HomeMy WebLinkAbout20061116Supplemental authority in support.pdfMolly O'Leary (ISB No. 4996)
RICHARDSON & O'LEARY PLLC
515 North 2ih Street
O. Box 7218
Boise, Idaho 83707
Telephone: 208.938.7900
Fax: 208.938.7904
Mail: molly~richardsonandoleary .com
Theodore A. Livingston
Dennis G. Friedman
MAYER, BROWN, ROWE & MAW LLP
71 South Wacker Drive
Chicago, IL 60606-4637
Telephone: 312.782.0600
Fax: 312.706.8630
Mail: dfriedman~mayerbrown.com
Dan Foley
General Attorney & Assistant General Counsel
AT&T WEST
P. O. Box 11010; 645 E. Plumb Lane, B132
Reno, Nevada 89520
Telephone: 775.333.4321
Fax: 775.333.2175
Mail: df6929~att.com
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
AT&T COMMUNICA nONS OF THE
MOUNTAIN STATES , INC.
Complainant
QWEST CORPORATION
Defendant.
Case No. QWE-06-
AT&T'S SUPPLEMENTAL
AUTHORITY IN SUPPORT OF ITS
ANSWER TO QWEST'S MOnON TO
DISMISS
AT &T'S SUBMISSION OF SUPPLEMENTAL AUTHORITY
AT&T Communications of the Mountain States, Inc. ("AT&T") respectfully brings to the
Idaho Public Utilities Commission s ("the Commission ) attention a recent decision, issued after
AT&T filed its response to Qwest's motion to dismiss , that supports AT&T's arguments. This
decision Connect Comms. Corp. v. Southwestern Bell Tel., LP.2006 WL 3040611 (8th Cir.
Oct. 27, 2006), is provided as Attachment 1 hereto.
AT&T's Complaint asserts that Qwest has breached its interconnection agreement with
AT&T. Relying in part on a decision by the Oregon Public Utilities Commission, Qwest has
argued that AT & T' s contract claim - a claim requiring the interpretation and enforcement of an
interconnection agreement - should be treated as arising under federal law because it allegedly
will require the Commission to look to federal law, and therefore should be governed by the two-
year limitations period in 47 U.c. ~ 415. Citing several court of appeals' decisions (including
from the Ninth Circuit ) holding that disputes over the interpretation and enforcement of
interconnection agreements are governed by state law, AT&T argued that its contract claim
arises under state law, and therefore is timely under Idaho s statute oflimitations for contract
claims, and that the Oregon Commission s decision was both wrong and irrelevant.
The Eighth Circuit's recent Connect decision supports AT&T's arguments and refutes
Qwest's. In Connect the Eighth Circuit found, in the context of a dispute over the interpretation
and enforcement of an interconnection agreement, that "the ultimate issue in this case -
interpretation of the Interconnection Agreement is a state law issue." Connect 2006 WL
3040611. at *4 (emphasis added) (relying on Southwestern Bell Tel. Co. v. Brooks Fiber Comms.
of Oklahoma, Inc.235 F.3d 493, 498 (lOth Cir. 2000) (applying state law to interpretation
Pacific Bell v. Pac-West Telecomm, Inc.325 F.3d 1114, 1128 (9th Cir. 2003) ("(T)he Agreements themselves and
state law principles govern the questions of interpretation of the contracts and enforcement of their provisions.
AT&T'S SUPPLEMENTAL AUTHORITY - 2
dispute over the same interconnection agreement) and Southwestern Bell Tel. Co. v. Public Uti/s.
Comm n of Texas 208 F.3d 475 485 (5th Cir. 2000)). This disposes of Qwest's assertion that
AT&T's contract claim must be treated as arising under federal law.
Qwest has tried to distinguish Connect in other forums by arguing that there is a different
rule when the interconnection agreement provisions at issue track or incorporate provisions of
the federal Telecommunications Act or FCC rules implementing the Act, and that such contract
claims still must be treated as federal. But Connect does not create any such distinction or
limitation. To the contrary, in Connect the contract provision in question tracked the language of
the FCC that spelled out the requirements of Section 251 (b)( 5) of the federal
Telecommunications Act. The court nevertheless had no difficulty concluding that "the
Agreement(J (itselfl and state law principles" govern the provision s interpretation and
enforcement. Id. at *4. The Tenth Circuit reached the same result in the same circumstances.
Brooks Fiber 235 F.3d at 495 499 (even where interconnection agreement provision at issue
tracked the language of an FCC rule implementing 1996 Act, court held that "(tJhe Agreement
itself and state law principles govern" the interpretation and enforcement of that provision).
These courts thus join the Seventh Circuit in holding that the interpretation and enforcement of
provisions of interconnection agreements that "precisely track the (l996J Act" present a question
of state contract law, not a federal claim under the 1996 Act. Illinois Bell Tel. Co. v. WorldCom
Technologies, Inc.179 F.3d 566 573-74 (7th Cir. 1999).
Connect also completely forecloses Qwest's claim that the Oregon Commission
decision is entitled to collateral estoppel effect here in Idaho. In Connect the Eighth Circuit held
that one state commission s determination regarding a claim based on an interconnection
agreement does not bind another state commission, even when addressing an identical claim and
AT&T'S SUPPLEMENTAL AUTHORITY - 3
an identical agreement provision. Connect 2006 WL 3040611 , at *9 ("(SJtate commissions are
not bound by decisions reached by other state commissions, even in construing similar or
identical terms.) (relying on Global NAPs, Inc. v. Mass. Dep t ofTelecomms. Energy, 427
3d 34, 48 (lst Cir. 2005)). If the Oregon Commission s decision cannot bind a state court
sitting in Oregon, then a fortiori it cannot bind this Commission.
DATED this /t~ay of November, 2006.
RICHARDSON & O'LEARY, P.L.L.C.
AT&T COMMUNICATIONS OF
AIN STATES, INC.
