies to submit an interconnection agreement that included the IP interconnection language the Commission preferred.

         1. Legal Framework

         The Third Circuit has provided a helpful summary framework for 47 U.S.C. § 252:

Section 252 sets out the process by which interconnection agreements between ILECs and CLECs are to be established. See MCI, 222 F.3d at 328; GTE South, 199 F.3d at 737. An incumbent and a requesting carrier may “negotiate and enter into a binding agreement.” 47 U.S.C. § 252(a)(1). Such negotiations generally will begin with a request for interconnection by the CLEC. 47 U.S.C. § 252(a)(1). At any time during negotiations, either party may ask the state utility commission to participate in negotiations and mediate any differences. 47 U.S.C. § 252(a)(2). The Act's clear preference is for such negotiated agreements. See Iowa Utils. I, 525 U.S. at 405, 119 S.Ct. 721 (Thomas, J., concurring in part and dissenting in part). An agreement reached through negotiation need not conform to all the detailed, specific requirements of § 251; negotiation consequently bestows a benefit to those carriers able to resolve issues through negotiation and compromise. See MCI Telecomm. Corp. v. U.S. West Commc'ns, 204 F.3d 1262, 1266 (9th Cir. 2000); 47 U.S.C. § 252(a)(1). A negotiated agreement must merely be nondiscriminatory to a carrier not a party to the agreement and also be consistent with the public interest. See 47 U.S.C. § 252(e)(2)(A).

MCI Telecomm. Corp., 271 F.3d at 500 (emphasis added).

         Put simply, “[p]rivate negotiation . . . is the centerpiece of the Act.” Verizon North v. Strand, 309 F.3d 935, 940 (6th Cir. 2002) (internal citation and quotation marks omitted).

         When a dispute goes to arbitration, the Commission has a duty to make sure the requirements of § 251 are satisfied. See 47 U.S.C. § 252(e)(2)(B). However, the Act allows parties to negotiate binding terms “without regard to the standards set forth in subsections (b) and (c) of section 251.” 47 U.S.C. § 252(a); see § 252(e)(2)(A) (describing that an agreement adopted by negotiation can only be rejected if it discriminates against a party not to the agreement or if it is contrary to the public interest).

         2. Background

         The procedural context in which this case arises is fairly complex.

         After unsuccessful initial negotiations, several unresolved issues between the parties were submitted for binding arbitration. The Commission facilitates so-called “baseball arbitration, ” where both parties submit proposals, and the Commission chooses one.

         The Commission preliminarily adopted Sprint's proposal for mandatory IP interconnection, the primary disputed issue in this case. Accordingly, the Commission ordered the parties to file a final ICA that reflected the terms as arbitrated.

         However, after several extensions of time to file a final proposed interconnection agreement, the parties negotiated different terms with respect to TDM and IP interconnection, and filed a joint submission in a new docket number.

         The filing included the following relevant language:

Pursuant to Sections 251 and 252 of the Act, Sprint and AT&T Michigan engaged in good faith negotiations for an interconnection agreement. Portions of the Agreement were completed as a result of these negotiations.
The remaining portions were adopted by arbitration in MPSC Case No. U-17349, in which the Commission directed AT&T Michigan and Sprint to submit an agreement conforming to the December 6, 2013 Commission Order in that case (the “Arbitration Order”). A copy of the Agreement is submitted with this joint submission as Exhibit A.
Sprint and AT&T Michigan hereby further notify the Commission that
(a) The parties have arrived at a contingent resolution of the issue that was designated as Issue I in MPSC Case No. U-17349;
(b) Pursuant to such contingent resolution, the Agreement submitted herewith does not include the language for IP-to-IP Interconnection proposed by Sprint for Issue 1 in that case but, instead, includes the following language in the General Terms and Conditions:
311.2.2 All traffic that Sprint exchanges with AT&T Michigan pursuant to this Agreement will be delivered in TDM format. Nothing in this Agreement, including the foregoing section, shall be construed to prohibit the Parties from agreeing that Sprint may exchange traffic with AT&T Michigan pursuant to a separate agreement, and nothing herein prohibits Sprint from exchanging traffic with AT&T Michigan in IP format pursuant to such an agreement. and
(c) If the contingency upon which the parties' resolution of Issue 1 depends is not fulfilled, the parties may, on or about July 15, 2014, submit for MPSC review pursuant to section 252(e)(2)(B) of the Telecommunications Act of 1996, an amendment to the ICA building, as arbitrated language, the language for IP-to-IP Interconnection proposed by Sprint for Issue 1 in Case No. U-17349, and providing for the deletion of the language set forth above.

         (ECF No. 23-7 at PageID.2290-91.)

         The Commission issued an order rejecting the proposed agreement on March 18, 2014. (See ECF No. 23-27 at PageID.2484.) The Commission took issue with the proposed language on “Issue 1” above, which was the only language to stray from the arbitration order.[1]The Commission's order is not a model of clarity, but the Court distills two reasons that the Commission rejected the language. Both were legally erroneous.


         i. The MPSC unlawfully rejected the portion of the agreement adopted by negotiation after arbitration by using the substantive standards for arbitration.

