20050421Answer to McLeod petition.pdf

Mary S. Hobson (ISB #2142)
Stoel Rives LLP
101 South Capitol Boulevard - Suite 1900
Boise, ill 83702
Telephone: [phone]
Facsimile: [phone]
mshobson~stoel.com
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Adam L. Sherr (WSBA #25291)
Qwest
1600 7th Avenue - Room 3206
Seattle, W A 98191
Telephone: [phone]
Facsimile: [phone]
adan1.sherr~qwest.com
BEFORE THE PUBLIC UTILITIES COMMISSION OF IDAHO
PETITION OF MCLEODUSA
TELECOMMUNICATIONS SERVICES,
INC., FOR ENFORCEMENT OF
INTERCONNECTION AGREEMENT
WITH QWEST CORPORATION
ANSWER TO MCLEOD PETITION
IN RE:Docket No. MTI-O5-
Qwest Corporation (Qwest), though its undersigned attorneys of record, hereby
answers and responds to the Petition of McLeod USA Telecommunications Services, Inc.
for Enforcement of Interconnection Agreement with Qwest Corporation ("Petition
RESPONSE TO INTRODUCTORY PARAGRAPH
With regard to the allegations and statements of McLeod USA
Telecommunications Services, Inc. ("McLeod") contained in the Petition s lengthy first
paragraph, Qwest responds that the case arises from McLeod's deteriorating financial
condition and its failure to live up to its financial obligations to Qwest. The genesis
this controversy may be found in an unrelated dispute between McLeod and Qwest
ANSWER TO MCLEOD PETITION - Page 1
Boise-183290.l 0029164-00012
Communications Corporation ("QCC"), regarding charges and payments pertaining to
certain telecommunications traffic. In the course of that dispute, QCC exercised its
lawful rights in withholding payments for charges it believes McLeod had incorrectly
billed QCC. In retaliation, and even though Qwest was not involved in the McLeod-QCC
dispute, McLeod refused to pay certain Qwest charges for Qwest tariffed services in a
current total amount of approximately $2.5 million. McLeod did not state any grounds
for withholding payments from Qwest and, indeed, had no basis for withholding payment
for Qwest-provisioned services.
Because of the significant sum McLeod has wrongfully withheld from Qwest and
because of recent public statements McLeod has made about its bleak financial situation
Qwest became very concerned about its financial exposure to McLeod in the event
McLeod files for protection from its creditors in bankruptcy court. Of primary concern to
Qwest (and the triggering event to the security deposit demand), was McLeod's 8-
filing on March 17, 2005 to the Securities & Exchange Commission wherein McLeod
revealed that its revenues sharply declined in the fourth quarter of 2004; it had to seek
forbearance from interest payments to its lenders; and, it was seeking to sell the company.
As the 8-K explained, McLeod's "Lenders have agreed to forbear from exercising any
remedies as a result of certain specified defaults under the Credit Facilities anticipated by
the Company during the forbearance period, including, without limitation, the failure to
make scheduled amortization payments under the Credit Facilities and interest payments
under the Credit Agreement.,,1 A press release coincident with the 8-K filing confirmed
Qwest's concerns:
See Exhibit D to Qwest's Response to McLeod's Motion for Emergency Relief at 3.
ANSWER TO MCLEOD PETITION - Page 2
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There can be no assurance that we will be able to reach an
agreement with our lenders regarding a capital restructuring
or continued forbearance and covenant relief prior to the
end of the initial forbearance period on May 23 2005.
There also can be no assurance that we will be able to
identify a suitable strategic partner or buyer. . .. In the
event these alternatives are not available to the Company, it
is likely that we will elect to forgo making future principal
and interest payments to our lenders. . . or, alternatively,
the Company could be forced to seek protection from its
creditors.
McLeod Press Release (Mar. 16 2005) (emphasis added).
On the news of the 8-K filing, McLeod's common stock decreased by almost half
in one day. In light of McLeod's own statements of its financial risk and the likelihood
of insolvency, Qwest -- one of McLeod's largest creditors -- took reasonable steps to
protect its legitimate interests.
