United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 5, 2002 Decided June 4, 2002
No. 01-1192
Global NAPS, Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
Verizon Telephone Companies, et al.,
Intervenors
On Petition for Review of Orders of the
Federal Communications Commission
Christopher W. Savage argued the cause and filed the
briefs for petitioner.
Lisa E. Boehley, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With her on the
brief were John Rogovin, Deputy General Counsel, Richard
K. Welch, Associate General Counsel, John E. Ingle, Deputy
Associate General Counsel, Catherine G. O'Sullivan, and
Robert J. Wiggers, Attorneys, U.S. Department of Justice.
Nancy C. Garrison, Attorney, entered an appearance.
Aaron M. Panner argued the cause for intervenors. With
him on the brief were Mark L. Evans, Michael E. Glover,
Edward H. Shakin, and Lawrence W. Katz.
Before: Edwards, Rogers, and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Edwards.
Edwards, Circuit Judge: The Telecommunications Act of
1996, Pub. L. No. 104-104 (Feb. 8, 1996), requires the Federal
Communications Commission ("FCC") to preempt the juris-
diction of any state regulatory commission that "fails to act to
carry out its responsibility" to approve or reject interconnec-
tion agreements entered into by local exchange carriers
("LECs"). 47 U.S.C. s 252(e)(5). In this case, Global NAPs,
Inc. ("GNAPs"), a LEC providing local exchange services in
Massachusetts and other Eastern states, has petitioned for
review of the FCC's refusal to preempt the regulatory au-
thority of the Massachusetts Department of Telecommunica-
tions and Energy ("DTE") over the interpretation of an
interconnection agreement between GNAPs and Verizon.
The disputed GNAPs-Verizon agreement provides that the
carriers shall pay "reciprocal compensation" to one another
for carrying and completing local calls made by customers of
one company to customers of the other. Many of GNAPs'
customers are Internet Service Providers ("ISPs"), who need
telephone connections to provide their own customers with
dial-up Internet access. However, the agreement does not
specify whether calls made to ISPs are "local" calls for which
reciprocal compensation is due. Because this question has
been the source of much debate and confusion in the telecom-
munications field, and because the financial stakes are high,
GNAPs sought a declaratory ruling from DTE that ISP-
bound traffic is subject to reciprocal compensation under the
terms of its agreement with Verizon. After waiting for the
state agency to act on this request for nearly eight months,
GNAPs filed a petition with the FCC, asking the federal
Commission to preempt DTE's jurisdiction and resolve the
issue itself.
Before the FCC responded to this request, DTE issued an
order dismissing GNAPs' claim as moot in light of the state
agency's decision that ISP-bound calls were not local within
the meaning of an identically worded interconnection agree-
ment between Verizon and MCI WorldCom. In light of
DTE's dismissal, the FCC concluded that the state commis-
sion had not "fail[ed] to act to carry out its responsibility"
under s 252 and, therefore, that preemption was not warrant-
ed. GNAPs now petitions for review of the FCC decision,
arguing that the FCC misunderstood its obligations under
s 252(e)(5), which, the company insists, compels the Commis-
sion to adjudicate the issue that DTE found to be moot. We
reject the petition for want of merit.
We hold that the FCC's conclusion that s 252(e)(5) does
not empower it to look behind a state agency's dismissal of a
carrier's claim to evaluate the substantive validity of that
dismissal is both a reasonable interpretation of that provision
and consistent with the Commission's past practices and
precedents. It is clear that DTE believed that it was conclu-
sively resolving the issue of whether GNAPs had a right to
compensation from Verizon for the costs associated with
completing calls made to ISPs. It does not matter whether
the state agency's position is correct on the merits. Rather,
as the FCC found, what matters is that DTE did not fail to
act, so the federal Commission has no basis upon which to
preempt the regulatory authority of the state agency.
GNAPs' remedy lies not in FCC preemption, but rather in
judicial review of DTE's order, whether in federal or in state
court.
I. Background
GNAPs is a competitive LEC that provides local telephone
service in several eastern states, including Massachusetts.
Among its customers are a number of ISPs, who use connec-
tions supplied by GNAPs to allow their own customers to
establish dial-up access to the Internet. Verizon is the
incumbent LEC operating in Massachusetts. In April of
1997, as directed by the Telecommunications Act of 1996,
GNAPs and Verizon entered into an interconnection agree-
ment, which provided that each carrier would receive "recip-
rocal compensation" for completing calls made by one anoth-
er's customers. See 47 U.S.C. s 251(b)(5) (requiring LECs to
establish reciprocal compensation agreements). Thus, Veri-
zon agreed to compensate GNAPs for the costs that the latter
incurs when one of Verizon's subscribers calls a GNAPs
subscriber within the same local calling area.
