Global Naps, Inc. v. Verizon New England, Inc.

United States Court of Appeals
For the First Circuit
No. 06-2701

GLOBAL NAPS, INC.,

Plaintiff, Appellant,

v.

VERIZON NEW ENGLAND, INC., d/b/a VERIZON MASSACHUSETTS;
MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY;
PAUL B. VASINGTON, in his capacity as Commissioner;
JAMES CONNELLY, in his capacity as Commissioner;
W. ROBERT KEATING, in his capacity as Commissioner;
DEIRDRE K. MANNING, in her capacity as Commissioner;
EUGENE J. SULLIVAN, JR., in his capacity as Commissioner,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

Before
Boudin, Chief Judge,
Torruella and Howard, Circuit Judges.

Glenn B. Manishin with whom William J. Rooney and Jeffrey C.
Melick were on brief for appellant.
Scott H. Angstreich with whom Michael E. Joffre, Kellogg,
Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Bruce P. Beausejour,
Verizon New England, Inc., and Keefe B. Clemons, Verizon, were on
brief for appellee Verizon New England, Inc.
Daniel J. Hammond, Assistant Attorney General, with whom
Martha Coakley, Attorney General, was on brief for appellee
Massachusetts Department of Telecommunications and Energy.

October 16, 2007
 BOUDIN, Chief Judge. The present appeal concerns the

interpretation of an interconnection agreement between Verizon New

England, Inc. and Global NAPs, Inc. Verizon is an established

telephone company, largely the descendant of Bell operating

companies in New England and the mid-Atlantic states; Global NAPs

is a competing carrier that shares Verizon's facilities in the

course of providing its own services to customers.

The agreement between the two is governed primarily by

the Telecommunications Act of 1996 ("1996 Act").1 The statute

provides for such agreements, either negotiated or by arbitration,

and divides authority over the process between federal and state

regulators. The provision most pertinent in this case requires,

among other things, that the agreement set "reciprocal compensation

arrangements for the transport and termination of

telecommunications." 47 U.S.C. § 251(b)(5).

Once a new competitor is established in territory where

it and Verizon both have customers, a compensation problem exists

wherever a local call originates with a customer of one of the two

companies and ends with a customer of the other. The originating

carrier gets revenue from its customer, whether on a per call basis

1
Pub. L. No. 104-104, 110 Stat. 56 (codified as amended in
scattered sections of 47 U.S.C. (2000)). The background and
general operation of that statute have been set forth in several of
our recent decisions, e.g., WorldNet Telecomms., Inc. v. P.R. Tel.
Co., F.3d , 2007 WL 1376340, at *1 (1st Cir. 2007); Global
NAPs, Inc. v. Verizon New England, Inc., 444 F.3d 59, 61-65 (1st
Cir. 2006).

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or under some other payment plan; the terminating carrier gets no

revenue associated with the call even though its facilities are

being used to complete it. Reciprocal compensation paid to the

destination carrier is one means of addressing this issue.

Where such an agreement is in force, Verizon would pay

Global NAPs a negotiated fee for completing a Global NAPs' customer

call. Conversely, Global NAPs would pay Verizon when a Global NAPs

customer places a local call to a Verizon customer. The

expectation is that the call volume between the two carriers will

be roughly balanced so that neither company will be heavily in debt

to the other as a result of such payments. New England Tel. & Tel.

Co. v. Conversent Commc'ns of R.I., L.L.C., 178 F. Supp. 2d 81, 85

(D.R.I. 2001).

This balance has been disturbed by the rise in internet

usage and thus in telephone calls placed to internet service

providers ("ISPs") by customers who establish a "dial-up" internet

connection. Such calls are primarily one-way and also tend on

average to last longer than voice calls. Some new competitors have

heavily solicited customers who are ISPs (e.g., by offering free

service, or in some cases even paying ISPs to use their services)

in order to collect large amounts of reciprocal compensation for

terminating calls. See Global NAPs, Inc., 444 F.3d at 64.

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 Reciprocal compensation required by section 251(b)(5)

applies only to local calls,2 and in February 1999, the FCC

determined that the ISP-directed calls to establish internet

connections were not local calls under section 251(b)(5). Internet

Traffic Order ¶ 1, 14 F.C.C.R. 3689, 3689-90 (1999). Although this

order was vacated by an initial remand, Bell Atl. Tel. Cos. v. FCC,

206 F.3d 1, 3 (D.C. Cir. 2000), the FCC then reaffirmed its

position, ISP Remand Order ¶¶ 77-88, 16 F.C.C.R. 9151, 9186-93

(2001). The D.C. Circuit again remanded for further proceedings,

WorldCom, Inc. v. FCC, 288 F.3d 429 (D.C. Cir. 2002), cert. denied,

538 U.S. 1012 (2003), but has left the FCC ruling in force. See

Global NAPs, 444 F.3d at 65.

