20070309Response to Order 30247.pdf

Molly O'Leary (ISB No. 4996)
RICHARDSON & O'LEARY PLLC
515 North 27th Street
O. Box 7218
Boise, Idaho 83707
Telephone: [phone]
Fax: [phone]
Mail: molly~,richardsonandoleary.com
Theodore A. Livingston
Dennis G. Friedman
MAYER, BROWN, ROWE & MAW LLP
71 South Wacker Drive
Chicago, IL 60606-4637
Telephone: [phone]
Fax: [phone]
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: [phone]
Fax: [phone]
Mail: df6929~att.com
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Attorneys for Complainant AT&T Communications of the Mountain States, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
AT&T COMMUNICATIONS OF THE MOUNTAIN )
STATES , INC.
Complainant
vs.
QWEST CORPORATION
Respondent.
Case No. QWE-06-
AT&T'S RESPONSE TO
COMMISSION'S QUESTIONS
IN ORDER 30247
INTRODUCTION
As directed by Commission Order 30247 ("Feb. 16 Order ), AT&T Communications of
the Mountain States, Inc. ("AT&T") addresses the Commission s questions regarding the
applicable statute oflimitations and the accrual date for AT&T's claim. As explained below , the
gravamen of AT&T's claim is breach of contract and that claim is therefore governed by Idaho
state statute of limitations for actions on a written contract, which is five years. Idaho Code g 5-
216.
As the Commission already determined, the viability of AT&T's breach of contract claim
turns on interpretation of the terms in the parties' agreement.The Commission further
recognized the "substantial body of cases" in which courts have held that "state law governs the
interpretation and enforcement of interconnection agreements." As those courts have explained
interconnection agreement disputes are governed by state law even where the terms at issue track
or incorporate federal law. A fortiori state law should control where, as here, the contract terms
at issue deviate in some respect from federal law and in other respects impose duties that are not
addressed at all by federal law. The meaning and enforcement of those disputed terms can only
be determined under the state law of contracts.
Relying on the "substantial body of cases" developed in the federal courts of appeals, the
Commission previously concluded that "state law governs this dispute." As a matter of both law
and logic, a state statute of limitations should apply to claims that are governed by state law -
particularly where, as here, the sale claim in the case is a state contract claim. The Supreme
Court has long held that the time for bringing state law actions is dictated by state law. Other
courts likewise have consistently applied state statutes of limitations to state law claims. And
just recently, in a nearly identical case, the Washington Commission saw "no reason why the
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 2
state statute of limitations would not likewise be the controlling authority" after having
determined that AT&T's breach of contract claim raised "fundamental issues of state, not
federal, law.
Consistent with those decisions, AT&T respectfully urges this Commission to apply the
five-year Idaho statute of limitations for contract actions in this case. Under that limitations
period, AT&T's claims , filed on August 21 , 2006, are timely under any conceivable accrual date
including Qwest's proposed accrual date of March 2002.
ARGUMENT
BECAUSE THE GRAVAMEN OF AT&T'S CLAIM IS BREACH OF
CONTRACT, THE CLAIM IS GOVERNED BY IDAHO'S FIVE-YEAR
STATUTE OF LIMITATIONS.
The February 16 Order notes that the "gravamen" of a complaint determines the
applicable statue of limitations in Idaho. The Order therefore asks the parties to address the
gravamen of AT&T's complaint here. The question is whether AT&T's claim and right to relief
are actually based on a breach of contract or whether AT&T is really suing over something else.
As demonstrated below, the gravamen of the complaint is breach of contract, a claim that
undeniably is governed by state law in every respect.
AT&T's Claim Turns on the Interpretation of the Terms of its
Interconnection Agreement with Qwest.
AT&T's complaint consists of a single count alleging that Qwest has breached the
parties ' interconnection agreement.Specifically, AT&T contends that the interconnection
agreement with Qwest required Qwest to make available to AT&T the same pricing discounts
that it secretly provided to Eschelon and McLeod from 2000-2002, and that Qwest breached that
requirement. Thus, the validity of AT&T's claim turns on the terms of the parties ' agreement
1 Order 06 AT&T Comms. of the Pacific Northwest, Inc. v. Qwest Corp.Docket UT-051682 (Wash.
Utils. And Transp. Comm , Dec. 21 , 2006) ("Washington Order ) (attached as Ex. 1).
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 3
for the ultimate questions are whether the agreement included such a requirement and whether
Qwest failed to meet it.
As the Commission recognized, this claim does not assert a violation of the federal
Telecommunications Act of 1996 ("1996 Act" or "federal Act"). Rather, it will require the
Commission to "interpret (the contract's) provisions" and "explore how to enforce the
provisions.Feb. 16 Order at 4. As the Commission concluded, that means that state law
governs this dispute.Id. (emphasis added). That conclusion undercuts the central premise of
Qwest's arguments for dismissal of AT&T's complaint. According to Qwest , the contract terms
at issue here simply implement the 1996 Act, so any dispute over such terms is, in effect, a suit
under the federal Act itself. That argument fails on both the law and the facts.
A "Substantial Body" of Case Law Holds that State Law Governs the
Interpretation and Enforcement of Interconnection Agreements, Even
Where the Pertinent Terms Track or Incorporate Federal Law.
Consistent with this Commission s assessment, the federal courts of appeals
almost uniformly have held that "state law governs the question of interpretation and
enforcement of interconnection agreements." Feb. 16 Order at 4. And the "substantial body of
cases" to which the Commission alluded (id.in which courts have upheld that rule involved
contract terms that merely track or incorporate the 1996 Act.
The Seventh Circuit, for example, held that the interpretation and enforcement of
contract provisions that "precisely track the (1996) Act" (by stating that reciprocal
compensation will be provided "as described in the Act") presented only a
question of state law for a state forum, 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).
Similarly even where "the language in the (interconnection) agreements
parallel ( ed) the reciprocal compensation requirements in section 251 (b )(5) of the
Act " the Fifth Circuit "decline ( d) * * * to determine the contractual issues as a
facet of federal law " and instead held that "the agreements themselves and state
law principles govern the questions of interpretation of the contracts and
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 4
enforcement of their provisions.Southwestern Bell v. Pub. Uti!. Comm '208
3d 475 484-85 (5th Cir. 2000). The court added that "(a)lthough we may refer
to FCC pronouncements as part of our consideration of what is usage or custom in
the telecommunications industry, we do so only as the contracts and state law
might require." Id. at 485 n.15 (emphasis added).
In a Tenth Circuit case, the agreement at issue likewise tracked the language of an
FCC rule setting forth the scope of the parties' reciprocal compensation
obligations under Section 251(b)(5) of the 1996 Act, yet the court had
difficulty concluding that "(t)he Agreement itself and state law principles govern
the questions of interpretation of the contract and enforcement of its provisions.
Southwestern Bell Tel. Co. v. Brooks Fiber Communications of Oklahoma, Inc.
235 F.3d 493 495 499 (10th Cir. 2000).
The Eighth Circuit recently addressed an agreement that was "identical" to the
agreement in Brooks Fiber reaching precisely the same conclusion as to the
nature of the claim for interpretation and enforcement of the agreement:
notwithstanding the "large role" played by federal law in a dispute over the
meaning of terms in an interconnection agreement, the interpretation of the
interconnection agreement "is a state law issue.Connect Communications Co.
v. Southwestern Bell Tel. Co.467 F.3d 703, 708, 713 (8th Cir. 2006).
And the Washington Commission has reached the same conclusion. Washington
Order, ~~ 62, 66 ("although the application of federal law may have a role in
resolving the issues " the 1996 Act does not "transform() clearly state law issues
relating to negotiated provisions of interconnection agreements into federal
issues
Those decisions are consistent with decisions in other contexts holding that state claims
do not become federal claims merely because federal law is lurking in the background or may
play some role in the analysis. In Shoshone Mining Co. v. Rutter 177 U.S. 505, 509 (1900), for
example, the Supreme Court of the United States stressed that "(t)he fact that the state statute and
the mortgage refer to certain acts of Congress as prescribing the rule and measure of the rights
granted by the state does not make the determination of such rights a Federal question.
Similarly, in Gully v. First Nat l Bank of Meridian 299 U.S. 109 (1936), the Court held that a
lawsuit against a bank to enforce the terms of a contract made under Mississippi law, pursuant to
which the bank assumed the liabilities of an insolvent national bank for non-payment of a state
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 5
tax on bank shares did not arise under federal law, despite the fact that a federal statute was the
source of the state s authority to tax national bank shares. Id. at 114-15; see also Mabe v. G. C.
Servs. Ltd. P'ship, 32 F.3d 86, 88 n.2 (4th Cir. 1994) ("A private contract cannot create federal
question jurisdiction simply by reciting a federal statutory standard"
The overwhelming consensus of the courts that a claim for breach of an
interconnection agreement is governed by state law also comports with the settled law that once
an interconnection agreement is approved, it is the agreement alone - not the 1996 Act - that
governs the parties' relationship. In the 1996 Act, Congress chose "to replace a state regulated
system with a market-driven system that is self-regulated by binding interconnection
agreements.Pacific Bell v. Pac-West Telecomm., Inc.325 F.3d 1114, 1128 (9th Cir. 2003).
Among other things, parties are free to negotiate terms of interconnection agreements "without
regard to" the rest of the 1996 Act. 47 US.C. g 252(a)(1). Thus, as the courts consistently have
recognized, state commission-approved interconnection agreements are the exclusive and
binding statements of the rights and obligations of the parties to such agreements. See Law
Offices of Curtis V Trinka LLP v. Bell Atlantic Corp.305 F.3d 89 104 (2d Cir. 2002), rev d in
part on other grounds sub. nom. Verizon Communications Inc. v. Law Offices of Curtis V
Trinka, LLP 540 U.S. 398 (2004). Because the parties to an interconnection agreement have no
independent rights under the 1996 Act vis-a-vis each other, disputes over the interpretation and
enforcement of interconnection agreements can only raise state law questions: "Once the ILEC
fulfill(s) the duties' enumerated in subsection (b) and (c) by entering into an interconnection
agreement in accordance with section 252 47 U.C. g 251(c)(1), it is then regulated directly by
the interconnection agreement.Id. (emphasis added); Michigan Bell Tel. Co. v. MClmetro
Access Transmission Servs., Inc.323 F.3d 348 , 359 (6th Cir. 2003) (explaining that "once an
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 6
agreement is approved " parties are "governed by the interconnection agreement" rather than the
general duties in the 1996 Act).
