Opinion
Civil No. 02-3563 ADM/AJB
January 8, 2003
Larry Espel, Esq., and Jeanette Bazis, Esq., Greene Espel, PLLP, Minneapolis, MN, for Plaintiff.
Karen Finstad Hammel, Assistant Attorney General, St. Paul, MN, John Harrington, Esq., WorldCom, Inc., Chicago, IL, Annamarie A. Daley, Esq., and Stephen P. Safranski, Esq., Robins, Kaplan, Miller Ciresi, LLP, Minneapolis, MN, for Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This action arises from Plaintiff Qwest Corporation's ("Qwest") Motion for a Preliminary Injunction [Docket No. 1] to prevent enforcement of the March 4, 2002 Order of the Minnesota Public Utilities Commission ("Commission"). Oral arguments were presented before the undersigned United States District Judge on November 8, 2002. Qwest ultimately seeks a declaration that the Commission's Order is pre-empted by federal law, and a permanent injunction prohibiting its enforcement. The parties are in accord that this Motion may be treated as the request for a permanent, rather than a preliminary, injunction, because the issue presents a question of law; the facts are without controversy. For the following reasons, Qwest's Motion is granted in part.
II. BACKGROUND
The procedural and factual background of this matter is not contested and is, in relevant part, as follows. Qwest's challenge to the reporting requirements and the Commission's jurisdiction stems from complaints to the Commission regarding Qwest's provision to various Defendants of special access service. Special access, or dedicated access, is a type of exchange access offered by Qwest to the corporate Defendants, ATT Communications of the Midwest, Inc. ("ATT"), WorldCom, Inc. ("WorldCom"), and TimeWarner Telecom of Minnesota, LLC ("TimeWarner") (collectively, "Corporate Defendants"). Exchange access is the offering by a telecommunications company, such as Qwest, of access to its services or facilities. Special access service connects a telephone transmission from a home or office directly to a long distance company without passing through the switched telephone network. Special access circuits may carry both interstate and intrastate communications, thus implicating regulation at both the federal and state level.
Customers of Qwest order special access service either from Qwest's state tariff or from its federal tariff. Under Federal Communications Commission ("FCC") cost apportionment regulations, called jurisdictional separations, a special access circuit containing 10% or less interstate traffic is classified as "intrastate" and subject to the state tariff. See In the Matter of MTS and WATS Market Structure Amendment of Part 36 of the Commission's Rules and Establishment of a Joint Board ("10% Order"), 4 F.C.C.R. 5660 ¶ 2 (1989); 47 C.F.R. § 56.134. This is known as the "10% Rule." See In the Matter of GTE Telephone Operating Cos., 13 F.C.C.R. 22,466 ¶ 25 (1998). Conversely, a circuit with more than 10% interstate traffic is classified as "interstate" and governed by the federal tariff. See 10% Order ¶ 2. The FCC had previously assigned all lines with even a de minimis amount of interstate traffic "to interstate jurisdiction," such that parties could avoid the state tariff by including even a tiny proportion of interstate communications on these circuits. Id.; In the Matter of MTS and WATS Market Structure Amendment of Part 36 of the Commission's Rules and Establishment of a Joint Board ("10% Recommendation"), 4 F.C.C.R. 1352 ¶¶ 1, 30 (1989), adopted by 10% Order ¶¶ 8, 9. The FCC adopted the 10% allocation rule to allow states to retain control over intrastate lines carrying small amounts of interstate transmissions. See 10% Order ¶ 2. The FCC concluded that permitting intrastate circuits with 10% or less interstate traffic to be tariffed at the state level would accord "proper recognition [to] state regulatory interests." Id. ¶ 7. Thus, the FCC concluded "that the [10% Rule] separations procedures properly reflect the dual jurisdictional regulatory structure of the Act." Id.
In Minnesota, 97% of special access service is ordered under the federal tariff, and therefore, characterized as interstate. See Pl.'s Mem. at 3. The Commission concluded that it possessed jurisdiction to order reporting on services from both the federal and state tariffs because of the mixed-use nature of these circuits. Currently, the FCC does not regulate the quality of special access service and has no reporting requirements in place.
A. Commission Proceedings
The Corporate Defendants have all complained that Qwest's provision of special access services is inadequate and discriminatory. ATT did so officially, filing a complaint with the Commission asserting violations of state law by Qwest based on alleged problems with the quality of service. See In the Matter of the Complaint of ATT Communications of the Midwest, Inc. Against US WEST Communications, Inc. Regarding Access Service ("ATT Docket") (Espel Aff. Ex. C). U.S. West, the company that merged with and became Qwest, objected to the jurisdiction of the Commission over the matter, claiming, as it does herein, that special access service ordered from the federal tariff is the exclusive domain of the FCC. See id. at 5. Though the Commission dismissed ATT's complaint, it found that it had jurisdiction over all intrastate special access, whether ordered from the federal or state tariff. See id. at 7, 16. It further concluded that the evidence presented by ATT revealed a need for investigation and monitoring of Qwest's access service quality. Id. at 15.