Qwest admits that on March 21 2005 , it sent a letter to McLeod demanding
security for services provided under the interconnection agreement. Qwest asserts that its
demand for security is supported by the parties ' interconnection agreement and by state
law governing commercial transactions and contracts implied in every contract.
Qwest denies McLeod's allegation that all procedures for dispute resolution in the
interconnection agreement must be satisfied before Qwest may exercise its rights under
the interconnection agreement to demand security, issue a notice of default, or exercise
any of its other rights and remedies as stated in the interconnection agreement.
II.ANSWER TO THE PETITION
Jurisdiction
Qwest admits the allegations in paragraph 1 of the Petition.
This document was provided as Exhibit E to Qwest's Response to McLeod's Motion for
Emergency Relief filed April 1 , 2005.
ANSWER TO MCLEOD PETITION - Page 3
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Qwest admits the allegations in the first sentence of paragraph 2 of the
Petition. Qwest is without knowledge or information sufficient to form a belief as to the
truth of the allegation that all relevant portions of the interconnection agreement have
been attached to the Petition, and therefore deny the same.
Qwest states that the averments in paragraph 3 constitute conclusions of
law and, as such, do not contain factual allegations that require an answer. Subject to the
foregoing, Qwest asserts that state commissions have authority to interpret and enforce
interconnection agreements to the extent granted by the Telecommunications Act, to the
extent granted under state law, and subj ect to the terms of interconnection agreements.
Qwest also asserts that certain issues raised by McLeod in its Petition are not ripe for
Commission consideration.
Qwest states that the averments in paragraph 4 constitute conclusions of
law and, as such, do not contain factual allegations that require an answer. To the extent
that an answer is deemed required, however, Qwest denies each and every allegation
contained in paragraph 4 of the Petition. Subject to the foregoing, Qwest states that on
March 22, 2005, McLeod filed for a temporary restraining order ("TRO") in federal
district court in Iowa seeking to prevent Qwest from demanding security deposits and
payments and from terminating services to McLeod. The Iowa court granted McLeod'
motion and the TRO, which was in effect until April 12, 2005, and stated in pertinent part
that Qwest and QCC are "restrained from. . . terminating or threatening to terminate
services to McLeodUSA or requiring security from McLeodUSA as a precondition to the
start or continuation or any such services. . . ." The restraining language in the order
issued by the Iowa federal court is broad and does not exclude services provided under
ANSWER TO MCLEOD PETITION - Page 4
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interconnection agreements. Accordingly, McLeod injected into the Iowa TRO
proceeding the issues relating to payment, security deposits, and termination of services
provided under the interconnection agreements. Thereafter, on April 1 , 2005, the Iowa
federal court transferred the case to the Colorado federal court after Qwest assured the
Iowa federal court that Qwest would not disconnect services or stop taking orders unless
the Colorado federal court vacates, modifies or otherwise changes the existing TRO.
Accordingly, the protections of the TRO are still in effect until the Colorado federal court
vacates, modifies or otherwise changes it. In addition, certain issues raised by the
Petition are not ripe. Further, on April 13, Qwest withdrew its demand for security under
the interconnection agreement, thus rendering moot McLeod's claims and requests for
relief. Accordingly, there is no actual case or controversy before the Commission.
Qwest states that the averment in paragraph 5 constitutes a conclusion of
law and, as such, does not contain factual allegations that require an answer. Subject to
the foregoing, for the reasons stated in Qwest's answer to paragraph 4 of the Petition
Qwest further denies that the Commission has jurisdiction to consider this Petition.
Parties
Qwest admits the allegations contained in paragraph 6 of the Petition.
Qwest admits the allegations contained in paragraph 7 of the Petition.
Statement Of Facts
In answer to paragraph 8 of the Petition, Qwest denies that the terms of the
interconnection agreement do not allow Qwest to demand a security deposit and Qwest
incorporates its response to the Introductory Paragraph of McLeod's Petition. In further
response to paragraph 8, Qwest states that it has withdrawn its demand for security thus
ANSWER TO MCLEOD PETITION - Page 5
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rendering moot the allegations contained in this paragraph. Qwest denies each and every
remaining allegation contained in paragraph 8.