In the ISP Remand Order, the FCC adopted an interim

intercarrier compensation scheme to address the imbalance caused by

ISP traffic, which became the sole vehicle for such compensation as

of June 14, 2001.3 Nevertheless, prior to this point, the FCC had

left it open to interconnecting parties to agree to treat the

traffic as subject to reciprocal compensation, even though not

2
See Local Competition Order ¶ 1034, 11 F.C.C.R. 15499, 16013
(1996). For long distance calls, access charges are paid by long
distance companies to local exchange carriers for the use of local
network facilities. 47 C.F.R. § 69.2(a).
3
The ISP Remand Order specified that its ruling would go into
effect "30 days after publication in the Federal Register," ¶ 112,
16 F.C.C.R. at 9204, after which state commissions' authority to
adopt other schemes was eliminated. See Verizon Cal., Inc. v.
Peevey, 462 F.3d 1142, 1147 (9th Cir. 2006).

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required by section 251. The central question in this case is

whether the current Massachusetts agreement between Verizon and

Global NAPs requires compensation during the interim period between

the start of the current 1998 agreement and the effective date of

the FCC's interim plan. Some history helps to frame the question.

In 1999, while Verizon and Global NAPs were operating

under a prior 1997 agreement in Massachusetts, the Massachusetts

Department of Telecommunications and Energy ("DTE") ruled that

Global NAPs was not entitled to reciprocal compensation for ISP-

bound calls under the agreement. MCI WorldCom, Inc. v. New England

Tel. & Tel. Co., D.T.E. 97-116-C, 1999 WL 634357, at *15 (Mass

D.T.E. May 26, 1999). Global NAPs responded by notifying Verizon

that it intended to adopt for use in Massachusetts an

interconnection agreement that it had negotiated with Verizon in

1998 for use in Rhode Island.

Recognizing that the nature of the ISP calls under

section 251(b) of the 1996 Act was at the time in dispute, the 1998

Rhode Island agreement stated in section 5.7.2.3 (emphasis added):

The Parties stipulate that they disagree as to
whether traffic that originates on one Party's
network and is transmitted to an Internet
Service Provider ("ISP") connected to the
other Party's network ("ISP Traffic")
constitutes Local Traffic as defined herein,
and the charges to be assessed in connection
with such traffic. The issue of whether such
traffic constitutes Local Traffic on which
reciprocal compensation must be paid pursuant
to the 1996 Act is presently before the FCC in
CCB/CPD 97-30 and may be before a court of

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 competent jurisdiction. The Parties agree
that the decision of the FCC in that
proceeding, or as [sic] such court, shall
determine whether such traffic is Local
Traffic (as defined herein) and the charges to
be assessed in connection with ISP Traffic.
If the FCC or such court determines that ISP
Traffic is Local Traffic, as defined herein,
or otherwise determines that ISP Traffic is
subject to reciprocal compensation, it shall
be compensated as Local Traffic under this
Agreement unless another compensation scheme
is required under such FCC or court
determination. Until resolution of this
issue, [Verizon] agrees to pay [Global NAPs]
Reciprocal Compensation for ISP Traffic
(without conceding that ISP Traffic
constitutes Local Traffic or precluding
[Verizon's] ability to seek appropriate court
review of this issue) pursuant to the
Commission's Order in Case 97-C-1275, dated
March 19, 1998, as such Order may be modified,
changed or reversed.

Verizon objected to the adoption of the Rhode Island

agreement in Massachusetts but, on a complaint by Global NAPs, the

FCC held that Verizon was bound, under a commitment Verizon had

made in exchange for the FCC's approval of the Bell Atlantic-GTE

merger, to permit Global NAPs to adopt the entire Rhode Island

agreement for use in Massachusetts, thereby superseding the 1997

agreement. Global NAPs, Inc. v. Verizon Commc'ns, 17 F.C.C.R.

4031, 4036 (2002).

Verizon then submitted the Rhode Island agreement to DTE

for approval in Massachusetts but also asked DTE to determine

whether under the newly adopted agreement the ISP calls were

"local" and Verizon therefore owed reciprocal compensation to

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Global NAPs for ISP calls delivered in Massachusetts between July

24, 2000 (the effective date of the agreement in Massachusetts) and

June 14, 2001 (when the FCC adopted its own currently effective

interim method of compensation in the ISP Remand Order, 16 F.C.C.R.

9151 (2001)).