Accordingly, it ordered Qwest (then U.S. West) to provide certain information to the Commission and to ATT monthly for six months, and Qwest obliged. The Commission incorporated the newly-opened investigation of Qwest's special access service into an ongoing proceeding relating to Qwest's wholesale access service quality, which lead to the present dispute.
The current challenge opposes the Commission's Order of March 4, 2002, (the "Order") in which the Commission directed Qwest to provide each wholesale access service customer with reports of performance data regarding its provision of such services. See Order at 4. The Commission acknowledged and again rejected Qwest's jurisdictional objection, and subsequently denied its motion for reconsideration of the Order, affirming the ordered reporting requirements. See Order at 4 (citing ATT Docket); Commission Order of 5/29/02 at 2, 5. It did, however, modify and clarify the Order on its own motion, requiring reporting only to ATT, WorldCom, and TimeWarner, and moving the start date for the collection of the specified data from June 1, 2002, to August 1, 2002. Commission Order of 5/29/02 at 4, 5. It further clarified that it would not require reporting on switched (as opposed to special) access. Id. at 4.
B. FCC Proceedings
The FCC also took the issue of special access quality and standards under consideration with issuance of a Notice of Proposed Rulemaking ("NPRM") in November, 2001. In instituting this proceeding, the FCC sought comment on whether or not it should adopt standards for the provision of special access services by incumbent local exchange carriers, such as Qwest. See In the Matter of Performance Measurements and Standards for Interstate Special Access Services ("NPRM"), 16 F.C.C.R. 20896 ¶ 1 (2001). Additionally, the FCC requested comment on the question of jurisdiction over such prospective measures, noting that "several states have determined that they lack authority to regulate" interstate special access services. Id. ¶ 11. While affirming state commissions' jurisdiction over intrastate special access services, the FCC specified that it desired input on how "the state commissions might participate in enforcing [interstate] requirements." Id. (emphasis added). Thus far, the FCC has taken no action on the NPRM or the underlying issue of special access regulation.
Therefore, it currently has no reporting requirements or standards in place.
III. DISCUSSION A. Collateral Estoppel
In their joint memorandum, Defendants WorldCom and TimeWarner argue Qwest's action is barred by principles of estoppel. They claim Qwest's unsuccessful contestation of the Commission's jurisdiction in the ATT Docket precludes it from now raising the same objection. Qwest responds that collateral estoppel does not apply because the Commission's conclusion that it had jurisdiction to implement and enforce the reporting requirements was not necessary or essential to the Commission's disposition of the ATT Docket.
Collateral estoppel, or issue preclusion, prevents re-litigation of issues previously decided by a valid, final judgment. Tyus v. Schoemehl, 93 F.3d 449, 453 (8th Cir. 1996). It applies when: (1) the same issue was addressed in a prior action; (2) the issue was actually litigated in the previous action; (3) the determination of the issue was part of a valid and final judgment; and (4) the determination was "essential to the prior judgment." Id. Additionally, the party against whom preclusion is sought must have been a party or in privity with a party to the prior action. Id. Collateral estoppel applies to rulings of administrative agencies when acting in a judicial capacity, so long as the decision is subject to judicial review. See Graham v. Special Sch. Dist., 472 N.W.2d 114, 115-16 (Minn. 1991).
The first three prongs of the test appear to be satisfied here but they need not be analyzed, as Worldcom and TimeWarner's claim fails on the fourth requirement to establish collateral estoppel. As noted above, the Commission dismissed ATT's complaint in its entirety for insufficient evidence, though it did find adequate evidence to warrant pursuit of further information. See ATT Docket at 16. While it ruled conclusively that it possessed authority to regulate federally-tariffed special access, this determination was not necessary to the disposition of the case: dismissing ATT's claims. See Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir. 1983) (stating that collateral estoppel is limited to issues that have been "directly and necessarily adjudicated"). Because it was not essential for the Commission to reach Qwest's jurisdictional objections in order to dismiss ATT's claims, the Commission's conclusion that it was not pre-empted from regulating interstate special access service was unnecessary to its ruling that ATT had not proved its state law claims by the requisite preponderance of the evidence. See ATT Docket at 4, 7.
With respect to the portion of the ATT Docket opening a new investigation and requiring provisional reporting by Qwest, the Commission's finding of jurisdiction over the subject matter was a necessary basis for its demand that Qwest compile and supply the indicated information to ATT and the Commission. See id. at 4. However, this was not a final judgment based on a claim brought before the Commission, but part of the initiation of a new investigation that eventually led to the reporting order now contested by Qwest on jurisdictional grounds. Further, the Commission was acting in a regulatory, as opposed to a judicial, manner in taking this action, which involves a degree of self-interest not generally present in traditional collateral estoppel scenarios. See generally Graham, 472 N.W.2d at 119 (finding no collateral estoppel of issues where a school board was judging the lawfulness of its own conduct). "As a flexible doctrine, the focus [of collateral estoppel] is on whether its application would work an injustice on the party against whom estoppel is urged." Johnson v. Consolidated Freightways, Inc., 420 N.W.2d 608, 613-14 (Minn. 1988) (citing Jeffers v. Convoy Co., 636 F. Supp. 1337, 1339 (D.Minn. 1986)). Though Qwest had the opportunity to, and did, vigorously argue this issue before the Commission, given the regulatory context of the ruling and reluctance to penalize Qwest for complying with the initial reporting request, it would be unjust to apply collateral estoppel in the instant case. Therefore, collateral estoppel does not bar the present challenge to the Commission's legal conclusion of jurisdiction over intrastate special access ordered from the federal tariff.