Answering paragraph 9 of the Petition, Qwest denies that its conduct is in
violation of its interconnection agreement or any of its tariffs. In further answer to
paragraph 9, Qwest states that the Opinion and Temporary Restraining Order issued by
the Iowa federal court speaks for itself and denies the remaining allegations contained in
paragraph 9.
10.Answering paragraph 10 of the Petition, Qwest asserts McLeod has
improperly failed to separate issues regarding Qwest and QCC, and it is McLeod's failure
that serves as the background to disputes between the parties. Qwest denies that it has
merged issues regarding QCC or Qwest tariffed services with rights under the
interconnection agreement. Qwest admits that McLeod has paid its invoices for services
provided by Qwest under the interconnection agreements, but Qwest denies that McLeod
has performed all of its obligations under the interconnection agreement, which include
posting of adequate security in light of McLeod's own admissions of financial instability.
Qwest denies each and every remaining allegation contained in paragraph 10.
11.Qwest admits the allegations contained in paragraph 11 of the Petition.
12.Answering the allegations of paragraph 12 of the Petition, Qwest states
that the Demand Letter speaks for itself. In further answer to paragraph 12, Qwest asserts
that on April 13, 2005 it withdrew the Demand Letter rendering moot McLeod's claims
in this Petition and its allegations regarding the Demand Letter.
13.Answering paragraph 13 of the Petition, Qwest states that the Demand
Letters for Idaho and the other thirteen in-region states speak for themselves. Qwest also
ANSWER TO MCLEOD PETITION - Page 6
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asserts that on April 13, 2005 it withdrew the Demand Letter rendering moot McLeod'
claims in this Petition and its allegations regarding the Demand Letter.
14.Answering paragraph 14 of the Petition, Qwest states that the Demand
Letter speaks for itself. Qwest also asserts that on April 13, 2005 it withdrew the
Demand Letter rendering moot McLeod's claims in this Petition and its allegations
regarding the Demand Letter.
15.Answering paragraph 15 of the Petition, Qwest states that the Demand
Letter speaks for itself. In further answer, Qwest asserts that on April 13 , 2005 it
withdrew the Demand Letter rendering moot McLeod's claims in this Petition and its
allegations regarding the Demand Letter. Qwest also asserts that the terms of the
Interconnection Agreement allow Qwest to demand a security deposit and that Qwest'
demands for security and other remedial procedures under the interconnection agreement
are not conditioned upon first invoking the dispute resolution process of the
interconnection agreement. Qwest denies each and ev~ry remaining allegation contained
in paragraph 15.
16.Answering paragraph 16 of the Petition, Qwest states that McLeod'
March 22 2005 response speaks for itself.
17.Answering paragraph 17 of the Petition, Qwest states that McLeod'
March 24, 2005 response speaks for itself.
18.Qwest denies the allegations contained in paragraph 18 of the Petition.
19.Answering paragraph 19 of the Petition, Qwest states that McLeod'
allegations contained therein are vague and incomplete, or constitute conclusions of law
and therefore Qwest denies the same.
ANSWER TO MCLEOD PETITION - Page 7
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20.Answering paragraph 20 of the Petition, Qwest is without knowledge or
information sufficient to form a belief as to the truth the allegation that McLeod has
never" been delinquent in payments to Qwest for services provided to McLeod under
the interconnection agreement and therefore denies the same. In further answer, Qwest
admits that services provided under the interconnection agreement are invoiced
separately from service provided under either Qwest's tariffs or the QCC Wholesale
Service Agreement. Qwest admits that with respect to the most recent invoice for
services provided under the interconnection agreement on the date of this Answer
McLeod is current.
21.Answering paragraph 21 of the Petition, Qwest denies that the terms of the
interconnection agreement did not allow Qwest to demand a security deposit under the
circumstances. Qwest also asserts that on April 13 , 2005 , it withdrew the Demand Letter
rendering moot McLeod's claims in this Petition and its allegations regarding the
Demand Letter. As to the remaining allegations contained in paragraph 21 , the cited
provisions of the interconnection agreement speak for themselves.