DTE responded that the FCC's 1999 Internet Traffic Order

had ended Verizon's obligation under the terms of section 5.7.2.3

(block quoted above). As already noted, the FCC had there held

that ISP calls were not local calls triggering reciprocal

compensation. This FCC ruling, DTE held, comprised "the decision

of the FCC in that proceeding" anticipated by section 5.7.2.3. DTE

then affirmed the 1998 agreement (so construed) as applying in

Massachusetts. Adoption of Interconnection Agreement, D.T.E. No.

02-21, 2002 Mass. PUC Lexis 35, at *25 (Mass. D.T.E. June 24,

2002).

Global NAPs in turn sought judicial review in the federal

district court in Massachusetts. 47 U.S.C. § 252(e)(6). On cross

motions for summary judgment, the district court ultimately upheld

the DTE's interpretation of the newly approved agreement as

reasonable, giving deference to the agency's interpretation.

Global NAPS, Inc. v. Verizon New England, Inc., 447 F. Supp. 2d 39,

41 (D. Mass. 2006).4 Global NAPs now appeals to us.

4
In an initial go-around, the district court held that Verizon
was bound by a decision of the Rhode Island utilities commission
construing the Rhode Island agreement language adversely to

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 Global NAPs' first argument is that under Massachusetts

law the district court should have read the 1998 agreement de novo

and not given DTE the benefit of the arbitrary and capricious

standard. In federal practice, a regulatory agency gets some

deference not only as to determinations of fact and policy, see

Associated Fisheries of Me., Inc. v. Daley, 127 F.3d 104, 109 (1st

Cir. 1997), but also in construing its own statute, Chevron U.S.A.,

Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43

(1984), and tariffs or agreements filed with it, Boston Edison Co.

v. FERC, 441 F.3d 10, 12-13 (1st Cir. 2006).

The rationale for deference is that interpreting a

carrier tariff or filed agreement is often informed by the agency's

intertwined policy judgments and expertise. See Boston Edison, 441

F.3d at 16 (citing Sierra Club v. Larson, 2 F.3d 462, 469 (1st Cir.

1993)). Under the dual-regulation scheme adopted by the 1996 Act,

interconnection agreements are reviewed and approved by the state

agencies. Accordingly, the rationale favors deference to DTE in

its interpretation of the Massachusetts interconnection agreement.

In response, Global NAPs says that in a Massachusetts

court, DTE's reading of a contract is (absent extrinsic evidence)

an issue of law subject to de novo review. Yet where a regulatory

Verizon. Global NAPs, Inc. v. Verizon New England, Inc., 332 F.
Supp. 2d 341, 344 (D. Mass. 2004). This court reversed, ruling
that DTE was entitled to make its own evaluation of the agreement
as adopted in Massachusetts. Global NAPs, Inc. v. Mass. Dep't of
Telecomms. & Energy, 427 F.3d 34, 48 (1st Cir. 2005).

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filing is concerned, we think Massachusetts law does call for

giving weight to DTE's interpretation. MCI Worldcom Commc'ns, Inc.

v. Dep't of Telecomms. & Energy, 810 N.E.2d 802, 810 (Mass. 2004).

So we need not decide whether, if Massachusetts practice were

otherwise, we would follow Massachusetts. See generally Mich. Bell

Tel. Co. v. MCIMetro Access Transmission Servs., Inc., 323 F.3d 348

(6th Cir. 2003).

Alternatively, Global NAPs argues that no deference is

due here because the triggering event under section 5.7.2.3 is a

decision by the "FCC or court," which Global NAPs characterizes as

an issue of federal law. But the primary question here is whether

section 5.7.2.3 of the interconnection agreement, arguably

ambiguous, is triggered by a specific FCC decision, whose own

content is plain. In construing the agreement, which DTE approved,

DTE does get some deference under both federal and Massachusetts

practice.

Turning then to the merits, Global NAPs says that it

makes no sense to treat a vacated FCC decision--the Internet

Traffic Order--as the awaited "FCC or court" "resolution" under

section 5.7.2.3, even though the "not local" determination was

thereafter reaffirmed on remand by the FCC. Global NAPs urges that

the reference to the FCC "or" court indicates that the parties did

not intend that section 5.7.2.3 be triggered until final court

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review of the FCC determination had been completed--a circumstance

that has apparently not yet occurred.

The bare language of section 5.7.2.3 ("FCC or court";

"resolution") does not answer the interpretation question. Indeed,

the parties in drafting section 5.7.2.3 likely did not think

through all the permutations that could be presented by a FCC

determination followed by further court review, remands, certiorari

petitions, later modifications and the like. Neither side has

pointed to any negotiations that focused on such variations. In

reality, "interpretation" is often a matter of filling in gaps.