B. Injunctive Relief
Qwest seeks a preliminary injunction preventing the Commission from enforcing the reporting requirements instituted in the Order. In determining a litigant's right to preliminary injunctive relief the Court considers four factors: (1) the threat of irreparable injury to the plaintiff; (2) the balance of harm to the plaintiff if relief is not granted and harm to the defendant if an injunction is issued; (3) the plaintiff's likelihood of success on the merits; and (4) the public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
Because only questions of law are in dispute, the parties agree that treatment of the instant Motion as a motion for a permanent injunction is appropriate. See Bank One, N.A. v. Guttau, 190 F.3d 844, 847 (8th Cir. 1999) (stating that a court may address a preliminary injunction request as a motion for a permanent injunction when only legal issues are present). Qwest must therefore establish actual success, rather than likelihood of success, on the merits of its claim. Id. at 847. Moreover, in pre-emption cases, the Court need not consider the factors of the public interest and the balance of the harm between the parties, as those matters are necessarily accounted for by definitively proving a state regulation to be in violation of the Supremacy Clause of the Constitution. See id. at 847-48. Enjoining enforcement of an invalid state order is appropriate despite injury to the state and doing so inherently furthers the interest of the public. Id.
The fundamental issue disputed by the parties is whether federal jurisdiction over interstate communications pre-empts the state regulation in question or leaves room, under a system of dual jurisdiction, for regulation that is not inconsistent with federal law or objectives. Thus, the major focus of the disagreement is on the merits of Qwest's claim.
1. Success on the Merits
Qwest avers invalidity of the reporting requirements set out in the Order on multiple grounds. First, it argues the requirements are pre-empted by federal law providing for jurisdiction of the FCC over interstate telecommunication. Second, it asserts that the Commission's Order violates the filed-rate doctrine. Lastly, it contends the Commission exceeded its statutory authority in requiring reporting of special access ordered under the state tariff.
Qwest's assertion that the Order violates the filed-rate doctrine, a rule requiring strict and uniform adherence to the terms of the federal tariff, is unnecessary for and irrelevant to the resolution of this dispute and need not be addressed. The purpose of the filed-rate doctrine is to prevent discriminatory pricing by carriers. See ATT v. Central Office Tel. Co., 524 U.S. 214, 222-23, 224-25. The Act requires carriers to file tariffs and prohibits them from deviating from the rates and the non-price terms of the filed tariff. Id. at 221-222; 47 U.S.C. § 203.
While the filed-rate doctrine holds that the terms of a tariff embody the entire agreement between incumbent local exchange carriers, such as Qwest, and their customers, such as the Corporate Defendants, and therefore prohibits state law claims against carriers based on subjects included in the tariff, it does not purport to limit a regulatory commission's ability to impose general requirements on a common carrier. See generally Evanns v. ATT Corp., 229 F.3d 837, 840 (9th Cir. 2000) (explaining that tariffs have the force of law and "`conclusively and exclusively enumerate the rights and liabilities' as between the carrier and the customer") (emphasis added); Kirkwood v. Union Elec. Co., 671 F.2d 1173, 1179 (8th Cir. 1992) (noting the purpose of the doctrine is to ensure rate uniformity and that "the doctrine was created to protect customers"). The Commission readily admits it has no power to alter the rates and non-price conditions of the special access federal tariff, and the filed-rate doctrine, which governs the provision of service by carriers to their customers, is not applicable to this case. See Central Office, 524 U.S. at 222-23 (articulating the purpose of the doctrine to be non-discrimination and that this policy "is violated when similarly situated customers pay different rates for the same services"). As summarized by the Commission in the ATT Docket, "[t]he jurisdictional issue in this case does not turn on the filed rate doctrine-which touches indirectly on federal/state relationships while speaking directly to customer/carrier relationships — but on the doctrine of preemption, which speaks directly to federal/state jurisdictional boundaries." ATT Docket at 9. Qwest produces no authority to support its argument that this doctrine is relevant to state regulation that does not implicate the carrier's compliance with the rates or service conditions of the federal tariff.
