VERIZON MARYLAND INC. v. PUBLIC SERVICE COMMISSION OF MARYLAND
The Telecommunications Act of 1996 requires that incumbent local-exchange carriers (LECs) provide interconnection with their existing networks; that the carriers then establish reciprocal compensation arrangements for transporting and terminating the calls of each others' customers; and that their interconnection agreements be approved by a state utility commission. Verizon Maryland Inc., the incumbent LEC in Maryland, negotiated an interconnection agreement with MCI WorldCom, Inc. After the Maryland Public Service Commission approved the agreement, Verizon informed WorldCom that it would no longer pay reciprocal compensation for calls made by Verizon's customers to the local access numbers of Internet Service Providers (ISPs) because ISP traffic was not local traffic subject to the reciprocal compensation agreement. WorldCom filed a complaint with the Commission, which ordered Verizon to make the payments for past and future ISP-bound calls. Verizon then filed an action in federal district court, seeking an injunction prohibiting its enforcement, alleging that the determination that Verizon must pay reciprocal compensation for ISP traffic violated the Act. The District Court dismissed the action. In affirming, the Court of Appeals held that the Commission had not waived its Eleventh Amendment immunity and that the Act did not provide a basis for jurisdiction over Verizon's claims.
Do federal district courts have jurisdiction over a telecommunication carrier's claim that the order of a state utility commission requiring reciprocal compensation for telephone calls to Internet Service Providers violates the Telecommunications Act of 1996?
Legal provision: 47 U.S.C. 251
Yes. In an 8-0 opinion delivered by Justice Antonin Scalia, the Court held that the district court had jurisdiction, so as to review the Commission's order for compliance with federal law, to entertain the suit because resolution of the LEC's claim turned on whether the Act, or an FCC ruling issued thereunder, precluded the state commission from ordering payment of reciprocal compensation. Under the Ex parte Young doctrine, the Court also reasoned that Verizon's request for injunctive relief to restrain state officials from enforcing an order allegedly in contravention of controlling federal law avoided an Eleventh Amendment bar to suit. Justice Sandra Day O'Connor took no part in the consideration or decision of the cases.
Argument of Mark L. Evans
Chief Justice Rehnquist: We'll hear argument next in No. 00-1531, Verizon Maryland v. the Public Service Commission of Maryland and United States v. Public Service Commission of Maryland.
Mr. Evans: Mr. Chief Justice, and may it please the Court: Unlike Mr. Smith, Verizon takes the position that these contracts are, in fact, pervasive and Federal, and I'd like to tell you why.
The statute, by its terms, requires us to enter into these relationships whether we want to or not.
It dictates the subject matter of the negotiations, it provides that the agreement has to be approved by the State commission but under Federal standards spelled out in the statute.
Once approved, moreover, these agreements are binding not as a matter of State law but as a matter of Federal law, which is provided for in 252(a)(1) of the statute.
Chief Justice Rehnquist: 252(a)(1)?
Mr. Evans: (a)(1), and finally, and in some ways most tellingly, every provision of an approved agreement is like a tariff made available automatically to every other carrier that wishes to adopt them, and the Court upheld that in the Iowa utilities case even though it was challenged, but the function of not only the agreement's terms but every interpretation of an agreement's terms has Federal reverberations.
These are not cases that... with which the Federal Government has washed its hands.
Chief Justice Rehnquist: Well, what about Justice Stevens' example in the previous case, do you pay on Tuesday or do you pay on Thursday?
Mr. Evans: Mr. Chief Justice, I think that is a hard question in terms of the way it was put, and I think the answer, to be consistent, is yes it belongs in Federal court, and the reason I say that is because just like a Federal tariff, where there's a question about the payment date, it belongs in Federal court.
That... the Court has held that in many cases involving Federal tariffs, one of which we've... two of which we've dealt with in the brief, one of which is Thurston Motor Lines, which is in 460 U.S.--
Justice Scalia: How many of these agreements, negotiated or otherwise, are there Nation-wide?
Mr. Evans: --They're... they're--
Justice Scalia: Do you have any idea?
I mean, give me--
Mr. Evans: --limited to--
Justice Scalia: --a magnitude.
Mr. Evans: --I'm sorry.
They're limited to the boundaries of the State in most instances, although the negotiations in one State have reverberations for the same two parties in other States, as, for example, with Verizon.
Justice Scalia: I'm just wondering how many pure contract cases are being dumped into Federal courts by your--
Mr. Evans: Oh, I see.
Justice Scalia: --100,000?
Mr. Evans: I think the... I don't have a number, Justice Scalia.
I can say that I don't think once the big issues are resolved there's going to be many of them, and the big issues tend to be like the issue in this case, where the very contract says, on the point in dispute, that the parties agree that reciprocal compensation will be paid only to the extent required by the statute, naming a specific section of the statute.
Justice Scalia: Yes, but you say every time there's any dispute on this contract, even as to what date payment should be made, you run into Federal court.
Mr. Evans: Well, I mean, yes, but as a practical matter the issues will not be brought to Federal court unless there's a lot of money involved and the issues are very important for a variety of reasons.
It's not a cost-free proposition to go to Federal court.
Justice Breyer: I thought a tariff... I mean, you're talking about a State railroad tariff?
Mr. Evans: No, not a--
Justice Breyer: No, of course a Federal railroad tariff is a Federal question.
Nobody doubts that.
What they're saying is, here, the structure of this statute is to have State commissions run these agreements, period.
Now, of course, they have to be sure that the State commission satisfies certain Federal standards, which might have been minimal but have turned out not to be so minimal.
Mr. Evans: --Well--
Justice Breyer: But... so I don't see how in answer to Justice Stevens... and I think it does create a problem.