Consequently, a carrier with an approved interconnection agreement may not sue for a
stand-alone violation of the 1996 Act. Trinko 305 F.3d at 104 (holding that "conduct that
breaches" an interconnection agreement cannot "also be considered a violation of (Sections
251(b) and (c))" of the 1996 Act); January 24 2007 Oral Argument Transcript at 14-16 ("(O)nce
there s an interconnection agreement, the Act has no stand-alone significance. The Act itself
demands that conclusion because that's the only way interconnection agreements can be binding
and that's the only way parties could have a meaningful right to negotiate without regard to the
requirements of the Act."Any other result would undermine the entire interconnection
agreement regime: "If ILECs were governed by the abstract duties described in section 251
despite the existence of a particular interconnection agreement that was approved by the state
commission after an extensive process of negotiation and arbitration, they would have
diminished incentive to enter into such agreements " for a carrier could "end-run" the process
and circumvent the "binding" agreement "by bringing a lawsuit based on the generic language of
section 251." Trinka 305 F.3d at 104-05 (emphasis added).
The federal case law also is consistent with Idaho law. As the February 16 Order
notes, Idaho law looks to the gravamen of a complaint, rather than its form alone, to determine
the applicable statute of limitations. Feb. 16 Order at 4, citing Hayden Lake Fire Protection
District v. Alcorn 111 P.3d 73 89 (Idaho 2005). In Hayden Lake for example, the court applied
a limitations period for statutory claims even though the plaintiff had, in form, alleged only a
breach of contract. Qwest may contend that this supports its argument that AT&T's claim is
actually federal, but that is not correct.
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 7
Hayden Lake involved a suit by a town s Fire Protection District against the Idaho State
Insurance Fund and the State of Idaho. The plaintiff had a workers ' compensation insurance
contract with the State Insurance Fund, and the Idaho Supreme Court has previously held that the
statues governing the State Insurance Fund were automatically "incorporated into its contracts
with its policyholders" as a matter of law. 111 P.2d at 89. In other words, the terms of the
contract were mandated and imposed by state law and were not the product of voluntary, private
negotiations. Not surprisingly, then, when the Fire Protection District asserted that the State had
breached this contract by actions that violated the relevant state statutes, the court found that the
gravamen of the claim was actually "based on alleged statutory violations " since the claim
depend ( ed) for its existence on the enactment of the statute, and not on the contract of the
parties.Id. (internal quotation marks omitted).
The situation here is entirely different. The contract provisions at issue here (discussed in
more detail below) are ones that the parties voluntarily negotiated and agreed to put in their
contract. The 1996 Act did not require these terms to be included, for it allows interconnection
agreement to be reached and approved "without regard to" other provisions of the Act.
US.C. g 252(a). When a provision in a contract exists because the parties agreed to it via
private negotiation, rather than because it was imposed as a matter of law, a violation of that
provision is a breach of contract - even if it merely tracks or incorporates statutory provisions.
An action for breach of a term that was agreed to is, at its core, a breach of contract claim, and
therefore governed by the limitations period for contract actions.
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 8
The Rule that State Contract Law Governs Interpretation of Interconnection
Agreements Applies, A Fortiori, Where the Terms at Issue Deviate From or
Are Not Addressed by Federal Law.
As the foregoing discussion demonstrates, in almost every federal circuit in which the
issue has been litigated, AT&T's claim would be governed by state law , and its gravamen would
be breach of contract, even if the interconnection agreement merely incorporated or tracked the
1996 Act. The facts of this case present an even stronger case for application of state law
including the state law statute of limitations for state law contract actions, for the key contract
provisions at issue include obligations that deviate from the 1996 Act or address matters not
covered by the 1996 Act, the interpretation of which has nothing to do with federal law.
As indicated in the amended complaint, AT&T alleges that Qwest violated three
provisions of the parties ' interconnection agreement - section 2., section 24., and section B of
the "Scope of Agreement" portion. Section 2.1 provides that:
Until such time as there is a final court determination interpreting Section 252(i)
ofthe Act, (Qwest) shall make available to AT&T the terms and conditions of any
other agreement for interconnection, unbundled network elements and resale
services approved by the Commission under Section 252 of the Act, in that
agreement(')s entirety.
That section imposes duties that are materially different from the FCC's interpretation of Section
252(i) at the time the agreement was entered (July 27, 1998). At that time the FCC rule
interpreting Section 252(i) of the 1996 Act required incumbent LECs to make any individual
terms of an interconnection agreement available to all CLECs (as long as they took all related
terms). 47 C.R. g 51.809 (1996) (superseded). This was known as the "pick and choose" rule.
Because that rule was being challenged in court at the time, however, the parties agreed in
section 2.1 that Qwest only had to make interconnection agreements with other CLECs available
to AT&T "in that agreement(')s entirety." This is known as the "all or nothing" approach, which
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 9
at that point in time the FCC had rejected? The FCC's "pick and choose" rule was upheld by the
Supreme Court in AT&T Corp. v. Iowa Uti/so Bd.525 US. 366 395-96 (1999), and remained in
effect until replaced by the FCC in 2004. Qwest and AT&T, however, never amended their
agreement to reflect the pick and choose rule, meaning that throughout the damages period at
issue here from 2000-2002, Section 2.1 provided AT&T with fewer rights than if the parties had
merely tracked federal law.
Section 2.1 also differs from Section 252(i) of the 1996 Act and the FCC rule at the time
because it requires Qwest to make available terms from other agreements regarding "resale
services " a term that does not appear in Section 252(i).The question here - that is, the
gravamen of AT&T's complaint - is whether Qwest violated the specific negotiated terms of
section 2., not whether it violated Section 252(i) of the 1996 Act.
In resolving that question, the Commission will have to interpret section 2.For
example: (i) What did the parties intend to encompass within the term "interconnection
(ii) What did the parties intend to encompass within the term "resale services ? Did they intend
to include intrastate switched access, which Idaho Code g 62-609 defines to be a "resale
service ? (iii) By use of the phrase "in that agreement(')s entirety" did the parties intend that to
mean that Qwest was required to make available and AT&T was required to accept each and
every term and provision in the other agreement, including terms and provisions unrelated to
interconnection, unbundled network elements and resale services These interpretation
questions will require the application of state law.
First Report and Order 11 FCC Red. 15499, ~ 1310 (1996) (subsequent history omitted). The FCC has
since adopted the all-or-nothing approach in a new rule, but the new rule was not adopted until 2004, well
after the conduct at issue here and creation of the interconnection agreement at issue here. Review of the
Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers 19 FCC Red. 13494 (2004).
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS -
AT&T also contends that Qwest breached section 24.1 of the parties' agreement. Section
24.1 provides that "( e )ach Party shall comply with all applicable federal, state, and local laws
rules and regulations applicable to its performance under this Agreement."Notably, the
requirement to comply with state and local laws is not one imposed by Section 252(i) or any
other provisions of the 1996 Act. The interpretation issues that may have to be resolved in the
case of this provision include: (i) What did the parties intend in terms of this provision s scope
and meaning? For example, is Idaho Code g 62-609, which prohibits rate discrimination in the
provision of intrastate access services
, "
applicable" to Qwest's "performance" under the
interconnection agreement?Does the answer to that depend on whether the term "resale
services" in section 2.1 includes such services? (ii) To what extent does the provision s scope
and meaning depend on the scope of the interconnection agreements which, pursuant to section
2.1 , must be made available "in (their) entirety ? For example, if an interconnection agreement
with another carrier covers and includes intrastate access services, did the parties intend that fact
to make compliance with Idaho Code g 62-609 "applicable" to Qwest's "performance under this
Agreement"
AT&T further contends that Qwest breached its obligations under section B of the
Scope of Agreement" portion of their contract, which provides that "(i)n the performance of
their obligations under this Agreement, the Parties shall act in good faith and consistently with
the intent of the Act." Once again, this section includes requirements not derived from the 1996
Act. The Act requires parties to negotiate in good faith, but not specifically to perform in good
faith. Thus, the interpretation questions that must be resolved here include: What did the parties
intend to be the standard by which the Commission or court is to determine whether or not an
action complies with the obligation to "act in good faith"? Is it the common law parameters that
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 11
have been established by state courts in delineating and enforcing the "implied covenant of good
faith and fair dealing ? Did Qwest violate its duty of good faith by frustrating the purpose of
Section 2.1 of the agreement when it failed to have the Eschelon and McLeod agreements
approved by the Commission? See Jenkins v. Boise Cascade Corp.108 P.3d 380, 389 (Idaho
2005) ("Idaho law recognizes a cause of action for breach of an implied covenant of good faith
and fair dealing.
);
Hayden Lake Fire Protection District 111 P.2d at 84.
The foregoing demonstrates that AT&T's complaint raises quintessential issues of state
contract law. Thus, the gravamen of the complaint is a state law breach of contract claim -
meaning of course that the applicable statute of limitations is the five-year period prescribed by
Idaho Code g 5-216.
II.AT &T'S CLAIM ACCRUED WITHIN THE LIMITATIONS PERIOD.
As just discussed, Idaho s five-year statute of limitations applies to AT&T's claim.
Accordingly, AT&T's claim , filed in August 2006, is timely even if one were to accept Qwest'
proposed accrual date of March 2002.Because that is so, the Commission need not even
3 AT&T respectfully submits that, under the overwhelming weight of relevant authority, it is abundantly
clear that the Commission should apply the state substantive law of contracts and the state statute of
limitations for contract actions to AT&T's claim in this case. But if there were doubt as to the proper
characterization of AT&T's claim or the applicable limitations period, the general rule is that the
Commission (i) follow the longer limitations period rather than the shorter, and (ii) follow a specifically
prescribed limitations period rather than a default period. See Gillette Dairy, Inc. v. Mallard Mfg. Corp.
707 F .2d 351 , 353 (8th Cir. 1983) ("if two conflicting statutes of limitations are equally applicable, the
longer period should govern
);
Browning v. Clinton 292 F.3d 235, 244 (D.C. Cir. 2002); Fernandes
Portwine 56 P.3d 1, 6 (Alaska 2002) ("the rule of construction providers) that where two statutes might
reasonably apply to a claim, the statute that provides for the longer period is to be preferred"
);
Thiel
Taurus Drilling Ltd.710 P.2d 33 , 40 (Mont. 1985) (same). Here, the Idaho limitations period for actions
on a written contract is both (i) longer than either proposed federal limitations period and (ii) prescribed
for breach of contract actions specifically, whereas the two- and four-year federal periods are at best
fallbacks that are not specifically linked to claims for violation of the 1996 Act. Accordingly, under the
general principles discussed above, if the Commission were to resort to a "tiebreaker" in resolving the
questions that it has posed, it is the state limitations period that should apply.