a. Pre-emption
Qwest's primary contention in support of its request for injunctive relief is that the Commission's reporting requirements are pre-empted by the Communications Act of 1934 ("the Act"), which provides for exclusive federal jurisdiction in the domain of interstate communications. See 47 U.S.C. § 152(a); see, e.g., Ivy Broad. Co. v. American Tel. Tel. Co., 391 F.2d 486, 491 (2d Cir. 1968) (commenting that "interstate communication service[s] are to be governed solely by federal law"). Pre-emption occurs when: (1) Congress "expresses a clear intent to pre-empt state law" by "enacting a federal statute;" (2) federal and state law directly conflict; (3) simultaneous compliance with federal and state law is impossible; (4) federal law implicitly bars state regulation; (5) comprehensive federal legislation occupies an entire field of regulation leaving no room for state law; or (6) state regulation presents an obstacle to full accomplishment of federal objectives. Louisiana PSC, 476 U.S. at 368-69. Moreover, "a federal agency acting within the scope of its congressionally delegated authority may pre-empt state regulation." Id. at 369.
Qwest submits that Congress' enactment of the Act bestows upon the FCC exclusive jurisdiction over interstate communications and thus is an express pre-emption of state regulation over mixed-use special access circuits classified as interstate. Defendants collectively argue that past allowance of state or concurrent state and federal regulation of "jurisdictionally mixed" or "mixed-use" services and facilities belies Qwest's assertion and permits the Commission to institute and enforce its reporting requirements.
No party to this suit contests the FCC's plenary jurisdiction over interstate communications. Indeed, it is undisputed that the FCC may exercise exclusive authority over jurisdictionally mixed (that is, partially intrastate and partially interstate) special access classified as interstate at any time. The issue, therefore, is absent FCC adoption and implementation of specific requirements and standards for federally-tariffed special access, whether or not state commission jurisdiction over these communications is necessarily pre-empted by virtue of the classification of the service as "interstate." While Defendants concede the FCC's authority over jurisdictionally mixed services, they maintain that without an explicit statement of pre-emption, the FCC and the states share concurrent jurisdiction over this subject matter. They further acknowledge that regulation of jurisdictionally mixed subject matter by a state commission may not be inconsistent with any applicable FCC rule, but argue that without an FCC regulation on point, there can be no conflict between state and federal directives. Defendants thus argue that until the FCC says otherwise, the Commission is free to regulate federally-tariffed special access because of the underlying mixed character of the lines over which this service is provided. Qwest's position is that the jurisdictional separations procedures, taken pursuant to the Act and resulting in the 10% Rule of cost allocation, establish the express affirmative taking of exclusive authority that precludes state regulation. It asserts that once mixed-use lines are classified as "interstate," they are subject only to regulation at the federal level.
As many prior decisions have noted, § 152 of the Act vests in the FCC the exclusive authority to regulate interstate communications. See National Ass'n of Regulatory Util. Comm'rs v. FCC ("NARUC"), 746 F.2d 1492, 1498, 1499 (D.C. Cir. 1984); North Carolina Utils. Comm'n v. FCC, 537 F.2d 787, 791-94 (4th Cir. 1976); Ivy, 391 F.2d at 491. Section 152(b) reserves for the states regulatory control over purely intrastate service, to the extent that such regulation is not removed from state jurisdiction by the Telecommunications Act of 1996 ("the 1996 Act"). See 47 U.S.C. § 152(b); ATT Corp. v. Iowa Utils. Bd., 525 U.S. 366, 381 (1999) (noting that the 1996 Act established primary authority of the FCC over certain intrastate telecommunications traditionally within the states' exclusive governance). Thus, the Act creates a system of dual federal and state regulation over their respective fields. See Louisiana PSC, 476 U.S. at 360. However, as many other disputes and cases have shown, precise parceling of communication into "interstate" and "intrastate" components is often impossible, because facilities and equipment are generally used interchangeably for both. Id.; Illinois Bell Tel. Co. v. FCC, 883 F.2d 104, 116 (D.C. Cir. 1989).
Courts have consistently upheld FCC exclusive regulation of jurisdictionally mixed matters in which the intrastate and interstate aspects of the services are inseparable. See Illinois Bell, 883 F.2d 104, 114-15; Public Util. Comm'n of Texas v. FCC, 886 F.2d 1325, 1334, 1335 (D.C. Cir. 1989); North Carolina Utils. Comm'n, 537 F.2d at 793. Such federal control over the entirety of a jurisdictionally mixed service, and the attendant invasion into some intrastate communication, is permissible in order to further valid federal goals in an area "totally entrusted to the FCC." NARUC, 746 F.2d at 1498 (discussing the FCC's broad powers under the Act over interstate communications); see also Illinois Bell, 883 F.2d 104, 114-15. The purpose of Congress' conferral of this power on the FCC is the creation of a uniform and unified national system of communication. See 47 U.S.C. § 151; NARUC, 746 F.2d at 1501.