I don't see how you can put all the... every detail of this State contract in a Federal court, calling it a Federal question, and once that's so, there does become an issue as to whether Congress bifurcated this and said, as is true of all other State agencies, you have a Federal question, you can go into Federal court.
Or said, throw them all in the State.
Mr. Evans: --Well--
Justice Breyer: What's your response?
Mr. Evans: --Well, two things, Justice Breyer.
First, the... if you look back at this Court's Federal tariff cases you find that the reason these cases wound up in Federal court, even though lower courts in the cases have almost routinely said this looks to us like a run-of-the-mill state contract issue, is because the tariff itself derives its authority and depends entirely upon the Federal statute.
That's what makes them Federal statutes, because of the Federal Government's interest in the whole process.
Chief Justice Rehnquist: What's your answer to the Jackson Transit case, then?
Mr. Evans: Jackson Transit actually was a case involving a contract under the Urban Mass Transit Act in which the Court's analysis proceeded as follows.
First, it said these are inherently, pervasively Federal contracts... e agree with that... and but for a contrary indication in the text of the statute or the legislative history we would view those as Federal issues that belong in Federal court, but the Court went on to look first at the text where they found the issue not conclusive, and then to the legislative history where it found that Congress made a specific determination that it did not want these cases in Federal court.
There is no such analogy in the case here, and in fact, if anything, the suggestion is to the contrary, because when Congress did address the question of jurisdiction, albeit it perhaps in narrower terms than we would have liked.
It made clear that the... that there's jurisdiction in the Federal courts and that, moreover, State courts are foreclosed from involvement.
It's odd to imagine why an issue like the one in this case which could just as well have come up at the approval stage, but didn't until the interpretation stage, in part because the Internet exploded in the interim.
In one case it goes to Federal court, in the other case it goes to State court.
It just doesn't... it doesn't make sense that Congress would have envisioned that outcome.
There has been discussion about whether 252(e)(6) in some way restricts the provisions of... excuse me, the availability of jurisdiction under section 1331, and we think the answer to that is quite clear not only from the general presumption against that kind of restriction that the Court has articulated from time to time, but also because in this statute Congress actually enacted a specific rule of construction in section 601(c) of the act which is actually not in the joint appendix and not codified.
It appears as a... in the note to 47 U.S.C. 152, and what it said there was that nothing in the act should be construed to modify, impair, or supersede Federal law unless expressly so provided.
So Congress spoke to what inferences could be drawn from a limitation of jurisdiction in 252(e)(6) and, moreover, there... the Court has... I mean, the Congress has shown repeatedly, both in this statute and in other statutes, that when it wishes to preclude review in one court system or another it spells that out specifically, as it does in 252(e)(4) here with respects to States, as it's done in a variety of statutes that we and the Government have cited in our briefs with respect to the other... with respect to the medicare act.
And finally, let me just say a word about the impracticality of the bifurcation that I think Mr. Smith is striving for here.
It would mean a bizarre separation where a case could come up with an interpretation not only of... not only of the issues we think are binding as a matter of Federal law, but also State law issues that the State put in as part of its review, and from Mr. Smith's point of view, if it's interpretive, it all goes right to State court.
In our view, at least all of the Federal issues come to Federal court, and probably the State issues can come along under supplementary jurisdiction, although there may be a... may not be possible to name the State in that context.
Justice Scalia: You say they're going there under 1331?
Mr. Evans: Yes, and this Court once before had before it a bifurcation scheme that had been proposed, actually decided by the Seventh Circuit, as it was in this case, and that's the Bank One case in 516 U.S., and the Court said, this is just too unwieldy and inefficient a system for us to impute the Congress, even if the language were clear, and here the language by no means even supports the outcome.
Unless there are further questions, Your Honor--
Argument of Barbara B. McDowell
Chief Justice Rehnquist: Thank you, Mr. Evans.
Mr. McDowell: Initially, I'd like to note that although this... in this case the Court granted certiorari only on the question of jurisdiction under section 1331, if the Court determines that there is a standing problem in the Mathias case, all of the other questions on which the Court granted cert in that case are also presented here, and section 1331 gives the district courts jurisdiction over claims at least that a State commission has acted contrary to controlling Federal law in construing or enforcing an interconnection agreement.
Such claims arise under the laws of the United States within the meaning of section 1331.
Justice Scalia: Excuse me, how does a State commission act contrary to Federal law in construing an agreement that clearly says X, which is contrary to Federal law, but I mean, the State commission is just saying what is the truth.
Mr. McDowell: How is that acting contrary to Federal law?
For example, let's say that the FCC had issued a different order with respect to Internet calls than it actually did.
What if the FCC had said that no agreement under section 252 can be construed as providing reciprocal compensation for Internet service provider--
Justice Scalia: They wouldn't say that.
What do you mean, can be construed?
Can be enforced, which provides, I mean, that's fine.
Mr. McDowell: --Well, it... the commission conceivably could have said if the contract is silent on the specific subject--
Justice Scalia: Oh... yes.
Mr. McDowell: --or whatever.
In any event, one can envision circumstances in which--
Justice Scalia: Okay, but you... but sure, I mean, if you posit that the Federal regulation says no contract shall be construed this way, no matter what it says, no matter how clearly it says that, then I agree with you, the commission would be violating Federal law, but let's assume a more normal FCC regulation which just says that this particular disposition is unlawful, even if you do agree with it, okay, and all that happens is that the State commission says, yes, they're... that's what they agreed to, okay.
Now, how does that violate State law?
Mr. McDowell: --It may not.
It may be--
Justice Scalia: Federal law, excuse me.
Mr. McDowell: --It may be the rare case in which a State commission decision interpreting a negotiated agreement will... can be alleged to violate Federal law.
I think the questions are more likely to come up with respect to interpretation of terms of an arbitrated agreement where the State commission was--
Chief Justice Rehnquist: What is the actual question before the commission?