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS - 12
determine a precise accrual date, for it is enough to know that the claim is timely under any
approach and there is no need to address and resolve unnecessary issues.
, however, the Commission were to find that the five-year state statute of limitations
does not apply, the only possible limitations period under federal law is the four-year period
under 28 U.C. g 1658. To the extent that AT&T's contract claim could be said to arise under
federal law, it would arise under the 1996 Act, not the 1934 Act (of which Section 415 and its
two-year limitations period are part). It is the 1996 Act that created interconnection agreements
and established the states' role in approving and overseeing them, and it is the 1996 Act that
includes the "most-favored nation" provision in Section 252(i). Interconnection agreements as
we know them today did not previously exist. Yet, while the 1996 Act established a number of
specific deadlines for arbitration and approval of interconnection agreements, it says nothing
about any limitations period for claims arising under the 1996 Act, much less for claims of a
breach of an interconnection agreement. Federal law (28 U.C. g 1658(a)) provides a catch-all
limitations period for just such a situation: "Except as otherwise provided by law, a civil action
arising under an Act of Congress enacted after the date of the enactment of this section (in 1990)
may not be commenced later than 4 years after the cause of action accrues.4 Recognizing that
the 1996 Act was enacted after 1990 and contains no limitations period of its own, several courts
have held that the four-year catch-all period applies to all actions involving the 1996 Act.
Verizon New England, Inc. v. New Hampshire Public Uti/so Comm '2005 WL 1984452, *5 n.
(D.H. 2005), citing Pepepscot Indus. Park, Inc. V. Maine Cent. R.R. Co.215 F.3d 195 203 n.5 (1st Cir.
2000) ("Absent the existence of an explicit limitations period, civil claims that arise under federal statutes
enacted after December 1, 1990 are subject to 28 u.S.C. ~ 1658(a) which imposes a four-year limitations
period on such actions
Id.; City of Rancho Palos Verdes v. Abrams 544 u.S. 113 , 124 n.5 (2005) ("Since the claim here rests
upon violation of the post-1990 TCA (the 1996 Act), ~ 1658 would seem to apply.
);
spire Comms. Co.
inc. v. Baca 269 F. Supp. 2d 1310, 1320 (D.M. 2003) ("Because the Telecommunications Act was
enacted after December 1 , 1990, the four-year statute of limitations applies to the claims under the federal
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS-
Moreover, the Washington Commission also found that AT&T's breach of contract claim against
Qwest, if it were treated as a federal claim, could only be subject to this four-year statute of
limitations. Washington Order ~~ 68-70.
Assuming, purely arguendo that the federal four-year period applied, the Commission
would next have to determine whether AT&T's claim accrued within four years of filing its
complaint before or after August 21 2002. To conduct this analysis the Commission would
need only determine whether AT&T became aware of its potential claims regarding either the
Eschelon or McLeod agreement within four years before filing its complaint. It did.
The discounts that Qwest provided to McLeod (but not AT&T) were the product of a
secret oral agreement between Qwest and McLeod in October 2000. No one besides Qwest and
McLeod had any inkling that this contract existed until at least June of 2002, when a retired
McLeod employee mentioned the arrangement in a Minnesota proceeding. See Findings of Fact
Conclusions, Recommendation and Memorandum In the matter of the Complaint of the
Minnesota Department of Commerce Against Qwest Corporation Regarding Unfiled
Agreements 2002 WL 32129264, at ~ 317 (ALJ, Minn. Pub. Utils. Comm , Sept, 20, 2002)
Minnesota ALJ Order ). Even then, however, AT&T would have had no ability to bring a
claim regarding that oral agreement in Idaho. First, many details of the oral agreement were kept
confidential in the Minnesota proceeding, subject to a confidentiality agreement, and thus were
Telecommunications Act."
);
Verizon Maryland Inc. v. RCN Telecom Servs., Inc.232 F. Supp. 2d 539
552-54 (D. Md. 2002); Bell Atlantic-Pennsylvania, Inc. v. Pennsylvania Pub. Utils. Comm '107 F.
Supp. 2d 653 , 668 (E.D. Pa. 2000); MCI Telecomms. Corp. v. Illinois Bell Tel. Co.1998 WL 156674, *3-
*5 (N.D. Ill. 1998). None of these cases has ever even considered Section 415 as a potential limitations
period for claims arising under the 1996 Act.
6 Qwest cannot avoid the four-year limitations period of ~ 1658 by arguing that the 1996 Act is merely an
amendment to the 1934 Act. Courts have already analyzed and rejected that argument, pointing out that
the 1996 Act radically restructured and significantly added to telecommunications law, including by
creating the entire interconnection-agreement regime in 47 u.S.C. ~~ 251-52. Verizon Maryland 232 F.
Supp. 2d at 553-54; Illinois Bell 1998 WL 156674, at *4-
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS -
not known to the AT&T entity in Idaho and could not have been used for a case in Idaho.
Among other things, the public parts of the testimony in Minnesota did not demonstrate whether
the oral agreement also applied in other states , such as Idaho.Second, when Qwest was
purporting to "come clean" and file previously secret interconnection agreements with various
state commissions in 2002, it never included anything regarding the McLeod oral discount
agreement. Third, even during the Minnesota proceeding, Qwest continued to deny, under oath
that the oral agreement with McLeod even existed. Those denials continued at least into August
of 2002, when Qwest submitted sworn testimony in Minnesota that no such contract existed.
Qwest Corporation s Written Rebuttal Testimony of Audrey McKenney at 6-In the Matter of
the Complaint of the Minnesota Department of Commerce Against Qwest Corporation
Regarding Unfiled Agreements (attached as Ex. 2). Given that the agreement was oral, Qwest'
denials created substantial uncertainty and a "he said/she said" situation that AT&T could not
have resolved through any level of diligence. Accordingly, it was not until September 20, 2002
when the Administrative Law Judge in the Minnesota case rejected Qwest's denials and found
that the oral agreement with McLeod did in fact exist, that AT&T could have proceeded with
claims regarding that contract in other states. Minnesota ALJ Order, ~~ 321 336. Even under a
conservative view, AT&T's cause of action related to the McLeod oral agreement could have
accrued no earlier than September 20, 2002. Because AT&T filed its complaint here in August
2002, its action with respect to the McLeod agreement is timely even if one applied the federal
four-year limitations period under 28 US.C. g 1658.
CONCLUSION
For the reasons stated above and in AT&T's prior briefs , AT&T respectfully submits that
the Commission should find that AT&T's complaint is timely and allow this case to proceed.
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS -
Dated this 9th day of March, 2007 AT&T COMMUNICATIONS OF THE
MOUNTAIN STATES , INC.
AT&T'S RESPONSE TO COMMISSION'S QUESTIONS -
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 9th day of March, 2007 a true and correct copy ofthe
within and foregoing AT&T'S RESPONSE TO COMMISSION ORDER 30247 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 ID 83720-0074
2L Hand Delivery
- U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Mary S. Hobson
999 Main, Suite 1103
Boise ID 83702
E-mail: mary.hobson~qwest.com
- Hand Delivery
S. Mail, postage pre-paid
Facsimile
Electronic Mail
Douglas R.M. Nazarian
Hogan & Hartson
111 South Calvert St
Baltimore MD 21202
E-mail: drmnazarian~hhlaw.com
- Hand Delivery
2LU.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Certificate of Service -
Exhibit 1
(Service Date December 22, 2006)
BEFORE THE W ASHIN GTON STATE
UTILITIES AND TRANSPORT A TION COMMISSION
AT&T COMMUNICATIONS OF THE
PACIFIC NORTHWEST, INe., TCG
SEATTLE, AND TCGOREGON;
AND TIME WARNER TELECOM OF
WASHINGTON, LLC
................................
DOCKET UT -051682
ORDER 06
Complainants
ORDER AFFIRMING
INTERLOCUTORY ORDER;
ALLOWING AMENDMENT OF
COMPLAINT; DENYING
MOTION FOR SUMMARY
DETERMINATION
QWEST CORPORATION
Respondent.
Synopsis: This order reqffirms an interlocutory order allowing a complaint to go
forward. It accepts Qwest and AT&T '1 requested review of the interlocutory
order, rejects the parties ' arguments opposing the order, and allows amendment of
the complaint to allege breach of complainants ' contracts with Qwest as the basis of
their cause of action.
INTRODUCTION
Nature of Proceeding. This docket involves a complaint filed by competitive local
exchange carriers AT&T Communications of the Pacific Northwest, Inc., TCG
Seattle and TCG Oregon (collectively, AT&T) and Time Warner Telecom of
Washington, LLC (Time Warner or TWTC) against Qwest Corporation (Qwest). The
complaint alleges that Qwest charged the complainants more for certain facilities and
services than Qwest charged other competitive local exchange carriers (CLECs) under
unfiled agreements with them, that this practice violated federal and state laws and
that complainants are entitled to compensation for the difference between the actual
charges and the lower, unfiled rates.
Procedural history. Qwest moved for summary determination and dismissal of the
complaint under WAC 480-07-380(1) and (2),2 arguing that the pertinent statute of
Time Warner Telecom of Washington is not participating in the motion to amend the complaint, butotherwise remains a party. For convenience, as AT&T is participating in all arguments, we will use the
term AT &T to include all of the allied parties that are involved in the issue illlder discussion.
: The initial order treated the motion as one for sununary detennination, rather than dismissal. The motiondoes not seek detennination of any substantive issues in the complaint, but instead seeks dismissal based on
DOCKET ur -051682
ORDER 06
PAGE 2
limitations would operate to bar the complaint. Complainants opposed the motion.The initial order proposed to grant the motion and dismiss the complaint, finding that
the complaint accrued on June , 2004, and that the six-month limitation period of
RCW 80.04.240 applied to bar the complaint.
Qwest and AT&T each challenged portions of the initial order. On review, weentered an interlocutory order modifying the initial order. Our order found that a
complaint for breach of contract accrued on July 15, 2002, but that a six-year statuteof limitations (RCW 4. 16.040( 1)) applies, and the action for breach survives. The
order authorized AT&T to modify the complaint to allege breach of contract.
Both Qwest and AT&T now challenge the interlocutory order, and each answers insupport of the order against the other s challenge. AT&T and TCG seek to modifythe complaint, as contemplated in the interlocutory order. Qwest again moves for
summary determination and dismissal ofthe complaint.
Appearances. Gregory 1. Kopta, attorney, Seattle, Washington, representscomplainants AT&T and Time Warner. Lisa A. Anderl and Adam Sherr, attorneysSeattle, Washington, represent Qwest.