At the same time, however, the FCC may decline and has declined to pre-empt state regulation in jurisdictionally mixed areas where there is no federal rule on point and the state action does not frustrate any important federal interest. See Diamond Int'l Corp. v. FCC, 627 F.2d 489, 493 (D.C. Cir. 1980) (permitting state regulation of mixed-use service within FCC's authority); Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523, 543 (8th Cir. 1998) (upholding the FCC's election to exempt Internet Service Providers from interstate charges); In re Furnishing of Customer Premises Equip. by the Bell Operating Tel. Cos. the Independent Tel. Cos. ("CPE Order"), 2 F.C.C.R. 143 ¶ 129 (1987) (declining to pre-empt certain state regulation of Independent Telephone Companies); In the Matter of Filing and Review of Open Network Architecture Plans ("Open Network Order"), 4 F.C.C.R. 1 ¶ 277 (1988) (deciding to allow continuation of state tariffing of Complementary Network Services). The FCC has made clear, though, that in situations where distinction between intrastate and interstate elements of the service or equipment at issue is impractical or impossible, it "has authority to preempt state imposition" of regulations, but is choosing not to do so. CPE Order ¶ 129.
To ease these "jurisdictional tensions" arising from an integrated federal/state system, the Act establishes procedures, known as "jurisdictional separations," for determining "what portion of an asset is employed to produce or deliver interstate as opposed to intrastate service." Louisiana PSC, 476 U.S. at 375; see 47 U.S.C. § 221(c), 410(c). The Supreme Court specifically noted that where interstate and intrastate components of a service or facility are severable, pursuant to this separations process, states retain control over intrastate communication and the FCC governs interstate service, distinguishing such situations from the above-discussed cases "where it was not possible to separate the interstate and the intrastate components. . . ." Louisiana PSC, 476 U.S. at 375-76, 375 n. 4. Because the separations process literally separates costs such as taxes and operating expenses between interstate and intrastate service, it facilitates the creation or recognition of distinct spheres of regulation." Id. at 376.
Qwest argues that the 10% Rule clearly demarcates federal territory into which the Commission may not encroach, by definitively labeling certain special access service "interstate." It contends that the special access jurisdictional separation process, in which the FCC determined that special access would be tariffed at the state level if it contains 10% or less interstate traffic and the remaining special access service would fall under the federal tariff and be classified as interstate, sets the regulatory limits of both the FCC and the state, based on the dual system of jurisdiction.
Defendants respond that separations procedures and the 10% Rule are fundamentally cost allocation regulations that have no bearing on pre-emption. They assert that because "interstate" special access circuits may carry intrastate traffic, concurrent jurisdiction applies and a state regulation will only be displaced if inconsistent or interfering with an FCC rule. Because the FCC currently has no regulation regarding standards or reporting requirements for federally-tariffed special access, Defendants argue, there necessarily is no conflict and the Commission's Order should stand. Supporting this proposition, Defendants cite several scenarios in which the FCC declined to exercise pre-emptive jurisdiction and left intact state regulation of mixed-use services.
The Commission claims "[n]umerous examples of concurrent jurisdiction" illustrate its position, but supports with citation only two such references. Commission Mem. at 19. The Commission relies primarily on the FCC's treatment of Internet Service Provider ("ISP") traffic as an example of state regulation over a jurisdictionally mixed service. See In re Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic ("ISP Order"), 14 F.C.C.R. 3689 (1999). The Commission, TimeWarner, and WorldCom argue this decision, in which the FCC discussed the issue of reciprocal compensation for delivery of ISP traffic, the agency's exemption of ISPs from interstate access charges, and the jurisdictional nature of the ISP traffic, reveals the broad scope of state regulatory power absent an applicable FCC rule.
The second example provided, New York v. FCC, 267 F.3d 91 (2d Cir. 2001), involved an FCC order, under the 1996 Act, related to area code relief and local dialing patterns. In leaving control over local dialing to the states, the FCC permitted states to continue to regulate in an area that was reserved to the states prior to the 1996 Act, a situation not present here.
In the ISP Order, the FCC noted that "ISP-bound traffic is jurisdictionally mixed" and that the FCC had "no rule governing inter-carrier compensation for ISP-bound traffic." Id. at ¶¶ 19, 22. It stated that absent a federal rule, parties were free to negotiate and contract for compensation for ISP traffic as part of their statutorily mandated interconnection agreements. Id. ¶¶ 22, 24. The FCC further recited that state commissions, charged with interpreting and enforcing these agreements, had been required to construe the intent of the parties, as evidenced in their agreements, to determine carrier compensation. See id. ¶¶ 9, 24. Thus, Defendants argue, state commissions were left to regulate absent an FCC directive.