By the terms of the agreement, this reciprocal compensa-
tion obligation applies only to the "the transport and termi-
nation of Local Traffic," that is, to calls both originated and
terminated in Massachusetts. That definition, however,
leaves ambiguous whether "local traffic" includes ISP-bound
traffic. Such calls are difficult to classify, because, while the
ISP itself may be located within Massachusetts, the actual
end-point of a call made to that provider may be a remote
Internet site well outside the Commonwealth. Despite the
substantial sums of money at stake - millions of dollars,
according to GNAPs, see Br. for the Pet'r 5 n.9 - the carriers
made no attempt to resolve this ambiguity. They did, howev-
er, agree that whatever the proper interpretation, Verizon
would pay GNAPs for ISP-calls if it paid compensation for
such calls under the terms of identically worded interconnec-
tion agreements that it had made with other LECs, including
MCI WorldCom. And, following an October 1998 decision in
which DTE interpreted the Verizon/MCI WorldCom to re-
quire compensation for the delivery of ISP-bound traffic,
Verizon began to pay such compensation to GNAPs as well.
See Complaint of WorldCom Technologies, Inc., D.T.E.
97-116 (Mass. DTE Oct. 21, 1998) ("October 1998 Order")
(Joint Appendix ["J.A."] 84).
The issue appeared settled until February 1999, when the
FCC issued an order holding that calls made to ISPs would
be considered as nonlocal for purposes of the Commission's
rules regulating reciprocal compensation. See In re Imple-
mentation of the Local Competition Provisions in the Tele-
communications Act of 1996, Intercarrier Compensation for
ISP-Bound Traffic, 14 F.C.C.R. 3689 (Feb. 26, 1999) ("Recip-
rocal Compensation Order"), vacated, Bell Atlantic Tel. Cos.
v. FCC, 206 F.3d 1 (D.C. Cir. 2000). However, the FCC's
Reciprocal Compensation Order left open the possibility that
state regulators (such as DTE) could continue to treat ISP-
bound traffic as local traffic, if interconnection agreements
between carriers so provided, whether explicitly or implicitly.
See Verizon Md. Inc. v. Public Serv. Comm'n of Md., 535
U.S. __, 122 S. Ct. 1753, 1757 (2002).
In the wake of the Reciprocal Compensation Order, Veri-
zon asked DTE to reverse its October 1998 Order, and hold
that Verizon was no longer obligated to compensate other
carriers for ISP-bound calls. The company then stopped
making such payments to GNAPs. GNAPs responded to this
development in two ways. First, it filed a new tariff with the
FCC in which it sought to impose a $.008 per minute charge
on the delivery of all ISP-bound calls for which GNAPs did
not receive compensation under an existing interconnection
agreement. Verizon refused to pay, and challenged the valid-
ity of the tariff before the FCC. The Commission declared
the tariff unlawful and void ab initio, a decision eventually
affirmed by this court. See Global NAPs, Inc. v. FCC, 247
F.3d 252 (D.C. Cir. 2001). Second, on April 16, 1999, GNAPs
filed a complaint against Verizon with DTE, seeking a decla-
ration that, under the terms of the carriers' interconnection
agreement, ISP-traffic was included in the category of local
traffic for which compensation was owed.
On May 19, 1999, DTE vacated its October 1998 Order.
See Complaint of MCI WorldCom, Inc., D.T.E. 97-116-C
(Mass. DTE May 19, 1999) ("May 1999 Order") (J.A.136).
The state agency declared that, in light of the Reciprocal
Compensation Order, nothing in either its own rules or those
of the FCC required Verizon to pay reciprocal compensation
for Internet-bound traffic. At the same time, however, DTE
did not purport to decide whether ISP-traffic might still be
considered local under the terms of any particular intercon-
nection agreement. It merely held that no then-viable DTE
order mandated such a conclusion. Therefore, the separate
contractual interpretation question regarding the meaning of
"Local Traffic" in the GNAPs-Verizon agreement was "a now-
unresolved dispute." Id. at 26 (J.A. 166). In other words,
nothing in DTE's May 1999 Order purported to resolve the
complaint that GNAPs had filed against Verizon the previous
month.