Decision on review. We deny the challenges to the interlocutory order, finding itlegally sound; we grant AT&T's request to modify the complaint; and we deny
Qwest's motion for summary determination and dismissal.
ll.BACKGROUND3
The original complaint seeks reimbursement for alleged Qwest overcharges. The
parties agree in most respects - for purposes of this motion - about the relevant facts
leading to the complaint, but disagree about the interpretation of some of those facts.
Under section 251 of the Telecommunications Act of 1996 4 competitive local
exchange carriers ("CLECs " such as the complainants) may enter interconnection
agreements with incumbent local exchange companies ("ILECs" such as therespondent) to receive services from the incumbents that enable them to serve their
own customers. Other competitive carriers in similar situations may "opt into" terms
of filed, approved agreements.
complainants' asserted procedural failure to file within the statutory time frame. The intention of the
motion is clear, irrespective of the label applied to it3 The initial and interlocutory orders contain a more comprehensive explication of relevant facts. We here
recite only the necessary infonnation for understanding of this order, in context.4 The Telecommunications Act of 1996 is referred to in this order, for ease in reference, as "the TelecomAct."
DOCKET UT -051682
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PAGE 3
Qwest failed to file with the Commission certain agreements between Qwest and
Eschelon Telecom (Eschelon) and between Qwest and McLeodUSA
Telecommunications Services, Inc. (McLeodUSA). Among other tenns, these
agreements granted the contracting CLECs a 10% discount on certain services. These
agreements were not initially filed and were not disclosed to other companies who
might have received similar services under agreements entitling them to the same
rate.
In March, 2002, Minnesota regulators filed an administrative complaint against Qwest
regarding unfiled agreements in that state.5 In May, 2002, AT&T brought the
Minnesota proceeding to this Commission s attention in Qwest's then-pending
request to provide long distance service under 47 u.S.c. 271 (271 proceeding).6 The
Commission declined to consider the unfiled agreements allegations in the 271
proceeding, both in the final order and in an order entered July 15, 2002, deferring theissue to some indefinite later time.
Qwest "willfully and intentionally violated" both state and federal law "by not filing,in a timely manner, its transactions with Eschelon and McLeodUSA relating to rates
and discounts off of rates for intrastate wholesale services."g Qwest acceptedresponsibility for the omission and paid a penalty of $7.8 million for the violations.
AT&T and Time Warner filed this complaint on November 4 2005. Qwest moved
for summary determination and dismissal, contending that the complaint is barred by
the pertinent statute oflimitations.
The initial order determined that complainants' cause of action accrued on June 8
2004, when the Commission Staff served an amended Commission complaint in the
unfiled Washington interconnection agreements proceeding. The initial order also
found applicable the six-month limitation period in RCW 80.04.220. Since the
complaint was not filed within that period, the initial order concluded that Qwest'
motion should be granted.
Both parties challenged the initial order. On review, the Commission ruled that the
initial order correctly found the six-month statute to apply to the cause of action
pleaded, and affirmed the initial order s use of the "discovery rule" to find the accrual
date.
In the lvialter a/the Complaint a/the Afinnesota Department a/Commerce Against Qwest Corporation
Regarding Unfiled Agreements Docket No. P-421/C-02-197.
In re Investigation into Qwest s Compliance with Section 271 (C), Docket ill 003022. This proceeding
commenced on March , 2000.7 Docket
ill 003022, 40th Supp. Order, 4J 7 (July 15 2002).
WUTC v. Advanced Telecom Group, et aI.Docket No. ill -033011, Order No. 21 (Feb. 28 2005).Ill.
DOCKET UT-O51682
ORDER 06
PAGE 4
The Commission disagreed with the initial order as to the point of accrual. The
Commission, however, found that the complainants' inquiry accrued on entry of the
Commission order in July, 2002 that declined to pursue the issue of hidden
agreements in the 271 docket. At that point, the order noted, no definite agency
action was planned, the complainants were aware of the existence of the Minnesota
agreements and the possibility of secret Washington agreements (a claim that they
brought to the Commission), and are charged with knowledge that a statute of
limitations as short as six months could be running.
The order on review reversed the initial order s decision that Washington s six-yearstatute would not apply to a claim for breach of the interconnection agreement. We
found that the contract theory was viable, that the accrual date fell within the state
six-year statute of limitations, for actions on written contracts that the complainants
could amend the complaint and that the matter could proceed.
Both parties seek interlocutory review. Qwest challenges consideration and
acceptance of the breach of contract cause of action; AT&T challenges the order
acceptance of the proposed accrual date. AT&T also petitions to amend the
complaint to allege breach of contract under state law as a basis for the action, and
Qwest again moves for summary detennination.
TI.DISCUSSION AND ANALYSIS
When did complainants' cause of action accrue?
The responsibility to use reasonable diligence to discover facts leading to injury is
called the "discovery rule." The parties agree to application of the "discovery rule" to
detennine the accrual date of AT&T's cause of action. A person who has notice of
facts sufficient to prompt a person of reasonable prudence to inquire is deemed to
have notice of all the facts that a reasonable inquiry would disclose. The parties do
disagree about when to find accrual on the facts presented.
The interlocutory order determined that the cause of action accrued on July 15 , 2002.
That was when the Commission entered the th. Supplemental Order in the 271
docket, UT -003022, reaffirming a decision that the Commission would not explore
the issue of unfiled agreements at all in that docket. The order did not establish a
docket or process to follow up on the issues, and it committed only to the imposition
of penalties as warranted. 10
10 "If after considering a complaint by a third-party or upon the Commission s own motion concerning
these agreements, the Commission detennines that Qwest has violated federal or state law, then theCommission can and will impose appropriate penalties.Paragraph 8, -loth Supplemental Order, UT-003022.
DOCKET UT-O51682
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PAGE 5
Did the Commission err in making any factual determination in an order
on summary determination?
AT&T argues that the interlocutory order was wrong to make any factual
determinations about accrual, because the initial and interlocutory orders were styled
as orders on summary determination. It argues that it is improper to resolve factual
matters in such a proceeding. It points out that in the order the Commission resolved
the disagreed fact, date of accrual. 11 Qwest responds that the order correctly found
the proper accrual date.
We think that AT&T too restrictively views the administrative process. It is true that
the parties, the administrative law judge (ALJ) and the Commission s order used the
term "summary determination " although WAC 480-07-38012 states that such a
proceeding is characterized by a lack of factual disputes. The name applied to a
process should not exclude a reasonable determination of matters offered by the
parties for resolution, as it does not affect the parties ' right to a considered decision
on matters the parties brought forward.
This is particularly true in an administrative hearing process where the "trier of fact"
and "decider of law" are one and the same and sufficient evidence is already in the
record. In the context of this case, a further fact-finding hearing is unnecessary and
inefficient.
Moreover, AT&T and Qwest each presented factual assertions inconsistent from the
assertions of the other, and all parties asked both the administrative law judge and the
Commission to resolve the disputed facts. The result is a waiver of any error
associated with labeling the motion as one for summary determination.
We find AT&T's contention without merit.
II Inter alia, whether a plaintiff exercised reasonable diligence to discover a cause of action is a question of
fact (Virgil v. SpokmJe County, 42 Wn.2d 796, 714 P.2d 692 0986)).12 WAC 480-07-380(2) Motion for summary determination. (a) GeneraL A party may move for
summary determination of one or more issues if the pleadings filed in the proceeding, together with any
properly admissible evidentiary support (e., affidavits, fact stipulations, matters of which official notice
may be taken), show that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. * * *
Compare WAC 480-07-380(1), regarding motions for dismissal, which directs that the matter be
considered as summary determination if a party presents factual material in support of the motion.
13 See, WAC 480-07 -395( 4), noting the Commission s policy of liberal construction to disregard errors not
affecting the substantial rights of the parties.
DOCKET UT-O51682
ORDERO6
PAGE 6
Was it wrong to make a factual determination on an assertedly-
inadequate record?
AT&T also contends that the Commission erred in making factual determinations on
an inadequate record. AT&T argues that it had no opportunity to present witnesses or
to cross-examine others' witnesses on the topic of accrual.
Each party had the opportunity to present any written information and could have
requested the opportunity to make an oral presentation or reserve the issue until trial
and call witnesses. The parties could have objected to the presentations of the other
party or to the process implemented by the administrative law judge, but did not.
Instead, both parties repeatedly asked her for a decision on contested matters and
affirmatively agreed with the process being used. Although they disagreed with her
decision, they made no objection to process at the review level. They obtained a
decision on the issues they raised, based on the paper record that was totally under
their control , either by presentation or by right to object. Preparing and accepting the
process, the parties waived objections to findings of fact or mixed findings of fact and
law that were inherent in their presentations. We find this contention also without
merit.
Is the accrual date immaterial and therefore inappropriate for resolution?
AT&T contends that because the final order finds applicable a statutory limitation
period that includes the asserted accrual date, the accrual date thus becomes
immaterial and should not be the subject of a finding or conclusion.
It bases its argument on RCW 34.05.461(3), which requires initial and final orders to
explain the reasoning for resolving certain matters:
(3) Initial and final orders shall include a statement of
findings and conclusions, and the reasons and basis
therefor, on all the material issues of fact, law, or
discretion presented on the record
, . . .
(Emphasis
added)
AT&T's narrow view of materiality is inappropriate in application to administrative
proceedings.
Material" in this context may be defined as "both relevant and consequential "14 or
Of such a nature that knowledge of the item would affect a person s decision-making
process; significant; essential."lS
14 American Heritage Dictionary of the English Language, Third Edition (Houghton Mifflin Co., 1996
page 1109).
DOCKET UT -051682
ORDER 06
PAGE 7
The parties argued strenuously before the administrative law judge and the
Commission that the accrual date was material, by urging the adoption of their own
proposal and the rejection of their opponent's proposal. The accrual date is material
to determining whether a cause of action remains, under any detennination of facts
and law. That all proposed accrual dates occur within a six-year limitation period
does not lessen need to resolve matters material to each party s case, nor does it
lessen the legal need to determine that the actual accrual date occurred at a point
within an appropriate limitation period.
Moreover, the parties remain in disagreement about factual and legal issues, and if the
matter is appealed, the accrual date may become crucial to the final result. The
statute requires a determination of the accrual date, which is relevant and
consequential.
We reject this contention.
Is the accrual date in the interlocutory order correct?
Finally, AT&T challenges the selected accrual date as improperly early in the process.
It argues that the initial order was correct, in that only after release in Washington in
the Staff amendment to the Washington complaint were the documents in the public
domain and only then did complainants know of their injury. Qwest responds that the
accrual date is too late, and should be set at the earlier point when Minnesota
regulators first complained against Qwest for failure to file the agreements.
