Technology & Telecommunication Cases Committee Newsletter

Volume 2, Number 4 / December 2005

In This Issue:

• Jurisdictional Issues Affecting Interconnection Agreements
• Preparation of the Lay Witness for the e-Arena
• The Technology & Telecommunication Cases Committee Is Looking for Volunteers!

• Committee Officers
• Upcoming Events
• Contribute to the Newsletter
• ABI World

Jurisdictional Issues Affecting Interconnection Agreements

by Patricia B. Tomasco

Brown McCarroll, L.L.P.; Austin, Texas

A competitive local exchange carrier (CLEC) is a creature of the Telecommunications Act of 1996¹ (TCA). CLECs compete with existing monopolies, called RBOCs or ILECs (Regional Bell Operating Companies and Incumbent Local Exchange Carriers, respectively) by effectively plugging into existing local telephone distribution systems – called interconnection. Section 252(e) of the TCA delegates to the state public utility commissions the job of arbitrating and approving interconnection agreements (ICAs). Jurisdictional tension arises when disputes over the meaning of various interconnection agreement terms affect the viability of the CLEC’s reorganization.

Ordinarily, state public utility commissions (PUCs) have exclusive jurisdiction over approval and enforcement of ICAs under TCA §252(e). Any appeal from the state PUC goes to the federal district court in the district where the PUC sits:

(e) Approval by state commission

(1) Approval required. Any interconnection agreement adopted by negotiation or arbitration shall be submitted for approval to the state commission. A state commission to which an agreement is submitted shall approve or reject the agreement, with written findings as to any deficiencies.

...

(6) Review of state commission actions. … In any case in which a state commission makes a determination under this section, any party aggrieved by such determination may bring an action in an appropriate federal district court to determine whether the agreement or statement meets the requirements of §251 and this section.

47 U.S.C. §252.

In enacting these provisions, Congress included the following provisions §601(c) of the Telecommunications Act: “This Act and the amendments made by this Act shall not be construed to modify, impair or supersede federal, state or local law unless expressly so provided in such Act or amendments.” Pub. L. No. 104-104, 110 Stat. 56, 143 (1996) (codified at 47 U.S.C. §152 note). Further, the “grant of exclusive jurisdiction must be explicitly stated in the statute; it will not be inferred.” Russello v. U.S., 464 U.S. 16, 18 (1983). Because ICAs are both contracts and regulatory creatures, the line gets muddled when contract rights under a previously approved ICA are disputed.

The Supreme Court in Jackson Transit Auth. v. Local Div. 1285, Amalgamated Transit Union, 457 U.S. 15 (1982), held that even federally created contract rights are to be enforced in state courts under state law: “Congress intended those contracts to be governed by state law applied in state courts.” Id. at 26. With respect to ICAs, Congress created a limited federal right of review of state commission determinations as defined in 47 U.S.C. §252(e)(6). ICAs may be “creations of federal law,” but their interpretation is not a sufficiently substantial federal question to confer jurisdiction under 28 U.S.C. §1331. Russello at 23.

In Southwestern Bell Telephone Co. v. PUC, 208 F.3d 475 (5th Cir. 2000), SBC argued that the Texas Public Utility Commission did not have jurisdiction, exclusive or concurrent, to resolve interpretation and enforcement of a previously approved ICA. The issue before the fifith Circuit in SWBT v. PUC was whether the district court had jurisdiction to review a PUC determination that implicated the interpretation and enforcement of the ICA. The court posed two main questions: (1) whether the PUC had jurisdiction to resolve interpretation and enforcement disputes arising from a previously approved ICA, and (2) whether the district court had jurisdiction to review a PUC interpretation and enforcement decision. Specifically, the case deals with the broader issue of whether the federal district court had subject matter jurisdiction to review the PUC’s state contract law determinations, not whether the PUC’s jurisdiction was exclusive on that subject.

The Fifith Circuit concluded that the language of 47 U.S.C. §252(e)(6), although limiting federal review of a state commission’s actions, was expansive enough to cover ancillary and/or pendent state law contract issues that may attend the federal telecommunications issues raised in the proceeding:

We conclude that federal courts have jurisdiction over complaints pertaining to interconnection agreements and that such jurisdiction is not restricted to mere approval or rejection of such agreements.

208 F.3d at 481.

Conversely, federal jurisdiction is lacking until the PUC issued its ruling on a concurrent post-approval dispute. Express Tel Servs. Inc. v. SBC, No. 3:02-CV-1082-M (N.D. Tex. Oct. 16, 2002). In Express Tel, the plaintiff, CLEC, had filed a complaint before the Texas PUC that was still pending regarding the pricing dispute that was the subject of the case before Judge Lynn of the Northern District of Texas. Because the matter was still pending before the PUC, the district court had no jurisdiction under §252(e)(1). Express Tel, slip. op. at 12. The district court there held that the matter was not ripe and that the court lacked subject-matter jurisdiction because there was no determination by the PUC. The complaint with the PUC was still pending when it filed the action in state court.