Though the lengthy ISP Order mixes discussion of cost assessment, jurisdiction, and federal regulation in a way that suggests a distinction between regulatory and cost allocation jurisdiction in this area, the Defendants' arguments and supporting quotations omit the necessary context. When examined carefully, the ISP Order is not particularly analogous to the instant dispute. When discussing the state commissions' role in determining compensation, the ISP Order refers to the obligation of the commissions prescribed in § 252 of the 1996 Act to resolve interconnection disputes, including enforcement and interpretation of the interconnection agreements, and, therefore, when relevant, assessment and analysis of the parties agreement regarding ISP-bound traffic compensation. See id. ¶¶ 9, 22, 24, 26. Because the FCC had previously decided to exempt ISPs from certain interstate access fees, and, accordingly, treated "ISP-bound traffic as though it were local," it allowed parties to "voluntarily include this traffic within the scope of their interconnection agreements under sections 251 and 252 of the [1996] Act." Id. ¶¶ 5, 22. Thus, the FCC exercised "its interstate regulatory obligations by treating" ISP traffic as local and exempting it from federal charges, leaving parties free to determine on their own what, if any, carrier compensation would apply to ISP traffic. Id. ¶¶ 5, 24. State commissions were then required to address and determine compensation issues in order "to fulfill their statutory obligations under section 252 to resolve interconnection disputes" created by the parties contractual choices. Id. ¶ 26. Accordingly, the states' indirect regulation, specifically defined and imposed by statute, resulted from the FCC's assertion of jurisdiction, based on the largely interstate nature of the communications involved, to exempt ISPs from access charges. Indeed, on remand of the ISP Order, the FCC explicitly acknowledged that the ISP exemption was "an affirmative exercise of federal regulatory authority over interstate access service."
The District of Columbia Circuit vacated the ISP Order because of insufficient explanation by the FCC of the appropriate classification of ISP communications and the relation of the classification to the exemption at issue. Bell Atlantic Tel. Cos. v. FCC, 201 F.3d 1, 8, 9 (D.C. Cir. 2000). In the ISP Remand Order, the FCC revised its position on conceptualizing ISP traffic as local and reaffirmed the interstate nature of the service and the FCC's resultant jurisdiction. ISP Remand Order, 16 F.C.C.R. 9151 ¶¶ 45, 46, 54.
In the Matter of Implementation of Local Competition Provisions in the Telecommunications Act of 1996; InterCarrier Compensation for ISP-Bound Traffic ("ISP Remand Order"), 16 F.C.C.R. 9151 ¶ 55 (2001).
By contrast, in this case, the relevant FCC order has assigned mixed-use special access lines to the federal tariff, classifying them officially as interstate and imposing the FCC's terms, as found in the tariff, on this service. See 10% Order ¶¶ 2, 8. Rather than exempt this service from federal charges and leave cost assessment to other parties, the FCC exerted its jurisdiction to specify tariff control at the federal or state level based on the composition of the traffic. See id. With respect to ISP traffic, permitting the states to impose "intrastate tariffs as they see fit" was, in itself, an acceptable exercise of the FCC's discretion. Southwestern Bell, 153 F.3d at 543 (upholding FCC order of exemption).
Further, there is no indication that anything akin to the statutory responsibilities of state commissions under § 252 of the 1996 Act, of presiding over interconnection disputes and arbitration proceedings, is applicable to special access.
In their joint brief, WorldCom and TimeWarner rely on two additional FCC orders, as well as various appellate court cases, to argue that FCC decisions to refrain from pre-empting state regulation prove that the Act does not necessarily preclude all state action with respect to jurisdictionally mixed services. This premise, however, is not really contested, as Qwest does not challenge or attempt to refute these rulings, but instead contends that 10% Rule negates any "jurisdictionally mixed" analysis by assigning special access with more than 10% interstate traffic to the federal jurisdiction.
For example, in the CPE Order, after expressly pre-empting state commission regulation of customer premises equipment ("CPE") in numerous circumstances, the FCC declined to displace regulation of "nonstructural safeguards on the CPE activities of the ITCs [Independent Telephone Companies]." CPE Order ¶ 129. The FCC explained that the services at issue were not severable into distinct regulatory realms, and accordingly, that the FCC had the option of occupying the entire field. Id. ¶¶ 122-129. It elected to do so, pre-empting all applicable state requirements, except in the case of the nonstructural regulation of the ITCs. Id. Notably, it acknowledged and distinguished the Supreme Court's Louisiana PSC decision, stating that the jurisdictional separations process highlighted by the Court, allowing bright-line division of regulatory authority, could not be employed in the provision of CPE. Id. at 120. Recognizing that the equipment at issue was "used jointly for intrastate and interstate telecommunications," it nonetheless concluded that "making . . . jurisdictional distinctions among [the jurisdictionally mixed] services is so impractical as to be impossible" and therefore that it had a right to pre-empt state regulation. Id. ¶¶ 122, 126.
While this proceeding does display the FCC's ability to decline pre-emption, it is readily distinguishable from the present case regarding the relationship between federal and local regulation. In the 10% Order the FCC specifically "defin[ed] the separate state and federal regulatory spheres" with respect to "mixed use special access lines," thereby facilitating the dual federal/state control the FCC found impossible in the CPE Order. 10% Recommendation ¶ 23 (as adopted by 10% Order). WorldCom and TimeWarner also cite Southwestern Bell (affirming the FCC's exemption of ISPs from interstate access charges) and Diamond (holding the FCC did not abdicate its duty to govern interstate communication when it permitted state tariff on service utilizing jurisdictionally mixed equipment), discussed herein.