AT&T'S SUPPLEMENTAL AUTHORITY - 4
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 16th day of November, 2006 a true and correct copy of
the within and foregoing AT&T'S SUPPLEMENTAL AUTHORITY IN SUPPORT OF ITS
ANSWER TO QWEST'S MOTION TO DISMISS was filed with the Idaho Public Utilities
Commission and parties as indicated below:
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
POBox 83720
Boise ill 83720-0074
Hand Delivery
- U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Theodore A. Livingston
Dennis G. Friedman
Mayer, Brown, Rowe & Maw LLP
71 South Wacker Drive
Chicago, IL 60606
E-mail: dfriedman~mayerbrown.com
- Hand Delivery
u.S. Mail, postage pre-paid
Facsimile
2L Electronic Mail
Mary S. Hobson
999 Main, Suite 1103
Boise, ID 83702
E-mail: mary.hobson~qwest.com
- Hand Delivery
u.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Adam L. Sherr
Corporate Counsel, Qwest
1600 7th Avenue, Room 3206
Seattle, WA 98191
E-mail: adam.sherr~qwest.com
- Hand Delivery
K-u.S. Mail, postage pre-paid
Facsimile
2L Electronic Mail
Certificate of Service - 1
ATTACHMENT
AT&T'S SUPPLEMENTAL AUTHORITY
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
No. 05-3698
Connect Communications
Corporation
Appellant
Southwestern Bell Telephone, LP.
formerly known as SouthwesternBell Telephone Company;
Arkansas Public Service
Commission; Sandra L.
Hochstetter, in her official capacity
as Chairman of the Arkansas Public
Service Commission; Daryl E.
Bassett, in his official capacity as
Commissioner of the Arkansas
Public Service Commission; Randy
Bynum, in his official capacity as
Commissioner of the Arkansas
Public Service Commission
Appellees.
Appeal from the United States
District Court for the
Eastern District of Arkansas.
Submitted: May 17 2006
Filed: October 27 , 2006
Before BYE, HANSEN, and BENTON, Circuit Judges.
HANSEN, Circuit Judge.
This case involves telephone calls placed from Southwestern Bell Telephone
Company (SWBT) telephone customers to the individual customer s internet service
provider (ISP), where the ISP is a telephone customer of a different telephone
company, Connect Communications Corporation (Connect). All the involved
telephone customers are located within the same local exchange area. After the
Arkansas Public Service Commission (APSC) approved an Interconnection
Agreement between Connect and SWBT, the parties disputed whether these ISP-
bound calls were local calls, which would subject them to reciprocal compensation
under the Interconnection Agreement, or whether the calls were non-local. After years
of litigation and several decisions at various administrative and judicial levels, the
APSC determined that the ISP-bound calls were not local calls under the
Interconnection Agreement. The district court! found that determination not to be
arbitrary or capricious and upheld the APSC's decision. Connect appeals , and we
affirm.
I. Background
This litigation began in 1998, shortly after SWBT and Connect had entered into
an Interconnection Agreement on June 23 , 1997. SWBT, as an incumbent local
exchange carrier (ILEC), had a duty to negotiate and enter into an interconnection
agreement with Connect, a competitive local exchange carrier (CLEC), under the
Telecommunications Act of 1996 (the Act). See 47 U.C. 9 251(c)(1), (2). Rather
than negotiate an interconnection agreement of its own with SWBT, Connect chose
to adopt the interconnection agreement previously negotiated by SWBT with Brooks
Fiber Communications of Arkansas, Inc. (Brooks Fiber) in August 1996, a procedure
The Honorable J. Leon Holmes , Chief Judge, United States District Court for
the Eastern District of Arkansas.
allowed under the Act. See 47 U.C. ~ 252(1); 47 C.R. ~ 51.809. The APSC
approved the SWBT-Connect Interconnection Agreement on October 24, 1997 , and
neither party sought review of the Interconnection Agreement in federal district court
pursuant to 47 U.C. ~ 252(e)(6).
The Interconnection Agreement divides the telecommunications traffic between
the two telephone companies into four categories: local traffic, through-put traffic
intraLATA interexchange traffic, and interLATA interexchange traffic. (Appellant'
Add. at 48.) The Interconnection Agreement classifies "(c)alls originated by one
Party's end users and terminated to the other Party's end users. . . as local traffic. . .
if the call originates and terminates in the same SWBT exchange area (id.) and
provides for reciprocal compensation for the termination of local traffic (id.at 49).
Although the Interconnection Agreement does not define "terminate " it does define
terminating traffic" as "a voice-grade switched telecommunications service which is
delivered to an end-user(s) as a result of another end user s attempt to establish
communications between the parties.
" (
Id.at 57.
At the time that SWBT and Connect were entering into the Interconnection
Agreement, the FCC had not determined whether traffic transmitted to ISPs was
subject to reciprocal compensation as local traffic under the Act or not. In an FCC
Order issued on May 16 , 1997 , the FCC noted that since an earlier ruling in 1983
ISPs had not been required to pay interstate access charges and were allowed to
purchase services from ILECs under the same intrastate tariffs available to end users.
See In the Matter of Access Charge Reform Price Cap Performance Review for Local
Exchange Carriers Transport Rate Structure and Pricing End User Common Line
Charges 12 F.R. 15982 , 16132-33 (FCC May 16, 1997) (hereinafter 1997 FCC
Order). The FCC concluded in the 1997 FCC Order "that the existing pricing
structure for ISPs should remain in place.Id.at 16133. Thus for tariff purposes
calls placed to ISPs were treated as local calls. At that time, there was debate in the
industry about whether ISPs acted more like end users, such that a call to an ISP is
terminated at the ISP's server, or more like interexchange carriers, providing a
connection to the Internet. See id.at 16275 (discussing AOL's and PacTel's opposing
arguments ).
