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Western Radio Services Co v. Qwest Corporation

March 15, 2012


D.C. No. 6:05-cv-00159-AA Appeal from the United States District Court for the District of Oregon Ann L. Aiken, District Judge, Presiding

The opinion of the court was delivered by: Ebel, Circuit Judge:



Argued and Submitted October 12, 2011-Portland, Oregon

Before: David M. Ebel,*fn1 Marsha S. Berzon, and N. Randy Smith, Circuit Judges.

Opinion by Judge Ebel


This case arises out of a dispute between two telecommunications carriers over their interconnection agreement ("ICA"*fn2 ) under the Telecommunications Act of 1996. Plaintiff-Appellant Western Radio Services Company ("Western") is a commercial mobile radio service ("CMRS") provider. Defendant-Appellee Qwest Corporation ("Qwest") is a local exchange carrier ("LEC"). Western appeals two decisions of the district court: first, its decision dismissing Western's claim against Qwest for Qwest's alleged violation of its statutory duty to negotiate the ICA in good faith; and second, its decision affirming the orders of Defendant-Appellee the Oregon Public Utility Commission ("PUC"), which adopted the results of the arbitration leading to the ICA and approved the ICA. This Court has jurisdiction under 28 U.S.C. § 1291.

Regarding the good faith claim, we conclude that Western has failed to exhaust the prudential requirement that it first present that claim to the PUC before bringing that claim in federal court. Accordingly, we AFFIRM the district court's decision dismissing that claim.

Regarding the challenge to the approval of the ICA, we conclude that the ICA's provisions (1) requiring Western to interconnect with Qwest's network via at least one point per Local Access and Transport Area ("LATA"); and (2) providing Western with the signaling systems of its choice only where such systems are available, do not violate the Act. However, we also conclude that the ICA, as approved, does violate the Act insofar as it applies access charges, rather than reciprocal compensation, to calls exchanged between a CMRS provider and a LEC, originating and terminating in the same LATA, when those calls are carried by an interexchange carrier ("IXC").*fn3 Accordingly, we REVERSE the district court's decision upholding the PUC's approval of the ICA to that extent, and REMAND to the PUC for further proceedings not inconsistent with this opinion.


I. The regulatory regime

Congress enacted the Telecommunications Act of 1996, amending the Communications Act of 1934 (collectively, the "Act"), to promote competition in the provision of telecommunications services to consumers-services historically provided by state-sanctioned monopolies. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1999). The Act imposes on incumbent LECs ("ILECs")-carriers that have historically held monopolies in an area-the duty to provide interconnection with the facilities and equipment of competing telecommunications carriers, and, upon request, to negotiate "in good faith" the terms and conditions of agreements governing such interconnection. Id. at 371-73; 47 U.S.C. § 251(a), (c)(1). Where carriers cannot reach an agreement, they may ask the relevant state public utilities commission to mediate their differences or to provide binding arbitration. 47 U.S.C. § 252(a)(2), (b)(1).

In arbitrating the dispute, the state commission must ensure that the resulting ICA meets the requirements of Sections 251 and 252 of the Act, and must establish "just," "reasonable," and "nondiscriminatory" rates for services and a schedule for implementation. Id. § 252(c)-(d). Following arbitration, the state commission must then formally approve the resulting ICA, unless the state commission finds, among other things, that it violates Section 251 of the Act, or its implementing regulations, or the pricing standards of Section 252 of the Act. Id. § 252(e)(1), (e)(2)(B). Any party aggrieved by the state commission's action may seek judicial review in an appropriate federal district court "to determine whether the agreement . . . meets the requirements of section[s 251 and 252 of the Act]." Id. § 252(e)(6).

In addition, Sections 206 and 207 of the Act provide that a "common carrier" shall be liable for any damages resulting from its violation of the Act, and that such damages may be recovered either by filing a complaint with the Federal Communications Commission ("FCC") or by filing suit in a district court of competent jurisdiction. See id. §§ 206, 207. A common carrier is "any person engaged as a common carrier for hire, in interstate . . . communication by wire or radio." Id. § 153(11). This court has previously observed that the relationship between the terms "local exchange carrier" and "common carrier" is not clear, but it appears that a LEC may also be a common carrier for purposes of Section 207. See W. Radio Servs. Co. v. Qwest Corp., 530 F.3d 1186, 1204 (9th Cir. 2008).

II. The parties and prior proceedings

Western is an Oregon-based wireless communications provider licensed by the FCC to provide CMRS in Oregon. ILEC Qwest is authorized by the state of Oregon to provide wireline services in Oregon. Both are "telecommunications carriers" governed by the Act. See 47 U.S.C. §§ 152(a); 153(51). However, Western is not licensed to provide wireline services in Oregon and is thus not a "LEC" within the meaning of the Act. Western has been doing business with Qwest, or Qwest's predecessor, U.S. West Communications, since before the Act was passed.