         First, the Commission held, at least implicitly, that because it had already favored Sprint's language in arbitration and believed that § 251 required IP interconnection, the parties were not free to negotiate otherwise. (See id. at PageID.2487 (“In its December 6, order, the Commission found that under Section 251(c)(2) of the FTA, AT&T Michigan must provide Sprint with IP-to-IP interconnection. . . . Accordingly, the Commission finds that the parties must file, for Commission approval or rejection, the agreement by which AT&T Michigan shall provide Sprint with IP-to-IP interconnection.” (emphasis added)), PageID.2489 (“Sprint Spectrum L.P. and AT&T Michigan shall submit an internet protocol-to-internet protocol interconnection agreement for Commission approval . . . .”) (emphasis added)).)

         However, the Act contemplates that parties may and should “participate further in the negotiations, ” even after arbitration. See § 252(b)(5). Indeed, the failure “to continue to negotiate in good faith, ” even after unresolved issues are submitted to arbitration, is forbidden by the Act. See id. To hold that parties may not subsequently negotiate after arbitration, but before the final approval stage, would be inconsistent with the statutory language, purpose, and relevant regulations. See id.; 47 C.F.R. § 51.807(h) (“Absent mutual consent of the parties to change any terms and conditions adopted by the arbitrator, the decision of the arbitrator shall be binding on the parties.” (emphasis added)); see also Verizon North, 309 F.3d at 935 (“Private negotiation . . . is the centerpiece of the Act.”); In the Matters of Deployment of Wireline Servs. Offering Telecomm. Capability, 14 F.C.C.R. 20912, 20982, 1999 WL 1124073, at ¶ 158 (F.C.C. 1999) (“We reiterate here our conclusion . . . that state arbitration of interconnection agreements will be expedited and simplified by a clear statement of terms that must be included in every arbitrated agreement, absent consent to different terms.”) (emphasis added)).

         An “agreement” is not, in fact, “submitted for approval” until after arbitration occurs. See 47 U.S.C. § 252(e)(1) (“Any interconnection agreement adopted by negotiation or arbitration shall be submitted for approval.”). Thus, once parties submit an agreement that reflects both negotiated and arbitrated language, a commission must either “approve or reject the agreement.” But it “may only reject” “an agreement (or any portion thereof) adopted by negotiation” if it makes certain factual findings under § 252(e)(2)(A); and it may only reject “an agreement (or any portion thereof) adopted by arbitration” if it makes separate factual findings under § 252(e)(2)(B). A commission may not find that a portion of an agreement “adopted by negotiation” that was “submitted” is inconsistent with the statutory section that only applies to a portion of an agreement “adopted by arbitration, ” even if the parties negotiate after arbitration and mutually “submit” an agreement that does not perfectly mirror “terms and conditions [previously] adopted by the arbitrator.” See 47 C.F.R. § 51.807(h).

         Moreover, a final agreement that contains both negotiated and arbitrated terms is not at all unusual; the Commission carries separate responsibilities in evaluating “an agreement (or any portion thereof) adopted by negotiation” and “an agreement (or any portion thereof) adopted by arbitration”), as the statutory language provides and case law reflects. See § 252(e)(2) (noting the State Commission's separate duties to evaluate negotiated versus arbitrated language); see also, e.g., Indiana Bell Tel. Co., Inc. v. McCarty, 30 F.Supp.2d 1100, 1102 (S.D. Ind. 1998) (“The IURC . . . approved the parties' final agreement, which contains a mix of negotiated and arbitrated terms.”).

         Since the parties were permitted to negotiate after arbitration but prior to any agreement being “submitted for approval, ” 47 U.S.C. § 252(e)(1), and the parties agreed to other language, the Commission should have analyzed the final negotiated language under the negotiation, and not arbitration, standard. Thus, it was no longer the Commission's place to evaluate, as it did (see ECF No. 23-27 at PageID.2487-2489), whether the “portion” of the agreement “adopted by negotiation” met “the requirements of section 251.” Compare 47 U.S.C. § 252(e)(2)(A) with § 252(e)(2)(B); see 47 C.F.R. § 51.3 (“[A] state commission shall have authority to approve an interconnection agreement adopted by negotiation even if the terms of the agreement do not comply with the requirements of this part.”). And thus, the Commission could only determine whether the “portion” of the agreement “adopted by negotiation” either 1) “discriminate[d] against a telecommunications carrier not a party to the agreement” or 2) “[wa]s not consistent with public interest, convenience, and necessity.” 47 U.S.C. § 252(e)(2)(B).

         Accordingly, the Commission's first ground for rejecting the proposed ICA-that it had already decided that IP interconnection was mandatory, and the parties therefore had to comply with ...

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