DTE, however, did nothing in response to that complaint in
the subsequent months. Finally, on December 9, 1999,
GNAPs petitioned the FCC to preempt DTE's regulatory
jurisdiction and decide for itself the question of whether
"Local Traffic" included ISP-bound calls. Such preemption is
authorized by the Telecommunications Act of 1996, but only
where the "State commission fails to act to carry out its
responsibility under [s 252] in any proceeding or other mat-
ter under [s 252]." 47 U.S.C. s 252(e)(5). On February 25,
2000, before the FCC had acted on the preemption request,
DTE issued an order denying reconsideration of its May 1999
Order. In so doing, the state agency addressed GNAPs'
complaint:
In addition, we hereby dismiss as moot the Motion for
Complaint of GNAPs in D.T.E. 99-39. As noted above,
in its Motion for Complaint, GNAPs sought a declaratory
ruling from the Department that, under the terms of its
interconnection agreement with [Verizon], GNAPs should
be compensated for terminating ISP-bound traffic from
[Verizon] customers. The operative provisions of
GNAPs' agreement (i.e. the definition of local traffic and
the payment of reciprocal compensation) are in all mate-
rial respects the same as the provision in the MCI-
WorldCom agreement, which were the subject of the
dispute in this proceeding (D.T.E. 97-116). In that we
have affirmed, above, our Order in D.T.E. 97-116-C
concerning this very subject, we find that the GNAPs
Motion for Complaint is moot.
Complaint of MCI WorldCom, Inc., D.T.E. 97-116-D, at 20
(Mass. DTE Feb. 25, 2000) ("February 2000 Order") (J.A.
269). The May 1999 Order had not decided whether Veri-
zon's interconnection agreements included Internet-bound
calls within the definition of "Local Traffic." Nonetheless,
DTE's February 2000 Order determined that reaffirming its
previous order resolved the theretofore undecided interpre-
tive question, and thus mooted GNAPs' complaint.
Soon after DTE's decision was released, the FCC's Com-
mon Carrier Bureau ("CCB") denied GNAPs' petition for
preemption. See In re Global NAPs, Inc., 15 F.C.C.R. 4942
(CCB Mar. 7, 2000) ("CCB Order") (J.A. 279). In doing so,
CCB first noted that there was a reasonable question about
whether a dispute over the interpretation of an interconnec-
tion agreement even constituted a "proceeding or other mat-
ter under [s 252]" such that the FCC would have the power
to preempt under s 252(e)(5). Id. at p p 5-7 (J.A. 281-82); cf.
Verizon Md., 122 S. Ct. at 1758 (declining to decide whether a
state commission's decision interpreting an interconnection
agreement is a "determination under s 252").
In the end, however, the Bureau held that, because GNAPs'
complaint was no longer pending before DTE, there was
nothing for the FCC to preempt. DTE had resolved the
matter, rejecting GNAPs' complaint. See id. at p 7 (J.A. 282).
Moreover, CCB explained that the FCC's statutory preemp-
tion authority did not empower the federal agency to examine
the "underlying reasoning" supplied by DTE for its conclu-
sion. The Bureau thus declined to look beyond DTE's deci-
sion to question the substantive validity of the state agency's
judgment. Id. at p 9 (J.A. 283). On review, the FCC af-
firmed CCB's order, agreeing with the Bureau's analysis in
all respects. See In re Global NAPs, Inc., Order on Review,
16 F.C.C.R. 4976 (Feb. 21, 2001) (J.A. 388). GNAPs now
challenges the Commission's decision before this court.
II. Discussion
The single issue presented in this case is whether the FCC
reasonably determined that DTE did not "fail[ ] to act to
carry out its responsibility" to adjudicate the dispute between
GNAPs and Verizon over whether ISP-bound calls are "local"
within the meaning of their interconnection agreement. Only
where there is such a failure does s 252(e)(5) obligate the
Commission to step in. Otherwise - such as where the state
agency actually "makes a determination" under s 252 - there
is no statutory basis for FCC preemption. Under such cir-
cumstances, an aggrieved party may bring an action for
judicial review in federal court under s 252(e)(6), or, if that
provision is inapplicable and there is no federal question at
issue, in state court. Cf. Verizon Md., 122 S. Ct. at 1758-60
(holding that federal courts have jurisdiction to review deci-
sions of state commissions interpreting interconnection agree-
ments, at least where review turns on issues of federal law,
and that this jurisdiction is not stripped by s 252(e)(6)).