The instant dispute arises out of an ICA between Qwest and Western, arbitrated by the PUC in 2004 and approved by the PUC in 2005. Western initiated negotiations with Qwest in October 2003. No ICA ensued, and in March 2004 Western petitioned the PUC for arbitration. The PUC arbitrator resolved twelve open issues and filed his decision with the PUC on September 20, 2004. Western filed objections to the arbitrator's decision on October 1, 2004. Rejecting Western's objections, the PUC adopted the arbitrator's decision in its entirety and ordered Qwest and Western to submit for approval, within thirty days, an ICA that complied with the terms of the arbitrator's decision ("the 2004 PUC order").

Qwest timely submitted a proposed agreement to the PUC. Western had not at that point reviewed or signed the proposed agreement, though Qwest had sent Western a copy eight days earlier. However, Qwest represented to the PUC that it believed its proposed agreement was "fully compliant with the Order" and invited the PUC to approve the agreement if appropriate. SER 227. About two weeks later, Western reviewed the proposed ICA and found aspects to which it objected. Western notified Qwest of these problems but did not file any objections with the PUC.

Instead, in February 2005, after the PUC had adopted the arbitrator's findings, but before it had approved Qwest's proposed ICA, Western sued the PUC, its commissioners in their official capacities, and Qwest in the District of Oregon, claiming that (1) Qwest had failed to negotiate in good faith as required by Section 251(c)(1) of the Act, and (2) the PUC had violated its duties under the Act when it adopted the arbitrator's decision.*fn4 The district court dismissed both claims in July 2005 for lack of subject matter jurisdiction, because the PUC had not yet taken any final action to approve or reject the ICA, and because Western had not presented its good faith claim to the PUC for adjudication. Western appealed the dismissal of the good faith claim to this Court ("the first appeal"), which held that the district court would have subject matter jurisdiction to determine whether a private right of action existed for a good faith claim under Section 207 of the Act-but that even if such a private right of action existed, for prudential reasons "the PUC must address Western's good faith claim before that claim may be brought in district court."

W. Radio Servs. Co., 530 F.3d at 1200. This Court emphasized that this requirement was prudential, as opposed to statutory or jurisdictional. Id.

Meanwhile, on October 10, 2005, while the first appeal was pending, the PUC approved Qwest's proposed ICA, finding it complied with the Act's requirements ("the 2005 PUC order"). Five days later Western filed a new petition for arbitration, which the PUC eventually dismissed as improper ("the 2006 PUC order"). Observing that this had transpired, this Court instructed the district court to consider whether the 2005 PUC order satisfied the prudential "requirement that the PUC first address [Western's] . . . good faith claim," and, if so, to determine whether a private right of action existed under the Act for violation of the duty to negotiate in good faith. W. Radio Servs. Co., 530 F.3d at 1193.

On remand from the first appeal, the district court examined the 2005 and 2006 PUC orders. W. Radio Servs. Co. v. Qwest Corp., Civ. No. 05-159-AA, 2009 WL 1312425, at *5-7 (D. Or. May 5, 2009). The district court determined that neither order addressed any type of "good faith" claim. Id. Therefore the district court again dismissed Western's good faith claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Id. at *4, *7. In a second proceeding, after additional briefing on the remaining issue of whether the approved ICA complied with the Act, the district court affirmed the PUC's orders adopting the arbitrator's decision and approving the ICA prepared by Qwest. W. Radio Servs. Co. v. Qwest Corp., 734 F. Supp. 2d 1139 (D. Or. 2010). This appeal followed, challenging both of those decisions.


I. Standard of Review

This court reviews de novo a dismissal under Rule 12(b)(6). Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030 (9th Cir. 2008). In doing so, this Court may "generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Id. at 1030-31 (quoting Outdoor Media Gp., Inc. v. City of Beaumont, 506 F.3d 895, 899 (9th Cir. 2007) (internal quotation marks omitted)). All well-pleaded factual allegations are taken as true and viewed in the light most favorable to the non-moving party. Id. at 1031.

Likewise, we review de novo whether an arbitrated, approved ICA complies with the requirements of the Act and its implementing regulations. U.S. W. Commc'ns, Inc. v. Jennings, 304 F.3d 950, 958 (9th Cir. 2002). We review all other issues, including the state commission's factual findings, under an arbitrary and capricious standard. Id. The PUC's decision is "arbitrary and capricious if the decision 'was not supported by substantial evidence,' or the commission made a 'clear error of judgment.' " Verizon Cal., Inc. v. Peevey, 462 F.3d 1142, 1150 (9th Cir. 2006) (quoting Pac. Bell v. Pac-West Telecomm, Inc., 325 F.3d 1114, 1131 (9th Cir. 2003)). Importantly for purposes of this appeal, we do not pass upon the validity of any relevant FCC regulations. See 28 U.S.C. §§ 2342, 2344 (requiring original petition challenging FCC final orders to be brought in court of appeals); see also Pac. Bell Tel. Co. v. Cal. Pub. Utils. Comm'n, 621 F.3d 836, 843 (9th Cir. 2010) ("The parties may not challenge the validity of any . . . FCC regulations[ ] in this action."); Jennings, 304 F.3d at 958 n.2 ("Properly promulgated FCC regulations currently in effect must be presumed valid for the purposes of this appeal. . . . [N]o question as to their validity can be before us in this appeal.").