Is it, what did these parties mean by their agreement, and nothing more than that, or is it something with more legal overtones to it?
Mr. McDowell: --This has been sort of a moving target, because the FCC's orders have been subject to review and have been vacated, so... but the claim was that under the commission's initial order with respect to Internet calls--
Chief Justice Rehnquist: No, I meant the rules of the State commission, not the FCC.
Mr. McDowell: --Well, the State commission, after looking at the FCC's orders and the statute, decided that there was... the FCC had said it was permissible to adopt either rule, to read these agreements either as providing reciprocal compensation for these calls or not, and gave some factors that State commissions might look to in construing agreements, and that is what it did.
Chief Justice Rehnquist: For instance, if you go to a State court, I'm A, I'm suing B because we have a contract, the final decision of the State court isn't just necessarily the parties agree to this.
They have to go further and say, well, is this... is there any State law prohibition against this kind of an agreement, and what are the results in this particular case, does A owe B money.
Does the commission, State commission have that broad an area to deal with the contracts under this statute?
Mr. McDowell: Yes, and certainly it's subject to the standards of 252(d) with respect to assuring that the public interest, convenience, and necessity is served, and it needs to look at the polices as articulated in the Telecommunications Act and by the FCC in its regulations and orders, so it's a broader mandate than just looking at the parties' intent, yes.
Whether this will always present an issue of Federal law is, of course, not clear, but where there is a claim that what the State commission has done is contrary to the 1996 act, to the FCC's orders under the act, or to some other provision of Federal, constitutional, or statutory law--
Justice Ginsburg: Ms. McDowell, would you clarify what you define as the Federal question in this case?
There were a lot of arguments that were made by Verizon like, this is a Federal tariff, in effect, like the State commissioner simply is saying that it is for this purpose a Federal agency.
In your brief, the only thing that I recall... maybe I got this altogether wrong... was, you said the Federal question is an FCC order which would be controlling, and that FCC order, it turns out, has been vacated by the D.C. Circuit, so I'm really left at sea about what is the Federal question.
Mr. McDowell: --Verizon's complaint, and that's in the court of appeals joint appendix, was really quite bare bones.
It alluded to the FCC order that's since been vacated, as you mentioned, and to other principles of Federal law, and it just simply alleged that the Maryland commission's decision was inconsistent with Federal law, also with the language of the agreement, and is arbitrary and capricious, so it was a very general claim.
The district court construed Verizon's claim as being that the Public Service Commission's order is in direct conflict with a declaratory ruling of the FCC, and that's on pages 1 to 2 of the court of appeals joint appendix.
I think the principal--
Justice Ginsburg: That ruling has been vacated.
Mr. McDowell: --That's true.
There's now a new ruling, and that's being litigated in the D.C. Circuit.
I think as currently articulated Verizon contends that among other things the Maryland commission's order is contrary to section 252(a)(1) of the act, which requires these agreements to be binding, and the allegation is that the commission has violated that commission by writing additional terms into a party's agreement.
Whether that is a viable claim or not need not be decided at this point.
It's at least a sufficiently nonfrivolous claim to state a Federal claim.
Justice Breyer: Can I get a clear restatement, if you like, of just what you think... I mean, on the overall question I now see three possible ways you could go.
Way number 1 is just what we heard.
These contracts are creatures of the Federal law, so much so that everything about them is Federal, they all go into Federal court.
The opposite view, no, everything about them goes into State court, with one exception.
The exception is approval or rejection, which is a narrow proceeding that happens once.
That puts 98 percent of the cases in State court for everything.
Choice 3, the compromise, which is some form of which I think you're advocating.
That would have to be, the Federal questions come into Federal court under either 252 or 1331.
I don't know if it makes any difference, but they're in Federal court, the Federal questions, and where they're all mixed up with State interpretation you have three choices.
Each Federal judge is on his own.
1) It's their supplementary jurisdiction, 2) they have some form of abstention, to wait, 3) they do something else.
I don't know what it is, all right.
But in other words, let's call that a hybrid approach.
I want to know which of those three positions the Government takes, and I think it's the last one, and I want to know precisely how all this works out.
Mr. McDowell: I wish I could tell you precisely how it would work out in every case.
Justice Scalia: 5 minutes or less.
Unknown Speaker: [Laughter]
Justice Breyer: You know your favorite view of it.
Mr. McDowell: --Yes.
When there is a claim that a State commission order is contrary to controlling Federal law, that claim should come into Federal court.
If the only claim is a violation of State law, it should go into State court.
If there are both kinds of claims, they can perhaps be brought in Federal court under supplemental jurisdiction, but then there's a question of the State officials' sovereign immunity, assuming that they're a party and they haven't waived sovereign immunity, because the State law claims can't be adjudicated under... according to Pennhurst in Federal court.
So the optimal solution in many of these cases may be to bifurcate, or may be to bring the case in State court, and the State courts, of course, are competent to hear these cases as well, but we don't think that Congress intended to preclude the opportunity of parties to go to Federal court on these claims when they have a Federal claim under--
Justice Souter: Let's put the question the other way.
Why would Congress have wanted to provide for a bifurcated scheme, which we know is going to lead to all kinds of pleadings chicanery in order to get it into one court or another court, and we're going to have endless disputes about the pleadings.
Why would Congress have wanted that kind of a system?
Mr. McDowell: --Well, it is the system that we have generally, Your Honor.
Parties do have the option of taking their claims to State court or to Federal court, and Congress may have been--
Justice Souter: But I think you're... aren't you positing a system in which there... I was going to say, aren't you positing a system in which, as a system, we assume there is going to be some kind of a system of utility regulation, and there isn't going to be a system.
Some utility regulation through contract interpretation is going to be done in State courts, some of it's going to he done in Federal courts, parties in essentially the same situation are going to be making inconsistent choices, and you're not going to have a resulting coherent system.
