Mathias, Richard, et al. v. WorldCom Tech., Inc., et al. (05/20/2002)

Questions presented: (1) Whether a state commissions action relating to the enforcement of a previously approved section 252 interconnection agreement is a "determination under [section 252]" and thus is reviewable in federal court under 47 U.S.C. ?252(e)(6). (2) Whether a state commissions acceptance of Congress invitation to participate in implementing a federal regulatory scheme that provides that state commission determinations are reviewable in federal court constitutes a waiver of 11th Amendment immunity. (3) Whether an official capacity action seeking prospective relief against state public utility commissioners for alleged ongoing violations of federal law in performing federal regulatory functions under the federal Telecommuncations Act of 1996 can be maintained under the Ex parte Young doctrine.

BY ABBIE BOUDREAU, MEDILL NEWS SERVICE

Until the 1990s, local phone service was a monopoly.

But with the emergence of the Telecommunications Act of 1996, competition between local exchange carriers arose.

The federal act provided for an elaborate procedure to arrive at the interconnection agreements that involved first good faith negotiations among the carriers, then mediation through a state utility commission, then arbitration, then approval by the state utility commission, with the possible intervention of the Federal Communications Commission (FCC).

In Illinois, the competing carriers were able to reach acceptable interconnection agreements, approved by the state's utility commission, the Illinois Commerce Commission (ICC).

All went well until July 1997 when Ameritech became concerned that it was paying out more in reciprocal compensation than it was collecting. It said so in a letter to the other carriers, blaming the imbalance on the other carriers' inclusion of calls involving Internet service providers (ISPs), and saying it would no longer pay reciprocal compensation fees for calls to ISPs because they were not local calls.

Even though ISPs are assigned a local telephone number and the telephone companies bill their customers for a local call, Ameritech claimed the "ultimate connection" is usually to a website in a distant location, thereby giving Ameritech grounds for claiming that the calls were not local calls, subject to the reciprocal compensation agreements.

After other carriers filed complaints against Ameritech for not paying the compensation fees, the ICC ruled in their favor on March 11, 1998, finding there was no basis for treating ISP calls differently from other local calls and that the "plain language of the agreements mandates reciprocal compensation." The ICC called Ameritech's conduct "anticompetitive."

Ameritech filed suit in federal court in Illinois and also filed a petition for review of the order in state court.

Though the case before Judge David Coar became enmeshed in 11th Amendment issues over whether the ICC through its commissioners could be sued in federal court, the judge disposed of the case on the merits.

The 7th Circuit Court of Appeals broke the case down into two questions: Do the federal courts have jurisdiction over a state agency's decision, and if so how far should review extend?

But first the appeals court disposed of the lingering 11th Amendment issue, holding unanimously that the ICC commissioners could not evade federal jurisdiction because "participation of the Commission in the [interconnection agreement] scheme set out in the Act is a waiver of the state's sovereign immunity."

The appeals court also quickly disposed of the federal jurisdiction question, concluding that the plain language of the 1996 Telecommunications Act envisioned suits reviewing "actions" by state commissions and that those suits were to be brought exclusively in the federal courts.

"Through the Telecommunications Act of 1996 Congress has opened the door to competing local exchange carriers and has inserted both the Federal Communications Commission (FCC) and the federal courts into the previously state-regulated monopoly," Judge Terence Evans wrote for a unanimous panel. "Just how far into the scheme does the federal presence reach is the $64,000 question."

In answering that question, the panel referred back to the 1999 U.S. Supreme Court decision in AT&T v. Iowa Utilities Board, in which Justice Antonin Scalia characterized the scheme in the Telecommunications Act as "decidedly novel," involving a "surpassing strange" setup.

The appeals panel then looked to the FCC for guidance on how it views agreements among competing carriers relating to reciprocal compensation for calls to Internet service providers. "Noting again that we defer to its reasonable interpretations of the Act, our task is to examine the ICC order, not to determine whether the ICC correctly applied principles of state contract law, but to see whether its decision violates federal law, as set out in the Act or in the FCC's interpretation.

The short answer is that it does not. The FCC could not have made clearer that in the absence of a rule, a state agency's interpretation of an agreement so as to require payment of reciprocal compensation does not necessarily violate federal law.

The FCC, on Feb. 26, 1999, had issued a declaratory ruling on whether calls to ISPs are local calls. The FCC concluded that while the ultimate destination of ISP calls is often located in another state, there is "no reason to interfere with state commission findings."

So in applying its limited review, the unanimous appeals panel concluded that "the FCC could not have made clearer that in the absence of a rule, a state agency's interpretation of an agreement so as to require payment of reciprocal compensation does not necessarily violate federal law."

The ICC, in fact, was responsible under the 1996 Act and the FCC ruling, for determining what the parties intended under their agreements, the court concluded.

The court's reasoning was simple. Ameritech bills the customer for a local call. The calls are routed over local lines, not long-distance lines. It was also apparent to the court that the parties specifically granted the ICC "the right to define local traffic reciprocal compensation purposes."

The court added that it was comfortable with how the state commission had resolved the issue, and had no cause to overturn it.

"Additionally, the ICC is in the mainstream of thought on the issue," Judge Evans wrote. "Not that the majority rules in these matters, but the commissions in well over half the states have made the same determination that the ICC made, including some interpretations made after the February ruling. In short, nothing in what the ICC said violates federal law in existence at this time."

The 7th circuit opinion concluded with an open invitation: "Every time a carrier complains about a state agency's action concerning an agreement, it must start in federal court (to find out whether there has been a violation of federal law) and then may move to state court if the first suit yields the answer 'no.' This system may not have much to recommend it, but, as the Supreme Court observed in Iowa Utilities Board, the 1996 Act has its share of glitches, and if this is another, then the legislature can provide a repair."

A year later, the 7th Circuit denied a rehearing in the case and on March 5, 2001, the U.S. Supreme Court accepted the case for review. Justice O'Connor took no part in the consideration or decision of the petition for review.

On October 29, 2001, the Court granted the United States' motion to divide the argument. The same day, however, Worldcom's motion for additional time for oral argument was denied. Justice O'Connor took no part in those decisions.

On May 20, 2002, the Court, in a brief per curiam opinion, dismissed the case as having been improvidently accepted. The Court concluded that the appealing parties in fact prevailed in the lower court opinion.