In 1999, the FCC determined that ISP-bound traffic was "largely interstate " but
that this conclusion "does not in itself determine whether reciprocal compensation is
due in any particular instance.See In the Matter of Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996, 14 F.R. 3689
3690 (FCC Feb. 26, 1999) (ISP Declaratory Ruling). The FCC recognized that prior
to this time, it had consistently treated enhanced service provider (ESP) traffic as local
for purposes of interstate access charges despite its interstate character, and that
parties may have agreed, or state commissions may have mandated, that reciprocal
compensation applied to ISP-bound traffic. Thus, the FCC "conclude(d) that parties
should be bound by their existing interconnection agreements, as interpreted by state
commissions.Id.The FCC noted that in interpreting prior interconnection
agreements, state commissions should consider all of the relevant facts , including the
parties' negotiations in light of the FCC's "longstanding policy of treating this traffic
as local, and the conduct of the parties pursuant to those agreements.Id.at 3704.
The D.C. Circuit vacated portions of the FCC's ISP Declaratory Ruling,
concluding that the FCC did not adequately explain its reliance on an "end to end"
jurisdictional analysis to support its conclusion that ISP-bound traffic was not local
and thus not subject to reciprocal compensation. See Bell Atlantic Tel. Coso v. FCC
206 F.3d 1 , 6-7 (D.C. Cir. 2000). On remand from the D.C. Circuit, the FCC again
concluded that ISP-bound calls were not subject to reciprocal compensation, though
under a different rationale. This time, the FCC concluded that Congress excluded
traffic listed in 47 U.C. ~ 251(g) from telecommunications traffic subject to
reciprocal compensation. One of the items included in ~ 251(g) is "information
access " which the FCC determined included ISP-bound traffic. See In the Matter of
Implementation of the Local Competition Provisions in the Telecommunications Act
of 1996, 16 F.R. 9151 , 9153 (FCC Apr. 27, 2001) (Remand Order). Again, the
FCC reiterated that its order applied prospectively only to renegotiated or expiring
interconnection agreements; "(i)t does not alter existing contractual obligations.Id.
at 9189.
Once again, on appeal the D.C. Circuit remanded the case back to the FCC. See
WorldCom. Inc. v. FCC, 288 F.3d 429, 430 (D.C. Cir. 2002). The court found the
FCC's reliance on ~ 251 (g) misplaced, as that section was merely a transitional device
to preserve the status quo until the FCC could adopt rules to implement the Act. Id.
The court did not vacate the FCC order, however, noting that there could be other
legal bases to support the FCC's rule; it "simply remand ( ed) the case to the (FCC) for
further proceedings.Id.at 434.
Turning back to the case at hand, SWBT informed Connect in March 1998 that
it would not compensate Connect for suspected ISP-bound traffic as a local call under
the Interconnection Agreement's reciprocal compensation arrangement. On June 5
1998, Connect filed a complaint with the APSC seeking a declaration that the ISP-
bound traffic was subject to the reciprocal compensation provisions for local traffic
under the Interconnection Agreement. The APSC issued its order on December 31
1998, and, relying heavily on FCC decisions and the district court's analysis in Sw.
Bell Tel. Co. v. Pub. Util. Comm n of Tex.No. MO 98 CA043 (W.D. Tex. June 16
1998), affd, 208 F.3d 475 (5th Cir. 2000), determined that a call from a SWBT
customer to an ISP served by Connect within the same local calling area is a local call
subject to reciprocal compensation. (J.A. at 90 95-, APSC Order #6.) The APSC
also noted that twenty-three state commissions had found similar ISP-bound traffic
to be local. (Id.at 90.SWBT challenged that decision by filing suit in federal
district court, naming Connect and the APSC as defendants and seeking injunctive
relief to prohibit enforcement of the APSC Order #6. The district court determined
that it lacked jurisdiction to review a state commission s order interpreting and
enforcing an interconnection agreement because the Telecommunications Act grants
federal district courts jurisdiction only to determine whether interconnection
agreements meet the requirements of federal law. Sw. Bell Tel. Co. v. Connect
Commc ns Corp., 72 F. Supp. 2d 1043 , (E.D. Ark. 1999) (SWBT I). On appeal, a
panel of this court reversed the district court, holding that the claim raised substantial
federal law questions. Sw. Bell Tel. Co. v. Connect Commc ns Corp., 225 F.3d 942
948 (8th Cir. 2000) (SWBT II). The panel did not reach the merits of the federal law
claim, but remanded to the district court to address these issues. Id.at 949.
On remand, the district court discussed the FCC orders that had been issued
since the case at bar was originally before the district court, namely the FCC's 1999
ISP Declaratory Order and the FCC's 2001 Remand Order. These were contrary to
the FCC's earlier position, which treated ISP traffic as local for tariff purposes, and
which was the most current FCC pronouncement at the time that the APse first issued
its determination that the ISP traffic at issue here was subject to reciprocal
compensation. The district court noted that the FCC has now taken the position that
ISP traffic is "information access " within the meaning of 47 U.C. ~ 251(g), and that
Congress intended to exclude traffic listed in ~ 251 (g) from the reciprocal
compensation requirements of ~ 251 (b)( 5).2 The district court noted, however, that
the FCC Remand Order allowed the payment of reciprocal compensation for ISP-
bound traffic to the extent provided for in an existing interconnection agreement.
Finding that the APSC based its prior ruling on federal regulations and FCC rulings
which turned out to be incorrect according to the latest FCC rulings, but that the
APSC failed to interpret the Interconnection Agreement pursuant to state contract law
the district court remanded the case to the APSC "for reconsideration in light of the
FCC Remand Order and the statements made herein." (J.A. at 113.
This decision was issued by the district court prior to the D.C. Circuit'
WorldCom opinion holding that ~ 251 was a transitional provision and did not control
the issue.