Mr. McDowell: --Well, we already know, of course, under section 252(e)(4) of the act that a number of these cases are going to be in Federal court, and what seems particularly irrational is that if there was exclusive Federal court jurisdiction over some category of cases and exclusive State court jurisdiction over the same sorts of issues when they arise in an interpretation context as opposed to an approval context, so that seems clearly what Congress could not have meant.
Justice Stevens: May I ask... oh, excuse me.
May I ask just sort of a broader question?
My recollection is that all the cases we're familiar with so far run around as one issue about local calls to the Internet and so forth.
I have the... a feeling that there must be a pattern.
All these agreements have a great deal of similarity, same kind of issue, same kind of litigants on both sides.
I wonder if there really is a mountain of litigation out there, or if they only have... a very few test cases may resolve most of these issues.
What's your view on that?
Mr. McDowell: Well, I think this particular issue involves large amounts of money--
Justice Stevens: Right.
Mr. McDowell: --tens if not hundreds of millions of dollars, and that's why it's being litigated.
Justice Stevens: But are there similar issues bouncing around in State and Federal courts, or is this sort of the only thing they're fighting about?
Mr. McDowell: I wouldn't say it's the only thing they've been fighting about, and I'm not familiar with all the cases that may have been brought, but certainly these are the leading categories of cases at the interpretation stage.
Certainly at the initial approval stage there are a number of cases that have made their way to Federal court on a variety of issues which principally concern whether the State commission has--
Justice Stevens: At the approval stage, there's no doubt about where those go.
Mr. McDowell: --Right.
It also should be noted that most of these interconnection agreements build in some form of alternative dispute resolution process that there is some negotiation between the parties.
Sometimes there is formal arbitration to resolve these disputes, so it's not necessarily clear that they will all proceed through this particular process.
Justice Breyer: Do you know... do you have any sense of this in the hybrid... in the hybrid system that we're describing as concerning Justice Souter, that I agree with you is supposed to be the norm in respect to State agencies after the Chicago case.
Now, one of the concerns in Chicago, and you may have come across this in your reading, or just experience, would be there would be, then, a lot of cases, because it covers every State agency, where people would run into Federal court on a Federal question related to a basically State matter, and they'd bring in and get review through the supplementary jurisdiction of all kinds of State issues.
Has that happened?
I mean, is this the norm?
Do you have any sense of what actually happens in, let's say, the 40 million State proceedings that go on every week?
Mr. McDowell: I don't think there are nearly that many State proceedings.
In some of these cases involving reciprocal compensation for Internet calls, yes, parties have asserted, as they have here, State law claims as well as Federal law claims, and some Federal courts, at least where there's been no objection raised by the State commission, relating to sovereign immunity, have exercised supplemental jurisdiction over these claims.
Justice Scalia: Ms. McDowell, regarding your earlier answer to Justice Souter as to why Congress would have wanted such a crazy, hybrid system, I mean, this piece of legislation was an extraordinary intrusion of the Federal Government into local utility regulation, wasn't it?
I mean, this is an area that has traditionally been regulated by the States.
The Government has regulated interstate communications, but here they are getting into local communication regulation.
Mr. McDowell: But this isn't their--
Justice Scalia: And was there not a feeling in Congress that we should take as little as possible away from the States, if they want to continue their traditional regulation, and if it ended up in a hodge podge system, maybe many in Congress said, so be it.
Is that not a sufficient explanation?
Mr. McDowell: --That might indeed be a sufficient explanation.
I would preface this by saying that although local competition surely has traditionally been regulated by the States, this act dealt with something a little different, encouraging competition between local carriers, which was quite new at the time this 1996 act was adopted.
Justice Scalia: Well, it may be a new Federal policy, but to regulate concededly local telecommunications was a major step for the Federal Government, and maybe they didn't want to get into the business of doing that, which is why they leave it optional to the States whether they want to implement it or not.
The Federal Government didn't want to take on these things, neither at the FCC level nor, as far as we know, at the Federal district court level.
Mr. McDowell: Well, it certainly is clear from the act that Congress hoped that State commissions would want to regulate these agreements to bring their expertise with local conditions and with local telecommunications to bear, although Congress, of course, also gave States the option of allowing the FCC to do that.
Justice Souter: Let me ask the question Justice Scalia doesn't want to ask, and that is, do you have any legislative history that indicates that they really did intend the hodge podge?
Unknown Speaker: [Laughter]
Justice Souter: I mean, if they intended a hodge podge, I will say God bless the hodge podge, but I don't... I haven't heard anyone getting into the legislative background to indicate that they didn't.
Do you have anything?
Mr. McDowell: Not really, no.
The only arguable legislative history that seems relevant is that the State utility commissioners through their organizations came to Congress and said, we've started to do this, we would like to have a role in this, and Congress apparently heard them in enacting--
Justice Kennedy: What about the provision of the statute itself, that says if the States want to do it, they can do it?
On the other hand, if they don't do it, the Federal Government... isn't that... don't you start off with a hodge podge?
It's going to be State regulation some places, Federal regulation other places?
Mr. McDowell: --Yes, and that all argues all the more for Federal court review under 1331 to assure some uniformity in the application of the Federal standards in the act.
If I could reserve--
Justice Scalia: If there's FTC participation, the State doesn't participate and there's an agreement, does that subsequently raise some issues of State law interpretation, of interpretation that can go into State court?
Mr. McDowell: --I believe that if the FCC resolves these issues it may turn to State law.
It hasn't had the opportunity to issue a decision on this yet, but those decisions would be reviewable only in the courts of appeals under the Hobbs act, whether they involve State law or Federal law issues.
Justice Scalia: On the Eleventh Amendment point, if we find that there's a waiver under 252, rather than Ex parte Young as a theory, would that simplify the question of determination of State law issues?