Section 252(e)(6), entitled "Review of State commission
actions," reads as follows:
In a case in which a State fails to act as described in
paragraph (5), the proceeding by the Commission under
such paragraph and any judicial review of the Commis-
sion's actions shall be the exclusive remedies for a State
commission's failure to act. 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 deter-
mine whether the agreement or statement meets the
requirements of section 251 of this title and this section.
Both the plain language and structure of this provision sug-
gest that the remedies it authorizes are distinct and mutually
exclusive. If a state commission fails to act, preemption is a
viable option; however, if the state agency takes final action
disposing of the pending claim, that action can be undone only
by direct judicial review in the appropriate forum. And, in
the present case, it does not matter whether DTE's decision
to dismiss GNAPs' complaint as moot was reasonable. What
matters is that the FCC did not err in concluding that DTE's
February 2000 Order did not constitute a "failure to act."
Therefore, the FCC correctly held that DTE is not subject to
preemption.
When DTE issued its February 2000 Order, the state
agency believed that it was acting on, and disposing of, the
issues raised in GNAPs' Motion for Complaint. For whatev-
er reason, the state commission thought that upholding its
May 1999 Order decided (or reconfirmed) that ISP-bound
traffic was not local traffic under the Verizon-MCI WorldCom
agreement, and that this determination effectively resolved
the dispute between the parties to the Verizon-GNAPs agree-
ment. Even if the state agency's dismissal was premised on
faulty or incomprehensible legal reasoning, it nonetheless
constituted final action disposing of GNAPs' complaint.
In the Orders now on review, the FCC decided that it
would not preempt an already completed state proceeding, at
least where doing so would require the Commission to exam-
ine the underlying reasoning given by the state agency for
terminating that proceeding. See CCB Order, at p p 7-9 (J.A.
282-83); Br. for Respondents 18-19. In so holding, the FCC
has effectively construed s 252(e)(5) as not covering situa-
tions where a state agency affirmatively acts to dispose of a
case, and in so doing at least purports to resolve the issues
presented to it. See also In re Implementation of the Local
Competition Provisions in the Telecommunications Act of
1996, First Report and Order, 11 F.C.C.R. 15499, p 1285
(Aug. 8, 1996), aff'd in part, vacated in part, Iowa Utils. Bd.
v. FCC, 120 F.3d 753 (8th Cir. 1997), aff'd in part, rev'd in
part, sub nom. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366
(1999) ("The Commission will not take an expansive view of
what constitutes a state's 'failure to act.' Instead, the Com-
mission interprets 'failure to act' to mean a state's failure to
complete its duties in a timely manner.").
The FCC's interpretation thus suggests that only if the
state commission either does not respond to a request, or
refuses to resolve a particular matter raised in a request,
does preemption become a viable option. Under this reading,
the purpose of s 252(e)(5) is to hold out the FCC as an
alternative forum for the adjudication of certain disputes
related to interconnection agreements; the statute does not
authorize the Commission to sit as an appellate tribunal to
review the correctness of state resolution of such disputes.
We believe that this understanding of the preemption provi-
sion is neither incompatible with congressional intent nor
unreasonable. Instead, it seems quite faithful to the key
statutory language: in this context, "fails to act" suggests
incomplete action or no action, not misguided action. See
Webster's Third New International Dictionary 814 (1993)
(defining "fail" when used with the infinitive as "to neglect to
do something; leave something undone; be found wanting in
not doing something").
Indeed, GNAPs' objection here seems less to DTE's sup-
posed inaction than to the quality of its action. Petitioner
thus focuses our attention on the "carry out its responsibility"
language in s 252(e)(5), suggesting that these words require
the FCC to take a more substantive look at what a state
commission has done before absolving itself of its duty to
preempt. See Br. for Pet'r 20. While this phrase may be
ambiguous, the FCC's preferred interpretation is entirely
plausible, and therefore commands deference under Step Two
of Chevron. See Chevron U.S.A., Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837, 843 (1984).
In essence, the Commission reasonably concluded that the
"responsibility" invoked by the statute is the state agency's
responsibility to make a determination - that is, to mediate,
to arbitrate, to approve, and (possibly) to interpret and
enforce an interconnection agreement - rather than the re-
sponsibility to make a determination that is satisfactory to all
parties, or to the FCC itself. This construction, which focus-
es on whether the state agency has acted, rather than on the
quality of its action, is consistent with the text and structure
of the statute. This approach also allows parties frustrated
by the results from a state commission to know immediately
whether to seek preemption or judicial review, thereby saving
the time and expense of simultaneous litigation on multiple
fronts.