On remand from the district court, the APSC issued Order #10 , in which it
considered the existing record and determined that the Interconnection Agreement was
ambiguous as to whether the parties intended for ISP-bound calls to be subject to
reciprocal compensation. Applying Arkansas contract law and looking for the intent
ofthe parties , the APSC determined that SWBT clearly did not intend to subject ISP-
bound traffic to reciprocal compensation when it entered into the Interconnection
Agreement; that the record lacked any evidence of Connect's intent one way or the
other regarding this specific traffic when it entered into the Interconnection
Agreement; and that ISP-bound traffic was generally accepted in the industry as being
jurisdictionally interstate." The APSC then considered the FCC Remand Order, as
it was directed to do by the district court, which, according to the APSC
, "
clearly
designates ISP-bound traffic as interstate." (Appellant's Add. at 29.) Based on all of
these considerations, the APSC determined that the Interconnection Agreement did
not require payment of reciprocal compensation for ISP-bound traffic.
This time, Connect challenged the agency decision by bringing a complaint in
federal district court, seeking a declaratory ruling that the APSC Order # 1 0 misapplied
Following the APSC's first order SWBT began paying reciprocal
compensation to Connect for ISP-bound traffic. S WBT filed a separate claim alleging
that Connect was creating fictitious local call activity by using a Lucent Max device
to provide broadband internet service to its customers. The APSC issued Order #11
in which it ordered Connect to make an accounting of the reciprocal compensation
that Connect received from SWBT based on calls made using the Lucent Max device
reasoning that whether the calls created fraudulent fictitious local call activity, as
alleged by SWBT, or were legitimate ISP-bound traffic, they would not be subject to
reciprocal compensation based on Order #10. In Order #12, the APSC denied
Connect's motion to reconsider Order #11 , noting that it would need to revisit the
issue only if it was ultimately determined that the ISP-bound traffic was indeed
subject to reciprocal compensation. The district court construed its judgment as
disposing ofthe entire case. Because we affirm the district court's decision upholding
the APSC's conclusion that the ISP-bound traffic is not subject to reciprocal
compensation, we need not address Orders #11 or #12.
federal law, violated the district court mandate, violated Arkansas law, and was
arbitrary and capricious. Ruling from the bench, the district court found a latent
ambiguity in the Interconnection Agreement and determined that the APSC did not
act arbitrarily or capriciously in finding an ambiguity in the agreement. The district
court then determined, based on the original record before the APSC, that the APSC's
determination that the parties did not intend to subject ISP-bound traffic to reciprocal
compensation was likewise not arbitrary or capricious. The court entered judgment
in favor ofSWBT on September 2 2005.
Connect appeals, arguing that the Interconnection Agreement is not ambiguous
and even if it is , the ambiguity should be resolved in its favor.
II. Standard of Review
The district court had jurisdiction over Connect's complaint seeking declaratory
relief against the APSC's decision as a misapplication of federal law pursuant to 28
C. ~ 1331. See Verizon Md. Inc. v. Pub. Servo Comm n of Md., 535 U.S. 635
643-44 (2002). It also had supplemental jurisdiction to review the agency s state law
determinations. 28 U.C. ~ 1367(a); Qwest Corp. v. Minn. Pub. Utils. Comm , 427
F.3d 1061 , 1064 (8th Cir. 2005) (Qwest V. MPUC) (exercising supplemental
jurisdiction over a claim that the MPUC acted beyond its statutory authority); Sw. Bell
Tel. CO. V. Brooks Fiber Commc ns of Okla.. Inc., 235 F.3d 493 498 (10th Cir. 2000)
(exercising supplemental jurisdiction over state law claims in action seeking review
of Oklahoma Corporation Commission s interpretation of interconnection agreement)
(hereinafter Brooks Fiber). We review the district court's grant of summary judgment
de novo, applying the same standard used by the district court. Bockelman v. MCI
Worldcom. Inc.403 F.3d 528, 531 (8th Cir. 2005).
We review the APSC's decision for compliance with federal law de novo. See
Qwest V. MPUC, 427 F.3d at 1064. Although federal law plays a large role in this
dispute, the ultimate issue in this case-- interpretation of the Interconnection
Agreement--is a state law issue. See Sw. Bell Tel. Co. v. Pub. Util. Comm n of Tex.
208 F.3d 475, 485 (5th Cir. 2000) ("(T)he agreements themselves and state law
principles govern the questions of interpretation of the contracts and enforcement of
their provisions. "). Although the parties agree that we review the APSC's factual
findings related to any state law issues under an arbitrary and capricious standard see
id., they dispute the level of deference owed to the APSC's application of state law.
The APSC determined that the Interconnection Agreement was ambiguous, which
generally is a legal conclusion under Arkansas law. See Hisaw v. State Farm Mut.
Auto. Ins. Co., 122 S.3d 8 (Ark. 2003).4 Connect urges ade novo review of that
determination, while SWBT argues for an arbitrary and capricious review.
Even this conclusion is far from clear. The district court found the ambiguity
to be latent, meaning that the ambiguity" arises from undisclosed facts or uncertainties
of the written instrument." Jet Asphalt & Rock Co.. Inc. v. Angelo Iafrate Constr..
LLC, 431 F.3d 613 617 (8th Cir. 2005) (applying Arkansas law) (internal marks
omitted). With respect, we conclude that the Supreme Court of Arkansas has not been
entirely consistent in its characterization of latent ambiguities as a legal or factual
determination. Compare Countryside Cas. Co. v. Grant, 601 S.2d 875 , 877 (Ark.
1980) ("(W)e view the trial court's finding of latent ambiguity. . . as primarily (a)
question(J of fact, (and) we shall not reverse the trial court unless its judgment is
clearly erroneous.
),
with C. & A. Constr. Co.. Inc. v. Benning Constr. Co., 509
2d 302 303 (Ark. 1974) ("(A) latent ambiguity arises from undisclosed facts or
uncertainties of the written instrument. However, the initial determination of the
existence of an ambiguity rests with the court." (internal citations omitted)); see also
Nichols v. Farmers Ins. Co., 128 S.3d (Ark. Ct. App. 2003) ("(W)here the. .
. ambiguity may be resolved by reviewing the language ofthe contract itself, it is the
trial court's duty to make such a determination as a matter of law. . . . (W)here the
parties go beyond the contract and submit disputed extrinsic evidence. . ., this is a
question of fact for the jury." (internal citations omitted)). The APSC did not clarify
whether it found the ambiguity to be patent or latent, though it appears from its
reasoning that it found it to be a latent ambiguity.