Mr. McDowell: It might or might not.
One would think the extent of the waiver would be governed by section 252(e)(6), which refers to review to ascertain whether the agreement or statement complies with sections 251 and 252.
That might be too narrow to encompass State law as well.
If I could reserve the remainder of my time.
Chief Justice Rehnquist: Thank you, Ms. McDowell.
Mr. McDowell: The second person doesn't reserve.
You use it or lose it.
Justice Scalia: She's the first.
She's the first person.
Argument of Susan S. Miller
Chief Justice Rehnquist: Oh, Mr. Evans I thought was the first.
Mr. Miller: Mr. Chief Justice, and may it please the Court: I'd like to start out with giving you a little factual background of what the commission considered and what Verizon appealed.
Essentially, the FCC issued an order saying that ISP calls to ISP's were largely interstate.
That order also said, for those companies that had already approved agreements, the State commission was to look at contract principles to see if the parties should be bound by their previous agreements, and whether their previous agreements should be interpreted to include calls to ISP's being local.
That's what the Maryland commission did in this instance.
Verizon appealed to Federal district court raising two issues.
The first issue was that, under Maryland contract law, the commission had misinterpreted the contract.
That's the first issue that they raised.
That was clear from their motion for summary judgment, which is part of the record of the case, but I don't believe it's included in any appendix to the case.
The second issue they raised is, after the commission had interpreted the contract principles, the commission determined that the FCC order required them to develop an intercarrier compensation mechanism until such time as the FCC had developed its own compensation mechanism.
Now, what Verizon said was that the commission was wrong, that the FCC didn't require that, that they made it discretionary for the commission, and those were the only two issued raised by Verizon in this case.
Justice Scalia: Excuse me, Verizon was objecting to a misinterpretation of Maryland contract law, but up here they're saying that this contract isn't governed by Maryland contract law, but rather by Federal contract law.
Mr. Miller: Their--
Justice Scalia: Is that a change of position?
Mr. Miller: --Their claim... what they argued on their motion for summary judgment was that Maryland contract law became Federal common law, and that thus it was--
Justice Scalia: Maryland contract law became Federal common law, I see.
Mr. Miller: --That was their argument.
Justice Scalia: So that we have a Federal contract law that consists of Federal adoption of the common law of each of the 50 States that--
Mr. Miller: Whatever their contract law is.
Justice Scalia: --I understand it, I guess.
Unknown Speaker: [Laughter]
Mr. Miller: So those were the two issues that were raised by Verizon.
Justice Kennedy: I just want to be sure I understand the thrust of your point.
That's entirely consistent with the argument we heard this morning, though, is it not, because they're basically saying it's all a matter of Federal law.
Mr. Miller: I just want to make clear that what they were raising was a contract issue.
They're claiming that all contract issues are also Federal law now.
Justice Souter: Right.
Mr. Miller: I just wanted to make sure the Court was clear that what... the sole thing they were raising was a contract issue.
Justice Kennedy: But they made the same argument at the district court level, if I understand you correctly.
Mr. Miller: That--
Justice Kennedy: Yes--
Mr. Miller: --It had become Federal common law, that's correct.
Justice Souter: --And the Federal law is borrowed law so far as it involves the interpretation of a contract.
Mr. Miller: That's correct.
Now, the Fourth Circuit dismissed the 1331 claim on the basis of three alternative grounds.
The first ground was that in relying on Jackson Transit they found that Verizon's claim did not meet the arising under standard contained in 1331.
According to the Fourth Circuit, the fact that interconnection agreements are creations of Federal law did not in and of itself raise a substantial Federal question.
The Fourth Circuit also relied on Shoshone Mining, which said that Federal question jurisdiction isn't established where local rules or customs would govern the result, which is what we have here, of course.
Maryland contract law is what governed the result here, that under... specifically under 252 the negotiating parties had absolutely no obligation to include anything from 251 and 252 in their contract.
For that reason, negotiated contracts are kind of taken away from those aspects of the Telecommunications Act.
Justice Scalia: Would you think the... would you assert that the result would be different and you would take a different position if this were not a voluntarily negotiated contract?
Mr. Miller: We still believe it wouldn't come under 1331, but for differences other than Jackson Transit.
Justice Scalia: It would be a harder question for you.
Mr. Miller: Yes.
Justice Scalia: Okay.
Mr. Miller: The petitioners really haven't distinguished Jackson Transits.
Both cases involve the precise question of whether an action for breach of contract arises under Federal law merely because the contract required... merely because Congress required the contract to be formed, or required that the contract--
Chief Justice Rehnquist: Mr. Evans offered one distinction, that there was substantial legislative history there saying that Congress wanted these actions to be brought in State court.
Mr. Miller: --I disagree with that reading of Jackson Transit They noted one sentence that they said led them to believe that Congress wouldn't have wanted these.
There are also several other circuit court cases, however, that have interpreted Jackson Transit to say that where State law governs the decision before the Court, then there is no Federal question jurisdiction regardless of whether the contract terms were required to be incorporated or not.
Justice Breyer: I saw two Federal questions, and either way it seems Federal.
His first point, as Justice Stevens said, was there's some words in this contract.
This contract is a creature of Federal law.
The interpretation of every one of those words is a Federal question, whatever source of law that you might come... turn to to figure out what Federal law is, whether it's Maryland, or whether it's Alaska, or whether it's some totally different place.
Argument 2, that the Federal Communications Commission in a series of decisions, whatever may be true of other words in the contract, has said that these words in the contract, A, B, C, D, mean, and then he gets the result he wants, all right, so he's looking both to the F... which obviously the FCC does have the power to do that, doesn't it?
I mean, it could say as a matter of FCC rule any contract that has words A, B, and C, must be interpreted to mean thus and so under this statute.