Finally, GNAPs contends that the FCC's holding in this
case was inconsistent with the agency's previous decisions
under s 252(e)(5). According to GNAPs, the Commission has
"consistently held that it is not bound by the mere fact that a
state regulator has issued an order, or by the mere words of
such an order, in assessing whether the state regulator has
acted to carry out its responsibility with regard to a dispute."
Br. for Pet'r 23 (internal quotation marks omitted). GNAPs
points to two FCC decisions, neither one of which supports
GNAPs' position in this case.
The first decision involved a request for preemption
brought by MCI. In that case, the Commission rejected the
argument that preemption was inappropriate merely because
a state agency had issued a final arbitration order. See In re
Petition of MCI for Preemption Pursuant to Section
252(e)(5) of the Telecommunications Act of 1996, 12 F.C.C.R.
15594, at p 32 (Sept. 26, 1997). However, the point of the
FCC's statement was merely that a state agency can fail to
act under s 252(e)(5) where it issues a general dismissal
order that does not resolve all issues "clearly and specifically"
presented to it. See id. at p 27. Indeed, in MCI, the FCC
ultimately declined to preempt, because the Missouri Public
Service Commission had acted on all such issues; other
claims that the carrier argued should have been decided had
not been advanced with sufficient clarity and specificity to
make the state's agency's inaction a "failure to act" within the
meaning of s 252(e)(5). See id. at p 36.
In the instant case, the claim over which GNAPs seeks
preemption - the definition of "Local Traffic" in its agree-
ment with Verizon - was properly presented to DTE and the
state agency explicitly addressed that claim, finding it to be
moot. Accordingly, there is no inconsistency between the
FCC's refusal to preempt here and its refusal to do so in
MCI.
The second decision to which GNAPs points involved a
situation in which the FCC actually did decide to preempt a
state commission's jurisdiction. See In re Starpower Com-
munications, LLC, Pet. for Preemption of Jurisdiction of the
Vir. State Corp. Comm'n Pursuant to Section 252(e)(5) of the
Telecommunications Act of 1996, 15 F.C.C.R. 11277 (June 14,
2000). While it is true that the FCC concluded that "the
mere issuance of the [state] Commission's final order in each
proceeding" was insufficient to fulfill the state agency's re-
sponsibilities under s 252(e)(5), id. at p 8, the Starpower
decision actually supports the FCC's position in the present
case.
Starpower concerned a preemption request brought by a
LEC that had sought - and failed to receive - a declaration
from a state agency (the Virginia State Corporation Commis-
sion) that ISP-bound traffic was local under an interconnec-
tion agreement. The Virginia commission expressly declined
even to consider Starpower's petition and, instead, encour-
aged the parties to seek relief from the FCC. See id. at p 4.
Thus, when Starpower petitioned the FCC for preemption,
the federal agency accepted, explaining that "[b]ecause the
[state agency] decisions explicitly declined to take any action
with respect to Starpower's petitions ... we are compelled to
conclude that the Virginia Commission 'failed to act to carry
out its responsibility' under section 252." Id. at p 7 (emphasis
added).
The FCC went on to note that, under Commission prece-
dent, a state agency fulfills its responsibilities under
s 252(e)(5) "when it resolves the merits of a section 252
proceeding or dismisses such a proceeding on jurisdictional or
procedural grounds." Id. at p 8. This is just what DTE did
here. In doing so, DTE - in stark contrast to the Virginia
commission - did not recommend that the parties turn to the
FCC for resolution of their dispute. Instead, DTE acted as if
it was adjudicating (or at least confirming its earlier adjudica-
tion) of GNAPs' complaint. This decision may have produced
a questionable result, but it was hardly inaction.
In sum, MCI and Starpower support the Commission's
decision in this case. In neither of those prior cases did the
FCC so much as suggest that a state agency's dismissal of an
issue on the merits constitutes a failure to act. Quite the
opposite. And because DTE acted here, the FCC's determi-
nation that it lacked the authority under s 252(e)(5) to second
guess the validity of the state agency's decision under the
guise of preemption was neither contrary to the statute nor to
the Commission's past practices. Accordingly, GNAPs' chal-
lenge must fail.
III. Conclusion
For the reasons given above, we hold that the FCC's
decision not to preempt DTE's jurisdiction over GNAPs'
complaint represented a reasonable interpretation of
s 252(e)(5). We therefore deny the petition for review.
It is so ordered.