We reject these claims.
The discovery rule is limited to claims in which the plaintiffs could not have
immediately known of their injuries due to such factors as concealment by the
defendant 16 as Qwest admittedly did. One who has notice offacts sufficient to
prompt a person of reasonable prudence to inquire is deemed to have notice of all the
facts that a reasonable inquiry would disclose.
We found that the correct date was July 15 2002, when the Commission rejected
urgings by AT&T and others to explore and resolve issues in the 271 docket that
related to unfiled agreements. At that point, AT&T knew that the Minnesota
agreements existed (including Minnesota counterparts of the relevant Washington
agreements) and knew that there were similar agreements in Washington (as they had
been filed in the 271 docket).
15 Garner, Bryan tEd.
),
Black's Law Dictionary, Seventh Edition (West Group, St Pau1 :MN, 1999, page
991)
16 I~ re Estates of Hibbard 118 Wn.2d 737 , 826 P.2d 690 (1992).!7 Enterprise Timber Inc. v. Washington Title Ins. Co.79 Wn.2d 479, 457 P.2d 600 (1969).
DOCKET UT-051682
ORDER 06
PAGE 8
AT&T's action in bringing the matter forward for a Commission investigation could
be construed as reasonable under the circumstances, not occasioning accrual of its
own cause. is However, when the Commission entered the order declining to explore
the issue, a person of reasonable prudence would realize that a six-month limitations
period for possible damages might apply and that steps should be taken immediately
to pursue an individual remedy for possible financial harm. However, AT&T failed
to act in 2002. That was not reasonable under the circumstances, for purposes of
finding the accrual date.
AT&T also challenges as without factual basis the statement in our interlocutory
order (assuming the contracts were in fact designated as confidential documents and
that AT&T did not have actual or constructive knowledge of their contents) that
refusal to release the relevant contracts at that point was not conceivable. That is not
a factual determination but a legal determination.
-II Given the existence of the Minnesota and Washington contracts and the questions
surrounding them, we believe it would be clear error in a properly pleaded docket for
the Commission to refuse enforcement of an adequately worded data request for a
copy of a properly described unfiled agreement. WAC 480-07-400(3) provides an
entitlement (subject to exceptions not here relevant) in an adjudicative proceeding to:
Information that is relevant to the issues in the adjudicative
proceeding or that may lead to the production of information
that is relevant.
Similarly, in the context of this dispute, we believe that a court would be very
unlikely to bar the release of information, even if confidential under RCW 80.04.095
when withholding the information in question could lead to, rather than prevent
commercial harm.
In summary, we reject the parties' contentions that the interlocutory order erred in
determining that the cause of action accrued on July 15, 2002.
What limitation period applies?
The initial order ruled at paragraphs 32-36 (incorrectly, we found in the interlocutory
order) that the six-year limitation statute for actions for breach of contract was
inapplicable because AT&T offered no legal support for its contention that the
Commission had jurisdiction to hear "a pure breach of contract action which would
18 As discovery is an affmnative defense, the party claiming the defense has the burden of proof. However
in a motion for summary detennination, w~ resolve contested factual issues relating to the defense against
the movant, Qwest.
DOCKET UT-O51682
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PAGE 9
fall outside the scope of an interconnection agreement enforcement action." 19 The
interlocutory order detennined that federal statutes relating to interconnection
agreements preserve independent breach of contract actions under state law.
-15 Qwest vociferously challenges the Commission s decision to reverse the initial order
alleging several procedural and legal grounds in support of its arguments.
Did the interlocutory order err in authorizing amendment of the
complaint?
Qwest contends that the Commission prematurely authorized the amendment
inasmuch as AT&T had merely indicated a desire to offer the amendment in the
future if the Commission found against it on claims otherwise argued against the
initial order.
-17 We reject the contention. The issue was adequately posed, the Commission has
plenary authority to review an initial order 2O the Commission corrected the initial
order s rejection of this theory, AT&T's offer to amend was clear in its pleadings , and
the parties have had ample opportunity to argue the point in response to the
interlocutory order. There is no hann to Qwest and no error.
Does the Commission have jurisdiction under state law to hear a dispute
involving breach of an interconnection agreement?
Qwest asserts that the Commission has no jurisdiction to hear and resolve disputes
involving breach of contract. We disagree.
A Washington statute, RCW 80.36.610 21 authorizes us to hear matters arising under
the Telecom Act, including the enforcement of interconnection agreements. While
the parties have not argued this matter extensively, we believe that this grant of
jurisdiction, coupled with the federal preservation of state remedies, allows us to
proceed.
19 Order No., paragraph 36.20 RCW 34.05.464(4) reads in part
, "
The reviewing officer (here, the Commissioners) shall exercise all thedecision-making power that the reviewing officer would have had to decide and enter the fmal order had
the reviewing officer presided over the hearing, except to the extent that the issues subject to review are
limited by a provision of law or by the reviewing officer upon notice to all the parties.21 RCW 80.36.610 provides, in part
, "
(1) The Commission is authorized to take actions, conductproceedings, and enter orders as permitted or contemplated for a state commission under the federal
telecommunications act of 1996, P.L. 104-104 (110 Stat. 56),
-- . .
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Does federal or state law determine principles relating to the
establishment and enforcement of interconnection agreements governingintrastate services?
This is the principal issue presented for decision. We have found the parties' briefingto be helpful and have considered numerous federal, state and commission decisions.
We recognize that the decisions reflect apparent and in some instances actual
differences in their conclusions. We determine that the Telecom Act in particular
sections 251 and 252, delegates to states the primary jurisdiction to hear and resolve
interconnection contract issues relating to intrastate services, according to state law.
Qwest argues that the dispute arises under and must be resolved according to federal
law, and therefore a two-year federal communications statute oflimitations must
apply. Qwest cites state commission decisions in Oregon and Minnesota, and federal
judicial decisions that federal law applies to resolve disputes.
AT&T, on the other hand, argues that the decision is proper, that the enforcement of
ICAs has been delegated to the states, and that federal Courts of Appeal decisions
support its position that state law - and thus the state statute oflimitations - controls
on enforcement issues.
We have reviewed the cited decisions and find AT&T's analysis to be persuasive.
The Act requires state commissions to apply state law when resolving disputes about
interconnection agreements governing intrastate services?3
Section 252(a)(I) of the Act speaks clearly to the matters at issue in providing that
parties may negotiate terms of their interconnection agreements on a voluntary basis
without regard" to the requirements set forth in section 251.
AT&T argues that language in the complainants ' agreements with Qwest give them
the right to the lowest prices at which Qwest contracts with other carriers for
substantially the same products and services as a matter of state contract law
irrespective of - that is
, "
without regard to" - whatever rights AT&T might have
under federal law.
22 The parties tacitly acknowledged this in earlier phases of the proceeding when they were arguing whether
RCW 80.04.220 or 80.04.230 would apply, not whether either was baITed because offederal preemption.
See, Order 03 (initial order), paragraph 14, page 6.23 See the careful analysis in Judge Niemeyer s dissenting opinion in Verizon Alaryland v. Global Naps
377 F.3d 355, 369ff (2004).
24 See, AT&T Corp. v. Iowa Uti/so Ed.525 US. 366 371-73 (1999); Verizon MarylGrld v. Pub. Servo
Comm 'n ofMd.535 US. 635 , 638 (2002)
DOCKET UT-051682
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PAGE 11
Supporting AT&T's argument , the Ninth Circuit has held:
(T)he (interconnection) Agreements themselves and state law
principles govern the questions of interpretation of the contracts
and enforcement of their provisions.
Other courts are in accord.
Qwest argues strenuously to the contrary. It urges creatively that AT&T's cited
authority is distinguishable because the FCC in its 271 docket order found Qwest
arguments "persuasive" that the specific contracts at issue here (but not those at issue
in the judicial decisions we cite) did not present ongoing issues that would cause the
agency to reject Qwest's bid to provide long distance service. We understand that
order to mean that the underlying behavior - hiding interconnection agreements-
was no longer of a continuing nature, not that all issues relating to prior misdeeds
were resolved as a matter of law. The FCC did not specifically address the question
we face here - potential remedies for violations of interconnection agreements.
Qwest argues that the Commission cannot consider the violations because the
agreements were filed more than four years ago, and the federal statute of limitations
has expired. That appears to be a bootstrap argument that does not address the courts
detenninations that state law applies. If state law applies, the federal statute of
limitations would not apply and the distinction makes no difference.
Qwest disputes the relevance of the Connect decision, arguing that here it has had no
obligation to have on file interconnection agreements that are tenninated and not in
existence. Qwest states that this is not a matter where state law is necessary to
interpret" an interconnection agreement. Again, we find no relevance in the
argument. The relevant issue is whether or not state law applies to the resolution of
interconnection contract disputes, and we believe that it does.
Qwest disputes application of the decision in Connect because the Oregon
commission found that the CLECs' claims must be resolved under federal law. Here
however, we detennine that the amended complaint presents an action on a contract
for perfonnance within the state, which is not a federal matter. 26 Qwest also urges
2S Pacific Bellv. Pac-West Telecomm, Inc.325 F.3d 1114, 1128 (9th Cir. 2003). Connect CommunicationsCorp. v. Southwestern Bell Tel. L.P.467 F.3d 703 2006 WL 3040611 (8th Cir. Oct. 27, 2006),Southwestern Bell Tel. Co. v. Brooks Fiber Communications o/Oklahoma, Inc.235 F.3d 493 495 499
(10th Cir. 2000), Southwestern Bell Tel. Co. v. Public Utilities Comm '208 F.3d 475 485 (5th Circuit
2003); Michigan Bell Tel. Co. v. MCL~fetro Access Transmission servs., Inc.323 F.3d 348, 355-6 (6th Cir.
2003); 1/linois Bell Tel. Co. v. Worldcom Technologies, Inc.179 F.3d 574 (7th Cir.
, 1999); Global NAPS,Inc., v. Verizon New England Inc.332 F. Supp.2d 341, 360 (D. Mass., 2004).26 We acknowledge the decision of the Oregon Public Utilities Commission accepting Qwest's views
AT&T, et al.' v. Qwest Corporation Order No. 06-230 (May 11 2006), but respectfully disagree with itsreasoning and decline to apply it to Washington intrastate issues of contract law.
DOCKET UT-051682
ORDER 06
PAGE 12
that the Connect decision s deference to a state law on interconnection contract
interpretation has no applicability to contract claims based on different
interconnection disputes. We believe that is a distinction without a difference.
Qwest's contention that the Telecom Act transfonns clearly state law issues relating
to negotiated provisions of interconnection contracts into federal issues is incorrect.