Mr. Miller: I believe it--
Justice Breyer: Okay.
Now, it seemed to me they're making some combination of those two arguments.
Is that right?
Justice Scalia: Excuse me, it can say that before the fact or after the fact?
Do you think the FCC has the power to say that after a contract has already been voluntarily negotiated?
Mr. Miller: --Well--
Justice Scalia: And the FCC can say, as a matter of Federal law, what the parties agreed to voluntarily is this, even though it plainly is not that?
Mr. Miller: --I think--
Justice Scalia: Can the FCC do that?
Mr. Miller: --I don't believe they can, and I think that was what was the problem with--
Justice Breyer: If I got us into this, I'd modify the question.
Unknown Speaker: [Laughter]
Justice Breyer: It's simply a matter of, wouldn't that state a Federal question?
I don't know what the answer is, but somebody who says just what I said has raised a Federal question, haven't they, just as somebody who says this contract is a creature of Federal law, the word interpretation is Federal, has raised a Federal question, and you would reply, you're wrong about what the answer to the question is, but that's different from saying you haven't raised a Federal question.
Mr. Miller: --I think under Jackson Transit what they've said is that you haven't raised a Federal question.
That's what Jackson Transit said.
If you take a contract, and your only basis of the contract was that it was required by Federal law, then that doesn't even raise a Federal question.
Justice Breyer: They're not saying it was required by Federal law.
They're saying that the words of the contract, what they mean is Federal law.
Mr. Miller: That would be a closer question as to whether that actually raises a substantial Federal question regarding whether... because it would obviously limit a State commission's interpretation.
The State commission could not interpret the word in a different way.
The second basis for the Fourth Circuit's dismissal of the 1331 claim was essentially based on this Court's Merrell Dow decision.
In Merrell Dow, the court found that where a Federal statute includes a limited grant of jurisdiction, that any other broader grant of jurisdiction would flout the intent of Congress.
Based on that, the Fourth Circuit found that 252(e)(6) was a limited grant of jurisdiction and that therefore it should not allow suit to be brought under 1331.
The respon... the petitioners have argued that the rule is otherwise that essentially the courts have this broad grant authority unless there is some limitation, but all the cases cited by the respondents involve Federal agencies, and there's a distinction here, because what the Federal agencies were arguing was essentially that there was absolutely no review of what was at issue, that you couldn't bring it under 1331, there was no other statute, essentially it was a discretionary act of the agency, and you couldn't bring it, and in that sense the Court--
Chief Justice Rehnquist: Oh, now-- --Your position is that there's no jurisdiction under 252, and there's also no jurisdiction under 1331.
Is that right?
Mr. Miller: --That's correct.
Chief Justice Rehnquist: And is it because 252 by implication prohibits 1331 jurisdiction, or just that 1331 isn't broad enough to cover this?
Mr. Miller: It's that 252 represents a limited grant of jurisdiction on behalf of Congress, and that Congress only intended such a limited grant of jurisdiction, and that therefore to use a broader grant of jurisdiction such as 1331 would defy congressional intent.
Chief Justice Rehnquist: In other words, Congress intended Federal jurisdiction over review of approval agreements, but didn't intend Federal jurisdiction over anything else?
Mr. Miller: That's correct.
Justice Souter: What do you say to the provision that your brother quoted to the effect that there will be no modification of Federal statutory law unless it's express modification, which would preserve the full extent of 1331, I suppose?
Mr. Miller: It... but it also preserves the... how 1331 has been analyzed in the past, and how 1331 has been analyzed under Merrell Dow is that you look at the statute, and if the statute has a limited grant of authority, then that's congressional intent that that be the only authority, so 601 didn't change the analysis, it just says you use the same analysis, and in this case the analysis is, under Merrell Dow, there is a jurisdictional statute in the statute at issue, so no other statutes... so 1331, which is a broader grant of jurisdiction, should not be used.
Chief Justice Rehnquist: What about section 251 of the Telecommunications Act, which does seem to have a lot of standards for these agreements.
Wouldn't that make it a Federal question?
Mr. Miller: Well, but they're... for negotiated agreements they're not required to incorporate anything involving 251 and 252, so they've made the choice to not include those Federal standards by negotiating an agreement rather than having it arbitrated, so in that sense, no, it would not raise a Federal question.
Justice Ginsburg: We're told that the agreements that are negotiated are not very far distant from what the standards are under the... of the statute.
The thing is so set up that the parties will come down to pretty much what's in the statute.
Is that not so?
Mr. Miller: I don't know that it's so in any... in every instance.
In this instance, for a matter of fact, the initial contract at issue with MFS and Telenet, Verizon actually agreed to a reciprocal compensation rate that was higher than the commission's arbitrated rate.
Now, for what reason, I don't know.
Presumably they traded something else for that.
So it's not necessarily so that whatever's in the statute the parties agree to, and if the parties agree to that, then they've chosen to agree to that rather than go to the State commission and say, Federal law requires this, we don't want to agree to it, but we recognize that you have the authority to order us to do it.
Justice Scalia: So you say that what has been created is this weird system in which challenges to the interpretation or validity of negotiated agreements can't go to Federal court, but if it's a challenge to an arbitrated agreement, it does go to Federal court?
Mr. Miller: Well, we think it would not end up in Federal court for other reasons, but we... but--
Justice Scalia: What are the other reasons, because it makes some difference to me whether there's going to be this strange line between negotiated and--
Mr. Miller: --Well, if you're talking about 13... going into Federal court under 1331--
Justice Scalia: --Yes.
Mr. Miller: --our argument would be the private right of action argument, that 1331, you have to look at the four court factors and things like that, and that therefore those wouldn't end up under 1331 either, and also the same argument--
Justice Ginsburg: But then you're blending together two things--
Justice Scalia: --Right.
Justice Ginsburg: --that I think this Court's decisions keep separate.