Few cases address the situation in which the PUC has approved an ICA, but the parties need resolution of a matter of interpretation or enforcement. Express Tel at least suggests that interpretation might be left to the PUC, particularly where a proceeding is already ongoing. However, PUC jurisdiction is usually limited when it comes to damages making complete relief unavailable. For example, §21.125(h) of the Texas PUC’s rules states that “[t]he presiding officer does not have authority to award punitive or consequential damages.” Public Utility Commission of Texas Rules and Laws §21.125(h) (emphasis added). The PUC admittedly has concurrent jurisdiction over post-ICA disputes, but it does not have exclusive jurisdiction. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499, 16045 121-129 (1996) (Local Competition Order); aff’d. in part, vacated in part sub nom, Competitive Telecommunications Ass’n. v. FCC, 117 F.3d 1068 (8th Cir. 1997) (CompTel); aff’d. in part, vacated in part sub nom, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997) (Iowa Utils. Bd.); aff’d. in part, rev’d. in part sub nom., AT&T corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999).

Bankruptcy Courts’ Subject-Matter Jurisdiction over ICAs

Reorganization cases frequently involve timetables that are incompatible with the regulatory process. Particularly where interpretation of an ICA arises out of a core proceeding such as a contract assumption or a claim objection, it may be necessary for a bankruptcy judge to review and interpret an ICA.

In Mirant Corp. v. Potomac Elec. Power Co., 378 F.3d 511 (5^th Cir. 2004), for example, the debtor sought to reject its wholesale power contract (subject to FERC exclusive jurisdiction² ) with PECO because the contract was or had become above-market. Both PECO and FERC opposed the rejection, arguing that if the business justification for rejecting the contract was rates, the bankruptcy court could not look behind the ratemaking done by FERC without collaterally attacking its regulatory jurisdiction. Id. at 516.

The Fifth Circuit held that “the [Federal Power Act] does not provide FERC with exclusive jurisdiction over the breach of a FERC approved contract.” Outside of bankruptcy, as here, there is no exclusive jurisdiction over issues involving the breach of a regulated contract. Mirant, 378 F.3d at 519. The Mirant decision relied heavily on Gulf States Utils. Co. v. Ala. Power Co., 824 F.2d 1465, 1471-73 (5th Cir. 1987). In the Gulf States decision, the Fifth Circuit found that although proceedings before FERC had been initiated, those proceedings were limited in scope and did not involve specific regulatory expertise. Id. at 1474. That case involved matters of contract construction and enforcement and does not impact any regulatory scheme. Id. (Primary jurisdiction is not implicated where the findings “do not require the FERC’s special expertise or a uniform rule throughout the nation.”)

Primary Jurisdiction

Where a court and a regulatory body have concurrent jurisdiction over a case, the doctrine of primary jurisdiction may apply. Primary jurisdiction permits the court to stay its proceedings and defer to the regulatory agency on matters that are central to the regulatory function. Gulf States Utils. Co. v. Alabama Power Co., 824 F.2d 1465, 1472 (5th Cir. 1987). Thus, the discretionary doctrine merely “operates to postpone judicial consideration of a case to administrative determination of important questions involved by an agency with special competence in the area.” Mercury Motor Express Inc. v. Brinke, 475 F.2d 1086, 1091-92 (5th Cir. 1973). Usually the matter is stayed pending the resolution of the issues before the administrative agency, but it is not dismissed. In Advance United Expressways Inc. v. Eastman Kodak Co., 965 F.2d 1347 (5th Cir. 1992) on rehearing in part, 990 F.2d 184 (1993), for example, even where the matter involved questions of the construction and reasonableness of a tariff, the matter was referred to the administrative agency for determination of those issues.

As stated in Reiter v. Cooper, 507 U.S. 258 (1993), the doctrine requires the district court to stay the proceedings to allow the parties an opportunity to seek a ruling of the administrative agency. Because most chapter 11 cases involve contracts crucial to a debtor’s reorganization, primary jurisdiction may be invoked only rarely due to the inherent delay in waiting for regulatory determination.

Further, although primary jurisdiction can be fodder for the jurisdictional ping pong of telecom cases, not every issue arising under an ICA is new and different than the last one. “Primary jurisdiction is a concept that expresses both initial deference to the administrative agency and the concern for conservation of judicial resources. Neither purpose is served by using the doctrine when the agency has already said what it thinks.” Klicker v. Northwest Airlines Inc., 563 F.2d 1310, 1313 (9^th Cir. 1977) (internal citations omitted).