Even ifan interconnection provision tracks or incorporates provisions of the Act or
FCC rules state law governs the interpretation and enforcement of the provision. .
In sum, we find the appropriate interpretation to be that state law, including state
statutes oflimitation, apply to this dispute.
If interconnection agreement enforcement is a matter generally of state
law, should a federal statute of limitations nonetheless apply?
Qwest argues that a federal statute of limitations should apply because complex issues
of responsibilities and rights under federal telecommunications statutes and rules will
apply to govern the result. AT&T responds that interconnection agreements are
contracts, and enforcement of intrastate contracts is subject to contractual principles
in the state in which they apply. AT&T notes that courts have affinned the
application of state law in other, similar proceedings.
We note that both parties argued for the application of state law (albeit different
provisions) at the outset of this dispute. Only now - unhappy with the outcome-
does Qwest argue that state law cannot or should not apply. Further, over the yearsthe parties have joined in many interconnection disputes before the Commission
where state law has been applied to decide the matters. No persuasive argument has
been advanced as to why the state statutes of limitations are somehow different.
The amended complaint involves fundamental issues of state, not federal , law
although the application of a federal law may have a role in resolving the issues. The
questions are whether the parties entered a contract governing intrastate services
whether the contract contained a specific term assuring the CLECs that Qwest would
offer it the best terms given to other carriers, and whether Qwest failed to meet that
obligation.
We see no reason why the state statute of limitations would not likewise be the
controlling authority.
27 See the Brooks Fiber decision, above at footnote 25, where a disputed contract provision tracked FCC
regulations deEming the requirements of Section 25 I (b) (5) of the Act The court concluded that "(t)heAgreement itself and state law principles govern " nonetheless, to the interpretation and enforcement of the
provIsIOn.
DOCKET UT -051682
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PAGE 13
If interconnection agreement enforcement is subject to a federal
limitation period, should a two-year or a four-year statute apply?
Qwest argues that the Telecom Act's original 2-year limitation statute 28 Section 415
should apply to bar a lawsuit here. Qwest notes that the 1996 Telecom Act did not
amend the 1934 provision, and therefore the 2-year statute should control.
AT&T responds that even if the dispute is governed by federal law, or by a federal
statute of limitations, Section 415's limitation period does not apply to the 1996
Telecom Act, which did not specify a limitation period for its provisions, because the
latter is governed by a 1990 statute. Federal law (28 US.C. 9 1658(a)) provides a
new limitations period for later laws: "Except as otherwise provided by law, a civil
action arising under an Act of Congress enacted after the date of the enactment of this
section may not be commenced later than 4 years after the cause of action accrues.,,29
AT&T's argument is supported by several federal court decisions that the 1934 2-year
limitation statute does not apply to the 1996 Telecom Act amendments.3o Because
AT&T's complaint was filed within four years of the accrual date of July 15 2002, its
contract claim would be timely even it arose under federal law.
Should a more specific statute of limitations apply in lieu of a more
general statute?
Qwest urges, particularly under the specialized and complex law in question, that a
statute of limitations that specifically applies to that field of law should take
precedence over a general statute of limitations.
As AT&T points out, there are two persuasive flaws that prevent application of this
principle in the manner Qwest suggests.
First, specificity is in the eye of the lawyer. In this application, the fundamental issue
is not the application of telecommunications law, but the application of the state
principles of contract law that apply specifically to issues of this type. We find in this
instance that the state statute is the more specific.
18 The original 1934 statute was enacted as a one-year limitation. Congress extended the period to two
years in 1974.
19 Verizon New England, Inc. v. New Hampshire Public Uti/so Comm '2005 WL 1984452, *5 n.5 CD.NB.
2005), citing Pepepscot Indus. Park, Inc. v. Alaine Cent. R.R. Co.215 F.3d 195 203 n.S (1st Cir. 2000).30 City of Rancho Palos Verdes V. Abrams 544 U.S. 113 124 n.5 (2005; spire Comms. Co., inc. v. Baca269 F. Supp. 2d 1310, 1320 (D.N.M. 2003) ("Because the Telecommunications Act was enacted after
December 1 , 1990, the four-year statute of limitations applies to the claims under the federal
Telecommunications Act"
);
Verizon Maryland Inc. v. RCN Telecom Servs., Inc.232 F. Supp. 2d 539, 552-
54 CD. Md. 2002); Bell Atlantic-Pennsylvania, Inc. V. Pennsylvania Pub. Uti/so Comm '107 F. Stipp. 2d653668 (E.D. Fa. 2000);MCI Telecomms. Corp. v.lllinois Bell Tel. Co.1998 WL 156674, *3-*5 (ND.
IlL 1998).
DOCKET UT -051682
ORDER 06
PAGE 14
A second and equally valid reason to reject Qwest's argument is that - as we
determined above - the federal statute is no more applicable here than an Arkansas
rule or a Wyoming statute even one specifically governing remedies for breaches of
written interconnection contracts in those jurisdictions. Under its delegated authority,
Washington State law applies as a matter of law, not the law of another jurisdiction.
Ill.Conclusion
The Commission rejects both parties' challenges to the interlocutory order and directs
the administrative law judge to convene a prehearing conference for the purpose of
determining a schedule to proceed on the amended complaint.
IV.ORDER
On review of the interlocutory order, the Commission denies challenges to the order
and the renewed motion for summary determination. The Commission authorizes
amendment of the complaint.
Dated at Olympia, Washington, and effective December 21 2006.
WASHINGTON UTILITIES AND TRANSPORT AnON COMMISSION
MARK H. SIDRAN, Chairman
PATRICK 1. OSIDE, Commissioner
PHILIP B. JONES, Commissioner
NOTICE TO PARTIES: This is an order on review of an Interlocutory Order of
the Commission that governs the remainder of the proceeding. Further
administrative review of this order is not available.
DOCKET UT -051682
ORDER 06
PAGE 15
GLOSSARY
TERM DESCRIPTION
CLEC Competitive local exchange company. Not an ILEC, and generally
subject to limited regulation.
ILEC Incumbent local exchange company; a company in operation at the
time the Act was enacted (Au~ 1996).
Interconnection Connection between facilities or equipment of a telecommunications
carrier with a local exchange carrier s network under Section
25 Hc)(2).
Interconnection An agreement between an ILEC and requestIng telecommunications
Agreement carrier (which may be a CLEC) addressing terms, conditions and
prices for interconnection, services or network elements pursuant to
Section 251.
Section 251 (c)(3)The section of the Act that requires ILECs to provide unbundled
access to network elements, or UNEs.
Section 271 The portion of the Act under which Bell Operating Companies, or
BOCs, could obtain authority from the FCC to provide long distance
service in addition to service within their in-state service areas.
Telecom Act or .. Act Telecommunications Act of 1996, 110 Stat. 56, Public Law 104-104
Feb. 8, 1996.
(F"9'~ 7 of 58)Exhibit 2
DocI;etNo. P-421/C-G2-197; OAHDocketNo. 6-2500-14782
MPUC DocketNo. P-421ICI-OJ.l371, OAH Docket No. 7-2S00-14486-
Rebuttal Testimony of Audrey MclCcnney
Befu~ me M'mnesota Public Utilities Commission
Page 1
BEFORE THE OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE MINNESOTA PUBLIC UTllITIES COMMISSION
121 SEVENTII PLACE EAST. SUITE 350
ST. PAUL. MINNESOTA 55101.2147
Gregory Scott
Edward A. GaNey
R. Marshall Johnson
LeRoy Koppendrayer
Phyllis Reha
Chair
Commissioner
Commissioner
Commissioner
Commissioner
MPUC Docket No. P-421JC-02-197
OAR Doeket No. 6-2500-14782-
MPUC Docket No. P-421JCI-Ol-1371
OAR Docket No. 7-2500-14486-
In the Matter oftke Complaint of the
Minnesota Department of Commerce
Against Qwest Corporation
QWEST CORPORATION'S WRITTEN REBUTTAL TESTIMONY
OF AUDREY MCKENNEY
PUBLIC DOCUMENT
TRADE SECRET DATA
HAS BEEN EXCISED
I\\DC - 669831OO5~. 1579607 vI
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"'U
".,.=......_~~..=~-~_..._--_.---
(P"ge 12 of 58)
Docket No. P-421IC-O2-197; OAH DockctNo. 6-2500-14782MPUC Docket No. P-421/CI-OH371, OAH DocketNo. 7-2500-14486-
Rebutta1 Testimony of Audrey McKenney
Before !be Minnesota Public Utilities Commission
Page 6commissions, this made UNE-Star more expensive than UNE-P. Again, the UNE-Star
pricing that I am describing was filed and approved by the Commission.
IN ADDmON TO THE IDGHER PURCHASE PRICE FOR lINE-
STAR, DID QC IMPOSE ANY OTHER CONDITIONS ON CLECS
PURCHASING UNE-STAR?
Yes.Because UNE-Star entailed significant development and
implementation costs, QC required CLECs wishing to purchase the UNE-Star platform to
make total and annual minimum purchase commitments over a multi-year minimum
term, which, conceptually, is very similar to our private line services tariff. Other
requirements included imposing a short-faIl penalty if the ' CLEC did not meet those
minimum commitments; "bill and keep" for reciprocal compensation, including Internet-
bound traffic ("ISP traffic ); a one-time, lump sum conversion charge to convert the
embedded base; and restricting the offering to business customers (recently, we removed
this restriction from the UNE- Star product offering). Lastly, QC requested the CLEC to
provide an ongoing, updated, geographic end-user customer volume and loop distribution
forecast for purposes of adjusting price points.
MR. DEANHARDT TESTIFIED THAT QC ORALLY AGREED TO
GIVE MCLEOD A VOLUME PURCHASE DISCOUNT OF UP TO 10%.
THAT CORRECT?
No.During the negotiations of the UNE-StaI platfonn, McLeod
repeatedly requested that, because McLeod was one of our biggest customers, it should
receive a volume tenn discount ftom all of its services. We discussed McLeod's request
with them, including purchases made by McLeod from both QC and QCC, but Qwest
never agreed to provide such a discount. To the contrary, we told McLeo~ that we would
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(Pa..., 13 of 511)
Docket No. P-421ICoW-197; OAR Docket No. 6-2500-14782MPUC DoCket No. P-42lJCI-o1-l371, OAH Docket No. 7-2500-14486-2
Rebuttal TeslJmony of Audrey McKccncy
Before the Minnesota Public Utilities Commission
Page 7
neither provide nor agree to provide, either orally or in writing, a volume discount plan as
they proposed.