In our prior panel opinion in this case, we noted that "( w )ith regard to purely
state law issues, the state commissions may have the final say.SWBT 225 F.
at 948 (citing R. Tel. Co. v. Telecomms. Regulatory Bd., 189 F .3d 1 , 13-15 (1 st Cir.
1999) (holding that g 252( e)( 6) does not confer jurisdiction on federal courts to review
state agency action for compliance with state law)). Since that time, several circuits
have addressed the issue and have determined that federal courts can review state
commission determinations of state law, giving deference to the state agency
expertise in making state law determinations. See Global NAPs. Inc. v. Verizon New
Eng.. Inc., 454 F.3d 91 , 96 (2d Cir. 2006) ("(W)e review the Board's decisions as
congruent with state law under the arbitrary-and-capricious standard. "
);
Sw. Bell Tel.
Co., 208 F.3d at 482 (reviewing the state agency s "state law determinations. . . under
the more deferential arbitrary-and-capricious standard"
);
Mich. Bell Tel. Co. v. MFS
Intelenet of Mich.. Inc., 339 F .3d 428 433 (6th Cir. 2003) (noting "the inherent logic
of. . . allowing state agencies wider deference in state law determinations "
);
US West
Commc ns v. MFS Intelenet. Inc., 193 F.3d 1112, 1117 (9th Cir. 1999) ("(We)
consider(J all other issues under an arbitrary and capricious standard"
),
cert. denied
530 U.S. 1284 (2000); Brooks Fiber, 235 F.3d at 498 (reviewing all state law
determinations made by a state agency under arbitrary and capricious standard).
In this circuit, we recently held that "in recognition of the state commission
superior technical expertise, we review its factual determinations under the arbitrary
and capricious standard.Qwest Corp. v. Koppendrayer, 436 F .3d 859 863 (8th Cir.
2006). We were not called upon, and therefore did not decide, what level of deference
was owed to the state commission s determinations of state law. Connect relies on our
statement in Qwest v. MPUC that "whether an agency acts within its statutory
authority is a question of law (we review) de novo " 427 F.3d at 1064, to urge us to
apply de novo review to APSC's application of Arkansas law.
We believe that the de novo standard applied in Owest v. MPUC does not
compel a similar review of the APSC's review of the state law issues in this case. In
10-
Qwest v. MPUC, we were reviewing the agency s actions for consistency with its
authority to act under state law. It would not have made sense to give deference to the
agency s legal conclusions when the legal conclusions being challenged involved the
agency s own authority under state law even to act
Nevertheless, we need not wade through this standard of review quagmire, for
regardless of the standard applied, we believe that the Interconnection Agreement
contains a latent ambiguity as discussed more fully below, and we proceed to
determine whether the APSC acted arbitrarily or capriciously in settling the
ambiguity. See Starpower Commc ns. LLC v. FCC, 334 F.3d 1150, 1155 (D.C. Cir.
2003) (declining to settle a dispute over the proper standard of review "because the
contracts are so far from clearly unambiguous that we would resolve this issue in the
same manner regardless whether we owe the Commission any deference
III. Is the Interconnection Agreement Ambiguous?
(A) latent ambiguity arises when the contract on its face appears clear and
unambiguous, but collateral facts exist that make the contract's meaning uncertain.
Norman v. Norman, 970 S.2d 270 274 (Ark. 1998); see also Coble v. Sexton, 27
3d 759, 761 (Ark. Ct App. 2000) ("(A) latent ambiguity arises from undisclosed
facts or uncertainties of the written instrument"); Richard A. Lord, 11 Williston on
Contracts, ~ 33:40 (4th ed. 1999) (A latent ambiguity is one which "appear(s) only as
the result of extrinsic or collateral evidence showing that a word, thought to have but
one meaning, actually has two or more meanings.). For example, a contract may
include a clear description of the property to which it pertains, but extrinsic evidence
reveals that the description applies to more than one estate. See Norman, 970 S.
at 274; see also Abbott v. Abbott, 90 S.3d 10, 15-16 (Ark. Ct App. 2002) (finding
a latent ambiguity in a divorce decree that referred to "retirement" when husband'
employer had three types of retirement plans, and it was unclear to which plan the
decree referred); Barry v. Barry, 78 F.3d 375 , 382 (8th Cir. 1996) (finding a latent
11-
ambiguity in the meaning of the term "sale" in the context of selling shares of stock
back to a corporation where the parties disputed whether a sale required an actual
transfer of control, and both parties' interpretations were plausible).
In this case, the Interconnection Agreement is clear on its face that local traffic
is subjectto reciprocal compensation. An ambiguity arises, however, when the parties
try to define local traffic to either include or exclude ISP-bound traffic. Similar to the
interconnection agreements at issue in Starpower (tJhe ambiguity in the (Connect-
SWBTJ agreement(J arises from the hybrid nature of a call to an ISP and the failure
of the parties expressly to state whether ISP-bound traffic should be treated as local
or non-locaL" Starpower Commc , 334 F.3d at 1155. The Interconnection
Agreement does not address ISP-bound traffic at all. It defines "local traffic" as traffic
originating and terminating within the same SWBT exchange area. Connect claims
that ISP-bound traffic clearly falls within this definition of local traffic because the
call terminates at the ISP provider s location within SWBT's exchange area. SWBT
counters that the calls do not "terminate " at the ISP provider s location at all, but
continue on to the internet websites ultimately accessed by the calling party'
computer. This dispute is not resolved by the Interconnection Agreement, which does
not define the term "terminating." Although the Interconnection Agreement does
define "terminating traffic" as "a voice-grade switched communications service which
is delivered to an end-user(s) as a result of another end user s attempt to establish
communications between the parties" (Appellant's Add. at 57), that definition likewise
does not address the issues raised by ISP-bound calls. The parties legitimately dispute
whether the end user initiating the call is attempting to establish communications with
the ISP-provider, which is within the local exchange area, or with the world wide web
which clearly is not.