This case presents a close question of first impression that initially appears straightforward, but on closer scrutiny involves a number of FCC actions and statements regarding various telecommunications services and practices that lack a central theme. The 10% Recommendation and the 10% Order strongly suggest more than merely allocating costs between state and federal governments. When viewed in conjunction with the Supreme Court's interpretation of jurisdictional separations procedures, the FCC's assignment of special access to the federal tariff expresses an explicit congressional intent to pre-empt unsolicited state regulation in this area.
The Act entrusts to the FCC exclusive governance of interstate communications. See 47 U.S.C. § 152. The Supreme Court has stated that the FCC and state commissions share control over jurisdictionally mixed services unless such services are inseverable into distinct components, in which case pre-emption may occur. Louisiana PSC, 476 U.S. at 360, 375. One means of dividing subject matter to permit dual regulation, as cited by the Supreme Court, is the jurisdictional separations process prescribed in the Act. Id. at 375; National Ass'n of Regulatory Util. Comm'rs v. FCC, 737 F.2d 1095, 1111 n. 17 (D.C. Cir. 1984) (citing Lone Star Gas Co. v. Texas, 304 U.S. 224, 241 (1938)); Michael J. Zpevak, FCC Preemption after Louisiana PSC, 45 Fed. Comm. L.J. 185, 192, 196 (1993). Accordingly, by adopting the 10% Rule, the FCC has facilitated the dual regulation of mixed-use special access circuits, assigning circuits with 10% or less interstate traffic to the intrastate jurisdiction and other circuits to the interstate jurisdiction. See 10% Recommendation ¶¶ 23, 30, 33; 10% Order ¶ 7. This delineation of spheres of regulation thus permits concurrent control over special access service by state and federal authorities within the appropriate jurisdiction, as contemplated by the "dual jurisdictional regulatory structure of the act." 10% Order ¶ 7; see generally Open Network Order ¶¶ 257, 276 (discussing federal tariffing and indicating the requiring of federal tariffs for services is an assertion of jurisdiction that compels exclusive federal regulation). The 10% Recommendation specifically states that "[t]he separations procedures perform an important role in defining the separate state and federal regulatory spheres," and recites the FCC's conclusion that the chosen separations method "accord[s] proper recognition to state and federal regulatory interests." 10% Recommendation ¶¶ 23, 33. Through institution of the 10% Rule, the FCC sought to "properly balance state and federal interests in the regulation of mixed use special access lines." Id. ¶ 23. These cost allocation divisions, according to the Supreme Court, are "essential to the appropriate recognition of the competent governmental authority in each field of regulation." Smith v. Illinois Bell Tel. Co. 282 U.S. 133, 148 (1930); accord Louisiana PSC, 476 U.S. at 375.
The FCC's exclusive jurisdiction over interstate communications is established and is unchallenged in this proceeding. The FCC has determined that mixed-use special access is to be classified as interstate unless it contains 10% or less interstate traffic. 10% Order ¶¶ 2, 8. This establishes express pre-emption by virtue of the Act's bestowal upon the federal government of control over "all interstate and foreign communication." 47 U.S.C. § 152(a). Though WorldCom and TimeWarner deem this a "flawed syllogism," Joint Mem. at 21, it is the conclusion that flows most readily from the Supreme Court's treatment and interpretation, cited by the FCC, of the role of the separations process. See Louisiana PSC, 476 U.S. at 375; Smith, 282 U.S. at 148; 10% Order ¶ 7 (citing Smith); CPE Order ¶ 120 (citing Louisiana PSC's discussion of jurisdictional separations).
When coupled with the federal regulation effected through tariffing and the FCC's exclusive control over federal tariffs, a conclusion that the Commission lacks jurisdiction over interstate special access is appropriate. See 10% Recommendation ¶¶ 23, 33; Open Network Order ¶¶ 276, 277; ATT Comm. of the Mountain States, Inc. v. Public Serv. Comms'n of Wyo., 625 F. Supp. 1204, 1208-10 (D.Wyo.) ("The FCC has exclusive jurisdiction over interstate tariffs . . .").
On a general level, the FCC and state regulators may share jurisdiction over jurisdictionally mixed services or equipment, as Defendants recognize by their examples of FCC declination of pre-emption. This is subject to the FCC's ability to pre-empt state regulation when it conflicts with or frustrates a federal rule or policy. See, e.g., Illinois Bell, 883 F.2d at 116. However, it is also subject to the limitations of their relevant "spheres of regulation" where the control of the mixed subject matter is capable of segregation into federal and state components. Louisiana PSC, 476 U.S. at 375.