One is 1331, general Federal question jurisdiction.
Justice Scalia: Right.
Justice Ginsburg: That you have to have first, and then do you have, would you survive a 12(b)(6) motion, do you have a claim for relief, and you treated that in your brief, and now again, as though they're the same question, and they're not.
Mr. Miller: --I don't believe, in answer to Justice Scalia's question, I was treating them the same.
He asked me what other issues would we raise to say that this arbitration case shouldn't be in this Court, and that was one of the issues we raised.
I believe that there are cases that essentially say that a cause of action is a matter, a matter of subject matter jurisdiction.
There are several circuit courts that have interpreted this Court's Merrell Dow case in that manner, but I don't think it's necessary for the Court to even reach this, because I think the cases can be upheld based on the Fourth Circuit analysis, and any one of the three alternatives raised.
Justice Scalia: I thought we wrestled with that issue in Steel Co.,--
Mr. Miller: And--
Justice Kennedy: --You're not going to drag us back into that again, are you?
Mr. Miller: --Do you want to know what the Fourth Circuit... how the Fourth Circuit distinguished your Steel Co. case?
Justice Ginsburg: Yes.
I defended in Steel Co., so I'd like to know that.
Unknown Speaker: [Laughter]
Mr. Miller: What the Fourth Circuit claimed you were doing in Steel Co. is that you were distinguishing between Article III subject matter jurisdiction, which had to be decided before you reached the merits, and statutory subject matter jurisdiction, which you didn't have to decide before you reached the merits under that hypothetical jurisdiction issue.
That's how the Fourth Circuit has interpreted Steel Co.--
So in this instance I believe the petitioners are wrong in their analysis that you have 1331 jurisdiction unless Congress specifically precludes 1331 jurisdiction.
The only cases that has occurred has been with regard to Federal agencies, as I mentioned earlier, and that was because to find that 1331 wasn't broad enough to encompass a Federal agency would mean that there would be absolutely no review, so I think that there is a distinction that is important between the two cases.
The final reason the Fourth Circuit found that the 1331 claim should be dismissed was the Rooker-Feldman doctrine.
Under that doctrine, it involves essentially a statutory interpretation element and a federalism element.
The statutory interpretation element is that 1257 grants original jurisdiction to this Court and this Court alone over State... I'm sorry.
1257 alone grants this Court appellate review of State court decisions, and that the Federal district courts only have review over original actions, original civil actions, and that by implication, therefore, Federal district courts have no review over State court actions.
Justice Ginsburg: Well, how does that fit in with City of Chicago, where a Federal district court did sit on those supplemental jurisdiction claims as a reviewer of a State administrative agency?
Mr. Miller: I think that's distinguishable because in the case you referred to the district court already had jurisdiction over Federal claims that were totally separate and apart from the on-record administrative review.
Essentially, the Federal claims could have been brought without actually reviewing the record and the order in the case.
It was because the Federal district court already had that jurisdiction over those claims that this Court found it could exercise its supplemental jurisdiction and also hear those claims that involved the on-the-record State court... actually, I think it was actually a local administrative agency in that case, but the on-the-record review.
So I think this is different in that Verizon raises no claims that are separate and apart from the on-the-record review and decisions of the Maryland Public Service Commission, so in this instance the Federal district court will be acting as an appellate court, particularly since I believe virtually every Federal district court that has considered the issue has said in telecommunications cases it's not a de novo review, it is an on-the-record review, so in this instance they will be performing an appellate action rather than an original civil action.
Justice Scalia: Could you... in your opinion, if there is... suppose it isn't a communications case, it's common, isn't it, if, say the California State Coastal Authority, a State agency, orders someone to do thus-and-so, they could say in Federal court, that order violates a Federal statute, all right.
Now, in your case, if there were plaintiff just like this one, and he went into a Federal court and said, your State court order violates a Federal statute... so in other words, suppose it were much more clear, are you saying there, there's no jurisdiction?
Mr. Miller: There, there would be Federal jurisdiction if the basis of that claim didn't require the appellate... the Federal district court, excuse me, to actually... to review the determinations of the Maryland Public Service Commission to reach the conclusion that their order violated a Federal law, essentially--
Justice Scalia: Well, there may often be, with the California State Coastal Commission somebody says, this is a taking of my property, or something simpler.
Now, it could be that you have to look at the underlying State order in order to deal with the Federal question.
Mr. Miller: --To a certain extent you would be looking at the Federal... the State order, but you would not be overturning the State order on the basis that the State commission found.
You would be saying, yes, you found this, but the problem is, what you found now implicates this, so--
Justice Souter: Well, but what if the Federal objection was raised at the administrative level, so that the administrator, the administrative body had said, no Federal problem.
In that case, I take it, your answer would be no, they can't go into Federal court.
Mr. Miller: --That would be correct.
They would have to go through the State court proceedings in that, and have it resolved in that manner.
Justice Breyer: May I ask you a procedural question?
I hate to do this, but it seemed to be in the case.
Your client's the commission.
Mr. Miller: That's correct.
Justice Breyer: Now, it's my understanding that the commission first raised an Eleventh Amendment problem.
Mr. Miller: That's correct.
Justice Breyer: And then it was dismissed from the case.
Mr. Miller: We were not dismissed from the case The whole case was dismissed.
Justice Breyer: The whole case... how did the 1331 come up, then?
Mr. Miller: Well--
Justice Breyer: It decided as to your client, you're out of it because of Eleventh Amendment.
As to the rest of them they were out of it because of 1331, or--
Mr. Miller: --No, Your Honor.
At the Federal district court level, essentially the court decided that we had Eleventh Amendment immunity and that we were indispensable parties and, as such, the entire case had to be dismissed.
The Federal district court also addressed the 1331 issue and found that it would not imply a private right of action, and that the... and that his Eleventh Amendment analysis probably would pertain to the 1331 claim as well.