Although the terms "local traffic " and "terminating traffic" are defined in the
Agreement, once extrinsic evidence of the nature oflSP-bound calls is considered, it
becomes unclear whether ISP-bound traffic "terminates" within the local calling area
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as contemplated by the Interconnection Agreement Given the dispute within the
industry at the time and both parties' plausible interpretations of where traffic
terminates in an ISP-bound call, we conclude that the Interconnection Agreement
contains a latent ambiguity that must be resolved by extrinsic evidence.
IV. Is the APSC's Decision Arbitrary and Capricious?
Having determined that the Interconnection Agreement contains a latent
ambiguity, we must determine then whether the APSC acted arbitrarily or capriciously
in finding that the parties' intent was to treat the ISP-bound traffic as non-local and
thus not subject to reciprocal compensation. See Qwest v. MPUC, 427 F.3d at 1064
(reviewing state agency fact determinations under arbitrary and capricious standard).
This "scope of review 'is narrow and a court is not to substitute its judgment for that
of the agency.
'"
In re: Core Commc ns. Inc., 455 F.3d 267, 277 (D.C. Cir. 2006)
(quoting Cellular Telecomms. & Internet Ass n v. FCC, 330 F .3d 502, 507 (D.C. Cir.
2003), which applied the arbitrary and capricious standard to the FCC's order denying
a petition for forbearance). "The (state J agency must, however
, '
examine the relevant
data and articulate a satisfactory explanation for its action including a rational
connection between the facts found and the choice made.
'"
Id.(quoting Motor
Vehicle Mfrs. Ass n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).
Under Arkansas law
, "
the polestar of contractual construction is to determine
and enforce the intent of the parties. . . at the time the contract was made.Taylor v.
Hinkle, No. 04-471 , 2004 WL 2904681 , at *7 (Ark. Dec. 16 2004) (internal citations
omitted); see also Moss v. Allstate Ins. Co., 776 S.2d 831 , 834 (Ark. Ct. App.
1989). "(CJourts may consider and accord considerable weight to the construction of
an ambiguous ( contract J by the parties themselves, evidenced by subsequent
statements, acts, and conduct" Bishop v. City of Fayetteville, 97 S.3d 913, 919
(Ark. Ct. App. 2003); see also Taylor, 2004 WL 2904681 at *8 (considering
subsequent conduct of parties in ascertaining parties' intent in entering into a contract).
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The APSC also had "an obligation to interpret the Agreement within the bounds of
existing federal law.Brooks Fiber, 235 F.3d at 499. "(T)he present
telecommunications landscape makes clear that existing interconnection agreements
requiring payment of reciprocal compensation for calls to ISPs do not conflict with
~~ 251 and 252 of the Act or with the FCC's regulations or rulings.
'"
Mich. Bell Tel.
Co., 339 F.3d at 436 (quoting Sw. Bell Tel. Co.208 F.3d at 483).
The APSC determined that the parties did not intend to treat ISP-bound traffic
as local traffic based on evidence of SWBT's intentions and actions around the time
of the contract and the lack of any evidence about Connect's intent, since it merely
adopted another parties' agreement and offered no evidence of its intent at the time it
adopted the Interconnection Agreement. The APSC also relied on the fact that "ISP-
bound traffic was generally accepted in the industry as being jurisdictionally
interstate." (Appellant's Add. at 28-29.) Since 1983, the FCC has recognized that
ISP-bound traffic is under its jurisdiction as interstate traffic, but exempted the traffic
from access charges generally applicable to interstate traffic. Both sides use these
FCC findings to support their positions: SWBT says the traffic is clearly interstate or
the FCC would not have had jurisdiction to exempt it from access charges, while
Connect argues that because it is treated as local traffic for purposes of access charges
it should be treated as local traffic for purposes of reciprocal compensation.
It is clear from the record that during the time that Connect and SWBT
negotiated and entered into the Interconnection Agreement at issue here, there was
significant debate in the industry about whether or not ISP-bound traffic was to be
treated as local traffic for purposes of reciprocal compensation. In June 1997, SWBT
sent letters to CLECs with which it had interconnection agreements, explaining its
position that the access charge exemption issued by the FCC did not change the
jurisdictional nature oflSP-bound traffic as interstate traffic, and that SWBT did not
believe that ISP-bound traffic was subject to reciprocal compensation under local
interconnection agreements. (See A. at 449-50 (copy of June 9, 1997, letter to Time
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Warner Communications).) During the same time frame, the Association for Local
Telecommunications sought an expedited letter clarification from the Common Carrier
Bureau to the effect that the FCC's Local Competition Order did not "alter(J the
(FCC's J long standing rule that calls to an Information Service Provider ("ISP") made
from within a local calling area must be treated as local calls by any and all LECs
involved in carrying those calls.
" (
Id.at 610-13 (copy of June 20, 1997, Request for
Expedited Letter Clarification).
Considering the parties actions following implementation of the
Interconnection Agreement, the evidence reveals that SWBT never paid reciprocal
compensation to Connect for ISP-bound traffic under the Interconnection Agreement
even prior to the time SWBT notified Connect of its position regarding the traffic
until it was ordered to do so by the APSC in Order #6. Id.at 197 , testimony of Paul
L. Cooper.) L. Bruce Sparling, who negotiated interconnection agreements for
SWBT, including the Interconnection Agreement with Connect, testified that at the
time that S WB T entered into the Interconnection Agreement with Connect, S WBT did
not intend reciprocal compensation to apply to the traffic now at issue. Id.at 324
Rebuttal Testimony of L. Bruce Sparling.) Mr. Sparling also testified that SWBT
would not have agreed to pay reciprocal compensation for ISP-bound traffic at the
time of negotiations even if Connect had requested it because SWBT considered
internet traffic to be jurisdictionally interstate, and SWBT was already losing the
access charge revenue pursuant to the FCC's exemption. Id.at 326.) Connect offered
no evidence about its intentions at the time it entered into the Interconnection
Agreement. Its evidence revolved around the issue of whether ISP-bound traffic in
fact terminated at the ISP's server within the local area.