22.Answering paragraph 22 of the Petition, Qwest states that the cited
provisions of the interconnection agreement speak for themselves.
23.Answering paragraph 23 of the Petition, Qwest admits that with respect to
the most recent invoice for services provided under the interconnection agreement on the
date of this Answer, McLeod is current but Qwest denies each and every remaining
allegation contained in paragraph 23.
24.Answering paragraph 24 of the Petition, Qwest states that the cited
provisions of the interconnection agreement speak for themselves and denies each and
ANSWER TO MCLEOD PETITION - Page 8
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every remaining allegation contained in paragraph 24. Answering paragraph 25 of the
Petition, Qwest states that the cited provisions of the interconnection agreement speak for
themselves and denies each and every remaining allegation contained in paragraph 25.
25.Qwest denies the allegations contained in paragraph 26 of the Petition.
26.Answering paragraph 27 of the Petition, Qwest states that the averments
contained therein constitute conclusions of law and do not contain allegations of fact that
requIre an answer.
27.Answering paragraph 28 of the Petition, Qwest admits that McLeod would
have thirty days to cure a default but Qwest denies each and every remaining allegation
contained therein.
28.Answering paragraph 29 of the Petition, Qwest states that the cited
provisions of the interconnection agreement speak for themselves and denies each and
every other allegation contained therein.
29.Answering paragraph 30 of the Petition, Qwest states that the cited
provisions of the interconnection agreement speak for themselves and denies each and
every other allegation contained therein.
30.Qwest denies the allegations contained in paragraph 31 of the Petition.
III.QWEST'S AFFIRMATIVE DEFENSES
McLeod's claims and requests for interim and other relief have been
rendered moot.
McLeod's claims and requests for interim and other relief are not ripe for
decision.
Due to McLeod's own actions, issues raised by McLeod's Petition and its
requests for interim and other relief are the subject of the action before the United States
ANSWER TO MCLEOD PETITION - Page 9
Boise-183290.10029164-00012
District Court for the District of Colorado, and in the interests of judicial efficiency and
to avoid potentially conflicting orders, this Commission should dismiss, stay, or defer this
case pending further proceedings before the federal court.
Requested Relief
With Qwest's withdrawal of its March 21 2005 demand letter under the
interconnection agreement, McLeod's allegations, claims, and requested relief are
rendered moot. Qwest, therefore, requests an order of the Commission denying
McLeod's requested relief.
Dated this 20th day of April, 2005.
~fkh-
Mary S. bson
Stoel Rives LLP
Adam Sherr
Qwest
Attorneys for Qwest Corporation
ANSWER TO MCLEOD PETITION - Page 10
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CERTIFICATE OF SERVICE
I hereby certify that on this 20th day of April, 2005 , I served the foregoing
ANSWER TO McLEOD PETITION upon all parties of record in this matter as
follows:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, Idaho 83720-0074
j iewell~puc .sta e.id. us
Weldon Stutzman
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, Idaho 83720-0074
wstutzm~puc.state.id. us
William Courter
McLeodUSA Telecommunications Services, Inc.6400 C Street SW
Cedar Rapids, IA 52406
Peter Richardson (ISB #3195)
Richardson & O'Leary
515 North 28th Street
Boise, ill 83702
Telephone: [phone]
Facsimile: [phone]
peter~richardsonandoleary .com
Attorney for McLeod
Mark Trinchero (OSB #88322)
Davis Wright Tremaine LLP
1300 SW Fifth Avenue - Suite 2300
Portland, OR 97201-5682
Telephone: [phone]
Facsimile: [phone]
marktrinchero~dwt.com
Attorney for McLeod
ANSWER TO MCLEOD PETITION - Page 11
Boise-183290.10029164-00012
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Brandi L. Gearhart, PLS
Legal Secretary to Mary S. Hobson
Stoel Rives LLP