That's all I have, unless there are any other questions.
Rebuttal of Mark L. Evans
Chief Justice Rehnquist: --Thank you, Ms. Miller.
Mr. Evans, you have 1 minute remaining.
Mr. Evans: I would just like to read two provisions, very short provisions from the contract that's being interpreted here.
The first says, reciprocal compensation is as described in the act.
The second says, as described in the act means, as described in or required by the act, meaning the '96 telecom act, and as from time to time interpreted in the duly authorized rules and regulations of the FCC or the State commission.
Now, if you look at the decision of the agency here, the State agency here, it is full of a discussion of what it means, what reciprocal compensation is required under the act.
That was the basis for the interpretation.
The effect of the interpretation was to say, even though the act doesn't require it, you have to provide it, because your agreement says you're going to provide it, and we... this statement says just the opposite.
Chief Justice Rehnquist: Thank you, Mr. Evans.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 00-1531, Verizon Maryland, Inc. versus Public Service Commission of Maryland and the companion case will be announced by Justice Scalia.
Argument of Justice Scalia
Mr. Scalia: Thees cases 00-1531 and 00-1711, United States versus Public Service Commission of Maryland come to us on writs of certiorari to the United States Court of Appeals for the Fourth Circuit.
The Telecommunications Act of 1996 requires that incumbent localexchange carriers, the local telephone companies, general for simplification but good enough, provide interconnection with their existing networks when the new entrant seeks access to the local telecommunications market.
The Act requires that the carriers’ established reciprocal compensation arrangements for transporting and terminating the calls of each other’s customers and that they submit these interconnection agreements to state utility commission for approval.
Petitioner Verizon Maryland, the incumbent localexchange carrier in the State of Maryland negotiated an interconnection agreement with a competitor later acquired by respondent, MCI WorldCom, and the Maryland Public Service Commission approved that agreement.
Soon afterwards however, Verizon informed WorldCom that it would no longer pay reciprocal compensation for calls made by Verizon’s customers to the local access numbers of internet service providers.
Verizon took the position that ISP traffic, internet service provide traffic, was not local traffic subject to the reciprocal compensation agreement.
WorldCom filed a complaint with the Commission and the Commission ordered Verizon to pay reciprocal compensation.
Verizon then filed an action in Federal District Court citing as the basis of jurisdiction Section 252(e)(6) of the 1996 Act as well as 28 U.S.C. Section 1331, and naming as defendants the Commission, its individual members in their official capacities, WorldCom, and other competing carriers.
In its complaint, Verizon alleged that the Commission’s determination that Verizon must pay reciprocal compensation for ISP traffic violated the 1996 Act and a Federal Communications Commission Ruling.
The complaint sought a declaratory judgment that the order was unlawful, the order of the Maryland Commission, and an injunction prohibiting enforcement of the order.
The District Court dismissed the action and the Fourth Circuit affirmed holding that the commission had not waived its Eleventh Amendment immunity from suit that the Doctrine of Ex parte young does not permit suit against the individual commissioner’s in their official capacities and that neither 252(e)(6) nor Section 1331 provides a basis for jurisdiction over Verizon’s claims against the private defendants.
Verizon and the United States which had intervened in the suit sought certiorari which we granted, we now vacate and remand.
Section 1331 provides jurisdiction over Verizon’s claim that the Commission’s order is preempted by federal law.
Federal Courts have jurisdiction under Section 1331 where the petitioner’s right to recover will be sustained if federal law has given one construction and will be defeated if it is given another unless the claim appears to be insubstantial and frivolous.
Here, resolution of Verizon’s claim turns on whether the Act or an FCC ruling precludes the commission from ordering payment of reciprocal compensation and there is no suggestion that this claim is frivolous.
Even if Section 252(e)(6) of the Act, which of the 1996 Act, which provides for federal review of an agreement when a State Commission makes a determination under Section 252.
Even if that provision does not confer jurisdiction over Verizon’s claim, a question we need not decide in this case, that Section at least does not divest the District Courts of their authority under Section 1331.
Section 252(e)(6) does not establish any distinctive review mechanism for the Commission actions that it covers and it does not distinctively limit the substance to relief available, nor do any of the 1996 Acts other provisions events any intent to preclude federal review of a Commission determination under plain old 28 U.S.C. Section 1331.
We need not decide whether the commission waived its immunity from suit by voluntarily participating in the regulatory regime established by the 1996 Act because in our view the Doctrine of Ex parte young permits Verizon suit to go forward against the State Commissioners in their official capacities.
In determining whether the Ex parte Young Doctrine voids and Eleventh Amendment bar the suit, a court need only conduct a straightforward inquiry into whether the complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective.
Here, Verizon’s prayer for injunctive relief that State official be restrained from enforcing an order in contravention of federal law, clearly satisfies our straightforward inquiry.
As to Verizon’s prayer for declaratory relief, even though Verizon’s seeks a declaration of the past as well as the future in effectiveness of the Commission’s action so the private party’s past financial liability may be affected.
No past liability of the State or of any of its Commissioners is an issue.
The Fourth Circuit suggested that Verizon’s claims could not be brought under Ex parte Young because the Commission’s order was probably not inconsistent with federal law at all, but the inquiry into whether suit lies under Ex parte Young does not include an analysis of the merits of the claim.
Nor finally is there any merits of the Commission’s argument that Section 252(e)(6) constitutes a detailed and exclusive remedial steam like the one held in Seminole Tribe of Florida to implicitly exclude Ex parte Young actions.
The Court’s decision is unanimous except that Justice O’Connor took no part in the consideration or decision of these cases.
Justice Kennedy has filed a concurring opinion and Justice Souter has filed a concurring opinion in which Justice Breyer and Justice Ginsburg join.