If this were all there was to the APSC's resolution of the ambiguity in the
agreement, we would easily uphold its decision as not arbitrary or capricious. Given
the evidence about the intent ofthe parties, their subsequent actions, and the ongoing
debate within the industry at the time the Interconnection Agreement was adopted, we
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cannot say that the APSC's decision that the parties did not intend to apply reciprocal
compensation to ISP-bound traffic was arbitrary or capricious. The APSC did more
than consider the events surrounding adoption of the Interconnection Agreement
however. It also considered (and understandably so given the district court's remand
order) the FCC's Remand Order , which, according to the APSC
, "
clearly designates
ISP-bound traffic as interstate." (Appellant's Add. at 29.) The FCC Remand Order
was issued in 2001 , long after the parties entered into the Interconnection Agreement.
Because we are focused on the parties' intentions at the time of contracting in 1997
the ISP Remand Order result should have no bearing on the present dispute that
predates that ruling.Mich. Bell Tel. Co.339 F.3d at 435.
While the district court's reliance on the irrelevant ISP Remand Order gives us
pause, it does not render the APSC's decision arbitrary and capricious in this case.
most, it reinforces the ongoing debate within the industry about the nature of these
calls. In the ISP Remand Order, the FCC continued to reinforce, as it had in earlier
rulings , that parties should be bound by their existing interconnection agreements as
interpreted by state commissions. Although its rationale in the ISP Remand Order
was different under the Act than previous orders, it had already concluded in 1997 that
ISP-bound traffic was jurisdictionally interstate. Given the evidence favoring SWBT's
position at the time of contracting, and the lack of evidence of Connect's intent, the
APSC's consideration of the subsequent FCC order did not make its determination
arbitrary and capricious.
Finally, we recognize that the Oklahoma Corporation Commission (OCC)
determined that the Brooks Fiber Interconnection Agreement that was adopted by
Connect required SWBT to pay reciprocal compensation to Brooks Fiber for ISP-
bound traffic, and that the Tenth Circuit upheld that decision under an arbitrary and
capricious review. See Brooks Fiber 235 F.3d at 498, 501. The fact that the Tenth
Circuit upheld the OCC's ruling that the identical agreement between SWBT and
Brooks Fiber requires reciprocal compensation does not make the APSC's contrary
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decision in this case arbitrary or capricious. See Global NAPs. Inc. v. Mass. Dep t of
Telecomms. & Energy, 427 F.3d 34 , 48 (lst Cir. 2005) (recognizing that state
commissions are not bound by decisions reached by other state commissions, even in
construing similar or identical terms). The interpretation of interconnection
agreements rightly belongs to the state commissions, and we will not overturn one in
favor of another without the showing of an arbitrary or capricious decision. Reasoned
decisions reaching opposite conclusions do not ipso facto prove that either is arbitrary
or CaprICIOus.
V. Conclusion
The APSC's decision is not arbitrary and capricious , and the district court'
judgment is affirmed.
BYE, Circuit Judge, dissenting.
Because the Arkansas Public Service Commission (APSC) did not determine
the existence of a latent ambiguity in the Interconnection Agreement at issue, I do not
believe its decision is entitled to any deference under an arbitrary-and-capricious
standard of review. Further, I cannot detect a latent ambiguity in the Interconnection
Agreement, and therefore do not believe the APSC's decision can stand even under the
more deferential arbitrary-and-capricious standard. For those reasons, I would reverse
the district court's judgment, and respectfully dissent.
The Court states: "The APSC did not clarify whether it found the ambiguity to
be patent or latent, though it appears from its reasoning that it found it to be a latent
ambiguity.Ante at 9 n.4. I cannot draw the same conclusion as to the APSC's
reasoning. Rather, it seems clear the notion of a latent ambiguity was only interjected
into this case by the district court as an after-the-fact attempt to justify the APSC's
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flawed and conclusory reaSOnIng finding an ambiguity in the Interconnection
Agreement.
The following is the sum and substance of the APSC's reasoning to support its
determination the Interconnection Agreement was ambiguous:
Although both Connect and SWBT argue that there is no ambiguity in
their Interconnection Agreement, the parties interpret the contract to
reach diametrically opposed results. This fact, coupled with a
comparison of the Interconnection Agreement at issue in this docket and
the contracts reviewed in Starpower v. FCC, (334 F.3d 1150 (D.C. Cir.
2003),) together with the D.C. Circuit's holding that the contracts in that
case were clearly ambiguous, support the conclusion that the Connect-
SWBT Interconnection Agreement at issue is ambiguous.
Appellant's Add. at 23-24.
Thus, the APSC gave two "reasons " for its decision. The first was the
agreement must be ambiguous simply because "the parties interpret the contract to
reach diametrically opposed results.This reasoning is obviously arbitrary and
capricious. Such a rule would mean ambiguity turns on the parties' arguments rather
than a contract's terms , thereby rendering every disputed contract ambiguous. This
makes no sense.
Second, the APSC relied upon the D.C. Circuit'interpretation of an
interconnection agreement in Starpower Commc ns. LLC v. FCC, 334 F.3d 1150
(D.C. Cir. 2003). A mere cursory examination of Star power reveals the arbitrary and
capricious nature of the APSC's reasoning. In Starpower, the FCC issued an order
indicating interconnection agreements between Starpower and Verizon Virginia, Inc.
were unambiguous, and thus Verizon did not have to pay Starpower for ISP-bound
traffic as local traffic under the agreement. Focusing on the agreement's use of the
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phrase "end-to-end " the D.C. Circuit disagreed, concluding the parties' agreements
were
models of ambiguity with respect to reciprocal compensation for ISP-
bound traffic. Certain terms, such as "local traffic " and "terminate
could readily support an interpretation that would require Verizon and
Starpower to compensate each other for ISP-bound traffic. At the same
time, the term "end-to-end" in 9 5.5 of the 1998 Agreement and in 99
1 and 4.2 of the 1999 agreement implies that the Commission
jurisdictional end-to-end analysis controls so that reciprocal
compensation is not due. Thus, the agreements are susceptible to two
meanings, and the Commission erred in holding the agreements
unambiguously exclude ISP-bound traffic.