II. Good Faith Claim

We held in the first appeal that the district court would have subject matter jurisdiction over a good faith claim against a private party (assuming such a private right of action existed under the Act), but that even if such a cause of action existed, for prudential reasons "the PUC must address West-ern's good faith claim before that claim may be brought in district court." W. Radio Servs. Co., 530 F.3d at 1200. We remanded for a determination of whether that prudential requirement had been met, and, if so, for a determination of whether the Act provided a cause of action against a private party for violation of the duty to negotiate in good faith. Id. at 1193.

On remand, the district court focused on the PUC's October 10, 2005 order approving the ICA and the PUC's January 3, 2006 order dismissing Western's post-approval petition for arbitration. The district court first found that the October 2005 order approving the ICA never discussed a good faith claim. The district court also found that, subsequent to this Court's 2008 decision and remand, Western had failed to present a good faith claim to the PUC for adjudication. The district court further found that the 2006 order dismissing Western's post-approval petition for arbitration was also not a "substantive determination of Western's good faith claim . . . ." W. Radio Servs. Co., 2009 WL 1312425, at *7. Because the PUC "neither expressly nor impliedly addressed Western's good faith claims," and Western's efforts were "insufficient to comply with the prudential concerns discussed in the Ninth Circuit's mandate," the district court dismissed the good faith claim. Id. at *5, *7.

In its second appeal, now before us, Western argues that, although the PUC never addressed its good faith claim, Western "squarely" submitted a good faith claim to the PUC in its October 2005 petition. Western Opening Br. at 15. The PUC responds that, even if Western's October 2005 petition presented a good faith claim, "the PUC did not have the opportunity to address the claim on its merits . . . because the approved [ICA] was already in effect." PUC Br. at 7.

It is clear that the state commission did not expressly rule on Western's good faith claim. Similarly, we conclude that the PUC did not implicitly rule on Western's good faith claim when it approved the ICA, because Western's good faith claim was never properly put at issue in the proceedings before the PUC. Therefore, Western has not satisfied the prudential requirement established in W. Radio Servs. Co., 530 F.3d at 1200, and may not bring this claim now in federal court.

A. Statutory requirements for arbitrations

[1] The duty to negotiate in good faith is imposed upon both parties by Section 251(c)(1) of the Act. A refusal to negotiate during arbitration, or to cooperate with the arbitrator, is considered a failure to negotiate in good faith. 47 U.S.C. § 252(b)(5). Regulations promulgated by the FCC identify other failures to negotiate in good faith, including but not limited to demanding a nondisclosure agreement; demanding that the other party attest that the ICA complies with the Act; refusing to include terms permitting future amendment of the ICA; and intentionally obstructing or delaying negotiations or resolutions of disputes. See 47 C.F.R. § 51.301(c).

If a party's failure to negotiate in good faith is an "open issue[ ]" in arbitration proceedings before the state commission, Section 252(b) of the Act requires the state commission to rule upon it. See 47 U.S.C. § 252(b)(1) ("[A] party . . . may petition a State commission to arbitrate any open issues."); id. § 252(b)(2)(A)(i) ("A party that petitions a State commission . . . shall . . . provide the State commission all relevant documentation concerning . . . the unresolved issues . . . ."); id. § 252(b)(4)(C) ("The State commission shall resolve each issue set forth in the petition and the response, if any . . . ."). Further, a commission may reject an arbitrated ICA only if it finds that the ICA does not comply with Section 251, which includes the duty to negotiate in good faith, or the pricing standards of Section 252. Id. § 252(e)(2)(B).

[2] The Act provides a strict window of time for the submission of a petition for arbitration: "the 135th to the 160th day (inclusive) after the date on which [a carrier] receives a request for negotiation under this section. . . ." Id. § 252(b)(1).

In other words, a carrier may not petition the PUC for arbitration until 135 days after it has received a qualifying "request for negotiation." This is true whether the party seeking arbitration is an ILEC or a competing CMRS. See 47 C.F.R. § 20.11(e).

B. Western's two petitions for arbitration

In this case, Western petitioned the PUC for arbitration twice. The first petition, on March 11, 2004, properly followed Western's October 2003 request to Qwest to open negotiations. That first petition led to the arbitration that culminated in the PUC's October 10, 2005 order approving the ICA that is before us now. The second petition, filed on or about October 15, 2005,*fn5 purported to relate to a new "request for negotiation" that Western claimed to have received from Qwest in May 2005, yet in substance it raised issues relating to the just-approved ICA. The PUC summarily dismissed this second petition for two reasons. First, the PUC concluded that the existence of the newly approved ICA prevented it from reaching the merits of any subsequent petition related to that ICA. Second, the ...

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