In addition, the idea that McLeod would accept an oral agreement with Qwest for
a term of such significance simply does not make sense, in my e,cperienced business
judgment McLeod and U S WEST bad an acrimonious relationship, and McLeod was
still dealing with many of the same people when Qwest took over U S WEST. As
evidence of this point, Blake Fisher repeatedly insisted that all agreements between
McLeod and Qwest that we were negotiating at this time be in writing in case, in Mr.
Fisher s words, Greg Casey or I "got bit by a bus." Also in Exhibit 451 , an e-mail:&om
Stacey Stewart dated July 20, 2000, to Blake Fisher, under the ~sessment section,
McLeod states "we need to be sure we ask for exactly what we want, because we may
just get it, and then we have nobody else to blame but us." I believe that this shows that
McLeod was aware of the need to doCUIl1ent any agreemen~ because they were still
cautious about the relationship.
COULD YOU DESCRIBE THE NEGOTIATION PROCESS THAT
LED TO THE EXECUTION OF THE PURCHASE AGREEMENTS ON
OCTOBER 26, 2000?
As I mentioned previously, the most predominant issue between the
companies was McLeod's desire for QC, U S WEST at the time, to make UNE-
available under their proposed terms and conditions, without the associated full
nomecurring charges. Through February 19 2000, ILECs had no obligation to provide
UNE-P to customers. Once it became clear that QC w~ required to offer UNE-
McLeod began requesting to move away from resale and onto an unbundled platform.
\\IDC-6698J1OO;SS- (~vl
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,=~,,--,~- '" '--,, -~-~_"' ......_"..--.----
(P"~ 14 of 51:1)
DooketNo. P-4211C-02-191; OAR Docket No. 6.2500.14782
MPUCDocketNo. P-421fClOOZ-1371. OAHDocketNo. 1-2500-14486-2
Rebuttal Testimony of Audrey McKenney
Before the Minnesota Public Utilities Cornrtrlsslon
Page 8addition to the UNE-P issue, both parties were working to improve the relationship after
the Qwest IUS WEST merger.
QC would have preferred at that time to have McLeod continue operating as a
reseller, primarily because of the product profitability and issues related to a massive
conversion to UNE-P Centrex. In particular, McLeod resold mostly QC's Centrex
services, and we were in the early stages of deploying ofUNE-P Centrex. Also, McLeod
wanted to maintain as much status quo as possible in tenus of features (including voice
messaging) and processes for order entry and provisioning that they had become
accustomed to over the last several years. Therefore, the parties initially discussed
deeper discounts off of resale scenarios in the hopes of keeping McLeod on resale.
Several of the documents attached as exhibits to Mr. Deanhardt's supplemental
testimony from the initial period of the negotiations in July, August, and September
2000, and which he mistakenly describes as relating to a global volume discount; reflect
these discussions about various attempts to develop deeper discounts off resale prices.
Exhibit 414, which was created in July and August 2000, contains some ofQC's internal
financial worksheets regarding the impact of a deeper resale discount through a growth
commitment plan. Again, most of this analysis was done in response to McLeod's desire
for a deeper discount fi:om then current resale prices and a volume term commitment
related only to resold lines. Consistent with our volume . term commitments offered
through tariff for private line services, we felt that the type of proposals in Exhibit 414
might be a good solution for the customer, especially because they were mainly buying
resold lines from us.
As demonstrated in Exhibit 456, in July 2000, we determined that McLeod was
primarily buying in-region services by contacting our out of region sales group. Also
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(Pa~ 15 of. 58)
I -
Docl:et No. P-4211C..()2.)97; OAHDockct No. 6-2500-14782
MPUC DockctND. P-421/CI-O!-137 , OAR Docket No. 7-2500-14486-2Rebutm1 Testimony of Audrey McKenney
BefOl~ the Minnesota Public UtlIWes Commlssioo
Page 9since we bad just merged with Qwest, I called our out of region pricing team to
understand typical industry pricing arrangement that CLECs and !XCs, companies like
McLeod, were experiencing in the market place out of region. The notes on page two of
that document explains the typical pricing for out of region serv:ices.
This concept was further supported by the letter from Blake Fisher to Greg Casey
dated August 15, 2000 (Exhibit 415), which I considered as the -'wish list" from
McLeod. The fu:st paragraph makes it clear that at that time we were discussing a
reduction in rates associated with resale . The presentations and docwnents contained
in Exhibit 417 were QC's attempts to offer McLeod a discount plan limited to resale of
finished services, which would have resulted in a deeper resale discount if accepted,
instead of the standard unbundled platform.
At some point not long after that, it became clear that our discussions regarding a
deeper resale discount through a volU1I1e incentive limited to resale services were not be
satisfactory to McLeod. We ultimately discovered that the primary reason was that our
resale discount proposals could not off-set the potential. amount of switched access
revenues that McLeod believed they could charge, using ~eir interstate and intrastate
ra1es, 10 Inter Exchange Carriers erxcsj, if they were able to use a UNE-P platform.
At this rime, many of the CLECs' interstate and intrastate switched access rates were
significantly higher than QC's tariff rates. In fact at the time, some of the CLEC'
interstate rates were above $0., while QC was in the process of lowering the same rate
to $0.0055.
WHAT HAPPENED AFfER THAT?
We continued negotiating and working to understanding what McLeod
wanted trom QC.. The Outline of Major Terms dated September 19 2000 (Exhibit 416)
\\\IX: - 669I!3iOOS5 - 1579607vl
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" - ~'-_"-~."'~'--~~.
(Page 16 of 58)
.. I
Docket No. P-421/C..Q2-197; OAlI Docket No. 6.2500-14782
MPUCDoctetNo. P-42 IICI-OH 371. OAH DodcetNo. 7-2500-14486-2
Rebuttal. Testimony of Audrey McKcIlllCy
Before the Minnesota Public Utilities Commission
Page 10was created jointly by QC and McLeod and reflects the high level terms that the parties
were discussing. This Outline does not reflect the fmal tenDs of the agreement between
the parties. The sixth item states
, "
Q will propose volume and tenn discounts based on
quarterly revenue targets, to be paid back to M by Q on a quarterly basis." McLeod
repeatedly asked us for a discount, and at that point, we had not yet ruled out the
possibility of offering one. The Outline of Major Terms was not a commitment by either
party and was simply a tool for the parries to articulate their goals for the negotiations.
McLeod and QC then exchanged propOsals and counterproposals regarding
primarily related to state specific UNE-Star pricing. However, McLeod continued to
provide their wish list with regards to an overall discount After reaching some major
closure on the UNE-Star prices, which was around mid-October, we began the fInancial
analysis to determine the economic results of McLeod's discount concept.
Exhibits 419 and 422 are several of McLeod's prop9sals to us. In Exhibit 419,
my notes in the margin reflect McLeod's comments nom our conversations on this
particular request, including their proposed commitment to us to enter into a take or pay
agreement with us for (TRADE SECRET BEGINS)(TRADE SECRET
ENDS), in which I believe that they had included an assumption that there would be
(TRADE SECRET BEGINS)ffRADE SECRET ENDS) market decline every
year. Under the take or pay agreement concept, McLeod would be obligated to purchase
a set minimum dollar amount of services from Qwest. If McLeod failed to meet its
minimum purchase requirements on an annual basis, it would be required to pay Qwest
the difference between its actual purchases and the minimum purchase conuWtment.
Our responses to the various McLeod's proposals were based on our calcuJations
of the financial impact of those proposals. In particular, because McLeod's proposals
II'DC.6698JIOOSS-lS79607vl
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(Page 17 of 58)
Docket No. P-42IIC..o2-197; OAR Docket No. 6-2500-14782MPUC Do~No. P-421/Cl-OH371, OAH Docket No. 7-2500-14486-2
Rebuttal Testimony of Andrey McKeouey
Before tile Minnesota Public Uti1ili~ Commission
Page IIinvolved financial outlays by us, we were calculating what the "break even" point for
eachjof McLeod's scenarios. The last page of Exhibit 420, titled "McLeod Growth &
DisCbunt Scenario " is one of those numerous calculations. McLeod was asking for
discdunts and predicting annual revenue to us as high as (TRADE SECRET BEGINS)
(TRADE SECRET ENDS)We ran these calculations based on
McLeod's proposals simply to detennine if there was a way to reach a value with
McLeod that would make financial sense to us.
Exhibit 423 is a collection of additional financial calculations of proposals made
by McLeod. The 30th page of that exbibit contains more growth and discount scenarios
based (m McLeod's predicted annual revenue and the v~lume tenn discount rates
requested by McLeod. We ran calculations in the form of the customer s proposals (here
volume term discounts) to determine the total value the customer was proposing as part
of the deal.. Once we knew that value, we could then determine if there was any type of
business opportunity that may result in this type of value .that was agreeable to both
parties. Qwest's main goal was to reach overall incremental annual value of (TRADE
SECRET BEGINS)(TRADE SECRET ENDS)
In addition, McLeod continued to make statements that their proposals were
bringing over (TRADE SECRET BEGINS)(TRADE SECRET ENDS)
of incremental cumulative value to us. We stated to them that was not a complete picture
based 011 their discount concept, and that the true value about (TRADE SECRET
BEGINS)(TRADE
SECRET ENDS) The fourth ftom the last page of Exhibit 423 shows our computations
of the ~ortion of McLeod's annual revenue growth that we would retain and the portion
that wbu1d be refunded to McLeod under the discount proposals made by McLeod. The
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(page 16 of 58)
Inn
Docket No. P421IC-O2-197; OAH Docket No. 6-2500-14782MPUC Docb::t No. P421ICI..m-I371, OAH Docket No. 7-2500-14486.
RdJuttal Testimony of Audrey McKeDDey
Before the Mlnncsoo. Public Utilities Commission
Page 12Net Growth" line on each of the tables on that page of Exhibit 423 is the "math" to
demonstrate the net revenue to us based on various total revenue and discount rate
assumptions under McLeod's, not Qwest', proposals.As demonstrated in the
documentation, McLeod's proposal yielded about (TRADE SECRET BEGINS)
(TRADE SECRET ENDS) of incremental new revenue being returned to back to them.
As a result, their concept of a discount proposal was clearly not an attractive term to us.
Exhibit 421 - Arturo Ibarra s e-mail dated October 20 2000 in which he stated
tba1 (TRADE SECRET BEGINS)(TRADE
SECRET ENDSJ was the result of Qwest's reviewing these calculations. We were still
nmning scenarios at that time and had not yet reached a final agreement, but we informed
McLeOd through that e-mail that we could not accept its proposal for a financial outlay
greater than (TRADE SECRET BEGINS)(TRADE SECRET ENDS) of
McLeod's anticipated purchases from Qwest. Consistent with this position, I sent a fax
to Greg Casey saying (TRADE SECRET BEGINS)
rrRADE SECRET ENDS) because that would result in
negative value for us. See ExbJ.oit 4:24. Through our calculations, we realized what
financial outlay we could comm.it to. The underlying value in McLeod's proposed
discount plans exceeded those amounts.