Starpower, 334 F.3d at 1157.
The D.C. Circuit focused exclusively upon the agreement's use of the term
end-to-end" as the language which created an ambiguity. Starpower has absolutely
no bearing on the interconnection agreement at issue in this case, because nowhere
does this agreement use the term "end-to-end " or anywhere else incorporate the FCC's
jurisdictional end-to-end analysis for determining the interstate or local nature of a
given call.
Because both "reasons " given by the APSC for finding an ambiguity in the
agreement are fundamentally flawed, I see no reason to pay its decision any deference
whatsoever.
Reviewing the APSC's decision de novo , as I believe we should see Qwest
Corp. v. Minn. Pub. Utils. Comm 427 F.3d 1061 , 1064 (8th Cir. 2005) (reviewing
de novo whether a state agency acts within its authority in implementing the
Telecommunications Act of 1996); see also Western World Ins. Co. v. Branch, 965
S. W .2d 760, 761 (Ark. 1998) (indicating the question whether a contract is ambiguous
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is a question of law), I can find no ambiguity in the interconnection agreement
between Southwestern Bell (SWB) and Connect Communications.
Under Arkansas law, the language contained in the contract is the best evidence
of the parties' intention. First Nat'l Bank v. Griffin 832 S.2d 816, 818-19 (Ark.
1992). "When contracting parties express their intention in a written instrument in
clear and unambiguous language, it is the court's duty to construe the writing in
accordance with the plain meaning ofthe language employed.Surratt v. Surratt, 148
3d 761 768 (Ark. Ct. App. 2004).
Under the plain and unambiguous language ofthe agreement, calls placed from
SWB's customers to internet service providers (ISPs) within the same SWB exchange
were defined as local calls for which SWB agreed to pay Connect reciprocal
compensation. The contract language defines traffic as terminating when it is
delivered.See Add. at 57 (defining "Terminating Traffic" as a "telecommunications
service which is delivered to an end user(s) as a result of another end user s attempt
to establish communication between the parties. "). It is undisputed the calls at issue
were delivered, and therefore terminated, to Connect end users (ISPs) at a
geographical location within the same local exchange area. SWB clearly agreed to
compensate Connect for such calls. See Add. at 49 ("SWBT agrees to compensate
CONNECT for the termination ofSWBT Local Traffic originated by SWBT end users
in the SWBT exchanges described in Appendix DCO and terminating to CONNECT
end users. "
A latent ambiguity arises (only J when the contract on its face appears clear and
unambiguous, but collateral facts exist that make the contract's meaning uncertain.
Oliver v. Oliver, 19 S.3d 630 633 (Ark. Ct. App. 2000). Here, SWB contends the
hybrid" nature of calls placed to ISPs renders the agreement's meaning uncertain-
that is, although ISP-bound calls may "terminate" at an ISP's geographical location
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within the same local exchange area, they may proceed from there to a website
anywhere on the Internet.
I disagree the "hybrid" nature of ISP-bound calls is a collateral fact which
renders uncertain the meaning of any of the terms in this particular agreement. The
parties specifically chose to define the termination of local calls with reference to
where they were "delivered " which undisputedly occurred at a specific geographical
location irrespective of whether subsequent to "delivery" the calls continued on into
cyberspace via the internet. The parties further unambiguously agreed that when
phone calls were "delivered" within the same local exchange area where they were
placed, such calls were local in nature and therefore subject to reciprocal
compensation.
The only "collateral" event which occurred here (which appears to be the real
reason SWB suddenly refused to pay Connect for ISP-bound calls) was the FCC's
subsequent ruling that calls placed to ISP providers were interstate in nature. See In
re Implementation of the Local Competition Provisions in the Telecomms. Act of
1996. Intercarrier Compo for ISP-Bound Traffic, 14 F.R. 3689, 1999 WL 98037
(Feb. 26, 1999) (Reciprocal Compensation Order). The FCC's order was prospective
in nature, however, as several courts have since noted. See Global NAPS. Inc. v.
FCC, 291 F.3d 832, 834 (D.C. Cir. 2002) ("However, the FCC's Reciprocal
Compensation Order left open the possibility that state regulators. . . could continue
to treat ISP-bound traffic as local traffic, if interconnection agreements between
carriers so provided, whether explicitly or implicitly.
);
S. New England Tel. Co. v.
Conn. Dep t of Pub. Util. Co., 285 F. Supp. 2d 252, 259 (D. Conn. 2003) ("While
classifying the majority of ISP-bound traffic as interstate, the FCC left open the
possibility that state regulators could continue to treat ISP-bound traffic as local
traffic, if interconnection agreements between carriers so provided, whether explicitly
or implicitly. The FCC further acknowledged in its 1999 Ruling that it had
historically directed state commissions to treat such calls as 'local. III) (internal citations
21-
and quotations omitted); see also Sw. Bell Tel. Co. v. Brooks Fiber Commc ns of
Okla.. Inc., 235 F.3d 493 (10th Cir. 2000) (interpreting the very agreement at issue
here and upholding the Oklahoma Corporation Commission s determination that calls
placed to ISPs within the same exchange area were local traffic subject to reciprocal
compensation under the agreement).
Thus, even though ISP-bound calls have now been identified as interstate in
nature, it is clear parties could choose by contract to identify such calls as local ones
subject to reciprocal compensation. That is exactly what occurred here. The fact
SWB now realizes it made a bad business judgment, which led to a written contract
entered into in good faith by both parties to it, does not now justify its refusal to pay
Connect pursuant to the unambiguous terms of the agreement in controversy.
For the reasons stated, I respectfully dissent.
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