As such, special access is an area in which Congress and the appointed agency, the FCC, have acted to pre-empt some state regulation; namely, that of interstate special access that is properly controlled at the federal level. Public Serv. Comms'n of Wyo., 625 F. Supp. at 1210 (holding that the state commission's attempt to institute regulation that affected both intrastate and interstate calls was beyond the scope of the commission's authority because of "exclusive jurisdiction of the FCC" over interstate communications). The Commission retains full and exclusive control over intrastate special access, and may exercise its jurisdiction by requiring Qwest to report on its provision of intrastate special access ordered from the state tariff. See 47 U.S.C. § 152(b); Louisiana PSC, 476 U.S. at 375. Furthermore, the FCC has delegated or deferred to state commissions in some circumstances and has indicated an intent to involve states in enforcement of prospective federal special access regulations. See e.g., New York v. FCC, 267 F.3d 91, 96 (2d Cir. 2001) (discussing FCC's implementation of the North American Numbering Plan, in which it "delegated to the states a portion of its `exclusive jurisdiction'" over the matter, as expressly permitted by statute). Without such action, however, the portion of the Order requiring reporting on interstate special access service ordered from the federal tariff is pre-empted by the 10% Order and the FCC's undisputed sole control over interstate services. See Public Serv. Comms'n of Wyo., 625 F. Supp. 1204 at 1208 ("Exclusive FCC jurisdiction over interstate matters is well-established, absent a clear, express deferral."); NPRM ¶ 11 n. 27 (noting state commissions' findings of lack of jurisdiction over service ordered pursuant to the federal tariff).
The advisability and constitutionality of delegation of the FCC's exclusive authority over interstate communications is not before this Court and no opinion is expressed on this issue. In its NPRM, the FCC explicitly sought comment on "the extent to which state commissions could play a role regarding interstate special access services" and particularly "how, if the Commission were to adopt special access measures and standards, the state commissions might participate in enforcing these requirements." NPRM ¶ 11. "Parties [were] asked to comment on what they consider an appropriate role for the states, taking into account both policy considerations and legal constraints, and including applicable limitations on delegations of authority to the states." Id.
b. Reporting on Intrastate Special Access
At the end of its Memorandum, Qwest broadly asserts that the Order is invalid even as to intrastate service ordered under the state tariff. Despite the apparent inconsistency of its argument, Qwest claims the Commission has regulated in a manner discordant with the FCC in an area where all parties agree the FCC has not yet prescribed any standards or regulations with which to be inconsistent. Nonetheless, it claims the portion of the Order regarding intrastate special access violates the Commission's statutory duty "to use its best endeavors toward establishing uniformity." Minn. Stat. § 237.10. Perhaps noting the Commission's argument that such a state law theory is barred by the 11th Amendment, in its Reply Memorandum Qwest instead requests a remand to the Commission on the issue of intrastate reporting requirements.
Qwest offers no support for its contention that the Commission somehow lacks the ability to require Qwest to report on intrastate special access. As the FCC itself expressed, "[t]o be sure, state commissions have jurisdiction over intrastate special access services," NPRM ¶ 11, and this Court cannot hear a state law challenge to this authority. See U.S. Const. amend. XI; Pennhurst State Sch. Hosp. v. Halderman, 465 U.S. 89, 106, 121 (1984) (holding that state officials may not be sued in federal court for violations of state law absent a waiver of immunity). As discussed in the preceding analysis, jurisdictional separations of special access service has facilitated division of this subject matter into distinct spheres of control, with states maintaining sole regulatory power over intrastate special access. See 10% Order ¶¶ 4, 5 (concluding that the 10% Rule achieves the "proper recognition of state regulatory interests" by assigning special access lines carrying "de minimis amounts of interstate traffic" to the intrastate jurisdiction); NPRM ¶ 11; see also Louisiana PSC, 476 U.S. at 375. Any argument by Qwest to the contrary would contradict its overriding assertion that separations procedures establish what is to be considered "interstate," subject to federal control, and what is deemed "intrastate," to be governed by the states. Accordingly, the Order as applied to reporting on provision of intrastate special access stands under federal law and the Court will not address Qwest's claims grounded in state law. See Pennhurst, 465 U.S. at 106.
2. Irreparable Harm
To merit a permanent injunction, Qwest must also establish irreparable harm from the challenged Order. See Bank One, 190 F.3d at 847. While normally economic injury will not suffice to meet this requirement, in the case of a permanent injunction where the plaintiff has proven a state regulation is pre-empted by federal law, a showing of "irreparable economic loss" is adequate. Id. at 850-51. But see Packard Elevator v. Interstate Commerce Comms'n, 782 F.2d 112, 115 (8th Cir. 1986) (stating "economic loss does not, in and of itself, constitute irreparable harm" for the issuance of a preliminary injunction). Qwest submits that compliance with the Order with respect to interstate reporting will cause it substantial and unrecoverable economic loss. See Staebel, Tangeman Affs. It has thus shown irreparable injury entitling it to an injunction prohibiting enforcement of the Order as to interstate special access service. See Bank One, 190 F.3d at 850-51.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that Plaintiff's Motion for a Permanent Injunction [Docket No. 1] is GRANTED with respect to enforcement of the Commission's Order requiring reporting on interstate special access service and DENIED with respect to the enforcement of the Order as applied to intrastate special access service.
LET JUDGMENT BE ENTERED ACCORDINGLY.