For example, Exhibit 3 to Blake Fisher deposition (Exhibit 402) contains an e-
mail from me to Randy Rings, Blake Fisher, and Jim Balvanz of McLeod attaching a
counterproposal. First, I'd like to note that the date at the bottom of the Counterproposal
is the date of printing, not the date of creation or the date that it was originally sent.
Second, our primary focus during the negotiations was 'on the top portion of the
document regarding the take or pay commitment ranges, and we focused on reaching
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(palT" 19 of 58)
DoctetNo. P-421/C-O2-197; OAH Docket No. 6-2500-14782MPUC Doctet No. P-421/CI-OI-1371. OAHDockct No. 7.2500-1~6-2
Rebuttal Testimony of Audrey McKenney
Befure the MinDeSOta PubUc Utilities CommissiGll
Page I3nwnbers that would be financially beneficial to both companies. At that stage in the
negotiations, we were not concerned about the labels in the document, but were focusing
on the financials. Again, our fIrSt goal was to bring closure on the per line pricing, thus
the vast majority of our time was spent on calculating UNE.Star pricing. Again, McLeod
had nearly (TRADE SECRET BEGINS)(TRADE SECRET ENDS) lines that
we were trying to price out based on state, product mix, features, zone and type of
customer. Up to this point in time, we were just beginning to consider whether it made
financial sense for us to have a take or pay with McLeod.
The negotiations reached a breaking point with when McLeod sent us Exhibit
422, especially the terms under items 3, 4, and 5. In particular in item 4 of that October
, 2000 Counter Proposal, McLeod suggested that the discount schedule be capped at
(TRADE SECRET BEGINS)(TRADE SECRET ENDS) As we had
communicated to McLeod, it simply would not have been economical for Qwest to agree
to a financial outlay of (TRADE SECRET BEGINS)(TRADE SECRET ENDS)
I contacted Greg Casey, who said he would talk to Blake Fisher and that we would try to
work it out over the weekend
On October 21 2000, we shifted our attention away from the final pricing ofUNE
Star and toward this potential business opportwrity with McLeod. During various calls
on Saturday, October 21, with Mr. Fisher and others from McLeod, Mr. Casey was very
clear that we could not do any type of discount plan and that,' as an alternative, we would
be interested in QCC doing a take or pay agreement for services trom McLeod. This
approach supported the common goal between the parties to grow the business
relationship between them. Mr. Casey briefly mentioned that, with McLeod's recent and
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(Page 20 o:t. 58)
Docket No. P-42J/C~-197; OAR Docket No. 6-2500-14782MPUC Docket No. P-42J/CI-\JI.1371, OAH DodetNo. 7-2500-14486-Rebuttal Testimony of Audrey McKenoey
Before the Minnesota PIibUc Utilities Commission
Page 14pending acquisitions of Split Rock and Cap Rock, coupled with their out of region
business, there might be some opportunities between us.
HOW DID THE NEGOTIATIONS PROGRESS AFTER QWEST
TOLD MCLEOD IT COULD NOT OFFER A DISCOUNT?
McLeod was still interested in reaching an agreement with us and agreed
that a mutual preferred vendor plan was acceptable. I became less involved in the
negotiations on drafting the final documents at that point, because I left for vacation on
the afternoon of Saturday, October 21. By the time I left, we were in agreement on the
concept of a mutual take or pay arrangement. At that time (Saturday afternoon), the
tentative agreement was that our take or pay obligations to McLeod would float based on
the level of McLeod's aggregate purchases from Qwest. We also told McLeod that we
were obtaining internal approval on the various agreements. In addition, McLeod had
indicated that some of these agreements- might have to be approved by its Board
Directors. The 15th page of Exhibit 426, on which I have a note saying "final Saturday
2:47 pm" was the last document I reviewed that was sent to McLeod before I left for
vacation. Again, both Parties were seeking internal approval of these terms.
Randy Rings, McLeod's General Counsel, took responsibility for preparing the
first draft of the take or pay agreements and provided a draft Service and Billing
Agreement to Qwest on October 23. 2000. See Exhibit 463. Exhibit 463 reaffirms that
McLeod was in agreement with the take or pay agreement, and that the agreement was
not for a discount Jim Gallegos, my attorney at Qwest, faxed Exhibit 463 to me on
October 23, 2000. An attachment to that draft contains (TRADE SECRET BEGINS)
\\\DC --1OO~5 -1579607 vi
-~~,,~.~~ "~~. '~, .-~~~-----_. -'-----.---------,
. (pa..e 21 o:f 58)
Doc~tNo. P-4211C~-I97; OAHDocketNo. 6-2500.14782MPUC Docket No. P-42l1CI-ol-l371, OAR Docket No. 7-2500.14486-2
Rebuttal Testhoony of Audn:y McKel1!lcy
Before the M!DI1eSOIa Public Utilities Commission
Page
(TRADE SECRET ENDS)
Based on this attachment, it was clear to me that McLeod accepted having a take~or-pay
and rejected a discount. This proposal from McLeod indicated to me that McLeod
understood that we were not offering it a discount and that McLeod was primarily
interested in receiving a revenue stream from QCC. However, McLeod had inserted a
new term that bad not been discussed before and we could not agree to this structure for a
couple of reasons. First, McLeod added the tenn (TRADE SECRET BEGINSJ
(TRADE SECRET ENDSJ so this form of the agreements was unworkable. Second,
QCC wanted the agreement to state a fixed amount of purchases so it would be clear that
it was not a discount
I understood that McLeod needed to resolve this issue before its Board of
Directors meeting. Between October 23 and October 25, the parties reached agreement
on the terms and conditions of the final Purchase Agreement.
WAS QWEST INTERESTED IN PURCHASING SERVICES FROM
MCLEOD?
Yes.Even very early in the negotiations, Qwest was interested in
purchasing services from McLeod. For example, on the last page of Exh1"it 451
McLeod notes that as early as July 23, 2000 Qwest and McLeod were discussing network
sharing and opportunities for Qwest to purchase out-of-regio~ services :ITom McLeod. At
the time of the final agreements, there were various telecommunications services that
Qwest might have been interested in purchasing :ITom Mcleod, including terminating
\\\DC -6698311J0!SS /519607
""-~'~-"-",,"~~... ~~.".....~-._-- ..,.-...~.
(pa9"' 22 of 59)
DockecNo. P-421IC-O2-197; OAf! Docket No. 6-2500-14782
MPUC DockctNo. P-421JCI-C)l-137., OAH Docket No. 7-2500-14486-
Rebultlll TestimOl3Y of Audrey McKenney
Befom Ihe M'nmesota Public Utilities ConmIission
Page 16access, fiber rings, private line services, and data and pro-type services. As mentioned
earlier, McLeod was expanding its out-of-region business and had also recently acquired
Splitrock, which offered data and Internet services, and it was also looking to acquire
Caprock. Qwest and McLeod were both eager to reach an agreement and improve our
business relationship. Although we did not reach any agreement regarcling what types of
services Qwest would purchase from McLeod. With McLeod being a growing company
there would be opportunities to purchase products and services &om them. Also, Qwest
purchases annually on average (TRADE SECRET BEGINS)(TRADE
SECRET ENDS) of services from other carners, thus clearly indicating that there might
be some opportunity to shift some of our purchases from other carriers to McLeod.
McLeod and QC continued to explore these opportunities after entering into the
take or pay agreements. For example, on the second page of Exhibit 434, McLeod
suggests a meeting for the parties to discuss "Network we sell to you.Exhibit 430 also
shows that Qwest and McLeod continued to explore buying opportunities on each other
networks for private line and local access in May 2001.
WHAT WAS THE FINAL AGREEMENT REACHED BY MCLEOD
AND QWEST IN OCTOBER 2000?
McLeod and Qwest entered into two Purchase Agreements. Under the terms
the McLeod Purchase Agreement (Exhibit 403), McLeod agr~ed to purchase from Qwest
Communications Corpomtion and its subsidiaries a minimum amount of
telecoII1ll1 uni cations enhanced information services network elements
interconnection or collocation services or elements, capacity, termination or origination
services, switching or fiber rights." The total value of McLeod's commitment to Qwest
is (TRADE SECRET BEGINS). (TRADE SECRET ENDS) Under the
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(Page 23 of 58)
. 1
Docket No. P-421IC-O2-197; OAH Docket No. 6-2500-14782
MPUC Docket No. P-421/CI..oH371, OAH Docket No. 7-2500-14486-
Rebuttal Testimony of Audrey McKewtey
Before the Minnesota Public Utilities CoIl1DrlSSiOD
Page 17terms of the Qwest Purchase Agreement (Exhibit 404), QCC agreed to pW'Chase quarterly
between January I, 2001 and December 31 , 2003 a set minimum amount of products
from McLeod. The total value of QCC's commitment to McLeod is !:TRADE SECRET
BEGINS)(TRADE SECRET ENDS)Both the Mcleod Purchase
Agreement and the QCC Purchase Agreement are take or pays, meaning that in the event
the purchaser failed to meet the minimum, it agreed to pay the vendor the difference
between the amount of actual purchases and the amount of the minimum.
DID THE PARTIES DISCUSS MCLEOD'S PARTICIPATION IN
THE 271 PROCESS DURING TIDS TIME PERIOD?
Yes. We were trying to address all of McLeod's issues with QC's service
provisioning and pricing through the business~to-business escalation process and
interconnection agreements that we were negotiating in the fall of 2000. From our
perspective, we felt that if we addressed all CLECs' issues , including McLeod's, carriers
would have no reason to oppose QCC's 271 efforts. In the event that Qwest did not
comply with its contractual or other legal obligations, McLeod could certainly have
raised those issues in a regulatory formn.
HAS QCC MADE SHORTFALL PAYMENTS TO MCLEOD
PURSUANT TO THE QWEST PURCHASE AGREEMENT?
Yes. QCC paid McLeod (TRADE SECRET BEGINS)
(TRADE SECRET ENDSj on June 22,2001. QCC's next payment to McLeod pursuant
to the Qwest Purchase Agreement was made on October 2, 2001 in the amount of
(TRADE SECRET BEGINS)(TRADE SECRET ENDS)The total
payments made in 2001 were approximately (TRADE SECRET BEGINS)
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