Here, sequence is informative. When the Rhode Island

agreement was adopted in July 1998, the issue whether reciprocal

compensation under section 251(b)(5) applied to ISP calls had been

pending before the FCC for well over a year. The parties could

have arbitrated reciprocal compensation issues before the relevant

state agency; instead, in the Rhode Island agreement the parties

effectively tied the obligation vel non to the forthcoming FCC

order, Verizon agreeing to pay such compensation in the interim.

This context, and the identification in section 5.7.2.3

of the specific FCC docket that led to the Internet Traffic Order,

focus attention on the ensuing FCC order which was (in a dictionary

sense) a "resolution" of the "local" or not question. To call the

FCC order a nullity (as Global NAPs does) because vacated and

remanded for further explanation begs the question before us; the

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issue is not whether the FCC order was remanded but whether its

initial ruling, later reaffirmed and still in force, should be

treated as a "resolution" of the issue within the meaning of

section 5.7.2.3.

Of course, by the time Global NAPs sought to adopt the

Rhode Island agreement for Massachusetts, the FCC had entered its

Internet Traffic Order ruling that ISP calls were not local, and

DTE had rejected the company's claim for compensation under the

1997 Massachusetts agreement. Nevertheless, adopting the 1998

Rhode Island agreement looks like a Hail Mary pass; Global NAPs

might still hope that a reviewing court would read section 5.7.2.3

as favoring its position. But, like the district court, we do not.

Global NAPs next argues that even if the FCC order is

more than a nullity and is a "resolution" of some sort, it cannot

be treated as resolution of the crucial issue whether reciprocal

compensation should be paid. Global NAPs says that the order

merely decided that ISP calls were not "local" within the meaning

of section 251; it did not forbid reciprocal compensation but

acknowledged that carriers by agreement could require reciprocal

compensation for such calls.

This may be a fair reading of what the FCC order said but

not of the Massachusetts agreement. The agreement says that the

issue whether ISP calls are "Local Traffic on which reciprocal

compensation must be paid pursuant to the 1996 Act" is pending at

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the FCC; that the answer of the FCC or a court will determine the

issue; and if the FCC or court says yes, then such calls "will be

compensated as Local Traffic under this agreement." The negative--

that otherwise the agreement will not require such compensation--is

clearly implied.

Quite possibly, a court might also deem "reasonable" a

reading of section 5.7.2.3 that favored Global NAPs. For example,

one might read the section's "or court" reference as calling for a

"final" decision or resolution and mean by "final" one no longer

subject to direct review--although the agreement has no such

express language. Or Global NAPs could point to obvious unraveling

problems in the event that the D.C. Circuit later concludes that

ISP calls must be treated as falling within section 251.

Like courts, agencies--faced with cloudy contract

language and a contingency that the parties may not have fully

thought through--must do the best they can. Here, the DTE's

decision can be squared with the language of section 5.7.2.3 and no

linguistic solution offered by Global NAPs is more obviously

correct. The history and timing also suggest that the parties were

focusing on the FCC docket in question when they framed the

language referring to an FCC decision.

Nor does DTE's outcome hint at unfairness. Whether or

not Global NAPs engaged in deliberate arbitrage, the result it

seeks in this case is simply to continue to obtain reciprocal

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compensation past the date when the FCC ruled that it was not due

under the statute. Section 5.7.2.3 made such a ruling controlling

under the 1998 agreement as well. Even if DTE had never spoken to

the issue, this would likely be the better reading.

In the final two paragraphs of its opening brief, Global

NAPs notes the district court's statement that the agreement is

"arguably susceptible to more than one meaning" and the fact that

the district court (as we do) took account of historical context,

as well as language, in construing the agreement. Then it says

tersely that Global NAPs should have been afforded an opportunity

for discovery and an evidentiary hearing.

Ambiguity does open the way for extrinsic evidence; many

courts are even more welcoming. Nat'l Tax Inst. v. Topnotch at

Stowe Resort & Spa, 388 F.3d 15, 20 (1st Cir. 2004); Baybank v. Vt.

Nat'l Bank, 118 F.3d 30, 33 (1st Cir. 1997). But Global NAPs

apparently never asked DTE for an opportunity to introduce other

extrinsic evidence and, even on appeal, points to nothing that it

would offer at such a hearing or could likely unearth in discovery.

In theory, Global NAPs' negotiation of the crucial

language in the Rhode Island and companion agreements could have

generated correspondence with Verizon or recollected discussions

favorable to Global NAPs. If so, one would expect that Global NAPs

would long since have proffered such materials to DTE or explained

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why such materials were likely to exist but required discovery to

wrest them from others. It has not done so.

Affirmed.

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